As filed with the Securities and Exchange Commission on July 5, 1996
                                                   REGISTRATION NO. 333-04827
     
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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                                AMENDMENT NO. 1
                                      TO        
                                    FORM S-4

                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

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                           CONTINENTAL AIRLINES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 4512 74-2099724 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
2929 ALLEN PARKWAY, SUITE 2010 HOUSTON, TEXAS 77019 (713) 834-2950 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------------ JEFFERY A. SMISEK, ESQ. SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY CONTINENTAL AIRLINES, INC. 2929 ALLEN PARKWAY, SUITE 2010 HOUSTON, TEXAS 77019 (713) 834-2950 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES OF CORRESPONDENCE TO: MICHAEL L. RYAN, ESQ. CLEARY, GOTTLIEB, STEEN & HAMILTON ONE LIBERTY PLAZA NEW YORK, NEW YORK 10006 ------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [_] ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ Each Certificate represents a fractional undivided interest in one of the four Continental Airlines 1996 Pass Through Trusts (the "Class A Trust", the "Class B Trust", the "Class C Trust" and the "Class D Trust" and, collectively, the "Trusts") formed pursuant to four separate pass through trust agreements (the "Pass Through Trust Agreements") between Continental and Wilmington Trust Company (the "Trustee"), as trustee under each Trust. Pursuant to an Intercreditor Agreement (as defined herein), (i) the Certificates of the Class B Trust are subordinated in right of payment to the Certificates of the Class A Trust, (ii) the Certificates of the Class C Trust are subordinated in right of payment to the Certificates of the Class B Trust and (iii) the Certificates of the Class D Trust are subordinated in right of payment to the Certificates of the Class C Trust. Payments of interest on the Certificates issued by each Trust (other than the Class D Trust) are supported by separate liquidity facilities for the benefit of the holders of such Certificates, each such facility provided initially by Credit Suisse, acting through its New York branch, in an amount sufficient to pay interest thereon at the applicable interest rate for such Trust on six successive quarterly distribution dates. The Certificates issued by the Class D Trust were acquired by the Owner Participant (as defined herein) or its affiliate. The property of the Trusts includes, among other things, equipment notes (the "Equipment Notes") issued on a nonrecourse basis by the trustees of separate owner trusts (each, an "Owner Trustee") in connection with 18 separate leveraged lease transactions that refinanced the indebtedness of such Owner Trustees, originally incurred to finance the purchase of nine Boeing 737-524 aircraft and nine Boeing 757-224 aircraft (collectively, the "Aircraft") which have been leased to Continental. The Equipment Notes in respect of each Aircraft were issued in four series. Each Trust has purchased one series of the Equipment Notes issued with respect to each of the Aircraft such that all of the Equipment Notes held in each Trust will have an interest rate corresponding to the interest rate applicable to the Certificates issued by such Trust. The maturity dates of the Equipment Notes acquired by each Trust will occur on or before the final expected distribution date applicable to the Certificates issued by such Trust. The Equipment Notes issued with respect to each Aircraft are secured by a security interest in such Aircraft and an assignment of the lease relating thereto, including the right to receive rentals payable with respect to such Aircraft by Continental. Although neither the Certificates nor the Equipment Notes are direct obligations of, or guaranteed by, Continental, the amounts unconditionally payable by Continental for lease of the Aircraft will be sufficient to pay in full when due all amounts required to be paid on the Equipment Notes held in the Trusts. All of the Equipment Notes held in each Trust will accrue interest at the applicable rate per annum for such Trust, payable on January 15, April 15, July 15 and October 15 of each year commencing on April 15, 1996. Such interest will be passed through to Certificateholders (as defined herein) of such Trust on each such date, in each case subject to the Intercreditor Agreement. See "Description of New Certificates--General" and "--Payments and Distributions." The New Certificates will accrue interest at the applicable per annum rate for such Trust, from the last date on which interest was paid on the Old Certificates surrendered in exchange therefor. See "The Exchange Offer-- Interest on New Certificates." Scheduled principal payments on the Equipment Notes held in each Trust will be passed through to the Certificateholders of each such Trust on January 15, April 15, July 15 and October 15 in certain years, commencing on January 15, 1997, in the case of each of the Class A Trust, the Class B Trust and the Class C Trust and January 15, 1999, in the case of the Class D Trust, in accordance with the principal repayment schedule set forth below under "Description of New Certificates--Pool Factors" and "Description of the Equipment Notes--Principal and Interest Payments," in each case subject to the Intercreditor Agreement. Under each Pass Through Trust Agreement, an Event of Default will occur if the Trustee fails to pay within 10 business days of the due date thereof: (i) the outstanding Pool Balance (as defined herein) of the applicable Class of Certificates on the Final Maturity Date (as defined herein) for such Class or (ii) interest due on such Certificates on any distribution date (unless the Subordination Agent (as defined herein) shall have made an Interest Drawing (as defined herein) in an amount sufficient to pay such interest and shall have distributed such amount to the Certificateholders entitled thereto). 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 New Certificates 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 New Certificates directly from the Trustee 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 New Certificates 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 New Certificates and have no arrangement with any person to participate in a distribution of such New Certificates. 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 Old Certificates in exchange for New Certificates, 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 Old Certificates acquired directly from the Company for its own account; (ii) any New Certificates 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 New Certificates and has no arrangement or understanding to participate in a distribution of the New Certificates. 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 broker-dealer that receives New Certificates 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 New Certificates. 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. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Certificates received in exchange for Old Certificates where such Old Certificates were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. Pursuant to the Registration Rights Agreement, the Company has agreed that, starting on the Expiration Date and ending on the close of business 180 days after the Expiration Date, it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale. See "Plan of Distribution." The Company will not receive any proceeds from this offering. 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 OLD CERTIFICATES 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 Old Certificates or New Certificates. If such a market were to develop, the New Certificates could trade at prices that may be higher or lower than their principal amount. Neither Continental nor any Trust has applied or intends to apply for listing of the New Certificates on any national securities exchange or for quotation of the New Certificates through the National Association of Securities Dealers Automated Quotation System. One or more of CS First Boston Corporation, Morgan Stanley & Co. Incorporated, Lehman Brothers, Merrill Lynch & Co. and FIELDSTONE FPCG SERVICES, L.P. (the "Initial Purchasers") have previously made a market in the Old Certificates and Continental has been advised by the Initial Purchasers that one or more of them intends to make a market in the New Certificates, as permitted by applicable laws and regulations, after consummation of the Exchange Offer. None of the Initial Purchasers is obligated, however, to make a market in the Old Certificates or the New Certificates and any such market making activity may be discontinued at any time without notice at the sole discretion of each Initial Purchaser. There can be no assurance as to the liquidity of the public market for the New Certificates or that any active public market for the New Certificates will develop or continue. If an active public market does not develop or continue, the market prices and liquidity of the New Certificates may be adversely affected. See "Risk Factors-- Absence of a Public Market for the New Certificates." 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 New Certificates 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. REPORTS TO PASS THROUGH CERTIFICATEHOLDERS Wilmington Trust Company, in its capacity as Pass Through Trustee under each of the Trusts, will provide the certificateholders of each Trust certain periodic reports concerning the distributions made from such Trust. See "Description of New Certificates -- Reports to Certificateholders." 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 DELIVER OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1996.
CONTINENTAL AIRLINES, INC. CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN FORM S-4 ITEM ---- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus.................... Facing Page of the Registration Statement; Cross Reference Sheet; Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus....................... Available Information; Outside Back Cover Page of Prospectus 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information............ Prospectus Summary; Risk Factors; The Company; Selected Financial Data 4. Terms of the Transaction......... Prospectus Summary; Risk Factors; The Exchange Offer; Description of New Certificates; Plan of Distribution; Certain Federal Income Tax Considerations 5. Pro Forma Financial Information...................... Not Applicable 6. Material Contracts With the Company Being Acquired........... Not Applicable 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters............... Not Applicable 8. Interests of Named Experts and Counsel...................... Not Applicable 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities....... Not Applicable 10. Information with Respect to S-3 Registrants............... Prospectus Summary; The Company; Recent Developments 11. Incorporation of Certain Information by Reference......... Available Information; Incorporation of Certain Documents by Reference 12. Information with Respect to S-2 or S-3 Registrants........ Not Applicable 13. Incorporation of Certain Information by Reference......... Not Applicable 14. Information with Respect to Registrants Other Than S-3 or S-2 Registrants........... Not Applicable 15. Information with Respect to S-3 Companies................. Not Applicable
16. Information with Respect or S-2 to S-3 Companies.......... Not Applicable 17. Information with Respect to Companies Other Than S-3 or S-2 Companies............. Not Applicable 18. Information if Proxies, Consents or Authorizations Are to be Solicited.............. Not Applicable 19. Information if Proxies, Consents or Authorizations Are Not to be Solicited or in an Exchange Offer............. Prospectus Summary; The Exchange Offer; Description of New Certificates
INTRODUCTORY NOTE This Registration Statement contains three forms of prospectus: (i) a prospectus relating to the offer to exchange Pass Through Certificates, Series 1996, (ii) a prospectus relating to the Offering of Pass Through Certificates and (iii) a prospectus relating to the Offering of Debt Securities. The Prospectuses described in (ii) and (iii) were previously included in Registration Statement (File No. 33-79688). SUBJECT TO COMPLETION--DATED JULY 5, 1996 PROSPECTUS Continental Airlines, Inc. Offer to Exchange Pass Through Certificates, Series 1996, which have been registered under the Securities Act of 1933, as amended, for any and all outstanding Pass Through Certificates, Series 1996 The Exchange Offer will expire at 5:00 p.m., New York City time, on [_____________], 1996, unless extended. Pass Through Certificates, Series 1996 (the "New Certificates"), 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, are hereby offered, 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"), in exchange for an equal principal amount of outstanding Pass Through Certificates, Series 1996 (the "Old Certificates"), of which $489,267,000 aggregate principal amount is outstanding as of the date hereof. The New Certificates and the Old Certificates are collectively referred to herein as the "Certificates." Any and all Old Certificates 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 [_________], 1996 (30 calendar days following the commencement of the Exchange Offer) unless the Exchange Offer is extended (such date, including as extended, the "Expiration Date") will be accepted for exchange. Tenders of Old Certificates 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 Old Certificates 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). Old Certificates may be tendered only in integral multiples of $1,000. See "The Exchange Offer." The New Certificates will be entitled to the benefits of the same Pass- Through Trust Agreements (as defined herein) which govern the Old Certificates and will govern the New Certificates. The form and terms of the New Certificates are the same in all material respects as the form and terms of the Old Certificates, except that the New Certificates do not contain terms with respect to the interest rate step-up provisions and the New Certificates have been registered under the Securities Act and therefore will not bear legends restricting the transfer thereof. See "The Exchange Offer" and "Description of New Certificates." (continued on next page) -------------------- FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 28 OF THIS PROSPECTUS. --------------------
Final Expected Pass Through Certificates Principal Amount Interest Rate Distribution Date ------------------------- ---------------- ------------- ----------------- 1996-A................... $269,518,000 6.94% October 15, 2013 1996-B................... $ 94,332,000 7.82% October 15, 2013 1996-C................... $ 74,117,000 9.50% October 15, 2013 1996-D................... $ 51,300,000 12.48% October 15, 2013 ------------ TOTAL $489,267,000 --------------------
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 , 1996 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ + INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + + REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + + SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + + OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + + BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + + THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + + SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + + UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS + + OF ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 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 April 30, 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 190 airports worldwide. The Company operates its route system primarily through domestic hubs at Newark, Houston Intercontinental and Cleveland, and a Pacific hub on Guam and Saipan. Each of Continental's three U.S. hubs is located in a large business and population center, contributing to a high volume of "origin and destination" traffic. The Guam/Saipan hub is strategically located to provide service from Japanese and other Asian cities to popular resort destinations in the western Pacific. Continental is the primary carrier at each of these hubs, accounting for 52%, 79%, 53% and 72% of all daily jet departures, respectively. Continental directly serves 131 U.S. cities, with additional cities (principally in the western and southwestern United States) connected to Continental's route system under agreements with America West Airlines, Inc. ("America West"). Internationally, Continental flies to 59 destinations and offers additional connecting service through alliances with foreign carriers. Continental operates 66 weekly departures to six European cities and markets service to eight 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, including service between Newark and Bogota, Colombia, with service on to Quito, Ecuador which began 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 Old Certificates were issued on January 31, 1996 to the Initial Purchasers and the Owner Participant. The Initial Purchasers placed the Old Certificates with institutional investors. In connection therewith, the Company, the Trustee, as trustee under each of the Trusts, and the Initial Purchasers entered into the Registration Rights Agreement providing, among other things, for the Exchange Offer. See "The Exchange Offer." The Exchange Offer New Certificates are being offered in exchange for an equal principal amount of Old Certificates. As of the date hereof, $489,267,000 aggregate principal amount of Old Certificates are outstanding. Old Certificates may be tendered only in integral 2 multiples of $1000. Resale of New Certificates 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 New Certificates 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 New Certificates directly from the Trustee 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 New Certificates 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 New Certificates and have no arrangement with any person to participate in a distribution of such New Certificates. 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 Old Certificates in exchange for New Certificates, 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 Old Certificates acquired directly from the Company for its own account; (ii) any New Certificates to be received by it were 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 New Certificates and has no arrangement or understanding to participate in a distribution of the New Certificates. 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 New Certificates for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Certificates. 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. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Certificates received in exchange for Old Certificates where such Old Certificates were acquired by such Participating Broker-Dealer as a result of market-making activities 3 or other trading activities. The Company has agreed that, starting on the Expiration Date and ending on the close of business 180 days after the Expiration Date, it will make this Prospectus available to any Participating Broker-Dealer 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 New Certificates prior to offering or selling such New Certificates. The Company has agreed, pursuant to the Registration Rights Agreement and subject to certain specified limitations therein, to register or qualify the New Certificates for offer or sale under the securities or "blue sky" laws of such jurisdictions as may be necessary to permit the holders of New Certificates to trade the New Certificates without any restrictions or limitations under the securities laws of the several states of the United States. Consequences of Failure to Exchange Old Certificates Upon consummation of the Exchange Offer, subject to certain exceptions, holders of Old Certificates who do not exchange their Old Certificates for New Certificates in the Exchange Offer will no longer be entitled to registration rights and will not be able to offer or sell their Old Certificates, unless such Old Certificates 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-- 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 , 1996 (30 calendar 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 the New Certificates The New Certificates will accrue interest at the applicable per annum for such Trust set forth on the cover page of this Prospectus, from the last date on which interest was paid on the Old Certificates surrendered in exchange therefor. Interest on the New Certificates is payable on January 15, April 15, July 15 and October 15 of each year commencing April 15, 1996, subject to the terms of the Intercreditor Agreement. Conditions to the Exchange Offer The Exchange Offer is not conditioned upon any minimum principal amount of Old Certificates being tendered for exchange. However, the Exchange Offer is subject to certain customary conditions, which may be waived by the Company. 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 Old 4 Certificates Each holder of Old Certificates 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 Old Certificates to be exchanged and any other required documentation to the Exchange Agent (as defined herein) at the address set forth herein or effect a tender of Old Certificates pursuant to the procedures for book-entry transfer as provided for herein. See "The Exchange Offer--Procedures for Tendering" and "--Book Entry Transfer." Guaranteed Delivery Procedures Holders of Old Certificates who wish to tender their Old Certificates and whose Old Certificates are not immediately available or who cannot deliver their Old Certificates 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 Old Certificates according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures." Withdrawal Rights Tenders of Old Certificates 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 Old Certificates, 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 Old Certificates and Delivery of New Certificates Subject to certain conditions, any and all Old Certificates which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date will be accepted for exchange. The New Certificates 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 New Certificates for Old Certificates 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 Wilmington Trust Company 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." 5 Use of Proceeds There will be no cash proceeds payable to Continental from the issuance of the New Certificates pursuant to the Exchange Offer. The proceeds from the sale of the Old Class A, B and C Certificates were used to purchase the Series A, B and C Equipment Notes issued by the related Owner Trustees in connection with the refinancing of the indebtedness incurred by the Owner Trustees to finance the purchase of each Aircraft. Such Equipment Notes, together with the Series D Equipment Notes contributed to the Class D Trust by the Owner Participant, represent in the aggregate the entire debt portion currently outstanding of the leveraged lease transactions relating to all of the Aircraft. Continental did not receive any of the proceeds from the original sale of the Old Certificates. See "Use of Proceeds." SUMMARY OF TERMS OF NEW CERTIFICATES The Exchange Offer relates to the exchange of up to $489,267,000 aggregate principal amount of Old Certificates for up to an equal aggregate principal amount of New Certificates. The New Certificates will be entitled to the benefits of the same Indenture which governs the Old Certificates and will govern the New Certificates. The form and terms of the New Certificates are the same in all material respects as the form and terms of the Old Certificates, except that the New Certificates do not contain terms with respect to the interest rate step-up provisions and the New Certificates have been registered under the Securities Act and therefore will not bear legends restricting the transfer thereof. See "Description of New Certificates." For additional information concerning the New Certificates, see "Description of New Certificates." Trusts Each of the Continental Airlines 1996-A Pass Through Trust, the Continental Airlines 1996-B Pass Through Trust, the Continental Airlines 1996-C Pass Through Trust and the Continental Airlines 1996-D Pass Through Trust was formed pursuant to one of the four separate Pass Through Trust Agreements entered into between the Company and Wilmington Trust Company, as trustee under each Trust. Each Trust is a separate entity. Certificates Offered Pass Through Certificates issued by each Trust, representing fractional undivided interests in such Trust. The Certificates issued by the Class A Trust, the Class B Trust, the Class C Trust and the Class D Trust are referred to herein as "Class A Certificates", "Class B Certificates", "Class C Certificates:, and "Class D Certificates, respectively. Subordination Agent Wilmington Trust Company, as subordination agent under the Intercreditor Agreement (the "Subordination Agent"). Liquidity Provider Initially, Credit Suisse, a bank organized under the laws of Switzerland, acting through its New York branch ("Credit Suisse"). Credit Suisse has provided three separate liquidity facilities for the benefit of the holders of Class A Certificates, Class B Certificates and Class C Certificates, respectively. 6 Trust Property The property of each Trust (the "Trust Property") consists of (i) Equipment Notes issued on a nonrecourse basis by each of the Owner Trustees in 18 separate leveraged lease transactions that refinanced the indebtedness of the related Owner Trustee, originally incurred to finance the purchase of each of nine Boeing 737-524 Aircraft and nine Boeing 757-224 Aircraft leased by the related Owner Trustee to Continental, (ii) the rights of such Trust under the Intercreditor Agreement (including all monies receivable in respect of such rights), (iii) except for the Class D Trust, all monies receivable under the Liquidity Facility for such Trust and (iv) funds from time to time deposited with the Trustee in accounts relating to such Trust. The Equipment Notes with respect to each Aircraft were issued in four series under an Indenture (each, an "Indenture") between the applicable Owner Trustee and the indenture trustee thereunder (the "Loan Trustee"). Each Trust has acquired, pursuant to certain Refunding Agreements (each, a "Refunding Agreement"), those Equipment Notes having an interest rate equal to the interest rate applicable to the Certificates to be issued by such Trust. The maturity dates of the Equipment Notes acquired by each Trust will occur on or before the final expected Regular Distribution Date applicable to the Certificates to be issued by such Trust. The aggregate original principal amount of the Equipment Notes held in each Trust is the same as the aggregate original face amount of the Certificates issued by such Trust. 7 SUMMARY OF TERMS OF CERTIFICATES
CLASS A CLASS B CLASS C CLASS D CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES ------------ ------------ ------------ ------------ Aggregate Face Amount $269,518,000 $94,332,000 $74,117,000 $51,300,000 Initial Loan to Aircraft Value (cumulative)(1) 39.9% 53.9% 64.8% 72.4% Expected Principal Distribution Window (in years) 1.0-17.7 1.0-17.7 1.0-17.7 3.0-17.7 Initial Average Life (in years) 10.0 10.0 10.0 11.4 Regular Distribution Dates January 15, April 15, January 15, April 15 January 15, April 15 January 15, April 15 July 15 & July 15 & July 15 & July 15 & October 15 October 15 October 15 October 15 Final Expected Regular Distribution Date October 15, 2013 October 15, 2013 October 15, 2013 October 15, 2013 Final Maturity Date April 15, 2015 April 15, 2015 April 15, 2015 April 15, 2015 Minimum Denomination $100,000 $100,000 $100,000 $100,000 (S) 1110 Protection (2) Yes Yes Yes Yes Liquidity Facility Coverage 6 quarterly 6 quarterly 6 quarterly None interest payments interest payments interest payments Initial Liquidity Facility Amount (3) $30,078,208.80 $11,772,633.60 $11,117,550.00 None
- ------------------- (1) Assumes an aggregate appraised Aircraft Value of $675,428,333. (2) The benefits of Section 1110 of the Bankruptcy Code are available to the Loan Trustees. (3) For each Class of Certificates (other than the Class D Certificates), the initial amount of the Liquidity Facility covers the first six quarterly interest payments (without regard to any future payments of principal on such Certificates). In aggregate for Class A, B and C Certificates, the initial amount of Liquidity Facilities is $52,968,392.40. 8 EQUIPMENT NOTES AND THE AIRCRAFT Set forth below is certain information about the Equipment Notes held in the Trusts and the Aircraft securing such Equipment Notes:
OUTSTANDING AIRCRAFT PRINCIPAL AMOUNT OF REGISTRATION AIRCRAFT MATURITY EQUIPMENT APPRAISED NUMBER AIRCRAFT TYPE DELIVERY DATE DATE NOTES VALUE - ----------- ------------- ------------- -------- ------------------ --------- N17104 Boeing 757-224 July 1994 October 2013 $ 34,831,833 $ 48,690,000 N17105 Boeing 757-224 August 1994 October 2013 34,950,567 48,839,333 N14106 Boeing 757-224 September 1994 October 2013 35,069,083 48,988,333 N14107 Boeing 757-224 October 1994 October 2013 35,185,433 49,134,000 N21108 Boeing 757-224 November 1994 October 2013 35,303,950 49,283,000 N12109 Boeing 757-224 December 1994 October 2013 35,422,683 49,432,333 N13110 Boeing 757-224 December 1994 October 2013 35,422,683 49,432,333 N18112 Boeing 757-224 February 1995 October 2013 35,670,768 49,730,668 N13113 Boeing 757-224 April 1995 October 2013 35,915,850 50,025,333 N17620 Boeing 737-524 February 1995 October 2012 18,910,750 25,555,000 N19623 Boeing 737-524 January 1995 October 2012 18,875,000 25,441,000 N13624 Boeing 737-524 February 1995 October 2012 18,910,750 25,555,000 N46625 Boeing 737-524 January 1995 October 2012 18,875,000 25,441,000 N32626 Boeing 737-524 April 1995 April 2013 19,058,950 25,783,000 N17627 Boeing 737-524 April 1995 April 2013 19,058,950 25,783,000 N62631 Boeing 737-524 June 1995 July 2013 19,207,150 26,011,000 N16632 Boeing 737-524 July 1995 July 2013 19,281,250 26,125,000 N24633 Boeing 737-524 August 1995 July 2013 19,316,350 26,179,000 ------------ ------------ $ 489,267,000 $ 675,428,333
- ---------------- The appraised value of each Aircraft set forth above is based upon the lesser of the average or median fair market value of such Aircraft as appraised by three independent appraisal and consulting firms: Aircraft Information Services, Inc. ("AISI"), BK Associates, Inc. ("BK") and Morten Beyer and Associates, Inc. ("MBA") (collectively, the "Appraisers") as of January 3, 1996. See "Risk Factors--Appraisals and Realizable Value of Aircraft" and "Description of the Aircraft and the Appraisals". 9 LOAN TO AIRCRAFT VALUE RATIOS The following table sets forth loan to Aircraft value ratios ("LTVs") for each Class of Certificates as of the Regular Distribution Dates specified therein. The LTVs for each Class of Certificates were obtained for each such Regular Distribution Date by dividing (i) the expected Pool Balance of such Class of Certificates together in each case with the expected Pool Balance of all other Classes of Certificates senior in right of payment to such Class of Certificates under the Intercreditor Agreement determined immediately after giving effect to the distributions expected to be made on such Regular Distribution Date, by (ii) the assumed value of all of the Aircraft (the "Assumed Aggregate Aircraft Value") on such Regular Distribution Date based on the assumptions set forth below. The table is based on the assumption that the value of each Aircraft included in the Assumed Aggregate Aircraft Value opposite January 1996 depreciates by 2% per year until the fifteenth year after the year of delivery of such Aircraft and 4% per year thereafter. Other rates or methods of depreciation would result in materially different LTVs and no assurance can be given (i) that the depreciation rates and method assumed for the purpose of the table are the ones most likely to occur or (ii) as to the actual future value of any Aircraft. Although the table is compiled on an aggregate basis, it should be noted that, since the Equipment Notes are not cross-collateralized with respect to the Aircraft, the excess proceeds realized from the disposition of any particular Aircraft would not be available to offset shortfalls on the Equipment Notes relating to any other Aircraft. Therefore, upon the occurrence of an Indenture Default, even if the Aircraft as a group could be sold for more than the total amounts payable in respect of all of the outstanding Equipment Notes, if certain Aircraft were sold for less than the total amount payable in respect of the related Equipment Notes, there would not be sufficient proceeds to pay all Classes of Certificates in full. See "Description of the Equipment Notes-- Security" for additional information regarding LTVs for the Equipment Notes issued in respect of each Aircraft which may be more relevant in a default situation than the aggregate values shown in the following table. Thus, the table should not be considered a forecast or prediction of expected or likely LTVs but simply a mathematical calculation based on one set of assumptions.
Assumed Class A Class B Class C Class D Regular Aggregate Certificates Class A Certificates Class B Certificates Class C Certificates Class D Distribution Aircraft Pool Certificates Pool Certificates Pool Certificates Pool Certificates Date Value (1) Balance LTV Balance LTV Balance LTV Balance LTV ---- --------- ------- --- ------- --- ------- --- ------- --- January 1996 $675,428,333 $269,518,000 39.90% $94,332,000 53.87% $74,117,000 64.84% $51,300,000 72.44% January 1997 661,919,767 264,233,332 39.92 92,482,354 53.89 72,663,725 64.87 51,300,000 72.62 January 1998 648,411,200 259,032,772 39.95 90,662,145 53.93 71,233,578 64.92 51,300,000 72.83 January 1999 634,902,633 250,794,034 39.50 87,778,554 53.33 68,967,944 64.19 47,793,051 71.72 January 2000 621,394,067 239,121,593 38.48 83,693,163 51.95 65,758,043 62.53 46,536,115 70.02 January 2001 607,885,500 225,745,475 37.14 79,011,491 50.13 62,079,627 60.35 46,536,115 68.00 January 2002 594,376,933 206,221,031 34.70 72,177,883 46.84 56,710,436 56.38 46,536,115 64.21 January 2003 580,868,367 185,903,625 32.00 65,066,737 43.21 51,123,181 52.01 46,536,115 60.02 January 2004 567,359,800 169,515,666 29.88 59,330,915 40.34 46,616,514 48.55 46,536,115 56.75 January 2005 553,851,233 152,042,236 27.45 53,215,176 37.06 41,811,345 44.61 45,865,832 52.89 January 2006 540,342,667 135,415,490 25.06 47,395,782 33.83 37,239,014 40.72 35,083,602 47.22 January 2007 526,834,100 118,271,350 22.45 41,395,298 30.31 32,524,401 36.48 22,943,184 40.84 January 2008 513,325,533 91,294,275 17.78 31,953,260 24.01 25,105,747 28.90 17,160,335 32.24 January 2009 499,816,967 69,099,185 13.82 24,184,899 18.66 19,002,151 22.47 13,255,258 25.12 January 2010 479,432,413 56,341,836 11.75 19,719,786 15.86 15,493,909 19.10 11,198,303 21.43 January 2011 452,415,280 39,790,496 8.80 13,926,766 11.87 10,942,324 14.29 9,210,679 16.33 January 2012 426,420,347 20,863,519 4.89 7,302,266 6.61 5,737,445 7.95 7,471,052 9.70 January 2013 337,185,813 2,189,921 0.65 766,473 0.88 602,228 1.06 3,284,825 2.03
- ------------------ (1) The Assumed Aggregate Aircraft Value set forth opposite January 1996 (but not the Assumed Aggregate Aircraft Values for subsequent periods) was determined based upon the lesser of the average or median fair market value of all Aircraft as appraised by the Appraisers as of January 1996 (see "Description of the Aircraft and the Appraisals"). No assuance can be given that such value represents the realizable value of any Aircraft. See "Risk Factors--Appraisals and Realizable Value of Aircraft" and "Description of the Aircraft and the Appraisals". 10 CASH FLOW STRUCTURE Set forth below is a diagram illustrating the structure for the offering of the Certificates and certain cash flows. [Chart appears here] * Each Aircraft is subject to a separate Lease and the related Indenture. 11 Certificates; Denominations The new Certificates of each Trust will be issued in a minimum denomination of $1000 and in integral multiples thereof. See "Description of New Certificates-- General". Regular Distribution Dates January 15, April 15, July 15 and October 15, commencing April 15, 1996. Special Distribution Dates Any Business Day on which Special Payment is to be distributed. Record Dates The fifteenth day preceding a Regular Distribution Date or a Special Distribution Date. Distributions All payments of principal, premium (if any) and interest received by the Trustee on the Equipment Notes held in each Trust will be distributed by the Trustee to the holders of the Certificates (the "Certificateholders") of such Trust on the Regular Distribution Dates referred to above, subject to the provisions of the Intercreditor Agreement. Payments on the Equipment Notes held in each Trust are scheduled to be received in specified amounts by the Trustee of such Trust on January 15, April 15, July 15 and October 15, commencing on April 15, 1996, and to be distributed to the Certificateholders of such Trust on the corresponding Regular Distribution Date, subject to the provisions of the Intercreditor Agreement. Payments of principal, premium (if any) and interest resulting from the early redemption or purchase (if any) of the Equipment Notes held in any Trust will be distributed on a Special Distribution Date after not less than 20 days' notice from the Trustee to the Certificateholders of such Trust, subject to the provisions of the Intercreditor Agreement. For a discussion of distributions upon an Indenture Default, see "Description of New Certificates-- Indenture Defaults and Certain Rights Upon an Indenture Default". Events of Default Events of Default under each Pass Through Trust Agreement (each, a "PTC Event of Default") are the failure to pay within 10 Business Days of the due date thereof: (i) the outstanding Pool Balance of the applicable Class of Certificates on the Final Maturity Date for such Class or (ii) interest due on such Certificates on any distribution date (unless in the case of the Class A, B or C Certificates the Subordination Agent shall have made an Interest Drawing with respect thereto in an amount sufficient to pay such interest and shall have distributed such amount to the Certificateholders entitled thereto). The Final Maturity Dates for each of the Class A, B, C and D Certificates is April 15, 2015. Any failure to make expected principal distributions on any Class of Certificates on any Regular Distribution Date (other than the Final Maturity Date) will not constitute a PTC Event of Default with respect to such Certificates. Purchase Rights of Certificateholders Upon the occurrence and during the continuation of a Triggering Event (as defined below), (i) the Class B Certificateholders shall 12 have the right to purchase all, but not less than all, of the Class A Certificates, (ii) the Class C Certificateholders shall have the right to purchase all, but not less than all, of the Class A Certificates and the Class B Certificates and (iii) the Class D Certificateholders shall have the right to purchase all, but not less than all, of the Class A Certificates, the Class B Certificates and the Class C Certificates, in each case at a purchase price equal to the Pool Balance of the relevant Class or Classes of Certificates plus accrued and unpaid interest thereon to the date of purchase without premium but including any other amounts due to the Certificateholders of such Class or Classes. "Triggering Event" means (x) the occurrence of an Indenture Default under all Indentures resulting in a PTC Event of Default with respect to the most senior Class of Certificates then outstanding, (y) the acceleration of all of the outstanding Equipment Notes or (z) certain bankruptcy or insolvency events involving Continental. Equipment Notes (a) Interest The Equipment Notes held in each Trust accrue interest at the applicable rate per annum for such Trust, payable on January 15, April 15, July 15 and October 15 of each year commencing on April 15, 1996, and such interest payments will be passed through to Certificateholders of such Trust on each such date until the final distribution date for such Certificates, in each case, subject to the Intercreditor Agreement. Interest is calculated on the basis of a 360-day year consisting of twelve 30-day months. See "Description of New Certificates-- General" and "--Payments and Distributions". The interest rates for the Equipment Notes are subject to increases under certain circumstances described in "The Exchange Offer--Terms of the Exchange Offer" to the same extent as the interest rates for the Old Certificates. The New Certificates do not contain terms with respect to interest rate step-up provisions of the Old Certificates. (b) Principal Scheduled principal payments on the Equipment Notes held in each Trust will be passed through to the Certificateholders of each such Trust on January 15, April 15, July 15 and October 15 in certain years, commencing on January 15, 1997, in the case of each of the Class A Trust, the Class B Trust and the Class C Trust and January 15, 1999, in the case of the Class D Trust, in accordance with the principal repayment schedule set forth below under "Description of New Certificates--Pool Factors" and "Description of the Equipment Notes--Principal and Interest Payments", in each case, subject to the Intercreditor Agreement. (c) Redemption and Purchase (i) The Equipment Notes issued with respect to an Aircraft will be redeemed in whole upon the occurrence of an Event of Loss with respect to such Aircraft if such Aircraft is not replaced by Continental under the related Lease, in each case at a price equal to the aggregate unpaid principal 13 thereof, together with accrued interest thereon to, but not including, the date of redemption, but without any premium. (ii) All of the Equipment Notes issued with respect to any Aircraft may be redeemed prior to maturity at a price equal to the aggregate unpaid principal thereof, together with accrued interest thereon to, but not including, the date of redemption, plus a Make-Whole Premium (as defined herein). See "Description of the Equipment Notes--Redemption" for a description of the manner of computing such Make-Whole Premium and the circumstances under which the Equipment Notes may be so redeemed. (iii) If, with respect to an Aircraft, (x) one or more Lease Events of Default shall have occurred and be continuing, (y) the Loan Trustee with respect to such Equipment Notes shall take action or notify the applicable Owner Trustee that it intends to take action to foreclose the lien of the related Indenture or otherwise commence the exercise of any significant remedy under such Indenture or the related Lease or (z) the Equipment Notes with respect to such Aircraft shall have been accelerated, then in each case the Equipment Notes issued with respect to such Aircraft may be purchased by the Owner Trustee or Owner Participant on the applicable purchase date at a price equal to the aggregate unpaid principal thereof, together with accrued interest thereon to, but not including, the purchase date, but without any premium (provided that a premium shall be payable if such Equipment Notes are to be purchased pursuant to clause (x) above when (A) a Lease Event of Default shall have occurred and be continuing for less than 120 days or (B) the only Lease Event of Default under the related Lease arises from the cross-default provisions of such Lease). (d) Security The Equipment Notes issued with respect to each Aircraft are secured by a security interest in such Aircraft and an assignment to the related Loan Trustee of certain of the related Owner Trustee's rights under the Lease with respect to such Aircraft, including the right to receive payments of rent thereunder, with certain exceptions. The Equipment Notes are not cross-collateralized and, consequently, the Equipment Notes issued in respect of any one Aircraft are not secured by any of the other Aircraft or the Leases related thereto. There are no cross-default provisions in the Indentures. Consequently, events resulting in an Indenture Default under any particular Indenture may or may not result in an Indenture Default occurring under any other Indenture. However, a Lease Event of Default under any particular Lease will constitute a Lease Event of Default under all Leases due to the cross-default provisions in the Leases, and will consequently result in an Indenture Default under all Indentures. If the Equipment Notes issued with 14 respect to one or more Aircraft are in default and the Equipment Notes issued with respect to the remaining Aircraft are not in default, no remedies will be exercisable under the Indentures with respect to such remaining Aircraft. See "Description of the Equipment Notes--Security" and "--Indenture Defaults, Notice and Waiver". Although the Equipment Notes are not obligations of, or guaranteed by, Continental, the amounts unconditionally payable by Continental for lease of the Aircraft will be sufficient to pay in full when due all amounts required to be paid on the Equipment Notes. See "Description of the Equipment Notes--General". (e) Section 1110 Protection Cleary, Gottlieb, Steen & Hamilton, counsel to Continental, has advised the Loan Trustees that the Owner Trustee, as lessor under the Lease relating to each Aircraft, and the related Loan Trustee, as assignee of such Owner Trustee's rights under such Lease pursuant to the related Indenture, are entitled to the benefits of 11 U.S.C. (S)1110 with respect to the airframe and engines comprising the related Aircraft. See "Description of the Equipment Notes-- Remedies" for a description of that opinion and certain assumptions contained therein. The Bankruptcy Reform Act of 1994 (the "Act") amended Section 1110 by, among other things, providing that the lessor under a lease of aircraft first placed in service prior to the date of the enactment of the Act will be entitled to the benefits of Section 1110 if the lessor and the lessee have expressed in the applicable agreement or in a substantially contemporaneous writing that the applicable agreement is to be treated as a lease for Federal income tax purposes. Each of the Leases relating to the four Aircraft placed in service prior to the enactment of the Act contains such a written statement. (f) Ranking Series B Equipment Notes issued in respect of any Aircraft are subordinated in right of payment to Series A Equipment Notes issued in respect of such Aircraft; Series C Equipment Notes issued in respect of such Aircraft are subordinated in right of payment to such Series B Equipment Notes; and Series D Equipment Notes issued in respect of such Aircraft are subordinated in right of payment to such Series C Equipment Notes. On each Distribution Date, (i) payments of interest and principal due on Series A Equipment Notes issued in respect of any Aircraft will be made prior to payments of interest and principal due on Series B Equipment Notes issued in respect of such Aircraft, (ii) payments of interest and principal due on such Series B Equipment Notes will be made prior to payments of interest and principal due on Series C Equipment Notes issued in respect of such Aircraft and (iii) payments of interest and principal due on such Series C Equipment Notes will be made prior to payments of interest and principal due on Series D Equipment Notes issued in respect of such Aircraft. (g) Owner Participant General Electric Company is currently the owner participant ("Owner Participant") with respect to all of the eighteen leveraged 15 leases for the Aircraft. The Owner Participant or its affiliate acquired all of the Class D Certificates at the time of their issuance. The Owner Participant and certain of its affiliates have various business relationships with Continental, including as a secured lender and a supplier of certain equipment and services to Continental. Due to such relationships and GE's capacities as both the Owner Participant and the Class D Certificateholder, interests of GE may not be consistent with, or may conflict with, interests of other Certificateholders. General Electric Company has the right to sell, assign or otherwise transfer its interests as Owner Participant in any or all of such leveraged leases, subject to the terms and conditions of the relevant Participation Agreement and related documents, and the Class D Certificateholder will have the right to sell any or all Class D Certificates, subject to the terms and conditions of the Pass Through Trust Agreement for the Class D Trust. Liquidity Facilities The Subordination Agent and the Liquidity Provider have entered into a revolving credit agreement (each, a "Liquidity Facility") with respect to each Trust (other than the Class D Trust). Under each of the Liquidity Facilities, the Liquidity Provider will, if necessary, make advances ("Interest Drawings") in an aggregate amount sufficient to pay interest on the Class A, B or C Certificates, as the case may be, on up to six successive quarterly Regular Distribution Dates (without regard to any future payments of principal on such Certificates) at the respective interest rates (without any penalty or default margin but after giving pro forma effect to adjustments arising from Registration Defaults, provided that such adjustments shall cease to apply at such time as the interest rate borne by such Certificates is no longer subject to increase pursuant to the terms of the Registration Rights Agreement) on such Certificates (the "Stated Interest Rates"). The initial amount available under the Liquidity Facilities for the Class A Certificates, the Class B Certificates and the Class C Certificates will be $30,078,208.80, $11,772,633.60 and $11,117,550.00, respectively. An Interest Drawing under the relevant Liquidity Facility will be made promptly after any Regular Distribution Date if, after giving effect to the subordination provisions of the Intercreditor Agreement, there are insufficient funds available to the Subordination Agent to pay interest on any Class A, B or C Certificates; provided, however, that on any date the maximum amount available under such Liquidity Facility to fund any shortfall in interest due on such Certificates will not exceed an amount equal to the then stated amount of such Liquidity Facility. The Liquidity Facility for any Class of Certificates does not provide for drawings thereunder to pay for principal of or premium on the Certificates of such Class, any interest on the Certificates of such Class in excess of the Stated Interest Rates, or principal of or interest or premium on the Certificates of any other Class. Upon each Interest Drawing under any Liquidity Facility, the Subordination Agent will be obligated to reimburse (to the extent that the Subordination Agent has available funds therefor) the 16 Liquidity Provider for the amount of such drawing. Such reimbursement obligation and any other amounts owing to the Liquidity Provider under each Liquidity Facility or certain other agreements (the "Liquidity Obligations") will rank pari passu with the Liquidity Obligations relating to all other Liquidity Facilities and will rank senior to the Certificates in right of payment. Upon reimbursement in full of the Interest Drawings (but not other Drawings), together with any accrued interest thereon, under any Liquidity Facility, the amount available under such Liquidity Facility will be reinstated to the then stated amount of such Liquidity Facility; provided that the amount will not be so reinstated if (i) a Triggering Event shall have occurred and be continuing and (ii) less than 65% of the aggregate outstanding principal amount of all Equipment Notes are Performing Equipment Notes. If at any time the short-term unsecured debt rating of any Liquidity Provider issued by either Rating Agency is lower than the Threshold Rating, the Liquidity Facility for the related Class of Certificates will be required to be replaced by another similar facility to be provided by a financial institution having unsecured short-term debt ratings issued by both Rating Agencies which are equal to or higher than the Threshold Rating. If such Liquidity Facility is not replaced within 10 days after notice of the downgrading, such Liquidity Facility will be drawn in full (the "Downgrade Drawing") and the proceeds will be deposited into the Cash Collateral Account for the related Class of Certificates and used for the same purposes and under the same circumstances and subject to the same conditions as cash payments of Interest Drawings under such Liquidity Facility would be used. In addition, the Intercreditor Agreement will provide for the replacement or extension of the Liquidity Facility for any Class of Certificates which is scheduled to expire prior to the date that is fifteen days after the Final Maturity Date for such Class. If such Liquidity Facility cannot be so replaced or extended by the date that is 25 days prior to the then scheduled expiration date of such Liquidity Facility, such Liquidity Facility will be drawn in full (the "Non-Extension Drawing") and the proceeds will be deposited in the Cash Collateral Account for the related Class of Certificates and used for the same purposes and under the same circumstances and subject to the same conditions as cash payments of Interest Drawings under such Liquidity Facility would be used. Each initial Liquidity Facility is scheduled to expire on January 29, 1997, subject to annual extensions by mutual agreement. Continental, in consultation with the Subordination Agent, may direct the Owner Participants (which shall follow such direction unless they have a bona fide, good faith reason not to) to arrange for a replacement facility at any time to replace the Liquidity Facility for any Trust. If such replacement facility is provided at any time after a Downgrade Drawing or Non-Extension Drawing under such Liquidity Facility, the funds on deposit in the Cash Collateral Account for such Trust will be returned to the Liquidity Provider 17 being replaced. Notwithstanding the subordination provisions of the Intercreditor Agreement, the holders of the Certificates to be issued by each Trust (other than the Class D Trust) will be entitled to receive and retain the proceeds of drawings under the Liquidity Facility for such Trust. See "Description of the Liquidity Facilities". Intercreditor Agreement (a) Subordination The Trusts, the Liquidity Providers and the Subordination Agent have entered into an agreement (the "Intercreditor Agreement") which provides as follows: (i) All payments made in respect of the Equipment Notes and certain other payments will be made to the Subordination Agent which will distribute such payments in accordance with the provisions of paragraphs (ii) through (iv) below. (ii) On any Regular Distribution Date or Special Distribution Date (each, a "Distribution Date"), so long as no Triggering Event shall have occurred (whether or not continuing), all payments received by the Subordination Agent in respect of the Equipment Notes and certain other payments will be distributed in the following order: (1) payment of the Liquidity Obligations; (2) payment of Expected Distributions to the holders of Class A Certificates; (3) payment of Expected Distributions to the holders of Class B Certificates; (4) payment of Expected Distributions to the holders of Class C Certificates; (5) payment of Expected Distributions to the holders of Class D Certificates; and (6) payment of certain fees and expenses of the Subordination Agent and the Trustees. "Expected Distributions" means, with respect to the Certificates of any Trust on any Distribution Date (the "Current Distribution Date") the sum of (x) accrued and unpaid interest on such Certificates and (y) the difference between (A) the Pool Balance of such Certificates as of the immediately preceding Distribution Date and (B) the Pool Balance of such Certificates as of the Current Distribution Date, calculated on the basis that the principal of the Equipment Notes held in such Trust has been paid when due (whether at stated maturity, upon redemption, prepayment or acceleration or otherwise) and such payments have been distributed to the holders of such Certificates. (iii) Upon the occurrence of a Triggering Event and at all times thereafter, subject to the provisions of paragraph (iv) below, all payments received by the Subordination Agent in respect of the Equipment Notes and certain other payments will be distributed in the following order: (1) to the Liquidity Provider 18 in payment of the Liquidity Obligations and certain other parties in payment of the Administration Expenses (as defined herein); (2) to the holders of Class A Certificates in payment of Final Distributions; (3) to the holders of Class B Certificates in payment of Final Distributions; (4) to the holders of Class C Certificates in payment of Final Distributions; and (5) to the holders of Class D Certificates in payment of Final Distributions. "Final Distributions" means, with respect to the Certificates of any Trust on any Distribution Date, the sum of (x) accrued and unpaid interest on such Certificates and (y) the Pool Balance of such Certificates as of the immediately preceding Distribution Date. (iv) Notwithstanding the foregoing paragraph, after the occurrence of a Triggering Event (whether or not continuing), so long as no PTC Event of Default shall have occurred and be continuing with respect to the most senior Class of Certificates outstanding, any regularly scheduled payment received on any Equipment Notes (the "Performing Equipment Notes") with respect to which there is no payment default (without giving effect to any acceleration thereof) shall be distributed as follows: (x) interest paid on all of the Performing Equipment Notes (the "Performing Equipment Notes Interest Payment") will be distributed in the following order: (1) to the Liquidity Providers in payment of the Liquidity Obligations and certain other parties in payment of the Administration Expenses (as defined herein); (2) to the holders of Class A Certificates in payment of accrued and unpaid interest on the Class A Certificates; (3) to the holders of Class B Certificates in payment of accrued and unpaid interest on the Class B Certificates; (4) to the holders of Class C Certificates in payment of accrued and unpaid interest on the Class C Certificates; and (5) to the holders of Class D Certificates; provided that the provisions of this paragraph (x) will be given effect before distribution of any funds received in respect of any Equipment Notes other than the Performing Equipment Notes (the "Non-Performing Equipment Notes"); (y) principal paid in respect of the Performing Equipment Notes (after paying in full the Liquidity Obligations and the Administration Expenses) (the "Performing Equipment Notes Principal Payment") will be distributed in the following order: (1) to the holders of Class A Certificates in payment of the greater of (A) the Adjusted Expected Distributions to such holders on such 19 Distribution Date and (B) such holders' pro rata portion of the Performing Equipment Notes Principal Payment based on the Adjusted Pool Balance of such Trust; (2) to the holders of Class B Certificates in payment of the greater of (A) the Adjusted Expected Distributions to such holders on such Distribution Date and (B) such holders' pro rata portion of the Performing Equipment Notes Principal Payment based on the Adjusted Pool Balance of such Trust; (3) to the holders of Class C Certificates in payment of the greater of (A) the Adjusted Expected Distributions to such holders on such Distribution Date and (B) such holders' pro rata portion of the Performing Equipment Notes Principal Payment based on the Adjusted Pool Balance of such Trust; and (4) to the holders of Class D Certificates; provided that the provisions of this paragraph (y) will be given effect after distributing any funds received in respect of any Non- Performing Equipment Notes; provided that if the aggregate amount of future scheduled payments in respect of the Performing Equipment Notes, together with the Performing Equipment Notes Principal Payment as of such Distribution Date, will be (assuming the distribution of such amount as contemplated by paragraphs (x) and (y) and that no further payment will be received at any time from the Non-Performing Equipment Notes) insufficient to pay interest on any Class of Certificates and reduce the Pool Balance of such Class of Certificates to zero before the Final Maturity Date thereof, the amount of distributions to be made to the holders of such Class of Certificates on such Distribution Date will be increased by the amount necessary to eliminate such insufficiency prior to making any distributions to the holders of any Class of Certificates junior to such Class of Certificates and such increase shall be taken into account for the purpose of applying this proviso to the holders of any such junior Class of Certificates. "Adjusted Expected Distribution" for the Certificates of any Trust means, with respect to any Distribution Date, the sum of (x) accrued and unpaid interest on such Certificates (after taking into account the distribution of the Performing Equipment Notes Interest Payment and any funds received in respect of Non- Performing Equipment Notes on such Distribution Date) plus (y) the amount (which shall not be less than zero) equal to (A) the Adjusted Pool Balance of such Trust as of such Distribution Date minus (B) the Pool Balance of such Trust as of such Distribution Date, calculated on the basis that all payments on the Equipment Notes held in such Trust have been paid when due (but without giving effect to any acceleration of Performing Equipment Notes held in such Trust) and such payments have been distributed to the holders of such Certificates. 20 "Adjusted Pool Balance" of any Trust means, with respect to any Current Distribution Date, the Pool Balance of such Trust as of the immediately preceding Distribution Date minus any amounts received in respect of any Non- Performing Equipment Notes distributed to the holders of the Certificates of such Trust on the Current Distribution Date other than in respect of interest or premium thereon. (b) Intercreditor Rights Pursuant to the Intercreditor Agreement, the Trustees and the Liquidity Provider have agreed that, with respect to any Indenture at any given time, the Loan Trustee will be directed (a) in taking, or refraining from taking, any action thereunder by the holders of at least a majority of the outstanding principal amount of the Equipment Notes issued thereunder as long as no Indenture Default has occurred and is continuing thereunder and (b) subject to certain conditions, in exercising remedies thereunder (including acceleration of such Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment Notes) by the Controlling Party insofar as an Indenture Default thereunder has occurred and is continuing. "Controlling Party" with respect to any Indenture means: (w) the Class A Trustee; (x) upon payment of Final Distributions to the holders of Class A Certificates, the Class B Trustee; (y) upon payment of Final Distributions to the holders of Class B Certificates, the Class C Trustee; and (z) upon payment of Final Distributions to the holders of Class C Certificates, the Class D Trustee. See "Description of New Certificates--Indenture Defaults and Certain Rights Upon an Indenture Default" for a description of the rights of the Certificateholders of each Trust to direct the respective Trustees. Notwithstanding the foregoing, subject to certain limitations, the Liquidity Provider shall have the right to direct such Loan Trustee at any time after 18 months from the acceleration of the Equipment Notes under such Indenture, if at the time of such election the Liquidity Obligations have not been paid in full; provided that if there is more than one Liquidity Provider, the Liquidity Provider with the greatest amount of unreimbursed Liquidity Obligations shall have such right. For purposes of giving effect to the foregoing, the Trustees (other than the Controlling Party) shall irrevocably agree (and the Certificateholders (other than the Certificateholders represented by the Controlling Party) shall be deemed to agree by virtue of their purchase of Certificates) to exercise their voting rights as directed by the Controlling Party. (i) Upon the occurrence and during the continuation of any Indenture Default under any Indenture, the Controlling Party may accelerate and sell all (but not less than all) of the Equipment Notes issued under such Indenture to any person, subject to the provisions of paragraph (ii) below. The proceeds of such sale will be distributed pursuant to the provisions of the Intercreditor Agreement. 21 (ii) So long as any Certificates are outstanding, during nine months after the earlier of (x) the acceleration of the Equipment Notes under any Indenture or (y) the bankruptcy or insolvency of Continental, without the consent of each Trustee, (a) no Aircraft subject to the lien of such Indenture or such Equipment Notes may be sold, if the net proceeds from such sale would be less than the Minimum Sale Price for such Aircraft or such Equipment Notes, and (b) the amount and payment dates of rentals payable by Continental under the Lease for such Aircraft may not be adjusted, if, as a result of such adjustment, the discounted present value of all such rentals would be less than 75% of the discounted present value of the rentals payable by Continental under such Lease before giving effect to such adjustment, in each case, using the weighted average interest rate of the Equipment Notes issued under such Indenture as the discount rate. "Minimum Sale Price" means, with respect to any Aircraft or the Equipment Notes issued in respect of such Aircraft, at any time, the lesser of (1) 75% of the appraised value of such Aircraft based upon the most recent appraisal and (2) the aggregate outstanding principal amount of such Equipment Notes, plus accrued and unpaid interest thereon. Certificates; Book-Entry Registration Each New Certificate to be issued will be represented by one or more permanent global Certificates registered in the name of Cede & Co. ("Cede"), as nominee of The Depository Trust Company ("DTC"). See "Description of New Certificates-- Book Entry; Delivery and Form". Method of Distribution The persons in whose names the Certificates are registered will be treated as the owners of such Certificates for the purpose of receiving payments of principal of and interest on such Certificates and for all other purposes whatsoever. Therefore, none of the Trustee, Continental, the Loan Trustee, the Owner Participant or the Owner Trustee has any direct responsibility or liability for distributions or payments to owners of beneficial interests in the Certificates (the "Certificate Owners"). Distributions by the Trustee in respect of Certificates registered in the name of Cede, as nominee of DTC, including the final distribution of principal with respect to such Certificates of any Trust, will be made in same-day funds to DTC. DTC will in turn make distributions in same-day funds to those participants in DTC who are credited with ownership of such Certificates ("DTC Participants") in amounts proportionate to the amount of each such DTC Participant's respective holdings of beneficial interests in such Certificates. Corresponding payments by the DTC Participants to beneficial owners of such Certificates will be the responsibility of such DTC Participants and will be made in accordance with customary industry practices. Distributions by the Trustee to Certificateholders in respect of Certificates issued in 22 definitive form, other than the final distribution, will be made by check mailed to each such Certificateholder of record on the applicable record date at its address appearing on the register. The final distribution with respect to the Certificates of any Trust will be made only upon surrender and presentation thereof to the Trustee. See "Description of New Certificates--Book-Entry; Delivery and Form". Absence of a Public Market for the Certificates Prior to this Exchange Offer, there has been no public market for the Old Certificates or the New Certificates. Neither Continental nor any Trust has applied or intends to apply for listing of the New Certificates on any national securities exchange or for quotation of the New Certificates through the National Association of Securities Dealers Automated Quotation System. [Describe market making by Initial Purchasers in the Old Certificates, and Continental has been advised by the Initial Purchasers that one or more of them intends to make a market in the New Certificates, as permitted by applicable laws and regulations, after consummation of the Exchange Offer. None of the Initial Purchasers is obligated, however, to make a market in the Old Certificates or the New Certificates and any such market making activity may be discontinued at any time without notice at the sole discretion of each Initial Purchaser. There can be no assurance as to the liquidity of the public market for the Certificates or that any active public market for the Certificates will develop. If an active public market does not develop, the market price and liquidity of the Certificates may be adversely affected.] Trustee Wilmington Trust Company will act as Trustee and as paying agent and registrar for the Certificates of each Trust. Wilmington Trust Company will also act as Loan Trustee, as paying agent and registrar for each Series of Equipment Notes and as Subordination Agent under the Intercreditor Agreement. Federal Income Tax Consequences The exchange of New Certificates for Old Certificates should not be a sale or exchange or otherwise a taxable event for Federal income tax purposes. ERISA Considerations A fiduciary of any employee benefit plan which is subject to the fiduciary responsibility provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or of a "plan" subject to Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or of any governmental plan which is subject to any federal, state or local law which is substantially similar to the foregoing provisions of ERISA or the Code which proposes to hold any Class A Certificates should consult with its own legal counsel with respect to the applicability of ERISA and the Code to such investment and the transactions contemplated by the Exchange Offer, including the availability of any statutory or administrative 23 prohibited transaction exemption. See "ERISA Considerations". The Class B Certificates, Class C Certificates and Class D Certificates may not be held by any Plan or any entity that is using the assets of a Plan to hold its interest in a Class B Certificate, a Class C Certificate or a Class D Certificate, and holders of Class B Certificates, Class C Certificates and Class D Certificates that tender such Old Certificates in exchange for a New Certificates will be required to make certain representations to that effect. Notwithstanding the foregoing, the Class B Certificates, the Class C Certificates and the Class D Certificates may be held with the assets of an insurance company general account, provided that the conditions of Prohibited Transaction Class Exemption ("PTCE") 95-60 have been satisfied. Any insurance company that uses general account assets to hold Class B Certificates, Class C Certificates or Class D Certificates that tenders such Old Certificates in exchange for New Certificates will be required to represent that PTCE 95-60 applies to its tender and the holding of such Class B Certificates, Class C Certificates or Class D Certificates. See "ERISA Considerations". 24 RISK FACTORS Holders of New Certificates should carefully consider the following risk factors, as well as other information set forth in this Prospectus, before tendering their New Certificates 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 Old Certificates as well as the New Certificates. 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 1997 through 2002. The estimated aggregate cost of these aircraft is $2.6 billion. The Company is in the process of negotiating a revised aircraft order from Boeing, which is expected to change the product mix and timing of delivery of aircraft without a significant change in the aggregate cost of such order. In addition, the Company took delivery of one Beech 1990-D aircraft in May 1996 and an additional five such aircraft are scheduled to be delivered later in 1996. The Company currently anticipates that the firm financing commitments available to it with respect to its acquisition of new aircraft from 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. 25 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 certain affiliates of General Electric Company (General Electric Company and affiliates, collectively, "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. The sale of the Company's common stock in the Secondary Offering (as defined herein) as described under "Recent Developments" gave rise to an increase in percentage ownership by certain stockholders for this purpose. Based upon the advice of its counsel, Cleary, Gottlieb, Steen and Hamilton, the Company believes that such percentage increase will not give rise to an ownership change under Section 382 as a result of the Secondary Offering. However, no assurance can be given that future transactions, whether within or outside the control of the Company, will not cause a change in ownership, thereby substantially limiting the potential utilization of the NOLs in a given future year. In the event that an ownership change should occur, utilization of Continental's NOLs would be subject to an annual limitation under Section 382. This Section 382 limitation for any post-change year would be determined by multiplying the value of the Company's stock (including both common and preferred stock) at the time of the ownership change by the applicable long-term tax exempt rate (which is 5.78% for June 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 $100 million per year. 26 In connection with the Company's 1993 reorganization under Chapter 11 of the U.S. bankruptcy code effective April 27, 1993 (the "Reorganization") and the recording of assets and liabilities at fair market value under the American Institute of Certified Public Accountants' Statement of Position 90-7-- "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), the Company recorded a deferred tax liability at April 27, 1993, net of the amount of the Company's estimated realizable NOLs as required by Statement of Financial Accounting Standards No. 109--"Accounting for Income Taxes." Realization of a substantial portion of the Company's NOLs will require the completion during the five-year period following the Reorganization of transactions resulting in recognition of built-in gains for federal income tax purposes. The Company has consummated one such transaction, which had the effect of realizing approximately 40% of the built-in gains required to be realized over the five-year period, and currently intends to consummate one or more additional transactions. If the Company were to determine in the future that not all such transactions will be completed, an adjustment to the net deferred tax liability of up to $116 million would be charged to income in the period such determination was made. CMI CMI's operating profit margins have consistently been greater than the Company's margins overall. In addition to its non-stop service between Honolulu and Tokyo, CMI's operations focus on the neighboring islands of Guam and Saipan, resort destinations that cater primarily to Japanese travelers. Because the majority of CMI's traffic originates in Japan, its results of operations are substantially affected by the Japanese economy and changes in the value of the yen as compared to the dollar. Appreciation of the yen against the dollar during 1993 and 1994 increased CMI's profitability and a decline of the yen against the dollar may be expected to decrease it. To reduce the potential negative impact on CMI's dollar earnings, CMI from time to time purchases average rate options as a hedge against a portion of its expected net yen cash flow position. Any significant and sustained decrease in traffic or yields to and from Japan could materially adversely affect Continental's consolidated profitability. Principal Stockholders 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 10.0% of the common equity interests and 4.0% of the general voting power of the Company, and Air Partners holds approximately 9.8% of the common equity interests and 39.4% 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 52.1% of the general voting power would be held by Air Partners. At any time after January 1, 1997, shares of Class A common stock will become freely convertible into an equal number of stock shares of Class B common stock. Such conversion would effectively increase the relative voting power of those Class A stockholders who do not convert. See "Recent Developments" and "Description of Capital Stock." Various provisions in the Company's Amended and Restated Certificate of Incorporation ("Certificate of Incorporation") and Bylaws ("Bylaws") currently provide Air Partners with the right to elect one-third of the directors in certain circumstances; these provisions could have the effect of delaying, deferring or preventing a change in control of the Company. See "Recent Developments" and "Description of Capital Stock." RISK FACTORS RELATING TO THE AIRLINE INDUSTRY Industry Conditions and Competition The airline industry is highly competitive and susceptible to price discounting. The Company has in the past both responded to discounting actions taken by other carriers and initiated significant discounting 27 actions itself. Continental's competitors include carriers with substantially greater financial resources, as well as smaller carriers with lower cost structures. Airline profit levels are highly sensitive to, and during recent years have been severely impacted by, changes in fuel costs, fare levels (or "average yield") and passenger demand. Passenger demand and yields have been adversely affected by, among other things, the general state of the economy, international events and actions taken by carriers with respect to fares. From 1990 to 1993, these factors contributed to the domestic airline industry's incurring unprecedented losses. Although fare levels have increased recently, significant industry-wide discounts could be reimplemented at any time, and the introduction of broadly available, deeply discounted fares by a major United States airline would likely result in lower yields for the entire industry and could have a material adverse effect on the Company's operating results. The airline industry has consolidated in past years as a result of mergers and liquidations and may further consolidate in the future. Among other effects, such consolidation has allowed certain of Continental's major competitors to expand (in particular) their international operations and increase their market strength. Furthermore, the emergence in recent years of several new carriers, typically with low cost structures, has further increased the competitive pressures on the major United States airlines. In many cases, the new entrants have initiated or triggered price discounting. Aircraft, skilled labor and gates at most airports continue to be readily available to start-up carriers. Although management believes that Continental is better able than some of its major competitors to compete with fares offered by start-up carriers because of its lower cost structure, competition with new carriers or other low cost competitors on Continental's routes could negatively impact Continental's operating results. Regulatory Matters In the last several years, the United States Federal Aviation Administration (the "FAA") has issued a number of maintenance directives and other regulations relating to, among other things, retirement of older aircraft, collision avoidance systems, airborne windshear avoidance systems, noise abatement, commuter aircraft safety and increased inspections and maintenance procedures to be conducted on older aircraft. The Company expects to continue incurring expenses for the purpose of complying with the FAA's noise and aging aircraft regulations. In addition, several airports have recently sought to increase substantially the rates charged to airlines, and the ability of airlines to contest such increases has been restricted by federal legislation, U.S. Department of Transportation regulations and judicial decisions. Management believes that the Company benefited significantly from the expiration of the aviation trust fund tax (the "ticket tax") on December 31, 1995, although the amount of any such benefit resulting directly from the expiration of the ticket tax cannot precisely be determined. 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 THE CERTIFICATES Consequences of Failure to Exchange Holders of Old Certificates who do not exchange their Old Certificates for New Certificates pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Certificates as set forth 28 in the legend thereon as a consequence of the issuance of the Old Certificates 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 Old Certificates 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 currently anticipate that it will register the Old Certificates under the Securities Act. To the extent that Old Certificates are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Certificates could be adversely affected. Appraisals and Realizable Value of Aircraft Appraisals in respect of the Aircraft (without physical inspection thereof) have been prepared by AISI, BK and MBA. According to the appraisals of the three firms, the Aircraft had an aggregate appraised value of $711,760,000, $652,500,000, and $687,989,000, respectively, in each case as of January 3, 1996. See "Description of the Aircraft and the Appraisals". However, an appraisal is only an estimate of value and should not be relied upon as a measure of realizable value; the proceeds realized upon a sale of any Aircraft may be less than the appraised value thereof. The value of the Aircraft in the event of the exercise of remedies under the applicable Indenture will depend on market and economic conditions, the availability of buyers, the condition of the Aircraft and other factors. Accordingly, there can be no assurance that the proceeds realized upon any such exercise with respect to the Equipment Notes and the Aircraft pursuant to the applicable Pass Through Trust Agreement and the applicable Indenture would be sufficient to satisfy in full payments due on the Certificates. Priority of Distributions; Subordination Pursuant to the Intercreditor Agreement to which the Trusts, the Subordination Agent and the Liquidity Providers shall be parties, on each Distribution Date, so long as no Triggering Event shall have occurred, all payments received by the Subordination Agent will be distributed in the following order: (1) payment of the Liquidity Obligations to the Liquidity Providers; (2) payment of Expected Distributions to the holders of Class A Certificates; (3) payment of Expected Distributions to the holders of Class B Certificates; (4) payment of Expected Distributions to the holders of Class C Certificates; (5) payment of Expected Distributions to the holders of Class D Certificates; and (6) payment of certain fees and expenses of the Subordination Agent and the Trustees. In addition, upon the occurrence of a Triggering Event and at all times thereafter, subject to the provisions of the next paragraph, all payments received by the Subordination Agent in respect of the Equipment Notes and certain other payments will be distributed under the Intercreditor Agreement in the following order: (1) to the Liquidity Providers in payment of the Liquidity Obligations and certain other parties in payment of the Administration Expenses; (2) to the holders of Class A Certificates in payment of Final Distributions; (3) to the holders of Class B Certificates in payment of Final Distributions; (4) to the holders of Class C Certificates in payment of Final Distributions; and (5) to the holders of Class D Certificates in payment of Final Distributions. Notwithstanding the provisions of the foregoing paragraph, after the occurrence of a Triggering Event but so long as no PTC Event of Default shall have occurred and be continuing with respect to the most senior Class of Certificates outstanding, any regularly scheduled payment received on the Performing Equipment Notes shall be distributed as follows: (x) the Performing Equipment Notes Interest Payment will be distributed in the following order: (1) to the Liquidity Providers in payment of the Liquidity Obligations and certain other parties in payment of the Administration Expenses; (2) to the holders of Class A Certificates in payment of accrued and unpaid interest on the Class A Certificates; (3) to the holders of Class B Certificates in payment of accrued and unpaid interest on the Class B Certificates; (4) to the holders of Class C Certificates in payment of accrued and unpaid interest on the Class C Certificates; and (5) to the holders of Class D Certificates; provided that 29 the provisions of this paragraph (x) will be given effect before distribution of any funds received in respect of any Non-Performing Equipment Notes; (y) the Performing Equipment Notes Principal Payment will be distributed in the following order: (1) to the holders of Class A Certificates in payment of the greater of (A) the Adjusted Expected Distributions to such holders on such Distribution Date and (B) such holders' pro rata portion of the Performing Equipment Notes Principal Payment based on the Adjusted Pool Balance of such Trust; (2) to the holders of Class B Certificates in payment of the greater of (A) the Adjusted Expected Distributions to such holders on such Distribution Date and (B) such holders' pro rata portion of the Performing Equipment Notes Principal Payment based on the Adjusted Pool Balance of such Trust; (3) to the holders of Class C Certificates in payment of the greater of (A) the Adjusted Expected Distributions to such holders on such Distribution Date and (B) such holders' pro rata portion of the Performing Equipment Notes Principal Payment based on the Adjusted Pool Balance of such Trust; and (4) to the holders of Class D Certificates; provided that the provisions of this paragraph (y) will be given effect after distributing any funds received in respect of any Non- Performing Equipment Notes; provided that if the aggregate amount of future scheduled payments in respect of the Performing Equipment Notes, together with the Performing Equipment Notes Principal Payment as of such Distribution Date, will be (assuming the distribution of such amount as contemplated by paragraphs (x) and (y) and that no further payment will be received at any time from the Non-Performing Equipment Notes) insufficient to pay interest on any Class of Certificates and reduce the Pool Balance of such Class of Certificates to zero before the Final Maturity Date thereof, the amount of distributions to be made to the holders of such Class of Certificates on such Distribution Date will be increased by the amount necessary to eliminate such insufficiency prior to making any distributions to the holders of any Class of Certificates junior to such Class of Certificates and such increase shall be taken into account for the purpose of applying this proviso to the holders of any such junior Class of Certificates. Control over Collateral; Sale of Collateral Pursuant to the Intercreditor Agreement, the Trustees and the Liquidity Provider shall agree that, with respect to any Indenture at any given time, the Loan Trustee will be directed (a) in taking, or refraining from taking, any action thereunder by the holders of at least a majority of the outstanding principal amount of the Equipment Notes issued thereunder as long as no Indenture Default has occurred and is continuing thereunder and (b) subject to certain conditions, in exercising remedies thereunder (including acceleration of such Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment Notes) insofar as an Indenture Default has occurred and is continuing by the Controlling Party. See "Description of New Certificates--Indenture Defaults and Certain Rights Upon an Indenture Default" for a description of the rights of the Certificateholders of each Trust to direct the respective Trustees. Notwithstanding the foregoing, subject to certain limitations, the Liquidity Provider shall have the right to direct such Loan Trustee at any time after 18 months from the acceleration of the Equipment Notes under such Indenture, if at the time of such election the Liquidity Obligations have not been paid in full. For purposes of giving effect to the foregoing, the Trustees (other than the Controlling Party) shall irrevocably agree (and the Certificateholders (other than the Certificateholders represented by the Controlling Party) shall be deemed to agree by virtue of their purchase of Certificates) to exercise their voting rights as directed by the Controlling Party. Upon the occurrence and during the continuation of any Indenture Default under any Indenture, the Controlling Party may accelerate and, subject to the provisions of the immediately following sentence, sell all (but not less than all) of the Equipment Notes issued under such Indenture to any person. So long as any Certificates are outstanding, during nine months after the earlier of (x) the acceleration of the Equipment Notes under any Indenture or (y) the bankruptcy or insolvency of Continental, without the consent of each Trustee, (a) no Aircraft subject to the lien of such Indenture or such Equipment Notes may be sold, if the net proceeds from such sale would be less than the Minimum Sale Price for such Aircraft or such Equipment Notes, and (b) the 30 amount and payment dates of rentals payable by Continental under the Lease for such Aircraft may not be adjusted, if, as a result of such adjustment, the discounted present value of all such rentals would be less than 75% of the discounted present value of the rentals payable by Continental under such Lease before giving effect to such adjustment, in each case, using the weighted average interest rate of the Equipment Notes issued under such Indenture as the discount rate. Potential Conflict of Interest General Electric Company is currently the Owner Participant with respect to all of the eighteen leveraged leases for the Aircraft. The Owner Participant or its affiliate will also acquire all of the Class D Certificates contemporaneously with the consummation of the Offering. The Owner Participant and certain of its affiliates have various business relationships with Continental, including as a lender and a supplier of certain equipment and services to Continental. Certain of the obligations of Continental to the Owner Participant with respect to the Aircraft are currently secured by a pledge of unrelated assets, most of which assets are also pledged to GE to secure unrelated obligations. Due to such relationships and GE's capacities as both the Owner Participant and the Class D Certificateholder, interests of GE may not be consistent with, or may conflict with, interests of other Certificateholders. General Electric Company has the right to sell, assign or otherwise transfer its interests as Owner Participant in any or all of such leveraged leases, subject to the terms and conditions of the relevant Participation Agreement and related documents, and the Class D Certificateholder will have the right to sell any or all Class D Certificates, subject to the terms and conditions of the Pass Through Trust Agreement for the Class D Trust. Absence of a Public Market for the Certificates Prior to the Exchange Offer, there has been no public market for the Old Certificates or tne New Certificates. Neither Continental nor any Trust has applied or intends to apply for listing of the New Certificates on any national securities exchange or for quotation of the New Certificates through the National Association of Securities Dealers Automated Quotation System. Certain of the Initial Purchasers have previously make a market in the Old Certificates, and Continental has been advised by the Initial Purchasers that one or more of them presently intends to make a market in the New Certificates, as permitted by applicable laws and regulations, after consummation of the Exchange Offer. None of the Initial Purchasers is obligated, however, to make a market in the Old Certificates or the New Certificates and any such market making activity may be discontinued at any time without notice at the sole discretion of each Initial Purchaser. There can be no assurance as to the liquidity of the public market for the Certificates or that any active public market for the Certificates will develop or continue. If an active public market does not develop or continue, the market prices and liquidity of the Certificates may be adversely affected. 31 RECENT DEVELOPMENTS STOCK SPLIT On June 26, 1996, the Company announced a 2-for-1 stock split with respect to the Company's Class A common stock and Class B common stock, which will be distributed on July 16, 1996 to stockholders of record as of July 2, 1996. CORPORATE GOVERNANCE On June 26, 1996, at the Company's annual meeting of stockholders (the "Annual Meeting"), the Company's stockholders approved changes proposed by the Company to the Company's Certificate of Incorporation, which together with amendments to the Company's Bylaws previously approved by the Company's Board of Directors (collectively, the "Amendments"), generally eliminate special classes of directors (except for Air Partners' right to elect one-third of the directors in certain circumstances as described below) and supermajority provisions, and make a variety of other modifications aimed at streamlining the Company's corporate governance structure. The amendments to the Company's Certificate of Incorporation included elimination of Class C common stock, $.01 par value (the "Class C common stock"), of the Company as an authorized class of capital stock and changed the rights of holders of Class D common stock, $.01 par value (the "Class D common stock") with respect to election of directors--holders of Class D common stock are now entitled to elect one-third of the directors. Pursuant to the Certificate of Incorporation, Class D common stock is solely issuable to Air Partners and certain of its affiliates. There is currently no Class D common stock outstanding. The Amendments, as a whole, reflect the reduction of Air Canada's equity interest in the Company, as described below, and the decision of the former directors designated by Air Canada not to stand for reelection, along with the expiration of various provisions of the Company's Certificate of Incorporation and Bylaws specifically included at the time of the Company's reorganization. The Amendments also provide that, at any time after January 1, 1997, shares of Class A common stock will 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 were not permitted under the Company's Certificate of Incorporation to convert their shares to Class B common stock. In recent periods, the market price of Class A common stock has generally been below the price of Class B common stock, which the Company believes is attributable in part to the reduced liquidity present in the trading market for Class A common stock. A number of Class A stockholders requested that the Company provide for free convertibility of Class A common stock into Class B common stock, and in light of the reduction of Air Canada's equity stake, the Company determined that the restriction was no longer necessary. Any such conversion would effectively increase the relative voting power of those Class A stockholders who do not convert. On April 19, 1996, the Company's Board of Directors approved certain agreements (the "Agreements") with its two major stockholders, Air Canada and Air Partners. The Agreements contain a variety of arrangements intended generally to reflect the intention that Air Canada has expressed to the Company of divesting its investment in Continental 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 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 provided for the following additional steps to be taken in connection with the completion of the Secondary Offering: . in light of its then-reduced has caused equity stake in the Company, Air Canada is no longer entitled to designate nominees to the Board of Directors of the Company, has caused the four present or former members of the Air Canada board who served as directors of Continental to decline nomination for reelection as directors (except in limited circumstances), and converted 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 were modified in a number of respects to reflect, among other matters, the changing composition of the respective equity interests of the parties. After such sale and the conversion by Air Canada of its Class A common stock into Class B common stock, Air Canada holds approximately 10.0% of the common equity interests and 4.0% of the general voting power of the Company, and Air Partners holds approximately 9.8% of the common equity interests and 39.4% of the general voting power of the Company. In addition, assuming exercise of all of the warrants held by Air Partners, approximately 23.3% of the common equity interests and 52.1% of the general voting power would be held by Air Partners. 32 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 has reclassified $50 million from common equity to redeemable warrants. Because certain aspects of the Agreements raised issues under the change in control provisions of certain of the Company's employment agreements and employee benefit plans, these agreements and plans were modified to provide a revised change of control definition that the Company believes is appropriate in light of the prospective changes to its equity ownership structure. In connection with the modifications, payments were made to certain employees, benefits were granted to certain employees and options equal to 10% of the amount of the options previously granted to each optionee were granted (subject to certain conditions) to substantially all employees holding outstanding options. 33 USE OF PROCEEDS There will be no cash proceeds payable to Continental from the issuance of the New Certificates pursuant to the Exchange Offer. The proceeds from the sale of the Old Certificates were used to purchase the Series A, B and C Equipment Notes issued by the related Owner Trustees in connection with the refinancing of the indebtedness incurred by the Owner Trustees to finance the purchase of each of the Aircraft. Such Equipment Notes, together with the Series D Equipment Notes contributed to the Class D Trust by the Owner Participant, represent in the aggregate the entire debt portion currently outstanding of the leveraged lease transactions relating to all of the Aircraft. Continental did not receive any of the proceeds from the sale of the Old Certificates. 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. 34 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.
PERIOD FROM PERIOD FROM REORGANIZATION JANUARY 1, THREE MONTHS YEAR ENDED (APRIL 28,1993) 1993 ENDED MARCH 31, DECEMBER 31, THROUGH THROUGH --------------------- ------------------- DECEMBER 31, APRIL 27, 1996 1995 1995 1994 1993 1993 --------- -------- -------- -------- ------------ ------------ STATEMENT OF OPERATIONS DATA: (IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA) (unaudited) Operating Revenue: Passenger................................... $1,375 $1,240 $5,302 $5,036 $3,493 $1,622 Cargo, mail and other....................... 114 169 523 634 417 235 ------ ------ ------ ------ ------ ------ 1,489 1,409 5,825 5,670 3,910 1,857 ------ ------ ------ ------ ------ ------ Operating Expenses: Wages, salaries and related costs........... 364 366 1,432(1) 1,532 1,000 502 Aircraft fuel............................... 177 169 681 741 540 272 Aircraft rentals............................ 124 123 497 433 261 154 Commissions................................. 126 119 489 439 378 175 Maintenance, materials and repairs.......... 112 97 429 495 363 184 Other rentals and landing fees.............. 84 92 356 392 258 120 Depreciation and amortization............... 65 64 253 258 162 77 Other....................................... 317 351 1,303 1,391 853 487 ------ ------ ------ ------ ------ ------ 1,369 1,381 5,440 5,681 3,815 1,971 ------ ------ ------ ------ ------ ------ Operating Income (Loss)....................... 120 28 385 (11) 95 (114) ------ ------ ------ ------ ------ ------ Nonoperating Income (Expense): Interest expense............................ (47) (53) (213) (241) (165) (52) Interest capitalized........................ 1 1 6 17 8 2 Interest income............................. 9 6 31 23 14 - Gain on System One transactions............. - - 108 - - - Reorganization items, net................... - - - - - (818) Other, net.................................. 12 (10) (7) (439)(2) (4) 5 ------ ------ ------ ------ ------ ------ (25) (56) (75) (640) (147) (863) ------ ------ ------ ------ ------ ------
35 Income (Loss) before Income Taxes, Minority Interest and Extraordinary Gain.............. 95 (28) 310 (651) (52) (977) Net Income (Loss)............................. $ 88 $ (30) $ 224 $ (613) $ (39) $2,640(3) Earnings (Loss) per Common and Common Equivalent Share(4).......................... $ 1.35 $(0.60) $ 3.60 $ 11.88 $(1.17) N.M.(5) ====== ====== ====== ======= ====== ====== Earnings (Loss) per Common Share Assuming Full Dilution(4).............. $ 1.18 $(0.60) $ 3.15 $(11.88) $(1.17) N.M.(5) ====== ====== ====== ======= ====== ======
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(6)................................... $ 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) On June 26, 1996, the Company announced a 2-for-1 stock split with respect to the Company's Class A common stock and Class B common stock. Accordingly, the earnings per share information has been restated to give effect to the stock split. (5) Historical per share data for Holdings is not meaningful since the Company has been recapitalized and has adopted fresh start reporting as of April 27, 1993. (6) Restricted cash and cash equivalents agreements relate primarily to workers' compensation claims and the terms of certain other agreements. In addition, CMI is required by 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. (7) 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. 36 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 Old Certificates pursuant to a Purchase Agreement dated as of January 28, 1996, between the Company and the Initial Purchasers, the Initial Purchasers and the Owner Participant and their respective assignees became entitled to the benefits of the Registration Rights Agreement. Under the Registration Rights Agreement, the Company is obligated to (i) file the Registration Statement of which this Prospectus is a part for a registered exchange offer with respect to an issue of new certificates identical in all material respects to the Old Certificates within 120 calendar days after January 31, 1996, the date the Old Certificates were issued (the "Issue Date"), (ii) use its best efforts to cause the Registration Statement to become effective within 60 days after filing of the Registration Statement and (iii) to consummate the Exchange Offer within 30 calendar days after the date the Registration Statement is declared effective by the Commission. The Company will keep the Exchange Offer open for a period of not less than 30 calendar days. The Exchange Offer being made hereby, if commenced and consummated within the time periods described in this paragraph, 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), all Old Certificates validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date will be accepted for exchange. New Certificates of the same class will be issued in exchange for an equal principal amount of outstanding Old Certificates accepted in the Exchange Offer. As of the date of this Prospectus, $489,267,000 aggregate principal amount of Old Certificates is outstanding. Old Certificates may be tendered only in integral multiples of $1000. This Prospectus, together with the Letter of Transmittal, is being sent to all registered holders as of , 1996. The Exchange Offer is not conditioned upon any minimum principal amount of Old Certificates being tendered for exchange. However, the obligation to accept Old Certificates for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth herein under "--Conditions." Old Certificates shall be deemed to have been accepted validly tendered when, as and if the Trustee has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Old Certificates for the purposes of receiving the New Certificates and delivering New Certificates 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 New Certificates 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 New Certificates directly from the Trustee 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 New Certificates 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 New Certificates and have no arrangement with any person to participate in a distribution of such New Certificates. However, the staff of the Commission has not considered the Exchange 37 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 Old Certificates in exchange for New Certificates, 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 Old Certificates acquired directly from the Company for its own account; (ii) any New Certificates 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 New Certificates and has no arrangement or understanding to participate in a distribution of the New Certificates. 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 New Certificates for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Certificates. 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. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Certificates received in exchange for Old Certificates where such Old Certificates were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. The Company has agreed that, starting on the Expiration Date and ending on the close of business 180 days after the Expiration Date, it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale. See "Plan of Distribution." In the event that (i) any changes in law or the applicable interpretations of the staff of the Commission do not permit Continental to effect the Exchange Offer, (ii) for any reason the Registration Statement is not declared effective within 60 calendar days after the filing thereof with the Commission or the Exchange Offer is not consummated within 30 days after the Registration Statement is declared effective, (iii) any holder of Old Certificates (other than an Initial Purchaser) is not eligible to participate in the Exchange Offer or (iv) an Initial Purchaser (with respect to Old Certificates which it acquired directly from the Company), following consummation of the Exchange Offer, is not permitted, in the opinion of counsel to such Initial Purchaser, to participate in the Exchange Offer (and upon request of such Initial Purchaser), Continental will, at its cost, (a) as promptly as practicable, file with the Commission a shelf registration statement covering resales of the Old Certificates (the "Shelf Registration Statement"), (b) use its best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act by the 210th calendar day after the Issue Date and (c) use its best efforts to keep effective the Shelf Registration Statement for a period of three years after the Issue Date (or for such shorter period as shall end when all of the Old Certificates 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 either (i) (x) the Registration Statement was not filed with the Commission on or prior to the 120th calendar day following the Issue Date, or (y) the Registration Statement has not been declared effective on or prior to the 60th calendar day following the filing thereof with the Commission or (z) the Exchange Offer is not consummated on or prior to the 30th calendar day following the effectiveness of the Registration Statement or (ii) a Shelf Registration Statement is required to be filed with the Commission pursuant to the Registration Rights Agreement and such Shelf Registration Statement is not declared effective on or prior to the 210th calendar day following the Issue Date (each, a "Registration Default"), the interest rate per annum borne by the Equipment Notes and passed through to holders of Old Certificates shall be increased by (1) 0.25% from and including the day following such Registration Default to but excluding the 90th day following such Registration Default and (2) 0.50% thereafter; provided, however, that such increase shall cease to be in effect from and including the date on which such Registration Default has been cured. In the event that the Shelf Registration Statement ceases to be effective at any time, during the period the Company is required to keep such Shelf Registration Statement effective, for more than 60 days, whether or not consecutive, during any 12-month 38 period, the interest rate per annum borne by the Equipment Notes shall be increased by 0.50% from the 61st day of the applicable 12-month period such Shelf Registration Statement ceases to be effective until such time as the Shelf Registration Statement again becomes effective. Upon consummation of the Exchange Offer, subject to certain exceptions, holders of Old Certificates who do not exchange their Old Certificates for New Certificates in the Exchange Offer will no longer be entitled to registration rights and will not be able to offer or sell their Old Certificates, unless such Old Certificates 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 the Certificates--Consequences of Failure to Exchange." Expiration Date; Extensions; Amendments; Termination The term "Expiration Date" shall mean _________, 1996 (30 calendar 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 , 1996, the interest rate borne by the Equipment Notes and passed through to the Certificateholders is subject to increase. 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 Old Certificates 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 acceptance of any Old Certificates, to extend the Exchange Offer or to terminate the Exchange Offer and not permit acceptance of Old Certificates 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 Old Certificates. 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 Old Certificates 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 THE NEW CERTIFICATES The New Certificates will accrue interest at the applicable per annum for such Trust set forth on the cover page of this Prospectus, from the last date on which interest was paid on the Old Certificates surrendered in exchange therefor. Interest on the New Certificates is payable on January 15, April 15, July 15 and October 15 of each year commencing April 15, 1996, subject to the terms of the Intercreditor Agreement. 39 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 Old Certificates must be received by the Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Certificates, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the holder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD CERTIFICATES, 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. NO LETTERS OF TRANSMITTAL OR OLD CERTIFICATES SHOULD BE SENT TO THE COMPANY. 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 Old Certificates 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 Old Certificates may tender such Old Certificates in the Exchange Offer. The term "holder" with respect to the Exchange Offer means any person in whose name Old Certificates 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 Old Certificates 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 Old Certificates, either make appropriate arrangements to register ownership of the Old Certificates 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 Old Certificates 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 Old Certificates listed therein, such Old Certificates must be endorsed or accompanied by bond powers and a proxy which authorizes such person to tender the Old Certificates on behalf of the registered holder, in each case as the name of the registered holder or holders appears on the Old Certificates. 40 If the Letter of Transmittal or any Old Certificates 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 Old Certificates 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 Old Certificates not properly tendered or any Old Certificates which, if accepted, 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 Old Certificates. 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 Old Certificates must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Old Certificates, nor shall any of them incur any liability for failure to give such notification. Tenders of Old Certificates will not be deemed to have been made until such irregularities have been cured or waived. Any Old Certificates 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 Old Certificates, 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 Old Certificates 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 Old Certificates 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 OLD CERTIFICATES FOR EXCHANGE; DELIVERY OF NEW CERTIFICATES Upon satisfaction or waiver of all of the conditions to the Exchange Offer, all Old Certificates properly tendered will be accepted, promptly after the Expiration Date, and the New Certificates will be issued promptly after acceptance of the Old Certificates. See "--Conditions" below. For purposes of the Exchange Offer, Old Certificates shall be deemed to have been accepted validly tendered for exchange when, as and if the Company has given oral or written notice thereof to the Exchange Agent. In all cases, issuance of New Certificates for Old Certificates 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 Old Certificates or a timely Book-Entry Confirmation of such Old Certificates into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Old Certificates are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Old Certificates are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or nonexchanged Old Certificates will be returned without expense to the tendering holder thereof (or, in the case of Old Certificates tendered by book-entry transfer procedures described below, such nonexchanged Old Certificates will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. 41 BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Certificates at the Book-Entry Transfer Facility for purposes of the Exchange Offer within two business days after the date of this Prospectus. Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Old Certificates by causing the Book-Entry Transfer Facility to transfer such Old Certificates into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Old Certificates may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof with any required signature guarantees and any other required documents must, in any case, be transmitted to and received by the Exchange Agent at one of the addresses set forth below under "-- Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. GUARANTEED DELIVERY PROCEDURES If a registered holder of the Old Certificates desires to tender such Old Certificates, and the Old Certificates are not immediately available, or time will not permit such holder's Old Certificates or other required documents to reach the Exchange Agent before the Expiration Date, or the procedures for book- entry transfer cannot be completed on a timely basis, 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 Old Certificates and the amount of Old Certificates 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 Old Certificates, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, 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 Old Certificates, in proper form for transfer, or a Book- Entry Confirmation, as the case may be, 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 Old Certificates 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 Old Certificates to be withdrawn, identify the Old Certificates to be withdrawn (including the principal amount of such Old Certificates) and (where certificates for Old Certificates have been transmitted) specify the name in which such Old Certificates are registered, if different from that of the withdrawing holder. If certificates for Old Certificates 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. If Old Certificates have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Certificates and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility 42 (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Certificates so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Certificates 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 (or, in the case of Old Certificates tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Certificates will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Certificates) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Certificates 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, Old Certificates will not be required to be accepted for exchange, nor will New Certificates be issued in exchange for, any Old Certificates and the Company may terminate or amend the Exchange Offer as provided herein before the acceptance of such Old Certificates, 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, permit acceptance of tenders of Old Certificates 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 New Certificates to be received by such holder or holders of Old Certificates 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 Wilmington Trust Company has been appointed 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, Overnight Delivery: By Hand: Wilmington Trust Company Wilmington Trust Company 1100 North Market Street 1105 North Market Street, 1st Floor Wilmington, Delaware 19890-0001 Wilmington, Delaware 19890 Attention: Jill Rylee Attention: Corporate Trust Operations Facsimile Transmission: (302) 651-1079 Confirm by Telephone: (302) 651-8869 Jill Rylee 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. 43 The Company will not make any payments to brokers, dealers or other persons soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse the Exchange Agent for its reasonable out-of-pocket expenses in connection therewith. The Company may also 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 Old Certificates, 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 Exchange Agent and Trustee (as hereinafter defined) and accounting, legal, printing and related fees and expenses. The Company will pay all transfer taxes, if any, applicable to the exchange of Old Certificates pursuant to the Exchange Offer. If, however, certificates representing New Certificates or Old Certificates 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 Old Certificates tendered, or if tendered Old Certificates 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 Old Certificates 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. 44 DESCRIPTION OF THE NEW CERTIFICATES The Certificates have been issued pursuant to four separate Pass Through Trust Agreements. The following summary describes certain terms of the Certificates and the Pass Through Trust Agreements. The summary does not purport to be complete and reference is made to the provisions of the Certificates and the Pass Through Trust Agreements, which have been filed as exhibits to the Registration Statement. Except as otherwise indicated, the following summary relates to each of the Trusts and the Certificates issued by each Trust. The terms and conditions governing each of the Trusts will be substantially the same, except as described under "--Subordination" below and except that the principal amount, the interest rate, scheduled repayments of principal, and maturity date applicable to the Equipment Notes held by each Trust and the final Distribution Date applicable to each Trust will differ. Citations to the relevant sections of the Pass Through Trust Agreements appear below in parentheses unless otherwise indicated. Copies of the Pass Through Trust Agreements are filed as exhibits to the Registration Statement and are available from the Trustee. GENERAL The Certificates of each Trust have been issued in fully registered form only. Each Certificate represents a fractional undivided interest in the Trust created by the Pass Through Trust Agreement pursuant to which such Certificate is issued. The Trust Property consists of (i) the Equipment Notes held in such Trust, all monies at any time paid thereon and all monies due and to become due thereunder, (ii) the rights of such Trust under the Intercreditor Agreement (including all monies receivable in respect of such rights), (iii) except for the Class D Trust, all monies receivable under the Liquidity Facility for such Trust and (iv) funds from time to time deposited with the Trustee in accounts relating to such Trust. Certificates represent pro rata shares of the Equipment Notes and other property held in the related Trust and have been issued only in minimum denominations of $100,000 and integral multiples of $1,000 in excess thereof. (Section 3.01). The Certificates represent interests in the respective Trusts and all payments and distributions thereon will be made only from the Trust Property. (Section 3.11) The Certificates do not represent an interest in or obligation of Continental, the Trustees, any of the Loan Trustees or Owner Trustees in their individual capacities, any Owner Participant, or any affiliate of any thereof. The existence of each Trust will not limit the liability that Certificate holders of such Trust would otherwise incur if such holders owned directly the corresponding Equipment Notes or incurred directly the obligations of such Trust. SUBORDINATION Pursuant to the Intercreditor Agreement to which the Trusts, the Subordination Agent and the Liquidity Providers are parties, on each Distribution Date, so long as no Triggering Event shall have occurred, all payments received by the Subordination Agent will be distributed in the following order: (1) payment of the Liquidity Obligations to the Liquidity Providers; (2) payments of Expected Distributions to the holders of Class A Certificates; (3) payment of Expected Distributions to the holders of Class B Certificates; (4) payment of Expected Distributions to the holders of Class C Certificates; (5) payment of Expected Distributions to the holders of Class D Certificates; and (6) payment of certain fees and expenses of the Subordination Agent and the Trustees. In addition, upon the occurrence of a Triggering Event and at all times thereafter, subject to the provisions set forth below, all payments received by the Subordination Agent in respect of the Equipment Notes and certain other payments will be distributed under the Intercreditor Agreement in the following order: (1) to the Liquidity Provider in payment of the Liquidity Obligations and certain other parties in payment of the Administration Expenses; (2) to the holders of Class A Certificates in payment of Final Distributions; (3) to the holders of Class B Certificates in payment of Final Distributions; (4) to the holders of Class C Certificates in payment of Final Distributions; and (5) to the holders of Class D Certificates in payment of Final Distributions. 45 For purposes of calculating Expected Distributions or Final Distributions, any premium paid on the Equipment Notes held in any Trust which has not been distributed to the Certificateholders of such Trust (other than such premium or a portion thereof applied to the payment of interest on the Certificates of such Trust or the reduction of the Pool Balance of such Trust) shall be added to the amount of Expected Distributions or Final Distributions. Notwithstanding the foregoing provisions, after the occurrence of a Triggering Event but so long as no PTC Event of Default shall have occurred and be continuing with respect to the most senior Class of Certificates outstanding, any regularly scheduled payment received on the Performing Equipment Notes shall be distributed as follows: (x) the Performing Equipment Notes Interest Payment will be distributed in the following order: (1) to the Liquidity Providers in payment of the Liquidity Obligations and certain other parties in payment of the Administration Expenses; (2) to the holders of Class A Certificates in payment of accrued and unpaid interest on the Class A Certificates; (3) to the holders of Class B Certificates in payment of accrued and unpaid interest on the Class B Certificates; (4) to the holders of Class C Certificates in payment of accrued and unpaid interest on the Class C Certificates; and (5) to the holders of Class D Certificates; provided that the provisions of this paragraph (x) will be given effect before distribution of any funds received in respect of any Non-Performing Equipment Notes; (y) the Performing Equipment Notes Principal Payment will be distributed in the following order: (1) to the holders of Class A Certificates in payment of the greater of (A) the Adjusted Expected Distributions to such holders on such Distribution Date and (B) such holders' pro rata portion of the Performing Equipment Notes Principal Payment based on the Adjusted Pool Balance of such Trust; (2) to the holders of Class B Certificates in payment of the greater of (A) the Adjusted Expected Distributions to such holders on such Distribution Date and (B) such holders' pro rata portion of the Performing Equipment Notes Principal Payment based on the Adjusted Pool Balance of such Trust; (3) to the holders of Class C Certificates in payment of the greater of (A) the Adjusted Expected Distributions to such holders on such Distribution Date and (B) such holders' pro rata portion of the Performing Equipment Notes Principal Payment based on the Adjusted Pool Balance of such Trust; and (4) to the holders of Class D Certificates; provided that the provisions of this paragraph (y) will be given effect after distributing any funds received in respect of any Non-Performing Equipment Notes; provided that if the aggregate amount of future scheduled payments in respect of the Performing Equipment Notes, together with the Performing Equipment Notes Principal Payment as of such Distribution Date, will be (assuming the distribution of such amount as contemplated by paragraphs (x) and (y) and that no further payment will be received at any time from the Non-Performing Equipment Notes) insufficient to pay interest on any Class of Certificates and reduce the Pool Balance of such Class of Certificates to zero before the Final Maturity Date thereof, the amount of distributions to be made to the holders of such Class of Certificates on such Distribution Date will be increased by the amount necessary to eliminate such insufficiency prior to making any distributions to the holders of any Class of Certificates junior to such Class of Certificates and such increase shall be taken into account for the purpose of applying this proviso to the holders of any such junior Class of Certificates. PAYMENTS AND DISTRIBUTIONS Payments of principal, premium (if any) and interest with respect to the Equipment Notes or other Trust Property held in each Trust will be distributed by the Trustee to Certificateholders of such Trust on the date receipt of such payment is confirmed, except in the case of certain types of Special Payments (as defined herein). The Equipment Notes held in each Trust will accrue interest at the applicable rate per annum for such Trust set forth on the cover page of this Prospectus, payable on January 15, April 15, July 15 and October 15 of 46 each year commencing on April 15, 1996 and such interest payments will be passed through to Certificateholders of such Trust on each such date until the final Distribution Date for such Trust, in each case, subject to the Intercreditor Agreement. Interest is calculated on the basis of a 360-day year consisting of twelve 30-day months. The interest rates for the Certificates are subject to increases under certain circumstances. See "The Exchange Offer--General". Payments of interest on the Certificates to be issued by each Trust (other than the Class D Trust) will be supported by a separate Liquidity Facility to be provided by Credit Suisse (the "Liquidity Provider") for the benefit of the holders of such Certificates in an amount sufficient to pay interest thereon at the Stated Interest Rate for such Trust on six successive quarterly Distribution Dates. Notwithstanding the subordination provisions of the Intercreditor Agreement, the holders of the Certificates to be issued by each Trust (other than the Class D Trust) will be entitled to receive and retain the proceeds of drawings under the Liquidity Facility for such Trust. See "Description of the Liquidity Facilities". Payments of principal on the Equipment Notes held in each Trust are scheduled to be received by the Trustee on January 15, April 15, July 15 or December 15, in certain years depending upon the terms of the Equipment Notes held in such Trust commencing January 15, 1997, in the case of each of the Class A Trust, the Class B Trust and the Class C Trust and January 15, 1999, in the case of the Class D Trust. Scheduled payments of interest and principal on the Equipment Notes are herein referred to as "Scheduled Payments", and January 15, April 15, July 15 and October 15 of each year are herein referred to as "Regular Distribution Dates". See "Description of the Equipment Notes--Principal and Interest Payments". The Final Maturity Date for each Certificate is April 15, 2015. The Trustee of each Trust will distribute, subject to the Intercreditor Agreement, on each Regular Distribution Date to the Certificateholders of such Trust all Scheduled Payments, the receipt of which is confirmed by the Trustee on such Regular Distribution Date. Each Certificateholder of each Trust will be entitled to receive a pro rata share of any distribution in respect of Scheduled Payments of principal and interest made on the Equipment Notes held in such Trust. Each such distribution of Scheduled Payments will be made by the Trustee of each Trust to the Certificateholders of record of such Trust on the Record Date applicable to such Scheduled Payment subject to certain exceptions. (Sections 4.01 and 4.02) If a Scheduled Payment is not received by the Trustee on a Regular Distribution Date but is received within five days thereafter, it will be distributed to such holders of record on the date received. If it is received after such five-day period, it will be treated as a Special Payment (as defined below) and distributed as described below. Any payment in respect of, or any proceeds of, any Equipment Note or the Trust Indenture Estate under (and as defined in) each Indenture (other than a Scheduled Payment) (each, a "Special Payment")) will be distributed on, in the case of an early redemption or a purchase of the Equipment Notes relating to one or more Aircraft, the date of such early redemption or purchase (which shall be a Business Day), and otherwise on the Business Day specified for distribution of such Special Payment pursuant to a notice delivered by the Trustee as soon as practicable after the Trustee has received funds for such Special Payment, in each case subject to the Intercreditor Agreement. The Trustee will mail notice to the Certificateholders of the applicable Trust not less than 20 days prior to the Special Distribution Date on which any Special Payment is scheduled to be distributed by the Trustee stating such anticipated Special Distribution Date. (Section 4.02(c)) Each distribution of a Special Payment, other than a final distribution, on a Special Distribution Date for any Trust will be made by the Trustee to the Certificateholders of record of such Trust on the Record Date applicable to such Special Payment. See "--Indenture Defaults and Certain Rights Upon an Indenture Default" and "Description of the Equipment Notes--Redemption". Each Pass Through Trust Agreement requires that the Trustee establish and maintain, for the related Trust and for the benefit of the Certificateholders of such Trust, one or more accounts (the "Certificate Account") for the deposit of payments representing Scheduled Payments on the Equipment Notes held in such Trust. Each Pass Through Trust Agreement also requires that the Trustee establish and maintain, for the related Trust and for the benefit of the Certificateholders of such Trust, one or more accounts (the "Special Payments 47 Account") for the deposit of payments representing Special Payments, which account shall be non-interest bearing except in certain circumstances where the Trustee may invest amounts in such account in certain permitted investments. Pursuant to the terms of each Pass Through Trust Agreement, the Trustee is required to deposit any Scheduled Payments relating to the applicable Trust received by it in the Certificate Account of such Trust and to deposit any Special Payments so received by it in the Special Payments Account of such Trust. (Section 4.01) All amounts so deposited will be distributed by the Trustee on a Regular Distribution Date or a Special Distribution Date, as appropriate. (Section 4.02) Distributions by the Trustee from the Certificate Account or the Special Payments Account of each Trust on a Regular Distribution Date or a Special Distribution Date in respect of Certificates issued by such Trust in definitive form will be made to each Certificateholder of record of such Certificates on the applicable Record Date. (Section 4.02) The final distribution for each Trust, however, will be made only upon presentation and surrender of the Certificates for such Trust at the office or agency of the Trustee specified in the notice given by the Trustee of such final distribution. The Trustee will mail such notice of the final distribution to the Certificateholders of such Trust, specifying the date set for such final distribution and the amount of such distribution. (Section 11.01) See "--Termination of the Trusts". Distributions in respect of Certificates issued in global form will be made as described in "--Book Entry; Delivery and Form" below. If any Regular Distribution Date or Special Distribution Date is not a Business Day, distributions scheduled to be made on such Regular Distribution Date or Special Distribution Date will be made on the next succeeding Business Day without additional interest. POOL FACTORS Unless there has been an early redemption, purchase, or a default in the payment of principal or interest, in respect of one or more issues of the Equipment Notes held in a Trust, as described in "--Indenture Defaults and Certain Rights Upon an Indenture Default" and "Description of the Equipment Notes--Redemption", the Pool Factor with respect to each Trust will decline in proportion to the scheduled repayments of principal on the Equipment Notes held in such Trust as described below in "Description of the Equipment Notes-- General." In the event of such redemption, purchase or default, the Pool Factor and the Pool Balance of each Trust so affected will be recomputed after giving effect thereto and notice thereof will be mailed to the Certificateholders of such Trust. Each Trust will have a separate Pool Factor. The "Pool Balance" for each Trust or for the Certificates issued by any Trust indicates, as of any date, the original aggregate face amount of the Certificates of such Trust less the aggregate amount of all payments made in respect of the Certificates of such Trust other than payments made in respect of interest or premium thereon or reimbursement of any costs and expenses in connection therewith. The Pool Balance for each Trust as of any Regular Distribution Date or Special Distribution Date shall be computed after giving effect to the payment of principal, if any, on the Equipment Notes or other Trust Property held in such Trust and the distribution thereof to be made on that date. The "Pool Factor" for each Trust as of any Regular Distribution Date or Special Distribution Date is the quotient (rounded to the seventh decimal place) computed by dividing (i) the Pool Balance by (ii) the original aggregate face amount of the Certificates of such Trust. The Pool Factor for each Trust as of any Regular Distribution Date or Special Distribution Date shall be computed after giving effect to the payment of principal, if any, on the Equipment Notes or other Trust Property held in such Trust and the distribution thereof to be made on that date. Assuming that no early redemption or purchase, or default, in respect of any Equipment Notes shall have occurred, the Pool Factor for each Trust will be 1.0000000 on the date of issuance of the Certificates; thereafter, the Pool Factor for each Trust will decline as described herein to reflect reductions in the Pool Balance of such Trust. The amount of a Certificateholder's pro rata share of the Pool Balance of a Trust can be determined by multiplying the par value of the holder's Certificate of such Trust by the Pool Factor for such 48 Trust as of the applicable Regular Distribution Date or Special Distribution Date. Notice of the Pool Factor and the Pool Balance for each Trust will be mailed to Certificateholders of such Trust on each Regular Distribution Date and Special Distribution Date. As of the date of sale by the Trustee of the Certificates and assuming that no early redemption or purchase, or default in the payment of principal, in respect of any Equipment Notes shall occur, the Scheduled Payments of principal on the Equipment Notes held in the Class A Trust, the Class B Trust, the Class C Trust and the Class D Trust, and the resulting Pool Factors for such Trusts after taking into account each Scheduled Payment, are set forth below:
1996-A Trust 1996-B Trust 1996-C Trust 1996-D Trust Equipment Equipment Equipment Equipment Notes Notes Notes Notes Scheduled 1996-A Trust Scheduled 1996-B Trust Scheduled 1996-C Trust Scheduled 1996-D Trust Regular Payments of Expected Payments of Expected Payments of Expected Payments of Expected Distribution Dates Principal Pool Factor Principal Pool Factor Principal Pool Factor Principal Pool Factor - ------------------ ----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------ April 1996....... 0 1.0000000 0 1.0000000 0 1.0000000 0 1.0000000 July 1996........ 0 1.0000000 0 1.0000000 0 1.0000000 0 1.0000000 October 1996..... 0 1.0000000 0 1.0000000 0 1.0000000 0 1.0000000 January 1997..... 5,284,668 0.9803922 1,849,646 0.9803922 1,453,275 0.9803921 0 1.0000000 April 1997....... 0 0.9803922 0 0.9803922 0 0.9803921 0 1.0000000 July 1997........ 0 0.9803922 0 0.9803922 0 0.9803921 0 1.0000000 October 1997..... 0 0.9803922 0 0.9803922 0 0.9803921 0 1.0000000 January 1998..... 5,200,561 0.9610964 1,820,209 0.9610964 1,430,147 0.9610963 0 1.0000000 April 1998....... 0 0.9610964 0 0.9610964 0 0.9610963 0 1.0000000 July 1998........ 0 0.9610964 0 0.9610964 0 0.9610963 0 1.0000000 October 1998..... 1,881,631 0.9541149 658,583 0.9541149 517,441 0.9541149 0 1.0000000 January 1999..... 6,357,107 0.9305280 2,225,009 0.9305279 1,748,192 0.9305280 3,506,949 0.9316384 April 1999....... 0 0.9305280 0 0.9305279 0 0.9305280 0 0.9316384 July 1999........ 0 0.9305280 0 0.9305279 0 0.9305280 0 0.9316384 October 1999..... 5,151,648 0.9114137 1,803,084 0.9114136 1,416,700 0.9114136 856,524 0.9149467 January 2000..... 6,520,793 0.8872194 2,282,307 0.8872192 1,793,201 0.8872194 400,652 0.9071367 April 2000....... 0 0.8872194 0 0.8872192 0 0.8872194 0 0.9071367 July 2000........ 0 0.8872194 0 0.8872192 0 0.8872194 0 0.9071367 October 2000..... 5,902,865 0.8653178 2,066,003 0.8653178 1,623,289 0.8653177 0 0.9071367 January 2001..... 7,473,253 0.8375896 2,615,670 0.8375895 2,055,126 0.8375896 0 0.9071367 April 2001...... 0 0.8375896 0 0.8375895 0 0.8375896 0 0.9071367 July 2001........ 0 0.8375896 0 0.8375895 0 0.8375896 0 0.9071367 October 2001..... 6,296,432 0.8142278 2,203,755 0.8142278 1,731,518 0.8142276 0 0.9071367 January 2002..... 13,228,012 0.7651475 4,629,853 0.7651474 3,637,674 0.7651475 0 0.9071367 April 2002....... 0 0.7651475 0 0.7651474 0 0.7651475 0 0.9071367 July 2002........ 0 0.7651475 0 0.7651474 0 0.7651475 0 0.9071367 October 2002..... 4,756,545 0.7474992 1,664,791 0.7474992 1,308,051 0.7474990 0 0.9071367 January 2003..... 15,560,862 0.6897633 5,446,355 0.6897631 4,279,204 0.6897632 0 0.9071367 April 2003....... 0 0.6897633 0 0.6897631 0 0.6897632 0 0.9071367 July 2003........ 0 0.6897633 0 0.6897631 0 0.6897632 0 0.9071367 October 2003..... 4,703,788 0.6723107 1,646,326 0.6723104 1,293,542 0.6723105 0 0.9071637 January 2004..... 11,684,171 0.6289586 4,089,496 0.6289585 3,213,125 0.6289585 0 0.9071367 April 2004....... 0 0.6289586 0 0.6289585 0 0.6289585 0 0.9071367 July 2004........ 0 0.6289586 0 0.6289585 0 0.6289585 0 0.9071367 October 2004..... 7,590,687 0.6007947 2,656,749 0.6007947 2,087,434 0.6007944 81,724 0.9055437 January 2005..... 9,882,743 0.5641265 3,458,990 0.5641264 2,717,735 0.5641262 588,558 0.8940708 April 2005....... 0 0.5641265 0 0.5641264 0 0.5641262 1,283,740 0.8690466 July 2005........ 0 0.5641265 0 0.5641264 0 0.5641262 2,939,531 0.8117458 October 2005..... 8,279,727 0.5334060 2,897,911 0.5334061 2,276,920 0.5334056 4,204,644 0.7297840 January 2006..... 8,347,019 0.5024358 2,921,483 0.5024359 2,295,412 0.5024355 2,354,316 0.6838909 April 2006....... 0 0.5024358 0 0.5024359 0 0.5024355 2,972,939 0.6259388 July 2006........ 0 0.5024358 0 0.5024359 0 0.5024355 3,395,369 0.5597523 October 2006..... 12,492,889 0.4560831 4,372,538 0.4560832 3,435,525 0.4560878 3,779,755 0.4860729 January 2007..... 4,651,251 0.4388254 1,627,946 0.4388256 1,279,088 0.4388251 1,992,355 0.4472355 April 2007....... 1,762,951 0.4322843 617,033 0.4322845 484,811 0.4322839 855,654 0.4305561 July 2007........ 0 0.4322843 0 0.4322845 0 0.4322839 84,738 0.4289043 October 2007..... 19,579,916 0.3596364 6,853,032 0.3596365 5,384,436 0.3596362 3,796,117 0.3549059 January 2008..... 5,634,209 0.3387316 1,971,972 0.3387319 1,549,406 0.3387313 1,046,339 0.3345095 April 2008....... 0 0.3387316 0 0.3387319 0 0.3387313 23,463 0.3340521 July 2008........ 0 0.3387316 0 0.3387319 0 0.3387313 0 0.3340521 October 2008..... 17,480,052 0.2738749 6,118,097 0.2738749 4,806,962 0.2738749 3,005,458 0.2754662 January 2009..... 4,715,038 0.2563806 1,650,264 0.2563806 1,296,634 0.2561805 876,156 0.2583871 April 2009....... 0 0.2563806 0 0.2563806 0 0.2561805 0 0.2583871 July 2009........ 0 0.2563806 0 0.2563806 0 0.2561805 0 0.2583871 October 2009..... 9,982,773 0.2193412 3,494,004 0.2193412 2,745,240 0.2193412 1,549,605 0.2281804 January 2010..... 2,774,576 0.2090467 971,109 0.2090466 763,002 0.2090466 507,351 0.2182905 April 2010....... 229,494 0.2081952 80,323 0.2081951 63,111 0.2081951 0 0.2182905 July 2010........ 1,058,899 0.2042663 370,615 0.2042663 291,197 0.2042662 0 0.2182905 October 2010..... 9,714,697 0.1682216 3,400,172 0.1682216 2,671,523 0.1682216 1,425,031 0.1905121 January 2011..... 5,548,251 0.1476358 1,941,909 0.1476357 1,525,754 0.1476358 562,592 0.1795454 April 2011....... 125,922 0.1471686 44,073 0.1471684 34,629 0.1471686 21,726 0.1791219 July 2011........ 1,255,151 0.1425115 439,303 0.1425115 345,166 0.1425116 216,556 0.1749005 October 2011..... 8,481,267 0.1110432 2,968,462 0.1110432 2,332,336 0.1110432 719,133 0.1608823 January 2012..... 9,064,636 0.0774105 3,172,663 0.0774103 2,492,748 0.0774106 782,212 0.1456345 April 2012....... 146,241 0.0768679 51,184 0.0768677 40,216 0.0768680 0 0.1456345
49
1996-A Trust 1996-B Trust 1996-C Trust 1996-D Trust Equipment Equipment Equipment Equipment Notes Notes Notes Notes Scheduled 1996-A Trust Scheduled 1996-B Trust Scheduled 1996-C Trust Scheduled 1996-D Trust Regular Payments of Expected Payments of Expected Payments of Expected Payments of Expected Distribution Dates Principal Pool Factor Principal Pool Factor Principal Pool Factor Principal Pool Factor - ------------------ ----------- ----------- ----------- ----------- ----------- ------------ ------------ ------------ July 2012........ 886,893 0.0735772 310,413 0.0735770 243,895 0.0735774 79,990 0.1440753 October 2012..... 8,153,758 0.0433241 2,853,848 0.0433238 2,242,262 0.0433244 2,748,810 0.0904922 January 2013..... 9,486,707 0.0081253 3,320,348 0.0081253 2,608,844 0.0081254 1,357,427 0.0640317 April 2013....... 0 0.0081253 0 0.0081253 0 0.0081254 717,371 0.0500478 July 2013........ 532,107 0.0061510 186,238 0.0061510 146,329 0.0061511 873,473 0.0330211 October 2013..... 532,107 0.0061510 186,238 0.0061510 146,329 0.0061511 873,473 0.0330211
Any failure to make expected principal distributions on any Class of Certificates on any Regular Distribution Date (other than the Final Maturity Date) will not constitute a PTC Event of Default with respect to such Certificates. Reports to Certificateholders On each Regular Distribution Date and Special Distribution Date, the applicable Trustee will include with each distribution of a Scheduled Payment or Special Payment, respectively, to Certificateholders of the related Trust a statement, giving effect to such distribution to be made on such Regular Distribution Date or Special Distribution Date, setting forth the following information (per $1,000 aggregate principal amount of Certificate for such Trust, as to (i) and (ii) below): (i) the amount of such distribution allocable to principal and the amount allocable to premium (if any); (ii) the amount of such distribution allocable to interest; and (iii) the Pool Balance and the Pool Factor for such Trust. (Section 4.03) With respect to the Certificates registered in the name of Cede, as nominee for DTC, on the record date prior to each Distribution Date, the applicable Trustee will request from DTC a Securities Position Listing setting forth the names of all DTC Participants reflected on DTC's books as holding interests in the Certificates on such record date. On each Distribution Date, the applicable Trustee will mail to each such DTC Participant the statement described above and will make available additional copies as requested by such DTC Participant for forwarding to holders of Certificates. In addition, after the end of each calendar year, the applicable Trustee will prepare for each Certificateholder of each Trust at any time during the preceding calendar year a report containing the sum of the amounts determined pursuant to clauses (i) and (ii) above with respect to the Trust for such calendar year or, in the event such person was a Certificateholder during only a portion of such calendar year, for the applicable portion of such calendar year, and such other items as are readily available to such Trustee and which a Certificateholder shall reasonably request as necessary for the purpose of such Certificateholder's preparation of its U.S. federal income tax returns. (Section 4.03) Such report and such other items shall be prepared on the basis of information supplied to the applicable Trustee by the DTC Participants and shall be delivered by such Trustee to such DTC Participants to be available for forwarding by such DTC Participants to Certificate Owners in the manner described above. With respect to the Certificates issued in definitive form, the applicable Trustee will prepare and deliver the information described above to each Certificateholder of record of each Trust as the name of such Certificateholder appears on the records of the registrar of the Certificates. 50 INDENTURE DEFAULTS AND CERTAIN RIGHTS UPON AN INDENTURE DEFAULT An event of default under an Indenture (an "Indenture Default") will include an event of default under the related Lease (a "Lease Event of Default"). Since the Equipment Notes issued under an Indenture may be held in more than one Trust, a continuing Indenture Default under such Indenture would affect the Equipment Notes held by each such Trust. There are no cross-default provisions in the Indentures. Consequently, events resulting in an Indenture Default under any particular Indenture may or may not result in an Indenture Default under any other Indenture. However, a Lease Event of Default under any Lease will constitute a Lease Event of Default under all Leases due to the cross-default provisions in the Leases, and will consequently result in an Indenture Default under all Indentures. If an Indenture Default occurs in fewer than all of the Indentures, notwithstanding the treatment of Equipment Notes issued under any Indenture under which an Indenture Default has occurred, payments of principal and interest on the Equipment Notes issued pursuant to Indentures with respect to which an Indenture Default has not occurred will continue to be distributed to the holders of the Certificates as originally scheduled, subject to the Intercreditor Agreement. See "Description of the Intercreditor Agreement--Priority of Distributions". With respect to each Aircraft, the applicable Owner Trustee and Owner Participant will, under the related Indenture, have the right under certain circumstances to cure Indenture Defaults that result from the occurrence of a Lease Event of Default under the related Lease. If the Owner Trustee or the Owner Participant exercises any such cure right, the Indenture Default will be deemed to have been cured. In the event that the same institution acts as Trustee of multiple Trusts, in the absence of instructions from the Certificateholders of any such Trust, such Trustee could be faced with a potential conflict of interest upon an Indenture Default. In such event, each Trustee has indicated that it would resign as Trustee of one or all such Trusts, and a successor trustee would be appointed in accordance with the terms of the applicable Pass Through Trust Agreement. Upon the occurrence and continuation of any Indenture Default under any Indenture, the Controlling Party may accelerate and sell all (but not less than all) of the Equipment Notes issued under such Indenture to any person, subject to certain limitations. The proceeds of such sale will be distributed pursuant to the provisions of the Intercreditor Agreement. Any proceeds received by the applicable Trustee upon any such sale shall be deposited in the applicable Special Payments Account and shall be distributed to the Certificateholders of such Trust on a Special Distribution Date. (Sections 4.01 and 4.02) The market for Equipment Notes at the time of the existence of any Indenture Default may be very limited, and there can be no assurance as to the price at which they could be sold. If such Trustee sells any such Equipment Notes for less than their outstanding principal amount, the Certificateholders will receive a smaller amount of principal distributions than anticipated and will not have any claim for the shortfall against Continental, any Owner Trustee, any Owner Participant or any Trustee. Any amount, other than Scheduled Payments received on a Regular Distribution Date, distributed to the Trustee of any Trust by the Subordination Agent on account of the Equipment Notes or other Trust Property held in such Trust following an Indenture Default under any Indenture shall be deposited in the Special Payments Account for such Trust and shall be distributed to the Certificateholders of such Trust on a Special Distribution Date. (Section 4.02) In addition, if, following an Indenture Default under any Indenture relating to an Aircraft, the applicable Owner Trustee exercises its option to redeem or purchase the outstanding Equipment Notes issued under such Indenture, the price paid by such Owner Trustee for the Equipment Notes issued under such Indenture and distributed to such Trust by the Subordination Agent shall be deposited in the Special Payments Account for such Trust and shall be distributed to the Certificateholders of such Trust on a Special Distribution Date. (Section 4.02) 51 Any funds representing payments received with respect to any defaulted Equipment Notes held in a Trust, or the proceeds from the sale of any Equipment Notes, held by such Trustee in the Special Payments Account for such Trust shall, to the extent practicable, be invested and reinvested by such Trustee in Permitted Investments pending the distribution of such funds on a Special Distribution Date. (Section 4.04) Permitted Investments are defined as obligations of the United States or agencies or instrumentalities thereof the payment of which is backed by the full faith and credit of the United States and which mature in not more than 60 days or such lesser time as is required for the distribution of any such funds on a Special Distribution Date. (Section 1.01) Each Pass Through Trust Agreement provides that the Trustee of the related Trust shall, within 90 days after the occurrence of any Indenture Default, give to the Certificateholders of such Trust notice, transmitted by mail, of all uncured or unwaived defaults with respect to such Trust known to it, provided that, except in the case of default in the payment of principal, premium, if any, or interest on any of the Equipment Notes or other Trust Property held in such Trust, the applicable Trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interests of such Certificateholders. (Section 7.02) Each Pass Through Trust Agreement contains a provision entitling the Trustee of the related Trust, subject to the duty of such Trustee during a default to act with the required standard of care, to be offered reasonable security or indemnity by the holders of the Certificates of such Trust before proceeding to exercise any right or power under such Pass Through Agreement at the request of such Certificateholders. (Section 7.03(e)) In certain cases, the holders of the Certificates of a Trust evidencing fractional undivided interests aggregating not less than a majority in interest of such Trust may on behalf of the holders of all the Certificates of such Trust waive any past default under the related Pass Through Trust Agreement or, if the Trustee of such Trust is the Controlling Party, may direct the Trustee to instruct the applicable Loan Trustee to waive any past Indenture Default with respect to such Trust and thereby annul any direction given by such holders to such Loan Trustee with respect thereto, except (i) a default in the deposit of any Scheduled Payment or Special Payment or in the distribution thereof, (ii) a default in payment of the principal, premium, if any, or interest with respect to any of the Equipment Notes held in such Trust and (iii) a default in respect of any covenant or provision of the related Pass through Trust Agreement that cannot be modified or amended without the consent of each Certificateholder of such Trust affected thereby. (Section 6.05) Each Indenture will provide that, with certain exceptions, the holders of the majority in aggregate unpaid principal amount of the Equipment Notes issued thereunder may on behalf of all such holders waive any past default or Indenture Default thereunder. Notwithstanding the foregoing provisions of this paragraph, however, pursuant to the Intercreditor Agreement, only the Controlling Party will be entitled to waive any such past default or Indenture Default. PURCHASE RIGHTS OF CERTIFICATEHOLDERS Upon the occurrence and during the continuation of a Triggering Event, (i) the Class B Certificateholders shall have the right to purchase all, but not less than all, of the Class A Certificates, (ii) the Class C Certificateholders shall have the right to purchase all, but not less than all, of the Class A Certificates and the Class B Certificates and (iii) the Class D Certificateholders shall have the right to purchase all, but not less than all, of the Class A Certificates, the Class B Certificates and the Class C Certificates, in each case at a purchase price equal to the Pool Balance of the relevant Class or Classes of Certificates plus accrued and unpaid interest thereon to the date of purchase without premium but including any other amounts due to the Certificateholders of such Class or Classes. 52 PTC EVENT OF DEFAULT A PTC Event of Default is defined under each Pass Through Trust Agreement as the failure to pay within 10 Business Days of the due date thereof: (i) the outstanding Pool Balance of the applicable Class of Certificates on the Final Maturity Date for such Class or (ii) interest due on such Certificates on any Distribution Date (unless the Subordination Agent shall have made an Interest Drawing with respect thereto in an amount sufficient to pay such interest and shall have distributed such amount to the Certificateholders entitled thereto). A PTC Event of Default with respect to the most senior Class of Certificates resulting from an Indenture Default under all Indentures will constitute a Triggering Event. MERGER, CONSOLIDATION AND TRANSFER OF ASSETS Continental is prohibited from consolidating with or merging into any other corporation or transferring substantially all of its assets as an entirety to any other corporation unless (i) the surviving successor or transferee corporation shall (a) be a "citizen of the United States" as defined in Section 40102(a)(15) of Title 49 of the United States Code, as amended, relating to aviation (the "Aviation Act"), (b) be a United States certificated air carrier and (c) expressly assume all of the obligations of Continental contained in the Pass Through Trust Agreements, the Refunding Agreements, the Indentures, the Participation Agreements and the Leases, and any other operative documents; (ii) immediately after giving effect to such transaction, no Lease Event of Default shall have occurred and be continuing; and (iii) Continental shall have delivered a certificate and an opinion or opinions of counsel indicating that such transaction complies with such conditions. (Section 5.02; Leases, Section 13.2) The Pass Through Trust Agreements and the Indentures do not contain any covenants or provisions which may afford the applicable Trustee or Certificateholders protection in the event of a highly leveraged transaction, including transactions effected by management or affiliates, which may or may not result in a change in control of Continental. MODIFICATIONS OF THE PASS THROUGH TRUST AGREEMENTS AND CERTAIN OTHER AGREEMENTS Each Pass Through Trust Agreement contains provisions permitting the execution of supplemental trust agreements, without the consent of the holders of any of the Certificates of such Trust, (i) to evidence the succession of another corporation to Continental and the assumption by such corporation of Continental's obligations under such Pass Through Trust Agreement, (ii) to add to the covenants of Continental for the benefit of holders of such Certificates or to surrender any right or power in such Pass Through Trust Agreement conferred upon Continental, (iii) to correct or supplement any defective or inconsistent provision of such Pass Through Trust Agreement or to modify any other provisions with respect to matters or questions arising thereunder, provided such action shall not materially adversely affect the interests of the holders of such Certificates, or to cure any ambiguity or correct any mistake, (iv) to add to such Pass Through Trust Agreement such other provisions as may be expressly permitted by the Trust Indenture Act and (v) to provide for a successor Trustee or to add to or change any provision of such Pass Through Trust Agreement as shall be necessary to facilitate the administration of the Trust thereunder by more than one Trustee. In addition, each Pass Through Trust Agreement provides that the Trustee will be permitted to enter into any amendment or supplement to the Intercreditor Agreement or the Liquidity Facilities, without the consent of the holders of any Certificates, to cure any ambiguity or correct any mistake or to correct or supplement any defective or inconsistent provision thereof or to modify any other provision with respect to matters or questions arising thereunder; provided that such action shall not materially adversely affect the interests of the Certificateholders. (Section 9.01) Each Pass Through Trust Agreement also contains provisions permitting the execution, with the consent of the holders of the Certificates of the related Trust evidencing fractional undivided interests aggregating not less than a majority in interest of such Trust, and with the consent of the applicable Owner Trustee (such consent 53 not to be unreasonably withheld), of supplemental trust agreements adding any provisions to or changing or eliminating any of the provisions of such Pass Through Trust Agreement or modifying the rights of the Certificateholders, except that no such supplemental trust agreement may, without the consent of the holder of each Certificate so affected thereby, (a) reduce in any manner the amount of, or delay the timing of, any receipt by the Trustee of payments on the Equipment Notes or other Trust Property held in such Trust or distributions in respect of any Certificate related to such Trust, or change the date or place of any payment in respect of any Certificate, or make distributions payable in coin or currency other than that provided for in such Certificates, or impair the right of any Certificateholder of such Trust to institute suit for the enforcement of any such payment when due, (b) permit the disposition of any Equipment Note held in such Trust, except as provided in such Pass Through Trust Agreement, or otherwise deprive any Certificateholder of the benefit of the ownership of the applicable Equipment Notes, (c) alter the priority of distributions specified in the Intercreditor Agreement, (d) reduce the percentage of the aggregate fractional undivided interests of the Trust provided for in such Pass Through Trust Agreement, the consent of the holders of which is required for any such supplemental trust agreement or for any waiver provided for in such Pass Through Trust Agreement or (e) modify any of the provisions relating to the rights of the Certificateholders in respect of the waiver of Events of Default or receipt of payment. (Section 9.02) TERMINATION OF THE TRUSTS The obligations of Continental and the applicable Trustee with respect to a Trust will terminate upon the distribution to Certificateholders of such Trust of all amounts required to be distributed to them pursuant to applicable Pass Through Trust Agreement and the disposition of all property held in such Trust. The applicable Trustee will send to each Certificateholder of record of such Trust notice of the termination of such Trust, the amount of the proposed final payment and the proposed date for the distribution of such final payment for such Trust. The final distribution to any Certificateholder of such Trust will be made only upon surrender of such Certificateholder's Certificates at the office or agency of the applicable Trustee specified in such notice of termination. (Section 11.01) DELAYED PURCHASE In the event that on the date of the consummation of the Offering, the conditions to delivery of the Equipment Notes are not all satisfied and, as a result, any portion of the proceeds from the sale of the Certificates is not used to purchase the Equipment Notes issuable under any Indenture, such Equipment Notes may be purchased by the Trustees at any time on or prior to March 31, 1996. In such event, the Trustees will hold such proceeds not used to purchase Equipment Notes in an escrow account pending the purchase of the Equipment Notes not so purchased. Such proceeds will be invested in certain specified investments at the direction and risk of, and for the account of, Continental. Earnings on such investments in the escrow account for each Trust will be paid to Continental periodically, and Continental will be responsible for any losses. (Section 2.01(b)) THE TRUSTEES The Trustee for each Trust is Wilmington Trust Company. With certain exceptions, the Trustee makes no representations as to the validity or sufficiency of the Pass Through Trust Agreements, the Certificates, the Equipment Notes, the Indentures, the Leases or other related documents. (Sections 7.04 and 7.15) The Trustee of any Trust shall not be liable, with respect to the Certificates of such Trust, for any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of a majority in principal amount of outstanding Certificates of such Trust. Subject to certain provisions, the Trustees shall be under no obligation to exercise any of their rights or powers under any Pass Through Trust Agreement at the request of any holders of Certificates issued thereunder unless there shall 54 have been offered to the Trustees indemnity satisfactory to them. (Section 7.03(d)) Each Pass Through Trust Agreement provides that the Trustees in their individual or any other capacity may acquire and hold Certificates issued thereunder and, subject to certain conditions, may otherwise deal with Continental and with any Owner Trustee with the same rights they would have if they were not the Trustees. (Section 7.05) Any Trustee may resign with respect to any or all of the Trusts of which it is the Trustee at any time, in which event Continental will be obligated to appoint a successor trustee. If any Trustee ceases to be eligible to continue as Trustee with respect to a Trust or becomes incapable of acting as Trustee or becomes insolvent, Continental may, with the consent of the Owner Participants for the Aircraft (which consent shall not be unreasonably withheld), remove such Trustee or any holder of the Certificates of such Trust for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of such Trustee and the appointment of a successor trustee. Any resignation or removal of the Trustee with respect to a Trust and appointment of a successor trustee for such Trust does not become effective until acceptance of the appointment by the successor trustee. (Sections 7.09 and 7.10) Each Pass Through Trust Agreement provides that Continental or the Owner Participant will pay the applicable Trustee's fees and expenses. (Section 7.07) BOOK-ENTRY; DELIVERY AND FORM The New Certificates of each Trust will be represented by a single, permanent global Certificate, in definitive, fully registered form without interest coupons (the "Global Certificate"), to be deposited with the Trustee as custodian for DTC and registered in the name of a nominee of DTC. Old Certificates originally issued in definitive, fully registered form with respect to any Trust ("Definitive Certificates") will be exchanged for beneficial interests in the Global Certificate, representing the New Certificates of such Trust. DTC has advised Continental as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provision of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Upon the issuance of the Global Certificates, DTC or its custodian credited, on its internal system, the respective principal amount of the individual beneficial interests represented by such Global Certificates to the accounts of persons who have accounts with such depositary. Ownership of beneficial interests in the Global Certificates is limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants. Ownership of beneficial interests in the Global Certificates is shown on, and the transfer of that ownership is effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). The laws of some states require that certain purchasers of securities take physical delivery of such securities. Such limits and such laws may limit the market for beneficial interests in the Global Certificates. Qualified institutional buyers may hold their interests in the Global Certificates directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system. 55 So long as DTC or its nominee is the registered owner or holder of the Global Certificates, DTC or such nominee, as the case may be, will be considered the sole record owner or holder of the Certificates represented by such Global Certificates for all purposes under the related Pass Through Trust Agreements. No beneficial owners of an interest in the Global Certificates will be able to transfer that interest except in accordance with DTC's applicable procedures, in addition to those provided for under the Pass Through Trust Agreements and, if applicable, Euroclear or Cedel. Payments of the principal of, premium, if any, and interest on the Global Certificates will be made to DTC or its nominee, as the case may be, as the registered owner thereof. Neither Continental, the Trustee, nor any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Certificates or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Continental expects that DTC or its nominee, upon receipt of any payment of principal, premium, if any, or interest in respect of the Global Certificates will credit participants' accounts with payments in amounts proportionate to their respective beneficial ownership interests in the principal amount of such Global Certificates, as shown on the records of DTC or its nominee. Continental also expects that payments by participants to owners of beneficial interests in such Global Certificates held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Neither Continental nor the Trustee has any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. If DTC is at any time unwilling or unable to continue as a depositary for the Global Certificates and a successor depositary is not appointed by within 90 days, the Trusts will issue Definitive Certificates in exchange for the Global Certificates. 56 DESCRIPTION OF THE LIQUIDITY FACILITIES The following summary describes certain terms of the Liquidity Facilities and certain provisions of the Intercreditor Agreement relating to the Liquidity Facilities. The summary does not purport to be complete and reference is made to the provisions of the Liquidity Facilities and such provisions of the Intercreditor Agreement, which has been filed as an exhibit to the Registration Statement. The provisions of the Liquidity Facilities are substantially identical except as otherwise indicated. Upon request, copies of such documents will be furnished to any prospective investor in the Certificates. Copies of such documents are filed as exhibits to the Registration Statement and are available from the Trustee. GENERAL With respect to the Certificates of each Trust (other than the Class D Trust), the Subordination Agent has entered into a Liquidity Facility with the Liquidity Provider pursuant to which the Liquidity Provider will make one or more advances to the Subordination Agent to pay interest on such Certificates subject to certain limitations. The Liquidity Facility for any Trust is intended to enhance the likelihood of timely receipt by the Certificateholders of such Trust of the interest payable on the Certificates of such Trust at the Stated Interest Rate therefor on six consecutive Regular Distribution Dates. If interest payment defaults occur which exceed the amount covered by or available under the Liquidity Facility for any Trust, the Certificateholders of such Trust will bear their allocable share of the deficiencies to the extent that there are no other sources of funds. Although Credit Suisse is the initial Liquidity Provider for each of the Class A Trust, the Class B Trust and the Class C Trust, Credit Suisse may be replaced by another entity with respect to one or more Trusts under certain circumstances. Therefore, the liquidity provider for any Trust may be different from the liquidity provider for any other Trust. DRAWINGS The initial stated amount available under each of the Liquidity Facilities for the Class A Trust, the Class B Trust and the Class C Trust is $30,078,208.00, $11,772,633.60 and $11,117,550.00, respectively. Except as otherwise provided below, the Liquidity Facility for each Trust will enable the Subordination Agent to make Interest Drawings thereunder promptly after any Regular Distribution Date to pay interest then due and payable on the Certificates of such Trust at the Stated Interest Rate for such Trust to the extent that the amount, if any, available to the Subordination Agent on such Regular Distribution Date is not sufficient to pay such interest; provided, however, that the maximum amount available to be drawn under such Liquidity Facility on any Regular Distribution Date to fund any shortfall of interest on such Certificates will not exceed an amount equal to the then stated amount of such Liquidity Facility. The Liquidity Facility for any Trust does not provide for drawings thereunder to pay for principal of or premium on the Certificates of such Trust or any interest on the Certificates of such Trust in excess of the Stated Interest Rate for such Trust or more than six quarterly installments of interest thereon or principal of or interest or premium on the Certificates of any other Trust. (Liquidity Facilities, Section 2.02; Intercreditor Agreement, Section 3.6(b)) Each payment by the Liquidity Provider under each Liquidity Facility reduces pro tanto the amount available to be drawn under such Liquidity Facility, subject to reinstatement as hereinafter described. With respect to any Interest Drawings under the Liquidity Facility for any Trusts, upon reimbursement of the Liquidity Provider in full for the amount of such Interest Drawings plus interest thereon, the amount available to be drawn under such Liquidity Facility in respect of interest on the Certificates of such Trust shall be reinstated to an amount equal to the then stated amount of such Liquidity Facility; provided, however, that such Liquidity Facility shall not be so reinstated at any time after (i) a Triggering Event shall have occurred and be continuing and (ii) less than 65% of the then aggregate outstanding principal amount of all Equipment Notes are Performing Equipment Notes. With respect to any other drawings under such Liquidity Facility, amounts available to be drawn thereunder are not subject to reinstatement. The stated amount of the Liquidity Facility for any Trust will 57 be automatically reduced from time to time to an amount equal to the next six successive interest payments due on the Certificates of such Trust (without regard to expected future payment of principal of such Certificates) at the Stated Interest Rate for such Trust. (Liquidity Facilities, Section 2.04(a); Intercreditor Agreement, Section 3.6(j)) If at any time the short-term unsecured debt rating of the Liquidity Provider for any Trust then issued by either Rating Agency is lower than the Threshold Rating, the Liquidity Facility for such Trust will be required to be replaced by a Replacement Facility (as defined below). In the event that such Liquidity Facility is not replaced with a Replacement Facility within 10 days after notice of the downgrading and as otherwise provided in the Intercreditor Agreement, the Subordination Agent shall request the Downgrade Drawing in an amount equal to all available and undrawn amounts thereunder and shall hold the proceeds thereof in the Cash Collateral Account for such Trust as cash collateral to be used for the same purposes and under the same circumstances as cash payments of Interest Drawings under such Liquidity Facility would be used. (Liquidity Facilities, Section 2.02(c); Intercreditor Agreement, Section 3.6(c)) A "Replacement Facility" for any Trust means an irrevocable liquidity facility in substantially the form of the initial Liquidity Facility for such Trust, including reinstatement provisions, or in such other form (which may include a letter of credit) as shall permit the Rating Agencies to confirm in writing their respective ratings then in effect for the Certificates (before downgrading of such ratings, if any, as a result of the downgrading of the Liquidity Provider), in a face amount equal to the amount of interest payable on the Certificates of such Trust (at the Stated Interest Rate for such Trust, and without regard to expected future principal payments) on the six Regular Distribution Dates following the date of replacement of such Liquidity Facility and issued by a Person having unsecured short-term debt ratings issued by both Rating Agencies which are (i) equal to or higher than the Threshold Rating and (ii) equal to or higher than the unsecured short-term debt ratings of the Liquidity Provider being replaced issued by both Rating Agencies. (Intercreditor Agreement, Section 1.1) "Threshold Rating" means the short-term unsecured debt rating of P-2 by Moody's and A-1 by Standard & Poor's. The Liquidity Facility for each Trust provides that the Liquidity Provider's obligations thereunder will expire on the earliest of (i) January 29, 1997; (ii) the date on which such Liquidity Facility is surrendered to the Liquidity Provider together with a certification that all of the Certificates of such Trust have been paid in full; (iii) the date such Liquidity Facility is surrendered to the Liquidity Provider together with a certification that a Replacement Facility has been substituted for such Liquidity Facility; (iv) the fifth Business Day following receipt by the Subordination Agent of a Termination Notice from the Liquidity Provider (see "--Liquidity Events of Default"); and (v) the date on which no amount is or may (by reason of reinstatement) become available for drawing under such Liquidity Facility. Each Liquidity Facility provides that the scheduled expiration date thereof may be extended for additional one-year periods by mutual agreement. The Intercreditor Agreement provides for the replacement of the Liquidity Facility for any Trust (other than a Liquidity Facility which expires no earlier than 15 days later than the final maturity date) in the event that such Liquidity Facility is not extended at least 25 days prior to its then scheduled expiration date. In the event such Liquidity Facility is not so extended or replaced within 25 days prior to its then scheduled expiration date, the Subordination Agent shall request the Non- Extension Drawing in an amount equal to all available and undrawn amounts thereunder and hold the proceeds thereof in the Cash Collateral Account for such Trust as cash collateral to be used for the same purposes and under the same circumstances, and subject to the same conditions, as cash payments of Interest Drawings under such Liquidity Facility would be used. (Liquidity Facilities, Section 2.02(b); Intercreditor Agreement, Section 3.6(d)) Continental, in consultation with the Subordination Agent, may direct the Owner Participants (which shall follow such direction unless they have a bona fide, good faith reason not to) to arrange for a replacement facility at any time to replace the Liquidity Facility for any Trust. If such replacement facility is provided at any 58 time after the Downgrade Drawing or the Non-Extension Drawing under such Liquidity Facility, the funds on deposit in the Cash Collateral Account for such Trust will be returned to the Liquidity Provider being replaced. (Intercreditor Agreement, Section 3.6(e)) The Intercreditor Agreement provides that, upon receipt by the Subordination Agent of a Termination Notice with respect to any Liquidity Facility from the Liquidity Provider, the Subordination Agent shall request a final drawing (the "Final Drawing") under such Liquidity Facility in an amount equal to all available and undrawn amounts thereunder and shall hold the proceeds thereof in the Cash Collateral Account for the related Trust as cash collateral to be used for the same purposes and under the same circumstances, and subject to the same conditions, as cash payments of Interest Drawings under such Liquidity Facility would be used. (Liquidity Facilities, Section 2.02(d); Intercreditor Agreement, Section 3.6(i)) Drawings under any Liquidity Facility will be made by delivery by the Subordination Agent of a certificate in the form required by such Liquidity Facility. Upon receipt of such a certificate, the Liquidity Provider is obligated to make payment of the drawing requested thereby in immediately available funds. Upon payment by the Liquidity Provider of the amount specified in any drawing under any Liquidity Facility, the Liquidity Provider will be fully discharged of its obligations under such Liquidity Facility with respect to such drawing and will not thereafter be obligated to make any further payments under such Liquidity Facility in respect of such drawing to the Subordination Agent or any other person or entity who makes a demand for payment in respect of interest on the related Certificates. REIMBURSEMENT OF DRAWINGS Amounts drawn under any Liquidity Facility by reason of an Interest Drawing or the Final Drawing will be immediately due and payable, together with interest on the amount of such drawing at a rate equal to the applicable LIBOR plus 2.00% per annum; provided that the Subordination Agent will be obligated to reimburse such amounts only to the extent that the Subordination Agent has available funds therefor. The amount drawn under the Liquidity Facility for any Trust by reason of the Downgrade Drawing or the Non-Extension Drawing will be treated as follows: (i) such amount will be released on any Regular Distribution Date to the Liquidity Provider to the extent that such amount exceeds the amount of interest payable on the then outstanding aggregate principal amount of the Certificates of such Trust at the Stated Interest Rate for such Trust on six consecutive Regular Distribution Dates (without regard to expected future payments of principal of such Certificates) minus any unreimbursed Interest Drawings under such Liquidity Facility; (ii) any portion of such amount withdrawn from the Cash Collateral Account for such Certificates to pay interest on such Certificates will be treated in the same way as Interest Drawings; and (iii) the balance of such amount will be invested in Eligible Investments. Any portion of the Downgrade Drawing or the Non-Extension Drawing under any Liquidity Facility remaining unreimbursed as of the tenth anniversary of the consummation of the Offering (or, if such Liquidity is extended beyond such tenth anniversary, the expiration date thereof so extended) shall be payable in eight quarterly installments, commencing on the Regular Distribution Date immediately following such date; provided that such principal installments shall not be required to be paid so long as Continental complies with its obligation to purchase participation interests in the Liquidity Facilities pursuant to a separate agreement with Credit Suisse. The Downgrade Drawing or the Non-Extension Drawing under any Liquidity Facility will bear interest at a rate equal to the applicable LIBOR plus 0.75% per annum. (Liquidity Facilities, Section 2.06) LIQUIDITY EVENTS OF DEFAULT Events of Default under each Liquidity Facility (each, a "Liquidity Event of Default") will consist of: (i) the acceleration of all the Equipment Notes; and (ii) certain bankruptcy or similar events involving Continental. (Liquidity Facilities, Section 1.01) 59 If (i) any Liquidity Event of Default occurs under any Liquidity Facility and (ii) less than 65% of the aggregate outstanding principal amount of all Equipment Notes are Performing Equipment Notes, the Liquidity Provider may, in its discretion, give a notice of termination of the related Liquidity Facility and accelerate the reimbursement obligations thereunder (a "Termination Notice") the effect of which shall be to cause (i) such Liquidity Facility to expire on the fifth Business Day after the date on which such Termination Notice is received by the Subordination Agent, (ii) any Drawing remaining unreimbursed as of the date of termination to be automatically converted into a Final Drawing under such Liquidity Facility, and (iii) all amounts owing to the Liquidity Provider automatically to become accelerated. Notwithstanding the foregoing, the Subordination Agent will be obligated to pay amounts owing to the Liquidity Provider only to the extent of funds available therefor after giving effect to the payments in accordance with the provisions set forth under "Description of the Intercreditor Agreement--Priority of Distributions". (Liquidity Facilities, Section 6.01) Upon the circumstances described below under "Description of the Intercreditor Agreement--Intercreditor Rights", the Liquidity Provider may become the Controlling Party with respect to the exercise of remedies under the Indentures. (Intercreditor Agreement, Section 2.6(c)) LIQUIDITY PROVIDER The initial Liquidity Provider is Credit Suisse. Founded in 1856, Credit Suisse is the oldest of Switzerland's three major banks and maintains its corporate headquarters in Zurich, Switzerland. Within Switzerland, Credit Suisse conducts its operations through 311 offices and branches. Internationally, Credit Suisse maintains a presence on five continents through its 73 foreign branches, representative offices and subsidiaries. Banking operations of Credit Suisse in the United States began in 1940 and currently include branches in New York and Los Angeles, an agency in Miami, and representative offices in San Francisco, Atlanta, Chicago and Houston. 60 DESCRIPTION OF THE INTERCREDITOR AGREEMENT The following summary describes certain provisions of the Intercreditor Agreement. The summary does not purport to be complete and reference is made to the provisions of the Intercreditor Agreement. The Intercreditor Agreement is filed as an exhibit to the Registration Statement and is available from the Trustee. INTERCREDITOR RIGHTS Controlling Party Pursuant to the Intercreditor Agreement, the Trustees and the Liquidity Provider have agreed that, with respect to any Indenture at any given time, the Loan Trustee is directed (a) in taking, or refraining from taking, any action thereunder by the holders of at least a majority of the outstanding principal amount of the Equipment Notes issued thereunder (provided that, for so long as the Subordination Agent is the registered holder of the Equipment Notes, the Subordination Agent shall act with respect to this clause (a) in accordance with the directions of the Trustees), so long as no Indenture Default shall have occurred and be continuing thereunder and (b) after the occurrence and during the continuance of an Indenture Default thereunder, in taking, or refraining from taking, any action thereunder, including exercising remedies thereunder (including acceleration of such Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment Notes), by the Controlling Party. See "Description of New Certificates--Indenture Defaults and Certain Rights Upon an Indenture Default" for a description of the rights of the Certificateholders of each Trust to direct the respective Trustees. Notwithstanding the foregoing, the Liquidity Provider shall have the right to direct such Loan Trustee with respect to such matters at any time after 18 months from the acceleration of the Equipment Notes under such Indenture, if at the time of such election the Liquidity Obligations have not been paid in full; provided that if there is more than one Liquidity Provider, the Liquidity Provider with the greatest amount of unreimbursed Liquidity Obligations shall have such right; provided that at any time after Continental has acquired 100% participation interests in the Liquidity Facilities, the Liquidity Provider shall not have the right to become the Controlling Party. For purposes of giving effect to the foregoing, the Trustees (other than the Controlling Party) shall irrevocably agree (and the Certificateholders (other than the Certificateholders represented by the Controlling Party) shall be deemed to agree by virtue of their purchase of Certificates) to exercise their voting rights as directed by the Controlling Party. (Intercreditor Agreement, Section 2.6) The Controlling Party may not, without the consent of the Liquidity Provider (which consent shall not be unreasonably withheld or delayed), amend the provisions of or direct the exercise of any remedy or the taking of any other action (including the sale of any Equipment Note, Lease or Aircraft unless its market value is paid within two years from the earliest such amendment, exercise or other action) under the Indentures or various other agreements, if the effect thereof would be to impair the ability of the Subordination Agent to cause all Liquidity Obligations to be paid in full within one year of the date when due; provided that, if the Controlling Party is an Owner Participant or its affiliate, the consent requirements will apply to any disposition of any Equipment Note, Lease or Aircraft, regardless of the terms of disposition. Sale of Equipment Notes or Aircraft Upon the occurrence and during the continuation of any Indenture Default under any Indenture, the Controlling Party may accelerate and, subject to the provisions of the immediately following sentence, sell all (but not less than all) of the Equipment Notes issued under such Indenture to any person. So long as any Certificates are outstanding, during nine months after the earlier of (x) the acceleration of the Equipment Notes under any Indenture or (y) the bankruptcy or insolvency of Continental, without the consent of each Trustee, (a) no Aircraft subject to the lien of such Indenture or such Equipment Notes may be sold, if the net proceeds from such sale would be less than the Minimum Sale Price for such Aircraft or such Equipment Notes, and (b) the amount and payment dates of rentals payable by Continental under the Lease for such Aircraft may not be 61 adjusted, if, as a result of such adjustment, the discounted present value of all such rentals would be less than 75% of the discounted present value of the rentals payable by Continental under such Lease before giving effect to such adjustment, in each case, using the weighted average interest rate of the Equipment Notes issued under such Indenture as the discount rate. The Subordination Agent may from time to time during the continuance of an Indenture Default commission an Appraisal with respect to the related Aircraft at the request of the Controlling Party. (Intercreditor Agreement, Section 4.1) "Appraisal" means a fair market value appraisal (which may be a "desktop" appraisal) performed by any Appraiser or any other nationally recognized appraiser on the basis of an arm's-length transaction between an informed and willing purchaser under no compulsion to buy and an informed and willing seller under no compulsion to sell and both having knowledge of all relevant facts. "Appraised Value" means at any time with respect to any Aircraft, the appraised value thereof as set forth in the most recent Appraisal, provided that initially, the Appraised Value of any Aircraft means the lower of the average or the median of the three appraisals provided by the Appraisers for such Aircraft. Priority of Distributions So long as no Triggering Event shall have occurred, the payments in respect of the Equipment Notes and certain other payments received on any Distribution Date will be promptly distributed by the Subordination Agent on such Distribution Date in the following order of priority: (i) to pay the Liquidity Obligations (other than any interest accrued thereon or the principal amount of any Drawing) (the "Liquidity Expenses") to the Liquidity Provider; (ii) to pay interest accrued on the Liquidity Obligations to the Liquidity Provider; (iii) to pay or reimburse the Liquidity Provider for the Liquidity Obligations and, if applicable, to replenish each Cash Collateral Account up to the amount of interest payable on the related Class of Certificates at the Stated Interest Rate therefor on six consecutive Regular Distribution Dates (the "Required Amount"); (iv) to pay Expected Distributions to the holders of Class A Certificates; (v) to pay Expected Distributions to the holders of Class B Certificates; (vi) to pay Expected Distributions to the holders of Class C Certificates; (vii) to pay Expected Distributions to the holders of Class D Certificates; and (viii) to pay certain fees and expenses of the Subordination Agent and the Trustees. Subject to the terms of the Intercreditor Agreement, upon the occurrence of a Triggering Event and at all times thereafter, all funds received by the Subordination Agent in respect of the Equipment Notes and certain other payments will be promptly distributed by the Subordination Agent in the following order of priority: (i) to pay certain out-of-pocket costs and expenses actually incurred by the Subordination Agent, any Trustee, any Certificateholder or the Liquidity Provider in connection with the protection and realization of the Equipment Notes or the Trust Indenture Estate; 62 (ii) to the Liquidity Provider, to pay the Liquidity Expenses; (iii) to the Liquidity Provider, to pay interest accrued on the Liquidity Obligations; (iv) to the Liquidity Provider, to pay the outstanding amount of all Liquidity Obligations and, if applicable, so long as at least 65% of the aggregate outstanding principal amount of all Equipment Notes are Performing Equipment Notes, to replenish each Cash Collateral Account up to the Required Amount for the related Class of Certificates; (v) to pay certain fees, taxes, charges and other amounts payable to the Subordination Agent, any Trustee or any Certificateholder; (vi) to pay Final Distributions to the holders of Class A Certificates (reducing the Pool Balance thereof to zero); (vii) to pay Final Distributions to the holders of Class B Certificates (reducing the Pool Balance thereof to zero); (viii) to pay Final Distributions to the holders of Class C Certificates (reducing the Pool Balance thereof to zero); and (ix) to pay Final Distributions to the holders of Class D Certificates (reducing the Pool Balance thereof to zero). Notwithstanding the foregoing provisions, so long as no PTC Event of Default shall have occurred and be continuing with respect to the most senior Class of Certificates outstanding, any regularly scheduled payment received on the Performing Equipment Notes shall be distributed as follows: (x) the Performing Equipment Notes Interest Payment will be distributed in the following order: (1) to the Liquidity Provider in payment of the Liquidity Obligations, and to the Subordination Agent, the Trustees, the Certificateholders or the Liquidity Provider, as the case may be, in payment of the amounts payable to such parties in clauses (i) and (v) immediately above (the "Administration Expenses"); (2) to the holders of Class A Certificates in payment of accrued and unpaid interest on the Class A Certificates; (3) to the holders of Class B Certificates in payment of accrued and unpaid interest on the Class B Certificates; (4) to the holders of Class C Certificates in payment of accrued and unpaid interest on the Class C Certificates; and (5) to the holders of Class D Certificates; provided that the provisions of this paragraph (x) will be given effect before distribution of any funds received in respect of any Non-Performing Equipment Notes; (y) the Performing Equipment Notes Principal Payment will be distributed in the following order: 63 (1) to the holders of Class A Certificates in payment of the greater of (A) the Adjusted Expected Distributions to such holders on such Distribution Date and (B) such holders' pro rata portion of the Performing Equipment Notes Principal Payment based on the Adjusted Pool Balance of such Trust; (2) to the holders of Class B Certificates in payment of the greater of (A) the Adjusted Expected Distributions to such holders on such Distribution Date and (B) such holders' pro rata portion of the Performing Equipment Notes Principal Payment based on the Adjusted Pool Balance of such Trust; (3) to the holders of Class C Certificates in payment of the greater of (A) the Adjusted Expected Distributions to such holders on such Distribution Date and (B) such holders' pro rata portion of the Performing Equipment Notes Principal Payment based on the Adjusted Pool Balance of such Trust; and (4) to the holders of Class D Certificates; provided that the provisions of this paragraph (y) will be given effect after distributing any funds received in respect of any Non-Performing Equipment Notes; provided that if the aggregate amount of future scheduled payments in respect of the Performing Equipment Notes, together with the Performing Equipment Notes Principal Payment as of such Distribution Date, will be (assuming the distribution of such amount as contemplated by paragraphs (x) and (y) and that no further payment will be received at any time from the Non-Performing Equipment Notes) insufficient to pay interest on any Class of Certificates and reduce the Pool Balance of such Class of Certificates to zero before the Final Maturity Date thereof, the amount of distributions to be made to the holders of such Class of Certificates on such Distribution Date will be increased by the amount of such deficiency prior to making any distributions to the holders of any Class of Certificates junior to such Class of Certificates and such increase shall be taken into account for the purpose of applying this proviso to the holders of any such junior Class of Certificates. Interest Drawings under the Liquidity Facility and withdrawals from the Cash Collateral Account, in each case in respect of interest on the Certificates of any Trust (other than the Class D Trust), will be distributed to the Trustee for such Trust, notwithstanding the priority of distributions set forth in the Intercreditor Agreement and otherwise described herein. All amounts on deposit in the Cash Collateral Account for any Trust which are in excess of amounts required to be maintained therein to pay interest on the Certificates of such Trust at the Stated Interest Rate for such Trust on six consecutive Regular Distribution Dates and all investment earnings on such amounts on deposit in the Cash Collateral Account will be paid to the Liquidity Provider. VOTING OF EQUIPMENT NOTES In the event that the Subordination Agent, as the registered holder of any Equipment Note, receives a request for its consent to any amendment, modification or waiver under such Equipment Note, the Indenture, the Lease, the Participation Agreement or other related document, (i) if no Indenture Default shall have occurred and be continuing, the Subordination Agent shall request instructions from the Certificateholders and shall vote or consent in accordance with the vote of the Certificateholders and (ii) if any Indenture Default shall have occurred and be continuing with respect to such Indenture, the Subordination Agent will exercise its voting rights as directed by the Controlling Party. (Intercreditor Agreement, Section 9.1) 64 THE SUBORDINATION AGENT Wilmington Trust Company is the Subordination Agent under the Intercreditor Agreement. Continental and its affiliates may from time to time enter into banking and trustee relationships with the Subordination Agent and its affiliates. The Subordination Agent's address is Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration. The Subordination Agent may resign at any time, in which event a successor Subordination Agent will be appointed as provided in the Intercreditor Agreement. The Controlling Party may remove the Subordination Agent for cause as provided in the Intercreditor Agreement. In such circumstances, a successor Subordination Agent will be appointed as provided in the Intercreditor Agreement. Any resignation or removal of the Subordination Agent and appointment of a successor Subordination Agent does not become effective until acceptance of the appointment by the successor Subordination Agent. 65 DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS THE AIRCRAFT The Aircraft are comprised of nine Boeing 737-500 aircraft and nine Boeing 757-200 aircraft. The Aircraft are designed to be in compliance with Stage III noise level standards, which constitute the most restrictive regulatory standards currently in effect in the United States for aircraft noise abatement. The table below sets forth certain additional information for the Aircraft.
Appraised Value FAA Aircraft Engine Delivery ------------------------------ Number Type Type Date AISI BK MBA - ------ -------- ------ -------- ----- ---- ---- (dollars in millions) N17104 757-200 RB21 1-535E4B July 1994 $48.80 $47.50 $49.77 N17105 757-200 RB21 1-535E4B Aug. 1994 49.02 47.50 50.00 N14106 757-200 RB21 1-535E4B Sept. 1994 49.24 47.50 50.23 N14107 757-200 RB21 1-535E4B Oct. 1994 49.45 47.50 50.45 N21108 757-200 RB21 1-535E4B Nov. 1994 49.67 47.50 50.68 N12109 757-200 RB21 1-535E4B Dec. 1994 49.89 47.50 50.91 N13110 757-200 RB21 1-535E4B Dec. 1994 49.89 47.50 50.91 N18112 757-200 RB21 1-535E4B Feb. 1995 50.33 47.50 51.36 N13113 757-200 RB21 1-535E4B April 1995 50.76 47.50 51.82 N17620 737-500 CFM56-3B 1 Feb. 1995 28.93 25.00 25.56 N19623 737-500 CFM56-3B 1 Jan. 1995 28.68 25.00 25.44 N13624 737-500 CFM56-3B 1 Feb. 1995 28.93 25.00 25.56 N46625 737-500 CFM56-3B 1 Jan. 1995 28.68 25.00 25.44 N32626 737-500 CFM56-3B 1 April 1995 29.44 25.00 25.78 N17627 737-500 CFM56-3B 1 April 1995 29.44 25.00 25.78 N62631 737-500 CFM56-3B 1 June 1995 29.95 25.00 26.01 N16632 737-500 CFM56-3B 1 July 1995 30.20 25.00 26.13 N24633 737-500 CFM56-3B 1 Aug. 1995 30.46 25.00 26.18
APPRAISED VALUE The appraised values set forth in the foregoing chart were determined by the following three independent aircraft appraisal and consulting firms: AISI, BK and MBA. Each Appraiser was asked to provide its opinion as to the fair market value of each Aircraft as of January 3, 1996. As part of this process, all three Appraisers performed "desk-top" appraisals without any physical inspection of the Aircraft. However, an appraisal is only an estimate of value and should not be relied upon as a measure of realizable value; the proceeds realized upon a sale of any Aircraft may be less than the appraised value thereof. The value of the Aircraft in the event of the exercise of remedies under the applicable Indenture will depend on market and economic conditions, the availability of buyers, the condition of the Aircraft and other similar factors. Accordingly, there can be no assurance that the proceeds realized upon any such exercise with respect to the Equipment Notes and the Aircraft pursuant to the applicable Indenture would be as appraised or sufficient to satisfy in full payments due on the Equipment Notes issued thereunder. 66 DESCRIPTION OF THE EQUIPMENT NOTES The statements under this caption are summaries and do not purport to be complete. The summaries make use of terms defined in the Equipment Notes, the Indentures, the Leases, the Participation Agreements, the Trust Agreements and the Refunding Agreements and reference is made to all of the provisions of such documents. Except as otherwise indicated, the following summaries relate to the Equipment Notes, the Indenture, the Lease, the Participation Agreement, the Trust Agreement and the Refunding Agreement relating to each Aircraft, forms of which are filed as exhibits to the Registration Statement. GENERAL The Equipment Notes have been issued in four series with respect to each Aircraft. The Equipment Notes with respect to each Aircraft were issued under a separate Indenture between First Security Bank of Utah, National Association, as Owner Trustee of a trust for the benefit of the Owner Participant who is the beneficial owner of such Aircraft, and Wilmington Trust Company, as Loan Trustee. The related Owner Trustee leases each Aircraft to Continental pursuant to a separate Lease between such Owner Trustee and Continental with respect to such Aircraft. Under each Lease, Continental is obligated to make or cause to be made rental and other payments to the related Loan Trustee on behalf of the related Owner Trustee, which rental and other payments will be at least sufficient to pay in full when due all payments required to be made on the Equipment Notes issued with respect to such Aircraft. The Equipment Notes are not, however, direct obligations of, or guaranteed by, Continental. Continental's rental obligations under each Lease are general obligations of Continental. General Electric Company is currently the Owner Participant with respect to all of the eighteen leveraged leases for the Aircraft. The Owner Participant or its affiliate also acquired all of the Class D Certificates contemporaneously with the consummation of the Offering. General Electric Company has the right to sell, assign or otherwise transfer its interests as Owner Participant in any or all of such leveraged leases, subject to the terms and conditions of the relevant Participation Agreement and related documents, and the Class D Certificateholder will have the right to sell any or all Class D Certificates, subject to the terms and conditions of the Pass Through Trust Agreement for the Class D Trust. SUBORDINATION Series B Equipment Notes issued in respect of any Aircraft are subordinated in right of payment to Series A Equipment Notes issued in respect of such Aircraft; Series C Equipment Notes issued in respect of such Aircraft are subordinated in right of payment to such Series B Equipment Notes; and Series D Equipment Notes issued in respect of such Aircraft are subordinated in right of payment to such Series C Equipment Notes. On each Equipment Note payment date, (i) payments of interest and principal due on Series A Equipment Notes issued in respect of any Aircraft will be made prior to payments of interest and principal due on Series B Equipment Notes issued in respect of such Aircraft, (ii) payment of interest and principal due on such Series B Equipment Notes will be made prior to payments of interest and principal due on Series C Equipment Notes issued in respect of such Aircraft and (iii) payments of interest and principal due on such Series C Equipment Notes will be made prior to payments of interest and principal due on Series D Equipment Notes issued in respect of such Aircraft. PRINCIPAL AND INTEREST PAYMENTS Subject to the provisions of the Intercreditor Agreement, interest paid on the Equipment Notes held in each Trust will be passed through to the Certificateholders of such Trust on the dates and at the rate per annum set forth on the cover page of this Prospectus until the final expected Regular Distribution Date for such Trust. 67 Subject to the provisions of the Intercreditor Agreement, principal paid on the Equipment Notes held in each Trust will be passed through to the Certificateholders of such Trust in scheduled amounts on the dates set forth herein until the final expected Regular Distribution Date for such Trust. The aggregate original principal amounts of the Equipment Notes issued with respect to each Aircraft, as such Equipment Notes will be held in each of the Trusts, are as follows:
Trust 1996-A Trust 1996-B Trust 1996-C Trust 1996-D % % % % Aircraft No. Equipment Notes Equipment Notes Equipment Notes Equipment Notes Total - ------------ --------------- --------------- --------------- --------------- ----- N17620.......... $ 10,222,000.00 $ 3,577,700.00 $ 2,811,050.00 $ 2,300,000.00 $ 18,910,750.00 N19623.......... 10,200,000.00 3,570,000.00 2,805,000.00 2,300,000.00 18,875,000.00 N13624.......... 10,222,000.00 3,577,700.00 2,811,050.00 2,300,000.00 18,910,750.00 N46625.......... 10,200,000.00 3,570,000.00 2,805,000.00 2,300,000.00 18,875,000.00 N32626.......... 10,313,200.00 3,609,620.00 2,836,130.00 2,300,000.00 19,058,950.00 N17627.......... 10,313,200.00 3,609,620.00 2,836,130.00 2,300,000.00 19,058,950.00 N62631.......... 10,404,400.00 3,641,540.00 2,861,210.00 2,300,000.00 19,207,150.00 N16632.......... 10,450,000.00 3,657,500.00 2,873,750.00 2,300,000.00 19,281,250.00 N24633.......... 10,471,600.00 3,665,060.00 2,879,690.00 2,300,000.00 19,316,350.00 N17104.......... 19,342,666.67 6,769,933.33 5,319,233.33 3,400,000.00 34,831,833.33 N17105.......... 19,415,733.33 6,795,506.67 5,339,326.67 3,400,000.00 34,950,566.67 N14106.......... 19,488,666.67 6,821,033.33 5,359,383.33 3,400,000.00 35,069,083.33 N14107.......... 19,560,266.67 6,846,093.33 5,379,073.33 3,400,000.00 35,185,433.33 N21108.......... 19,633,200.00 6,871,620.00 5,399,130.00 3,400,000.00 35,303,950.00 N12109.......... 19,706,266.67 6,897,193.33 5,419,223.33 3,400,000.00 35,422,683.33 N13110.......... 19,706,266.67 6,897,193.33 5,419,223.33 3,400,000.00 35,422,683.33 N18112.......... 19,858,933.33 6,950,626.67 5,461,206.67 3,400,000.00 35,670,766.67 N13113.......... 20,009,599.99 7,004,060.01 5,502,190.01 3,400,000.00 35,915,850.01 --------------- -------------- -------------- -------------- --------------- Total......... $269,518,000.00 $94,332,000.00 $74,117,000.00 $51,300,000.00 $489,267,000.00 =============== ============== ============== ============== ===============
Interest is payable on the unpaid principal amount of each Equipment Note at the rate applicable to such Equipment Note on January 15, April 15, July 15 and October 15 in each year, commencing April 15, 1996. Such interest is computed on the basis of a 360-day year of twelve 30-day months. Under certain circumstances described in "The Exchange Offer--General", the interest rates for the Equipment Notes may be increased to the extent described therein. If any date scheduled for any payment of principal, premium (if any) or interest with respect to the Equipment Notes is not a Business Day, such payment will be made on the next succeeding Business Day without any additional interest. REDEMPTION The Equipment Notes issued with respect to any Aircraft will be redeemed, in whole, at a price equal to the aggregate unpaid principal amount thereof, together with accrued interest thereon to, but not including, the date of redemption, but without premium, on a Special Distribution Date upon the occurrence of an Event of Loss to such Aircraft if such Aircraft is not replaced. (Indentures, Section 2.10(a)) The Equipment Notes relating to an Aircraft will be redeemed, in whole, on a Special Distribution Date in connection with Continental's exercise of its right to terminate the applicable Lease under Section 9 of such Lease at a price equal to the aggregate unpaid principal amount thereof, together with accrued interest thereon to, but not including, the date of redemption, plus a Make- Whole Premium (as defined below). (Indentures, Section 2.10(b)). See "--The Leases--Lease Termination". 68 All of the Equipment Notes issued with respect to an Aircraft may be redeemed prior to maturity as part of a refunding or refinancing thereof under Section 13 of the applicable Participation Agreement at a price equal to the aggregate unpaid principal thereof, together with accrued interest thereon to, but not including, the date of redemption, plus a Make-Whole Premium, if any. (Indentures, Section 2.11) If notice of such a redemption shall have been given in connection with a refinancing of such Equipment Notes, such notice may be revoked not later than three days prior to the proposed redemption date. (Indentures, Section 2.12) If, with respect to an Aircraft, (x) one or more Lease Events of Default shall have occurred and be continuing, (y) the Loan Trustee with respect to such Equipment Notes shall take action or notify the applicable Owner Trustee that it intends to take action to foreclose the lien of the related Indenture or commence the exercise of any significant remedy under such Indenture or the related Lease or (z) the Equipment Notes with respect to such Aircraft shall have been accelerated, then in each case the Equipment Notes issued with respect to such Aircraft may be purchased by the Owner Trustee or Owner Participant on the applicable purchase date at a price equal to the Redemption Price, but without any premium (provided that a Make-Whole Premium shall be payable if such Equipment Notes are to be purchased pursuant to clause (x) when (A) a Lease Event of Default shall have occurred and be continuing for less than 120 days or (B) the only Lease Event of Default under the related Lease arises from the cross-default provisions of such Lease (in which event the option to purchase may not be exercised for 60 days after the date of notice thereof). (Indentures, Section 2.14) "Make-Whole Premium" means, with respect to a redemption or purchase of an Equipment Note, an amount equal to the greater of (i) zero and (ii) (x) the present value, discounted on a quarterly compounded basis utilizing an interest factor equal to the Reinvestment Yield, of the principal payments provided for in the amortization schedule for such Equipment Note (including the payment at final maturity) and the scheduled interest payments from the respective dates on which, but for such redemption or purchase, such principal payments and interest payments would have been payable on such Equipment Note, minus (y) the principal amount of such Equipment Note so to be redeemed or purchased plus accrued but unpaid interest thereon. For purposes of the foregoing definition, "Reinvestment Yield" shall mean the arithmetic mean of the two most recent weekly average yields to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities equal to the remaining Weighted Average Life to Maturity of such Equipment Note as of the date of the proposed redemption or purchase), as published by the Federal Reserve Board in its Statistical Release H.15(519) or any successor publication for the two calendar weeks ending on the Saturday next preceding such date or, if such average is not published for such period, of such reasonably comparable index as may be designated in good faith by the Independent Investment Banker for such period. If no possible maturity exactly corresponds to such Weighted Average Life to Maturity, yields for the two most closely corresponding published maturities shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Yield shall be interpolated from such yields on a straight-line basis, rounding each of such relevant periods to the nearest month. "Weighted Average Life to Maturity" of each Equipment Note means at the time of the determination thereof the number of years obtained by dividing the then Remaining Dollar-years of such Equipment Note by the then-outstanding principal amount of such Equipment Note. The term "Remaining Dollar-years" shall mean the amount obtained by (1) multiplying the amount of each then-remaining principal payment on such Equipment Note provided for in the amortization schedule for such Equipment Note by the number of years (calculated at the nearest one-twelfth) that will elapse between the date of determination of the Weighted Average Life to Maturity of such Equipment Note and the date of that required payment and (2) totaling all the products obtained in clause (1) above. 69 SECURITY The Equipment Notes issued with respect to each Aircraft are secured by (i) an assignment by the related Owner Trustee to the related Loan Trustee of such Owner Trustee's rights, except for certain limited rights, under the Lease with respect to the related Aircraft, including the right to receive payments of rent thereunder, (ii) a mortgage to such Loan Trustee of such Aircraft, subject to the rights of Continental under such Lease, and (iii) an assignment to such Loan Trustee of certain of such Owner Trustee's rights under the purchase agreement between Continental and the related manufacturer. Unless and until an Indenture Default with respect to an Aircraft has occurred and is continuing, the Loan Trustee may not exercise the rights of the Owner Trustee under the related Lease, except the Owner Trustee's right to receive payments of rent due thereunder. The assignment by the Owner Trustee to the Loan Trustee of its rights under the related Lease will exclude rights of such Owner Trustee and the related Owner Participant relating to indemnification by Continental for certain matters, insurance proceeds payable to such Owner Trustee in its individual capacity and to such Owner Participant under liability insurance maintained by Continental under such Lease or by such Owner Trustee or such Owner Participant, insurance proceeds payable to such Owner Trustee in its individual capacity or to such Owner Participant under certain casualty insurance maintained by such Owner Trustee or such Owner Participant under such Lease and certain reimbursement payments made by Continental to such Owner Trustee. (Indenture, Granting Clause) The Equipment Notes are not cross-collateralized, and, consequently, the Equipment Notes issued in respect of any one Aircraft are not secured by any of the other Aircraft or replacement aircraft (as described in "--The Leases--Events of Loss") or the Leases related thereto. Funds, if any, held from time to time by the Loan Trustee with respect to any Aircraft, including funds held as the result of an Event of Loss to such Aircraft or termination of the Lease, if any, relating thereto, will be invested and reinvested by such Loan Trustee, at the direction of the related Owner Trustee (except in the case of certain Indenture Defaults), in investments described in the related Indenture. 70 LOAN TO VALUE RATIOS OF EQUIPMENT NOTES The following table sets forth loan to Aircraft value ratios for the Equipment Notes issued in respect of each Aircraft as of the dates specified and was obtained by dividing (i) the outstanding balance (assuming no payment default) of such Equipment Notes determined immediately after giving effect to the payments scheduled to be made in each such month by (ii) the assumed value (the "Assumed Aircraft Value") of the Aircraft securing such Equipment Notes. Loan to value ratios below cannot be recalculated due to rounding. The table is based on the assumption that the value of each Aircraft set forth opposite January 1996 depreciates by 2% per year until the fifteenth year after the year of delivery of such Aircraft and 4% per year thereafter. Other rates or methods of depreciation would result in materially different loan-to- value ratios and no assurance can be given (i) that the depreciation rates and method assumed for the purposes of the table are the ones most likely to occur or (ii) as to the actual value of any Aircraft. Thus the table should not be considered a forecast or prediction of expected or likely loan to Aircraft value ratios but simply a mathematical calculation based on one set of assumptions.
Aircraft No. N17620 Aircraft No. N19623 Aircraft No. N13624 -------------------------------- ---------------------------------- --------------------------------- Equipment Equipment Equipment Note Assumed Note Assumed Note Assumed Outstanding Aircraft Outstanding Aircraft Outstanding Aircraft Balance Value Loan to Balance Value Loan to Balance Value Loan to (millions) (millions) Value Ratio (millions) (millions) Value Ratio (millions) (millions) Value Ratio ------------ ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- January 1996 $18.91 $25.56 74.00% $18.88 $25.44 74.19% $18.91 $25.56 74.00% January 1997 18.59 25.04 74.21 18.55 24.93 74.40 18.59 25.04 74.21 January 1998 18.27 24.53 74.45 18.23 24.42 74.65 18.27 24.53 74.45 January 1999 17.82 24.02 74.18 17.79 23.91 74.37 17.82 24.02 74.18 January 2000 17.38 23.51 73.91 17.40 23.41 74.34 17.37 23.51 73.90 January 2001 16.44 23.00 71.49 16.45 22.90 71.84 16.44 23.00 71.47 January 2002 15.44 22.49 68.65 15.42 22.39 68.89 15.43 22.49 68.62 January 2003 14.34 21.98 65.23 14.32 21.88 65.46 14.35 21.98 65.29 January 2004 13.09 21.47 60.99 13.08 21.37 61.20 13.10 21.47 61.04 January 2005 11.73 20.96 55.99 11.78 20.86 56.46 11.81 20.96 56.35 January 2006 9.84 20.44 48.13 9.91 20.35 48.68 9.94 20.44 48.64 January 2007 7.13 19.93 35.79 7.81 19.84 39.36 7.81 19.93 39.19 January 2008 5.42 19.42 27.90 5.46 19.34 28.23 5.45 19.42 28.08 January 2009 4.52 18.91 23.90 4.53 18.83 24.05 4.52 18.91 23.91 January 2010 3.49 18.40 18.97 3.45 18.32 18.84 3.40 18.40 18.71 January 2011 2.40 17.38 13.79 2.27 17.30 13.12 2.26 17.38 12.99 January 2012 0.54 16.36 3.30 1.01 16.28 6.21 0.99 16.36 6.06 January 2013 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
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Aircraft No. N46625 Aircraft No. N32626 Aircraft No. N17627 ------------------------------------ ------------------------------------ ------------------------------------ Equipment Equipment Equipment Note Assumed Note Assumed Note Assumed Outstanding Aircraft Outstanding Aircraft Outstanding Aircraft Balance Value Loan to Balance Value Loan to Balance Value Loan to (millions) (millions) Value Ratio (millions) (millions) Value Ratio (millions) (millions) Value Ratio ----------- ---------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- January 1996 $18.88 $25.44 74.19% $19.06 $25.78 73.92% $19.06 $25.78 73.92% January 1997 18.55 24.93 74.40 18.73 25.27 74.13 18.73 25.27 74.13 January 1998 18.23 24.42 74.65 18.41 24.75 74.37 18.41 24.75 74.37 January 1999 17.79 23.91 74.37 17.96 24.24 74.10 17.96 24.24 74.10 January 2000 17.40 23.41 74.35 17.53 23.72 73.91 17.53 23.72 73.91 January 2001 16.45 22.90 71.84 16.54 23.20 71.28 16.55 23.20 71.30 January 2002 15.43 22.39 68.91 15.47 22.69 68.17 15.47 22.69 68.18 January 2003 14.33 21.88 65.48 14.28 22.17 64.41 14.28 22.17 64.42 January 2004 13.08 21.37 61.21 13.03 21.66 60.16 13.03 21.66 60.17 January 2005 11.78 20.86 56.47 11.78 21.14 55.72 11.79 21.14 55.75 January 2006 9.92 20.35 48.72 9.91 20.63 48.05 9.92 20.63 48.09 January 2007 7.81 19.84 39.37 7.84 20.11 39.00 7.84 20.11 39.00 January 2008 5.46 19.34 28.23 5.50 19.60 28.09 5.50 19.60 28.09 January 2009 4.53 18.83 24.05 4.61 19.08 24.15 4.61 19.08 24.15 January 2010 3.45 18.32 18.84 3.59 18.56 19.32 3.58 18.56 19.30 January 2011 2.27 17.30 13.13 2.48 17.53 14.15 2.48 17.53 14.13 January 2012 1.01 16.28 6.20 1.30 16.50 7.91 1.30 16.50 7.88 January 2013 0.00 0.00 0.00 0.36 15.47 2.32 0.36 15.47 2.32
Aircraft No. N62631 Aircraft No. N16632 Aircraft No. N24633 ------------------------------------ ------------------------------------ ------------------------------------ Equipment Equipment Equipment Note Assumed Note Assumed Note Assumed Outstanding Aircraft Outstanding Aircraft Outstanding Aircraft Balance Value Loan to Balance Value Loan to Balance Value Loan to (millions) (millions) Value Ratio (millions) (millions) Value Ratio (millions) (millions) Value Ratio ----------- ---------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- January 1996.... $19.2 $26.0 73.84 $19.2 $26.1 73.80 $19.3 $26.1 73.79 January 1997.... 18.8 25.4 74.05 18.9 25.6 74.01 18.9 25.6 73.99 January 1998.... 18.5 24.9 74.29 18.6 25.0 74.25 18.6 25.1 74.23 January 1999.... 18.1 24.4 74.02 18.1 24.5 73.99 18.2 24.6 73.97 January 2000.... 17.5 23.9 73.37 17.5 24.0 73.10 17.5 24.0 73.00 January 2001.... 16.5 23.4 70.62 16.5 23.5 70.45 16.5 23.5 70.36 January 2002.... 15.4 22.8 67.42 15.4 22.9 67.39 15.5 23.0 67.27 January 2003.... 14.2 22.3 63.57 14.3 22.4 63.69 14.3 22.5 63.54 January 2004.... 12.9 21.8 59.23 13.0 21.9 59.51 13.0 21.9 59.33 January 2005.... 11.6 21.3 54.58 11.8 21.4 55.30 11.8 21.4 55.11 January 2006.... 9.7 20.8 46.85 9.9 20.9 47.78 9.9 20.9 47.58 January 2007.... 7.5 20.2 37.34 7.8 20.3 38.66 7.8 20.4 38.34 January 2008.... 5.2 19.7 26.45 5.6 19.8 28.30 5.5 19.9 28.11 January 2009.... 4.6 19.2 24.09 4.7 19.3 24.57 4.7 19.3 24.37 January 2010.... 3.6 18.7 19.22 3.7 18.8 19.95 3.7 18.8 19.75 January 2011.... 2.4 17.6 14.00 2.6 17.7 15.07 2.6 17.8 14.82 January 2012.... 1.3 16.6 7.79 1.5 16.7 9.28 1.5 16.7 8.95 January 2013.... 0.3 15.6 2.34 0.6 15.6 3.88 0.5 15.7 3.70
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Aircraft No. N17104 Aircraft No. N17105 Aircraft No. N14106 ------------------------------------ ------------------------------------ ------------------------------------ Equipment Equipment Equipment Note Assumed Note Assumed Note Assumed Outstanding Aircraft Outstanding Aircraft Outstanding Aircraft Balance Value Loan to Balance Value Loan to Balance Value Loan to (millions) (millions) Value Ratio (millions) (millions) Value Ratio (millions) (millions) Value Ratio ----------- ---------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- January 1996 $34.83 $48.69 71.54% $34.95 $48.84 71.56% $35.07 $48.99 71.59% January 1997 34.22 47.72 71.71 34.33 47.86 71.73 34.45 48.01 71.75 January 1998 33.61 46.74 71.91 33.73 46.89 71.93 33.84 47.03 71.95 January 1999 32.56 45.77 71.15 32.55 45.91 70.90 32.82 46.05 71.27 January 2000 30.76 44.79 68.66 30.69 44.93 68.31 31.08 45.07 68.97 January 2001 29.33 43.82 66.92 29.24 43.96 66.53 29.65 44.09 67.24 January 2002 26.85 42.85 62.66 26.74 42.98 62.22 27.19 43.11 63.07 January 2003 24.34 41.87 58.12 24.28 42.00 57.80 24.56 42.13 58.29 January 2004 22.63 40.90 55.34 22.56 41.03 55.00 22.85 41.15 55.53 January 2005 20.67 39.93 51.77 20.62 40.05 51.48 20.90 40.17 52.03 January 2006 18.37 38.95 47.15 18.29 39.07 46.82 18.73 39.19 47.80 January 2007 16.24 37.98 42.76 16.14 38.09 42.38 15.55 38.21 40.70 January 2008 13.01 37.00 35.15 13.15 37.12 35.42 10.77 37.23 28.92 January 2009 9.29 36.03 25.77 9.24 36.14 25.57 9.37 36.25 25.85 January 2010 7.79 34.08 22.86 7.69 34.19 22.50 7.88 34.29 22.97 January 2011 6.07 32.14 18.89 5.96 32.23 18.48 6.25 32.33 19.35 January 2012 4.13 30.19 13.68 4.07 30.28 13.44 4.50 30.37 14.80 January 2013 0.37 28.24 1.32 2.01 28.33 7.08 0.01 28.41 0.04
Aircraft No. N14107 Aircraft No. N21108 Aircraft No. N12109 ------------------------------------ ------------------------------------ ------------------------------------ Equipment Equipment Equipment Note Assumed Note Assumed Note Assumed Outstanding Aircraft Outstanding Aircraft Outstanding Aircraft Balance Value Loan to Balance Value Loan to Balance Value Loan to (millions) (millions) Value Ratio (millions) (millions) Value Ratio (millions) (millions) Value Ratio ----------- ---------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- January 1996 $35.19 $49.13 71.61% $35.30 $49.28 71.64% $35.42 $49.43 71.66% January 1997 34.56 48.15 71.78 34.68 48.30 71.80 34.79 48.44 71.83 January 1998 33.95 47.17 71.98 34.07 47.31 72.00 34.18 47.46 72.02 January 1999 32.44 46.19 70.23 32.64 46.33 70.46 32.69 46.47 70.36 January 2000 30.69 45.20 67.90 30.83 45.34 68.00 31.05 45.48 68.27 January 2001 29.23 44.22 66.09 29.41 44.35 66.30 29.65 44.49 66.65 January 2002 26.74 43.24 61.84 26.94 43.37 62.11 27.18 43.50 62.49 January 2003 24.25 42.26 57.39 24.47 42.38 57.74 24.61 42.51 57.88 January 2004 22.54 41.27 54.62 22.76 41.40 54.98 22.92 41.52 55.19 January 2005 20.59 40.29 51.11 20.83 40.41 51.53 20.94 40.53 51.67 January 2006 18.22 39.31 46.35 18.51 39.43 46.94 18.57 39.55 46.97 January 2007 15.86 38.32 41.39 16.40 38.44 42.65 16.46 38.56 42.69 January 2008 12.70 37.34 34.02 13.47 37.46 35.95 13.54 37.57 36.05 January 2009 8.77 36.36 24.11 9.63 36.47 26.41 9.73 36.58 26.60 January 2010 7.66 34.39 22.28 8.14 34.50 23.59 8.41 34.60 24.29 January 2011 5.88 32.43 18.13 6.48 32.53 19.93 6.69 32.63 20.49 January 2012 3.94 30.46 12.92 4.61 30.56 15.09 3.14 30.65 10.24 January 2013 1.85 28.50 6.50 0.10 28.58 0.36 0.10 28.67 0.36
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Aircraft No. N13110 Aircraft No. N18112 Aircraft No. N13113 ------------------------------------ ------------------------------------ ------------------------------------ Equipment Equipment Equipment Note Assumed Note Assumed Note Assumed Outstanding Aircraft Outstanding Aircraft Outstanding Aircraft Balance Value Loan to Balance Value Loan to Balance Value Loan to (millions) (millions) Value Ratio (millions) (millions) Value Ratio (millions) (millions) Value Ratio ----------- ---------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- January 1996 $35.42 $49.43 71.66% $35.67 $49.73 71.73% $35.92 $50.03 71.80% January 1997 34.79 48.44 71.83 35.04 48.74 71.89 35.28 49.02 71.96 January 1998 34.18 47.46 72.02 34.42 47.74 72.09 34.62 48.02 72.09 January 1999 32.67 46.47 70.31 32.64 46.75 69.82 32.72 47.02 69.58 January 2000 30.94 45.48 68.03 30.88 45.75 67.49 30.85 46.02 67.04 January 2001 29.54 44.49 66.39 29.40 44.76 65.69 29.39 45.02 65.29 January 2002 27.06 43.50 62.22 26.93 43.76 61.54 26.93 44.02 61.17 January 2003 24.60 42.51 57.87 24.38 42.77 57.01 24.42 43.02 56.76 January 2004 22.89 41.52 55.12 22.68 41.77 54.30 22.70 42.02 54.01 January 2005 20.92 40.53 51.60 20.75 40.78 50.88 20.74 41.02 50.55 January 2006 18.56 39.55 46.93 18.38 39.78 46.21 18.36 40.02 45.88 January 2007 16.44 38.56 42.64 16.26 38.79 41.93 16.24 39.02 41.62 January 2008 13.52 37.57 35.98 13.04 37.80 34.49 13.09 38.02 34.43 January 2009 9.70 36.58 26.52 9.16 36.80 24.88 9.24 37.02 24.95 January 2010 8.37 34.60 24.18 7.35 35.81 20.52 7.40 36.02 20.55 January 2011 6.64 32.63 20.37 2.78 33.82 8.22 5.17 34.02 15.20 January 2012 3.09 30.65 10.08 0.87 31.83 2.74 2.53 32.02 7.90 January 2013 0.10 28.67 0.36 0.01 29.84 0.03 0.01 30.02 0.03
LIMITATION OF LIABILITY The Equipment Notes are not direct obligations of, or guaranteed by, Continental, the Owner Participant or the Owner Trustees in their individual capacity. None of the Owner Trustees, the Owner Participants or the Loan Trustees, or any affiliates thereof, shall be personally liable to any holder of an Equipment Note or, in the case of the Owner Trustees and the Owner Participants, to the Loan Trustees for any amounts payable under the Equipment Notes or, except as provided in each Indenture, for any liability under such Indenture. All payments of principal of, premium, if any, and interest on the Equipment Notes issued with respect to any Aircraft (other than payments made in connection with an optional redemption or purchase of Equipment Notes by the related Owner Trustee or the related Owner Participant) will be made only from the assets subject to the lien of the Indenture with respect to such Aircraft or the income and proceeds received by the related Loan Trustee therefrom (including rent payable by Continental under the Lease with respect to such Aircraft). Except as otherwise provided in the Indentures, each Owner Trustee in its individual capacity shall not be answerable or accountable under the Indentures or under the Equipment Notes under any circumstances except for its own willful misconduct or gross negligence. None of the Owner Participants will have any duty or responsibility under any of the Indentures or the Equipment Notes to the Loan Trustees or to any holder of any Equipment Note. INDENTURE DEFAULTS, NOTICE AND WAIVER Indenture Defaults under each Indenture include: (a) the occurrence of any Lease Event of Default under the related Lease (other than the failure to make certain indemnity payments and other payments to the related Owner Trustee or Owner Participant unless a notice is given by such Owner Trustee that such failure shall constitute an Indenture Default), (b) the failure by the Owner Trustee (other than as a result of a Lease Default or Lease Event of Default) to pay any interest or principal or premium, if any, when due, under such Indenture or under any Equipment Note issued thereunder continued for more than 10 business days, (c) the failure by the Owner Participant or the Owner Trustee to discharge certain liens, continued after notice and specified cure periods, (d) any representation or warranty made by the related Owner Trustee or Owner Participant in such Indenture, the related Participation Agreement, the related Refunding Agreement or certain related documents furnished to the Loan Trustee pursuant thereto being false or incorrect when made and continuing to be material and remaining unremedied after notice and specified cure periods, (e) failure by the related Owner Trustee or Owner Participant to perform or observe any covenant or obligation for the benefit of 74 the Loan Trustee or holders of Equipment Notes under such Indenture or certain related documents, continued after notice and specified cure periods, (f) the registration of the related Aircraft ceasing to be effective as a result of the Owner Participant not being a citizen of the United States or (g) the occurrence of certain events of bankruptcy, reorganization or insolvency of the related Owner Trustee or Owner Participant. (Indentures, Section 4.02) There are no cross-default provisions in the Indentures. Consequently, events resulting in an Indenture Default under any particular Indenture may or may not result in an Indenture Default occurring under any other Indenture. However, a Lease Event of Default under any Lease will constitute a Lease Event of Default under all Leases due to the cross-default provisions in the Leases, and will consequently result in an Indenture Default under all Indentures. (Leases, Section 14.8) If Continental fails to make any quarterly basic rental payment due under any Lease, within a specified period after such failure the applicable Owner Trustee may furnish to the Loan Trustee the amount due on the Equipment Notes, together with any interest thereon on account of the delayed payment thereof, in which event the Loan Trustee and the holders of outstanding Equipment Notes issued under such Indenture may not exercise any remedies otherwise available under such Indenture or such Lease as the result of such failure to make such rental payment, unless Continental has failed to make a rental payment when due on the six or more immediately preceding quarterly basic rental payment dates or on any twelve or more previous quarterly basic rental payment dates. The applicable Owner Trustee also may cure any other default by Continental in the performance of its obligations under any Lease which can be cured with the payment of money. (Indentures, Section 4.03) The holders of a majority in principal amount of the outstanding Equipment Notes issued with respect to any Aircraft, by notice to the Loan Trustee, may on behalf of all the holders waive any existing default and its consequences under the Indenture with respect to such Aircraft, except a default in the payment of the principal of or interest on any such Equipment Notes or a default in respect of any covenant or provision of such Indenture that cannot be modified or amended without the consent of each holder of Equipment Notes affected thereby. (Indentures, Section 4.08) REMEDIES If an Indenture Default occurs and is continuing under an Indenture, the related Loan Trustee or the holders of a majority in principal amount of the Equipment Notes outstanding under such Indenture may, subject to the applicable Owner Participant's or Owner Trustee's right to cure, as discussed above, declare the principal of all such Equipment Notes issued thereunder immediately due and payable, together with all accrued but unpaid interest thereon. The holders of a majority in principal amount of Equipment Notes outstanding under such Indenture may rescind any such declaration at any time before the judgment or decree for the payment of the money so due shall be entered if (i) there has been paid to the related Loan Trustee an amount sufficient to pay all principal, interest, and premium, if any, on any such Equipment Notes, to the extent such amounts have become due otherwise than by such declaration of acceleration and (ii) all other Indenture Defaults and potential Indenture Defaults under such Indenture have been cured or waived. (Indentures, Section 4.04(b)) Each Indenture provides that if an Indenture Default under such Indenture has occurred and is continuing, the related Loan Trustee may exercise certain rights or remedies available to it under such Indenture or under applicable law, including (if the corresponding Lease has been declared in default) one or more of the remedies under such Indenture or such Lease with respect to the Aircraft subject to such Lease. The related Loan Trustee's right to exercise remedies under such Indenture is subject, with certain exceptions, to its having proceeded to exercise one or more of the dispossessory remedies under the Lease with respect to such Aircraft; provided that the requirement to exercise such remedies under such Lease shall not apply in circumstances where such exercise has been involuntarily stayed or prohibited by applicable law or court order for a continuous period in excess of 60 days or such other period as may be specified in Section 1110(a)(1)(A) of the Federal Bankruptcy Code (the "Bankruptcy Code") (plus an additional period, if any, resulting from (i) the trustee in such proceeding assuming, or agreeing to perform its obligations under, such Lease with the approval of the 75 applicable court or such Loan Trustee's consent to an extension of such period, (ii) such Loan Trustee's failure to give any requisite notice, or (iii) Continental's assumption of such Lease with the approval of the relevant court). See "--The Leases--Lease Events of Default." Such remedies may be exercised by the related Loan Trustee to the exclusion of the related Owner Trustee, subject to certain conditions specified in such Indenture, and Continental, subject to the terms of such Lease. Any Aircraft sold in the exercise of such remedies will be free and clear of any rights of those parties, including the rights of Continental under the Lease with respect to such Aircraft; provided that no exercise of any remedies by the related Loan Trustee may affect the rights of Continental under any Lease unless a Lease Event of Default has occurred and is continuing. (Indentures, Section 4.04; Leases, Section 15) If the Equipment Notes issued in respect of one Aircraft are in default, the Equipment Notes issued in respect of the other Aircraft may not be in default, and, if not, no remedies will be exercisable under the applicable Indentures with respect to such other Aircraft. Section 1110 of the Bankruptcy Code provides that the right of lessors, conditional vendors and holders of security interests with respect to "equipment" (as defined in Section 1110 of the Bankruptcy Code) to take possession of such equipment in compliance with the provisions of a lease, conditional sale contract or security agreement, as the case may be, is not affected by (a) the automatic stay provision of the Bankruptcy Code, which provision enjoins repossessions by creditors for the duration of the reorganization period, (b) the provision of the Bankruptcy Code allowing the trustee in reorganization to use property of the debtor during the reorganization period, (c) Section 1129 of the Bankruptcy Code (which governs the confirmation of plans of reorganization in Chapter 11 cases) and (d) any power of the bankruptcy court to enjoin a repossession. Section 1110 provides, however, that the right of a lessor, conditional vendor or holder of a security interest to take possession of an aircraft in the event of an event of default may not be exercised for 60 days following the date of commencement of the reorganization proceedings (unless specifically permitted by the bankruptcy court) and may not be exercised at all if, within such 60-day period (or such longer period consented to by the lessor, conditional vendor or holder of a security interest), the trustee in reorganization agrees to perform the debtor's obligations that become due on or after such date and cures all existing defaults (other than defaults resulting solely from the financial condition, bankruptcy, insolvency or reorganization of the debtor). "Equipment" is defined in Section 1110 of the Bankruptcy Code, in part, as "an aircraft, aircraft engine, propeller, appliance, or spare part (as defined in section 40102 of title 49) that is subject to a security interest granted by, leased to, or conditionally sold to a debtor that is a citizen of the United States (as defined in section 40102 of title 49) holding an air carrier operating certificate issued by the Secretary of Transportation pursuant to chapter 447 of title 49 for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of cargo". The Bankruptcy Reform Act of 1994 amended Section 1110 by, among other things, providing that the lessor under a lease of aircraft first placed in service on or prior to the date of the enactment of that Act will be entitled to the benefits of Section 1110 if the lessor and the lessee have expressed in the applicable agreement or in a substantially contemporaneous writing that the applicable agreement is to be treated as a lease for Federal income tax purposes. Each of the Leases relating to the four Aircraft placed in service prior to the enactment of the Act contains such a written statement. Cleary, Gottlieb, Steen & Hamilton, counsel to Continental, has advised the Loan Trustees that the right of the Owner Trustee, as lessor under each of the Leases, and the Loan Trustee, as assignee of such Owner Trustee's rights under each of the Leases pursuant to each of the related Indentures, to exercise its right to take possession of the respective Aircraft under each of the Leases is entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to the airframe and engines comprising the related Aircraft. This opinion assumes that Continental is and will be a citizen of the United States holding an air carrier operating certificate issued by the Secretary of Transportation pursuant to chapter 447 of title 49 of the U.S. Code for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of cargo. For a description of certain limitations on the Loan Trustee's exercise of rights contained in the Indenture, see "--Indenture Defaults, Notice and Waiver". 76 The opinion of Cleary, Gottlieb, Steen & Hamilton does not address the possible replacement of an Aircraft after an Event of Loss in the future, the consummation of which is conditioned upon the contemporaneous delivery of an opinion of counsel to the effect that the related Loan Trustee's entitlement to Section 1110 benefits should not be diminished as a result of such replacement. See "--The Leases--Events of Loss". The opinion of Cleary, Gottlieb, Steen & Hamilton will also not address the availability of Section 1110 with respect to any possible sublessee of an Aircraft subleased by Continental. If an Indenture Default under any Indenture occurs and is continuing, any sums held or received by the related Loan Trustee may be applied to reimburse such Loan Trustee for any tax, expense or other loss incurred by it and to pay any other amounts due to such Loan Trustee prior to any payments to holders of the Equipment Notes issued under such Indenture. (Indentures, Section 3.03) In the event of bankruptcy, insolvency, receivership or like proceedings involving an Owner Participant, it is possible that, notwithstanding that the applicable Aircraft is owned by the related Owner Trustee in trust, such Aircraft and the related Lease and Equipment Notes might become part of such proceeding. In such event, payments under such Lease or on such Equipment Notes might be interrupted and the ability of the related Loan Trustee to exercise its remedies under the related Indenture might be restricted, although such Loan Trustee would retain its status as a secured creditor in respect of the related Lease and the related Aircraft. MODIFICATION OF INDENTURES AND LEASES Without the consent of holders of a majority in principal amount of the Equipment Notes outstanding under any Indenture, the provisions of such Indenture and the Lease, the Participation Agreement and the Trust Agreement corresponding thereto may not be amended or modified, except to the extent indicated below. Certain provisions of any Indenture, and of the Lease (so long as no Indenture Default has occurred and is continuing), the Participation Agreement, and the Trust Agreement related thereto, may be amended or modified by the parties thereto without the consent of any holders of the Equipment Notes outstanding under such Indenture. In the case of each Lease, such provisions include, among others, provisions relating to (i) the return to the related Owner Trustee of the related Aircraft at the end of the term of such Lease and (ii) the renewal of such Lease and the option of Continental at the end of the term of such Lease to purchase the related Aircraft. (Indentures, Section 9.01) Without the consent of the holder of each Equipment Note outstanding under any Indenture affected thereby, no amendment or modification of such Indenture may among other things (a) reduce the principal amount of, or premium, if any, or interest payable on, any Equipment Notes issued under such Indenture or change the date on which any principal or premium, if any, or interest is due and payable, (b) create any security interest with respect to the property subject to the lien of such Indenture, except as provided in such Indenture, or deprive any holder of an Equipment Note issued under such Indenture of the lien of such Indenture upon the property subject thereto or (c) reduce the percentage in principal amount of outstanding Equipment Notes issued under such Indenture necessary to modify or amend any provision of such Indenture or to waive compliance therewith. (Indentures, Section 9.01(a)) OWNER PARTICIPANT'S RIGHT TO RESTRUCTURE So long as GE or any of its affiliates is the Owner Participant with respect to the leveraged lease of any Aircraft, subject to certain conditions, such Owner Participant will have the right to restructure such leveraged lease transaction using a "cross-border lease", a tax lease or head-lease/sublease structure and any other type of transaction. In no event, however, shall any such restructuring (i) change the terms and conditions of the rights and obligations of any holder of Equipment Notes under the relevant Operative Agreements or any holder of Certificates or (ii) expose any such holder to any additional risks. As a precondition to any such restructuring, 77 the Owner Participant will be obligated to deliver to the Loan Trustee an appropriate officer's certificate as to the satisfaction of the foregoing conditions and obtain a written confirmation from the Rating Agencies prior to the implementation of such restructuring to the effect that such restructuring will not adversely affect the ratings of the Certificates. INDEMNIFICATION Continental is required to indemnify each Loan Trustee, each Owner Participant and each Owner Trustee for certain losses, claims and other matters. Continental is required under certain circumstances to indemnify each Owner Participant against the loss of depreciation deductions and certain other benefits allowable for certain income tax purposes with respect to the related Aircraft. Each Owner Participant is required to indemnify the related Loan Trustee and the holders of the Equipment Notes issued with respect to the Aircraft in which such Owner Participant has an interest for certain losses that may be suffered as a result of the failure of such Owner Participant to discharge certain liens or claims on or against the assets subject to the lien of the related Indenture. THE LEASES Each Aircraft is leased to Continental by the relevant Owner Trustee under the relevant Lease. Lease Term Rentals Each Aircraft has been leased separately by the relevant Owner Trustee to Continental for a term commencing on the date on which the Aircraft was acquired by the Owner Trustee and expiring on a date not earlier than the latest maturity date of the relevant Equipment Notes, unless terminated prior to the originally scheduled expiration date as permitted by the applicable Lease. The quarterly basic rent payment under each Lease is payable by Continental on each related Lease Payment Date (as defined below) (or, if such day is not a business day, on the next business day), and has been assigned by the Owner Trustee under the corresponding Indenture to provide the funds necessary to make payments of principal and interest due from the Owner Trustee on the Equipment Notes issued under such Indenture. In certain cases, the quarterly basic rent payments under the Leases may be adjusted, but each lease provides that under no circumstances will rent payments by Continental be less than the scheduled payments on the related Equipment Notes. In addition, the amount of basic rent may be increased in an amount equal to any increase in the amount of interest due on the Equipment Notes on the relevant Lease Payment Date as a result of the resetting of the rate of interest on the Equipment Notes as required by the terms thereof- - -for example, if certain terms of the Registration Rights Agreement require such a resetting. See "The Exchange Offer--General". Any balance of each such quarterly basic rent payment under each Lease, after payment of amounts due on the Equipment Notes issued under the Indenture corresponding to such Lease, will be paid over to the Owner Trustee. (Leases, Section 3; Indentures, Section 3.01) "Lease Payment Date" means, with respect to each Lease, January 15, April 15, July 15 or October 15 during the term of such Lease. Net Lease Under the terms of each Lease, Continental's obligations in respect of each Aircraft will be those of a lessee under a "net lease". Accordingly, under each Lease Continental is obligated, among other things and at its expense, to keep each Aircraft duly registered and insured, to pay all costs of operating the Aircraft and to maintain, service, repair and overhaul the Aircraft so as to keep it in as good an operating condition as when delivered to Continental, ordinary wear and tear excepted, and in such condition as required to maintain the 78 airworthiness certificate for the Aircraft in good standing at all times. (Leases, Sections 7.1 and 8.1 and Annex C) Possession, Sublease and Transfer Each Aircraft may be operated by Continental or under lease, sublease or interchange arrangements, subject to certain restrictions. Normal interchange and pooling agreements with respect to any Engine are permitted with U.S. air carriers and foreign air carriers in countries with which the United States maintains normal diplomatic relations and which recognize and give effect to the rights of lessors and mortgagees. Subleases for a term of up to 60 months are also permitted with solvent U.S. air carriers and with certain specified foreign air carriers, so long as they are solvent, subject to a reasonably satisfactory opinion that such country would give effect to the title of the Owner Trustee in and to the Aircraft and would give effect to the priority and validity of the lien of the Indenture, as the case may be, as if such country were a party to the Convention on the International Recognition of Rights in Aircraft (Geneva 1948) (the "Convention"). (Leases, Section 7) It is uncertain to what extent the relevant Loan Trustee's security interest would be recognized in an Aircraft located in a country that is not a party to the Convention, and to what extent such security interest would be recognized in a jurisdiction adhering to the Convention if the Aircraft is registered in a jurisdiction not a party to the Convention. Moreover, in the case of an Event of Default under an Indenture, the ability of the related Loan Trustee to realize upon its security interest in an Aircraft could be adversely affected as a legal or practical matter if such Aircraft were registered or located outside the United States. Registration Continental is required to keep each Aircraft duly registered under the Transportation Code with the FAA, except if the relevant Owner Trustee or the relevant Owner Participant fails to meet the applicable citizenship requirements, and to record each Lease and Indenture and certain other documents under the Transportation Code. (Leases, Section 7) Such recordation of the Indenture and other documents with respect to each Aircraft will give the relevant Loan Trustee a first-priority, perfected security interest in such Aircraft whenever it is located in the United States or any of its territories and possessions. The Convention provides that such security interest will also be recognized, with certain limited exceptions, in those jurisdictions that have ratified or adhere to the Convention. (Leases, Section 7.1.1) So long as no Lease default or Lease Event of Default exists, Continental has the right to register the Aircraft subject to such Lease in a country other than the United States at its own expense in connection with a permitted sublease of the Aircraft to certain specified foreign air carriers, subject to certain conditions set forth in the related Participation Agreement. These conditions include a requirement that the country of registration recognizes the interests of lessors, owner participants and mortgagees and provides substantially equivalent protection to such interests as provided by law in the United States. (Leases, Section 7.1.2; Participation Agreements, Section 8.7.12) Liens Continental is required to maintain each Aircraft free of any liens, other than the rights of the relevant Loan Trustee, the holders of the related Equipment Notes, Continental, the Owner Participant and Owner Trustee arising under the applicable Indenture, the Lease or the other operative documents related thereto, and other than certain limited liens permitted under such documents, including (i) liens for taxes either not yet due or being contested in good faith by appropriate proceedings; (ii) materialmen's, mechanics' and other similar liens arising in the ordinary course of business and securing obligations that either are not yet delinquent or are being contested in good faith by appropriate proceedings; and (iii) judgment liens so long as such judgment is discharged or vacated within 30 days or the execution of such judgment is stayed pending appeal and discharged, vacated or reversed within 30 days after expiration of such stay; provided that in the case of each of the liens 79 described in the foregoing clauses (i), (ii) and (iii), such liens and proceedings do not involve any material risk of the sale, forfeiture or loss of such Aircraft or any interest therein or any discernible risk of criminal liability or any material risk of civil penalty against the relevant Loan Trustee, Owner Trustee or Owner Participant. (Leases, Section 6) Replacement of Parts; Alterations Continental is obligated to replace all parts at its expense that may from time to time be incorporated or installed in or attached to any Aircraft and that may become lost, damaged beyond repair, worn out, stolen, seized, confiscated or rendered permanently unfit for use (other than severable parts added at the option of Continental and obsolete or unsuitable parts that Continental is permitted to remove to the extent described below). Continental or any permitted sublessee has the right, at its own expense, to make such alterations, modifications and additions with respect to each Aircraft as it deems desirable in the proper conduct of its business and to remove parts which it deems to be obsolete or no longer suitable or appropriate for use; provided that such alteration, modification, addition or removal does not diminish the value, utility, performance or the remaining useful life of the related Aircraft, Airframe or Engine or adversely affect the commercial use of the Aircraft for passenger service in the United States or invalidate the Aircraft's airworthiness certificate, except that the value of the Aircraft may be reduced by the removal of obsolete or unsuitable parts so long as the aggregate original cost of all such parts removed from any one Aircraft and not replaced shall not exceed $250,000 for each 757-224 Aircraft and $200,000 for each 737-524 Aircraft. (Leases, Section 8.1 and Annex C) Insurance The Leases require Continental to maintain, at its expense (or at the expense of a permitted sublessee), all-risk aircraft hull insurance covering each Aircraft, at all times in an amount not less than the stipulated loss value of the Aircraft (which exceeds the aggregate outstanding principal amount of the Equipment Notes related to such Aircraft, together with accrued interest thereon), and all-risk property damage insurance covering Engines and parts while removed from an aircraft in an amount not less than the replacement cost of such Engines and parts. All insurance proceeds with respect to a total loss of an Aircraft, Airframe or Engine and all insurance proceeds in excess of $3,000,000 per occurrence with respect to repairable damage to an Aircraft, Airframe or Engine are payable to the relevant Owner Trustee or to the applicable Loan Trustee, for so long as the relevant Indenture shall be in effect. Insurance proceeds of up to $3,000,000 per occurrence with respect to repairable damage to an Aircraft, Airframe or engine are payable directly to Continental so long as the Owner Trustee has not notified the insurance underwriters that a Lease default or a Lease Event of Default exists. So long as the loss does not constitute an Event of Loss (as defined below), insurance proceeds will be applied to repair or replace the property. (Leases, Sections 11.1 and 11.5 and Annex D) In addition, Continental is obligated to maintain comprehensive airline liability insurance at its expense (or at the expense of a permitted sublessee), including, without limitation, third-party and passenger liability and property damage, cargo and products liability and contractual liability insurance with respect to each Aircraft. Such liability insurance shall be of the type usually carried by prudent major United States commercial air carriers and cover the kind of risks against which prudent United States commercial air carriers customarily insure. Such liability insurance shall be underwritten by nationally or internationally recognized insurers of substantial financial capacity used by other major United States commercial air carriers. The amount of such liability insurance coverage per occurrence shall be not less than the amount of comprehensive airline liability insurance from time to time applicable to aircraft owned or leased and operated by Continental of the same type as such Aircraft. Continental (but no permitted sublessee) shall have the right to self- insure to the extent of any applicable minimum amount per aircraft (or, if applicable, per annum or other period) hull or liability insurance deductible imposed by the insurer providing such aircraft hull or liability insurance, which are commensurate 80 with the standard deductibles in the airline insurance industry available to major U.S. airlines. (Leases, Section 11.1 and Annex D, Section A) Continental is also required to maintain war-risk, hijacking or allied perils insurance if it (or any permitted sublessee) operates any Aircraft, Airframe or Engine in any area of recognized or threatened hostilities or if Continental (or any permitted sublessee) maintains such insurance with respect to other aircraft on the same routes or areas or if the Aircraft is operated outside the United States or Canada. Continental (but no permitted sublessee) may self-insure to the extent of any hull or liability insurance deductible imposed by the insurer, provided such deductibles are commensurate with standard deductibles in the aircraft insurance industry. (Leases, Annex D, Section H) In respect of each Aircraft, Continental is required to cause the relevant Loan Trustee, holders of the Equipment Notes, Owner Participant and Owner Trustee, in its individual capacity and as owner of such Aircraft, and certain other parties to be named as additional insured parties under all liability, hull and property and war risk, hijacking and allied perils insurance policies required with respect to such Aircraft. In addition, the insurance policies maintained under the Leases will be required to provide that, in respect of the interests of such additional insured persons, the insurance shall not be invalidated or impaired by any act or omission of Continental or any other person and to insure the respective interests of such additional insured persons, regardless of any breach or violation of any representation, warranty, declaration, term or condition contained in such policies by Continental, any permitted sublessee or any other person. (Leases, Annex D, Section D) Lease Termination Unless a Lease default or Lease Event of Default shall have occurred and be continuing, Continental may terminate any Lease on any Lease Payment Date occurring on or after the tenth anniversary of the date on which such Lease commenced and on or before one year prior to the date on which such Lease is scheduled to expire, if it determines that such Aircraft is economically obsolete or surplus to its requirements. Such determination must be made on a nondiscriminatory basis with respect to the Aircraft subject to such Lease and all similar aircraft operated by Continental which could also be terminated. Continental is required to give notice of its intention to exercise its right of termination described in this paragraph at least six months prior to the proposed date of termination (which notice may be withdrawn up to 25 days prior to such proposed date if Continental determines that no bid for the Aircraft of a reasonable amount has been received); provided that Continental may give only three such termination notices. In such a situation, if the Owner Trustee elects (subject to the rights of Continental to purchase the Aircraft as described below) to sell such Aircraft, Continental is required to use best reasonable efforts to sell such Aircraft as an agent for such Owner Trustee. If the Owner Trustee elects to accept any bid, such Owner Trustee shall sell such Aircraft on the date of termination to the highest cash bidder. If such sale occurs, the Equipment Notes related thereto are required to be prepaid. The net proceeds of such sale shall be payable to the applicable Owner Trustee. If the net proceeds to be received from such sale are less than the termination value for such Aircraft (which is set forth in a schedule to each Lease), Continental is required to pay to the applicable Owner Trustee an amount equal to the excess, if any, of the applicable termination value for such Aircraft over such net proceeds. Upon payment of termination value for such Aircraft and an amount equal to the Make-Whole Premium, if any, payable on such date of payment, together with certain additional amounts and together with all accrued and unpaid interest thereon, the lien of the relevant Indenture shall be released, the relevant Lease shall terminate, and the obligation of Continental thereafter to make scheduled rent payments under such Lease shall cease. However, certain payment obligations of Continental shall survive the termination of the Lease. If such Aircraft is not sold by the proposed termination date, such Lease, including all of Continental's obligations thereunder, shall continue in effect, and the Equipment Notes related thereto will not be prepaid. (Leases, Section 9; Indentures, Section 2.10(b)) The Owner Trustee has the option to retain title to the Aircraft if Continental has given a notice of termination under the Lease. In such event, such Owner Trustee shall pay to the applicable Loan Trustee an 81 amount sufficient to prepay the outstanding Equipment Notes issued with respect to such Aircraft, and Continental shall pay to the Owner Trustee an amount equal to the excess, if any, of the termination value of such Aircraft over the highest bona fide cash bid made for the Aircraft, together with the Make-Whole Premium, if any, on such Equipment Notes and all other amounts due and payable to the Owner Trustee and Owner Participant under such Lease, the related Participation Agreement or any other related operative document. (Leases, Section 9; Indentures, Section 2.10(b)) Events of Loss If an Event of Loss occurs with respect to the Airframe or the Airframe and Engines of an Aircraft, Continental must elect within 20 days after such occurrence either to make payment with respect to such Event of Loss or to replace such Airframe and any such Engines. Not later than the first business day following the sixty-first day following the date of occurrence of such Event of Loss, or, if earlier, the second business day following the receipt of the insurance proceeds in respect of such Event of Loss, Continental must either (i) pay to the applicable Owner Trustee the stipulated loss value of such Aircraft, together with certain additional amounts, but, in any case, without any Make- Whole Premium or (ii) unless a Lease default or any Lease Event of Default shall have occurred and be continuing, substitute an aircraft (or airframe and one or more engines, as the case may be) for the Aircraft, Airframe or Engine(s) that suffered such Event of Loss. (Leases, Sections 10.1.1 and 10.1.2; Indentures, Section 2.10(a)) If Continental elects to replace an Aircraft (or Airframe or Airframe and one or more Engines, as the case may be) that suffered such Event of Loss, it shall convey to the related Owner Trustee title to an aircraft (or airframe or airframe and one or more engines, as the case may be), and (i) in the case of any replacement airframe, such airframe must be (a) manufactured by Boeing under a certain purchase agreement between The Boeing Company and Continental and (b) delivered under such agreement after the Airframe to be replaced was delivered to Continental, (ii) such replacement airframe or airframe and engines must be the same model as the Airframe or Airframe and Engines to be replaced or an improved model, with performance and durability characteristics and a value, utility and remaining useful life at least equal to, and in at least as good an operating condition as, the Airframe or Airframe and Engines to be replaced (assuming that such Airframe and such Engines were of the value and utility and in the condition and repair required by the terms of such Lease immediately prior to the occurrence of such Event of Loss). Continental is also required to provide to the relevant Owner Trustee, Owner Participant and Loan Trustee (a) a certification as to compliance with the foregoing requirements from a qualified aircraft appraiser, together with a certified report setting forth such appraiser's opinion as to the fair market value of such replacement airframe or engine and (b) reasonably acceptable opinions of counsel to the effect that (i) such Owner Trustee will acquire good title to such replacement airframe and, if applicable, replacement engine, free and clear of all liens (other than permitted liens), (ii) such replacement airframe and, if applicable, engine will be made subject to the applicable Indenture to the same extent as the Airframe and, if applicable, Engine replaced thereby, (iii) such Owner Trustee and Loan Trustee (as assignee of lessor's rights and interests under the Lease) will be entitled to receive the benefits and protections of Section 1110 of the Bankruptcy Code with respect to any such replacement airframe and (to the extent such opinion can be rendered, in view of applicable law) such replacement engine and (iv) such replacement airframe has been duly registered and each supplement to such Lease or Indenture has been duly recorded. (Leases, Sections 10.1.3 and 10.3) If Continental elects not to replace such Aircraft, then upon payment of the stipulated loss value for such Aircraft, together with all additional amounts then due and unpaid with respect to the Aircraft, which must be at least sufficient to pay in full as of the date of payment thereof the aggregate unpaid principal amount under such Equipment Notes together with accrued but unpaid interest thereon and all other amounts due and owing in respect of such Equipment Notes, the lien of the Indenture and the Lease relating to such Aircraft shall terminate with respect to such Aircraft, the obligation of Continental thereafter to make the scheduled rent payments with respect thereto shall cease and the related Owner Trustee shall transfer all of its right, title and interest in and to 82 the related Aircraft to Continental. The stipulated loss value and other payments made under the Leases by Continental shall be deposited with the applicable Loan Trustee. Amounts in excess of the amounts due and owing under the Equipment Notes issued with respect to such Aircraft will be distributed by such Loan Trustee to the applicable Owner Trustee. (Leases, Section 10.1.2; Indentures, Sections 2.06 and 3.02) If the Owner Trustee and the Loan Trustee are not entitled to Section 1110 benefits with respect to any replacement airframe or engine or if certain Lease defaults or any Lease Event of Default has occurred and is continuing, Continental shall not be entitled to replace such Airframe and shall be required instead to pay the stipulated loss value applicable to such Airframe and the related Engines, plus certain additional amounts. (Leases, Section 10.3.2) If an Event of Loss occurs with respect to an Engine alone, Continental will be required to replace such Engine within 60 days after the occurrence of such Event of Loss with another engine, free and clear of all liens (other than certain permitted liens). Such replacement engine shall be the same make and model as the Engine to be replaced, suitable for installation and use on the Aircraft, and having performance and durability characteristics and a value and utility at least equal to, and in at least as good an operating condition as, the Engine to be replaced (assuming that such Engine was of the value and utility and in the condition and repair required by the terms of the relevant Lease immediately prior to the occurrence of the Event of Loss). (Leases, Section 10.2) An Event of Loss with respect to an Aircraft, Airframe or any Engine means any of the following events with respect to such property: (i) the destruction of such property, damage to such property beyond practical or economic repair or rendition of such property permanently unfit for normal use; (ii) the actual or constructive total loss of such property or any damage to such property or requisition of title or use of such property which results in an insurance settlement with respect to such property on the basis of a total loss or a constructive or compromised total loss; (iii) any loss of such property or loss of use of such property for a period of 90 days or more as a consequence of any theft, hijacking or disappearance of such property; (iv) any seizure, condemnation, confiscation, taking or requisition of title to such property by any governmental entity or purported non-U.S. governmental entity; (v) any seizure, condemnation, confiscation, taking or requisition of use of such property that continues until the earliest to occur of (A) the last day of the Lease term, (B) the date on which the Aircraft is modified in such a manner as would render conversion of such property for use in normal commercial passenger service impractical or uneconomical, (C) the date on which such property is operated or located in any area excluded from coverage by any insurance policy required to be maintained by such Lease (unless an indemnity from the U.S. Government is obtained in lieu of such insurance), and (D) the date that is 90 days following the commencement of such loss of use (unless such loss of use results from action by the U.S. Government); or (vi) as a result of any law, rule, regulation, order or other action by the FAA or any governmental entity, the use of such property in the normal course of Continental's business of passenger air transportation is prohibited for 180 days (or 360 days, if Continental diligently implements all steps which are necessary or desirable to permit the normal use of such property by it) or for a period expiring on the last day of the Lease term, whichever is earlier. (Leases, Annex A) Purchase Options under the Leases So long as no Lease default or Lease Event of Default has occurred and is continuing, Continental will have the option to purchase any Aircraft subject to a Lease on the last business day of the original Lease or on the last business day of either of the two, in the case of the 757-224 Aircraft, or four, in the case of the 737-524 Aircraft, one-year renewal terms at a purchase price equal to the fair market sales value of such Aircraft. The fair market sales value of such Aircraft shall be determined not more than 170 days nor less than 150 days prior to the date of purchase by mutual agreement of Continental and the Owner Trustee or, if they are unable to agree, by an appraisal. Continental may exercise its purchase option by delivering an irrevocable notice to the Owner Trustee not more than 180 days nor less than 120 days prior to the proposed date of purchase. The Owner 83 Trustee shall not be under any obligation to sell the Aircraft to Continental if the fair market sales value of the Aircraft is determined to be less than a certain minimum residual value amount. Upon receipt by the Owner Trustee of payment of the applicable fair market sales value of the Aircraft and all other amounts due and payable by Continental under the relevant Lease, Participation Agreement and any other related operative document, the Owner Trustee shall transfer title to the Aircraft to Continental, provided that all related Equipment Notes have previously been paid in full. (Leases, Section 17.3; Indentures, Section 10.01) The holder of the Equipment Notes issued under an Indenture shall not have any right to amounts payable by Continental in connection with its exercise of purchase options for the related Aircraft to the extent that all amounts payable by the relevant Owner Trustee to such holder under such Equipment Notes, such Indenture and related operative agreements have been paid in full. Lease Events of Default Lease Events of Default under each Lease include, among other things, (i) failure by Continental to make any payment of basic rent, renewal rent, stipulated loss value or termination value under such Lease within five business days after the same shall have become due, or failure by Continental to pay any other amount due under such Lease or under any other related operative document within five business days from and after the date of any written demand therefor from the owner trustee; (ii) failure by Continental to make any excluded payment within five business days after written notice that such failure constitutes a Lease Event of Default is given by the relevant Owner Participant to Continental and the relevant Loan Trustee; (iii) failure by Continental to carry and maintain insurance on and in respect of the Aircraft, Airframe and Engines subject to such Lease, in accordance with the provisions of such Lease or the operation of the Aircraft, Airframe or Engines subject to such Lease at any time when such insurance is not in effect; (iv) failure by Continental to maintain its corporate existence except as permitted by the Lease, or the winding up, liquidation or dissolution of Continental; (v) failure to maintain the registration of the Aircraft with the FAA or with a permitted foreign registry, failure to record the Indenture or maintain the Indenture of record as a first- priority, perfected mortgage (subject to permitted liens) or operation of the Aircraft in any area excluded by insurance coverage required by such Lease or in any recognized or threatened area of hostilities unless fully covered by war- risk insurance, as required by Section 11 of such Lease (subject to certain exceptions); (vi) breach of the covenants in such Lease pertaining to possession, interchange and pooling of Engines and subleasing; (vii) breach of certain prohibitions against attempted assignments by Continental of its obligations under such Lease and against the merger of Continental with any other person, except as expressly permitted by such Lease; and (viii) failure by Continental to perform or observe any other covenant or agreement to be performed or observed by it under such Lease or the related Participation Agreement or any other related operative document (other than (a) the agreement by Continental to treat the Lease as a lease for U.S. Federal income tax purposes and (b) nonpayment provisions under the related tax indemnity agreement between Continental and the Owner Participant), and such failure shall continue unremedied for a period of 30 days (or such other shorter applicable period) after written notice of such failure by the applicable Owner Trustee or Loan Trustee; (ix) (a) any representation or warranty made by Continental in such Lease or the related Participation Agreement or in any other related operative document (other than in the related tax indemnity agreement between Continental and the Owner Participant) shall prove to have been untrue, inaccurate or misleading in any material respect at the time made, (b) such representation or warranty is material at the time in question and (c) the same shall remain uncured for more than 30 days after the date of written notice thereof to Continental; (x) the occurrence of certain voluntary events of bankruptcy, reorganization or insolvency of Continental or the occurrence of involuntary events of bankruptcy, reorganization or insolvency which shall continue undismissed or unstayed for a period of 60 days; and (xi) a Lease Event of Default under any other Lease. (Leases, Section 14) Remedies Exercisable upon Lease Events of Default 84 If a Lease Event of Default has occurred and is continuing, the applicable Owner Trustee may (or, so long as the Indenture shall be in effect, the applicable Loan Trustee may, subject to the terms of the Indenture) exercise one or more of the remedies provided in such Lease with respect to the related Aircraft. These remedies include the right to repossess and use or operate such Aircraft, to rescind or terminate such Lease, to sell or re-lease such Aircraft free and clear of Continental's rights, except as set forth in the Lease, and retain the proceeds, and to require Continental to pay, as liquidated damages any due and unpaid basic rent or renewal rent plus an amount equal to the excess of the termination value for such Aircraft (specified in schedules to such Lease) over, at such Owner Trustee's (or, subject to the terms of the relevant Indenture, the Loan Trustee's) option, any of (i) the discounted fair market rental value of such Aircraft for the remainder of the term of the Lease relating to such Aircraft (using a discount rate equal to 10 per cent per annum), (ii) the fair market sales value of such Aircraft or (iii) if such Aircraft has been sold, the net sales proceeds from the sale of such Aircraft (unless such Aircraft is sold at a private sale to the Owner Trustee, Loan Trustee, Owner Participant or any of their affiliates, in which case the fair market sales value shall be used). (Leases, Section 15; Indenture, Section 4.04). If the Loan Trustee has validly terminated such Lease, the Loan Trustee may not sell or lease or otherwise afford the use of such Aircraft to Continental or any of its affiliates. (Indentures, Sections 4.03 and 4.04) Notwithstanding that an Event of Default under an Indenture has occurred and is continuing, so long as the Equipment Notes thereunder have not been accelerated or the Loan Trustee has not taken action or notified the Owner Trustee that it intends to take action to foreclose the lien of such Indenture or otherwise commence the exercise of any significant remedy under such Indenture or the related Lease, the Loan Trustee may not, without the consent of the Owner Trustee, enter into any amendment, modification, waiver or consent in respect of any of the provisions of the related Lease, which consent shall not be unreasonably withheld if no right or interest of the relevant Owner Trustee or Owner Participant would be diminished or impaired thereby. (Indentures, Section 5.02) Transfer of Owner Participant Interests Subject to certain restrictions, each Owner Participant may transfer all or any part of, or grant participations in, its interest in the related Aircraft. (Participation Agreements, Section 12.1.1) 85 CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES EXCHANGE OF OLD CERTIFICATES FOR NEW CERTIFICATES The following summary describes the principal U.S. federal income tax consequences to Certificateholders of the exchange of the Old Certificates for New Certificates. This summary is intended to address the beneficial owners of Certificates that are citizens or residents of the United States, corporations, partnerships or other entities created or organized in or under the laws of the United States or any State, or estates or trusts the income of which is subject to U.S. federal income taxation regardless of its source that will hold the Certificates as capital assets. The exchange of Old Certificates for New Certificates (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 an Old Certificate whose Old Certificate is accepted in an Exchange Offer will not recognize gain on the Exchange. A tendering holder's tax basis in the New Certificates will be the same as such holder's tax basis in its Old Certificates. A tendering holder's holding period for the New Certificates received pursuant to the Exchange Offer will include its holding period for the Old Certificates surrendered therefor. ALL HOLDERS OF OLD CERTIFICATES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE EXCHANGE OF OLD CERTIFICATES FOR NEW CERTIFICATES AND OF THE OWNERSHIP AND DISPOSITION OF NEW CERTIFICATES RECEIVED IN THE EXCHANGE OFFER IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES. ERISA CONSIDERATIONS IN GENERAL ERISA imposes certain requirements on employee benefit plans subject to ERISA ("ERISA Plans"), and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA's general fiduciary requirements, including the requirement of investment prudence and diversification and the requirement that an ERISA Plan's investments be made in accordance with the documents governing the ERISA Plan. Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Code, such as individual retirement accounts (together with ERISA Plans, "Plans")) and certain persons (referred to as "parties in interest" or "disqualified persons") having certain relationships to such Plans, unless a statutory or administrative exemption is applicable to the transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. The Department of Labor has promulgated a regulation, 29 CFR Section 2510. 3-101 (the "Plan Asset Regulation"), describing what constitutes the assets of a Plan with respect to the Plan's investment in an entity for purposes of ERISA and Section 4975 of the Code. Under the Plan Asset Regulation, if a Plan invests in a Certificate, the Plan's assets would include both the Certificate and an undivided interest in each of the underlying assets of the corresponding Trust, including the Equipment Notes held by such Trust, unless it is established that equity participation in the Trust by employee benefit plans (including Plans and entities whose underlying assets include plan assets by reason of an employee benefit plan's investment in the entity) is not "significant" within the meaning of the Plan Asset Regulation. In that regard, the extent to which there is equity participation in a particular Trust on the part of employee benefit plans is not being monitored. If the assets of a 86 Trust were deemed to constitute the assets of a Plan, transactions involving the assets of such Trust could be subject to the prohibited transaction provisions of ERISA and Section 4975 of the Code unless a statutory or administrative exemption were applicable to the transaction. The fiduciary of a Plan that holds any Old Certificate or proposes to exchange such Old Certificate and hold any New Certificates should consider whether such holding or exchange may involve the indirect extension of credit to a party in interest or a disqualified person. In addition, whether or not the assets of a Trust are deemed to be Plan assets under the Plan Asset Regulation, if Certificates are held by a Plan and Certificates of a subordinate Class are held by a party in interest or a disqualified person with respect to such Plan, the exercise by the holder of the subordinate Class of Certificates of its right to purchase the senior Classes of Certificates upon the occurrence and during the continuation of a Triggering Event could be considered to constitute a prohibited transaction unless a statutory or administrative exemption were applicable. Depending on the identity of the Plan fiduciary making the decision to hold Certificates on behalf of a Plan, PTCE 91-38 (relating to investments by bank collective investment funds), PTCE 84-14 (relating to transactions effected by a "qualified professional asset manager"), PTCE 95-60 (relating to investments by an insurance company general account), PTCE 96-23 (relating to transactions directed by an in-house professional asset manager) or PTCE 90-1 (relating to investments by insurance company pooled separate accounts) (collectively, the "Class Exemptions") could provide an exemption from the prohibited transaction provisions of ERISA and Section 4975 of the Code. There can be no assurance that any of the Class Exemptions or any other exemption will be available with respect to any particular transaction involving the Certificates. Governmental plans and certain church plans, while not subject to the fiduciary responsibility provisions of ERISA or the provisions of Section 4975 of the Code, may nevertheless be subject to state or other federal laws that are substantially similar to the foregoing provisions of ERISA and the Code. Fiduciaries of any such plans should consult with their counsel before exchanging or holding any Certificates. Any Plan fiduciary which proposes to cause a Plan to hold or exchange any Certificates should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to such an investment, and to confirm that such holding or exchange will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA. CLASS A CERTIFICATES In addition to the Class Exemptions referred to above, an individual exemption may apply to the holding of Class A Certificates and the exchange of Old Certificates that are Class A Certificates for New Certificates that are Class A Certificates by Plans, provided that certain specified conditions are met. In particular, the Department of Labor has issued individual administrative exemptions to certain of the Initial Purchasers which are substantially the same as the administrative exemption issued to The First Boston Corporation, Prohibited Transaction Exemption 89-90 (54 Fed. Reg. 42597, October 17, 1989), as amended (the "Underwriter Exemption"), which generally exempts from the application of certain, but not all, of the prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Code certain transactions relating to the initial purchase, holding and subsequent secondary market sale of pass- through certificates which represent an interest in a trust, the assets of which include equipment notes secured by leases, provided that certain conditions set forth in the Underwriter Exemption are satisfied. The Underwriter Exemption sets a number of general and specific conditions which must be satisfied for a transaction involving the initial purchase, holding or secondary market sale of Class A Certificates to be eligible for exemptive relief thereunder. In particular, the acquisition of Class A Certificates by a Plan must be on terms that are at least as favorable to the Plan as they would be in an arm's-length transaction with an unrelated party; the rights and interests evidenced by the Certificates must not be subordinated to the rights and 87 interests evidenced by other Certificates of the same trust estate; the Certificates at the time of acquisition by the Plan must be rated in one of the three highest generic rating categories by Moody's Investors Service, Inc., Standard & Poor's Ratings Group, Duff & Phelps Inc. or Fitch Investors Service, Inc. (although not entirely clear, it would appear that the exchange of an Old Certificate for a New Certificate should not constitute an "acquisition" of the New Certificate for this purpose); and the investing Plan must be an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Commission under the Securities Act. The Underwriter Exemption does not apply to the Class B Certificates, the Class C Certificates and the Class D Certificates. Even if all of the conditions of the Underwriter Exemption are satisfied with respect to the Class A Certificates, no assurance can be given that the Underwriter Exemption would apply with respect to all transactions involving the Class A Certificates or the assets of the Class A Trust. In particular, it appears that the Underwriter Exemption would not apply to the purchase by Class B Certificateholders, Class C Certificateholders or Class D Certificateholders of Class A Certificates in connection with the exercise of their rights upon the occurrence and during the continuance of a Triggering Event. Therefore, the fiduciary of a Plan considering the continued holding of a Class A Certificate or the exchange of Old Certificates for New Certificates should consider the availability of the exemptive relief provided by the Underwriter Exemption, as well as the availability of any other exemptions with respect to transactions to which the Underwriter Exemption may not apply. CLASS B CERTIFICATES, CLASS C CERTIFICATES AND CLASS D CERTIFICATES The Class B Certificates, Class C Certificates Class D Certificates may not be acquired by any Plan or by any entity that is using the assets of any Plan to purchase or hold its interest in a Class B Certificate, Class C Certificate or Class D Certificate (a "Plan Transferee"), except that such Certificates may be acquired with the assets of an insurance company general account that may be deemed to constitute Plan assets if the conditions of PTCE 95-60 have been satisfied. Any insurance company that uses general account assets to hold Class B Certificates, Class C Certificates or Class D Certificates that tenders such Old Certificates in exchange for New Certificates will be required to represent that PTCE 95-60 applies to its tender and the holding of such Class B Certificates, Class C Certificates or Class D Certificates. PLAN OF DISTRIBUTION Each broker-dealer that receives New Certificates for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Certificates. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Certificates received in exchange for Old Certificates where such Old Certificates were acquired as a result of market-making activities or other trading activities. The Company has agreed that, starting on the Expiration Date and ending on the close of business 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until such date all broker-dealers effecting transactions in the New Certificates may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of New Certificates by broker-dealers. New Certificates received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in on or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Certificates 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 New Certificates. Any broker- dealer that resells New Certificates 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 New 88 Certificates may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit of any such resale of New Certificates 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. For a period of 180 days after the Expiration Date, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the 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 New Certificates (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the New Certificates is being passed upon for Continental by Cleary, Gottlieb, Steen & Hamilton, New York, New York. Cleary, Gottlieb, Steen & Hamilton will rely on the opinion of Richards, Layton & Finger, Wilmington, Delaware, counsel for Wilmington Trust Company, as Trustee, as to matters relating to the authorization, execution and delivery of the New Certificates under the Pass Through Trust Agreements. EXPERTS The consolidated financial statements (including schedules) of Continental Airlines, Inc. appearing in Continental Airlines, Inc.'s Annual Report (Form 10- K) as of December 31, 1995 and 1994, and for the two years ended December 31, 1995 and the period April 28, 1993 through December 31, 1993 and the consolidated statements of operations, redeemable and non-redeemable preferred stock and common stockholders' equity and cash flows of Continental Airlines Holdings, Inc. for the period January 1, 1993 through April 27, 1993, incorporated by reference in this Prospectus have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon included therein and incorporated herein by reference, in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 89 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 Available Information........................................... Incorporation of Certain Documents by Reference................. Prospectus Summary.............................................. Risk Factors.................................................... Recent Developments............................................. Use of Proceeds................................................. Ratio of Earnings to Fixed Charges.............................. Selected Financial Data......................................... The Exchange Offer.............................................. Description of New Certificates................................. Description of the Liquidity Facilities......................... Description of the Intercreditor Agreement...................... Description of the Aircraft and Appraisals...................... Description of the Equipment Notes.............................. Certain U.S. Federal Income Tax Consequences.................... ERISA Considerations............................................ Plan of Distribution............................................ Legal Matters................................................... Experts......................................................... Continental Airlines, Inc. Offer to Exchange Pass Through Certificates, Series 1996, which have been registered under the Securities Act of 1933, as amended, for any and all outstanding Pass Through Certificates, Series 1996 PROSPECTUS , 1996 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION - DATED JULY 5, 1996 PROSPECTUS Continental Airlines, Inc. Pass Through Certificates Up to $510,733,000 aggregate principal amount of Pass Through Certificates (the "Certificates") (or such greater amount, if Certificates are issued at an original issue discount, as shall result in aggregate proceeds of $510,733,000 may be offered for sale from time to time pursuant to this Prospectus and related Prospectus Supplements (as defined below). Certificates may be issued in one or more series in amounts, at prices and on terms to be determined at the time of the offering. In respect of each offering of Certificates, a separate Continental Airlines Pass Through Trust for each series of Certificates being offered (each, a "Trust") will be formed pursuant to a Pass Through Trust Agreement (a "Basic Agreement") and the supplement thereto (a "Trust Supplement") relating to such Trust between Continental Airlines, Inc. (the "Company"), and Shawmut Bank Connecticut, National Association, or First Security Bank of Utah, National Association (each a "Trustee"), as trustee. Each Certificate of a series will represent a fractional undivided interest in the related Trust and, except as described in the applicable Prospectus Supplement, will have no rights, benefits or interests in respect of any other Trust. The property of the Trusts will consist of securities including, equipment notes issued (a) on a nonrecourse basis by one or more owner trustees pursuant to separate leveraged lease transactions (the "Leased Aircraft Notes") to finance or refinance a portion of the equipment cost of aircraft, including engines (each, a "Leased Aircraft" and collectively, the "Leased Aircraft"), which have been or will be leased to the Company, or (b) with recourse to the Company (the "Owned Aircraft Notes" and, together with any Leased Aircraft Notes, the "Equipment Notes") to finance all or a portion of the equipment cost of, or to purchase all or a portion of the outstanding debt with respect to, aircraft, including engines (each, an "Owned Aircraft" and collectively, the "Owned Aircraft" and, together with Leased Aircraft, the "Aircraft"), which have been or will be purchased and owned by the Company. Certain specific terms of the particular Certificates in respect of which this Prospectus is being delivered are set forth in the accompanying Prospectus Supplement (the "Prospectus 90 Supplement"), including, where applicable, the specific designation, form, aggregate principal amount, initial public offering price and distribution dates relating to such Certificates, the Trustees, the Trust or Trusts relating to such Certificates, the Equipment Notes to be purchased by such Trust or Trusts, the Aircraft relating to such Equipment Notes, the leveraged lease transactions or financing arrangements, as the case may be, relating to such Equipment Notes, a description of any other securities to be purchased by such Trust or Trusts and other special terms relating to such Certificates and the net proceeds from the offering of such Certificates. If so specified in the applicable Prospectus Supplement, the Certificates may be issued in accordance with a book-entry system. Equipment Notes may be issued in respect of an Aircraft in one or more series, each series having its own interest rate and final maturity date. One or more series of Equipment Notes issued in respect of an Aircraft may be senior or subordinate to one or more other series of Equipment Notes. A separate Trust will purchase all of the series of the Equipment Notes relating to the respective Aircraft and having an interest rate equal to the interest rate applicable to the Certificates issued by such Trust and maturity dates occurring on or before the final distribution date applicable to such Certificates. Interest paid on the Equipment Notes and other securities, if any, held in each Trust will be passed through to the holders of the Certificates relating to such Trust on the dates and at the rate per annum set forth in the Prospectus Supplement relating to such Certificates until the final distribution date for such Trust. Principal paid on the Equipment Notes and other securities, if any, held in each Trust will be passed through to the holders of the Certificates relating to such Trust in scheduled amounts on the dates set forth in the Prospectus Supplement relating to such Certificates until the final distribution date for such Trust. The Equipment Notes issued with respect to each Aircraft will be secured by a security interest in the owner's right, title and interest in such Aircraft and, in the case of the Leased Aircraft, by a security interest in the lessor's right, title and interest in the lease relating thereto, including the right to receive rentals payable by the Company in respect of such Leased Aircraft. Although the Leased Aircraft Notes will not be direct obligations of, or guaranteed by, the Company, the amounts unconditionally payable by the Company for lease of Leased Aircraft will be sufficient to pay in full when due all payments scheduled to be made on the corresponding Leased Aircraft Notes. The Certificates may be sold to or through underwriters, through dealers or agents or directly to purchasers. See "Plan of Distribution". The accompanying Prospectus Supplement sets forth the names of any underwriters, dealers or agents involved in the sale of the Certificates in respect of which this Prospectus is being delivered and any applicable fee, commission or discount arrangements with them. See "Plan of Distribution" for information concerning secondary trading of the Certificates. This Prospectus may not be used to consummate sales of Certificates unless accompanied by a Prospectus Supplement. 91 -------------------------------- 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 , 1996. 92 No dealer, salesman or other person has been authorized to give any information or to make any representation not contained in this Prospectus or any accompanying Prospectus Supplement and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or any underwriter, dealer, broker or agent. This Prospectus and any accompanying Prospectus Supplement do not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. -------------------------------- AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information may be inspected and copied at the following public reference facilities maintained by the Commission: Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Suite 1300, Seven World Trade Center, New York, New York 10048; and The Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material may also be obtained from the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed rates. In addition, reports, proxy statements and other information concerning Continental may be inspected and copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. Continental is the successor to Continental Airlines Holdings, Inc. ("Holdings"), which merged with and into Continental on April 27, 1993. Holdings had also been subject to the informational requirements of the Exchange Act. This Prospectus constitutes a part of a registration statement on Form S-3 (together with all amendments and exhibits, the "Registration Statement") filed by Continental with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus omits certain of the information contained in the Registration Statement, and reference is hereby made to the Registration Statement for further information with respect to Continental and Holdings and the securities offered hereby. Although statements concerning and summaries of certain documents are included herein, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. These documents may be inspected without charge at the office of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies may be obtained at fees and charges prescribed by the Commission. 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: 93 (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 and (iii) Continental's Current Reports on Forms 8-K, filed on January 31, 1996, March 26, 1996, May 7, 1996 and June 27, 1996. All reports and any definitive proxy or information statements filed by Continental pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Securities offered hereby shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated herein by reference, or contained in this Prospectus, shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Continental will provide without charge to each person to whom this Prospectus is delivered, upon the written or oral request of such person, a copy of any or all documents incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents should be directed to Continental Airlines, Inc., 2929 Allen Parkway, Suite 2010, Houston, Texas 77019, Attention: Secretary, telephone (713) 834-2950. 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 190 airports worldwide. The Company operates its route system primarily through domestic hubs at Newark, Houston Intercontinental and Cleveland, and a Pacific hub on Guam and Saipan. Each of Continental's three U.S. hubs is located in a large business and population center, contributing a high volume of "origin and destination" traffic. The Guam/Saipan hub is strategically located to provide service from Japanese and other Asian cities to popular resort destinations in the western Pacific. Continental is the primary carrier at each of these hubs, accounting for 52%, 79%, 53% and 72% of all daily jet departures, respectively. Continental directly serves 131 U.S. cities, with additional cities (principally in the western and southwestern United States) connected to Continental's route system under agreements with America West Airlines, Inc. ("America West"). Internationally, 94 Continental flies to 59 destinations and offers additional connecting service through alliances with foreign carriers. Continental operates 66 weekly departures to six European cities and markets service to eight 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, including service between Newark and Bogota, Colombia, with service on to Quito, Ecuador, which began 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. FORMATION OF THE TRUSTS In respect of each offering of Certificates, one or more Trusts will be formed, and the related Certificates issued, pursuant to separate Trust Supplements to be entered into between a Trustee and Continental in accordance with the terms of the relevant Basic Agreement. Concurrently with the execution and delivery of each Trust Supplement, the relevant Trustee, on behalf of the Trust formed thereby, will enter into a separate financing, refinancing or purchase agreement with respect to one or more Equipment Notes (each such financing, refinancing or purchase agreement being herein referred to as a "Note Purchase Agreement") relating to one or more of the Aircraft described in the applicable Prospectus Supplement. Pursuant to the applicable Note Purchase Agreement or Note Purchase Agreements, the Trustee, on behalf of each Trust, will purchase all of the series of Equipment Notes relating to the respective Aircraft and having an interest rate equal to the interest rate applicable to the Certificates issued by such Trust. The maturity dates of the Equipment Notes acquired by each Trust will occur on or before the final distribution date applicable to the Certificates that will be issued by such Trust. The Trustee will distribute the amount of payments of principal, premium, if any, and interest received by it as holder of the Equipment Notes to the Certificateholders (as defined in the Basic Agreements) of the Trust in which such Equipment Notes are held. See "Description of the Certificates" and "Description of the Equipment Notes". USE OF PROCEEDS Unless otherwise specified in the applicable Prospectus Supplement, the Certificates offered pursuant to any Prospectus Supplement will be issued in order to facilitate (a) the financing or refinancing of the debt portion and, in certain cases, the refinancing of some of the equity portion of one or more separate leveraged lease transactions entered into by Continental, as lessee, with respect to the Leased Aircraft as described in the applicable Prospectus Supplement, (b) the financing of the aggregate principal amount of debt to be issued, or the purchase of the aggregate principal amount of the debt previously issued, by Continental in respect of the Owned 95 Aircraft as described in the applicable Prospectus Supplement and (c) the purchase of certain merchandise, insurance and services, as described in the Prospectus Supplement. Unless otherwise specified in the applicable Prospectus Supplement, the proceeds from the sale of the Certificates offered pursuant to any Prospectus Supplement will be used by the Trustee on behalf of the applicable Trust or Trusts to purchase either (a) Leased Aircraft Notes issued by the respective Owner Trustee or Owner Trustees (as defined below) to finance or refinance a portion (as specified in the applicable Prospectus Supplement) of the equipment cost of the related Leased Aircraft or (b) Owned Aircraft Notes issued by Continental to finance all or a portion (as specified in the applicable Prospectus Supplement) of the equipment cost of the related Owned Aircraft, as described in the Prospectus Supplement. Unless otherwise specified in the applicable Prospectus Supplement, any portion of the proceeds from the sale of Certificates not used by the Trustee to purchase Equipment Notes on or prior to the date specified therefor in the applicable Prospectus Supplement will be distributed on a Special Distribution Date (as hereinafter defined) to the applicable Certificateholders, together with interest, but without premium. See "Description of the Certificates -- Special Distribution Upon Unavailability of Aircraft". The Leased Aircraft Notes will be issued under separate Trust Indenture and Security Agreements (the "Leased Aircraft Indentures") between an institution specified in the related Prospectus Supplement as trustee thereunder (in such capacity, herein referred to as the "Loan Trustee") and an institution specified in the related Prospectus Supplement acting, not in its individual capacity, but solely as owner trustee (an "Owner Trustee") of a separate trust for the benefit of one or more institutional investors (each individually, and collectively as to each such trust, the "Owner Participant"). With respect to each Leased Aircraft, the related Owner Participant will have provided or will provide from sources other than the Leased Aircraft Notes a portion (as specified in the applicable Prospectus Supplement) of the equipment cost of the related Leased Aircraft. No Owner Participant, however, will be personally liable for any amount payable under the related Leased Aircraft Indenture or the Leased Aircraft Notes issued thereunder. Simultaneously with the acquisition of each Leased Aircraft, the related Owner Trustee leased or will lease such Aircraft to Continental pursuant to a separate lease agreement (each such lease agreement being herein referred to as a "Lease"). The Owned Aircraft Notes will be issued under separate Trust Indenture and Security Agreements (the "Owned Aircraft Indentures" and, collectively, with any Leased Aircraft Indentures, the "Indentures") between the applicable Loan Trustee and Continental. 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 years ended December 31, 1994 and 1995 and for the three months ended March 31, 1995 and 1996 relates 96 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 the American Institute of Certified Public Accountants' Statement of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code". 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 and minority interest plus interest expense (net of capitalized interest), the portion of rental expense representative of interest expense and amortization of previously capitalized interest. Fixed charges consist of interest expense and the portion of rental expense representative of interest expense. DESCRIPTION OF THE CERTIFICATES In connection with each offering of Certificates, one or more separate trusts will be formed and one or more series of Certificates will be issued pursuant to a Basic Agreement either between Continental and Shawmut Bank Connecticut, National Association, as Trustee, or between Continental and First Security Bank of Utah, National Association, as Trustee, and one or more separate Trust Supplements to be entered into between Continental and the relevant Trustee. The statements made under this caption are summaries, and reference is made to the detailed provisions of the Basic Agreements, which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. The Basic Agreements are substantially identical, except for the identity of the Trustee. The summaries relate to the Basic Agreements and each of the Trust Supplements, the Trusts to be formed thereby and the Certificates to be issued by each Trust except to the extent, if any, described in the applicable Prospectus Supplement. The Prospectus Supplement that accompanies this Prospectus contains a glossary of the material terms used with respect to the specific series of Certificates being offered thereby and identifies which Trustee will act with respect to each specific series of Certificates. The Trust Supplement relating to each series of Certificates and the forms of the related Note Purchase Agreement and Indenture and, if the Certificates relate to Leased Aircraft, the forms of the related Lease, Trust Agreement and Participation Agreement will be filed as exhibits to a Current Report on Form 8-K, Quarterly Report on Form 10-Q or Annual Report on Form 10-K, to be filed by Continental with the Commission. Citations to certain relevant sections of the Basic Agreements appear below in parentheses. 97 The Certificates offered pursuant to this Prospectus will be limited to $510,733,000 aggregate principal amount (or such greater amount if Certificates are issued at an original issue discount, as shall result in aggregate proceeds to Continental of $510,733,000). Certain provisions of the description of the Certificates in this Prospectus do not necessarily apply to one Certificate of each Trust which may be issued in a denomination of less than $1,000. General Each Certificate will represent a fractional undivided interest in the Trust created by the Trust Supplement pursuant to which such Certificate was issued and all payments and distributions shall be made only from the related Trust Property (as defined below). The property of each Trust (the "Trust Property") will include the Equipment Notes held in such Trust, all monies at any time paid thereon, all monies due and to become due thereunder and funds from time to time deposited with the Trustee for the benefit of Certificateholders in accounts relating to such Trust. Each Certificate will represent a pro rata share of the outstanding principal amount of the Equipment Notes held in the related Trust and, unless otherwise specified in the applicable Prospectus Supplement, will be issued in minimum denominations of $1,000 or any integral multiple thereof. (Sections 2.1 and 3.1) The Certificates do not represent an interest in or obligation of Continental, the Trustee, any of the Loan Trustees or Owner Trustees in their individual capacities, any Owner Participant, or any affiliate of any of the foregoing. Reference is made to the Prospectus Supplement that accompanies this Prospectus for a description of the specific series of Certificates being offered thereby, including: (1) the specific designation and title of such Certificates; (2) the Regular Distribution Dates (as hereinafter defined) and Special Distribution Dates (as hereinafter defined) applicable to such Certificates; (3) the specific form of such Certificates, including whether or not such Certificates are to be issued in accordance with a book-entry system; (4) a description of the Equipment Notes to be purchased by the related Trust, including (a) whether or not such Equipment Notes are senior or subordinate to any other Equipment Notes and if so, the terms and conditions pursuant to which such Equipment Notes are senior to or subordinate to other Equipment Notes, and (b) the period or periods within which, the price or prices at which, and the terms and conditions upon which such Equipment Notes may or must be redeemed, in whole or in part; (5) a description of each related Aircraft, including whether the Aircraft is a Leased Aircraft or an Owned Aircraft; (6) a description of each related Note Purchase Agreement and Indenture, including a description of the events of default under each such related Indenture, the remedies exercisable upon the occurrence of such events of default and any limitations on the exercise of such remedies with respect to the related Equipment Notes; (7) if such Certificates relate to Leased Aircraft, a description of each related Lease, Trust Agreement and Participation Agreement, including (a) the names of each related Owner Trustee, (b) a description of the events of 98 default under each such related Lease, the remedies exercisable upon the occurrence of such events of default and any limitations on the exercise of such remedies, and (c) the rights, if any, of each related Owner Trustee and/or Owner Participant to cure failures of Continental to pay rent under the related Lease; (8) the extent, if any, to which the provisions of the operative documents applicable to such Equipment Notes may be amended by the parties thereto without the consent of the holders of, or only upon the consent of the holders of a specified percentage of aggregate principal amount of, such Equipment Notes; (9) the extent, if any, to which the Company may acquire Certificates and deliver such Certificates or cash to the respective Trusts and obtain the release of Equipment Notes held by such Trusts; (10) whether the Certificates are issuable as registered Certificates, bearer Certificates or both, and the terms upon which bearer Certificates may be exchanged for registered Certificates; and (11) any other special terms pertaining to such Certificates, including any modification of the terms set forth herein. Book-Entry Registration The Certificates of each Trust may be issued in bearer or fully registered form and may be issued pursuant to a book-entry system. In the event that the Certificates of any series in registered form are issued pursuant to a book-entry system, it is anticipated that such Certificates will be registered in the name of Cede & Co. ("Cede") as the nominee of The Depository Trust Company ("DTC"). No person acquiring an interest in such Certificates ("Certificate Owner") will be entitled to receive a certificate representing such person's interest in such Certificates, except as set forth below under "Definitive Certificates." Unless and until Definitive Certificates are issued under the limited circumstances described herein, all references to actions by Certificateholders shall refer to actions taken by DTC upon instructions from DTC Participants (as defined below), and all references herein to distributions, notices, reports and statements to Certificateholders shall refer, as the case may be, to distributions, notices, reports and statements to DTC or Cede, as the registered holder of such Certificates, or to DTC Participants for distribution to Certificate Owners in accordance with DTC procedures. (Section 3.9) Continental has been advised that DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to section 17A of the Exchange Act. DTC was created to hold securities for its participants ("DTC Participants") and to facilitate the clearance and settlement of securities transactions between DTC Participants through electronic book-entries, thereby eliminating the need for physical transfer of certificates. DTC Participants include securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to the DTC system also is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant either directly or indirectly ("Indirect 99 Participants"). Certificate Owners that are not DTC Participants or Indirect Participants but desire to purchase, sell or otherwise transfer ownership of, or other interests in, the Certificates may do so only through DTC Participants and Indirect Participants. In addition, Certificate Owners will receive all distributions of principal and interest, as well as notices and other reports, from the relevant Trustee through DTC Participants or Indirect Participants, as the case may be. Under a book-entry format, Certificate Owners may experience some delay in their receipt of payments, as well as notices and other reports, since such payments, notices and other reports will be forwarded by the relevant Trustee to Cede, as nominee for DTC. DTC will forward such payments, notices and other reports to DTC Participants, which will thereafter forward such payments, notices and other reports to Indirect Participants or Certificate Owners, as the case may be, in accordance with customary industry practices. The forwarding of such distributions to the Certificate Owners will be the responsibility of such DTC Participants. Unless and until the Definitive Certificates are issued under the limited circumstances described herein, it is anticipated that the only "Certificateholder" will be Cede, as nominee of DTC. Certificate Owners will not be recognized by the relevant Trustee as Certificateholders, as such term is used in the Basic Agreements, and Certificate Owners will be permitted to exercise the rights of Certificateholders only indirectly through DTC and DTC Participants. Under the rules, regulations and procedures creating and affecting DTC and its operations (the "Rules"), DTC is required to make book-entry transfers of the Certificates among DTC Participants on whose behalf it acts with respect to the Certificates and to receive and transmit distributions of principal, premium, if any, and interest with respect to the Certificates. DTC Participants and Indirect Participants with which Certificate Owners have accounts with respect to the Certificates similarly are required to make book-entry transfers and receive and transmit such payments on behalf of their respective customers. Accordingly, although Certificate Owners will not possess the Certificates, the Rules provide a mechanism by which Certificate Owners will receive payments and will be able to transfer their interests. Because DTC can only act on behalf of DTC Participants, who in turn act on behalf of Indirect Participants or Certificate Owners, the ability of a Certificate Owner to pledge the Certificates to persons or entities that do not participate in the DTC system, or to otherwise act with respect to such Certificates, may be limited due to the inability of Certificate Owners to obtain a physical certificate for such Certificates. Continental has been advised that DTC will take any action permitted to be taken by a Certificateholder under a Basic Agreement only at the direction of one or more DTC Participants to whose accounts with DTC the Certificates are credited. Additionally, Continental has been advised that in the event any action requires approval by Certificateholders of a certain percentage of beneficial interest in each Trust, DTC will take such action only at the direction of and on behalf of DTC 100 Participants whose holders include undivided interests that satisfy any such percentage. DTC may take conflicting actions with respect to other undivided interests to the extent that such actions are taken on behalf of DTC Participants whose holders include such undivided interests. Neither Continental nor the relevant Trustee will have any liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Certificates held by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Definitive Certificates In the event Certificates in registered form are issued pursuant to a book-entry system as described above, such Certificates may be issued in certificated form ("Definitive Certificates") to Certificate Owners or their nominees, rather than to DTC or its nominee, only if (i) Continental advises the relevant Trustee in writing that DTC is no longer willing or able to discharge properly its responsibilities as depository with respect to such Certificates and Continental is unable to locate a qualified successor, (ii) Continental, at its option, elects to terminate participation in the book-entry system through DTC in respect of the Certificates or (iii) after the occurrence of an Indenture Default (as hereinafter defined), Certificate Owners with fractional undivided interests aggregating not less than a majority in interest in such Trust advise the relevant Trustee and Continental through DTC in writing that the continuation of a book-entry system through DTC (or a successor thereto) is no longer in the Certificate Owners' best interest. (Section 3.9) Upon the occurrence of any event described in the immediately preceding paragraph, the relevant Trustee will be required to notify all Certificate Owners through DTC of the availability of Definitive Certificates. Upon surrender by DTC of the certificates representing the Certificates and receipt of written instructions for re-registration, the relevant Trustee will reissue the Certificates as Definitive Certificates to the persons designated by DTC in such written instructions. (Section 3.9) Distributions of principal, premium, if any, and interest with respect to Certificates will thereafter be made by the relevant Trustee directly in accordance with the procedures set forth in the applicable Basic Agreement and the applicable Trust Supplements, to holders in whose names the Definitive Certificates were registered at the close of business on the applicable record date. Such distributions will be made by check mailed to the address of each such holder as it appears on the register maintained by the relevant Trustee. The final payment on any Certificate, however, will be made only upon presentation and surrender of such Certificate at the office or agency specified in the notice of final distribution to Certificateholders. (Sections 4.2 and 11.1) Definitive Certificates in registered form will be freely transferable and exchangeable at the office of the relevant Trustee upon compliance with the requirements set forth in the 101 applicable Basic Agreement and the applicable Trust Supplements. No service charge will be imposed for any registration of transfer or exchange, but payment of a sum sufficient to cover any tax or other governmental charge shall be required. (Section 3.4) Payments and Distributions Payments of principal, premium, if any, and interest with respect to the Equipment Notes held in each Trust will be distributed by the relevant Trustee to Certificateholders of such Trust on the dates specified in the applicable Prospectus Supplement, except in certain cases when some or all of such Equipment Notes are in default. See "-- Events of Default and Certain Rights Upon an Event of Default". Payments of principal of, and interest on, the unpaid principal amount of the Equipment Notes held in each Trust will be scheduled to be received by the relevant Trustee on the dates specified in the applicable Prospectus Supplement (such scheduled payments of interest and principal on the Equipment Notes are herein referred to as "Scheduled Payments," and the dates specified in the applicable Prospectus Supplement are herein referred to as "Regular Distribution Dates"). See "Description of the Equipment Notes -- General". Except as otherwise specified in the applicable Prospectus Supplement, each Certificateholder of each Trust will be entitled to receive a pro rata share of any distribution in respect of Scheduled Payments of principal and interest made on the Equipment Notes held in the Trust. Payments of principal, premium, if any, and interest received by the relevant Trustee on account of the early redemption, if any, of the Equipment Notes relating to one or more Aircraft held in a Trust, and payments, other than Scheduled Payments received on a Regular Distribution Date, received by the relevant Trustee following a default in respect of Equipment Notes held in a Trust relating to one or more Aircraft ("Special Payments") will be distributed on the date determined as described in the applicable Prospectus Supplement (a "Special Distribution Date"). The relevant Trustee will mail notice to the Certificateholders of record of the applicable Trust not less than 20 days prior to the Special Distribution Date on which any Special Payment is scheduled to be distributed by the relevant Trustee stating such anticipated Special Distribution Date. (Section 4.2) Pool Factors Unless there has been an early redemption, a purchase of an issue of Equipment Notes by the related Owner Trustee after an Indenture Default (as defined below) or a default in the payment of principal or interest, in respect of one or more issues of the Equipment Notes held in a Trust, as described in the applicable Prospectus Supplement or below in "-- Events of Default and Certain Rights Upon an Event of Default", the Pool Factor (as defined below) for the Trusts will decline in proportion to the scheduled repayments of principal on the Equipment Notes held in such Trust as described in the applicable Prospectus Supplement. In the event of such redemption, purchase or default, the Pool Factor and the Pool Balance (as defined below) of each Trust so 102 affected will be recomputed after giving effect thereto and notice thereof will be mailed to the Certificateholders of such Trust. Each Trust will have a separate Pool Factor. The "Pool Balance" for each Trust indicates, as of any date, the aggregate unpaid principal amount of the Equipment Notes held in such Trust on such date plus any amounts in respect of principal on such Equipment Notes held by the Trustee and not yet distributed. The Pool Balance for each Trust as of any Regular Distribution Date or Special Distribution Date shall be computed after giving effect to the payment of principal, if any, on the Equipment Notes held in such Trust and distribution thereof to be made on that date. The "Pool Factor" for each Trust as of any Regular Distribution Date or Special Distribution Date is the quotient (rounded to the seventh decimal place) computed by dividing (i) the Pool Balance by (ii) the aggregate original principal amount of the Equipment Notes held in such Trust. The Pool Factor for each Trust as of any Regular Distribution Date or Special Distribution Date shall be computed after giving effect to the payment of principal, if any, on the Equipment Notes held in such Trust and distribution thereof to be made on that date. The Pool Factor for each Trust will initially be l.0000000; thereafter, the Pool Factor for each Trust will decline as described above to reflect reductions in the Pool Balance of such Trust. The amount of a Certificateholder's pro rata share of the Pool Balance of a Trust can be determined by multiplying the original denomination of the holder's Certificate of such Trust by the Pool Factor for such Trust as of the applicable Regular Distribution Date or Special Distribution Date. The Pool Factor and the Pool Balance for each Trust will be mailed to Certificateholders of such Trust on each Regular Distribution Date and Special Distribution Date. Reports to Certificateholders On each Regular Distribution Date and Special Distribution Date, the relevant Trustee will include with each distribution of a Scheduled Payment or Special Payment to Certificateholders of record of the related Trust as of the immediately preceding record date a statement, giving effect to such distribution to be made on such Regular Distribution Date or Special Distribution Date, setting forth the following information (per $1,000 aggregate principal amount of Certificates for such Trust, as to (i) and (ii) below): (i) the amount of such distribution allocable to principal and the amount allocable to premium, if any; (ii) the amount of such distribution allocable to interest; and (iii) the Pool Balance and the Pool Factor for such Trust. (Section 4.3(a)) So long as the Certificates are registered in the name of Cede, as nominee for DTC, (a) on the record date immediately prior to each Regular Distribution Date and Special Distribution Date, the Trustee will request from DTC a Securities Position 103 Listing setting forth the names of all DTC Participants reflected on DTC's books as holding interests in the Certificates on such record date and (b) on each Regular Distribution Date and Special Distribution Date, the relevant Trustee will deliver to each such DTC Participant the statement described above and will make available additional copies as requested by such DTC Participant for forwarding by such DTC Participant to Certificate Owners. (Section 3.9(c)) In addition, after the end of each calendar year, the relevant Trustee will prepare for each Certificateholder of record of each Trust at any time during the preceding calendar year a report containing the sum of the amounts determined pursuant to clauses (i) and (ii) above with respect to the Trust for such calendar year or, in the event such person was a Certificateholder of record during only a portion of such calendar year, for the applicable portion of such calendar year, and such other items as are readily available to the relevant Trustee and which a Certificateholder shall reasonably request as necessary for the purpose of such Certificateholder's preparation of its federal income tax returns. (Section 4.3(b)) Such report and such other items shall be prepared on the basis of information supplied to the relevant Trustee by the DTC Participants and shall be delivered by the relevant Trustee to such DTC Participants to be available for forwarding by such DTC Participants to Certificate Owners in the manner described above. At such time, if any, as the Certificates are issued in the form of Definitive Certificates, the relevant Trustee will prepare and deliver the information described above to each Certificateholder of record of each Trust as the name and period of beneficial ownership of such Certificateholder appears on the records of the registrar of the Certificates. Voting of Equipment Notes The Trustee, as holder of the Equipment Notes held in each Trust, has the right to vote and give consents and waivers with respect to such Equipment Notes under the related Indentures. Each Basic Agreement sets forth the circumstances in which the Trustee thereunder shall direct any action or cast any vote as the holder of the Equipment Notes held in the applicable Trust at its own discretion and the circumstances in which such Trustee shall seek instructions from the Certificateholders of such Trust. Prior to an Event of Default (as defined below) with respect to any Trust, the principal amount of the Equipment Notes held in such Trust directing any action or being voted for or against any proposal shall be in proportion to the principal amount of Certificates held by the Certificateholders of such Trust taking the corresponding position. (Sections 6.1 and 10.1) Events of Default and Certain Rights Upon an Event of Default An event of default under the Basic Agreement (an "Event of Default") is defined as the occurrence and continuance of an event of default under one or more of the Indentures (an "Indenture Default"). The Indenture Defaults under an Indenture will be described in the applicable Prospectus Supplement and, with respect to the Leased Aircraft, will include an event of default under the related Lease (a "Lease Event of Default"). 104 Since the Equipment Notes issued under an Indenture may be held in more than one Trust, a continuing Indenture Default under such Indenture would result in an Event of Default under each such Trust. There will be, however, no cross-default provisions in the Indentures, and events resulting in an Indenture Default under any particular Indenture will not necessarily result in an Indenture Default occurring under any other Indenture. If an Indenture Default occurs in fewer than all of the Indentures, notwithstanding the treatment of Equipment Notes issued under any Indenture under which an Indenture Default has occurred, payments of principal and interest on the Equipment Notes issued pursuant to Indentures with respect to which an Indenture Default has not occurred will continue to be distributed to the holders of the Certificates as originally scheduled. With respect to each Leased Aircraft, the applicable Owner Trustee and Owner Participant will, under the related Indenture, have the right under certain circumstances to cure Indenture Defaults that result from the occurrence of a Lease Event of Default under the related Lease. If the Owner Trustee or the Owner Participant exercises such cure right, the Indenture Default and consequently the Event of Default with respect to the related Trust or Trusts will be deemed to have been cured. The Basic Agreements provide that, as long as an Indenture Default under any Indenture relating to the Equipment Notes held in a Trust shall have occurred and be continuing, the Trustee of such Trust may vote all of the Equipment Notes issued under such Indenture that are held in such Trust and, upon the direction of the holders of Certificates evidencing fractional undivided interests aggregating not less than a majority in interest of such Trust, shall vote a corresponding majority of such Equipment Notes in favor of directing the Loan Trustee under such Indenture to declare the unpaid principal amount of all Equipment Notes issued under such Indenture and any accrued and unpaid interest thereon to be due and payable. The Basic Agreements also provide that, if an Indenture Default under any Indenture relating to the Equipment Notes held in a Trust shall have occurred and be continuing, the Trustee of such Trust may, and upon the direction of the holders of Certificates evidencing fractional undivided interests aggregating not less than a majority in interest of such Trust shall, vote all of the Equipment Notes issued under such Indenture that are held in such Trust in favor of directing the Loan Trustee as to the time, method and place of conducting any proceeding for any remedy available to the Loan Trustee or of exercising any trust or power conferred on the Loan Trustee under such Indenture. (Sections 6.1 and 6.4) The ability of the holders of the Certificates issued with respect to any one Trust to cause the Loan Trustee with respect to any Equipment Notes held in such Trust to accelerate the Equipment Notes under the related Indenture or to direct the exercise of remedies by the Loan Trustee under the related Indenture will depend, in part, upon the proportion between the aggregate principal amount of the Equipment Notes outstanding under such Indenture and held in such Trust and the aggregate principal amount of all Equipment Notes outstanding under such Indenture. If, for example, the Equipment Notes held in such Trust constitute only 45% in aggregate principal amount of the Equipment Notes issued under such Indenture, even if all of the 105 Certificateholders of such Trust were to instruct the Trustee of such Trust to direct the Loan Trustee to declare the acceleration of the Equipment Notes issued under such Indenture, the Equipment Notes so voted by such Trust in favor of acceleration would not alone be sufficient under the terms of the Indenture to compel the Loan Trustee to act. Moreover, there can be no assurance that the Certificateholders of any of the other Trusts would at such time vote the Equipment Notes held in such Trusts in favor of acceleration. Each Trust will hold Equipment Notes with different terms from the Equipment Notes held in the other Trusts and therefore the Certificateholders of a Trust may have divergent or conflicting interests from those of the Certificateholders of the other Trusts holding Equipment Notes relating to the same Aircraft. In addition, so long as the same institution acts as Trustee of two or more Trusts, in the absence of instructions from the Certificateholders of any such Trust, the Trustee for such Trust could for the same reason be faced with a potential conflict of interest upon an Indenture Default. In such event, each Trustee has indicated that it would resign as trustee of one or all such Trusts, and a successor trustee would be appointed in accordance with the terms of the applicable Basic Agreement. As an additional remedy, if an Indenture Default shall have occurred and be continuing, the Basic Agreements provide that the Trustee of the Trust holding Equipment Notes issued under such Indenture may, and upon the direction of the holders of the Certificates evidencing fractional undivided interests aggregating not less than a majority in interest of such Trust shall, sell for cash to any person all or part of such Equipment Notes in accordance with applicable laws, including any applicable securities laws. (Sections 6.1 and 6.2) Any proceeds received by such Trustee upon any such sale shall be deposited in an account established by such Trustee for the benefit of the Certificateholders of such Trust for the deposit of such Special Payments (the "Special Payments Account") and shall be distributed to the Certificateholders of such Trust on a Special Distribution Date. (Sections 4.1 and 4.2) The market for Equipment Notes in default may be very limited, and there can be no assurance that they could be sold for a reasonable price or that the net proceeds from such sale would be equal to the unpaid principal amount of and interest on such Equipment Notes. Furthermore, so long as the same institution acts as Trustee of multiple Trusts, it may be faced with a conflict in deciding from which Trust to sell Equipment Notes to available buyers. If the Trustee of any Trust sells any such Equipment Notes with respect to which an Indenture Default exists for less than their outstanding principal amount, the Certificateholders of such Trust will receive a smaller amount of principal distributions than anticipated and will not have any claim for the shortfall against Continental, any Owner Trustee, any Owner Participant or such Trustee. Furthermore, neither such Trustee nor the Certificateholders of such Trust could take any action with respect to any remaining Equipment Notes held in such Trust so long as no Indenture Defaults existed with respect thereto. Any amount, other than Scheduled Payments received on a Regular Distribution Date, distributed to the Trustee of any Trust by the Loan Trustee under any Indenture on account of the Equipment Notes held in such Trust following an Indenture Default 106 under such Indenture shall be deposited in the Special Payments Account for such Trust and shall be distributed to the Certificateholders of such Trust on a Special Distribution Date. In addition, if, following an Indenture Default under any Indenture relating to a Leased Aircraft, the applicable Owner Trustee exercises its option to redeem or purchase the outstanding Equipment Notes issued under such Indenture as described in the related Prospectus Supplement, the price paid by such Owner Trustee to the Trustee of any Trust for the Equipment Notes issued under such Indenture and held in such Trust shall be deposited in the Special Payments Account for such Trust and shall be distributed to the Certificateholders of such Trust on a Special Distribution Date. (Sections 4.1, 4.2 and 6.2) Any funds representing payments received with respect to any Equipment Notes held in a Trust in default, or the proceeds from the sale by the Trustee of any such Equipment Notes, held by the Trustee in the Special Payments Account for such Trust shall, to the extent practicable, be invested and reinvested by the Trustee in Permitted Investments pending the distribution of such funds on a Special Distribution Date. Permitted Investments are defined as obligations of the United States or agencies or instrumentalities thereof, the payment of which is backed by the full faith and credit of the United States and which mature in not more than 60 days or such lesser time as is required for the distribution of any such funds on a Special Distribution Date. (Sections 1.1 and 4.4) The Basic Agreements provide that the Trustee of each Trust shall, within 90 days after the occurrence of any event known to it to be a default in respect of such Trust, give to the Certificateholders of such Trust notice, transmitted by mail, of all uncured or unwaived defaults with respect to such Trust known to it, provided that, except in the case of default in the payment of principal of, premium, if any, or interest on any of the Equipment Notes held in such Trust, the Trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interests of such Certificateholders. (Section 7.1) Each Basic Agreement contains a provision entitling the Trustee of each Trust, subject to the duty of the Trustee during a default to act with the required standard of care, to be offered reasonable security or indemnity by the holders of the Certificates of such Trust before proceeding to exercise any right or power under such Basic Agreement at the request of such Certificateholders. (Section 7.2) In certain cases, the holders of the Certificates of a Trust evidencing fractional undivided interests aggregating not less than a majority in interest of such Trust may on behalf of the holders of all the Certificates of such Trust waive any past default or Event of Default with respect to such Trust and its consequences and may instruct the Trustees to waive any past default under the related Indenture or the Basic Agreement or the applicable Trust Supplement and its consequences, except (i) a default in the deposit of any Scheduled Payment or Special Payment or in the distribution thereof, (ii) a default in payment of the principal, premium, if any, or interest with respect to any of the Equipment Notes held in such Trust and (iii) a default 107 in respect of any covenant or provision of the Basic Agreement or the related Trust Supplement that cannot be modified or amended without the consent of each Certificateholder of such Trust affected thereby. (Section 6.5) Each Indenture will provide that, with certain exceptions, the holders of a majority in aggregate unpaid principal amount of the Equipment Notes issued thereunder may on behalf of all such holders waive any past default or Indenture Default thereunder. In the event of a waiver with respect to a Trust as described above, the principal amount of the Equipment Notes issued under the related Indenture and held in such Trust shall be counted as waived in the determination of the majority in aggregate unpaid principal amount of Equipment Notes required to waive a default or an Indenture Default. Therefore, if the Certificateholders of a Trust or Trusts waive a past default or Event of Default such that the principal amount of the Equipment Notes held either individually in such Trust or in the aggregate in such Trusts constitutes the required majority in aggregate unpaid principal amount under the applicable Indenture, such past default or Indenture Default shall be waived. Merger, Consolidation and Transfer of Assets Continental will be prohibited from consolidating with or merging into any other corporation or transferring substantially all of its assets as an entirety to any other Person unless (i) the surviving successor or transferee shall (a) be organized and validly existing under the laws of the United States or any jurisdiction thereof, (b) be a United States certificated air carrier, if and so long as such status is a condition of entitlement to the benefits of section 1110 of the Bankruptcy Code (as defined below) with respect to the Owned Aircraft Indentures and the Leases and (c) expressly assume all of the obligations of Continental contained in the Basic Agreements, any Trust Supplement, the Note Purchase Agreements and the Indentures and, with respect to the Leased Aircraft Notes, the Participation Agreements and the Leases, and any other operative documents to which Continental was a party immediately prior to such transaction; (ii) no Indenture Default or Lease Event of Default shall arise as a result of such consolidation, merger or transfer of assets and (iii) Continental shall have delivered a certificate and an opinion or opinions of counsel indicating that such transaction, in effect, complies with such conditions. (Section 5.2) The Basic Agreements do not and, except as otherwise described in the applicable Prospectus Supplement, the Indentures will not contain any covenants or provisions which may afford the Trustee or Certificateholders protection in the event of a highly leveraged transaction, including transactions effected by management or affiliates, which may or may not result in a change in control of Continental. Modifications of the Basic Agreements Each Basic Agreement contains provisions permitting Continental and the Trustee of each Trust to enter into a supplemental trust agreement, without the consent of the holders of any of the Certificates held in such Trust, (i) to provide for the formation of such Trust and the issuance of a series of 108 Certificates, (ii) to evidence the succession of another corporation to Continental and the assumption by such corporation of Continental's obligations under such Basic Agreement and the applicable Trust Supplement, (iii) to add to the covenants of Continental for the benefit of holders of such Certificates or to surrender any right or power in such Basic Agreement conferred upon Continental, (iv) to correct or supplement any defective or inconsistent provision of such Basic Agreement or the applicable Trust Supplement or to make any other provisions with respect to matters or questions arising thereunder, provided such action shall not adversely affect the interests of the holders of such Certificates or to cure any ambiguity or correct any mistake, (v) to modify, eliminate or add to the provisions of such Basic Agreement to such extent as shall be necessary to continue the qualification of such Basic Agreement (including any supplemental agreement) under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and to add to such Basic Agreement such other provisions as may be expressly permitted by the Trust Indenture Act, (vi) to provide for a successor Trustee or to add to or change any provision of such Basic Agreement as shall be necessary to facilitate the administration of the Trusts thereunder by more than one Trustee, and (vii) to make any other amendments or modifications to such Basic Agreement, provided such amendments or modifications shall only apply to Certificates issued thereafter. (Section 9.1) The Basic Agreements also contain provisions permitting Continental and the Trustee of each Trust, with the consent of the holders of the Certificates of such Trust evidencing fractional undivided interests aggregating not less than a majority in interest of such Trust, and, with respect to any Leased Aircraft in certain cases, with the consent of the applicable Owner Trustee (such consent not to be unreasonably withheld), to execute supplemental trust agreements adding any provisions to or changing or eliminating any of the provisions of the Basic Agreements, to the extent relating to such Trust, and the applicable Trust Supplement, or modifying the rights of the Certificateholders, except that no such supplemental trust agreement may, without the consent of the holder of each Certificate so affected thereby, (a) reduce in any manner the amount of, or delay the timing of, any receipt by the Trustee of payments on the Equipment Notes held in such Trust or distributions in respect of any Certificate related to such Trust, or change the date or place of any payment in respect of any Certificate, or make distributions payable in coin or currency other than that provided for in such Certificates, or impair the right of any Certificateholder of such Trust to institute suit for the enforcement of any such payment when due, (b) permit the disposition of any Equipment Note held in such Trust, except as provided in the Basic Agreements or the applicable Trust Supplement, or otherwise deprive any Certificateholder of the benefit of the ownership of the applicable Equipment Notes, (c) reduce the percentage of the aggregate fractional undivided interests of the Trust provided for in the Basic Agreements or the applicable Trust Supplement, the consent of the holders of which is required for any such supplemental trust agreement or for any waiver provided for in the Basic Agreements or such Trust Supplement, or (d) modify any of the provisions relating to the rights of the Certificateholders in respect of the waiver of events of default 109 or receipt of payment. (Section 9.2) Modification of Indenture and Related Agreements In the event that a Trustee, as the holder of any Equipment Notes held in a Trust, receives a request for its consent to any amendment, modification or waiver under the Indenture or other documents relating to such Equipment Notes (including any Lease with respect to Leased Aircraft Notes), such Trustee shall send a notice of such proposed amendment, modification or waiver to each Certificateholder of such Trust of record as of the date of such notice. Such Trustee shall request instructions from the Certificateholders of such Trust as to whether or not to consent to such amendment, modification or waiver. Such Trustee shall vote or consent with respect to such Equipment Notes in such Trust in the same proportion as the Certificates of such Trust were actually voted by the holders thereof by a certain date. Notwithstanding the foregoing, if an Event of Default in respect of such Trust shall have occurred and be continuing, such Trustee may, in the absence of instructions from Certificateholders holding a majority in interest of such Trust, in its own discretion consent to such amendment, modification or waiver and may so notify the relevant Loan Trustee. (Section 10.1) Termination of the Trusts The obligations of Continental and the Trustee with respect to a Trust will terminate upon the distribution to Certificateholders of such Trust of all amounts required to be distributed to them pursuant to the Basic Agreements and the applicable Trust Supplement and the disposition of all property held in such Trust. Such Trustee will send to each Certificateholder of record of such Trust notice of the termination of such Trust, the amount of the proposed final payment and the proposed date for the distribution of such final payment for such Trust. The final distribution to any Certificateholder of such Trust will be made only upon surrender of such Certificateholder's Certificates at the office or agency of such Trustee specified in such notice of termination. (Section 11.1) Delayed Purchase In the event that, on the delivery date of any Certificates, all of the proceeds from the sale of such Certificates are not used to purchase the Equipment Notes contemplated to be held in the related Trust, such Equipment Notes may be purchased by the relevant Trustee at any time on or prior to the date specified in the applicable Prospectus Supplement. In such event, such Trustee will hold the proceeds from the sale of such Certificates not used to purchase such Equipment Notes in an escrow account pending the purchase of such Equipment Notes not so purchased. Such proceeds will be invested at the direction and risk of, and for the account of, Continental in certain specified investments, which may include: (i) obligations of, or guaranteed by, the United States Government or agencies thereof, (ii) open market commercial paper of any corporation incorporated under the laws of the United States of America or any State thereof rated at least P-2 or its equivalent by Moody's Investors Service, Inc. or at least A-2 or 110 its equivalent by Standard & Poor's Corporation, (iii) certificates of deposit issued by commercial banks organized under the laws of the United States or of any political subdivision thereof having a combined capital and surplus in excess of $100,000,000, which banks or their holding companies have a short-term deposit rating of P1 by Moody's Investors Service, Inc. or its equivalent by Standard & Poor's Corporation; provided, however, that the aggregate amount at any one time so invested in certificates of deposit issued by any one bank shall not exceed 5% of such bank's capital and surplus, (iv) U.S. dollar denominated offshore certificates of deposit issued by, or offshore time deposits with, any commercial bank described in (iii) or any subsidiary thereof and (v) repurchase agreements with any financial institution having combined capital and surplus of at least $100,000,000 with any of the obligations described in (i) through (iv) as collateral; provided that if all of the above investments are unavailable, the entire amounts to be invested may be used to purchase federal funds from an entity described in clause (iii) above; and provided further that no investment shall be eligible as a "specified investment" unless the final maturity date or date of return of such investment is on or before (x) the scheduled date for the purchase of such Equipment Notes, or (y) if no date has been scheduled for the purchase of such Equipment Notes, the next Business Day, or (z) if Continental has given notice that such Equipment Notes will not be purchased, the next applicable Special Distribution Date. Earnings on such investments in the escrow account for each Trust will be paid to Continental periodically, upon its demand, and Continental will be responsible for any losses. (Section 2.2(b)) Unless otherwise specified in the applicable Prospectus Supplement, on the next Regular Distribution Date specified in the applicable Prospectus Supplement, Continental will pay to the relevant Trustee an amount equal to the interest that would have accrued on any Equipment Notes purchased after the date of the issuance of such Certificates from the date of the issuance of such Certificates to, but excluding, the date of the purchase of such Equipment Notes by such Trustee. (Section 2.2(b)) Special Distribution Upon Unavailability of Aircraft To the extent, due to a casualty to, or other event causing the unavailability of, one or more Aircraft, that the full amount of the proceeds from the sale of any Certificates held in the escrow account referred to above is not used to purchase Equipment Notes on or prior to the date specified in the applicable Prospectus Supplement, an amount equal to the unused proceeds will be distributed by the relevant Trustee to the holders of record of such Certificates on a pro rata basis upon not less than 20 days' prior notice to them as a Special Distribution on the date specified in the applicable Prospectus Supplement together with interest thereon at a rate equal to the rate applicable to such Certificates, but without premium, and Continental will pay to the relevant Trustee on such date an amount equal to such interest. (Section 2.2(b)) The Trustees With certain exceptions, no Trustee makes any 111 representations as to the validity or sufficiency of the Basic Agreement to which it is a party, the Trust Supplements, the Certificates, the Equipment Notes, the Indentures, the Leases or other related documents. No Trustee shall be liable with respect to any series of Certificates, for any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of a majority in principal amount of outstanding Certificates of such series issued under the Basic Agreement to which it is a party. Subject to such provisions, such Trustee shall be under no obligation to exercise any of its rights or powers under such Basic Agreement at the request of any holders of Certificates issued thereunder unless they shall have offered to such Trustee indemnity satisfactory to it. Each Basic Agreement provides that the Trustee thereunder in its individual or any other capacity may acquire and hold Certificates issued thereunder and, subject to certain conditions, may otherwise deal with Continental and, with respect to the Leased Aircraft, with any Owner Trustee or Owner Participant with the same rights it would have if it were not the Trustee. (Sections 7.2, 7.3 and 7.4) A Trustee may resign with respect to any or all of the Trusts at any time, in which event Continental will be obligated to appoint a successor trustee. If a Trustee ceases to be eligible to continue as Trustee with respect to a Trust or becomes incapable of acting as Trustee or becomes insolvent, Continental may remove such Trustee, or any holder of the Certificates of such Trust for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of such Trustee and the appointment of a successor trustee. Any resignation or removal of a Trustee with respect to a Trust and appointment of a successor trustee for such Trust does not become effective until acceptance of the appointment by the successor trustee. (Section 7.8) Pursuant to such resignation and successor trustee provisions, it is possible that a different trustee could be appointed to act as the successor trustee with respect to each Trust. All references in this Prospectus to a Trustee should be read to take into account the possibility that the Trusts could have different successor trustees in the event of such a resignation or removal. Each Basic Agreement provides that Continental will pay the reasonable fees and expenses of the Trustee thereunder and indemnify such Trustee against certain losses and liabilities. To secure such obligation of the Company, such Trustee will have a lien prior to the Certificates of a series on all property and funds held by it with respect to the Certificates of such series. (Section 7.6) DESCRIPTION OF THE EQUIPMENT NOTES The statements made under this caption are summaries and reference is made to the entire Prospectus and detailed information appearing in the applicable Prospectus Supplement. Where no distinction is made between the Leased Aircraft Notes and the Owned Aircraft Notes or between their respective Indentures, such statements refer to any Equipment Notes and any Indenture. 112 General Each Equipment Note issued under the same Indenture will relate to a single Aircraft. The Equipment Notes with respect to each Aircraft will be issued under a separate Indenture either (a) between the related Owner Trustee of a trust for the benefit of the Owner Participant who is the beneficial owner of such Aircraft, and the related Loan Trustee, or (b) between Continental and the related Loan Trustee. The Equipment Notes issued under an Indenture may rank pari passu with each other or may be issued in two or more series of different rank. If such Equipment Notes are issued in two or more series of different rank, the terms and conditions upon which each such series is senior to or subordinate to each other such series will be set forth in the applicable Prospectus Supplement. With respect to each Leased Aircraft, the related Owner Trustee has acquired or will acquire such Aircraft from Continental or the manufacturer of such Aircraft, as the case may be, has granted or will grant a security interest in its right, title and interest in such Aircraft to the related Loan Trustee as security for the payments of the related Leased Aircraft Notes, and has leased or will lease such Aircraft to Continental pursuant to the related Lease which has been or will be assigned as security to the related Loan Trustee. Pursuant to each such Lease, Continental will be obligated to make or cause to be made rental and other payments to the related Owner Trustee in amounts that will be sufficient to make payments of the principal and interest scheduled to be made in respect of such Leased Aircraft Notes when and as due and payable. The rental obligations of Continental under each Lease and the obligations of Continental under each Owned Aircraft Indenture and under the Owned Aircraft Notes will be general obligations of Continental. Except in certain circumstances involving Continental's purchase of a Leased Aircraft and the assumption of the Leased Aircraft Notes related thereto, the Leased Aircraft Notes are not obligations of, or guaranteed by, Continental. See "--Assumption of Obligations by Continental". Principal and Interest Payments Interest paid on the Equipment Notes held in each Trust will be passed through to the Certificateholders of such Trust on the dates and at the rate per annum set forth in the applicable Prospectus Supplement until the final distribution for such Trust. Principal paid on the Equipment Notes held in each Trust will be passed through to the Certificateholders of such Trust in scheduled amounts on the dates set forth in the applicable Prospectus Supplement until the final distribution date for such Trust. If any date scheduled for any payment of principal, premium, if any, or interest with respect to the Equipment Notes is not a Business Day, such payment will be made on the next succeeding Business Day without any additional interest. Security 113 The Leased Aircraft Notes will be secured by (i) an assignment by the related Owner Trustee to the related Loan Trustee of such Owner Trustee's rights (except for certain rights, including those described below) under the Lease with respect to the related Leased Aircraft, including the right to receive payments of rent thereunder, (ii) a mortgage granted to such Loan Trustee of the Owner Trustee's right, title and interest in such Aircraft, subject to the rights of Continental under such Lease and (iii) an assignment to such Loan Trustee of certain of such Owner Trustee's rights with respect to such Aircraft under the purchase agreement for such Aircraft. Under the terms of each Lease, Continental's obligations in respect of each Leased Aircraft will be those of a lessee under a "net lease". Accordingly, Continental will be obligated, among other things and at its expense, to cause each Leased Aircraft to be duly registered, to pay (or cause to be paid) all costs of operating such Aircraft and to maintain, service, repair and overhaul (or cause to be maintained, serviced, repaired and overhauled) such Aircraft. The Owned Aircraft Notes will be secured by a mortgage granted to the related Loan Trustee of all of Continental's right, title and interest in and to the related Owned Aircraft and a security interest in certain of Continental's rights with respect to such Aircraft under the purchase agreement between Continental and the related manufacturer. If so specified in a Prospectus Supplement, prior to the delivery of an Owned Aircraft, the Equipment Notes with respect thereto may be secured by the Company's interest in the purchase agreement for such Owned Aircraft. Under the terms of each Owned Aircraft Indenture, Continental will be obligated, among other things and at its expense, to cause each Owned Aircraft to be duly registered, to pay (or cause to be paid) all costs of operating such Aircraft and to maintain, service, repair and overhaul (or cause to be maintained, serviced, repaired and overhauled) such Aircraft. Continental will be required, except under certain circumstances, to keep each Aircraft registered under the Federal Aviation Act of 1958, as amended (the "Aviation Act"), and to record the Indenture and the Lease, if any, among other documents, with respect to each Aircraft under the Aviation Act. Such recordation of the Indenture, the Lease, if any, and other documents with respect to each Aircraft will give the related Loan Trustee a perfected security interest in the related Aircraft whenever it is located in the United States or any of its territories and possessions and, with certain exceptions, in those jurisdictions that have ratified or adhered to the Convention on the International Recognition of Rights in Aircraft (the "Convention"). Continental will have the right, subject to certain conditions, at its own expense to register each Aircraft in countries other than the United States. Unless otherwise specified in the applicable Prospectus Supplement, prior to any such change in the jurisdiction of registry, the related Loan Trustee shall have received an opinion of Continental's counsel that, among other things, confirms that the Loan Trustee's right to repossession under the Indenture is valid and enforceable under the laws of such country in each case subject, in certain cases, to certain filings, recordations or other actions. 114 Subject to certain limitations, each Aircraft may also be operated by Continental or under lease, sublease or interchange arrangements in countries that are not parties to the Convention. The extent to which the related Loan Trustee's security interest would be recognized in an Aircraft located in a country that is not a party to the Convention, and the extent to which such security interest would be recognized in a jurisdiction adhering to the Convention if the Aircraft is registered in a jurisdiction not a party to the Convention, is uncertain. Moreover, in the case of an Indenture Default, the ability of the related Loan Trustee to realize upon its security interest in an Aircraft could be adversely affected as a legal or practical matter if such Aircraft were registered or located outside the United States. Unless otherwise specified in the applicable Prospectus Supplement, the Equipment Notes are not cross-collateralized and consequently the Equipment Notes issued in respect of any one Aircraft will not be secured by any other Aircraft or, in the case of Leased Aircraft Notes, any other Lease. Unless and until an Indenture Default with respect to a Leased Aircraft has occurred and is continuing, the related Loan Trustee may not exercise any of the rights of the related Owner Trustee under the related Lease, except the right to receive payments thereunder. With respect to the Leased Aircraft, the assignment by the related Owner Trustee to the related Loan Trustee of its rights under the related Lease will exclude, among other things, rights of such Owner Trustee and the related Owner Participant relating to indemnification by Continental for certain matters, insurance proceeds payable to such Owner Trustee in its individual capacity and to such Owner Participant under liability insurance maintained by Continental pursuant to such Lease or by such Owner Trustee or such Owner Participant, insurance proceeds payable to such Owner Trustee in its individual capacity or to such Owner Participant under certain casualty insurance maintained by such Owner Trustee or such Owner Participant pursuant to such Lease and any rights of such Owner Participant or such Owner Trustee to enforce payment of the foregoing amounts and their respective rights to the proceeds of the foregoing. Unless otherwise indicated in the applicable Prospectus Supplement, Continental will be obligated to carry insurance with insurers of recognized responsibility with respect to each Aircraft, at its own cost and expense, against such risks, in such amounts, with such deductibles or self-insurance amounts and in such form as Continental customarily maintains with respect to other aircraft owned or operated by Continental, in each case similar to the respective Aircraft, and operating on similar routes in similar geographic locations. Continental may be permitted to maintain coverage below certain stipulated values and, with respect to certain Aircraft, may be permitted to self- insure, in certain circumstances. Therefore, no assurance will be given that any insurance will be carried in the future, or, if it is carried, as to the amount of such insurance. Continental and any permitted sublessee of an Aircraft will be named as insured parties under all insurance policies required by the related Lease. The related Trustee, Loan Trustee, Owner Trustee, if any, and Owner Participant, if any, will be named additional insureds, which will afford each of them the rights but not the obligations of a coinsured or an additional insured. 115 Funds, if any, held from time to time by the Loan Trustee with respect to any Aircraft, prior to the distribution thereof, will be invested and reinvested by such Loan Trustee. Such investment and reinvestment will be at the direction of Continental (except in the case of a Lease Event of Default under the applicable Lease, if any, or, in the case of an Indenture Default under the applicable Indenture) in certain investments described in the related Indenture. The net amount of any loss resulting from any such investments will be paid by Continental. Section 1110 of Title 11 of the United States Code (the "Bankruptcy Code") provides that the right of a secured party with a purchase money equipment security interest in, or of a lessor or conditional vendor of, aircraft, aircraft engines, propellers, appliances, or spare parts, as defined in Section 101 of the Aviation Act, that are subject to a purchase money equipment security interest granted by, leased to, or conditionally sold to, an air carrier operating under a certificate of convenience and necessity issued by the Civil Aeronautics Board, to take possession of such equipment in compliance with the provisions of a purchase money equipment security agreement, lease, or conditional sale contract, as the case may be, is not affected by (i) the automatic stay provision of the Bankruptcy Code, which provision enjoins repossessions by creditors for the duration of the reorganization period, (ii) the provision of the Bankruptcy Code allowing the debtor in possession and/or the bankruptcy trustee to use property of the bankruptcy estate during the bankruptcy case and (iii) any power of the bankruptcy court to enjoin a repossession. Section 1110 of the Bankruptcy Code provides, however, that the right of a lessor, conditional vendor or holder of a purchase money equipment security interest to take possession of an aircraft in the event of an event of default may not be exercised for 60 days following the date of commencement of the reorganization proceedings (unless specifically permitted by the bankruptcy court) and may not be exercised at all if within such 60-day period, the debtor in possession and/or the bankruptcy trustee agrees to perform the debtor's obligations that become due on or after such date and cures all existing defaults (other than defaults resulting solely from the financial condition, bankruptcy, insolvency or reorganization of the debtor). The Prospectus Supplement for each offering will discuss the availability of Section 1110 of the Bankruptcy Code with respect to the related Aircraft. Payments and Limitation of Liability Each Leased Aircraft will be leased separately by the related Owner Trustee to Continental for a term commencing on the delivery date thereof to such Owner Trustee and expiring on a date not earlier than the latest maturity date of the Leased Aircraft Notes, unless previously terminated as permitted by the terms of the related Lease. The basic rent and other payments under each such Lease will be payable by Continental in accordance with the terms specified in the applicable Prospectus Supplement, and will be assigned by the related Owner Trustee under the related Indenture to provide the funds necessary to pay scheduled principal and interest due from such Owner Trustee on the Leased Aircraft Notes issued under such Indenture. In 116 certain cases, the basic rent payments under a Lease may be adjusted, but each Lease will provide that under no circumstances will rent payments by Continental be less than the scheduled payments on the related Leased Aircraft Notes. The balance of any basic rent payment under each Lease, after payment of amounts due on the Leased Aircraft Notes issued under the Indenture corresponding to such Lease, will be paid over to the applicable Owner Trustee. Continental's obligation to pay rent and to cause other payments to be made under each Lease will be general obligations of Continental. With respect to the Leased Aircraft Notes, except in certain circumstances involving Continental's purchase of a Leased Aircraft and the assumption of the Leased Aircraft Notes related thereto, the Leased Aircraft Notes will not be obligations of, or guaranteed by, Continental. With respect to the Leased Aircraft Notes, none of the Owner Trustees, the Owner Participants or the Loan Trustees shall be personally liable in respect of such Leased Aircraft Notes for amounts payable under such Leased Aircraft Notes, or, except as provided in the Indentures relating thereto in the case of the Owner Trustees and the Indenture Trustees, for any liability under such Indentures. Except in the circumstances referred to above, all amounts payable under any Leased Aircraft Notes (other than payments made in connection with an optional redemption or purchase by the related Owner Trustee or the related Owner Participant) will be made only from the assets subject to the lien of the related Indenture with respect to such Aircraft or the income and proceeds received by the related Loan Trustee therefrom (including rent payable by Continental). With respect to the Leased Aircraft Notes, except as otherwise provided in the related Indentures, no Owner Trustee shall be personally liable for any amount payable or for any statements, representations, warranties, agreements or obligations under such Indentures or under such Leased Aircraft Notes except for its own willful misconduct or gross negligence. None of the Owner Participants shall have any duty or responsibility under the Leased Aircraft Indentures or under such Leased Aircraft Notes. Continental's obligations under each Owned Aircraft Indenture and under the Owned Aircraft Notes will be general obligations of Continental. Defeasance and Covenant Defeasance in Certain Circumstances Unless otherwise specified in the applicable Prospectus Supplement, (i) the obligations of Continental with respect to Owned Aircraft Notes of or within any series and the obligations of the Owner Trustee with respect to any Leased Aircraft Notes of or within any series shall be deemed to have been discharged and paid in full ("defeasance") (except for certain obligations, including the obligations to register the transfer or exchange of Equipment Notes, to replace stolen, lost, destroyed or mutilated Equipment Notes and to maintain paying agencies and hold money for payment in trust) or (ii) Continental shall be deemed to have been released from its obligations with respect to certain covenants applicable to the Equipment Notes of or within any series ("covenant defeasance"), on the 91st day after the date of 117 irrevocable deposit with the related Loan Trustee of money or certain obligations of the United States or any agency or instrumentality thereof the payment of which is backed by the full faith and credit of the United States which, through the payment of principal and interest in respect thereof in accordance with their terms, will provide money in an aggregate amount sufficient to pay when due (including as a consequence of redemption in respect of which notice is given on or prior to the date of such deposit) principal of, premium, if any, and interest on all Equipment Notes issued thereunder in accordance with the terms of such Indenture. Such defeasance may occur only if, among other things, the Loan Trustee has received (a) an opinion of counsel, to the effect that holders of such Equipment Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance or covenant defeasance, as the case may be (such opinion of counsel, in the case of defeasance, must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable Federal income tax law occurring after the date such Equipment Notes were issued), and will be subject to federal income tax on the same amount and in the same manner and at the same time as would have been the case if such defeasance or covenant defeasance had not occurred, (b) an officers' certificate and an opinion of counsel with respect to compliance with the conditions precedent to such defeasance or covenant defeasance and (c) any additional conditions to such defeasance or covenant defeasance which may be imposed on the Company. In addition, a nationally recognized firm of independent public accounts must deliver to the Loan Trustee a written certification as to the sufficiency of the trust funds deposited for the defeasance or covenant defeasance of such Equipment Notes. The Indentures do not provide the holders of the Equipment Notes with recourse against such firm. The Company may exercise its defeasance option with respect to such Equipment Notes notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its defeasance option, payment of such Equipment Notes may not be accelerated because of a Default or an Event of Default. If the Company exercises its covenant defeasance option, payment of such Equipment Notes may not be accelerated by reason of a Default or an Event of Default with respect to the covenants to which such covenant defeasance is applicable. However, if such acceleration were to occur, the realizable value at the acceleration date of the money and Government Obligations in the defeasance trust could be less than the principal and interest then due on such Equipment Notes, in that the required deposit in the defeasance trust is based upon scheduled cash flow rather than market value, which will vary depending upon interest rates and other factors. Upon such defeasance, or upon payment in full of the principal of, premium, if any, and interest on all Equipment Notes issued under any Indenture on the maturity date therefor or deposit with the applicable Loan Trustee of money sufficient therefor no earlier than one year prior to the date of such maturity, the holders of such Equipment Notes will have no beneficial interest in or other rights with respect to the related Aircraft or other assets subject to the lien of such Indenture and such lien shall terminate. Upon the occurrence of a covenant defeasance, the holder of the Equipment Notes will have no beneficial interest in or other rights with respect to 118 the related Aircraft or other assets subject to the lien of such Indenture and such lien shall terminate and the Company will be released only from its obligations to comply with certain covenants contained in the Indenture, as more fully discussed in the applicable Prospectus Supplement. Assumption of Obligations by Continental Unless otherwise specified in the applicable Prospectus Supplement with respect to Leased Aircraft, upon the exercise by Continental of any purchase options it may have under the related Lease prior to the end of the term of such Lease, Continental may assume on a full recourse basis all of the obligations of the Owner Trustee (other than its obligations in its individual capacity) under the Indenture with respect to such Aircraft, including the obligations to make payments in respect of the related Leased Aircraft Notes. In such event, certain relevant provisions of the related Lease, including (among others) provisions relating to maintenance, possession and use of the related Aircraft, liens, insurance and events of default will be incorporated into such Indenture, and the Leased Aircraft Notes issued under such Indenture will not be redeemed and will continue to be secured by such Aircraft. It is a condition to such assumption that, if such Aircraft is registered under the laws of the United States, an opinion of counsel be delivered at the time of such assumption substantially to the effect that the related Loan Trustee under such Indenture should, immediately following such assumption, be entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to such Aircraft (including the engines related thereto), but such opinion need not be delivered to the extent that the benefits of such Section 1110 are not available to the Loan Trustee with respect to such Aircraft or any engine related thereto immediately prior to such assumption. FEDERAL INCOME TAX CONSEQUENCES The following is a general discussion of the anticipated material United States federal income tax consequences of the purchase, ownership and disposition of the Certificates to the initial purchasers thereof and should be read in conjunction with any additional discussion of federal income tax consequences included in the applicable Prospectus Supplement. The discussion is based on laws, regulations, rulings and decisions, all as in effect on the date of this Prospectus and all of which are subject to change or different interpretations. The discussion below does not purport to address all of the federal income tax consequences that may be applicable to particular categories of investors, some of which (for example, insurance companies and foreign investors) may be subject to special rules. The statements of law and legal conclusions set forth herein are based upon the opinion of Hughes Hubbard & Reed, counsel to Continental. Investors should consult their own tax advisors in determining the federal, state, local and any other tax consequences to them of the purchase, ownership and disposition of the Certificates. The Trusts are not indemnified for any federal income taxes that may be imposed upon them, and the imposition of any such taxes could result in a reduction in the amounts available for distribution to the Certificate Owners of the affected Trust. 119 General Based upon an interpretation of analogous authorities under currently applicable law, and assuming that the Trusts' activities are limited to those currently set forth in the relevant Basic Agreement, the Trusts should not be classified as associations taxable as corporations, but, rather, each should be classified as a grantor trust under subpart E, Part I of Subchapter J of the Internal Revenue Code of 1986, as amended (the "Code"), and each Certificate Owner of each Trust should be treated as the owner of a pro rata undivided interest in each of the Equipment Notes and any other property held by such Trust. Each Certificate Owner should be required to report on its federal income tax return its pro rata share of the entire income from the Equipment Notes and any other property held by the related Trust, in accordance with such Certificate Owner's method of accounting. A Certificate Owner using the cash method of accounting must take into account its pro rata share of income as and when received (or deemed received) by the Trustee of such Trust. A Certificate Owner using an accrual method of accounting must take into account its pro rata share of income as it accrues or is received by the Trustee of such Trust, whichever is earlier. A purchaser of a Certificate should be treated as purchasing an interest in each Equipment Note and any other property in the related Trust at a price determined by allocating the purchase price paid for the Certificate among such Equipment Notes and other property in proportion to their fair market values at the time of purchase of the Certificate. Unless otherwise indicated in a Prospectus Supplement, the Company believes that when all the Equipment Notes have been acquired by the related Trust the purchase price paid for a Certificate by an original purchaser of a Certificate should be allocated among the Equipment Notes in the related Trust in proportion to their respective principal amounts. If an Equipment Note held by a Trust is sold, redeemed, or otherwise disposed of, a Certificate Owner should be considered to have sold its pro rata share of that Equipment Note, and will recognize gain or loss equal to the difference between its adjusted tax basis in its interest in the Equipment Note and its pro rata share of the amount realized by the Trust on the sale, redemption, or disposition (except to the extent attributable to accrued interest, which would be taxable as interest income if not previously included in income). Subject to the market discount provisions of the Code (described below), any such gain or loss will be capital gain or loss if the Equipment Note is a capital asset in the hands of the Certificate Owner and will be long-term capital gain or loss if the Equipment Note is considered to have been held for more than one year. Net long- term capital gains of individuals are, under certain circumstances, taxed at lower rates than items of ordinary income. Sales of Certificates A Certificate Owner that sells a Certificate should recognize gain or loss as though it sold its pro rata portion of 120 the assets held by the Trust, with the federal income tax consequences described above. Original Issue Discount The Equipment Notes may be issued with original issue discount ("OID"). The Prospectus Supplement will state whether any Equipment Notes to be held by the related Trust will be issued with OID. Generally, a holder of a debt instrument issued with OID that is not de minimis must include such OID in income for federal income tax purposes as it accrues, in advance of the receipt of the cash attributable to such income, under a method that takes into account the compounding of interest. Market Discount A Certificate Owner should be considered to have acquired an interest in an Equipment Note at a "market discount" to the extent the remaining principal amount of the Equipment Note (or, in the case of an Equipment Note issued with OID, its adjusted issue price) allocable to such Certificate Owner's Certificate exceeds such Certificate Owner's tax basis allocable to such Equipment Note, unless the excess does not exceed a prescribed de minimis amount. In the event such excess exceeds the de minimis amount, the Certificate Owner should be subject to the market discount rules of Sections 1276 to 1278 of the Code with regard to its interest in the Equipment Note. In the case of a sale, redemption or certain other dispositions of indebtedness subject to the market discount rules, Section 1276 of the Code requires that gain, if any, from such sale, redemption, or disposition be treated as ordinary income to the extent such gain represents market discount that has accrued during the period in which such indebtedness was held. In the case of a partial principal payment on indebtedness subject to the market discount rules, Section 1276 of the Code requires that such payment be included in gross income as ordinary income to the extent such payment does not exceed the market discount that has accrued during the period such indebtedness was held. The amount of any accrued market discount later required to be included in gross income as ordinary income upon a sale or disposition or subsequent partial principal payment will be reduced by the amount of accrued market discount previously so included. Generally, market discount accrues under a straight line method, or, at the election of the taxpayer, a constant interest method. However, in the case of installment obligations (such as certain or all of the Equipment Notes), the manner in which market discount is to be accrued has been left to Treasury regulations not yet issued. Until such Treasury regulations are issued, the explanatory Conference Committee Report to the Tax Reform Act of 1986 (the "Conference Report") indicates that holders of installment obligations with market discount may elect to accrue market discount either on the basis of a constant interest rate or as follows: in the case of an installment obligation issued without OID, the amount of market discount that is deemed to accrue during any accrual period is the amount of 121 market discount that bears the same ratio to the total amount of remaining market discount that the amount of stated interest paid in the accrual period bears to the total amount of stated interest remaining to be paid on the installment obligation as of the beginning of such period, and, in the case of an installment obligation issued with OID, market discount is deemed to occur during any accrual period in proportion to the accrual of OID for such period. Under Section 1277 of the Code, if in any taxable year interest paid or accrued on indebtedness incurred or continued to purchase or carry indebtedness subject to the market discount rules exceeds the interest currently includible in income with respect to such indebtedness, deduction of the excess interest must be deferred to the extent of the market discount allocable to the taxable year. The deferred portion of any interest expense will generally be deductible when such market discount is included in income upon the sale or other disposition (including repayment) of the indebtedness. Section 1278 of the Code allows a taxpayer to make an election to include market discount in his gross income as it accrues. If such election is made, the rules of Sections 1276 and 1277 (described above) will not apply to the taxpayer. Premium A Certificate Owner should generally be considered to have acquired an interest in an Equipment Note at a premium to the extent such Certificate Owner's tax basis allocable to such Equipment Note exceeds the remaining principal amount of the Equipment Note allocable to such Certificate Owner's Certificate. In that event, a Certificate Owner that holds such Certificate as a capital asset may elect to amortize such premium as an offset to interest income under Section 171 of the Code with corresponding reductions in such Certificate Owner's tax basis in such Equipment Note. Generally, such amortization is on a constant yield basis. However, in the case of installment obligations (such as certain or all of the Equipment Notes), the Conference Report indicates a Congressional intent that amortization will be in accordance with the same rules that will apply to the accrual of market discount on installment obligations. See "Federal Income Tax Consequences -- Market Discount". If Equipment Notes may be called at a premium prior to maturity, amortizable premium may be determined by reference to an early call date. Due to the complexities of the amortizable premium rules, particularly where there is more than one possible call date and the amount of any premium is uncertain, Certificate Owners are urged to consult their own tax advisors as to the amount of any such amortizable premium. Backup Withholding Payments made on the Certificates, and proceeds from the sale of the Certificates to or through certain brokers, may be subject to a "backup" withholding tax of 31% unless the Certificate Owner complies with certain reporting procedures or is exempt from such requirements (and adequately demonstrates 122 such exemption) under section 6049(b)(4) of the Code. Any such withheld amounts are allowed as a credit against the Certificate Owner's federal income tax. Information Reporting Information reports will be made by the relevant Trustee to the Internal Revenue Service, and to Certificate Owners that are not exempt from the reporting requirements, annually or as otherwise required with respect to interest paid (and accrued OID, if any) on the Certificates. CERTAIN STATE TAX CONSEQUENCES In respect of each offering of Certificates, a separate Trust for each series of Certificates being offered will be formed pursuant to a Basic Agreement between the Company and either Shawmut Bank Connecticut, a National Association with its corporate trust office in Connecticut ("Shawmut"), as trustee, or First Security Bank of Utah, a National Association with its corporate trust office in Utah ("First Security Bank"), as trustee. Set forth below is a description of the opinion of Shipman & Goodman as to certain Connecticut state tax consequences for each Trust under which Shawmut is Trustee and the opinion of Ray, Quinney & Nebeker as to certain Utah state tax consequences for each Trust under with First Security Bank is Trustee. Each of Shipman & Goodwin, counsel to Shawmut, and Ray, Quinney & Nebeker, counsel to First Security Bank, has advised the Company that, in its opinion, under currently applicable law, assuming that the Trusts will not be taxable as corporations, but, rather, will be classified as grantor trusts under subpart E, Part I of Subchapter J of the Code, and that the Trusts' activities are limited to those currently set forth in the relevant Basic Agreement (i) the Trusts will not be subject to any tax (including, without limitation, net or gross income, tangible or intangible property, net worth, capital, franchise or doing business tax), fee or other governmental charge under the laws of the State of Connecticut or the State of Utah, respectively, or any political subdivision thereof and (ii) Certificate Owners that are not residents of or otherwise subject to tax in Connecticut or Utah, respectively, will not be subject to any tax (including, without limitation, net or gross income, tangible or intangible property, net worth, capital, franchise or doing business tax), fee or other governmental charge under the laws of the State of Connecticut or the State of Utah, respectively, or any political subdivision thereof as a result of purchasing, holding (including receiving payments with respect to) or selling a Certificate. Neither the Trusts nor the Certificate Owners will be indemnified for any state or local taxes imposed on them, and the imposition of any such taxes on a Trust could result in a reduction in the amounts available for distribution to the Certificate Owners of such Trust. In general, should a Certificate Owner or a Trust be subject to any state or local tax which would not be imposed if the Trustee were located in a different jurisdiction in the United States, the Trustee will resign and a new Trustee in such other jurisdiction will be appointed. ERISA CONSIDERATIONS 123 Unless otherwise indicated in the applicable Prospectus Supplement, the Certificates may, subject to certain legal restrictions, be purchased and held by an employee benefit plan (a "Plan") subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or an individual retirement account or an employee benefit plan subject to section 4975 of the Code. A fiduciary of a Plan must determine that the purchase and holding of a Certificate is consistent with its fiduciary duties under ERISA and does not result in a non-exempt prohibited transaction as defined in section 406 of ERISA or section 4975 of the Code. Employee benefit plans which are governmental plans (as defined in section 3(32) of ERISA) and certain church plans (as defined in section 3(33) of ERISA) are not subject to Title I of ERISA or section 4975 of the Code. The Certificates may, subject to certain legal restrictions, be purchased and held by such plans. INFORMATION TO BE PROVIDED BY PROSPECTUS SUPPLEMENT The Prospectus Supplement which accompanies this Prospectus provides (i) more detailed information on use of proceeds (including the interest rate and maturity date of debt to be repaid, if any, with the proceeds of Certificates offered by such Prospectus Supplement), (ii) the amount of debt ranking senior to or in parity with the securities being offered by such Prospectus Supplement and (iii) the anticipated market for the securities being offered by such Prospectus Supplement. The Prospectus Supplement also provides a diagram illustrating the transactions pursuant to which the specific series of Certificates are being offered. PLAN OF DISTRIBUTION The Certificates being offered hereby may be sold in any one or more of the following ways from time to time: (i) through agents; (ii) to or through underwriters; (iii) through dealers; and (iv) directly to other purchasers. The distribution of the Certificates may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Offers to purchase the Certificates may be solicited by agents designated by Continental from time to time. Any such agent involved in the offer or sale of the Certificates in respect of which this Prospectus is delivered will be named, and any commissions payable by Continental to such agent will be set forth, in the applicable Prospectus Supplement. Unless otherwise indicated in such Prospectus Supplement, any such agent will be acting on a best efforts basis for the period of its appointment. Any such agent may be deemed to be an underwriter, as that term is defined in the Securities Act, of the Certificates so offered and sold. If the Certificates are sold by means of an underwritten offering, Continental will execute an underwriting agreement with an underwriter or underwriters at the time an agreement for such 124 sale is reached, and the names of the specific managing underwriter or underwriters, as well as any other underwriters, and the terms of the transaction, including commissions, discounts and any other compensation of the underwriters and dealers, if any, will be set forth in the Prospectus Supplement which will be used by the underwriters to make offers and sales of the Certificates in respect of which this Prospectus is delivered to the public. If underwriters are utilized in the sale of the Certificates in respect of which this Prospectus is delivered, the Certificates will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at fixed public offering prices or at varying prices determined by the underwriters at the time of sale. The Certificates may be offered to the public either through underwriting syndicates represented by managing underwriters or directly by the managing underwriters. If any underwriter or underwriters are utilized in the sale of the Certificates, unless otherwise indicated in the Prospectus Supplement, the underwriting agreement will provide that the obligations of the underwriters are subject to certain conditions precedent and that the underwriters with respect to a sale of the Certificates will be obligated to purchase all such Certificates if any are purchased. Continental does not intend to apply for listing of the Certificates on a national securities exchange. If the Certificates are sold by means of an underwritten offering, the underwriters may make a market in the Certificates as permitted by applicable laws and regulations. No underwriter would be obligated, however, to make a market in the Certificates and any such market making could be discontinued at any time at the sole discretion of such underwriter. Accordingly, no assurance can be given as to the liquidity of, or trading markets for, the Certificates. If a dealer is utilized in the sale of the Certificates in respect of which this Prospectus is delivered, such Certificates will be sold to the dealer as principal. The dealer may then resell such Certificates to the public at varying prices to be determined by such dealer at the time of resale. Any such dealer may be deemed to be an underwriter, as such term is defined in the Securities Act, of the Certificates so offered and sold. The name of the dealer and the terms of the transaction will be set forth in the Prospectus Supplement relating thereto. Offers to purchase the Certificates may be solicited directly and the sale thereof may be made directly to institutional investors or others, who may be deemed to be underwriters within the meaning of the Securities Act with respect to any resale thereof. In addition, certain executive officers of the Company may engage in solicitations of offers to purchase Certificates. The terms of any such sales will be described in the Prospectus Supplement relating thereto. Agents, underwriters and dealers may be entitled under relevant agreements to indemnification or contribution by Continental against certain liabilities, including liabilities under the Securities Act. Agents, underwriters and dealers may engage in transactions with, or perform services for, Continental in the ordinary course of business. 125 The following information is included in this Prospectus because Certificates are to be offered and sold in the State of Florida. The Company pays a small fee (approximately $83,000 in 1995) to Cubana Airlines, a company located in Cuba, in connection with overflights of Cuba. This information is accurate as of the date of this Prospectus. Current information concerning the business dealings of the Company or its affiliates with the government of Cuba or with any person or affiliate located in Cuba may be obtained from the Florida Department of Banking and Finance, Division of Securities and Investor Protection, The Capitol, Tallahassee, Florida 32399-0350, telephone number (904) 488-9805. LEGAL OPINIONS Unless otherwise indicated in the applicable Prospectus Supplement, the validity of the Certificates offered hereby has been passed upon for Continental by Hughes Hubbard & Reed, 1 Battery Park Plaza, New York, New York 10004. Unless otherwise indicated in the applicable Prospectus Supplement, Hughes Hubbard & Reed will rely on the opinions of counsel for each Trustee for the Certificates of each Trust, as to certain matters relating to the authorization, execution and delivery of such Certificates by, and the valid and binding effect thereof on, such Trustee. EXPERTS The consolidated financial statements (including schedules incorporated by reference) of Continental Airlines, Inc. at December 31, 1995 and 1994 and for each of the two years ended December 31, 1995 and for the period April 28, 1993 through December 31, 1993, and the consolidated statements of operations, redeemable and non-redeemable preferred stock and common stockholders' equity and cash flows of Continental Airlines Holdings, Inc. for the period January 1, 1993 through April 27, 1993, incorporated by reference in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon included therein and incorporated herein by reference, in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 126 ================================================== 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 or in any accompanying Prospectus Supplement in connection with the offer contained in this Prospectus and any accompanying Prospectus Supplement, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any underwriters, agents or dealers. Neither this Prospectus nor any accompanying Prospectus Supplement constitutes 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 or any accompanying Prospectus Supplement nor any sale made hereunder and thereunder shall, under any circumstances, create an implication that there has been no change in the affairs of the Company since the date hereof or thereof or that the information contained herein or therein is correct at any time subsequent to the date hereof or thereof. _______________________ TABLE OF CONTENTS Available Information Incorporation of Certain Documents by Reference The Company Formation of the Trusts Use of Proceeds Ratio of Earnings to Fixed Charges Description of the Certificates Description of the Equipment Notes Federal Income Tax Consequences Certain State Tax Consequences ERISA Considerations Information to be Provided by Prospectus Supplement Plan of Distribution Legal Opinions Experts ================================================== 127 ================================================== Continental Airlines, Inc. Pass Through Certificates ------------------- PROSPECTUS ------------------- ================================================== 128 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION - DATED JULY 5, 1996 PROSPECTUS Continental Airlines, Inc. Debt Securities Continental Airlines, Inc. (the "Company" or "Continental") may from time to time offer, together or separately, its debt securities, consisting of debentures, notes and/or other evidences of indebtedness representing unsecured obligations of the Company (the "Debt Securities"), in amounts, at prices and on terms to be determined at the time of offering. The Debt Securities offered pursuant to this Prospectus may be issued as unsecured and unsubordinated Debt Securities ("Senior Debt Securities") or as unsecured and subordinated Debt Securities ("Subordinated Debt Securities"), in one or more series and will be limited to $510,733,000 aggregate principal amount (or (i) its equivalent (based on the applicable exchange rate at the time of sale), if Debt Securities are issued with principal amounts denominated in one or more foreign currencies or currency units as shall be designated by the Company, or (ii) such greater amount, if Debt Securities are issued at an original issue discount, as shall result in aggregate proceeds of up to $510,733,000). The Debt Securities will effectively rank junior to (i) any secured indebtedness of the Company to the extent of the assets securing such indebtedness and (ii) any indebtedness of the Company's subsidiaries to the extent of the assets of such subsidiaries. As March 31, 1996, the Company had aggregate indebtedness of $986 million secured by various of its assets, and its subsidiaries had aggregate indebtedness of $261 million outstanding to third parties. At the same date, the Company had $117 million of indebtedness that ranked pari passu with the Senior Debt Securities and senior to the Subordinated Debt Securities. Certain specific terms of the particular Debt Securities in respect of which this Prospectus is being delivered (the "Offered Securities") are set forth in the accompanying Prospectus Supplement (the "Prospectus Supplement"), including, where applicable: the specific designation (including whether the Offered Securities are Senior Debt Securities or Subordinated Debt Securities); the aggregate principal amount; the denomination; the maturity; the prepayment premium, if any; the rate (which may be fixed or variable) at which such Debt Securities will bear interest or the method of calculating such 129 rate, if any; the time of payment of interest, if any; the place or places where principal of, premium, if any, and interest, if any, on such Debt Securities will be payable; the currency in which principal of, premium, if any, and interest, if any, on such Debt Securities will be payable; terms, if any, for conversion into shares of the Company's Class B common stock, par value $.01 per share ("Class B common stock"); any terms of redemption at the option of the Company or the holder; any sinking fund provisions; the initial public offering price; and other special terms. The Debt Securities may be denominated in United States dollars or, at the option of the Company if so specified in the applicable Prospectus Supplement, in one or more foreign currencies or currency units. The Debt Securities may be issued in registered form or bearer form, or both. If so specified in the applicable Prospectus Supplement, Debt Securities of a series may be issued in whole or in part in the form of one or more temporary or permanent global securities. -------------------------------- 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 Company may sell the Debt Securities to or through underwriters, through dealers or agents or directly to purchasers. See "Plan of Distribution". The accompanying Prospectus Supplement sets forth the names of any underwriters, dealers or agents involved in the sale of the Offered Securities in respect of which this Prospectus is being delivered and any applicable fee, commission or discount arrangements with them. This Prospectus may not be used to consummate sales of Debt Securities unless accompanied by a Prospectus Supplement. The date of this Prospectus is , 1996. 130 No dealer, salesman or other person has been authorized to give any information or to make any representation not contained in this Prospectus or any accompanying Prospectus Supplement and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or any underwriter, broker, dealer or agent. This Prospectus and any accompanying Prospectus Supplement do not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. -------------------------------- AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information may be inspected and copied at the following public reference facilities maintained by the Commission: Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Suite 1300, Seven World Trade Center, New York, New York 10048; and The Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material may also be obtained from the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed rates. In addition, reports, proxy statements and other information concerning Continental may be inspected and copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. Continental is the successor to Continental Airlines Holdings, Inc. ("Holdings"), which merged with and into Continental on April 27, 1993. Holdings had also been subject to the informational requirements of the Exchange Act. This Prospectus constitutes a part of a registration statement on Form S-3 (together with all amendments and exhibits, the "Registration Statement") filed by Continental with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus omits certain of the information contained in the Registration Statement, and reference is hereby made to the Registration Statement for further information with respect to Continental and Holdings and the securities offered hereby. Although statements concerning and summaries of certain documents are contained 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 131 December 31, 1995 (as amended by Forms 10-K/A1 and 10-K/A2 filed on March 8, 1996 and April 10, 1996, respectively), (ii) the description of the Class B common stock contained in Continental's registration statement (Registration No. 0-21542) on Form 8-A, and any amendment or report filed for the purpose of updating such description, (iii) Continental's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and (iv) Continental's Current Reports on Forms 8-K, filed on January 31, 1996, March 26, 1996, May 7, 1996 and June 27, 1996. All reports and any definitive proxy or information statements filed by Continental pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Securities offered hereby shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated herein by reference, or contained in this Prospectus, shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Continental will provide without charge to each person to whom this Prospectus is delivered, upon the written or oral request of such person, a copy of any or all documents incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents should be directed to Continental Airlines, Inc., 2929 Allen Parkway, Suite 2010, Houston, Texas 77019, Attention: Secretary, telephone (713) 834-2950. 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 190 airports worldwide. The Company operates its route system primarily through domestic hubs at Newark, Houston Intercontinental and Cleveland, and a Pacific hub on Guam and Saipan. Each of Continental's three U.S. hubs is located in a large business and population center, contributing to a high volume of "origin and destination" traffic. The Guam/Saipan hub is strategically located to provide service from Japanese and other Asian cities to popular resort destinations in the western Pacific. Continental is the primary carrier at each of these hubs, accounting for 52%, 79%, 53% and 72% of all daily jet departures, respectively. Continental directly serves 131 U.S. cities, with additional cities (principally in the western and southwestern United 132 States) connected to Continental's route system under agreements with America West Airlines, Inc. ("America West"). Internationally, Continental flies to 59 destinations and offers additional connecting service through alliances with foreign carriers. Continental operates 66 weekly departures to six European cities and markets service to eight 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, including service between Newark and Bogota, Colombia, with service on to Quito, Ecuador, which began 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. 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 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 the American Institute of Certified Public Accountants' Statement of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code". 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 and minority interest plus interest expense (net of capitalized interest), the portion of rental expense representative of interest expense and amortization of previously capitalized interest. Fixed charges consist of interest expense and the portion of rental expense representative of interest expense. USE OF PROCEEDS Unless otherwise indicated in an applicable Prospectus Supplement, the net proceeds to Continental from the sale of the Securities offered by Continental hereby will be added to the working capital of Continental and will be available for general 133 corporate purposes, among which may be repayment of outstanding indebtedness and the financing of capital expenditures by Continental. DESCRIPTION OF DEBT SECURITIES The Debt Securities will be issued either as Senior Debt Securities or Subordinated Debt Securities. The Senior Debt Securities are to be issued under an Indenture between Continental and Bank One, Texas, National Association, as Trustee (the "Senior Indenture"). The Subordinated Debt Securities are to be issued under an Indenture between Continental and WTC Corporate Trust Services, as Trustee (the "Subordinated Indenture"). In this Prospectus, the Senior Indenture and the Subordinated Indenture are sometimes collectively referred to as the "Indentures" and individually as an "Indenture", and the trustees thereunder are sometimes collectively referred to as the "Trustees" and individually as a "Trustee". A copy of each Indenture is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The following descriptions are summaries, and reference is made to the detailed provisions of the Indentures. Capitalized terms used but not defined below under "Description of Debt Securities" are used as defined in the Indentures. The Indentures are substantially identical, except for certain provisions relating to subordination. The Debt Securities offered pursuant to this Prospectus will be limited to $1,000,000,000 aggregate principal amount (or (i) its equivalent (based on the applicable exchange rate at the time of sale), if Debt Securities are issued with principal amounts denominated in one or more foreign currencies or currency units as shall be designated by the Company, or (ii) such greater amount, if Debt Securities are issued at an original issue discount, as shall result in aggregate proceeds of up to $510,733,000). The statements herein relating to the Debt Securities and the Indentures are summaries, and reference is made to the detailed provisions of the Indentures, including the definitions therein of certain terms capitalized in this Prospectus. Without limiting the generality of the preceding sentence, whenever particular sections or defined terms of the Indentures are referred to herein or in a Prospectus Supplement, such sections or defined terms are incorporated herein or therein by reference. A glossary of certain defined terms used herein with respect to the Debt Securities is set forth under the heading "Glossary" below. Citations to certain relevant sections of the Indentures appear below in parentheses. General The Indentures do not limit the aggregate principal amount of Debt Securities which may be issued thereunder and provide that Debt Securities may be issued from time to time in one or more series. Senior Debt Securities will be unsecured and unsubordinated obligations of the Company and will rank on a parity with all other unsecured and unsubordinated indebtedness of the Company. Subordinated Debt Securities will be unsecured obligations of the Company and will be subordinate in right of payment to all Senior Debt. The Debt Securities will effectively rank junior to (i) any secured indebtedness of the Company to the extent of the assets securing such indebtedness and (ii) any indebtedness of the Company's subsidiaries to the extent of the 134 assets of such subsidiaries. As of March 31, 1996, the Company had aggregate indebtedness of $986 million secured by various of its assets, and its subsidiaries had aggregate indebtedness of $261 million outstanding to third parties. At the same date, the Company had $117 million of indebtedness that ranked pari passu with the Senior Debt Securities and senior to the Subordinated Debt Securities. The accompanying Prospectus Supplement or the information incorporated herein by reference will set forth the amount of secured indebtedness of the Company and indebtedness of the Company's subsidiaries that effectively ranks senior to the Debt Securities and the indebtedness of the Company that ranks pari passu with the Senior Debt Securities and senior to the Subordinated Debt Securities. Reference is made to the Prospectus Supplement which accompanies this Prospectus for a description of the specific series of Debt Securities being offered thereby, including: (1) the specific designation of such Debt Securities, including whether the Debt Securities are Senior Debt Securities or Subordinated Debt Securities; (2) any limit upon the aggregate principal amount of such Debt Securities; (3) the date or dates on which the principal of such Debt Securities will mature or the method of determining such date or dates; (4) the rate or rates (which may be fixed or variable) at which such Debt Securities will bear interest, if any, or the method of calculating such rate or rates; (5) the date or dates from which interest, if any, will accrue or the method by which such date or dates will be determined; (6) the date or dates on which interest, if any, will be payable and the record date or dates therefor; (7) the place or places where principal of, premium, if any, and interest, if any, on such Debt Securities will be payable; (8) the period or periods within which, the price or prices at which, the currency or currencies (including currency units) in which, and the terms and conditions upon which, such Debt Securities may be redeemed, in whole or in part, at the option of the Company; (9) the obligation, if any, of the Company to redeem or purchase such Debt Securities pursuant to any sinking fund or analogous provisions, upon the happening of a specified event, or at the option of a holder thereof or of the Company and the period or periods within which, the price or prices at which and the terms and conditions upon which, such Debt Securities shall be redeemed or purchased, in whole or in part, pursuant to such rights or obligations; (10) the denominations in which such Debt Securities are authorized to be issued; (11) the currency or currency units for which Debt Securities may be purchased or in which Debt Securities may be denominated and/or the currency or currency units in which principal of, premium, if any, and/or interest, if any, on such Debt Securities will be payable and whether the Company or the holders of any such Debt Securities may elect to receive payments in respect of such Debt Securities in a currency or currency units other than that in which such Debt Securities are stated to be payable; (12) if other than the principal amount thereof, the portion of the principal amount of such Debt Securities which will be payable upon declaration of the acceleration of the maturity thereof or the method by which such portion shall be determined; (13) the person to whom any interest on any such Debt Security shall be payable if other than the person in whose name such Debt Security is registered on the applicable record date; (14) any addition to, or modification or deletion of, any Event of Default or any covenant of the Company specified in the Indenture with respect to such Debt Securities; (15) the application, if any, of 135 such means of defeasance or covenant defeasance as may be specified for such Debt Securities and coupons; (16) whether such Debt Securities are to be issued in whole or in part in the form of one or more temporary or permanent global securities and, if so, the identity of the depositary for such global security or securities; (17) the terms, if any, upon which Debt Securities may be converted into stock or other securities of the Company, including the initial conversion price or conversion rate, the conversion period and other conversion provisions; (18) whether the Debt Securities are issuable as registered Debt Securities, bearer Debt Securities or both, and the terms upon which bearer Debt Securities may be exchanged for registered Debt Securities; (19) if applicable, the terms of any blockage periods and any other special terms of subordination; and (20) any other special terms pertaining to such Debt Securities, including any modification of the terms set forth herein. Unless otherwise specified in the applicable Prospectus Supplement, the Debt Securities will not be listed on any securities exchange. (Section 3.1) Unless otherwise specified in the applicable Prospectus Supplement, Debt Securities will be issued in fully registered form without coupons. Where Debt Securities of any series are issued in bearer form, the special restrictions and considerations, including special offering restrictions and special Federal income tax considerations, applicable to any such Debt Securities and to payment on and transfer and exchange of such Debt Securities will be described in the applicable Prospectus Supplement. Bearer Debt Securities will be transferable by delivery. (Section 3.5) Debt Securities may be sold at a substantial discount below their stated principal amount, bearing no interest or interest at a rate which at the time of issuance is below market rates. Certain Federal income tax consequences and special considerations applicable to any such Debt Securities will be described in the applicable Prospectus Supplement. If the purchase price of any Debt Securities is payable in one or more foreign currencies or currency units or if any Debt Securities are denominated in one or more foreign currencies or currency units or if the principal of, premium, if any, or interest, if any, on any Debt Securities is payable in one or more foreign currencies or currency units, the restrictions, elections, certain Federal income tax considerations, specific terms and other information with respect to such issue of Debt Securities and such foreign currency or currency units will be set forth in the applicable Prospectus Supplement. The Indentures do not contain any covenant or provision which may afford holders of the Debt Securities protection in the event of a highly leveraged transaction which may or may not result in a change of control of the Company. Any covenants or other provisions included in a supplement or amendment to the Indentures for the benefit of the holders of any particular series of Debt Securities will be described in the applicable Prospectus Supplement. Glossary Set forth below is a glossary of certain of the defined terms 136 used in this Prospectus with respect to the Debt Securities. Reference is made to the Indentures for the full definition of such terms, as well as any capitalized terms used herein for which no definition is provided. "Debt Securities" shall have the meaning set forth on the cover page. "Default" shall have the meaning set forth in the Section entitled "Events of Default, Notice and Certain Rights on Default." "Depositary" shall have the meaning set forth in the Section entitled "Global Debt Securities." "Offered Securities" shall have the meaning set forth on the cover page. "Registered Global Security" shall have the meaning set forth in the Section entitled "Global Debt Securities." "Senior Debt Securities" shall have the meaning set forth on the cover page. "Subordinated Debt Securities" shall have the meaning set forth on the cover page. Payment, Registration, Transfer and Exchange Unless otherwise provided in the applicable Prospectus Supplement, payments in respect of the Debt Securities will be made in the designated currency at such office or agency of the Company maintained for that purpose as the Company may designate from time to time, except that, at the option of the Company, interest payments, if any, on Debt Securities in registered form may be made (i) by checks mailed by the Trustee to the holders of Debt Securities entitled thereto at their registered addresses or (ii) by wire transfer to an account maintained by the Person entitled thereto as specified in the Register. (Sections 3.7(a) and 9.2) Unless otherwise indicated in an applicable Prospectus Supplement, payment of any installment of interest on Debt Securities in registered form will be made to the Person in whose name such Debt Security is registered at the close of business on the regular record date for such interest. (Section 3.7(a)) Payment in respect of Debt Securities in bearer form will be payable in the currency and in the manner designated in the Prospectus Supplement, subject to any applicable laws and regulations, at such paying agencies outside the United States as the Company may appoint from time to time. The paying agents outside the United States initially appointed by the Company for a series of Debt Securities will be named in the Prospectus Supplement. The Company may at any time designate additional Paying Agents or rescind the designation of any paying agents, except that, if Debt Securities of a series are issuable as Registered Securities, the Company will be required to maintain at least one paying agent in each Place of Payment for such series and, if Debt Securities of a series are issuable as Bearer Securities, the Company will be required to maintain a Paying Agent in a Place of Payment outside the United States where Debt Securities of such series and any coupons appertaining thereto may 137 be presented and surrendered for payment. (Section 9.2) Unless otherwise provided in the applicable Prospectus Supplement, Debt Securities in registered form will be transferable or exchangeable at the agency of the Company maintained for such purpose as designated by the Company from time to time. (Sections 3.5 and 9.2) Debt Securities may be transferred or exchanged without service charge, other than any tax or other governmental charge imposed in connection therewith. (Section 3.5) Global Debt Securities The Debt Securities of a series may be issued in whole or in part in the form of one or more fully registered global securities (a "Registered Global Security") that will be deposited with a depositary (the "Depositary") or with a nominee or custodian for the Depositary identified in the applicable Prospectus Supplement. In such a case, one or more Registered Global Securities will be issued in a denomination or aggregate denominations equal to the portion of the aggregate principal amount of outstanding Debt Securities of the series to be represented by such Registered Global Security or Securities. Unless and until it is exchanged in whole or in part for Debt Securities in definitive certificated form, a Registered Global Security may not be registered for transfer or exchange except as a whole by the Depositary for such Registered Global Security to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary for such series or a nominee of such successor Depositary and except in the circumstances described in the applicable Prospectus Supplement. (Section 3.5) The specific terms of the depositary arrangement with respect to any portion of a series of Debt Securities to be represented by a Registered Global Security will be described in the applicable Prospectus Supplement. The Company expects that the following provisions will apply to depositary arrangements. Upon the issuance of any Registered Global Security, and the deposit of such Registered Global Security with or on behalf of the Depositary for such Registered Global Security, the Depositary will credit, on its book-entry registration and transfer system, the respective principal amounts of the Debt Securities represented by such Registered Global Security to the accounts of institutions ("participants") that have accounts with the Depositary or its nominee. The accounts to be credited will be designated by the underwriters or agents engaging in the distribution of such Debt Securities or by the Company, if such Debt Securities are offered and sold directly by the Company. Ownership of beneficial interests in a Registered Global Security will be limited to participants or persons that may hold interests through participants. Ownership of beneficial interests by participants in such Registered Global Security will be shown on, and the transfer of that ownership interest will be effected only through, records maintained by the Depositary for such Registered Global Security or by its nominee. Ownership of beneficial interests in such Registered Global Security by persons that hold through participants will be shown on, and the transfer of that ownership interest within such participant will be effected only through, records maintained by such participant. The laws of some 138 jurisdictions require that certain purchasers of securities take physical delivery of such securities in certificated form. The foregoing limitations and such laws may impair the ability to transfer beneficial interests in such Registered Global Securities. So long as the Depositary for a Registered Global Security, or its nominee, is the registered owner of such Registered Global Security, such Depositary or such nominee, as the case may be, will be considered the sole owner or holder of the Debt Securities represented by such Registered Global Security for all purposes under the Indentures. Unless otherwise specified in the applicable Prospectus Supplement and except as specified below, owners of beneficial interests in such Registered Global Security will not be entitled to have Debt Securities of the series represented by such Registered Global Security registered in their names, will not receive or be entitled to receive physical delivery of Debt Securities of such series in certificated form and will not be considered the holders thereof for any purposes under the Indentures. (Section 3.8) Accordingly, each person owning a beneficial interest in such Registered Global Security must rely on the procedures of the Depositary and, if such person is not a participant, on the procedures of the participant through which such person owns its interest, to exercise any rights of a holder under the Indentures. The Depositary may grant proxies and otherwise authorize participants to give or take any request, demand, authorization, direction, notice, consent, waiver or other action which a holder is entitled to give or take under the Indentures. The Company understands that, under existing industry practices, if the Company requests any action of holders or an owner of a beneficial interest in such Registered Global Security desires to give any notice or take any action a holder is entitled to give or take under the Indentures, the Depositary would authorize the participants to give such notice or take such action, and participants would authorize beneficial owners owning through such participants to give such notice or take such action or would otherwise act upon the instructions of beneficial owners owning through them. Unless otherwise specified in the applicable Prospectus Supplement, payments with respect to principal, premium, if any, and interest, if any, on Debt Securities represented by a Registered Global Security registered in the name of a Depositary or its nominee will be made to such Depositary or its nominee, as the case may be, as the registered owner of such Registered Global Security. The Company expects that the Depositary for any Debt Securities represented by a Registered Global Security, upon receipt of any payment of principal, premium, if any, or interest, if any, will immediately credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Registered Global Security as shown on the records of such Depositary. The Company also expects that payments by participants to owners of beneficial interests in such Registered Global Security held through such participants will be governed by standing instructions and customary practices, as is now the case with the securities held for the accounts of customers registered in "street name", and will be the responsibility of such participants. None of the Company, the Trustee or any agent of the Company shall have any 139 responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Registered Global Security, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. (Section 3.8) Unless otherwise specified in the applicable Prospectus Supplement, if the Depositary for any Debt Securities represented by a Registered Global Security is at any time unwilling or unable to continue as Depositary and a successor Depositary is not appointed by the Company within ninety days, the Company will issue such Debt Securities in definitive certificated form in exchange for such Registered Global Security. In addition, the Company may at any time and in its sole discretion determine not to have any of the Debt Securities of a series represented by one or more Registered Global Securities and, in such event, will issue Debt Securities of such series in definitive certificated form in exchange for all of the Registered Global Securities representing such Debt Securities. (Section 3.5) Conversion Rights The terms on which Convertible Debt Securities of any series are convertible into Class B common stock will be set forth in the Prospectus Supplement relating thereto. Such terms shall include provisions as to whether conversion is mandatory, at the option of the holder, or at the option of the Company, and may include provisions in which the number of shares of Class B common stock to be received by the holders of Convertible Debt Securities would be calculated according to the market price of Class B common stock as of a time stated in the Prospectus Supplement. Consolidation, Merger or Sale by the Company The Indentures provide that the Company may merge or consolidate with or into any other corporation or sell, convey, transfer or otherwise dispose of all or substantially all of its assets to any person, firm or corporation, if (i) (a) in the case of a merger or consolidation, the Company is the surviving corporation or (b) in the case of a merger or consolidation where the Company is not the surviving corporation and in the case of such a sale, conveyance or other disposition, the successor or acquiring corporation is 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 Debt Securities and any coupons appertaining thereto and under the Indentures, (ii) no Default or Event of Default shall arise as a result of such merger or consolidation, or such sale, conveyance, transfer or other disposition and (iii) the Company delivers to the Trustee an Officer's Certificate and an Opinion of Counsel, in each case stating that such consolidation, merger 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 Indentures and under the Debt Securities and any coupons appertaining thereto and all obligations of the Company shall terminate. (Section 7.1) Events of Default, Notice and Certain Rights on Default 140 The Indentures provide that, if an Event of Default specified therein occurs with respect to the Debt Securities of any series issued thereunder and is continuing, the Trustee for such series or the holders of 25% in aggregate principal amount of all of the outstanding Debt Securities affected thereby (voting as a class), by written notice to the Company (and to the Trustee for such series, if notice is given by such holders of Debt Securities), may declare the principal (or, if the Debt Securities of such series are original issue discount Debt Securities or indexed Debt Securities, such portion of the principal amount specified in the Prospectus Supplement) of all the Debt Securities of such series to be due and payable, provided that Debt Securities shall become immediately due and payable without prior notice upon a bankruptcy or insolvency of the Company. (Section 5.2) Events of Default with respect to Debt Securities of any series issued thereunder are defined in the Indentures as being: default for thirty days in payment of any interest on any Debt Security of that series or any additional amount payable with respect to Debt Securities of such series as specified in the applicable Prospectus Supplement when due; default in payment of principal of or premium, if any, on any Debt Securities of that series when due at maturity, upon acceleration, redemption or otherwise; default for forty-five days after notice to the Company by the Trustee for such series, or after notice by the holders of 25% in aggregate principal amount of the Debt Securities to which such covenant or agreement is applicable (treated as a class), in the performance of any other covenant or agreement in the Debt Securities of that series, in the Indenture or in any supplemental indenture or board resolution referred to therein under which the Debt Securities of that series may have been issued; and certain events of bankruptcy, insolvency or reorganization of the Company. (Section 5.1) Events of Default, voting, notice and other provisions with respect to a specified series of Debt Securities may be added to the Indenture under which the series is issued and, if so added, will be described in the applicable Prospectus Supplement. (Section 3.1) The Indentures provide that the Trustee for any series of Debt Securities shall, within ninety days after the occurrence of a Default with respect to Debt Securities of that series, give to the holder of the Debt Securities of that series notice of all uncured Defaults known to it; provided that, except in the case of default in payment on the Debt Securities of that series, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers (as defined therein) in good faith first determines that withholding such notice is in the interest of the holders of the Debt Securities of that series. (Section 6.6) "Default" means any event which is, or, after notice or passage of time or both, would be, an Event of Default. (Section 1.l) The Indentures provide that the holders of a majority in aggregate principal amount of the Debt Securities of all series affected (voting as a class) may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee for such series, or exercising any trust or power conferred on such Trustee. (Section 5.8) 141 The Indentures include a covenant that the Company will file annually with the Trustee a certificate as to the Company's compliance with all conditions and covenants of the Indentures. (Section 9.6) The holders of a majority in aggregate principal amount of all series of Debt Securities affected (voting as a class) by notice to the Trustee for each such series may waive, on behalf of the holders of all Debt Securities of all such series, any past Default or Event of Default with respect to all such series and its consequences except a Default or Event of Default in the payment of the principal of, premium, if any, or interest, if any, on any of such series of Debt Securities. (Section 5.2) In addition, the holders of a majority in aggregate principal amount of any series of Debt Securities by notice to the Trustee for such series may waive, on behalf of the holders of all Debt Securities of such series, any past Default or Event of Default with respect to that series and its consequences except a Default or Event of Default in the payment of the principal of, premium, if any, and interest, if any, on any such Debt Securities and certain other Defaults. (Section 5.7) Modification of the Indentures The Indentures contain provisions permitting the Company and the Trustees to enter into one or more supplemental indentures without the consent of the holders of any of the Debt Securities in order (i) to evidence the succession of another corporation to the Company and the assumption of the covenants of the Company by a successor to the Company; (ii) to add to the covenants of the Company or surrender any right or power of the Company; (iii) to add additional Events of Default with respect to any series; (iv) to add or change any provisions to such extent as necessary to permit or facilitate the issuance of Debt Securities in bearer form or in global form; (v) to add to, change or eliminate any provision affecting Debt Securities not yet issued; (vi) to secure the Debt Securities; (vii) to establish the form or terms of Debt Securities; (viii) to evidence and provide for successor Trustees; (ix) if allowed without penalty under applicable laws and regulations, to permit payment in respect of Debt Securities in bearer form in the United States; or (x) to cure any ambiguity or correct any mistake and to correct or supplement any inconsistent provisions or to make any other provisions as the Company may deem necessary or desirable with respect to matters or questions arising under the Indentures, provided that such action does not adversely affect the interests of any holder of Debt Securities of any series issued under the Indentures. (Section 8.1) The Indentures also contain provisions permitting the Company and the Trustees, with the consent of the holders of a majority in aggregate principal amount of the outstanding Debt Securities of each series affected by such supplemental indenture, to execute supplemental indentures adding any provisions to or changing or eliminating any of the provisions of the Indentures or any supplemental indenture or modifying the rights of the holders of Debt Securities of such series, except that no such supplemental indenture may, without the consent of the holder of each Debt Security so affected, (i) change the time for payment of principal or interest, if any, on any Debt Security; (ii) reduce the 142 principal of, or any installment of principal of, or interest, if any, on any Debt Security; (iii) reduce the amount of premium, if any, payable upon the redemption of any Debt Security; (iv) reduce the amount of principal payable upon acceleration of the maturity of an Original Issue Discount Debt Security; (v) change the coin or currency in which any Debt Security or any premium or interest thereon is payable; (vi) impair the right to institute suit for the enforcement of any payment on or with respect to any Debt Security; (vii) reduce the percentage in principal amount of the outstanding Debt Securities of any series the consent of whose holders is required for modification or amendment of the Indentures or for waiver of compliance with certain provisions of the Indentures or for waiver of certain defaults; (viii) change the obligation of the Company to maintain an office or agency in the places and for the purposes specified in the Indentures; (ix) if applicable, modify the subordination provisions in a manner adverse to the Holders of Subordinated Debt Securities or make any change that adversely affects the right to convert any Debt Security or (except as provided in the Indentures) decrease the conversion rate or increase the conversion price of any Debt Security; (x) modify the provisions relating to waiver of certain defaults or any of the foregoing provisions. (Section 8.2) Defeasance and Covenant Defeasance If indicated in the Prospectus Supplement, the Company may elect either (i) to defease and be discharged from any and all obligations with respect to the Debt Securities of or within any series (except as described below) ("defeasance") or (ii) to be released from its obligations with respect to certain covenants applicable to the Debt Securities of or within any series ("covenant defeasance"), upon the deposit with the Trustee for such series (or other qualifying trustee), in trust for such purpose, of money and/or Government Obligations which through the payment of principal and interest in accordance with their terms will provide money in the amount sufficient to pay the principal of and any premium or interest on such Debt Securities to Maturity or redemption, as the case may be, and any mandatory sinking fund or analogous payments thereon. Upon the occurrence of a defeasance, the Company will be deemed to have paid and discharged the entire indebtedness represented by such Debt Securities and any coupons appertaining thereto and to have satisfied all of its other obligations under such Debt Securities and any coupons appertaining thereto (except for (i) the rights of holders of such Debt Securities to receive, solely from the trust funds deposited to defease such Debt Securities, payments in respect of the principal of, premium, if any, and interest, if any, on such Debt Securities or any coupons appertaining thereto when such payments are due and (ii) certain other obligations as provided in the Indentures). 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 Debt Securities, will continue to be obligated in all other respects under such Debt Securities and will continue to be contingently liable with respect to the payment of principal, interest, if any, and premium, if any, with respect to such Debt Securities. Unless otherwise specified in the applicable Prospectus Supplement and except as described below, the conditions to both defeasance and covenant defeasance are as follows: (i) such 143 defeasance or covenant defeasance must not result in a breach or violation of, or constitute a Default or Event of Default under, the applicable Indenture, or result in a breach or violation of, or constitute a default under, any other material agreement or instrument of the Company; (ii) certain bankruptcy-related Defaults or Events of Default with respect to the Company must not have occurred and be continuing during the period commencing on the date of the deposit of the trust funds to defease such Debt Securities and ending on the 91st day after such date; (iii) the Company must deliver to the applicable Trustee an Opinion of Counsel to the effect that the holders of such Debt Securities 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 (such Opinion of Counsel, in the case of defeasance, must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable Federal income tax law occurring after the date of the Indentures); (iv) the Company must deliver to the applicable Trustee an Officers' Certificate and an Opinion of Counsel with respect to compliance with the conditions precedent to such defeasance or covenant defeasance and with respect to certain registration requirements under the Investment Company Act of 1940, as amended and (v) any additional conditions to such defeasance or covenant defeasance which may be imposed on the Company pursuant to the applicable Indenture. (Article 4) The Indentures require that a nationally recognized firm of independent public accountants deliver to the applicable Trustee a written certification as to the sufficiency of the trust funds deposited for the defeasance or covenant defeasance of such Debt Securities. The Indentures do not provide the holders of such Debt Securities with recourse against such firm. If indicated in the applicable Prospectus Supplement, in addition to obligations of the United States or an agency or instrumentality thereof, Government Obligations may include obligations of the government, an agency or instrumentality of the government issuing the currency in which Debt Securities of such series are payable. (Sections 1.1 and 3.1) In the event that Government Obligations deposited with the applicable Trustee for the defeasance of such Debt Securities decrease in value or default subsequent to their being deposited, the Company will have no further obligation, and the holders of such Debt Securities will have no additional recourse against the Company, as a result of such decrease in value or default. As described above, in the event of a covenant defeasance, the Company will remain contingently liable with respect to the payment of principal, interest, if any, and premium, if any, with respect to the Debt Securities. The Company may exercise its defeasance option with respect to such Debt Securities notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its defeasance option, payment of such Debt Securities may not be accelerated because of a Default or an Event of Default. If the Company exercises its covenant defeasance option, payment of such Debt Securities may not be accelerated by reason of a Default or an Event of Default with respect to the covenants to which such covenant defeasance is applicable. However, if such acceleration were to occur, the realizable value at the acceleration date of the money and Government Obligations in the defeasance trust could be less than the principal and interest then due on such Debt 144 Securities, in that the required deposit in the defeasance trust is based upon scheduled cash flow rather than market value, which will vary depending upon interest rates and other factors. INFORMATION TO BE PROVIDED BY PROSPECTUS SUPPLEMENT The Prospectus Supplement which accompanies this Prospectus provides (i) more detailed information on use of proceeds (including the interest rate and maturity date of debt to be repaid, if any, with the proceeds of Debt Securities offered by such Prospectus Supplement), and (ii) the anticipated market for the Debt Securities being offered by such Prospectus Supplement. PLAN OF DISTRIBUTION The Company may sell Debt Securities to one or more underwriters for public offering and sale by them or may sell Securities to investors or other persons directly or through agents. Any such underwriter or agent involved in the offer and sale of the Offered Securities will be named in an applicable Prospectus Supplement. In addition, certain executive officers of the Company may engage in solicitations of sales of the Offered Securities. Underwriters may offer and sell the Offered Securities at a fixed price or prices, which may be changed, or from time to time at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Company also may, from time to time, authorize underwriters acting as the Company's agents to offer and sell the Offered Securities upon the terms and conditions as shall be set forth in any Prospectus Supplement. In connection with the sale of Offered Securities, underwriters may be deemed to have received compensation from the Company in the form of underwriting discounts or commissions and may also receive commissions from purchasers of Offered Securities for whom they may act as agent. Underwriters may sell Offered Securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions (which may be changed from time to time) from the purchasers for whom they may act as agent. Any underwriting compensation paid by the Company to underwriters or agents in connection with the offering of Offered Securities, and any discounts, concessions or commissions allowed by underwriters to participating dealers, will be set forth in an applicable Prospectus Supplement. Underwriters, dealers and agents participating in the distribution of the Offered Securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the Offered Securities may be deemed to be underwriting discounts and commissions under the Securities Act. Underwriters, dealers and agents may be entitled, under agreements with the Company, to indemnification against and contribution toward certain civil liabilities, including liabilities under the Securities Act, and to reimbursement by the Company for certain expenses. Underwriters, dealers and agents may engage in transactions with, or perform services for, the Company and its subsidiaries in 145 the ordinary course of business. If so indicated in an applicable Prospectus Supplement, the Company will authorize dealers acting as the Company's agents to solicit offers by certain institutions to purchase Offered Securities from the Company at the public offering price set forth in such Prospectus Supplement pursuant to Delayed Delivery Contracts ("Contracts") providing for payment and delivery on the date or dates stated in such Prospectus Supplement. Each Contract will be for an amount not less than, and the aggregate principal amount of Offered Securities sold pursuant to Contracts shall not be less nor more than, the respective amounts stated in such Prospectus Supplement. Institutions with whom Contracts, when authorized, may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and other institutions, but will in all cases be subject to the approval of the Company. Contracts will not be subject to any conditions except (i) the purchase by an institution of the Offered Securities covered by its Contracts shall not at the time of delivery be prohibited under the laws of any jurisdiction in the United States to which such institution is subject, and (ii) if the Offered Securities are being sold to underwriters, the Company shall have sold to such underwriters the total principal amount of the Offered Securities less the principal amount thereof covered by Contracts. Agents and underwriters will have no responsibility in respect of the delivery or performance of Contracts. The Offered Securities may or may not be listed on a national securities exchange or a foreign securities exchange. No assurances can be given that there will be a market for the Offered Securities. The following information is included in this Prospectus because Debt Securities may be offered and sold in the State of Florida. The Company pays a small fee (approximately $83,000 in 1995) to Cubana Airlines, a company located in Cuba, in connection with overflights of Cuba. This information is accurate as of the date of this Prospectus. Current information concerning the business dealings of the Company or its affiliates with the government of Cuba or with any person or affiliate located in Cuba may be obtained from the Florida Department of Banking and Finance, Division of Securities and Investor Protection, The Capitol, Tallahassee, Florida 32399-0350, telephone number (904) 488-9805. LEGAL OPINIONS Unless otherwise indicated in the applicable Prospectus Supplement, the validity of the Debt Securities offered hereby has been passed upon for Continental by Mayor, Day, Caldwell & Keeton, L.L.P., 700 Louisiana, Suite 1900, Houston, Texas 77002-2778. EXPERTS The consolidated financial statements (including schedules incorporated by reference) of Continental Airlines, Inc. at December 31, 1995 and 1994 and for each of the two years ended December 31, 1995 and for the period April 28, 1993 through December 31, 1993, and the consolidated statements of operations, redeemable and non-redeemable preferred stock and common 146 stockholders' equity and cash flows of Continental Airlines Holdings, Inc. for the period January 1, 1993 through April 27, 1993, incorporated by reference in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon included therein and incorporated herein by reference, in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 147 ================================================== 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 or in any accompanying Prospectus Supplement in connection with the offer contained in this Prospectus and in the accompanying Prospectus Supplement, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company, any Selling Shareholder or any underwriters, agents or dealers. Neither this Prospectus nor any accompanying Prospectus Supplement constitutes 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 or any accompanying Prospectus Supplement nor any sale made hereunder and thereunder shall, under any circumstances, create an implication that there has been no change in the affairs of the Company since the date hereof or thereof or that the information contained herein or therein is correct at any time subsequent to the date hereof or thereof. _______________________ TABLE OF CONTENTS Available Information Incorporation of Certain Documents by Reference The Company Ratios of Earnings to Fixed Charges Use of Proceeds Description of Debt Securities Description of Capital Stock Information to be Provided by Prospectus Supplement Plan of Distribution Legal Opinions Experts ================================================== 148 ================================================== Continental Airlines, Inc. Debt Securities ------------------- PROSPECTUS ------------------- ================================================== 149 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Directors and Officers. The Company's Certificate of Incorporation and bylaws provide that the Company will indemnify each of its directors and officers to the full extent permitted by the laws of the State of Delaware and may indemnify certain other persons as authorized by the Delaware General Corporation Law (the "GCL"). Section 145 of the GCL provides as follows: "(a) A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b). Such determination shall be made (1) by a majority vote of the board of directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (3) by the stockholders. II-1 (e) Expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative, or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. (f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. (g) A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section. (h) For purposes of this section, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent for such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (i) For purposes of this section, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this section. (j) The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (k) The Court of Chancery is hereby vested with exclusive jurisdiction to hear and determine all actions for advancement of expenses or indemnification brought under this section or under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. The Court of Chancery may summarily determine a corporation's obligation to advance expenses (including attorneys' fees)." The Certificate of Incorporation and bylaws also limit the personal liability of directors to the Company and its stockholders for monetary damages resulting from certain breaches of the directors' fiduciary duties. The bylaws of the Company provide as follows: "No Director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (i) for any II-2 breach of the Director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the . . . GCL, or (iv) for any transaction from which the Director derived any improper personal benefit. If the GCL is amended to authorize corporate action further eliminating or limiting the personal liability of Directors, then the liability of Directors of the Corporation shall be eliminated or limited to the full extent permitted by the GCL, as so amended." The Company maintains directors' and officers' liability insurance. Item 21. Exhibits. Exhibit Number Exhibit Description - ------- ------------------- 4.1* Form of New 6.94% Continental Airlines Pass Through Certificate Series 1996-A 4.2* Form of New 7.82% Continental Airlines Pass Through Certificate Series 1996-B 4.3* Form of New 9.50% Continental Airlines Pass Through Certificate Series 1996-C 4.4* Form of New 12.48% Continental Airlines Pass Through Certificate Series 1996-D 4.5* Pass Through Trust Agreement, dated as of January 31, 1996, between Continental Airlines, Inc., and Wilmington Trust Company, as Trustee, relating to the formation of Continental Airlines 1996-A Pass Through Trust 4.6* Pass Through Trust Agreement, dated as of January 31, 1996, between Continental Airlines, Inc., and Wilmington Trust Company, as Trustee, relating to the formation of Continental Airlines 1996-B Pass Through Trust 4.7* Pass Through Trust Agreement, dated as of January 31, 1996, between Continental Airlines, Inc., and Wilmington Trust Company, as Trustee, relating to the formation of Continental Airlines 1996-C Pass Through Trust 4.8* Pass Through Trust Agreement, dated as of January 31, 1996, between Continental Airlines, Inc., and Wilmington Trust Company, as Trustee, relating to the formation of Continental Airlines 1996-D Pass Through Trust 4.9** Participation Purchase Agreement, dated as of January 31, 1996, between Credit Suisse, acting through its New York Branch, and Continental Airlines, Inc. 4.10* Revolving Credit Agreement, dated January 31, 1996, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the Continental Airlines 1996-A Pass Through Trust, as Borrower and Credit Suisse, acting through its New York Branch as Liquidity Provider 4.11* Revolving Credit Agreement, dated January 31, 1996, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the Continental Airlines 1996-B Pass Through Trust, as Borrower and Credit Suisse, acting through its New York Branch as Liquidity Provider 4.12* Revolving Credit Agreement, dated January 31, 1996, between Wilmington Trust Company, as Subordination Agent, as agent and trustee for the Continental Airlines 1996-C Pass Through Trust, as Borrower and Credit Suisse, acting through its New York Branch as Liquidity Provider 4.13* Intercreditor Agreement dated as of January 31, 1996, among Wilmington Trust Company, not in its sole individual capacity but solely as Trustee under the Continental Airlines Pass Through Trust 1996-A, Continental Airlines Pass Through Trust 1996-B, Continental Airlines Pass Through Trust 1996-C and Continental Pass Through Trust 1996-D, Credit Suisse, acting through its New York Branch as Class A Liquidity Provider, Class B Liquidity Provider, Class C II-3 Liquidity Provider, and Wilmington Trust Company, not in its individual capacity except as expressly set forth herein but solely as Subordination Agent and Trustee 4.14* Registration Rights Agreement, dated as of January 31, 1996, among Continental Airlines, Inc., Wilmington Trust Company, as Trustee under Continental Airlines Pass Through Trust 1996-A, Continental Airlines Pass Through Trust 1996-B, Continental Airlines Pass Through Trust 1996- C, Continental Airlines Pass Through Trust 1996-D, and the Initial Purchasers 4.15****Form of Refunding Agreement, dated as of January 31, 1996, among Continental Airlines, Inc., as Lessee, First Security Bank of Utah, National Association, as Owner Trustee, Wilmington Trust Company, as Pass Through Trustee under each of the Continental Airlines 1996 Pass Through Trust Agreements, The Boeing Company, as Initial Loan Participant, General Electric Company, as Owner Participant and Loan Participant, Wilmington Trust Company, as Subordination Agent, and Wilmington Trust Company, as Loan Trustee 4.16****Form of Participation Agreement dated as of July 15, 1994 among Continental Airlines, Inc., General Electric Company, as Owner Participant, Wilmington Trust Company, not in its individual capacity but solely as Subordination Agent and Loan Participant, First Security Bank of Utah, National Association, as Owner Trustee, and Wilmington Trust Company as Loan Trustee 4.17****Form of Waiver, Consent and Amendment to Participate Agreement dated as of December 22, 1995 among Continental Airlines, Inc., Gaucho-2, Inc., The Boeing Company, First Security Bank of Utah, National Association, as Owner Trustee, and Wilmington Trust Company as Indenture Trustee 4.18****Form of Participation Agreement Amendment No. 2, dated as of January 31, 1996, among Continental Airlines, Inc., General Electric Company, as Owner Participant, Wilmington Trust Company, not in its individual capacity but solely as Subordination Agent and Loan Participant, First Security Bank of Utah, National Association, as Owner Trustee, and Wilmington Trust Company as Loan Trustee 4.19****Form of Lease Agreement, dated July 15, 1994, among Continental Airlines, Inc. and First Security Bank of Utah, National Association, as Owner Trustee 4.20****Form of Lease Agreement Amendment No. 1, dated as of December 22, 1995 between First Security Bank of Utah, National Association, as Owner Trustee and Continental Airlines, Inc. 4.21****Form of Lease Agreement Amendment No. 2, dated as of January 31, 1996, between First Security Bank of Utah, National Association, as Owner Trustee, and Continental Airlines, Inc. 4.22****Form of Amended and Restated Trust Indenture and Mortgage between First Security Bank of Utah, National Association, as Owner Trustee, and Wilmington Trust Company, as Indenture Trustee 4.23****Form of Amended and Restated Trust Indenture and Mortgage Amendment No. 1, dated as of January 31, 1996, between First Security Bank of Utah, National Association, as Owner Trustee, and Wilmington Trust Company, as Loan Trustee 4.24* Form of Series A Equipment Note, dated January 31, 1996, by First Security Bank of Utah, National Association, as Owner trustee, payable to Wilmington Trust Company, as Subordination Agent 4.25* Form of Series B Equipment Note, dated January 31, 1996, by First Security Bank of Utah, National Association, as Owner trustee, payable to Wilmington Trust Company, as Subordination Agent 4.26* Form of Series C Equipment Note, dated January 31, 1996, by First Security Bank of Utah, National Association, as Owner trustee, payable to Wilmington Trust Company, as Subordination Agent 4.27* Form of Series D Equipment Note, dated January 31, 1996, by First Security Bank of Utah, National Association, as Owner trustee, payable to Wilmington Trust Company, as Subordination Agent 4.28** Form of Trust Agreement, dated as of July 15, 1994, between Gaucho-2 Inc. and First Security Bank of Utah, National Association 4.29*** Form of Pass through Trust Agreement between Continental Airlines, Inc. and Shawmut Bank Connecticut, National Association, as Trustee, relating to certain Pass through Certificates 4.30*** Form of Pass Through Certificate (included in Exhibit 4.29) 4.31*** Form of Pass Through Trust Agreement between Continental Airlines, Inc. and First Security Bank of Utah, National Association, as Trustee, relating to certain Pass Through Certificates 4.32*** Form of Pass through Certificate (included in Exhibit 4.31) 4.33*** Form of Indenture between Continental Airlines, Inc. and Bank One, Texas, National Association, as Trustee, relating to Senior Debt Securities 4.34*** Form of Indenture between Continental Airlines, Inc. and Bank One, Texas, National Association, as Trustee, relating to Subordinated Debt Securities 5.1** Opinion of Cleary, Gottlieb, Steen & Hamilton relating to validity of New Certificates II-4 5.2*** Opinion of Hughes Hubbard & Reed, counsel for Continental Airlines, Inc., relating to Pass Through Certificates 5.3*** Opinion of Mayor, Day, Caldwell & Keeton, L.L.P., counsel for Continental Airlines, Inc., relating to Debt Securities 5.4*** Opinion of Shipman & Goodwin, counsel for Shawmut Bank Connecticut, National Association, relating to certain Pass Through Certificates 5.5*** Opinion of Ray, Quinney & Nebeker, counsel for First Security Bank of Utah, National Association, relating to certain Pass Through Certificates 8.1*** Tax Opinion of Hughes Hubbard & Reed, counsel for Continental Airlines, Inc., relating to Pass Through Certificates (included in Exhibit 5.1) 8.2*** Tax Opinion of Shipman & Goodwin, counsel for Shawmut Bank Connecticut, National Association, relating to certain Pass through Certificates (included in Exhibit 5.3) 8.3*** Tax Opinion of Ray, Quinney & Nebeker, counsel for First Security Bank of Utah, National Association, relating to certain Pass Through Certificates (included in Exhibit 5.4) 12.1 Computation of Ratio of Earnings to Fixed Charges (incorporated by reference to the Company's Registration Statement (File No. 333-03591)) 23.1* Consent of Ernst & Young LLP 23.2** Consent of Cleary, Gottlieb, Steen, and Hamilton (included in its opinion filed as exhibit 5.1) 23.3* Consent of Aircraft Information Services, Inc. 23.4* Consent of BK Associates, Inc. 23.5** Consent of Morten Beyer and Associates, Inc. 23.6*** Consent of Hughes Hubbard & Reed, counsel for Continental Airlines, Inc. (included in Exhibit 5.1) 23.7*** Consent of Mayor, Day, Caldwell & Keeton, L.L.P., counsel for Continental Airlines, Inc. (included in Exhibit 5.2) 23.8*** Consent of Shipman & Goodwin, counsel for Shawmut Bank Connecticut, National Association (included in Exhibit 5.3) 23.9*** Consent of Ray, Quinney & Nebeker, counsel for First Security Bank of Utah, National Association (included in Exhibit 5.4) 23.10 Consent of Cleary, Gotlieb, Steen & Hamilton 24.1* Powers of Attorney 25.1* Statement of Eligibility of Wilmington Trust Company for the 1996-A Pass Through Certificates, on Form T-1 25.2* Statement of Eligibility of Wilmington Trust Company for the 1996-B Pass Through Certificates, on Form T-1 25.3* Statement of Eligibility of Wilmington Trust Company for the 1996-C Pass Through Certificates, on Form T-1 25.4* Statement of Eligibility of Wilmington Trust Company for the 1996-D Pass Through Certificates, on Form T-1 25.5*** Statement of Eligibility of Shawmut Bank Connecticut, National Association, on Form T-1 25.6*** Statement of Eligibility of First Security Bank of Utah, National Association, on Form T-1 25.7*** Statement of Eligibility of Bank One, Texas, National Association, on Form T-1 99.1* Form of Letter of Transmittal 99.2* Form of Notice of Guaranteed Delivery 99.3* Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees 99.4* Form of Letter to Clients - ----------------- * Previously filed ** Filed herewith *** Previously filed in connection with Registration Statement (File No. 33-79688) **** Filed herewith. With respect to such Exhibits, separate agreements have been entered into with respect to each Aircraft. Except for differences in dollar amounts, interest rates, percentages, final distribution dates, Aircraft Registration numbers, Manufacturer's Serial Numbers for Aircraft and Engines and the like, as applicable, there are no material details in which any such agreements not filed herewith differ from the corresponding Exhibit for the forms of such documents. Item 22. Undertakings. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) shall not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. II-5 (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant, pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by any such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether or not such indemnification is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned registrant hereby undertakes to supply by means of a post- effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Amendment No. 1 to Form S-4 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on July 5, 1996. CONTINENTAL AIRLINES, INC. By: /s/ Jeffery A. Smisek -------------------------- Jeffery A. Smisek Senior Vice President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated, on July 5, 1996. Signature Title --------- ------ * - ----------------------------- President, Chief Executive Officer (Principal Gordon M. Bethune Executive Officer) and Director * - ----------------------------- Senior Vice President and Chief Financial Lawrence W. Kellner Officer (Principal Financial Officer) * - ----------------------------- Staff Vice President and Controller Michael P. Bonds (Principal Accounting Officer) * - ----------------------------- Director Thomas J. Barrack, Jr. * - ----------------------------- Director David Bonderman * - ----------------------------- Director Gregory D. Brenneman * - ----------------------------- Director Patrick Foley * - ----------------------------- Director Douglas H. McCorkindale - ----------------------------- Director George G.C. Parker * - ----------------------------- Director Richard W. Pogue * - ----------------------------- Director William S. Price III * - ----------------------------- Director Donald L. Sturm * - ----------------------------- Director Karen Hastie Williams * - ----------------------------- Director Charles A. Yamarone *By: /s/ Scott R. Peterson -------------------------- Scott R. Peterson, Attorney-in-fact
                PARTICIPATION PURCHASE AGREEMENT


     THIS PARTICIPATION PURCHASE AGREEMENT, dated as of January
31, 1996 (herein, as amended or modified from time to time, this
"Agreement"), is by and between CREDIT SUISSE, acting through its
New York Branch (the "Liquidity Provider"), and CONTINENTAL
AIRLINES, INC., a Delaware corporation (the "Participant").

                      W I T N E S S E T H:

     WHEREAS, Liquidity Provider has entered into three Revolving
Credit Agreements, each dated as of the date hereof (herein, as
amended or modified from time to time, called the "Liquidity
Agreements"), with Wilmington Trust Company, not in its
individual capacity but solely as Subordination Agent and agent
and trustee as described therein (in such capacity the
"Borrower"), pursuant to which, among other things, Liquidity
Provider agreed to make loans ("Advances") to the Borrower from
time to time;

     WHEREAS, the Liquidity Provider's execution and delivery of
the Liquidity Agreements is a condition precedent to the
consummation of certain lease financing arrangements for the
benefit of the Participant; and

     WHEREAS, the Participant's execution and delivery of this
Agreement is a condition precedent to the effectiveness of the
Liquidity Agreements;

     NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, Liquidity Provider and the
Participant hereby covenant and agree as follows:

     1.   Definitions.  Unless the context clearly indicates
otherwise, all capitalized terms used but not defined in this
Agreement shall have the meanings assigned to those terms in each
Liquidity Agreement or the applicable Liquidity Agreement, as the
context shall indicate; provided that if any such term is not
defined in a Liquidity Agreement, it shall have the meaning
indicated in the Intercreditor Agreement dated as of the date
hereof between the Liquidity Provider and Wilmington Trust
Company, in its capacities as Subordination Agent and Trustee.

     As used herein, the following terms shall have the meanings
set forth below:

          "Fee Percentage" means fifty basis points per annum;
     provided that the Fee Percentage shall be increased an
     additional ten basis points per annum on each successive
     anniversary of the first Purchase Date, so that the Fee
     Percentage on the first anniversary of such date shall be
     sixty basis points per annum, the Fee Percentage on the
     second anniversary of such date shall be seventy basis
     points per annum, and so forth.

          "Indemnity Obligation" means an obligation of the
     Participant under Section 4(b) hereof.

          "Liquidity Provider Share" means, at any time, 100%
     minus Participant's Share.

          "Participant Share" means, at any time, a fraction
     (expressed as a percentage), the numerator of which is the
     aggregate portion of Purchase Price payments made by the
     Participant attributable to the principal amount of the
     Advances, and the denominator of which is the then
     outstanding principal amount of the Advances.

          "Participation" means collectively, the undivided
     interests purchased by the Participant in the Advances
     pursuant to this Agreement.

          "Participation Fee" has the meaning assigned to that
     term in Section 4 hereof.

          "Purchase Date" means each successive Regular
     Distribution Date commencing on the first Regular
     Distribution Date following the Provider Advance
     Amortization Date.

          "Purchase Price" has the meaning assigned to that term
     in Section 2 hereof.

          "Reimbursable Expenses" means costs and expenses of the
     type referred to in the Section 7.07 of each Liquidity
     Agreement which have been incurred by the Participant.

          "Unsold Obligations" means, at any time, (i) the
     Liquidity Provider Share of the outstanding principal amount
     of Advances, (ii) accrued interest and other amounts
     attributable to the obligations described in clause (i) of
     this definition, and (iii) all other Liquidity Obligations
     (excluding for purposes of this clause (iii):  (x)
     Reimbursable Expenses, and (y) the outstanding principal
     amount of Advances and accrued interest in respect of such
     principal amount); it being understood that the Unsold
     Obligations include the Participant's obligation to pay the
     Participation Fee and Indemnity Obligations hereunder.

     2.   Sale of Participation.  the Participant hereby agrees
to buy from the Liquidity Provider, and the Liquidity Provider
hereby agrees to sell to the Participant, on each Purchase Date
an undivided interest in the Advances, in each case for a
purchase price (a "Purchase Price") equal to (i) 12.50% of the
outstanding principal amount of the Advances as of the Provider
Advance Amortization Date, plus (ii) accrued and unpaid interest
on such principal amount; provided, however, that the final
purchase of an undivided interest hereunder shall be for a
Purchase Price equal to the Liquidity Provider Share of the then
outstanding principal amount of the Advances, together with
accrued and unpaid interest on such principal amount; and
provided further that no additional purchases of undivided
interests shall be required hereunder at any time when the Unsold
Obligations have been reduced to zero.  The obligation of the
Participant to make the purchases of undivided interests as
described herein is unconditional and irrevocable.  The undivided
interests purchased by the Participant hereunder shall be junior
in all respects (including in respect of payment priority) to any
undivided interests in the Loans that continue to be held by the
Liquidity Provider.  All of the interests purchased by the
Participant hereunder are allocated to and taken by it for its
own account and risk, without recourse to the Liquidity Provider.

     3.  Payments to Participant.  (a)  If, prior to the
occurrence of a Triggering Event, a Liquidity Event of Default or
a Performing Note Deficiency, the Liquidity Provider receives any
payment in respect of a Liquidity Facility, the Liquidity
Provider shall apply such payment first to the Unsold Obligations
then due, in such order of application as the Liquidity Provider
shall select, and second to the Liquidity Obligations
attributable to the Participation, in such order as the
Participant shall select subject, in the case of each such
application, to requirements of applicable law.

     (b)  If a Triggering Event, a Liquidity Event of Default or
Performing Note Deficiency shall have occurred and the Liquidity
Provider shall have received a payment in respect of a Liquidity
Facility, the Liquidity Provider shall apply such payment first
to the Unsold Obligations (whether or not then due) in such order
of application as the Liquidity Provider shall select, and second
to the Liquidity Obligations attributable to the Participation
(whether or not then due), in such order as the Participant shall
select subject, in the case of each such application, to
requirements of applicable law.

     (c)  If, at any time when the payment is due by the
Liquidity Provider to the Participant hereunder, the Participant
shall owe any amount which is due and payable to the Liquidity
Provider under this Agreement or any Operative Agreement, then
the Liquidity Provider shall be entitled to deduct the amount
owed to it from any payment made by it to the Participant. 
Without limited the foregoing, the Participant agrees that any
amount owed by the Participant to the Liquidity Provider
hereunder that is not paid when due shall bear interest at a rate
per annum equal to 0.25% over the Base Rate in effect from time
to time.  Such interest shall be payable by the Participant to
the Liquidity Provider on demand.

     (d)  The Participant shall not be entitled to any payments
in respect of the Participation other than the payments described
in this Section 3.

     (e)  All payments to be made by the Liquidity Provider to
the Participant hereunder shall be made to Participant's
principal office in Houston, Texas.  All payments to be made by
the Participant to the Liquidity Provider hereunder shall be made
to the Liquidity Provider's principal office in New York, New
York; provided that no such payments shall be deposited into the
Class A Cash Collateral Account, the Class B Cash Collateral
Account or the Class C Cash Collateral Account (as defined in the
Intercreditor Agreement).

     4.   Participation Fee; Indemnity.  (a)  the Participant
hereby agrees to pay to the Liquidity Provider a fee (the
"Participation Fee") during the period from the first Purchase
Date to the date on which all Liquidity Obligations shall have
been paid in full, equal to Fee Percentage times the Participant
Share of the outstanding principal amount of the Advances, which
fee shall be payable quarterly in arrears on each Regular
Distribution Date and the date on which all Liquidity Obligations
shall have been paid in full.

     (b)  The Participant hereby agrees to indemnify, protect,
defend and hold harmless each Liquidity Indemnitee from, against
and in respect of, and shall pay on demand, all Expenses of any
kind or nature whatsoever, and whether arising before, on or
after the date hereof, that may be imposed on, incurred by or
asserted against such Liquidity Indemnitee, in any way relating
to, resulting from, or arising out of or in connection with the
Participation or this Agreement; provided that this Section 4(b)
shall not require payment by the Participant to any Liquidity
Indemnitee on account of any Expense (i) to the extent such
Expense is attributable to the gross negligence or wilful
misconduct of such Liquidity Indemnitee or its Related
Indemnitee, (ii) that is an ordinary and usual operating expense,
or (iii) to the extent such Expense is attributable to the
failure by such Liquidity Indemnitee or its Related Indemnitee to
perform or observe any agreement, covenant or condition on its
part to be performed or observed in any Operative Agreement or
this Agreement.

     5.   Representations and Action by the Liquidity Provider. 
(a)  It is expressly understood that the Participant has made its
own appraisal of the creditworthiness of the Borrower, that the
Participant has made a business decision to purchase its
Participation; that the Liquidity Provider has not made and does
not make any representations or warranties or assume any
responsibility with respect to the validity, genuineness, due
authorization, execution, delivery, legality, sufficiency,
enforceability or collectibility of any Operative Agreement or
any related document or with respect to the validity,
genuineness, enforceability, collectibility, existence or worth
of any collateral securing the same or guarantees thereof; that
the Liquidity Provider assumes no responsibility for (i) any
statement, warranty, representation, or certification made in, or
in connection with, any Operative Agreement or any related
document, (ii) the filing, recording, or taking of any action
with respect to any Operative Agreement or any related document
or (iii) the financial condition of the Borrower or the
performance or observance by the Borrower of its obligations.

     (b)  Until all Unsold Obligations have been paid in full, as
between the Liquidity Provider and the Participant, the Liquidity
Provider shall possess the exclusive right to make decisions
relating to the Operative Agreements and to exercise (or fail to
exercise) all rights and remedies of the Liquidity Provider
thereunder, and to apply all proceeds of the Liquidity
Obligations in such order as the Liquidity Provider shall
determine in accordance with Section 3 hereof.  The Liquidity
Provider may, in its absolute discretion, make decisions and
pursue actions or refrain from actions from time to time with
respect to the Operative Agreements, solely on the basis of its
evaluation of its own best interests, the Participant shall not
have any right to object to or prevent any such decision, action
or restraint.

     (c)  Once the Unsold Obligations have been paid in full, the
Liquidity Provider shall exercise its rights and remedies in
respect of the Operative Agreements in such manner as Participant
shall reasonably request; provided that (i) Liquidity Provider
shall not be required to take any action which it determines, in
the exercise of its discretion, subjects the Liquidity Provider
to liability or is otherwise materially adverse to the interests
of the Liquidity Provider, (ii) Liquidity Provider shall not be
required to take any action unless it has been indemnified to its
satisfaction, by a party satisfactory to it, with respect to any
cost, expense or liability that it may incur in connection with
such action, (iii) no lawsuits or similar proceeding shall be
filed in the name of the Liquidity Provider unless the Liquidity
Provider shall have given its prior written consent, (iv) in the
event that any litigation or other dispute may arise with respect
to the Operative Agreements, the Liquidity Provider shall be
entitled to interplead or take similar actions consistent with
its nominal economic stake in the resolution of such dispute, and
(v) no litigation or similar proceedings in which the Liquidity
Provider has been named as a party, or in which the Liquidity
Provider may reasonably be expected to be named as a party, may
be settled by the Participant without the Liquidity Provider's
prior written consent.

     6.   Reimbursement.  In the event that, after the Liquidity
Provider has secured any payment in respect thereof or made any
applications and has made any payment in respect thereof to the
Participant pursuant to this Agreement, any such payment or
application, or portion thereof, is rescinded or must otherwise
be returned or paid over by the Liquidity Provider for any
reason, the Participant will, upon notice from the Liquidity
Provider, forthwith pay back to the Liquidity Provider an amount
equal to the portion of such payment (if any) that had previously
been remitted to the Participant, together with any interest or
fees attributable to such portion of the payment and required to
be paid by the Liquidity Provider.  The Participant's obligations
under this Section hereof shall survive the termination of the
Liquidity Agreement, each other Operative Agreement and the
payment of the Liquidity Obligations.

     7.   Other Transactions between the Liquidity Provider and
the Borrower.  The Liquidity Provider and its affiliates may
accept deposits from, lend money to, act as trustee under
indentures for and generally engage in any kind of business with
any party to the Operative Agreements, and any person who may do
business with or own securities of any such party, or any such
party's affiliates.

     8.   Recoveries.  If the Participant obtains any payment or
other recovery (whether voluntary, involuntary, by application of
setoff, or otherwise) on account of principal of, or interest on,
or applicable fees in respect of, any of the Liquidity
Obligations in excess of that to which the Participant is
entitled pursuant to this Agreement, the Participant agrees to
purchase from the Liquidity Provider such additional
participation in the Unsold Obligations as will be necessary to
cause the Participant to share such excess payment or other
recovery with the Liquidity Provider to the extent the Liquidity
Provider would be entitled to such payment under Section 3 hereof
if such payment had been made to the Liquidity Provider.

     9.   Subparticipation.  Neither the Participation nor the
Participant's rights or obligations hereunder may be subdivided
or transferred.

     10.  Successors and Assigns.  This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of
the Liquidity Provider.

     11.  Notices.  Notices required hereunder shall be given to
the parties hereto at the addresses set forth opposite their
names below.

     12.  Applicable Law.  This Agreement is governed by the
internal laws of the state of New York, without regard to
principles of conflicts of law.

     13.  Amendments, Changes and Modifications.  This Agreement
may not be amended, changed, modified, altered, or terminated
except by an agreement in writing signed by the Liquidity
Provider and the Participant.

     14.  Entire Agreement.  This Agreement sets forth the entire
understanding of the Parties and supersedes any and all prior
agreements, arrangements and understandings relating to the
subject matter hereof.  No representation, promise, inducement or
statement of intent has been made by any party which is not
embodied in this Agreement, and no party shall be bound by or
liable for any alleged representation, promise, inducement or
statement of intention not expressly set forth herein.

     IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed on their behalf by their duly authorized officers
as of the day and year identified above.

                                CREDIT SUISSE, acting through
                                its New York Branch


Address:                        By:__________________________
12 East 49th Street             Name:________________________
New York, New York 10017        Title:_______________________
Attention:  Aircraft Finance Dept.
Telephone:  (212) 238-5335
Telecopy:   (212) 238-5331
                                By:__________________________
                                Name:________________________
                                Title:_______________________

                                CONTINENTAL AIRLINES, INC.


                                By:__________________________
Address:                        Name:________________________
2929 Allen Parkway              Title:_______________________
Suite 2010
Houston, Texas 77019
Attention: Senior Vice President
 and Chief Financial Officer
Telephone: (713) 834-2942
Telecopy:  (713) 520-6329
                      REFUNDING AGREEMENT 104


                    Dated as of January 31, 1996

                               Among

                    CONTINENTAL AIRLINES, INC.,
                             as Lessee

                    FIRST SECURITY BANK OF UTAH, 
                        NATIONAL ASSOCIATION,
                         as Owner Trustee

                    WILMINGTON TRUST COMPANY,
               as Pass Through Trustee under each of the
          Continental Airlines 1996 Pass Through Trust Agreements

                        THE BOEING COMPANY,
                     as Initial Loan Participant

                    GENERAL ELECTRIC COMPANY,
              as Owner Participant and Loan Participant

                    WILMINGTON TRUST COMPANY,
                     as Subordination Agent

                              and

                    WILMINGTON TRUST COMPANY,
                         as Loan Trustee

                         _____________

                    One Boeing 757-224 Aircraft
                           MSN 27294

                 Leased to Continental Airlines, Inc.




                      INDEX TO REFUNDING AGREEMENT 104


                                                             Page

SECTION 1.  Purchase of Refunding Notes; Refunding              4

SECTION 2.  Refunding Notes                                     7

SECTION 3.  Conditions Precedent                                7

SECTION 4.  Certain Conditions Precedent to the Obligations 
               of the Lessee; Conditions Precedent 
               with Respect to the Pass Through Trustee        11

SECTION 5.  Amendment of the First Amended Indenture           12

SECTION 6.  Amendment of the First Amended Lease               12

SECTION 7.  Amendment of the Participation Agreement           12

SECTION 8.  [Intentionally omitted]                            13

SECTION 9.  Lessee's Representations and Warranties            13

SECTION 10.  Representations, Warranties and Covenants         16

SECTION 11.  Notices                                           27

SECTION 12.  Expenses                                          27

SECTION 13.  Reliance of Liquidity Provider                    28

SECTION 14.  Miscellaneous                                     28

SECTION 15.  Governing Law                                     29
 

                         Schedules


Schedule I Pass Through Trust Agreements

Schedule II Refunding Notes, Purchasers and Purchase Price



                     REFUNDING AGREEMENT 104


          This REFUNDING AGREEMENT, dated as of January 31,
1996, among (i) CONTINENTAL AIRLINES, INC., a Delaware
corporation (the "Lessee"), (ii) GENERAL ELECTRIC COMPANY, a New
York corporation ("GE" or the "Owner Participant"), (iii) FIRST
SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, a national banking
association, not in its individual capacity except as otherwise
expressly provided herein, but solely as trustee (the "Owner
Trustee") under the Trust Agreement (as defined below),
(iv) WILMINGTON TRUST COMPANY, a Delaware banking corporation,
not in its individual capacity except as otherwise expressly
provided herein, but solely as trustee (in such capacity, the
"Pass Through Trustee") under each of the four separate Pass
Through Trust Agreements (as defined below), (v) THE BOEING
COMPANY, a Delaware corporation ("Boeing" or the "Initial Loan
Participant"), (vi) GENERAL ELECTRIC COMPANY (the "Loan
Participant" and, together with the Initial Loan Participant,
the "Loan Participants"), (vii) WILMINGTON TRUST COMPANY, a
Delaware banking corporation, not in its individual capacity,
but solely as subordination agent and trustee (in such capacity,
the "Subordination Agent") under the Intercreditor Agreement (as
defined below), and (viii) WILMINGTON TRUST COMPANY, a Delaware
banking corporation, not in its individual capacity, but solely
as Loan Trustee (the "Loan Trustee") under the First Amended
Indenture and the Indenture (each as defined below).


                    W I T N E S S E T H:

          WHEREAS, the Lessee, Gaucho-2 Inc., a Delaware
corporation, as original owner participant (the "Original Owner
Participant"), the Owner Trustee, the Initial Loan Participant
and the Loan Trustee entered into the Participation Agreement
104, dated as of July 15, 1994 (the "Original Participation
Agreement"), providing for the sale and lease of one Boeing 757-
224 aircraft (the "Aircraft");

          WHEREAS, concurrently with the execution and delivery
of the Original Participation Agreement, the Owner Trustee and
Wilmington Trust Company, as mortgagee, entered into the Trust
Indenture and Mortgage 104, dated as of July 15, 1994 (as
supplemented by the Trust Indenture and Mortgage 104 Supplement
No. 1, dated July 29, 1994, the "Original Indenture"), pursuant
to which the Owner Trustee issued to the Initial Loan
Participant loan certificates substantially in the form set
forth in Article II thereof (the "Loan Certificates") as
evidence of the loan then being made by the Initial Loan
Participant in participating in the payment of the Lessor's Cost
(as such term and other capitalized terms used herein without
definition are defined in the Participation Agreement (as
defined below) or, if not defined therein, as defined in the
Lease (as defined below)) for the Aircraft;

          WHEREAS, concurrently with the execution and delivery
of the Original Participation Agreement, the Owner Trustee and
the Lessee entered into the Lease Agreement 104 relating to the
Aircraft, dated as of July 15, 1994 (such Lease Agreement, as
supplemented by Lease Supplement No. 1, dated July 29, 1994, the
"Original Lease"), whereby, subject to the terms and conditions
set forth therein, the Owner Trustee agreed to lease to the
Lessee, and the Lessee agreed to lease from such Owner Trustee,
the Aircraft on its Delivery Date;

          WHEREAS, concurrently with the execution and delivery
of the Original Participation Agreement, the Original Owner
Participant and the Owner Trustee entered into the Trust
Agreement 104, dated as of July 15, 1994 (the "Original Trust
Agreement"), pursuant to which the Owner Trustee agreed, among
other things, to hold the Trust Estate defined in Section 1
thereof for the benefit of the Owner Participant thereunder;

          WHEREAS, pursuant to the Purchase, Assignment and
Assumption Agreement (Continental 104, 105, 106, 107, 108, 109,
110, 112, 113), dated as of December 22, 1995 (the "Equity
Purchase Agreement"), between the Original Owner Participant and
GE, GE purchased and assumed from the Original Owner Participant
all of the Original Owner Participant's right, title and
interest in, to and under the Trust Estate, the Original Trust
Agreement, the Original Participation Agreement and certain of
the other Operative Agreements;

          WHEREAS, concurrently with the execution and delivery
of the Equity Purchase Agreement, (i) the Original Owner
Participant and GE entered into the Assignment and Assumption
Agreement (FAA) relating to the Aircraft, dated December 29,
1995 (the "Assumption Agreement (FAA)"); (ii) the parties to the
Original Participation Agreement entered into the Waiver,
Consent and Amendment to Participation Agreement 104, dated as
of December 22, 1995 (the "PA Amendment No. 1"; the Original
Participation Agreement, as amended by the PA Amendment No. 1,
the "First Amended PA"), pursuant to which, among other things,
the Original Trust Agreement was amended to the extent necessary
to recognize GE as the Owner Participant and GE acknowledged the
appointment of the Owner Trustee as trustee (the Original Trust
Agreement, as so amended, the "Trust Agreement"); and (iii) the
Lessee and GE entered into a Tax Indemnity Agreement 104
relating to the Aircraft, dated as of December 22, 1995 (the "GE
Tax Indemnity Agreement"); 

          WHEREAS, pursuant to the Refinancing Agreement, dated
as of December 22, 1995, among the Lessee, the Owner
Participant, the Original Owner Participant, Gaucho-1 Inc., a
Delaware corporation, the Owner Trustee, the Initial Loan
Participant and the Loan Trustee (the "Refinancing Agreement"),
(i) a portion of the outstanding Loan Certificates were redeemed
by the Owner Trustee with the proceeds of the Initial Series D
Notes (as defined in the Refinancing Agreement) issued to GE
pursuant to the First Amended Indenture; and (ii) the remaining
Loan Certificates were exchanged by the Initial Loan Participant
for the Initial Series A Notes, the Initial Series B Notes and
the Initial Series C Notes (each as defined in the Refinancing
Agreement and, collectively, the "Initial LP Notes" and,
together with the Initial Series D Notes, the "Initial Notes")
issued to the Initial Loan Participant pursuant to the First
Amended Indenture; 

          WHEREAS, concurrently with the execution and delivery
of the Refinancing Agreement, (i) the Owner Trustee and the Loan
Trustee amended and restated the Original Indenture as the
Amended and Restated Trust Indenture and Mortgage 104, dated as
of December 22, 1995 (the "First Amended Indenture"), for the
benefit of the holder or holders of the Initial Notes and (ii)
the Owner Trustee and the Lessee entered into Lease Agreement
104 Amendment No. 1, dated as of December 22, 1995 (the "Lease
Amendment No. 1"; the Original Lease, as amended by Lease
Amendment No. 1, the "First Amended Lease"); 

          WHEREAS, pursuant to the Refinancing Agreement, the
Lessee has requested that the parties hereto enter into the
refinancing transaction described herein (the "Refinancing
Transaction"), pursuant to which, among other things, (i) new
equipment notes (the "Refunding Notes") shall be issued to the
Pass Through Trustees (other than the Class D Trustee (as
defined below)) pursuant to the Indenture; (ii) the Initial LP
Notes shall be redeemed for cash; (iii) the Initial Series D
Notes shall be tendered to the Loan Trustee by GE in exchange
for an equal aggregate principal amount of Series D Refunding
Notes (as defined below); and (iv) such Series D Refunding Notes
shall be contributed by GE to the Class D Trust in exchange for
Class D Certificates (each as defined below);

          WHEREAS, concurrently with the execution and delivery
of this Agreement, the Owner Trustee and the Loan Trustee have
entered into the Amended and Restated Trust Indenture and
Mortgage 104 Amendment No. 1, dated as of January 31, 1996 (the
"Indenture Amendment No. 1"; the First Amended Indenture, as
amended by the Indenture Amendment No. 1, the "Indenture");

          WHEREAS, concurrently with the execution and delivery
of this Agreement, the Owner Trustee and the Lessee have entered
into the Lease Agreement 104 Amendment No. 2, dated as of
January 31, 1996 (the "Lease Amendment No. 2"; the First Amended
Lease, as amended by the Lease Amendment No. 2, the "Lease"),
containing amendments, modifications and additions necessary to
give effect to the transactions described herein;

          WHEREAS, concurrently with the execution and delivery
of this Agreement, the Lessee, the Owner Trustee, the Owner
Participant, the Loan Trustee and the Subordination Agent have
entered into the Participation Agreement 104 Amendment No. 2,
dated as of January 31, 1996 (the "PA Amendment No. 2"; the
First Amended PA, as amended by the PA Amendment No. 2, the
"Participation Agreement");

          WHEREAS, concurrently with the execution and delivery
of this Agreement, the Owner Participant and the Lessee have
entered into the Tax Indemnity Agreement 104 Amendment No. 1,
dated as of January 31, 1996, amending the GE Tax Indemnity
Agreement (the "TIA Amendment"; the GE Tax Indemnity Agreement,
as amended by the TIA Amendment, the "Tax Indemnity Agreement");

          WHEREAS, pursuant to each of the Pass Through Trust
Agreements set forth in Schedule 1 hereto (the "Pass Through
Trust Agreements"), on the Refunding Date (as defined in
Section 1 below), a separate grantor trust (collectively, the
"Pass Through Trusts" and, individually, a "Pass Through Trust")
will be created to facilitate certain of the transactions
contemplated hereby, including, without limitation, the issuance
and sale of pass through certificates pursuant thereto
(collectively, the "Certificates");

          WHEREAS, other than with respect to the Certificates
(the "Class D Certificates") to be issued by the Continental
Airlines 1996-D Pass Through Trust (the "Class D Trust"), the
proceeds from the issuance and sale of the Certificates will be
applied by the Pass Through Trustee to purchase from the Owner
Trustee, on behalf of each Pass Through Trust (other than the
Class D Trust), all of the Refunding Notes bearing the same
interest rate as the Certificates issued by such Pass Through
Trust;

          WHEREAS, concurrently with the execution and delivery
of this Agreement, (i) Credit Suisse, a bank organized under the
laws of Switzerland acting through its New York branch (the
"Liquidity Provider"), entered into three revolving credit
agreements (each, a "Liquidity Facility") for the benefit of the
Certificateholders of each Pass Through Trust (other than the
Class D Trust), with the Subordination Agent, as agent for the
Pass Through Trustee on behalf of each such Pass Through Trust;
(ii) the Liquidity Provider and the Lessee entered into a
Participation Purchase Agreement (a "Participation Purchase
Agreement") in respect of the Liquidity Facilities; and (iii)
the Pass Through Trustee, the Liquidity Provider and the
Subordination Agent entered into the Intercreditor Agreement,
dated as of January 31, 1996 (the "Intercreditor Agreement");
and

          WHEREAS, the notice requirements of Section 2.12 of
the First Amended Indenture shall not be applicable to the
Refinancing Agreement.

          NOW, THEREFORE, in consideration of the foregoing
premises and the mutual agreements herein contained and other
good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as
follows:

          SECTION 1.  Purchase of Refunding Notes;
Refunding.  (a)  Subject to the satisfaction or waiver of the
conditions set forth herein, on January 31, 1996 or on such
other date agreed to by the parties hereto (the "Refunding
Date"):

          (i) immediately prior to the Closing (as hereinafter
     defined), the Lessee shall pay to the Owner Trustee, as a
     special payment of Basic Rent under the Lease, an amount
     equal to the unpaid interest on the Initial LP Notes
     accrued up to but not including the Refunding Date;
     
          (ii) the Pass Through Trustee for each Pass Through
     Trust (other than the Class D Trust) shall pay to the Owner
     Trustee the aggregate purchase price of the Refunding Notes
     being issued to such Pass Through Trustee as set forth in
     clause (xi) below;
     
          (iii) the Owner Trustee shall pay to the Loan
     Trustee for the benefit of the Initial Loan Participant an
     amount equal to the aggregate principal amount of Initial
     LP Notes outstanding on the Refunding Date, together with
     accrued and unpaid interest on the Initial LP Notes up to
     but not including the Refunding Date, and all other amounts
     payable to the Initial Loan Participant under the First
     Amended Indenture and the First Amended PA (but excluding
     any Make-Whole Amount);
     
          (iv) the Loan Trustee shall disburse to the Initial
     Loan Participant the amounts of principal and interest, and
     other amounts, if any, described in clause (iii) above,
     owing to it on the Refunding Date with respect to the
     Initial LP Notes as a prepayment of the Initial LP Notes;
     
          (v) the Initial Loan Participant shall, against
     receipt of payment for the Initial LP Notes, deliver to the
     Loan Trustee the Initial LP Notes for cancellation;
     
          (vi) promptly following the prepayment of the Initial
     LP Notes, the Owner Trustee and the Loan Trustee shall
     enter into the Indenture Amendment No. 1; 
     
          (vii) the Owner Trustee shall issue to GE,
     pursuant to Article II of the Indenture, the Refunding
     Notes of the maturity, principal amount and bearing the
     interest rate set forth on Schedule II hereto opposite the
     name of GE (the "Series D Refunding Notes"), which
     Refunding Notes include interest accrued from January 15,
     1996;
     
          (viii) GE shall, against receipt of the Series D
     Refunding Notes pursuant to clause (vii) above, tender to
     the Loan Trustee the Initial Series D Notes for
     cancellation;
     
          (ix) GE shall deliver to the Subordination Agent, as
     agent for the Pass Through Trustee of the Class D Trust
     (the "Class D Trustee"), all of the Series D Refunding
     Notes held by it as a contribution to the Class D Trust;

          (x) against receipt of the Series D Refunding Notes
     by the Subordination Agent on behalf of the Class D
     Trustee, the Class D Trustee shall issue and deliver to GE
     an aggregate principal amount of Class D Certificates
     (which Certificates include interest accrued from January
     15, 1996) equal to the outstanding principal amount of the
     Series D Refunding Notes contributed by GE to the Class D
     Trust; and
     
          (xi) the Owner Trustee shall issue, pursuant to
     Article II of the Indenture, to the Subordination Agent on
     behalf of the Pass Through Trustee for each of the Pass
     Through Trusts (other than the Class D Trust), Refunding
     Notes of the maturity and aggregate principal amount and
     bearing the interest rate set forth on Schedule II hereto
     opposite the name of such Pass Through Trust.
     
          (b)  The Owner Participant, by its execution and
delivery hereof, requests and directs the Owner Trustee to
execute and deliver this Agreement and, subject to the terms
hereof, to take the actions contemplated herein.

          (c)  In case any Pass Through Trustee shall for any
reason fail to purchase the Refunding Notes pursuant to
Section 1(a) above on or prior to March 31, 1996, the written
notice given by the Lessee pursuant to Section 4.1 of the
Refinancing Agreement shall be deemed never to have been given,
neither the Owner Trustee nor the Lessee shall have any
obligation to pay to the Initial Loan Participant any amount in
respect of the prepayment of the Initial LP Notes and the
Initial Notes shall remain outstanding and in full force and
effect, and the actions contemplated by Sections 5, 6, 7 and 8
hereof shall not take place.

          (d)  The closing (the "Closing") of the transactions
described in this Agreement shall take place at the offices of
Shearman & Sterling, 599 Lexington Avenue, New York, New York
10022, on the Refunding Date, or at such other place as the
parties hereto may agree.

          (e)  All payments pursuant to this Section 1 shall be
made in immediately available funds to such accounts and at such
banks as the parties hereto shall designate in writing not less
than one Business Day prior to the Refunding Date.

          (f)  In order to facilitate the transactions
contemplated hereby, the Lessee has entered into the Purchase
Agreement, dated as of January 24, 1996, among the Lessee and
the several purchasers (the "Initial Purchasers") named therein
(the "Purchase Agreement"), and, subject to the terms and
conditions hereof, the Lessee will enter into each of the Pass
Through Trust Agreements and will undertake to perform certain
administrative and ministerial duties under such Pass Through
Trust Agreements.

          SECTION 2.  Refunding Notes.  The Refunding Notes
shall be payable as to principal in accordance with the terms of
the Indenture, and the Refunding Notes shall provide for a fixed
rate of interest per annum (subject to certain adjustments
contemplated thereby) and shall contain the terms and provisions
provided for the Refunding Notes in the Indenture.  The Owner
Trustee shall execute, and the Loan Trustee shall authenticate
and deliver to the Pass Through Trustee for each Pass Through
Trust, a principal amount of Refunding Notes bearing the
interest rate set forth opposite the name of such Pass Through
Trust on Schedule II hereto, which Refunding Notes in the
aggregate shall be in the principal amounts set forth on
Schedule II hereto.  Subject to the terms hereof, of the Pass
Through Agreements and of the other Operative Agreements, all
such Refunding Notes shall be dated and authenticated as of the
Refunding Date and shall bear interest therefrom, shall be
registered in such names as shall be specified by the
Subordination Agent and shall be paid in the manner and at such
places as are set forth in the Indenture.

          SECTION 3.  Conditions Precedent.  The obligation of
the Pass Through Trustee to make the payment described in
Section 1(a)(ii) and the obligations of the Owner Trustee and
the Owner Participant to participate in the transactions
contemplated by this Agreement on the Refunding Date are subject
to the fulfillment, prior to or on the Refunding Date, of the
following conditions precedent (except that paragraphs (a), (f)
and (j) shall not be conditions precedent to the obligations of
the Owner Trustee hereunder and paragraphs (g) and (l) shall not
be conditions precedent to the obligations of the Owner
Participant hereunder):

          (a)  The Owner Trustee shall have tendered the
     Refunding Notes to the Loan Trustee for authentication, and
     the Loan Trustee shall have authenticated such Refunding
     Notes and shall have tendered the Refunding Notes to the
     Subordination Agent on behalf of the Pass Through Trustee
     in accordance with Section 1.
     
          (b)  The Pass Through Trustee, the Owner Trustee and
     the Owner Participant each shall have received executed
     counterparts or conformed copies of the following
     documents:
     
               (1)  this Agreement;
          
               (2)  the Lease Amendment No. 2;

               (3)  the Indenture Amendment No. 1;
          
               (4)  the PA Amendment No. 2;
          
               (5)  each of the Pass Through Trust Agreements;

               (6)  the TIA Amendment (for the Owner Participant
          only);
          
               (7)  the Intercreditor Agreement;

               (8)  the Liquidity Facility for each of the Class
          A, Class B and Class C Trusts; and
          
               (9)  the Registration Rights Agreement, dated the
          date hereof, among the Lessee, the Pass Through
          Trustee and each of the Initial Purchasers, with
          respect to the Certificates (the "Registration Rights
          Agreement") (for the Owner Participant only).
          
          (c)  The Pass Through Trustee, the Owner Trustee and
     the Owner Participant each shall have received the
     following:
     
               (1)  an incumbency certificate of the Lessee as
          to the person or persons authorized to execute and
          deliver this Agreement, the Lease Amendment No. 2, the
          PA Amendment No. 2, the TIA Amendment, the Pass
          Through Trust Agreements, the Registration Rights
          Agreement, the Participation Purchase Agreement and
          any other documents to be executed on behalf of the
          Lessee in connection with the transactions
          contemplated hereby and the signatures of such person
          or persons;
          
               (2)  a copy of the resolutions of the board of
          directors of the Lessee or the executive committee
          thereof, certified by the Secretary or an Assistant
          Secretary of the Lessee, duly authorizing the
          transactions contemplated hereby and the execution and
          delivery of each of the documents required to be
          executed and delivered on behalf of the Lessee in
          connection with the transactions contemplated hereby;
          and
          
               (3)  a copy of the certificate of incorporation
          of the Lessee, certified by the Secretary of State of
          the State of Delaware, a copy of the by-laws of the
          Lessee, certified by the Secretary or Assistant
          Secretary of the Lessee, and a certificate or other
          evidence from the Secretary of State of the State of
          Delaware, dated as of a date reasonably near the date
          of this Agreement, as to the due incorporation and
          good standing of the Lessee in such state.
          
          (d)  The Pass Through Trustee, the Owner Trustee and
     the Owner Participant each shall have received a
     certificate signed by an authorized officer of the Lessee,
     dated the Refunding Date, certifying that:
     
               (1)  the Aircraft has been duly certified by the
          FAA as to type and airworthiness in accordance with
          the terms of the First Amended Lease and has a
          current, valid certificate of airworthiness;
          
               (2)  the FAA Bill of Sale, the Original Lease,
          the Lease Amendment No. 1 and the First Amended
          Indenture have been duly recorded, and the Trust
          Agreement has been duly filed, with the FAA pursuant
          to the Federal Aviation Act of 1958, as amended (the
          "Federal Aviation Act");
          
               (3)  the Aircraft has been registered with the
          FAA in the name of the Owner Trustee and the Lessee
          has authority to operate the Aircraft;
          
               (4)  the representations and warranties contained
          herein of the Lessee are correct as though made on and
          as of the Refunding Date, except to the extent that
          such representations and warranties relate solely to
          an earlier date (in which case such representations
          and warranties are correct on and as of such earlier
          date);
          
               (5)  there has been no material adverse change in
          the financial condition of the Lessee since September
          30, 1995; and
          
               (6)  no event has occurred and is continuing
          which constitutes an Indenture Event of Default or
          would constitute an Indenture Event of Default but for
          the requirement that notice be given or time elapse or
          both, and no event has occurred and is continuing
          which constitutes an Event of Loss or would constitute
          an Event of Loss with the lapse of time.
          
          (e)  The Pass Through Trustee, the Owner Trustee and
     the Owner Participant each shall have received a
     certificate signed by an authorized officer of the Loan
     Trustee, dated the Refunding Date, certifying that the
     representations and warranties contained herein of the Loan
     Trustee are correct as though made on and as of the
     Refunding Date, except to the extent that such
     representations and warranties relate solely to an earlier
     date (in which case such representations and warranties are
     correct on and as of such earlier date).
     
          (f)  The Pass Through Trustee and the Owner
     Participant each shall have received a certificate signed
     by an authorized officer of the Owner Trustee, dated the
     Refunding Date, certifying that the representations and
     warranties contained herein of the Owner Trustee are
     correct as though made on and as of the Refunding Date,
     except to the extent that such representations and
     warranties relate solely to an earlier date (in which case
     such representations and warranties are correct on and as
     of such earlier date).
     
          (g)  The Pass Through Trustee and the Owner Trustee
     each shall have received a certificate signed by an
     authorized officer of the Owner Participant, dated the
     Refunding Date, certifying that the representations and
     warranties contained herein of the Owner Participant are
     correct as though made on and as of the Refunding Date,
     except to the extent that such representations and
     warranties relate solely to an earlier date (in which case
     such representations and warranties are correct on and as
     of such earlier date).
     
          (h)  The Pass Through Trustee, the Owner Trustee and
     the Owner Participant each shall have received an
     independent insurance broker's report, together with
     certificates of insurance from such broker, as to the due
     compliance with the terms of Section 11 of the Lease
     relating to insurance with respect to the Aircraft.
     
          (i)  The Pass Through Trustee, the Initial Loan
     Participant, the Owner Trustee and the Owner Participant
     each shall have received an opinion addressed to it from
     Cleary, Gottlieb, Steen & Hamilton, counsel for the Lessee,
     an opinion addressed to it from Hughes Hubbard & Reed,
     counsel for the Lessee, and an opinion addressed to it from
     the Lessee's legal department, in each case in form and
     substance satisfactory to each of them.
     
          (j)  The Pass Through Trustee, the Initial Loan
     Participant and the Owner Participant each shall have
     received an opinion addressed to it from Ray, Quinney &
     Nebeker, special counsel for the Owner Trustee, in form and
     substance satisfactory to each of them.
     
          (k)  The Pass Through Trustee, the Owner Trustee, the
     Initial Loan Participant and the Owner Participant each
     shall have received an opinion addressed to it from
     Richards, Layton & Finger, special counsel for the Loan
     Trustee, in form and substance satisfactory to each of
     them.
     
          (l)  The Pass Through Trustee and the Owner Trustee
     each shall have received an opinion addressed to it from
     Weil, Gotshal & Manges, counsel for the Owner Participant,
     and an opinion addressed to it from corporate counsel to
     the Owner Participant, in each case in form and substance
     satisfactory to each of them.
     
          (m)  The Pass Through Trustee shall have received an
     opinion of Mayer, Brown & Platt, United States counsel to
     the Liquidity Provider, and internal counsel to the
     Liquidity Provider, in each case in form and substance
     satisfactory to the Pass Through Trustee.
     
          (n)  The Pass Through Trustee, the Owner Trustee and
     the Owner Participant each shall have received an opinion
     addressed to it from Lytle, Soule & Curlee, special counsel
     in Oklahoma City, Oklahoma, in form and substance
     satisfactory to each of them.
     
          (o)  The Lessee shall have entered into the Purchase
     Agreement and each of the Pass Through Trust Agreements,
     the Certificates (other than the Class D Certificates)
     shall have been issued and sold pursuant to the Purchase
     Agreement and the Pass Through Trust Agreements, and the
     Initial Purchasers shall have transferred to the Pass
     Through Trustees (other than the Class D Trustee) in
     immediately available funds an amount equal to the
     aggregate purchase price of the Refunding Notes to be
     purchased from the Owner Trustee.
     
          (p)  No change shall have occurred after the date of
     this Agreement in applicable law or regulations thereunder
     or interpretations thereof by appropriate regulatory
     authorities or any court that would make it illegal for the
     Pass Through Trustees to make the payments described in
     Section 1(a)(ii) or for the Owner Trustee or the Owner
     Participant to participate in the transactions contemplated
     by this Agreement on the Refunding Date.
     
          (q)  All approvals and consents of any trustee or
     holder of any  indebtedness or obligations of the Lessee
     which are required in connection with the Pass Through
     Trustee's making of the payments described in
     Section 1(a)(ii) or the Owner Trustee's or the Owner
     Participant's participation in the transactions
     contemplated by this Agreement on the Refunding Date shall
     have been duly obtained.
     
          Promptly following the recording of the Lease
Amendment No. 2 and the Indenture pursuant to the Federal
Aviation Act and the filing of the Trust Amendment No. 1
pursuant to such Act, the Lessee will cause Lytle, Soule &
Curlee, special counsel in Oklahoma City, Oklahoma, to deliver
to the Pass Through Trustee, the Lessee, the Loan Trustee, the
Owner Participant and the Owner Trustee an opinion as to the due
recording of the Lease Amendment No. 2 and the Indenture
Amendment No. 1.

          SECTION 4.  Certain Conditions Precedent to the
Obligations of the Lessee; Conditions Precedent with Respect to
the Pass Through Trustee.  (a)  The Lessee's obligation to
participate in the transactions contemplated by this Agreement
and to execute and deliver the Lease Amendment No. 2 and the PA
Amendment No. 2 are subject to the receipt by the Lessee of (i)
each opinion referred to in subsections (j) through (n) of
Section 3, addressed to the Lessee or accompanied by a letter
from counsel rendering such opinion authorizing the Lessee to
rely on such opinion as if it were addressed to the Lessee, and
(ii) such other documents and evidence with respect to each
other party hereto as it may reasonably request in order to
establish the due consummation of the transactions contemplated
by this Agreement, the taking of all necessary corporate action
in connection therewith and compliance with the conditions
herein set forth.

          (b)  The respective obligations of each of the Lessee,
the Owner Participant, the Owner Trustee, GE, in its capacity as
a Loan Participant, and the Loan Trustee to participate in the
transactions contemplated hereby is subject to the receipt by
each of them of (i) a certificate signed by an authorized
officer of the Pass Through Trustee, dated the Refunding Date,
certifying that the representations and warranties contained
herein of the Pass Through Trustee are correct as though made on
and as of the Refunding Date, except to the extent that such
representations and warranties relate solely to an earlier date
(in which case such representations and warranties are correct
on and as of such earlier date), (ii) an opinion addressed to
each of them of Richards, Layton & Finger, special counsel for
the Pass Through Trustee, in form and substance satisfactory to
each of them, and (iii) such other documents and evidence with
respect to the Pass Through Trustee as it may reasonably request
in order to establish the due consummation of the transactions
contemplated by this Agreement, the taking of all necessary
corporate action in connection therewith and compliance with the
conditions herein set forth.

          SECTION 5.  Amendment of the First Amended
Indenture.  GE, in its capacities as Loan Participant and Owner
Participant, respectively, by execution and delivery hereof,
requests, authorizes and directs the Owner Trustee and the Loan
Trustee to execute and deliver the Indenture Amendment No. 1,
and the Owner Trustee and the Loan Trustee, by execution and
delivery hereof, agree to execute and deliver the Indenture
Amendment No. 1.  The Lessee, by execution and delivery hereof,
consents to such execution and delivery of the Indenture
Amendment No. 1.  The Indenture Amendment No. 1 shall be
effective as of the Refunding Date.

          SECTION 6.  Amendment of the First Amended Lease.  The
Loan Trustee and the Owner Participant, by execution and
delivery hereof, request and instruct the Owner Trustee to
execute and deliver the Lease Amendment No. 2, and the Owner
Trustee and the Lessee agree, by execution and delivery hereof,
to execute and deliver the Lease Amendment No. 2.  The Lease
Amendment No. 2 shall be effective as of the Refunding Date.

          SECTION 7.  Amendment of the Participation
Agreement.  GE, in its capacities as Loan Participant and Owner
Participant, respectively, by execution and delivery hereof,
request, authorize and direct the Owner Trustee and the Loan
Trustee to execute and deliver the PA Amendment No. 2, and the
Owner Trustee and the Loan Trustee, by execution and delivery
hereof, agree to execute and deliver the PA Amendment No. 2. 
Upon the execution and delivery of the PA Amendment No. 2 by
each of the parties thereto, the First Amended PA shall be
amended as set forth in the PA Amendment No. 2, and the
Subordination Agent shall be a party thereto from and after the
Refunding Date to the extent set forth in such PA Amendment No.
2.  The PA Amendment No. 2 shall be effective as of the
Refunding Date.

          SECTION 8.  [Intentionally omitted]     

          SECTION 9.  Lessee's Representations and
Warranties.  The Lessee represents and warrants to the Pass
Through Trustee, the Owner Participant, the Owner Trustee, the
Loan Participants, the Liquidity Provider and the Loan Trustee
that:

          (a)  the Lessee is duly incorporated, validly existing
     and in good standing under the laws of the State of
     Delaware, is an "air carrier" within the meaning of 49
     U.S.C. Section 40102(a), holds a certificate of public
     convenience and necessity in accordance with 49 U.S.C.
     Section 41102, and an air carrier operating certificate
     issued by the Secretary of Transportation pursuant to
     Chapter 447 of Title 49 of United States Code for aircraft
     capable of carrying 10 or more individuals or 6,000 pounds
     or more of cargo, is a "citizen of the United States" as
     defined in 49 U.S.C. Section 40102, has the corporate power
     and authority to own or hold under lease its properties,
     has, or had on the respective dates of execution thereof,
     the corporate power and authority to enter into and perform
     its obligations under this Agreement, the TIA Amendment,
     the Lease Amendment No. 2, the PA Amendment No. 2, the Pass
     Through Trust Agreements, the Registration Rights
     Agreement, the Participation Purchase Agreement, the
     Purchase Agreement and the other Operative Agreements to
     which it is a party, and is duly qualified to do business
     as a foreign corporation in good standing in each state in
     which it has a principal office or a major overhaul
     facility and in which such qualification is required,
     except where the failure to so qualify would not be
     reasonably likely to have a material adverse effect on the
     condition (financial or otherwise), business, properties or
     results of operations of the Lessee, and its chief
     executive office (as such term is used in Article 9 of the
     Uniform Commercial Code in effect in the State of Texas) is
     located at 2929 Allen Parkway, Houston, Texas 77019;
     
          (b)  the execution and delivery by the Lessee of this
     Agreement, the TIA Amendment, the Lease Amendment No. 2,
     the PA Amendment No. 2, the Pass Through Trust Agreements,
     the Registration Rights Agreement, the Participation
     Purchase Agreement, the Purchase Agreement and each other
     Operative Agreement to which it is a party, and the
     performance of its obligations under this Agreement, the
     Participation Agreement, the Tax Indemnity Agreement, the
     Lease, the Pass Through Trust Agreements, the Registration
     Rights Agreement, the Participation Purchase Agreement, the
     Purchase Agreement and each other Operative Agreement to
     which it is a party, have been duly authorized by all
     necessary corporate action on the part of the Lessee, do
     not require any stockholder approval, or approval or
     consent of any trustee or holder of any material
     indebtedness or material obligations of the Lessee, except
     such as have been duly obtained and are in full force and
     effect, and do not contravene any law, governmental rule,
     regulation or order binding on the Lessee or the
     certificate of incorporation or by-laws of the Lessee, or
     contravene the provisions of, or constitute a default
     under, or result in the creation of any Lien (other than
     Permitted Liens) upon the property of the Lessee under, any
     indenture, mortgage, contract or other agreement to which
     the Lessee is a party or by which it may be bound or
     affected which contravention, default or Lien, individually
     or in the aggregate, would be reasonably likely to have a
     material adverse effect on the condition (financial or
     otherwise), business, properties or results of operations
     of the Lessee;
     
          (c)  neither the execution and delivery by the Lessee
     of this Agreement, the TIA Amendment, the Lease Amendment
     No. 2, the PA Amendment No. 2, the Pass Through Trust
     Agreements, the Registration Rights Agreement, the
     Participation Purchase Agreement, the Purchase Agreement or
     any other Operative Agreement to which it is a party, nor
     the performance of its obligations hereunder or under the
     Participation Agreement, the Tax Indemnity Agreement, the
     Lease, the Pass Through Trust Agreements, the Registration
     Rights Agreement, the Participation Purchase Agreement, the
     Purchase Agreement or the other Operative Agreements to
     which it is a party, nor the consummation by the Lessee of
     any of the transactions contemplated hereby or thereby,
     requires the consent or approval of, the giving of notice
     to, the registration with, or the taking of any other
     action in respect of, the Department of Transportation, the
     FAA, or any other federal, state or foreign governmental
     authority having jurisdiction, other than (i) the
     registration of the Exchange Certificates (as defined in
     each Pass Through Trust Agreement), if any, pursuant to the
     provisions of the Pass Through Trust Agreements, under the
     Securities Act of 1933, as amended, and under the
     securities laws of any state in which the Certificates may
     be offered for sale if the laws of such state require such
     action, (ii) the qualification of the Pass Through Trust
     Agreements under the Trust Indenture Act of 1939, as
     amended, which qualification will be duly obtained upon the
     effectiveness of any Registration Statement (as defined in
     the Registration Rights Agreement) pursuant to an order of
     the Securities and Exchange Commission, (iii) the
     registrations and filings referred to in Section 9(e) and
     (iv) authorizations, consents, approvals, actions, notices
     and filings required to be obtained, taken, given or made
     the failure of which to obtain, take, give or make would
     not be reasonably likely to have a material adverse effect
     on the condition (financial or otherwise), business,
     properties or results of operations of the Lessee;
     
          (d)  each of this Agreement, the First Amended PA, the
     GE Tax Indemnity Agreement, the First Amended Lease, the
     Pass Through Trust Agreements, the Registration Rights
     Agreement, the Participation Purchase Agreement and each
     other Operative Agreement to which the Lessee is a party
     constitutes, and each of the Participation Agreement, the
     Tax Indemnity Agreement and the Lease, when the PA
     Amendment No. 2, the TIA Amendment and the Lease Amendment
     No. 2 shall have been executed and delivered by each of the
     parties thereto, will constitute, the legal, valid and
     binding obligations of the Lessee enforceable against the
     Lessee in accordance with their respective terms, except as
     the same may be limited by applicable bankruptcy,
     insolvency, reorganization, moratorium or similar laws
     affecting the rights of creditors generally and by general
     principles of equity, whether considered in a proceeding at
     law or in equity, and except, in the case of the Lease, as
     limited by applicable laws which may affect the remedies
     provided in the Lease, which laws, however, do not make the
     remedies provided in the Lease inadequate for practical
     realization of the rights and benefits intended to be
     afforded thereby;
     
          (e)  except for the filing for recording pursuant to
     the Federal Aviation Act of the Indenture Amendment No. 1
     and the Lease Amendment No. 2, no further filing or
     recording of any document (including any financing
     statement in respect thereof under Article 9 of the Uniform
     Commercial Code of any applicable jurisdiction) is
     necessary under the laws of the United States of America or
     any State thereof in order to perfect the Owner Trustee's
     interest in the Aircraft as against the Lessee and any
     third parties, or to perfect the security interest in favor
     of the Loan Trustee in the Owner Trustee's interest in the
     Aircraft or the Lease (with respect to such portion of the
     Aircraft as is covered by the recording system established
     by the FAA pursuant to 49 U.S.C. Section 44107) in any
     applicable jurisdiction in the United States and in the
     Lease in any applicable jurisdiction in the United States
     other than the Loan Trustee taking possession of the
     original counterparts of the Lease, the Lease Amendment No.
     1 and the Lease Amendment No. 2 (to the extent the Lease,
     the Lease Amendment No. 1 and the Lease Amendment No. 2
     constitute chattel paper) and the filing of continuation
     statements with respect to the Uniform Commercial Code
     financing statements in effect on the date hereof covering
     the security interests created by the Original Indenture or
     describing the Original Lease as a lease;
     
          (f)  neither the Lessee nor any of its affiliates has
     directly or indirectly offered the Pass Through
     Certificates for sale to any Person other than in a manner
     permitted by the Securities Act of 1933, as amended, and by
     the rules and regulations thereunder;
     
          (g)  the Lessee is not an "investment company" within
     the meaning of the Investment Company Act of 1940, as
     amended;
     
          (h)  no event has occurred and is continuing which
     constitutes an Indenture Event of Default or would
     constitute an Indenture Event of Default but for the
     requirement that notice be given or time lapse or both; and
     
          (i)  no event has occurred and is continuing which
     constitutes an Event of Loss or would constitute an Event
     of Loss with the lapse of time.
     
          SECTION 10.  Representations, Warranties and
Covenants.  Each of the parties below represents, warrants and
covenants to each of the other parties to this Agreement and to
the Liquidity Provider as follows:

          (a)  The Loan Trustee represents, warrants and
     covenants that:
     
          (1)  the Loan Trustee is duly incorporated, validly
     existing and in good standing under the laws of the State
     of Delaware, is a "citizen of the United States" as defined
     in 49 U.S.C. Section 40102 and will resign as Loan Trustee
     promptly after it obtains actual knowledge that it has
     ceased to be such a citizen, and has the full corporate
     power, authority and legal right under the laws of the
     State of Delaware and the United States pertaining to its
     banking, trust and fiduciary powers to execute and deliver
     each of this Agreement, the PA Amendment No. 2, the
     Indenture Amendment No. 1 and each other Operative
     Agreement to which it is a party and to carry out its
     obligations under this Agreement, the Participation
     Agreement, the Indenture and each other Operative Agreement
     to which it is a party;
     
          (2)  the execution and delivery by the Loan Trustee of
     this Agreement, the Indenture Amendment No. 1, the PA
     Amendment No. 2 and each other Operative Agreement to which
     it is a party and the performance by the Loan Trustee of
     its obligations under this Agreement, the Participation
     Agreement, the Indenture and each other Operative Agreement
     to which it is a party have been duly authorized by the
     Loan Trustee and will not violate its articles of
     association or by-laws or the provisions of any indenture,
     mortgage, contract or other agreement to which it is a
     party or by which it is bound; and
     
          (3)  this Agreement constitutes, and the Participation
     Agreement, when the PA Amendment No. 2 has been executed
     and delivered by the Loan Trustee, and the Indenture, when
     the Indenture Amendment No. 1 has been executed and
     delivered by the Loan Trustee, will constitute, the legal,
     valid and binding obligations of the Loan Trustee
     enforceable against it in accordance with their respective
     terms, except as the same may be limited by applicable
     bankruptcy, insolvency, reorganization, moratorium or
     similar laws affecting the rights of creditors generally
     and by general principles of equity, whether considered in
     a proceeding at law or in equity.
     
          (b)  The Owner Trustee, in its individual capacity
(except as provided in clauses (3), (4), (8) and (9) below) and
(but only as provided in clauses (3), (4) and, to the extent
that it relates to the Owner Trustee, clauses (8), (10) and (12)
below) as Owner Trustee, represents and warrants that:

          (1)  the Owner Trustee, in its individual capacity, is
     a national banking association duly organized and validly
     existing in good standing under the laws of the United
     States holding a valid certificate to do business as a
     national banking association, has full corporate power and
     authority to carry on its business as now conducted, has,
     or had on the respective dates of execution thereof, the
     corporate power and authority to execute and deliver the
     Trust Agreement, has the corporate power and authority to
     carry out the terms of the Trust Agreement, and has, or had
     on the respective dates of execution thereof (assuming the
     authorization, execution and delivery of the Trust
     Agreement by the Original Owner Participant), as Owner
     Trustee, and to the extent expressly provided herein or
     therein, in its individual capacity, the corporate power
     and authority to execute and deliver and to carry out the
     terms of this Agreement, the First Amended Indenture, the
     Indenture Amendment No. 1, the Refunding Notes, the Lease
     Amendment No. 2, the PA Amendment No. 2 and each other
     Operative Agreement (other than the Trust Agreement) to
     which it is a party;
     
          (2)  the Owner Trustee in its trust capacity and, to
     the extent expressly provided therein, in its individual
     capacity, has duly authorized, executed and delivered the
     Trust Agreement and (assuming the due authorization,
     execution and delivery of the Trust Agreement by the
     Original Owner Participant) each of this Agreement, the
     First Amended PA, the Trust Agreement, the First Amended
     Indenture, the First Amended Lease, the Trust Agreement and
     each other Operative Agreement to which it is a party,
     constitutes a legal, valid and binding obligation of the
     Owner Trustee, in its individual capacity, enforceable
     against it in its individual capacity or as Owner Trustee,
     as the case may be, in accordance with its terms, except as
     the same may be limited by applicable bankruptcy,
     insolvency, reorganization, moratorium or similar laws
     affecting the rights of creditors generally and by general
     principles of equity, whether considered in a proceeding at
     law or in equity;
     
          (3)  assuming the due authorization, execution and
     delivery of the Trust Agreement by the Original Owner
     Participant, each of this Agreement, the First Amended PA,
     the First Amended Indenture, the First Amended Lease and
     each other Operative Agreement to which it is party
     constitutes, and each of the Participation Agreement, when
     the PA Amendment No. 2 shall have been entered into, the
     Indenture, when the Indenture Amendment No. 1 shall have
     been entered into, and the Lease, when the Lease Amendment
     No. 2 shall have been entered into, will constitute, the
     legal, valid and binding obligation of the Owner Trustee,
     in its individual capacity or as Owner Trustee, as the case
     may be, enforceable against it in its individual capacity
     or as Owner Trustee, as the case may be, in accordance with
     its terms, except as the same may be limited by applicable
     bankruptcy, insolvency, reorganization, moratorium or
     similar laws affecting the rights of creditors generally
     and by general principles of equity, whether considered in
     a proceeding at law or in equity;
     
          (4)  assuming the due authorization, execution and
     delivery of the Trust Agreement by the Original Owner
     Participant, the Owner Trustee has duly authorized, and on
     the Refunding Date shall have duly issued, executed and
     delivered to the Loan Trustee for authentication, the
     Refunding Notes pursuant to the terms and provisions hereof
     and of the Indenture, and each Refunding Note on the
     Refunding Date will constitute the valid and binding
     obligation of the Owner Trustee and will be entitled to the
     benefits and security afforded by the Indenture in
     accordance with the terms of such Refunding Note and the
     Indenture;
     
          (5)  neither the execution and delivery by the Owner
     Trustee, in its individual capacity or as Owner Trustee, as
     the case may be, of this Agreement, the First Amended PA,
     the PA Amendment No. 2, the Trust Agreement, the First
     Amended Indenture, the Indenture Amendment No. 1, the First
     Amended Lease, the Lease Amendment No. 2 or the Refunding
     Notes, nor the consummation by the Owner Trustee, in its
     individual capacity or as Owner Trustee, as the case may
     be, of any of the transactions contemplated hereby or
     thereby, nor the compliance by the Owner Trustee, in its
     individual capacity or as Owner Trustee, as the case may
     be, with any of the terms and provisions hereof and
     thereof, (A) requires or will require any approval of its
     stockholders, or approval or consent of any trustees or
     holders of any indebtedness or obligations of it, or
     (B) violates or will violate its articles of association or
     by-laws, or contravenes or will contravene any provision
     of, or constitutes or will constitute a default under, or
     results or will result in any breach of, or results or will
     result in the creation of any Lien (other than as permitted
     under the Lease) upon its property under, any indenture,
     mortgage, chattel mortgage, deed of trust, conditional sale
     contract, bank loan or credit agreement, license or other
     agreement or instrument to which it is a party or by which
     it is bound, or contravenes or will contravene any law,
     governmental rule or regulation of the United States of
     America or the State of Utah governing the trust powers of
     the Owner Trustee, or any judgment or order applicable to
     or binding on it;
     
          (6)  no consent, approval, order or authorization of,
     giving of notice to, or registration with, or taking of any
     other action in respect of, any Utah state or local
     governmental authority or agency or any United States
     federal governmental authority or agency regulating the
     trust powers of the Owner Trustee in its individual
     capacity is required for the execution and delivery of, or
     the carrying out by, the Owner Trustee, in its individual
     capacity or as Owner Trustee, as the case may be, of any of
     the transactions contemplated hereby or by the Trust
     Agreement, the Participation Agreement, the Indenture, the
     Lease or the Refunding Notes, other than any such consent,
     approval, order, authorization, registration, notice or
     action as has been duly obtained, given or taken or which
     is described in Section 9(h);
     
          (7)  there exists no Lessor Lien attributable to the
     Owner Trustee, in its individual capacity, other than any
     Lessor Liens (A) the existence of which poses no material
     risk of the sale, forfeiture or loss of the Aircraft,
     Airframe or any Engine or any interest therein, (B) the
     existence of which does not interfere in any way with the
     use or operation of the Aircraft by the Lessee (or any
     Permitted Sublessee), (C) the existence of which does not
     affect the priority or perfection of, or otherwise
     jeopardize, the Lien of the Indenture, (D) which the Owner
     Trustee is diligently contesting by appropriate
     proceedings, (E) the existence of which does not result in
     actual interruption in the receipt and distribution by the
     Loan Trustee in accordance with the Indenture of Rent
     assigned to the Loan Trustee for the benefit of the Note
     Holders, and (F) any property subject to which is not then
     required to be conveyed to any other Person pursuant to
     Section 4.6 of the Lease;
     
          (8)  there exists no Lessor Lien attributable to the
     Owner Trustee, as lessor under the Lease, other than any
     Lessor Liens (A) the existence of which poses no material
     risk of the sale, forfeiture or loss of the Aircraft,
     Airframe or any Engine or any interest therein, (B) the
     existence of which does not interfere in any way with the
     use or operation of the Aircraft by the Lessee (or any
     Permitted Sublessee), (C) the existence of which does not
     affect the priority or perfection of, or otherwise
     jeopardize, the Lien of the Indenture, (D) which the Owner
     Trustee is diligently contesting by appropriate
     proceedings, (E) the existence of which does not result in
     actual interruption in the receipt and distribution by the
     Loan Trustee in accordance with the Indenture of Rent
     assigned to the Loan Trustee for the benefit of the Note
     Holders, and (F) any property subject to which is not then
     required to be conveyed to any other Person pursuant to
     Section 4.6 of the Lease;
     
          (9)  there are no Taxes payable by the Owner Trustee,
     either in its individual capacity or as Owner Trustee,
     imposed by the State of Utah or any political subdivision
     thereof in connection with the redemption of the Initial
     Notes or the issuance of the Refunding Notes, and in its
     individual capacity or as Owner Trustee, as the case may
     be, of any of the instruments referred to in clauses (1),
     (2), (4) and (5) above, that, in each case, would not have
     been imposed if the Trust Estate had not been created
     pursuant to the laws of the State of Utah and First
     Security Bank of Utah, National Association, had not
     (a) had its principal place of business in, (b) performed
     (in its individual capacity or as Owner Trustee) any or all
     of its duties under the Operative Agreements in, and
     (c) engaged in any activities unrelated to the transactions
     contemplated by the Operative Agreements in, the State of
     Utah;
     
          (10) there are no pending or, to its knowledge,
     threatened actions or proceedings against the Owner
     Trustee, either in its individual capacity or as Owner
     Trustee, before any court or administrative agency which,
     if determined adversely to it, would materially adversely
     affect the ability of the Owner Trustee, in its individual
     capacity or as Owner Trustee, as the case may be, to
     perform its obligations under any of the instruments
     referred to in clauses (1), (2), (4) and (5) above;
     
          (11) both its chief executive office, and the place
     where its records concerning the Aircraft and all its
     interests in, to and under all documents relating to the
     Trust Estate, are located in Salt Lake City, Utah, and the
     Owner Trustee, in its individual capacity, agrees to give
     the Lessee, the Owner Participant, the Loan Trustee and the
     Pass Through Trustee at least 30 days' prior written notice
     of any relocation of said chief executive office or said
     place from its present location;
     
          (12) the Owner Trustee has not, in its individual
     capacity or as Owner Trustee, directly or indirectly
     offered any Refunding Note or Certificate or any interest
     in or to the Trust Estate, the Trust Agreement or any
     similar interest for sale to, or solicited any offer to
     acquire any of the same from, anyone other than the Pass
     Through Trustee, the Loan Participants and the Owner
     Participant; and the Owner Trustee has not authorized
     anyone to act on its behalf (it being understood that in
     arranging and proposing the refinancing contemplated hereby
     and agreed to herein by the Owner Trustee, the Lessee has
     not acted as agent of the Owner Trustee) to offer directly
     or indirectly any Refunding Note, any Certificate or any
     interest in and to the Trust Estate, the Trust Agreement or
     any similar interest for sale to, or to solicit any offer
     to acquire any of the same from, any person; and
     
          (13) it is a "citizen of the United States" as defined
     in 49 U.S.C. Section 40102 (without making use of a voting
     trust agreement or voting powers agreement).
     
          (c)  The Owner Participant represents and warrants
that:

          (1)  it is duly incorporated, validly existing and in
     good standing under the laws of the State of New York and
     has the corporate power and authority to carry on its
     present business and operations and to own or lease its
     properties, has, or had on the respective dates of
     execution thereof or assumption of rights and obligations
     thereunder, as the case may be, the corporate power and
     authority to enter into and to perform its obligations
     under this Agreement, the Equity Purchase Agreement, the
     First Amended PA, the GE Tax Indemnity Agreement, the TIA
     Amendment, the Trust Agreement and the PA Amendment No. 2;
     and this Agreement, the Equity Purchase Agreement and the
     GE Tax Indemnity Agreement have been duly authorized,
     executed and delivered by it and the execution and delivery
     of the TIA Amendment and the PA Amendment No. 2 has been
     duly authorized by it; and each of this Agreement, the
     Equity Purchase Agreement, the First Amended PA, the GE Tax
     Indemnity Agreement and the Trust Agreement constitutes,
     and each of the Participation Agreement and the Tax
     Indemnity Agreement when the PA Amendment No. 2 and the TIA
     Amendment shall have been entered into, will constitute,
     the legal, valid and binding obligations of the Owner
     Participant enforceable against it in accordance with their
     respective terms, except as such enforceability may be
     limited by bankruptcy, insolvency, reorganization,
     moratorium or other similar laws affecting the rights of
     creditors generally and by general principles of equity,
     whether considered in a proceeding at law or in equity;
     
          (2)  neither (A) the execution and delivery by the
     Owner Participant of this Agreement, the TIA Amendment, the
     PA Amendment No. 2 or any other Operative Agreement to
     which it is a party nor (B) compliance by it with all of
     the provisions thereof, (x) will contravene any law or
     order of any court or governmental authority or agency
     applicable to or binding on the Owner Participant (it being
     understood that no representation or warranty is made with
     respect to laws, rules or regulations relating to aviation
     or to the nature of the equipment owned by the Owner
     Trustee other than such laws, rules or regulations relating
     to the citizenship requirements of the Owner Participant
     under applicable law), or (y) will contravene the
     provisions of, or constitutes or has constituted or will
     constitute a default under, its certificate of
     incorporation or by-laws or any indenture, mortgage,
     contract or other agreement or instrument to which the
     Owner Participant is a party or by which it or any of its
     property may be bound or affected;
     
          (3)  no authorization or approval or other action by,
     and no notice to or filing with, any governmental authority
     or regulatory body (other than as required by the Federal
     Aviation Act or the regulations promulgated thereunder and
     except for routine insurance regulatory filings which have
     been or will be made) is or was required, as the case may
     be, for the due execution, delivery or performance by it of
     this Agreement, the Equity Purchase Agreement, the PA
     Amendment No. 2 and the TIA Amendment;
     
          (4)  there are no pending or, to its knowledge,
     threatened actions or proceedings before any court or
     administrative agency or arbitrator which would materially
     adversely affect the Owner Participant's ability to perform
     its obligations under this Agreement, the Participation
     Agreement, the Tax Indemnity Agreement and the Trust
     Agreement;
     
          (5)  neither the Owner Participant nor anyone
     authorized by it to act on its behalf (it being understood
     that in proposing, facilitating and otherwise taking any
     action in connection with the refinancing contemplated
     hereby and agreed to herein by the Owner Participant, the
     Lessee has not acted as agent of the Owner Participant) has
     directly or indirectly offered any Refunding Note or
     Certificate or any interest in and to the Trust Estate, the
     Trust Agreement or any similar interest for sale to, or
     solicited any offer to acquire any of the same from, any
     Person; the Owner Participant's interest in the Trust
     Estate and the Trust Agreement was acquired for its own
     account and was purchased for investment and not with a
     view to any resale or distribution thereof;
     
          (6)  on the Refunding Date, the Trust Estate shall be
     free of Lessor Liens attributable to the Owner Participant
     other than any Lessor Liens (A) the existence of which
     poses no material risk of the sale, forfeiture or loss of
     the Aircraft, Airframe or any Engine or any interest
     therein, (B) the existence of which does not interfere in
     any way with the use or operation of the Aircraft by the
     Lessee (or any Permitted Sublessee), (C) the existence of
     which does not affect the priority or perfection of, or
     otherwise jeopardize, the Lien of the Indenture, (D) which
     the Owner Participant is diligently contesting by
     appropriate proceedings, (E) the existence of which does
     not result in actual interruption in the receipt and
     distribution by the Loan Trustee in accordance with the
     Indenture of Rent assigned to the Loan Trustee for the
     benefit of the Note Holders, and (F) any property subject
     to which is not then required to be conveyed to any other
     Person pursuant to Section 4.6 of the Lease; and
     
          (7)  it is a "citizen of the United States" as defined
     in 49 U.S.C. Section 40102 (without making use of a voting
     trust agreement or a voting powers agreement).
     
          (d)  The Pass Through Trustee represents, warrants and
covenants that:

          (1)  the Pass Through Trustee is duly incorporated,
     validly existing and in good standing under the laws of the
     State of Delaware, and has the full corporate power,
     authority and legal right under the laws of the State of
     Delaware and the United States pertaining to its banking,
     trust and fiduciary powers to execute and deliver each of
     the Pass Through Trust Agreements, the Registration Rights
     Agreement, the Intercreditor Agreement and this Agreement
     and to perform its obligations under this Agreement, the
     Pass Through Trust Agreements, the Registration Rights
     Agreement, the Intercreditor Agreement and, when the PA
     Amendment No. 1 has been executed and delivered by the
     parties thereto, the Participation Agreement;
     
          (2)  each of the Pass Through Trust Agreements, the
     Registration Rights Agreement, the Intercreditor Agreement
     and this Agreement has been duly authorized, executed and
     delivered by the Pass Through Trustee; this Agreement and
     each of the Pass Through Trust Agreements, the Registration
     Rights Agreement, the Intercreditor Agreement and the
     Participation Agreement constitute the legal, valid and
     binding obligations of the Pass Through Trustee enforceable
     against it in accordance with their respective terms,
     except as the same may be limited by applicable bankruptcy,
     insolvency, reorganization, moratorium or similar laws
     affecting the rights of creditors generally and by general
     principles of equity, whether considered in a proceeding at
     law or in equity;
     
          (3)  none of the execution, delivery and performance
     by the Pass Through Trustee of any of the Pass Through
     Trust Agreements, the Registration Rights Agreement, the
     Intercreditor Agreement, this Agreement or the
     Participation Agreement, the purchase by the Pass Through
     Trustee of the Refunding Notes pursuant to this Agreement,
     or the issuance of the Certificates pursuant to the Pass
     Through Trust Agreements, contravenes any law, rule or
     regulation of the State of Delaware or any United States
     governmental authority or agency regulating the Pass
     Through Trustee's banking, trust or fiduciary powers or any
     judgment or order applicable to or binding on the Pass
     Through Trustee and does not contravene or result in any
     breach of, or constitute a default under, the Pass Through
     Trustee's articles of association or by-laws or any
     agreement or instrument to which the Pass Through Trustee
     is a party or by which it or any of its properties may be
     bound;
     
          (4)  neither the execution and delivery by the Pass
     Through Trustee of any of the Pass Through Trust
     Agreements, the Registration Rights Agreement, the
     Intercreditor Agreement or this Agreement, nor the
     consummation by the Pass Through Trustee of any of the
     transactions contemplated hereby or thereby or by the
     Participation Agreement, requires the consent or approval
     of, the giving of notice to, the registration with, or the
     taking of any other action with respect to, any Delaware
     governmental authority or agency or any federal
     governmental authority or agency regulating the Pass
     Through Trustee's banking, trust or fiduciary powers;
     
          (5)  there are no Taxes payable by the Pass Through
     Trustee imposed by the State of Delaware or any political
     subdivision or taxing authority thereof in connection with
     the execution, delivery and performance by the Pass Through
     Trustee of this Agreement, any of the Pass Through Trust
     Agreements, the Registration Rights Agreement, the
     Intercreditor Agreement or the Participation Agreement
     (other than franchise or other taxes based on or measured
     by any fees or compensation received by the Pass Through
     Trustee for services rendered in connection with the
     transactions contemplated by any of the Pass Through Trust
     Agreements), and there are no Taxes payable by the Pass
     Through Trustee imposed by the State of Delaware or any
     political subdivision thereof in connection with the
     acquisition, possession or ownership by the Pass Through
     Trustee of any of the Refunding Notes (other than franchise
     or other taxes based on or measured by any fees or
     compensation received by the Pass Through Trustee for
     services rendered in connection with the transactions
     contemplated by any of the Pass Through Trust Agreements),
     and, assuming that the trusts created by the Pass Through
     Trust Agreements will not be taxable as corporations, but,
     rather, each will be characterized as a grantor trust under
     subpart E, Part I of Subchapter J of the Code, such trusts
     will not be subject to any Taxes imposed by the State of
     Delaware or any political subdivision thereof;
     
          (6)  there are no pending or threatened actions or
     proceedings against the Pass Through Trustee before any
     court or administrative agency which individually or in the
     aggregate, if determined adversely to it, would materially
     adversely affect the ability of the Pass Through Trustee to
     perform its obligations under this Agreement, the
     Participation Agreement, the Registration Rights Agreement,
     the Intercreditor Agreement or any Pass Through Trust
     Agreement;
     
          (7)  except for the issue and sale of the Certificates
     contemplated hereby, the Pass Through Trustee has not
     directly or indirectly offered any Refunding Note for sale
     to any Person or solicited any offer to acquire any
     Refunding Notes from any Person, nor has the Pass Through
     Trustee authorized anyone to act on its behalf to offer
     directly or indirectly any Refunding Note for sale to any
     Person, or to solicit any offer to acquire any Refunding
     Note from any Person; and the Pass Through Trustee is not
     in default under any Pass Through Trust Agreement; and
     
          (8)  the Pass Through Trustee is not directly or
     indirectly controlling, controlled by or under common
     control with the Owner Participant, the Owner Trustee, any
     Initial Purchaser or the Lessee.
     
          (e)  The Subordination Agent represents, warrants and
covenants that:

          (1)  the Subordination Agent is duly incorporated,
     validly existing and in good standing under the laws of the
     State of Delaware, and has the full corporate power,
     authority and legal right under the laws of the State of
     Delaware and the United States pertaining to its banking,
     trust and fiduciary powers to execute and deliver each of
     the Liquidity Facilities, the Intercreditor Agreement, the
     PA Amendment No. 2 and this Agreement and to perform its
     obligations under this Agreement, the Liquidity Facilities
     and the Intercreditor Agreement and, when the PA Amendment
     No. 2 has been executed and delivered by each of the
     parties thereto, the Participation Agreement;
     
          (2)  each of the Liquidity Facilities, the
     Intercreditor Agreement and this Agreement has been duly
     authorized, executed and delivered by the Subordination
     Agent; this Agreement, each of the Liquidity Facilities,
     the Intercreditor Agreement, the PA Amendment No. 2 and the
     Participation Agreement constitute the legal, valid and
     binding obligations of the Subordination Agent enforceable
     against it in accordance with their respective terms,
     except as the same may be limited by applicable bankruptcy,
     insolvency, reorganization, moratorium or similar laws
     affecting the rights of creditors generally and by general
     principles of equity, whether considered in a proceeding at
     law or in equity;
     
          (3)  none of the execution, delivery and performance
     by the Subordination Agent of each of the Liquidity
     Facilities, the Intercreditor Agreement, this Agreement or
     the PA Amendment No. 2 contravenes any law, rule or
     regulation of the State of Delaware or any United States
     governmental authority or agency regulating the
     Subordination Agent's banking, trust or fiduciary powers or
     any judgment or order applicable to or binding on the
     Subordination Agent and do not contravene or result in any
     breach of, or constitute a default under, the Subordination
     Agent's articles of association or by-laws or any agreement
     or instrument to which the Subordination Agent is a party
     or by which it or any of its properties may be bound;
     
          (4)  neither the execution and delivery by the
     Subordination Agent of any of the Liquidity Facilities, the
     Intercreditor Agreement, the PA Amendment No. 2 or this
     Agreement nor the consummation by the Subordination Agent
     of any of the transactions contemplated hereby or thereby
     requires the consent or approval of, the giving of notice
     to, the registration with, or the taking of any other
     action with respect to, any Delaware governmental authority
     or agency or any federal governmental authority or agency
     regulating the Subordination Agent's banking, trust or
     fiduciary powers;
     
          (5)  there are no Taxes payable by the Subordination
     Agent imposed by the State of Delaware or any political
     subdivision or taxing authority thereof in connection with
     the execution, delivery and performance by the
     Subordination Agent of this Agreement, any of the Liquidity
     Facilities, the Intercreditor Agreement, the PA Amendment
     No. 2 or the Participation Agreement (other than franchise
     or other taxes based on or measured by any fees or
     compensation received by the Subordination Agent for
     services rendered in connection with the transactions
     contemplated by the Intercreditor Agreement or any of the
     Liquidity Facilities), and there are no Taxes payable by
     the Subordination Agent imposed by the State of Delaware or
     any political subdivision thereof in connection with the
     acquisition, possession or ownership by the Subordination
     Agent of any of the Refunding Notes (other than franchise
     or other taxes based on or measured by any fees or
     compensation received by the Subordination Agent for
     services rendered in connection with the transactions
     contemplated by the Intercreditor Agreement or any of the
     Liquidity Facilities);
     
          (6)  there are no pending or threatened actions or
     proceedings against the Subordination Agent before any
     court or administrative agency which individually or in the
     aggregate, if determined adversely to it, would materially
     adversely affect the ability of the Subordination Agent to
     perform its obligations under this Agreement, the PA
     Amendment No. 2, the Participation Agreement, the
     Intercreditor Agreement or any Liquidity Facility;
     
          (7)  the Subordination Agent has not directly or
     indirectly offered any Refunding Note for sale to any
     Person or solicited any offer to acquire any Refunding
     Notes from any Person, nor has the Subordination Agent
     authorized anyone to act on its behalf to offer directly or
     indirectly any Refunding Note for sale to any Person, or to
     solicit any offer to acquire any Refunding Note from any
     Person; and the Subordination Agent is not in default under
     any Liquidity Facility; and
     
          (8)  the Subordination Agent is not directly or
     indirectly controlling, controlled by or under common
     control with the Owner Participant, the Owner Trustee, any
     Initial Purchaser or the Lessee.
     
          (f)  The Initial Loan Participant represents and
warrants that:

          (1)  as of the Refunding Date, it is the owner of the
     Initial LP Notes in the aggregate principal amount of
     $437,967,000, free and clear of Liens attributable to it;
     and
     
          (2)  this Agreement has been duly authorized, executed
     and delivered by the Initial Loan Participant and
     constitutes the legal, valid and binding obligation of the
     Initial Loan Participant, enforceable against the Initial
     Loan Participant in accordance with its terms, except as
     the same may be limited by applicable bankruptcy,
     insolvency, moratorium or similar laws affecting the rights
     of creditors generally and by general principles of equity,
     whether considered in a proceeding at law or in equity.
     
          (g)  GE, as the Loan Participant, represents and
warrants that:

          (1)  as of the Refunding Date, it is the owner of the
     Initial Series D Notes in the aggregate principal amount of
     $51,300,000, free and clear of Liens attributable to it;
     
          (2)  this Agreement and the PA Amendment No. 2 have
     been duly authorized, executed and delivered by GE and
     constitute the legal, valid and binding obligations of GE,
     enforceable against GE in accordance with their respective
     terms, except as the same may be limited by applicable
     bankruptcy, insolvency, moratorium or similar laws
     affecting the rights of creditors generally, and by general
     principles of equity, whether considered in a proceeding at
     law or in equity; and
     
          (3)  the Class D Certificates to be issued to it by
     the Class D Trust pursuant to Section 1(a)(x) are being
     acquired by it for investment and not with a view to resale
     or distribution thereof.
     
          SECTION 11.  Notices.  Unless otherwise specifically
provided herein, all notices required or permitted by the terms
of this Agreement shall be in English and in writing, and any
such notice shall become effective upon being deposited in the
United States mail, with proper postage for first-class
registered or certified mail prepaid, or when delivered
personally or, if promptly confirmed by mail as provided above,
when dispatched by telegram, telex, facsimile or other written
telecommunication, addressed, if to the Lessee, the Owner
Participant, the Owner Trustee, the Pass Through Trustee, the
Subordination Agent, either Loan Participant or the Loan
Trustee, at their respective addresses or facsimile numbers set
forth below the signatures of such parties at the foot of this
Agreement.

          SECTION 12.  Expenses.  (a)  Except as provided in
paragraph (b) below, all of the reasonable out-of-pocket costs,
fees and expenses incurred by the Owner Trustee, the Owner
Participant, the Pass Through Trustee, the Subordination Agent,
the Loan Trustee and the Loan Participants in connection with
the transactions contemplated by this Agreement, the other
Operative Agreements, the Pass Through Trust Agreements, the
Registration Rights Agreement, the Intercreditor Agreement, the
Liquidity Facilities and the Purchase Agreement (except, in each
case, as otherwise provided therein) shall be paid promptly by
the Lessee, including, without limitation: 

          (1)  the reasonable fees, expenses and disbursements
     allocable to the Refunding Notes issued under the Indenture
     of (A) Richards, Layton & Finger, special counsel for the
     Pass Through Trustee and the Loan Trustee, (B) Ray, Quinney
     & Nebeker, special counsel for the Owner Trustee,
     (C) Lytle, Soule & Curlee, special counsel in Oklahoma
     City, Oklahoma, (D) Shearman & Sterling, special counsel
     for the Initial Purchasers, in an amount separately agreed,
     and (E) Perkins Coie, special counsel to the Initial Loan
     Participant; and
     
          (2)  the reasonable fees, expenses and disbursements
     of Weil, Gotshal & Manges, special counsel for the Owner
     Participant and GE, as the Loan Participant.
     
          Notwithstanding the foregoing, the Lessee shall pay,
in amounts separately agreed, the fees, expenses and
disbursements of Cleary, Gottlieb, Steen & Hamilton and Hughes
Hubbard & Reed, special counsel for the Lessee.

          (b)  In the event that the transactions contemplated
by this Section 12 and the agreements referred to herein are not
consummated, the Lessee shall bear and pay all costs, expenses
and fees referred to in this Section 12; provided that if the
transactions fail to be consummated as a result of the failure
of the Owner Participant to act in good faith in consummating
the transactions, or to otherwise comply with the terms hereof,
the Owner Participant shall bear and pay its own fees, costs and
expenses (including, without limitation, the fees and expenses
of its special counsel) and the Lessee shall pay all other
reasonable fees, costs and expenses as aforesaid.

          SECTION 13.  Reliance of Liquidity Provider.  Each of
the parties hereto agrees and acknowledges that the Liquidity
Provider shall be a third party beneficiary of each of the
representations and warranties made herein by such party, and
that the Liquidity Provider may rely on such representations and
warranties to the same extent as if such representations and
warranties were made to the Liquidity Provider directly.  

          SECTION 14.  Miscellaneous.  (a)  Provided that the
transactions contemplated hereby have been consummated, and
except as otherwise provided for herein, the representations,
warranties and agreements herein of the Lessee, the Owner
Trustee, the Loan Trustee, the Owner Participant, the Loan
Participants, the Subordination Agent and the Pass Through
Trustee, and the Lessee's, the Owner Trustee's, the Loan
Trustee's, the Owner Participant's, the Subordination Agent's
and the Pass Through Trustee's obligations under any and all
thereof, shall survive the expiration or other termination of
this Agreement and the other agreements referred to herein.

          (b)  This Agreement may be executed in any number of
counterparts (and each of the parties hereto shall not be
required to execute the same counterpart).  Each counterpart of
this Agreement, including a signature page executed by each of
the parties hereto, shall be an original counterpart of this
Agreement, but all of such counterparts together shall
constitute one instrument.  Neither this Agreement nor any of
the terms hereof may be terminated, amended, supplemented,
waived or modified orally, but only by an instrument in writing
signed by the party against which the enforcement of the
termination, amendment, supplement, waiver or modification is
sought; and no such termination, amendment, supplement, waiver
or modification shall be effective unless a signed copy thereof
shall have been delivered to the Loan Trustee.  The index
preceding this Agreement and the headings of the various
Sections of this Agreement are for convenience of reference only
and shall not modify, define, expand or limit any of the terms
or provisions hereof.  The terms of this Agreement shall be
binding upon, and shall inure to the benefit of, the Lessee and,
subject to the terms of the Participation Agreement, its
successors and permitted assigns, the Loan Participants, the
Pass Through Trustee and its successors as Pass Through Trustee
(and any additional trustee appointed) under any of the Pass
Through Trust Agreements, the Loan Trustee and its successors as
Loan Trustee (and any additional Loan Trustee appointed) under
the Indenture, the Subordination Agent and its successors as
Subordination Agent under the Intercreditor Agreement, the Owner
Trustee and its successors as Owner Trustee under the Trust
Agreement, and the Owner Participant, and, subject to the
provisions of the Participation Agreement, its successors and
permitted assigns.  No purchaser or holder of any Refunding
Notes shall be deemed to be a successor or assign of either Loan
Participant.

          SECTION 15.  Governing Law.  THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.  THIS AGREEMENT IS BEING DELIVERED IN THE STATE OF NEW
YORK.


          IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective officers
thereunto duly authorized as of the day and year first above
written.

                    CONTINENTAL AIRLINES, INC.,
                         as Lessee
                              
                              
                    By     
                      Name:
                      Title:

                    Address:    2929 Allen Parkway
                                Suite 2010
                                Houston, TX  77019
                    Attention:  Senior Vice President and   
                                Chief Financial Officer
                    Facsimile:  (713) 520-6329
                              


                           GENERAL ELECTRIC COMPANY,
                              as Owner Participant and Loan 
                              Participant
                              
                              
                           By       
                              Name:
                              Title:

                           Address:  c/o GE Capital Aviation
                                     Services, Inc.
                                     263 Tresser Boulevard,
                                     7th Floor
                                     Stamford, CT  06927-4900
                           Attention:  Manager, Portfolio   
                                       Operations
                           Facsimile:  (203) 357-4585
                              

                    WILMINGTON TRUST COMPANY,
                    not in its individual capacity, except
                    as otherwise provided herein, but solely
                    as Loan Trustee, Pass Through Trustee
                    and Subordination Agent
                              
                              
                  By       
                    Name:
                    Title:
                    Address:  One Rodney Square 
                              1100 N. Market Street
                              Wilmington, DE  19890-0001
                    Attention:  Corporate Trust Administration
                    Facsimile:  (302) 651-8882


                                                                 
                              FIRST SECURITY BANK OF UTAH,
                              NATIONAL ASSOCIATION,
                              not in its individual capacity,
                              except as otherwise provided
                              herein, but solely as Owner Trustee
          
          
                         By     
                           Name:
                           Title:

                            Address: 79 South Main Street
                                     Salt Lake City, UT  84111
                           Attention: Corporate Trust Department
                           Facsimile: (801) 246-5053


                           THE BOEING COMPANY,
                              as Initial Loan Participant


                           By       
                              Name:
                              Title:

                              Address:  P.O. Box 3707
                                        Seattle, WA  98124-3707
                              Attention: Treasurer 
                              Facsimile: (206) 237-8746

                                      SCHEDULE I to
                                      Refunding Agreement

                    PASS THROUGH TRUST AGREEMENTS


1. Continental Airlines 1996-A Pass Through Trust Agreement.

2. Continental Airlines 1996-B Pass Through Trust Agreement.

3. Continental Airlines 1996-C Pass Through Trust Agreement.

4. Continental Airlines 1996-D Pass Through Trust Agreement.


                                                  Schedule II to
                                             Refunding Agreement
                                                          104


           REFUNDING NOTES, PURCHASERS AND PURCHASE PRICE



Purchaser       Interest Rate and Maturity       Principal Amount

Continental Airlines Pass
Through Trust

 1996-A    6.94% Refunding Notes due 1/15/2013    $19,342,666.67
 1996-B    7.82% Refunding Notes due 1/15/2013     $6,769,933.33
 1996-C    9.50% Refunding Notes due 1/15/2013     $5,319,233.33
 1996-D   12.48% Refunding Notes due 10/15/2013    $3,400,000.00



N17104

     CONFIDENTIAL:  Subject to Restrictions on Dissemination
            Set Forth in Section 18 of this Agreement

 ______________________________________________________________
                                

                   PARTICIPATION AGREEMENT 104

                    Dated as of July 15, 1994


                              Among


                   CONTINENTAL AIRLINES, INC.,

                             Lessee,


                         GAUCHO-2 INC.,

                       Owner Participant,


                       THE BOEING COMPANY,
                                
                        Loan Participant,

                  FIRST SECURITY BANK OF UTAH,
                      NATIONAL ASSOCIATION,

                 Not in its Individual Capacity,
              except as expressly provided herein,
                  but solely as Owner Trustee,
                                
                          Owner Trustee
                               and

                    WILMINGTON TRUST COMPANY,
                 Not in its Individual Capacity,
              except as expressly provided herein,
                    but solely as Mortgagee,
                                
                            Mortgagee

                   __________________________

                One Boeing Model 757-224 Aircraft
             Bearing Manufacturer's Serial No. 27294
                                
______________________________________________________________


                            CONTENTS

SECTION 1.  DEFINITIONS AND CONSTRUCTION . . . . . . . . . 2

SECTION 2.  PARTICIPATION IN LESSOR'S COST; ISSUANCE OF 
            LOAN CERTIFICATES; TERMINATION OF OBLIGATION 
            TO PARTICIPATE; ISSUANCE OF GUARANTY. . . . . .2

     2.1    Participation in Lessor's Cost . . . . . . . . 2
     2.2    Nature of Obligations of Participants. . . . . 3
     2.3    Issuance of Loan Certificates. . . . . . . . . 3
     2.4    Termination of Obligation to Participate . . . 3

SECTION 3.  [INTENTIONALLY OMITTED]. . . . . . . . . . . . 3

SECTION 4.  COMMITMENT TO LEASE AIRCRAFT . . . . . . . . . 3

SECTION 5.  PROCEDURE FOR PARTICIPATION IN PAYMENT OF 
             . . . . . . . . . . . . . . . . . . . . . . .
LESSOR'S COST; POSTPONEMENT OF SCHEDULED 
             . . . . . . . . . . . . . . . . . . . . . . .
DELIVERY DATE. . . . . . . . . . . . . . . . . . . . . . . 4

     5.1    Notices of Scheduled Delivery Date . . . . . . 4
     5.2    Payment of Lessor's Cost . . . . . . . . . . . 4
     5.3    Postponement of Scheduled Delivery Date. . . . 5
     5.4    Closing. . . . . . . . . . . . . . . . . . . . 6
     5.5    Closing Instructions . . . . . . . . . . . . . 7
     5.6    Obligations of WTC . . . . . . . . . . . . . . 7

SECTION 6.  CONDITIONS PRECEDENT . . . . . . . . . . . . . 7

     6.1    Conditions Precedent to Obligations of
            Participants . . . . . . . . . . . . . . . . . 7
     6.2    Conditions Precedent to Obligations of 
            Owner Trustee. . . . . . . . . . . . . . . . .16
     6.3    Conditions Precedent to Obligations of
            Mortgagee. . . . . . . . . . . . . . . . . . .17
     6.4    Conditions Precedent to Obligations of 
            Lessee . . . . . . . . . . . . . . . . . . . .17
     6.5    Post-Registration Opinion. . . . . . . . . . .19

SECTION 7.  REPRESENTATIONS AND WARRANTIES . . . . . . . .19

     7.1    Lessee's Representations and Warranties. . . .19
     7.2    Owner Participant's Representations and
            Warranties . . . . . . . . . . . . . . . . . .24
     7.3    First Security's Representations and
            Warranties . . . . . . . . . . . . . . . . . .27
     7.4    Loan Participant's Representations and
             Warranties. . . . . . . . . . . . . . . . . .30
     7.5    [Intentionally Omitted]. . . . . . . . . . . .32
     7.6    WTC's Representations and Warranties . . . . .32

SECTION 8.  COVENANTS, UNDERTAKINGS AND AGREEMENTS . . . .34

     8.1    Covenants of Lessee. . . . . . . . . . . . . .34
     8.2    Covenants of Owner Participant . . . . . . . .36
     8.3    Covenants of First Security and Owner Trustee   
            39
     8.4    Covenants of WTC and Mortgagee . . . . . . . .40
     8.5    Covenants of Certificate Holders . . . . . . .42
     8.6    [Intentionally Omitted]. . . . . . . . . . . .46
     8.7    Agreements . . . . . . . . . . . . . . . . . .46

SECTION 9.  OPTIMIZATION OF AMORTIZATION SCHEDULE. . . . .56

SECTION 10.  INDEMNIFICATION AND EXPENSES. . . . . . . . .58

     10.1   General Indemnity. . . . . . . . . . . . . . .58
     10.2   Expenses . . . . . . . . . . . . . . . . . . .66
     10.3   General Tax Indemnity. . . . . . . . . . . . .66
     10.4   [Intentionally Omitted]. . . . . . . . . . . .78
     10.5   Payments . . . . . . . . . . . . . . . . . . .78
     10.6   Interest . . . . . . . . . . . . . . . . . . .78
     10.7   Benefit of Indemnities . . . . . . . . . . . .78

SECTION 11. [INTENTIONALLY OMITTED]. . . . . . . . . . . .79

SECTION 12. ASSIGNMENT OR TRANSFER OF INTERESTS. . . . . .79

     12.1   Participants, Owner Trustee and Certificate
            Holders. . . . . . . . . . . . . . . . . . . .79
     12.2   Effect of Transfer . . . . . . . . . . . . . .82
     12.3   Majority in Interest of Certificate Holders. .83

SECTION 13. REFUNDING AND CERTAIN OTHER MATTERS. . . . . .83

     13.1   Refunding Generally. . . . . . . . . . . . . .83
     13.2   Private Offering . . . . . . . . . . . . . . .85
     13.3   Timing; Refunding Limit; Notice. . . . . . . .85
     13.4   Limitations on Obligation to Refund. . . . . .85
     13.5   All Loan Certificates. . . . . . . . . . . . .86
     13.6   Execution of Certain Documents . . . . . . . .86
     13.7   ERISA. . . . . . . . . . . . . . . . . . . . .86
     13.8   Consent to Optional Redemptions. . . . . . . .86
     13.9   Certain Additional Rights Of Lessee. . . . . .87

SECTION 14. LEASE FOR ALL PURPOSES; SECTION 1110 . . . . .91

SECTION 15. OWNER PARTICIPANT'S RIGHT TO RESTRUCTURE . . .91

     15.1   General Right to Restructure . . . . . . . . .91
     15.2   Limitations on Restructuring Provisions;
            Additional Terms . . . . . . . . . . . . . . .92
     15.3   Transaction Expenses . . . . . . . . . . . . .93

SECTION 16. CHANGE OF CITIZENSHIP. . . . . . . . . . . . .93

     16.1   Generally. . . . . . . . . . . . . . . . . . .93
     16.2   Owner Participant. . . . . . . . . . . . . . .94
     16.3   Owner Trustee. . . . . . . . . . . . . . . . .94
     16.4   Mortgagee. . . . . . . . . . . . . . . . . . .95

SECTION 17. CONCERNING OWNER TRUSTEE . . . . . . . . . . .95

SECTION 18. CONFIDENTIALITY. . . . . . . . . . . . . . . .95

SECTION 19. MISCELLANEOUS. . . . . . . . . . . . . . . . .96

     19.1   Amendments . . . . . . . . . . . . . . . . . .96
     19.2   Severability . . . . . . . . . . . . . . . . .96
     19.3   Survival . . . . . . . . . . . . . . . . . . .97
     19.4   Reproduction of Documents. . . . . . . . . . .97
     19.5   Counterparts . . . . . . . . . . . . . . . . .97
     19.6   No Waiver. . . . . . . . . . . . . . . . . . .98
     19.7   Notices. . . . . . . . . . . . . . . . . . . .98
     19.8   GOVERNING LAW; SUBMISSION TO JURISDICTION;
            VENUE. . . . . . . . . . . . . . . . . . . . .98
     19.9   Third-Party Beneficiary. . . . . . . . . . . .101
     19.10  Entire Agreement . . . . . . . . . . . . . . .101
     19.11  Further Assurances . . . . . . . . . . . . . .101

SECTION 20. ERISA. . . . . . . . . . . . . . . . . . . . .102

     20.1   Generally. . . . . . . . . . . . . . . . . . .102
     20.2   Owner Participant. . . . . . . . . . . . . . .102
     20.3   Certificate Holders. . . . . . . . . . . . . .102
     20.4   [Intentionally Omitted]. . . . . . . . . . . .103
     20.5   Owner Trustee. . . . . . . . . . . . . . . . .103
     20.6   Mortgagee. . . . . . . . . . . . . . . . . . .103
     20.7   Representations. . . . . . . . . . . . . . . .103
     20.8   Certain Agreements . . . . . . . . . . . . . .103

ANNEX, SCHEDULES AND EXHIBITS

ANNEX A -           Definitions

SCHEDULE 1 -   Accounts; Addresses
SCHEDULE 2 -   Lessee's Address for Service of Process
SCHEDULE 3 -   Commitments
SCHEDULE 4 -   Certain Terms
SCHEDULE 5 -   Reset of Debt Rate

EXHIBIT A -    Opinion of special counsel to Lessee
EXHIBIT B -    Opinion of corporate counsel to Lessee
EXHIBIT C -    Opinion of corporate counsel to Airframe
               Manufacturer
EXHIBIT D -    [Intentionally Omitted]
EXHIBIT E -    Opinion of special counsel to Owner Trustee
EXHIBIT F -    Opinion of special counsel to Mortgagee
EXHIBIT G -    Opinion of special counsel to Owner Participant
               and Owner Participant Parent
EXHIBIT H -    Opinion of corporate counsel to Owner Participant
               and Owner Participant Parent
EXHIBIT I -    [Intentionally Omitted]
EXHIBIT J -    [Intentionally Omitted]
EXHIBIT K -    [Intentionally Omitted]
EXHIBIT L -    Opinion of special counsel in Oklahoma City,
               Oklahoma



                   PARTICIPATION AGREEMENT 104


     PARTICIPATION AGREEMENT 104, dated as of July 15, 1994 (this
"Agreement"), among (a) CONTINENTAL AIRLINES, INC., a Delaware
corporation ("Lessee"), (b) GAUCHO-2 INC., a Delaware corporation
("Owner Participant"), (c) THE BOEING COMPANY ("Loan
Participant""), (d) FIRST SECURITY BANK OF UTAH, NATIONAL
ASSOCIATION, a national banking association, not in its
individual capacity, except as expressly provided herein, but
solely as Owner Trustee (this and all other capitalized terms
used but not defined herein shall have the respective meanings
ascribed thereto in Section 1) (in its capacity as Owner Trustee,
"Owner Trustee" or "Lessor," and in its individual capacity,
"First Security") and (e) WILMINGTON TRUST COMPANY, a Delaware
banking corporation, not in its individual capacity, except as
expressly provided herein, but solely as Mortgagee (in its
capacity as Mortgagee, "Mortgagee" and in its individual
capacity, "WTC").

                       RECITALS


     A.   Owner Participant and First Security, concurrently
herewith, are entering into the Trust Agreement, pursuant to
which, among other things, Owner Trustee agrees to hold the Trust
Estate for the use and benefit of Owner Participant upon and
subject to the terms and conditions set forth therein.

     B.   Lessee and Airframe Manufacturer have entered into the
Purchase Agreement, pursuant to which, among other things,
Airframe Manufacturer has agreed to manufacture and sell to
Lessee and Lessee has agreed to purchase from Airframe
Manufacturer, certain aircraft, including the Aircraft.

     C.   On the Delivery Date, Lessee and Owner Trustee will
enter into the Purchase Agreement Assignment, pursuant to which,
among other things, Lessee will assign to Owner Trustee certain
of its right, title and interest in, to and under the Purchase
Agreement, including, without limitation, the right to purchase
the Aircraft from Airframe Manufacturer upon and subject to the
terms and conditions set forth in the Purchase Agreement and the
Purchase Agreement Assignment.

     D.   Upon and subject to the terms and conditions set forth
herein, and in order to permit Owner Trustee to purchase the
Aircraft from Airframe Manufacturer, Participants have agreed to
participate in the payment of Lessor's Cost by Owner Trustee.

     E.   Owner Trustee and Mortgagee, concurrently with the
execution and delivery hereof, have entered into the Trust
Indenture for the benefit of the Certificate Holders, pursuant to
which, among other things, Owner Trustee agrees (1) to issue Loan
Certificates, in the amounts and otherwise as provided in the
Trust Indenture, as evidence of the participation by Loan
Participant in the payment of a portion of Lessor's Cost and
(2) to mortgage, pledge and assign to Mortgagee all of Owner
Trustee's right, title and interest in the Trust Indenture Estate
to secure the Secured Obligations, including, without limitation,
Owner Trustee's obligations under the Loan Certificates.

     F.   Concurrently with the execution and delivery hereof,
Owner Participant Parent has, for the benefit of Lessee, Owner
Trustee and Mortgagee, issued the Owner Participant Guaranty,
pursuant to which Owner Participant Parent will guarantee the
obligations of Owner Participant under the Operative Agreements.

     G.   On the Delivery Date, Lessor and Lessee will enter into
the Lease, pursuant to which, among other things, Lessor shall
lease the Aircraft to Lessee and Lessee shall lease the Aircraft
from Lessor upon and subject to the terms and conditions set
forth therein.

     H.   The parties hereto wish to set forth in this Agreement
the terms and conditions upon and subject to which the aforesaid
transactions shall be effected.

     NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

SECTION 1.  DEFINITIONS AND CONSTRUCTION

     Capitalized terms used but not defined herein shall have the
respective meanings set forth or incorporated by reference, and
shall be construed and interpreted in the manner described, in
Annex A.  

SECTION 2.  PARTICIPATION IN LESSOR'S COST; ISSUANCE OF LOAN
            CERTIFICATES; TERMINATION OF OBLIGATION TO
            PARTICIPATE; ISSUANCE OF GUARANTY

     2.1    Participation in Lessor's Cost

     Subject to the terms and conditions of this Agreement,
including, without limitation, the funding and procedures set
forth in Section 5, on the Delivery Date, Owner Participant and
Loan Participant shall participate in the payment of Lessor's
Cost as follows:

     (a)  Owner Participant shall invest in the beneficial
          ownership of the Aircraft in the amount in Dollars
          equal to Owner Participant's Percentage multiplied by
          Lessor's Cost; and

     (b)  Loan Participant shall make a non-recourse secured loan
          to Owner Trustee in the amount in Dollars equal to the
          Loan Participant's Percentage multiplied by Lessor's
          Cost (but not in excess of the amount set forth in
          Schedule 3 opposite Loan Participant's name), such loan
          to be evidenced by one or more Loan Certificates issued
          to Loan Participant by Owner Trustee in the manner
          described in Section 2.3.

     2.2    Nature of Obligations of Participants

     The obligations hereunder of each Participant are several,
and not joint, and a Participant shall have no obligation to make
available to Owner Trustee any portion of any amount not paid
hereunder by the other Participant.  The failure by either
Participant to perform its obligations hereunder shall not affect
the obligations of Lessee toward the other Participant, except to
the extent provided in Section 6.4.

     2.3    Issuance of Loan Certificates

     Subject to the terms and conditions of this Agreement and in
accordance with the Trust Indenture, on the Delivery Date, Owner
Trustee will issue one or more Loan Certificates (as directed by
Loan Participant) dated the Delivery Date to Loan Participant (or
its nominee) in an aggregate principal amount equal to Loan
Participant's Commitment as determined pursuant to
Section 2.1(b).

     2.4    Termination of Obligation to Participate

     Notwithstanding any other provision of this Agreement, if
the Closing does not occur on or before the Commitment
Termination Date, the Commitment of each Participant and its
obligation to participate in the payment of Lessor's Cost shall
expire and be of no further force and effect; provided, that the
liability of any Participant that has defaulted in the payment of
its Commitment shall not be released.

SECTION 3.  [INTENTIONALLY OMITTED]

SECTION 4.  COMMITMENT TO LEASE AIRCRAFT

     Subject to the terms and conditions of this Agreement,
concurrently with the issuance of the Loan Certificates on the
Delivery Date, Owner Trustee shall purchase and accept delivery
of the Aircraft under and pursuant to the Purchase Agreement and
the Purchase Agreement Assignment, and thereupon Owner Trustee
shall lease the Aircraft to Lessee, and Lessee shall lease the
Aircraft from Owner Trustee, under the Lease.  

SECTION 5.  PROCEDURE FOR PARTICIPATION IN PAYMENT OF LESSOR'S
            COST; POSTPONEMENT OF SCHEDULED DELIVERY DATE

     5.1    Notices of Scheduled Delivery Date

     (a)  Lessee agrees to give Participants, Owner Trustee and
Mortgagee at least three Business Days' written notice of the
Scheduled Delivery Date, which notice shall set forth Lessor's
Cost and the amount of each Participant's Commitment.

     (b)  Each Participant agrees that the making available, in
the manner described in Section 5.2, of the Dollar amount of its
respective Commitment, shall constitute a waiver of such notice. 
Owner Trustee and Mortgagee shall be deemed to have waived such
notice if Mortgagee shall have received from each Participant
funds in the full amount of its respective Commitment.  

     5.2    Payment of Lessor's Cost

     (a)  Each Participant agrees, subject to the terms and
conditions of this Agreement, to make the Dollar amount of its
respective Commitment available, by wire transfer of immediately
available funds to WTC's account no. 920-1-014363 at The Chase
Manhattan Bank (National Association), New York, New York,
ABA# 021000021 (contact:  Emma Budget, tel. (718) 242-3795),
reference Continental Lease 104, at or before 12:00 noon, New
York City time, on the Scheduled Delivery Date.  All such funds
made available by each Participant to WTC shall, until payment
thereof to Airframe Manufacturer and Lessee as provided in
Section 5.2(b)(ii) or return thereof to the respective
Participant as provided in Section 5.3.2, be held by WTC in trust
for the benefit of the respective Participant, as the sole and
exclusive property of the respective Participant and not as part
of the Trust Estate or the Trust Indenture Estate.

     (b)  Subject to the satisfaction, or waiver by the
applicable party, of the conditions precedent set forth in
Section 6, and simultaneously with the receipt by the parties
hereto of all amounts to be paid to them on the Delivery Date
pursuant to this Section 5.2(b), Owner Trustee shall:

         (i)   purchase, take title to, and accept delivery of,
     the Aircraft;

        (ii)   in consideration of the transfer of title to the
     Aircraft to Owner Trustee, from the funds made available to
     WTC hereunder by Participants, direct WTC, on behalf of
     Owner Trustee, to, and thereupon WTC shall, pay over to (A)
     Airframe Manufacturer an amount equal to Lessor's Cost minus
     the BFE Amount, by wire transfer of immediately available
     funds to Airframe Manufacturer's account set forth in
     Schedule 1 and (B) Lessee an amount equal to the BFE Amount,
     by wire transfer of immediately available funds to Lessee's
     account set forth in Schedule 1 or as otherwise directed by
     Lessee;

       (iii)   execute an Aircraft Registration Application,
     Lease Supplement No. 1 and the initial Trust Indenture
     Supplement, in each case with respect to the Aircraft;

        (iv)   execute the Trust Indenture and the initial Trust
     Indenture Supplement and issue the Loan Certificates to Loan
     Participant in accordance with Section 2.3; and

         (v)   lease the Aircraft to Lessee, and Lessee shall
     lease the Aircraft from Owner Trustee, pursuant to the
     Lease.

     5.3    Postponement of Scheduled Delivery Date

            5.3.1     Postponement of Scheduled Delivery Date

     If for any reason whatsoever the Closing is not consummated
on the Scheduled Delivery Date, Lessee may by telephonic notice,
given by 5:00 p.m., New York City time (such telephonic notice to
be promptly confirmed in writing by personal delivery or
facsimile), on the Scheduled Delivery Date to each Participant,
Owner Trustee and Mortgagee, designate a Delayed Delivery Date
(which date shall be not more than five Business Days after the
Scheduled Delivery Date), in which case each Participant will
keep its funds available pursuant to Section 5.2.

            5.3.2     Return of Funds

     WTC shall promptly return to each Participant that makes
funds available to it in accordance with Section 5.2(a) such
funds, together with interest or income earned thereon pursuant
to Section 5.3.3, if the Closing fails to occur on:

     (a)  the Scheduled Delivery Date, unless a Delayed Delivery
Date is specified by Lessee, or

     (b)  any Delayed Delivery Date, if a Delayed Delivery Date
is specified by Lessee but the Closing fails to occur on such
Delayed Delivery Date.

            5.3.3     Investment of Funds; Interest

     (a)  If the Closing fails to occur on the Scheduled Delivery
Date or, if applicable, any Delayed Delivery Date, WTC shall, if
so instructed in the notice from Lessee, use reasonable efforts
to invest, at the risk of Lessee, the funds received by it from
Participants in Cash Equivalents.  Any such obligations purchased
by WTC, whether directly or through a repurchase agreement, shall
be held in trust by WTC for the benefit of the respective
Participants that provided such funds, and not as part of the
Trust Estate or the Trust Indenture Estate.

     (b)  If the Closing fails to occur on the Scheduled Delivery
Date, unless WTC returns all funds to the Participants by 1:00
p.m., New York City time, on the Scheduled Delivery Date, Lessee
shall, on the Delivery Date or on the date funds are required to
be returned to Participants pursuant to Section 5.3.2, reimburse
each Participant that has made funds available pursuant to
Section 5.2 for the loss of the use of its funds, by paying to
such Participant in immediately available funds an amount equal
to the excess, if any, of (i) interest at the Debt Rate on the
amount of such funds for the period from and including the
Scheduled Delivery Date to but excluding the Delivery Date or, if
earlier, the day on which such Participant's funds are returned
if such return is made by 1:00 p.m., New York City time (or to
but excluding the next following Business Day if such return is
not made by such time) over (ii) any amount paid to such
Participant in respect of interest or income earned by WTC
pursuant to Section 5.3.3(a).

     (c)  On the Delivery Date or on the date funds are required
to be returned to Participants pursuant to Section 5.3.2, Lessee
shall reimburse WTC, for the benefit of Participants that
provided funds which are invested by WTC hereunder, for any
losses incurred on such investments.  All income and profits on
the investment of such funds shall be for the respective accounts
of such Participants, and WTC shall not be liable for failure to
invest such funds or for any losses incurred on such investments,
except for its own negligence or willful misconduct.

     5.4    Closing

     The Closing shall occur at the offices of Hughes Hubbard &
Reed, One Battery Park Plaza, New York, New York 10004.  A
related meeting shall be held concurrently at the offices of
Perkins Coie, 607 Fourteenth Street, N.W., Washington, D.C.
20005.

     5.5    Closing Instructions

     Subject to the terms and conditions of this Agreement and
the Trust Agreement, Owner Trustee, upon receipt in full by WTC
of each Participant's Commitment, together with instructions from
each such Participant or its special counsel to release such
funds, shall direct WTC, on behalf of Owner Trustee, to transfer
such funds to Airframe Manufacturer and Lessee in accordance with
Section 5.2(b)(ii), and such instructions from Owner Participant
shall constitute, without further act, the authorization and
direction by Owner Participant to Owner Trustee to undertake the
actions described in Section 5.2(b).

     5.6    Obligations of WTC

     WTC hereby agrees for the benefit of each other party hereto
to perform its covenants and obligations under Sections 5.2 and
5.3.

SECTION 6.  CONDITIONS PRECEDENT

     6.1    Conditions Precedent to Obligations of Participants 

     The obligation of each Participant to make the Dollar amount
of its respective Commitment available to Owner Trustee on the
Delivery Date is subject to satisfaction or waiver by each such
Participant, on or prior to the Delivery Date, of the conditions
precedent set forth below in this Section 6.1; provided, that it
shall not be a condition precedent to the obligation of any
Participant that any document be produced or action taken that is
to be produced or taken by such Participant or by a Person within
such Participant's control; provided, further, that
Sections 6.1.2(iii), (xix) (other than with respect to clause (C)
thereof) and (xxvii)(J) and Section 6.1.10 shall not be
conditions precedent to the obligation of Loan Participant and
Section 6.1.21 shall not be a condition precedent to the
obligations of Owner Participant.

            6.1.1     Notice

     Such Participant shall have received the notice described in
Section 5.1(a), when and as required thereby.

            6.1.2     Delivery of Documents

     Such Participant shall, except as noted below, have received
executed counterparts of the following agreements, instruments,
certificates or documents, and such counterparts (a) shall have
been duly authorized, executed and delivered by the respective
party or parties thereto, (b) shall be satisfactory in form and
substance to such Participant and (c) shall be in full force and
effect:

         (i)   the Lease; provided, that only Mortgagee shall
     receive the sole executed chattel paper original thereof;

        (ii)   Lease Supplement No. 1 in respect of the Aircraft;
     provided, that only Mortgagee shall receive the sole
     executed chattel paper original thereof;

       (iii)   the Tax Indemnity Agreement; provided, that only
     Owner Participant and Lessee shall receive copies of the Tax
     Indemnity Agreement;

        (iv)   the Trust Agreement;

         (v)   the initial Trust Indenture Supplement in respect
     of the Aircraft, dated the Delivery Date;

        (vi)   the Purchase Agreement Assignment;

       (vii)   the Consent and Agreement and the Engine Consent
     and Agreement;

      (viii)   [Intentionally Omitted];

        (ix)   the Trust Indenture;

         (x)   the Loan Certificates dated the Delivery Date;
     provided, that only Loan Participant shall receive its
     authenticated Loan Certificate or Loan Certificates;

        (xi)   the Purchase Agreement and the GTA, certified by
     the Secretary or an Assistant Secretary of Lessee as of the
     Delivery Date as being true and accurate copies of the same,
     with all amendments attached respectively thereto in each
     case, to the extent relating to Airframe Manufacturer's or
     Engine Manufacturer's respective warranties or related
     obligations or any right in the Purchase Agreement or the
     GTA assigned to Owner Trustee pursuant to the Purchase
     Agreement Assignment; provided, that only Owner Trustee and
     Mortgagee shall receive copies of such agreements (copies of
     which may be inspected by Participants and their respective
     special counsel on the Delivery Date, but after the Delivery
     Date such copies shall be retained by Owner Trustee and
     Mortgagee and may be inspected and reviewed by Owner
     Participant or Loan Participant or their respective counsel
     if and only if there shall have occurred and be continuing a
     Lease Default or Lease Event of Default);

       (xii)   the Bills of Sale;

      (xiii)   invoices from Airframe Manufacturer and Lessee to
     Owner Trustee in respect of the Aircraft (except for the
     BFE) and the BFE, respectively, countersigned in the case of
     the invoice from Airframe Manufacturer by Lessee,
     specifying, in the aggregate, Lessor's Cost of the Aircraft;

       (xiv)   an appointment of authorized representatives by
     Owner Trustee, and an acceptance thereof by such
     representatives in each case, dated the Delivery Date;

        (xv)   [Intentionally Omitted];

       (xvi)   the Owner Participant Guaranty;

      (xvii)   the broker's report and insurance certificates in
     respect of the Aircraft required by Section 11 of the Lease,
     executed by Willis Corroon Aerospace or an independent firm
     of aircraft insurance brokers reasonably acceptable to
     Participants;

     (xviii)   all appropriate action required to have been taken
     prior to the Delivery Date by the FAA, or any governmental
     or political agency, subdivision or instrumentality of the
     United States, in connection with the transactions
     contemplated by this Agreement shall have been taken, and
     all orders, permits, waivers, authorizations, exemptions and
     approvals of such entities required to be in effect on the
     Delivery Date in connection with the transactions
     contemplated by this Agreement shall have been issued;

       (xix)   an appraisal or appraisals from an Appraiser,
     which appraisal or appraisals shall be satisfactory in form
     and substance to Owner Participant to the effect that, as of
     the Delivery Date (A) the estimated fair market sales value
     of the Aircraft at the end of the Base Lease Term,
     determined without including in such value any increase or
     decrease for inflation or deflation during such Base Lease
     Term, will equal at least 20% of Lessor's Cost, (B) the
     estimated useful life of the Aircraft is at least 125% of
     the Base Lease Term, (C) Lessor's Cost is approximately
     equal to, but in any event is not greater than, the fair
     market sales value of the Aircraft, (D) it will be
     commercially feasible for Lessor (or a purchaser or lessee
     therefrom unrelated to Lessee) to lease or otherwise use the
     Aircraft at the end of the Base Lease Term and (E) such
     other matters as Owner Participant deems reasonably
     necessary in connection with the lease transactions;
     provided, that only Owner Participant and Lessee shall
     receive copies of such appraisal or appraisals;

        (xx)   (A) a certified copy of the Certificate of
     Incorporation of Lessee and a copy of the By-Laws and
     resolutions of the board of directors of Lessee and/or the
     executive committee thereof, and, if applicable, evidence of
     related action taken by the chief executive officer or chief
     financial officer of Lessee, in each case certified as of
     the Delivery Date, by the Secretary or an Assistant
     Secretary of Lessee, duly authorizing the execution,
     delivery and performance by Lessee of the Lessee Operative
     Agreements required to be executed and delivered by Lessee
     on or prior to the Delivery Date in accordance with the
     provisions hereof and thereof; (B) an incumbency certificate
     of Lessee, Owner Participant, Owner Participant Parent,
     Owner Trustee and Mortgagee as to the person or persons
     authorized to execute and deliver the relevant Operative
     Agreements on behalf of such party; and (C) a copy of the
     Certificate of Incorporation or Articles of Incorporation
     and By-Laws and general authorizing resolutions of the
     boards of directors (or executive committees) or other
     satisfactory evidence of authorization of Owner Participant,
     Owner Participant Parent, Owner Trustee and Mortgagee,
     certified as of the Delivery Date by the Secretary or an
     Assistant or Attesting Secretary of Owner Participant, Owner
     Participant Parent, Owner Trustee and Mortgagee,
     respectively, which authorize the execution, delivery and
     performance by Owner Participant, Owner Participant Parent,
     Owner Trustee and Mortgagee, respectively, of each of the
     Operative Agreements to which it is a party, together with
     such other documents and evidence with respect to it as any
     Participant may reasonably request in order to establish the
     consummation of the transactions contemplated by this
     Agreement and the taking of all corporate proceedings in
     connection therewith;  

       (xxi)   an Officer's Certificate of Lessee, dated as of
     the Delivery Date;

      (xxii)   an Officer's Certificate of Owner Trustee, dated
     as of the Delivery Date;

     (xxiii)   an Officer's Certificate of Mortgagee, dated as of
     the Delivery Date;

      (xxiv)   an application for registration of the Aircraft
     with the FAA in the name of Owner Trustee; provided, that
     only special counsel in Oklahoma City, Oklahoma shall
     receive the sole executed copy thereof for filing with the
     FAA;

       (xxv)   a copy of a current, valid Standard Certificate of
     Airworthiness for the Aircraft duly issued by the FAA;

      (xxvi)   the Financing Statements;

     (xxvii)   the following opinions of counsel, in each case
     dated the Delivery Date:

               (A)  an opinion of Hughes Hubbard & Reed, special
          counsel to Lessee, substantially in the form of
          Exhibit A;

               (B)  an opinion of Lessee's Legal Department,
          substantially in the form of Exhibit B;

               (C)  an opinion of Lorrie D. Scott, Esq., Senior
          Attorney, Office of the General Counsel, The Boeing
          Company, corporate counsel to Airframe Manufacturer,
          substantially in the form of Exhibit C;

               (D)  [Intentionally Omitted];

               (E)  an opinion of Ray, Quinney & Nebeker, special
          counsel to Owner Trustee, substantially in the form of
          Exhibit E;

               (F)  an opinion of Richards, Layton & Finger,
          special counsel to Mortgagee, substantially in the form
          of Exhibit F;

               (G)  an opinion of Perkins Coie, special counsel
          to Owner Participant and Owner Participant Parent,
          substantially in the form of Exhibit G;

               (H)  an opinion of Lorrie D. Scott, Esq., Senior
          Attorney, Office of the General Counsel, The Boeing
          Company, corporate counsel to Owner Participant and
          Owner Participant Parent, substantially in the form of
          Exhibit H;

               (I)  [Intentionally Omitted];

               (J)  an opinion of Perkins Coie, special tax
          counsel to Owner Participant, with respect to certain
          tax consequences of the transactions contemplated
          hereby; provided, that only Owner Participant shall
          receive such opinion; and

               (K)  an opinion of Crowe & Dunlevy, P.C., special
          counsel in Oklahoma City, Oklahoma, substantially in
          the form of Exhibit L;

    (xxviii)   [Intentionally Omitted];

      (xxix)   a letter of Lessee, certifying the documents
     Lessee has provided pursuant to Sections 7.1.6 and 7.1.8 and
     attaching any such documents not otherwise furnished to
     Owner Participant; and

       (xxx)   the Participants and their respective counsel
     shall have received copies of such documents and papers as
     such Participants or their respective counsel may reasonably
     request (other than, in the case of Loan Participant or its
     respective counsel, copies of the Tax Indemnity Agreement
     and the Purchase Agreement, provided that special counsel
     for Loan Participant may inspect the Purchase Agreement,
     and, in the case of Owner Participant and its special
     counsel, the Purchase Agreement, provided special counsel
     for Owner Participant may inspect the Purchase Agreement) in
     connection with the transactions contemplated hereby or as a
     basis for such counsel's closing opinion.

            6.1.3     Other Commitments

     Each other Participant, if any, shall have made available
the Dollar amount of its Commitment to Owner Trustee in
accordance with Section 5.

            6.1.4     Violation of Law

     No circumstance or condition shall exist that makes it a
violation of Law for (a) Lessee, any Participant, Owner Trustee
or Mortgagee to execute, deliver and perform the Operative
Agreements to which any of them is a party or (b) any Participant
to make the Dollar amount of its Commitment available or, in the
case of Loan Participant, to acquire a Loan Certificate or to
realize the benefits of the security afforded by the Trust
Indenture.

            6.1.5     Consents and Approvals

     All approvals, consents, waivers, licenses, permits or
authorizations of any trustee or holder of any indebtedness or
obligation of Lessee, any Government Entity or any other person,
that in any case are required in connection with the consummation
of the transactions contemplated by the Operative Agreements to
occur on the Delivery Date shall have been duly obtained, made,
issued or filed and shall remain in full force and effect on and
as of the Delivery Date.  All appropriate action, if any,
required to have been taken in connection with the consummation
of the transactions contemplated by the Operative Agreements to
occur on the Delivery Date shall have been duly taken by the FAA,
the DOT, the SEC and each other Government Entity having
jurisdiction.  

            6.1.6     Tax Law Change

     In respect of Owner Participant, no Adverse Change in Tax
Law shall have been enacted, promulgated or issued on or prior to
the Delivery Date.  Owner Participant agrees to consider
promptly, and to consult with Lessee and Loan Participant
concerning any such Adverse Change in Tax Law and to advise
Lessee and Loan Participant promptly if Owner Participant
determines that an Adverse Change in Tax Law which has been
enacted or promulgated or, if proposed, has a substantial
likelihood of becoming effective, would cause Owner Participant
to elect not to close with respect to the Aircraft.  At any time
on or before the Delivery Date, Owner Participant may notify
Lessee and Loan Participant that Owner Participant elects not to
close as a result of the enactment, promulgation or issuance of
any Adverse Change in Tax Law on or before the Delivery Date,
specifying such Adverse Change in Tax Law; and failure to give
such notice on or before the Delivery Date shall preclude Owner
Participant from not closing with respect to such Aircraft as a
result of any Adverse Change in Tax Law.

            6.1.7     Representations, Warranties and Covenants

     The representations and warranties of each other party to
this Agreement made, in each case, in this Agreement and in any
other Operative Agreement to which it is a party, shall be true
and accurate in all material respects as of the Delivery Date
(unless any such representation and warranty shall have been made
with reference to a specified date, in which case such
representation and warranty shall be true and accurate as of such
specified date) and each other party to this Agreement shall have
performed and observed, in all material respects, all of its
covenants, obligations and agreements in this Agreement and in
any other Operative Agreement to which it is a party to be
observed or performed by it as of the Delivery Date.

            6.1.8     No Default

     On the Delivery Date, no event shall have occurred and be
continuing, or would result from the sale, mortgage or lease of
the Aircraft, which constitutes a Lease Default or Lease Event of
Default, or an Indenture Default or Indenture Event of Default.

            6.1.9     No Event of Loss

     No Event of Loss with respect to the Airframe or any Engine
shall have occurred and no circumstance, condition, act or event
that, with the giving of notice or lapse of time or both, would
give rise to or constitute an Event of Loss with respect to the
Airframe or any Engine shall have occurred.

            6.1.10    No Purchase Agreement Default

     Lessee shall not be in default in any material respect under
the Purchase Agreement.  

            6.1.11    No Lessee Material Adverse Change

     Since April 30, 1993, there shall not have been any event,
condition or circumstance that could materially and adversely
affect Lessee's business or consolidated financial condition or
its ability to observe or perform its obligations, liabilities
and agreements under the Lessee Operative Agreements.

            6.1.12    Payment of Transaction Expenses

     Lessee shall have paid to the parties entitled thereto all
Transaction Expenses described in clause (a) and clauses (i),
(ii) and (iii) (insofar as they relate to clause (a)) of the
definition of "Transaction Expenses" to the extent meeting the
requirements set forth therein and invoiced to Lessee at least
two Business Days (or one Business Day following the delivery of
the notice described in Section 5.1(a), if delivered less than
three Business Days prior to the Scheduled Delivery Date) before
the Delivery Date; provided, that, with respect to counsel fees
and disbursements, a preliminary invoice containing a "best
guess" estimate shall be sufficient so long as a "final" invoice
is delivered at least one Business Day prior to the Delivery
Date.

            6.1.13    Title

     Owner Trustee shall have good title (subject to recordation
of the FAA Bill of Sale with the FAA) to the Aircraft, free and
clear of Liens, except (a) the rights of Lessee under the Lease
and Lease Supplement No. 1, (b) the Lien created by the Trust
Indenture and the initial Trust Indenture Supplement, (c) the
beneficial interest of Owner Participant created by the Trust
Agreement, (d) Liens permitted by clause "(d)" (solely for taxes
not yet due) of Section 6 of the Lease and (e) Liens permitted by
clause "(e)" (solely for amounts not yet due) of Section 6 of the
Lease.

            6.1.14    Certification

     The Aircraft shall have been duly certificated by the FAA as
to type and airworthiness in accordance with the terms of the
Purchase Agreement.

            6.1.15    Operational Authority

     Lessee shall have obtained permanent or temporary authority
to operate the Aircraft on its routes.

            6.1.16    Section 1110

     Owner Trustee, as lessor under the Lease (and Mortgagee, as
assignee of Owner Trustee under the Trust Indenture), shall be
entitled to the benefits of Section 1110 (as currently in effect)
with respect to the right to take possession of the Airframe and
Engines as provided in the Lease in the event of a case under
Chapter 11 of the Bankruptcy Code in which Lessee is a debtor.

            6.1.17    Filing

     On the Delivery Date (a) the FAA Filed Documents shall have
been duly filed for recordation with the FAA in accordance with
the Act and (b) each Financing Statement shall have been duly
filed in the appropriate jurisdiction.

            6.1.18    No Proceedings

     No action or proceeding shall have been instituted, nor
shall any action be threatened, before any Government Entity, nor
shall any order, judgment or decree have been issued or proposed
to be issued by any Government Entity, to set aside, restrain,
enjoin or prevent the completion and consummation of this
Agreement or any other Operative Agreement or the transactions
contemplated hereby or thereby.

            6.1.19    No Change in Law

     No change shall have occurred after the date of execution
and delivery of this Agreement in applicable Law which, in the
opinion of Owner Participant or Loan Participant, as the case may
be, would make it a violation of Law for (a) Lessee, Owner
Participant, Loan Participant, Owner Trustee or Mortgagee to
execute, deliver and perform the Operative Agreements to which
any of them is a party or (b) Owner Participant or Loan
Participant to make its Commitment available or, in the case of
Loan Participant, to acquire a Loan Certificate or realize the
benefits of the security afforded by the Trust Indenture.

            6.1.20    Perfected Security Interest

     On the Delivery Date, after giving effect to the filing of
the FAA Filed Documents and the Financing Statements, Mortgagee
shall have received a duly perfected first priority security
interest in all of Owner Trustee's right, title and interest in
the Aircraft and the Lease, subject only to Permitted Liens.

            6.1.21    Legal Investment

     Loan Participant shall have reasonably determined that its
respective Loan Certificates shall qualify on the Delivery Date
as a legal investment for Loan Participant under any Law
regulating investments to which it may be subject (without
recourse to provisions in any such Law permitting limited
investments without restriction as to the character of the
particular investment), and Loan Participant shall have received
such evidence as it may reasonably request to establish
compliance with this condition.

            6.1.22    [Intentionally Omitted]

            6.1.23    [Intentionally Omitted]

            6.1.24    [Intentionally Omitted]

     6.2    Conditions Precedent to Obligations of Owner Trustee

     The obligation of Owner Trustee to use the Commitments to
pay Lessor's Cost on the Delivery Date is subject to satisfaction
or waiver by Owner Trustee, on or prior to the Delivery Date, of
the conditions precedent set forth below in this Section 6.2.

            6.2.1     Notice

     Owner Trustee shall have received the notice described in
Section 5.1(a), when and as required thereby.

            6.2.2     Documents

     Executed originals of the agreements, instruments,
certificates or documents described in Section 6.1.2 shall have
been received by Owner Trustee, except as specifically provided
therein, unless the failure to receive any such agreement,
instrument, certificate or document is the result of any action
or inaction by Owner Trustee.

            6.2.3     Other Conditions Precedent

     Each of the conditions set forth in Sections 6.1.4, 6.1.5,
6.1.7, 6.1.8 and 6.1.16 shall have been satisfied unless the
failure of any such condition to be satisfied is the result of
any action or inaction by Owner Trustee.

     6.3    Conditions Precedent to Obligations of Mortgagee

     The obligation of Mortgagee to authenticate the Loan
Certificates on the Delivery Date is subject to the satisfaction
or waiver by Mortgagee, on or prior to the Delivery Date, of the
conditions precedent set forth below in this Section 6.3.

            6.3.1     Notice

     Mortgagee shall have received the notice described in
Section 5.1(a), when and as required thereby.

            6.3.2     Documents

     Executed originals of the agreements, instruments,
certificates or documents described in Section 6.1.2 shall have
been received by Mortgagee, except as specifically provided
therein, unless the failure to receive any such agreement,
instrument, certificate or document is the result of any action
or inaction by Mortgagee.

            6.3.3     Other Conditions Precedent

     Each of the conditions set forth in Sections 6.1.4, 6.1.5,
6.1.7, 6.1.8 and 6.1.16 shall have been satisfied unless the
failure of any such condition to be satisfied is the result of
any action or inaction by Mortgagee.

     6.4    Conditions Precedent to Obligations of Lessee

     The obligation of Lessee to lease the Aircraft on the
Delivery Date is subject to the satisfaction or waiver by Lessee,
on or prior to the Delivery Date, of the conditions precedent set
forth below in this Section 6.4.

            6.4.1     Documents

     Executed originals of the agreements, instruments,
certificates or documents described in Section 6.1.2 shall have
been received by Lessee, except as specifically provided therein,
and shall be satisfactory to Lessee, unless the failure to
receive any such agreement, instrument, certificate or document
is the result of any action or inaction by Lessee.

            6.4.2     Tax

     If Loan Participant is required to execute any form or
document in order for payments to it to qualify for exemption
from, or reduction of, withholding tax imposed by the U.S.
Government in respect of such payments, Loan Participant shall
have executed such form or document (including, without
limitation, United States Internal Revenue Forms 1001, W-8,
and/or 4224) and delivered it to Mortgagee in accordance with
applicable regulations to qualify for such exemption or
reduction.

            6.4.3     Sales Tax

     Lessee shall be satisfied that no sales, use, value added,
goods and services or like tax, and no stamp tax duty, is payable
with respect to the delivery of the Aircraft to Lessee upon the
Closing to the extent that Lessee has liability therefor under
Section 10.3.

            6.4.4     Other Conditions Precedent

     Each of the conditions set forth in Sections 6.1.3 (as to
all Participants), 6.1.4, 6.1.5, 6.1.7, 6.1.8 (as to Indenture
Defaults or Indenture Events of Default not constituting Lease
Defaults or Lease Events of Default, respectively), 6.1.9,
6.1.13, 6.1.14, 6.1.15, 6.1.16, 6.1.17 and 6.1.18 shall have been
satisfied or waived by Lessee, unless the failure of any such
condition to be satisfied is the result of any action or inaction
by Lessee.

            6.4.5     Tax Law Change

     No Adverse Change in Tax Law shall have been enacted,
promulgated or proposed on or prior to the Delivery Date.  Lessee
agrees to consider promptly, and to consult with Owner
Participant and Loan Participant concerning, any such Adverse
Change in Tax Law and to advise Owner Participant and Loan
Participant promptly if Lessee determines that an Adverse Change
in Tax Law which has been enacted or promulgated or, if proposed,
has a substantial likelihood of becoming effective, would cause
Lessee to elect not to close the transactions contemplated by the
Lease and this Agreement.  At any time on or before the Delivery
Date, Lessee may notify Owner Participant and Loan Participant
that Lessee elects not to close the transactions contemplated by
the Lease and this Agreement as a result of the enactment,
promulgation or proposal of any Adverse Change in Tax Law on or
before the Delivery Date, specifying such Adverse Change in Tax
Law.

     6.5    Post-Registration Opinion

     Promptly upon the registration of the Aircraft and the
recordation of the FAA Filed Documents pursuant to the Act,
Lessee will cause Crowe & Dunlevy, P.C., special counsel in
Oklahoma City, Oklahoma, to deliver to Lessee, each Participant,
Owner Trustee and Mortgagee a favorable opinion or opinions
addressed to each of them with respect to such registration and
recordation.

SECTION 7.  REPRESENTATIONS AND WARRANTIES

     7.1    Lessee's Representations and Warranties

     Lessee represents and warrants to each Participant, Owner
Trustee and Mortgagee that:

            7.1.1     Organization; Qualification

     Lessee is a corporation duly incorporated, validly existing
and in good standing under the Laws of the State of Delaware and
has the corporate power and authority to conduct the business in
which it is currently engaged and to own or hold under lease its
properties and to enter into and perform its obligations under
the Lessee Operative Agreements.  Lessee is duly qualified to do
business as a foreign corporation in good standing in the State
of Texas and in all other jurisdictions required by Law or in
which the nature and extent of the business conducted by it, or
the ownership of its properties, makes such qualification
necessary or desirable except where the failure to be so
qualified would not give rise to a Material Adverse Change to
Lessee.

            7.1.2     Corporate Authorization

     Lessee has taken, or caused to be taken, all necessary
corporate action (including, without limitation, the obtaining of
any consent or approval of stockholders required by its
Certificate of Incorporation or By-Laws) to authorize the
execution and delivery of each of the Lessee Operative
Agreements, and the performance of its obligations thereunder.

            7.1.3     No Violation

     The execution and delivery by Lessee of the Lessee Operative
Agreements, the performance by Lessee of its obligations
thereunder and the consummation by Lessee on the Delivery Date of
the transactions contemplated thereby, do not and will not
(a) violate or contravene any provision of the Certificate of
Incorporation or By-Laws of Lessee, (b) violate or contravene any
Law applicable to or binding on Lessee (it being understood that
insofar as this representation relates to any Law relating to any
Plan, this representation is made assuming the truth of the
representations contained in Sections 7.2.9 and 7.4.3 and the
continued validity of the position stated by the Department of
Labor in paragraph (b) of Interpretive Bulletin 29 C.F.R.
Section 2509.75-2 (notwithstanding anything to the contrary contained
in John Hancock Mutual Life Ins. Co. v. Harris Trust & Savings
Bank, 114 S. Ct. 517 (1993))) or (c) violate, contravene or
constitute any default under, or result in the creation of any
Lien (other than as permitted under the Lease) upon any property
of Lessee or any of its subsidiaries under, any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales
contract, lease, loan or other material agreement, instrument or
document to which Lessee is a party or by which Lessee or any of
its properties is or may be bound or affected.

            7.1.4     Approvals

     The execution and delivery by Lessee of the Lessee Operative
Agreements, the performance by Lessee of its obligations
thereunder and the consummation by Lessee on the Delivery Date of
the transactions contemplated thereby do not and will not require
the consent, approval or authorization of, or the giving of
notice to, or the registration with, or the recording or filing
of any documents with, or the taking of any other action in
respect of, (a) any trustee or other holder of any Debt of Lessee
and (b) any Government Entity, other than the filing of the FAA
Filed Documents and the Financing Statements (and continuation
statements periodically) and filings, recordings, notices or
other ministerial actions pursuant to any routine recording,
contractual or regulatory requirements applicable to it.

            7.1.5     Valid and Binding Agreements

     The Lessee Operative Agreements have been duly authorized,
executed and delivered by Lessee and, assuming the due
authorization, execution and delivery thereof by the other party
or parties thereto, constitute the legal, valid and binding
obligations of Lessee and are enforceable against Lessee in
accordance with the respective terms thereof, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar Laws
affecting the rights of creditors generally and general
principles of equity, whether considered in a proceeding at law
or in equity.

            7.1.6     Litigation

     Except as set forth in Lessee's Prospectus dated December 7,
1993 with respect to the offer of shares of Lessee's Class B
common stock or any subsequent Annual Report on Form 10-K,
Quarterly Report on Form 10-Q or Current Report on Form 8-K filed
by Lessee with the SEC on or prior to the Delivery Date (copies
of which (excluding exhibits), in each case, have been furnished
to Owner Participant by Lessee), no action, claim or proceeding
is now pending or, to the Actual Knowledge of Lessee, threatened,
against Lessee, at law, in equity or otherwise, before any court,
board, commission, agency or instrumentality of any foreign
government or any federal, state or local government or of any
agency or subdivision thereof, or before any arbitrator or panel
of arbitrators, which is reasonably likely to be determined
adversely to Lessee and if determined adversely to Lessee would
result in a Material Adverse Change.

            7.1.7     Taxes

     Lessee has filed or caused to be filed all material tax
returns, reports and statements that are required to be filed and
has paid or caused to be paid or is paying pursuant to Lessee's
Revised Second Amended Joint Plan of Reorganization, as modified,
under Chapter 11 of the Bankruptcy Code, all taxes shown to be
due and payable by such returns, reports or statements and any
tax assessments received by Lessee to the extent that such taxes
have become due and payable (except to the extent being contested
in good faith and for the payment of which adequate reserves have
been provided).

            7.1.8     Financial Condition

     The audited consolidated balance sheet of Lessee as of
December 31, 1993, and the related consolidated statements of
cash flows and non-redeemable preferred stock and common
stockholders' deficit for the period then ended (copies of which
have been furnished to Owner Participant) have been prepared in
accordance with GAAP and fairly present in all material respects
the financial condition of Lessee and its consolidated
subsidiaries as of such dates and the results of its operations
and cash flows for such period, and since December 31, 1993,
there has been no material adverse change in such financial
condition or operations, except for matters disclosed in the
financial statements referred to above or in any subsequent
Annual Report on Form 10-K, Quarterly Report on Form 10-Q or
Current Report on Form 8-K filed by Lessee with the SEC on or
prior to the date hereof (copies of which (excluding exhibits)
have been delivered to Owner Participant by Lessee).

            7.1.9     Registration and Recordation

     Except for (a) the registration of the Aircraft with the FAA
pursuant to the Act in the name of Owner Trustee, (b) the filing
for recordation (and recordation) of the FAA Filed Documents,
(c) the filing of the Financing Statements (and continuation
statements relating thereto at periodic intervals), (d) the
taking of possession and retention by Mortgagee of the original
counterparts of the Lease and Lease Supplement No. 1 and (e) the
affixation of the nameplates referred to in Section 7.1.3 of the
Lease, no further action, including any filing or recording of
any document (including any financing statement in respect
thereof under Article 9 of the UCC) is necessary or advisable in
order to establish and perfect the right, title or interest of
Owner Trustee, and the Mortgagee's security interest, in the
Aircraft and the Lease, as against Lessee and any other Person,
in each case, in any applicable jurisdictions.

            7.1.10    Chief Executive Office

     The chief executive office (as such term is defined in
Article 9 of the UCC) of Lessee is located at 2929 Allen Parkway,
Houston, Texas 77019.

            7.1.11    No Default

     No event which, if the Aircraft were subject to the Lease,
constitutes a Lease Default or Lease Event of Default has
occurred and is continuing.

            7.1.12    No Event of Loss

     No Event of Loss has occurred with respect to the Airframe
or any Engine, and, to the Actual Knowledge of Lessee, no
circumstance, condition, act or event occurred that, with the
giving of notice or lapse of time or both gives rise to or
constitutes an Event of Loss with respect to the Airframe or any
Engine.

            7.1.13    Compliance With Laws

     (a)  Lessee is not in default under, or in violation of, any
Law applicable to Lessee or to which Lessee is subject, the
violation of which would give rise to a Material Adverse Change
to Lessee.

     (b)  Without limiting the generality of Section 7.1.13(a):

         (i)   Lessee is a U.S. Air Carrier;

        (ii)   Lessee holds all licenses, permits and franchises
     from the appropriate Government Entities necessary to
     authorize Lessee to lawfully engage in air transportation
     and to carry on scheduled commercial passenger service as
     currently conducted, except where the failure to so hold any
     such license, permit or franchise would not give rise to a
     Material Adverse Change to Lessee;

       (iii)   Assuming the truth of the representations
     contained in Sections 7.2.9 and 7.4.3 and the continued
     validity of the position stated by the Department of Labor
     in paragraph (b) of Interpretive Bulletin 29 C.F.R.
     Section 2509.75-2 (notwithstanding anything to the contrary
     contained in John Hancock Mutual Life Ins. Co. v. Harris
     Trust & Savings Bank, 114 S. Ct. 517 (1993)), the execution
     and delivery of this Agreement, the initial issuance, sale
     and/or purchase of the Loan Certificates or any interest in,
     or represented by, such Loan Certificates and Owner
     Participant's initial acquisition of its beneficial interest
     in the Trust Estate will not result in, constitute or
     involve a "prohibited transaction", within the meaning of
     Section 406(a) of ERISA or Section 4975(c)(1)(A), (B), (C)
     or (D) of the Code; and

        (iv)   Lessee is not an "investment company" or a company
     controlled by an "investment company" within the meaning of
     the Investment Company Act of 1940, as amended.

            7.1.14    Securities Laws

     Neither Lessee nor any person authorized to act on its
behalf has directly or indirectly offered any beneficial interest
or Security relating to the ownership of the Aircraft or the
Lease or any interest in the Trust Estate and Trust Agreement, or
any of the Loan Certificates or any other interest in or security
under the Trust Indenture, for sale to, or solicited any offer to
acquire any such interest or security from, or has sold any such
interest or security to, any person in violation of the
Securities Act or applicable state securities Laws.

            7.1.15    All Disclosures Made

     No Operative Agreement contains any untrue statement of a
material fact by Lessee and Lessee has not omitted to state any
material fact necessary to make the statements of fact of Lessee,
in light of the circumstances under which they were made,
contained herein or therein not misleading.  For purposes of this
Section 7.1.15, the term "Operative Agreements" shall not include
the Tax Indemnity Agreement.

            7.1.16    Broker's Fees

     No Person acting on behalf of Lessee is or will be entitled
to any broker's fee, commission or finder's fee in connection
with the Transactions.

            7.1.17    Section 1110

     Owner Trustee, as lessor under the Lease (and Mortgagee, as
assignee of Owner Trustee under the Trust Indenture), is entitled
to the benefits of Section 1110 (as currently in effect) with
respect to the right to take possession of the Airframe and
Engines as provided in the Lease in the event of a case under
Chapter 11 of the Bankruptcy Code in which Lessee is a debtor.

     7.2    Owner Participant's Representations and Warranties

     Owner Participant represents and warrants (and, in the case
of Section 7.2.9, covenants) to Lessee, Loan Participant, Owner
Trustee and Mortgagee that:

            7.2.1     Organization, Etc.

     Owner Participant is a corporation duly incorporated,
validly existing and in good standing under the Laws of the State
of Delaware and has the corporate power and authority to conduct
the business in which it is currently engaged and to own or hold
under lease its properties and to enter into, and perform its
obligations under the Owner Participant Agreements.

            7.2.2     Corporate Authorization

     Owner Participant has taken, or caused to be taken, all
necessary corporate action (including, without limitation, the
obtaining of any consent or approval of stockholders required by
its Certificate of Incorporation or By-Laws) to authorize the
execution and delivery of each of the Owner Participant
Agreements, and the performance of its obligations thereunder.

            7.2.3     No Violation

     The execution and delivery by Owner Participant of the Owner
Participant Agreements, the performance by Owner Participant of
its obligations thereunder and the consummation by Owner
Participant on the Delivery Date of the transactions contemplated
thereby, do not and will not (a) violate or contravene any
provision of the Certificate of Incorporation or By-Laws of Owner
Participant, (b) violate or contravene any Law applicable to or
binding on Owner Participant (it being understood that insofar as
this representation relates to any Law relating to any Plan, this
representation is made assuming the truth of the representations
contained in Sections 7.1.13(b)(iii) and 7.4.3 and the continued
validity of the position stated by the Department of Labor in
paragraph (b) of Interpretive Bulletin 29 C.F.R. Section 2509.75-2
(notwithstanding anything to the contrary contained in John
Hancock Mutual Life Ins. Co. v. Harris Trust & Savings Bank, 114
S. Ct. 517 (1993))) or (c) violate, contravene or constitute any
default under, or result in the creation of any Lien (other than
as provided for or otherwise permitted in the Operative
Agreements) upon the Trust Estate under, any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract,
lease, loan or other material agreement, instrument or document
to which Owner Participant is a party or by which Owner
Participant or any of its properties is or may be bound or
affected.

            7.2.4     Approvals

     The execution and delivery by Owner Participant of the Owner
Participant Agreements, the performance by Owner Participant of
its obligations thereunder and the consummation by Owner
Participant on the Delivery Date of the transactions contemplated
thereby do not and will not require the consent, approval or
authorization of, or the giving of notice to, or the registration
with, or the recording or filing of any documents with, or the
taking of any other action in respect of, (a) any trustee or
other holder of any Debt of Owner Participant and (b) any
Government Entity, other than the filing of the FAA Filed
Documents and the Financing Statements.

            7.2.5     Valid and Binding Agreements

     The Owner Participant Agreements have been duly authorized,
executed and delivered by Owner Participant and, assuming the due
authorization, execution and delivery by the other party or
parties thereto, constitute the legal, valid and binding
obligations of Owner Participant and are enforceable against
Owner Participant in accordance with the respective terms
thereof, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium
and other similar Laws affecting the rights of creditors
generally and general principles of equity, whether considered in
a proceeding at law or in equity.

            7.2.6     Citizenship

     On the Delivery Date, Owner Participant is a Citizen of the
United States.  

            7.2.7     No Liens

     On the Delivery Date, there are no Lessor Liens attributable
to Owner Participant in respect of all or any part of the Trust
Estate.

            7.2.8     Investment by Owner Participant

     Owner Participant's beneficial interest in the Trust Estate
is being acquired by it for its own account, for investment and
not with a view to any resale or distribution thereof, except
that, subject to the restrictions on transfer set forth in
Section 12, the disposition by Owner Participant of its
beneficial interest in the Trust Estate shall at all times be
within its control.  

            7.2.9     ERISA

     No part of the funds to be used by Owner Participant to
acquire or hold its interests in the Trust Estate to be acquired
by it under this Agreement directly or indirectly constitutes
assets of a Plan.

            7.2.10    Litigation

     There are no pending or, to the Actual Knowledge of Owner
Participant, threatened actions or proceedings against Owner
Participant or Owner Participant Parent before any court,
administrative agency or tribunal which, if determined adversely
to Owner Participant or Owner Participant Parent, would
materially adversely affect the ability of Owner Participant to
perform its obligations under the Owner Participant Agreements or
Owner Participant Parent to perform its obligations under the
Owner Participant Guaranty.

            7.2.11    Securities Laws

     Neither Owner Participant nor any person Owner Participant
has authorized to act on its behalf has directly or indirectly
offered any beneficial interest in or Security relating to the
ownership of the Aircraft or any interest in the Trust Estate, or
any of the Loan Certificates or any other interest in or Security
under the Trust Indenture for sale to, or solicited any offer to
acquire any of the same from, any Person in violation of the
Securities Act or applicable state securities Laws.

            7.2.12    Broker's Fees

     No Person acting on behalf of Owner Participant or Owner
Participant Parent is or will be entitled to any broker's fee,
commission or finder's fee in connection with the Transactions.

     7.3    First Security's Representations and Warranties

     First Security represents and warrants to Lessee, Owner
Participant, Loan Participant and Mortgagee that:

            7.3.1     Organization, Etc.

     First Security is a national banking association duly
organized, validly existing and in good standing under the Laws
of the United States, holding a valid certificate to do business
as a national banking association with banking authority to
execute and deliver, and perform its obligations under, the Owner
Trustee Agreements.  

            7.3.2     Corporate Authorization

     First Security has taken, or caused to be taken, all
necessary corporate action (including, without limitation, the
obtaining of any consent or approval of stockholders required by
Law or by its Certificate of Incorporation or By-Laws) to
authorize the execution and delivery by First Security, in its
individual capacity and as Owner Trustee, of each of the Owner
Trustee Agreements, and the performance of its obligations
thereunder.

            7.3.3     No Violation

     The execution and delivery by First Security, in its
individual capacity and as Owner Trustee of the Owner Trustee
Agreements, the performance by First Security, in its individual
capacity and as Owner Trustee, of its obligations thereunder and
the consummation by First Security in its individual capacity and
as Owner Trustee on the Delivery Date of the transactions
contemplated thereby, do not and will not (a) violate or
contravene any provision of the Articles of Association or By-
Laws of First Security, (b) violate or contravene any Law
applicable to or binding on Owner Trustee or First Security or
(c) violate, contravene or constitute any default under, or
result in the creation of any Lien (other than the lien of the
Trust Indenture) upon any property of First Security, in its
individual capacity and as Owner Trustee, or any of its
subsidiaries under, any indenture, mortgage, chattel mortgage,
deed of trust, conditional sales contract, lease, loan or other
material agreement, instrument or document to which First
Security, in its individual capacity and as Owner Trustee, is a
party or by which First Security, in its individual capacity and
as Owner Trustee, or any of its properties is or may be bound or
affected.

            7.3.4     Approvals

     The execution and delivery by First Security, in its
individual capacity and as Owner Trustee, of the Owner Trustee
Agreements, the performance by First Security, in its individual
capacity and as Owner Trustee on the Delivery Date, of its
obligations thereunder and the consummation by First Security, in
its individual capacity and as Owner Trustee, of the transactions
contemplated thereby do not and will not require the consent,
approval or authorization of, or the giving of notice to, or the
registration with, or the recording or filing of any documents
with, or the taking of any other action in respect of, (a) any
trustee or other holder of any Debt of First Security or (b) any
Government Entity, other than the filing of the FAA Filed
Documents and the Financing Statements.

            7.3.5     Valid and Binding Agreements

     The Owner Trustee Agreements have been duly authorized,
executed and delivered by First Security, in its individual
capacity or as Owner Trustee, as the case may be, and constitute
the legal, valid and binding obligations of First Security, in
its individual capacity and as Owner Trustee, and, assuming the
due authorization, execution and delivery thereof by the other
party or parties thereto, are enforceable against First Security,
in its individual capacity and as Owner Trustee, in accordance
with the respective terms thereof, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium and other similar Laws affecting the
rights of creditors generally and general principles of equity,
whether considered in a proceeding at law or in equity.

            7.3.6     Citizenship

     On the Delivery Date, First Security is a Citizen of the
United States.

            7.3.7     Chief Executive Office

     The chief executive office (as such term is defined in
Article 9 of the UCC) of Owner Trustee is located at 79 South
Main Street, Salt Lake City, Utah 84111.

            7.3.8     Title

     On the Delivery Date, Owner Trustee shall have received
whatever title (a) to the Aircraft (other than the BFE) as was
conveyed to it by Airframe Manufacturer and (b) to the BFE as was
conveyed to it by Lessee.

            7.3.9     No Liens; Financing Statements

     On the Delivery Date, there are no Lessor Liens attributable
to First Security or Owner Trustee in respect of all or any part
of the Aircraft, Trust Estate or the Trust Indenture Estate. 
Except for the Financing Statements, it has not, either in its
individual capacity or as Owner Trustee, executed any UCC
financing statements relating to the Aircraft or the Lease.

            7.3.10    Litigation

     There are no pending or, to the Actual Knowledge of First
Security, threatened actions or proceedings against First
Security and Owner Trustee before any court, administrative
agency or tribunal which, if determined adversely to First
Security, would materially adversely affect the ability of First
Security or Owner Trustee, to perform its obligations under the
Owner Trustee Agreements.

            7.3.11    Securities Laws

     Neither First Security, nor any person authorized to act on
its behalf, has directly or indirectly offered any beneficial
interest or Security relating to the ownership of the Aircraft or
any interest in the Trust Estate or any of the Loan Certificates
or any other interest in or security under the Trust Indenture
for sale to, or solicited any offer to acquire any such interest
or security from, or has sold any such interest or security to,
any person other than the Participants.

            7.3.12    Expenses and Taxes

     There are no Expenses or Taxes that may be imposed on or
asserted against the Trust, the Trust Estate or any part thereof
or any interest therein, the Trust Indenture Estate, Lessee,
Owner Participant, Loan Participant, Owner Trustee or Mortgagee
(except as to Owner Trustee, Taxes imposed on the fees payable to
Owner Trustee) under the laws of Utah in connection with the
execution, delivery or performance of any Operative Agreement by
Owner Trustee or in connection with the issuance of the Loan
Certificates, which Expenses or Taxes would not have been imposed
if Owner Trustee had not (x) had its principal place of business
in, (y) performed (in its individual capacity or as Owner
Trustee) any or all of its duties under the Operative Agreements
in or (z) engaged in any activities unrelated to the transactions
contemplated by the Operative Agreements in, the State of Utah.

     7.4    Loan Participant's Representations and Warranties

     Loan Participant (and, by its acceptance of a Loan
Certificate, each Certificate Holder) represents and warrants
(and, in the case of Section 7.4.3, covenants) to Lessee, Owner
Participant, Owner Trustee and Mortgagee that:

            7.4.1     Valid and Binding Agreements

     The Loan Participant Agreements have been duly authorized,
executed and delivered by it and, assuming the due authorization,
execution and delivery by the other party or parties thereto,
constitute the legal, valid and binding obligations of it and are
enforceable against it in accordance with the respective terms
thereof, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium
and other similar Laws affecting the rights of creditors
generally and general principles of equity, whether considered in
a proceeding at law or in equity.

            7.4.2     Investment by Loan Participant

     The Loan Certificates to be issued to it are being acquired
by it for its own account, for investment and not with a view to
any resale or distribution thereof, except that, subject to the
restrictions on transfer set forth in Sections 8.5.3 and 12.1.3,
the disposition by it of its Loan Certificates shall at all times
be within its control.  Neither it nor any person it has
authorized to act on its behalf has directly or indirectly
offered any interest in and to the Loan Certificates for sale to,
or solicited any offer to acquire any of the same from, any
person in violation of the Securities Act or applicable state
securities Laws.

            7.4.3     ERISA

     With respect to the funds used by it to acquire or hold any
Loan Certificate or any interest in, or represented by, any Loan
Certificate, at least one of the following is true:

     (a)  (i) the Loan Participant or Certificate Holder, as the
case may be, is an insurance company subject to state regulation,
(ii) the funds to be used by it to acquire or hold any Loan
Certificate or any interest in, or represented by, any Loan
Certificate, constitute the assets of its general account and
(iii) no portion of such funds constitutes the assets of a
separate account or a collective investment fund (as the term
"collective investment fund" is defined in Section 7.4.3(c)(i))
maintained by it in which any Plan has any interest; 

     (b)  (i) no part of the funds to be used by it to acquire or
hold any Loan Certificate or any interest in, or represented by,
any Loan Certificate, directly or indirectly constitutes, or may
be deemed under the Code, ERISA or any applicable state law, or
any rulings or regulations thereunder, or any court decision, to
constitute, the assets of any Plan, and (ii) at no time after
acquisition shall any Loan Certificate or any interest in, or
represented by, any Loan Certificate directly or indirectly
constitute, or be so deemed to constitute, the assets of any
Plan;

     (c)  (i) the funds to be used by it to acquire or hold any
Loan Certificate or any interest in, or represented by, any Loan
Certificate, constitute the assets of an insurance company
"pooled separate account," as such term is used in Prohibited
Transaction Class Exemption 90-1 issued by the U.S. Department of
Labor, or a "collective investment fund" as defined in Section IV
of Prohibited Transaction Class Exemption ("PTCE") 91-38 issued
by the U.S. Department of Labor, in which a Plan subject to ERISA
or Section 4975 of the Code has an interest, and (ii) such
acquisition with such funds is, and the subsequent holding of any
Loan Certificate or any interest in, or represented by, any Loan
Certificate at all times thereafter shall be, entitled to the
exemption provided under PTCE 90-1 or 91-38, as applicable; or

     (d)  (i) the funds to be used by it to acquire or hold any
Loan Certificate or any interest in, or represented by, any Loan
Certificate, constitute the assets of an "investment fund", as
such term is defined in Section V(b) of PTCE 84-14, in which a
Plan has an interest and which is managed by a "qualified
professional asset manager", as such term is defined in
Section V(a) of PTCE 84-14 and (ii) such acquisition with such
funds is, and the subsequent holding of any Loan Certificate or
any interest in, or represented by, any Loan Certificate shall at
all times thereafter be, entitled to the exemption provided under
PTCE 84-14 to the fullest extent provided therein; or

     (e)  (i) the funds to be used by it to acquire or hold any
Loan Certificate or any interest in, or represented by, any Loan
Certificate, constitute the assets of a Plan that is a
"governmental plan" (as defined in Section 414(d) of the Code and
Section 3(32) of ERISA) or a "church plan" (as defined in
Section 414(e) of the Code and Section 3(33) of ERISA) that is
covered by neither ERISA nor Section 4975 of the Code, and (ii)
neither the purchase with such funds nor the subsequent holding
of any Loan Certificate or any interest in, or represented by,
any Loan Certificate will result in, constitute or involve a
transaction that is prohibited under applicable state Law.

            7.4.4     Broker's Fees

     No Person acting on behalf of Loan Participant is or will be
entitled to any broker's fee, commission or finder's fee in
connection with the Transactions.

     7.5    [Intentionally Omitted]

     7.6    WTC's Representations and Warranties

     WTC represents and warrants to Lessee, each Participant, and
Owner Trustee that:

            7.6.1     Organization, Etc.

     WTC is a Delaware banking corporation duly organized,
validly existing and in good standing under the Laws of the State
of Delaware, holding a valid certificate to do business as a
Delaware banking corporation with banking authority to execute
and deliver, and perform its obligations under, the Mortgagee
Agreements.  

            7.6.2     Corporate Authorization

     WTC has taken, or caused to be taken, all necessary
corporate action (including, without limitation, the obtaining of
any consent or approval of stockholders required by Law or by its
Certificate of Incorporation or By-Laws) to authorize the
execution and delivery by Mortgagee or WTC, as the case may be,
of the Mortgagee Agreements, and the performance of its
obligations thereunder.

            7.6.3     No Violation

     The execution and delivery by Mortgagee or WTC, as the case
may be, of the Mortgagee Agreements, the performance by Mortgagee
or WTC, as the case may be, of its obligations thereunder and the
consummation on the Delivery Date of the transactions
contemplated thereby, do not and will not (a) violate or
contravene any provision of the Certificate of Incorporation or
By-Laws of WTC, (b) violate or contravene any Law applicable to
or binding on WTC or (c) violate, contravene or constitute any
default under, or result in the creation of any Lien (other than
the lien of the Trust Indenture) upon any property of WTC or any
of its subsidiaries under, any indenture, mortgage, chattel
mortgage, deed of trust, conditional sales contract, lease, loan
or other agreement, instrument or document to which WTC is a
party or by which WTC or any of its properties is or may be bound
or affected.

            7.6.4     Approvals

     The execution and delivery by Mortgagee or WTC, as the case
may be, of the Mortgagee Agreements, the performance by Mortgagee
or WTC, as the case may be, of its obligations thereunder and the
consummation on the Delivery Date by Mortgagee or WTC, as the
case may be, of the transactions contemplated thereby do not and
will not require the consent, approval or authorization of, or
the giving of notice to, or the registration with, or the
recording or filing of any documents with, or the taking of any
other action in respect of, (a) any trustee or other holder of
any Debt of WTC or (b) any Government Entity, other than the
filing of the FAA Filed Documents and the Financing Statements.

            7.6.5     Valid and Binding Agreements

     The Mortgagee Agreements have been duly authorized, executed
and delivered by WTC and, assuming the due authorization,
execution and delivery by the other party or parties thereto,
constitute the legal, valid and binding obligations of WTC and
are enforceable against WTC in accordance with the respective
terms thereof, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium
or other similar Laws affecting the rights of creditors generally
and general principles of equity, whether considered in a
proceeding at law or in equity.

            7.6.6     Citizenship

     WTC is a Citizen of the United States.

            7.6.7     No Liens

     On the Delivery Date, there are no Lessor Liens attributable
to WTC in respect of all or any part of the Trust Estate or the
Trust Indenture Estate.

            7.6.8     Litigation

     There are no pending or, to the Actual Knowledge of WTC,
threatened actions or proceedings against Mortgagee or WTC before
any court, administrative agency or tribunal which, if determined
adversely to Mortgagee or WTC, as the case may be, would
materially adversely affect the ability of Mortgagee or WTC, as
the case may be, to perform its obligations under any of the
Mortgagee Agreements.

            7.6.9     Securities Laws

     Neither WTC nor any person authorized to act on its behalf
has directly or indirectly offered any beneficial interest or
Security relating to the ownership of the Aircraft or any
interest in the Trust Indenture Estate or any of the Loan
Certificates or any other interest in or security under the Trust
Indenture for sale to, or solicited any offer to acquire any such
interest or security from, or has sold any such interest or
security to, any Person other than the Participants.

SECTION 8.  COVENANTS, UNDERTAKINGS AND AGREEMENTS

     8.1    Covenants of Lessee

     Lessee covenants and agrees, at its own cost and expense,
with Owner Participant, Loan Participant, Owner Trustee and
Mortgagee as follows:

            8.1.1     Corporate Existence; Franchises

     Lessee shall at all times maintain its corporate existence,
except as permitted by Section 13.2 of the Lease, and shall not
wind-up, liquidate or dissolve or take any action, or fail to
take any action, that would have the effect of any of the
foregoing.  Lessee will do or cause to be done all things
necessary to preserve and keep in full force and effect its
rights (charter and statutory) and franchises, except that Lessee
shall not be required to preserve or keep in full force and
effect any right or franchise if Lessee shall reasonably
determine that the preservation thereof is no longer necessary or
desirable in the conduct of its business and if the loss thereof
does not (a) adversely affect or diminish the rights of
Participants under the Operative Agreements or (b) materially and
adversely affect Lessee's ability to observe or perform its
obligations, liabilities and agreements under the Lessee
Operative Agreements.  

            8.1.2     U.S. Air Carrier; Section 1110

     Lessee shall at all times remain a U.S. Air Carrier and
shall at all times be otherwise certificated and registered to
the extent necessary to entitle Owner Trustee (and Mortgagee as
assignee of Owner Trustee's rights under the Lease) the rights
afforded to lessors of aircraft equipment under Section 1110.

            8.1.3     Notice of Change of Chief Executive Office

     Lessee will give each Participant, Owner Trustee and
Mortgagee timely written notice (but in any event not later than
three Business Days after its occurrence) of any relocation of
its chief executive office (as such term is defined in Article 9
of the UCC) from its then present location and will promptly take
any action required by Section 8.1.4(c) as a result of such
relocation.

            8.1.4     Certain Assurances

     (a)  Lessee shall duly execute, acknowledge and deliver, or
shall cause to be executed, acknowledged and delivered, all such
further agreements, instruments, certificates or documents, and
shall do and cause to be done such further acts and things, in
any case, as any Participant, Owner Trustee or Mortgagee shall
reasonably request in connection with its administration of, or
to carry out more effectually the purposes of, or to better
assure and confirm unto it the rights and benefits to be provided
under, this Agreement and the other Operative Agreements.

     (b)  Lessee shall promptly take such action with respect to
the recording, filing, re-recording and refiling of the Lease,
the Trust Agreement and the Trust Indenture and the respective
supplements thereto, including, without limitation, Lease
Supplement No. 1 and the Trust Indenture Supplement, as shall be
necessary to establish, perfect and protect the interests and
rights of Owner Trustee in and to the Aircraft and under the
Lease and the perfection and priority of the Lien created by the
Trust Indenture.  Lessee shall furnish to Owner Participant or
Owner Trustee such information (other than with respect to the
citizenship of Owner Participant and Owner Trustee) in Lessee's
possession or otherwise reasonably available to Lessee as may be
required to enable Owner Participant or Owner Trustee to make
application for registration of the Aircraft under the Act
(subject to Lessee's rights under Section 7.1.2 of the Lease) and
shall, without limiting the generality of Section 10, pay or
cause to be paid all out-of-pocket costs and expenses thereof
(including, without limitation, reasonable attorneys' fees and
disbursements).

     (c)  Lessee, at its sole cost and expense, will cause the
FAA Filed Documents, the Financing Statements and all
continuation statements (and any amendments necessitated by any
combination, consolidation or merger pursuant to Section 13.2 of
the Lease, or any relocation of its chief executive office) in
respect of the Financing Statements to be prepared and, subject
only to the execution and delivery thereof by Owner Trustee and
Mortgagee, as applicable, duly and timely filed and recorded, or
filed for recordation, to the extent permitted under the Act
(with respect to the FAA Filed Documents) or the UCC or similar
law of any other applicable jurisdiction (with respect to such
other documents).

     (d)  If the Aircraft has been registered in a country other
than the United States pursuant to Section 7.1.2 of the Lease,
Lessee will furnish to Owner Trustee, Mortgagee and each
Participant annually after such registration, commencing with the
calendar year after such registration is effected, an opinion of
special counsel reasonably satisfactory to the Participants,
stating that, in the opinion of such counsel, either that
(i) such action has been taken with respect to the recording,
filing, rerecording and refiling of the Operative Agreements and
any supplements and amendments thereto as is necessary to
establish, perfect and protect Owner Trustee's and Mortgagee's
respective right, title and interest in and to the Aircraft and
the Operative Agreements, reciting the details of such actions,
or (ii) no such action is necessary to maintain the perfection of
such right, title and interest.

            8.1.5     Securities Laws

     Neither Lessee nor any person authorized to act on its
behalf will directly or indirectly offer any beneficial interest
or Security relating to the ownership of the Aircraft or the
Lease or any interest in the Trust Estate and Trust Agreement or
any of the Loan Certificates or any other interest in or security
under the Trust Indenture, for sale to, or solicit any offer to
acquire any such interest or security from, or sell any such
interest or security to, any person in violation of the
Securities Act or applicable state or foreign securities Laws.

     8.2    Covenants of Owner Participant

     Owner Participant covenants and agrees with Lessee, and,
except with respect to Section 8.2.4, Loan Participant, Owner
Trustee and Mortgagee as follows:

            8.2.1     Liens

     Owner Participant (a) will not directly or indirectly
create, incur, assume or suffer to exist any Lessor Lien
attributable to it on or with respect to all or any part of the
Trust Estate, the Trust Indenture Estate or the Aircraft, (b)
will, at its own cost and expense, promptly take such action as
may be necessary to discharge any Lessor Lien attributable to
Owner Participant on all or any part of the Trust Estate, the
Trust Indenture Estate or the Aircraft and (c) will make
restitution to the Trust Estate for any actual diminution of the
assets of the Trust Estate resulting from such Lessor Liens
attributable to or caused by it.

            8.2.2     Revocation of Trust Agreement

     (a)  Owner Participant will comply with the provisions of
the Trust Agreement applicable to it, the non-compliance with
which would have a material adverse effect on Lessee, any
Certificate Holder or Mortgagee, and will not terminate or revoke
the Trust Agreement or the trusts created thereunder without the
prior written consent of Lessee and Mortgagee and will not amend,
modify or supplement the Trust Agreement, or waive any of the
provisions thereof, if such amendment, modification, supplement
or waiver would have a material adverse effect on Lessee, without
the consent of Lessee, or on Mortgagee or any Certificate Holder,
without the consent of Mortgagee.

     (b)  Notwithstanding Section 8.2.2(a), Owner Participant may
at any time remove Owner Trustee pursuant to Section 9.1 of the
Trust Agreement.

            8.2.3     Change of Situs of Owner Trust

     If, at any time, any Tax Indemnitee or the Trust Estate
becomes subject to any Taxes for which it is indemnified pursuant
to Section 10.3 of this Agreement and if, as a consequence
thereof, Lessee should request that the situs of the Trust be
moved to another state in the United States from the state in
which it is then located, the situs of the Trust may be moved
with the written consent of Owner Participant (which consent
shall not be unreasonably withheld) and Owner Participant will
take whatever action may be reasonably necessary to accomplish
such removal; provided, that, in any event, (a) Lessee shall
provide such additional tax indemnification as Owner Participant
and the Certificate Holders may reasonably request to cover any
additional unindemnified Taxes or loss of Tax benefits described
in the assumptions in the Tax Indemnity Agreement resulting from
such change in the situs of the Trust, (b) the rights and
obligations under the Operative Agreements of Owner Participant,
the Certificate Holders and Mortgagee shall not be adversely
affected as a result of the taking of such action, (c) the Lien
of the Trust Indenture on the Trust Indenture Estate shall not be
adversely affected by such action, and Lessee and Owner Trustee
shall execute and deliver such documents as may reasonably be
requested by Mortgagee to protect and maintain the perfection and
priority of such Lien, (d) Owner Participant and Mortgagee shall
have received an opinion or opinions of counsel (which counsel is
reasonably satisfactory to Owner Participant and Mortgagee) in
scope, form and substance reasonably satisfactory to Owner
Participant and Mortgagee to the effect that (i) the Trust, as
thus removed, shall remain a validly established trust, (ii) any
amendments to the Trust Agreement necessitated by such removal
shall have been duly authorized, executed and delivered by the
parties thereto and shall constitute the valid and binding
obligations of such parties, enforceable in accordance with their
terms, (iii) covering such other matters as Owner Participant or
Mortgagee may reasonably request, (e) if such removal involves
the replacement of Owner Trustee, then Owner Participant and
Mortgagee shall have received an opinion of counsel to such
successor Owner Trustee in form and substance reasonably
satisfactory to Owner Participant and Mortgagee covering the
matters described in the opinion delivered pursuant to
Section 6.1.2(xxvii)(E) and (f) Lessee shall indemnify and hold
harmless Owner Participant, Certificate Holders and First
Security, in its individual capacity and as Owner Trustee, on a
net after-tax basis against any and all reasonable out-of-pocket
costs and expenses including attorneys' fees and disbursements,
fees and expenses of any new owner trustee, registration,
recording or filing fees and taxes incurred by Owner Participant,
Certificate Holders or Owner Trustee in connection with such
change of situs.  Owner Participant agrees with Lessee that it
will not consent to or direct a change in the situs of the Trust
Estate without the prior written consent of Lessee.

            8.2.4     Compliance with Lease Provisions

     Owner Participant will, solely for the benefit of Lessee,
comply with the express provisions applicable to it contained in
Sections 3.2.1 and 8.2.5 of the Lease.

            8.2.5     Securities Act

     Owner Participant will not directly or indirectly offer any
beneficial interest or security relating to the ownership of the
Aircraft or any interest in the Trust Estate or any of the Loan
Certificates or any other interest in or security under the Trust
Indenture for sale to, or solicit any offer to acquire any such
interest or security from, or sell any such interest or security
to, any Person in violation of the Securities Act or applicable
state or foreign securities Laws, provided that the foregoing
shall not be deemed to impose on Owner Participant any
responsibility with respect to any such offer, sale or
solicitation by any other party hereto.

            8.2.6     Regarding the Owner Trustee

     Owner Participant will not cause Owner Trustee to violate
its obligations under any Owner Trustee Agreement.

     8.3    Covenants of First Security and Owner Trustee

     First Security, in its individual capacity and/or as Owner
Trustee, as provided below, covenants and agrees with Lessee,
each Participant and Mortgagee as follows:

            8.3.1     Liens

     First Security (a) will not directly or indirectly create,
incur, assume or suffer to exist any Lessor Liens attributable to
it or Owner Trustee with respect to all or any part of the Trust
Estate, the Trust Indenture Estate or the Aircraft, (b) will, at
its own cost and expense, promptly take such action as may be
necessary to discharge any Lessor Lien attributable to First
Security or Owner Trustee on all or any part of the Trust Estate,
the Trust Indenture Estate or the Aircraft and (c) will
personally hold harmless and indemnify Lessee, Owner Participant,
each Certificate Holder, Mortgagee, each of their respective
Affiliates, successors and permitted assigns, the Trust Estate
and the Trust Indenture Estate from and against (i) any and all
Expenses, (ii) any reduction in the amount payable out of the
Trust Estate or the Trust Indenture Estate and (iii) any
interference with the possession, operation or other use of all
or any part of the Aircraft imposed on, incurred by or asserted
against any of the foregoing as a consequence of any such Lessor
Lien.

            8.3.2     Other Business

     Owner Trustee will not enter into any business or other
activity except as contemplated by the Operative Agreements.  

            8.3.3     Notice of Change of Chief Executive Office

     First Security, in its individual capacity and as Owner
Trustee, will give Lessee, each Participant and Mortgagee 30
days' prior written notice of any relocation of its chief
executive office (as such term is defined in Article 9 of the
UCC) from its then present location and will promptly take any
action required by Section 8.3.8 as a result of such relocation.

            8.3.4     Securities Act

     First Security, in its individual capacity and as Owner
Trustee, will not directly or indirectly offer any beneficial
interest or Security relating to the ownership of the Aircraft or
any interest in the Trust Estate or any of the Loan Certificates
or any other interest in or security under the Trust Indenture
for sale to, or solicit any offer to acquire any such interest or
security from, or sell any such interest or security to, any
Person in violation of the Securities Act or applicable state or
foreign securities Laws, provided that the foregoing shall not be
deemed to impose on First Security in its individual capacity or
as Owner Trustee, any responsibility with respect to any such
offer, sale or solicitation by any other party hereto.

            8.3.5     Performance of Agreements

     Subject to the terms and provisions of the Trust Agreement,
Owner Trustee shall perform its obligations under the Owner
Trustee Agreements in accordance with the terms thereof.

            8.3.6     Release of Lien of Trust Indenture

     Owner Trustee, in each instance referred to in the Lease in
which a transfer of any property is required to be made by Owner
Trustee to Lessee or any other Person (other than Mortgagee or
Owner Participant), shall, at Lessee's request and expense, use
its reasonable efforts to procure from Mortgagee the prompt
release of the Lien of the Trust Indenture with respect to such
property.

            8.3.7     Notices; Documents

     In the event any claim with respect to any liabilities is
filed against the Owner Trustee in its capacity as such and Owner
Trustee shall have Actual Knowledge thereof, the Owner Trustee
shall promptly notify Lessee in writing thereof.  Owner Trustee
further agrees to provide to Lessee promptly any documents
(including the certificate of aircraft registration) that it
receives from the FAA with respect to the Aircraft.

            8.3.8     Filings

     After the Delivery Date, Owner Trustee shall duly execute
and deliver to Lessee all filings and recordings (including,
without limitation, all filings and UCC financing statements
under the Act and the UCC and any amendments to UCC financing
statements necessitated by any relocation of its chief executive
office), prepared and delivered to it by Lessee required to
perfect Owner Trustee's title to the Aircraft and the liens of
and security interests granted by the Trust Indenture (or to
maintain such perfection) and to make such title, liens and
security interests valid and enforceable.

     8.4    Covenants of WTC and Mortgagee

     WTC or Mortgagee, as the case may be, covenants and agrees
with Lessee, each Participant and Owner Trustee as follows:

            8.4.1     Liens

     WTC (a) will not directly or indirectly create, incur,
assume or suffer to exist any Lessor Lien attributable to it on
or with respect to all or any part of the Trust Estate, the Trust
Indenture Estate or the Aircraft, (b) will, at its own cost and
expense, promptly take such action as may be necessary to
discharge any Lessor Lien attributable to WTC on all or any part
of the Trust Estate, the Trust Indenture Estate or the Aircraft
and (c) will personally hold harmless and indemnify Lessee, Owner
Participant, each Certificate Holder, Owner Trustee, each of
their respective Affiliates, successors and permitted assigns,
the Trust Estate and the Trust Indenture Estate from and against
(i) any and all Expenses, (ii) any reduction in the amount
payable out of the Trust Estate or the Trust Indenture Estate and
(iii) any interference with the possession, operation or other
use of all or any part of the Aircraft, imposed on, incurred by
or asserted against any of the foregoing as a consequence of any
such Lessor Lien.

            8.4.2     Securities Act

     Mortgagee will not offer any beneficial interest or Security
relating to the ownership of the Aircraft or any interest in the
Trust Indenture Estate, or any of the Loan Certificates or any
other interest in or security under the Trust Indenture for sale
to, or solicit any offer to acquire any such interest or security
from, or sell any such interest or security to, any Person in
violation of the Securities Act or applicable state or foreign
securities Laws, provided that the foregoing shall not be deemed
to impose on Mortgagee any responsibility with respect to any
such offer, sale or solicitation by any other party hereto.

            8.4.3     Performance of Agreements

     Subject to the terms and provisions of the Trust Indenture,
Mortgagee shall perform its obligations under the Indenture
Agreements in accordance with the terms thereof.  

            8.4.4     [Intentionally Omitted]

            8.4.5     Withholding Taxes

     WTC shall indemnify (on an after-tax basis) and hold
harmless Lessee and Owner Participant against any United States
withholding taxes (and related interest, penalties and additions
to tax) as a result of the failure by WTC to withhold on payments
to any Certificate Holder if such Certificate Holder failed to
provide to Mortgagee necessary certificates or forms to
substantiate the right to exemption from such withholding tax.  

     8.5    Covenants of Certificate Holders

     Each Certificate Holder (including Loan Participant, whether
or not it has elected or elects to have its Loan Certificate(s)
registered in the name of a nominee) as to itself only covenants
and agrees with Lessee, Owner Participant, Owner Trustee and
Mortgagee as follows:

            8.5.1     [Intentionally Omitted]

            8.5.2     Withholding Taxes

     Such Certificate Holder (if it is a Non-U.S. Person) agrees
to indemnify (on an after-tax basis) and hold harmless Lessee,
Owner Participant and Mortgagee against any United States
withholding taxes (and related interest, penalties and additions
to tax) as a result of the inaccuracy or invalidity of any
certificate or form provided by such Certificate Holder to
Mortgagee in connection with such withholding taxes.  Any amount
payable hereunder shall be paid within 30 days after receipt by a
Certificate Holder of a written demand therefor.

            8.5.3     Transfer; Compliance

     (a)  Such Certificate Holder will (i) not transfer any Loan
Certificate or interest therein in violation of the Securities
Act or applicable state or foreign securities Law; provided, that
the foregoing provisions of this section shall not be deemed to
impose on such Certificate Holder any responsibility with respect
to any such offer, sale or solicitation by any other party
hereto, (ii) for so long as Gaucho-2 Inc. or any Affiliate
thereof is Owner Participant hereunder, without the consent of
such party, not transfer any Loan Certificate or interest therein
to Aetna Life Insurance Company or any Affiliate thereof and
(iii) perform and comply with the obligations specified to be
imposed on it (as a Loan Participant or Certificate Holder) under
each of the Trust Indenture and the form of Loan Certificate set
forth in the Trust Indenture.

     (b)  Each of Loan Participant and each Certificate Holder
covenants and agrees that it shall not sell, assign, convey,
exchange or otherwise transfer any Loan Certificate or any
interest in, or represented by, any Loan Certificate unless the
proposed transferee thereof first provides Lessee and Owner
Participant with both of the following:

         (i)   a written representation either that at least one
     of the statements in clauses (a) through (d) of
     Section 7.4.3 is true with respect to the funds with which
     it will acquire the Loan Certificate or interest, or that
     such transfer will not involve a transaction that
     constitutes a prohibited transaction within the meaning of
     Section 406 of ERISA or Section 4975(c)(1) of the Code
     involving Lessee, Owner Participant or the proposed
     transferee (other than a transaction that is exempted from
     the prohibitions of such sections by applicable provisions
     of ERISA or the Code or administrative exemptions or
     regulations issued thereunder); and

        (ii)   a written covenant that it will not transfer any
     Loan Certificate or any interest in, or represented by, any
     Loan Certificate unless the subsequent transferee also makes
     the representations described in clause (i) above and agrees
     to comply with this clause (ii).

     (c)  Promptly after discovery by any Certificate Holder that
the acquisition or holding of its Loan Certificate has resulted
in, or will result in, a prohibited transaction within the
meaning of Section 406 of ERISA or Section 4975(c)(1) of the
Code, (i) such Certificate Holder shall promptly and diligently
use all good faith reasonable efforts to correct such prohibited
transaction within a reasonable period (but such period shall not
be less than 60 days unless either Lessee or Owner Participant
reasonably determines that it could be subject to material
adverse consequences were such period to last for 60 days) and
(ii) during the Term, so long as such prohibited transaction has
not been corrected pursuant to clause (i) above or otherwise,
upon notice (which notice shall specifically refer to this
Section 8.5.3(c)(ii)) from either Lessee or Owner Participant to
such Certificate Holder and Morgan Stanley & Co. Incorporated
(unless another Person (which may be Lessee) is designated by
Lessee with the consent of Owner Participant, which consent shall
not be unreasonably withheld or delayed, in such notice of Lessee
or within ten days of any such notice of Owner Participant, which
Person confirms in writing to such Certificate Holder and Owner
Participant that it will comply with the obligations of the
remarketing agent under this Section 8.5.3(c)(ii)) (Morgan
Stanley & Co. Incorporated or such Person being referred to
herein as the "remarketing agent"), the following actions will be
taken:

         (A)   the remarketing agent will use reasonable efforts
     promptly, and in any event within 65 days following such
     notice from Lessee or Owner Participant to the remarketing
     agent, to identify to Lessee potential purchasers that are
     not Affiliates of Lessee (including, but not limited to,
     identifying potential purchasers that, for purposes of
     Section 7.4.3, would be willing not to assume or rely on the
     continued validity of the position stated by the Department
     of Labor in paragraph (b) of Interpretive Bulletin 29 C.F.R.
     Section 2509.75-2) for such Loan Certificate that are willing to
     purchase such Loan Certificate pursuant to this
     Section 8.5.3(c)(ii) and would be willing to pay a
     commercially reasonable cash purchase price therefor, taking
     into account, among other things, prevailing interest rates,
     the security for the Loan Certificates under the Trust
     Indenture and the market prices of comparable securities;

         (B)   within 70 days following such notice from Lessee
     or Owner Participant to the remarketing agent, Lessee shall
     designate a purchaser (which shall not be an Affiliate of
     Lessee) to the Certificate Holder and the remarketing agent
     that is willing to pay a commercially reasonable cash
     purchase price for such Loan Certificate (it being
     understood that Lessee will, at its option, designate either
     (A) the potential purchaser that is (1) willing not to
     assume or rely on the continued validity of the position
     stated by the Department of Labor in paragraph (b) of
     Interpretive Bulletin 29 C.F.R. 2509.75-2, (2) willing not
     to require any substantive changes to the Operative
     Agreements and (3) willing to offer the highest cash
     purchase price or (B) the potential purchaser willing not to
     require any substantive changes to the Operative Agreements
     and willing to offer the highest cash purchase price, in
     either case if such potential purchaser exists, provided
     that the foregoing will not preclude Lessee from designating
     any other potential purchaser with a higher cash purchase
     price), failing which the remarketing agent shall within two
     Business Days identify to Lessee and such Certificate Holder
     the potential purchaser willing to pay the highest cash
     purchase price and such potential purchaser shall be deemed
     to be the designated purchaser;

         (C)   within ten Business Days following such
     designation by Lessee or the remarketing agent, as the case
     may be, such Certificate Holder shall sell, assign, transfer
     and convey all its right, title and interest in and to its
     Loan Certificate (without recourse or warranty of any kind
     except against Liens on such Loan Certificate arising by,
     through or under such Certificate Holder) to the designated
     purchaser against payment by such designated purchaser to
     such Certificate Holder in immediately available funds of
     the purchase price therefor;

         (D)   upon such sale, assignment, transfer and
     conveyance, such designated purchaser shall be deemed to
     have accepted such Loan Certificate for all purposes of the
     Operative Agreements, including, without limitation,
     Section 2.07 of the Trust Indenture and Section 12.1.3, and,
     if agreed between Lessee and such designated purchaser, for
     purposes of Section 7.4.3, such designated purchaser shall
     be deemed not to have assumed or relied on the continued
     validity of the position stated by the Department of Labor
     in paragraph (b) of Interpretive Bulletin 29 C.F.R.
     Section 2509.75-2; and

         (E)   immediately following such sale, assignment,
     transfer and conveyance (but not as a condition thereto),
     Lessee shall pay to such former Certificate Holder (x) the
     excess, if any, of the outstanding principal amount of such
     transferred Loan Certificate at the date of such sale,
     assignment, transfer and conveyance, plus accrued interest
     on such Loan Certificate to such date over the portion of
     the purchase price paid by the designated purchaser to such
     former Certificate Holder in respect of such transferred
     Loan Certificate pursuant to clause (C) above and (y) any
     other sums then due and payable by Lessee to such former
     Certificate Holder under the Operative Agreements.

     Notwithstanding the foregoing, the notice specified in
Section 8.5.3(c)(ii) may be given prior to the end of the period
described in Section 8.5.3(c)(i) if Lessee or Owner Participant
reasonably determines that it could be subject to material
adverse consequences were the Certificate Holder given more time
to correct the transaction in accordance with Section
8.5.3(c)(i).  In such case, the period specified in
Section 8.5.3(c)(i) shall end on the date the Certificate Holder
receives such notice.



     Neither Lessee nor Owner Participant shall be obligated to
give the notice referred to in Section 8.5.3(c)(ii).  Any such
notice, whether given by Lessee or Owner Participant, may be
rescinded by Lessee with the consent of Owner Participant at any
time prior to the sale, assignment, transfer and conveyance of
such Loan Certificate by delivering written notice of such
rescission to such Certificate Holder, Owner Participant and the
remarketing agent.  Such rescission shall not preclude delivery
of another such notice pursuant to Section 8.5.3(c)(ii).  No
party shall have any liability for the default by the designated
purchaser in purchasing such Loan Certificate, but such default
shall not preclude the designation of another purchaser under
Section 8.5.3(c)(ii).  Lessee shall be responsible for paying the
fees and expenses of the remarketing agent.

     8.6    [Intentionally Omitted]

     8.7    Agreements

            8.7.1     Owner Trustee Is Owner for All Purposes

     Lessee, the Participants, Owner Trustee and Mortgagee agree
that for all purposes, after the Closing, Owner Trustee will be
the owner of the Aircraft (except that Owner Participant will be
the owner for income tax purposes) and Lessee will be the lessee
thereof.  No transfer, by operation of Law or otherwise, of the
beneficial interest of Owner Participant in and to the Trust
Estate shall operate to transfer legal title to any part of the
Trust Estate to any transferee thereof.

            8.7.2     Rights under the Lease

     Lessee acknowledges and confirms each of Owner Participant's
and Mortgagee's rights under the Lease.

            8.7.3     Commencement of Bankruptcy Proceedings

     Lessee, each Participant, each Certificate Holder, First
Security, Owner Trustee, WTC and Mortgagee agree for the benefit
of each of the others that it will not commence or join in any
proceeding under the Bankruptcy Code to commence a case under
Section 303 of the Bankruptcy Code against the Trust Estate. 
Nothing contained herein shall be deemed to preclude any
Participant, any Certificate Holder, First Security, Owner
Trustee, WTC or Mortgagee from filing any claim against the Trust
Estate in any case commenced against the Trust Estate.

            8.7.4     Certain Bankruptcy Matters

     If (a) all or any part of the Trust Estate becomes the
property of, or Owner Trustee or Owner Participant becomes, a
debtor subject to the reorganization provisions of the Bankruptcy
Code, (b) pursuant to such reorganization provisions, including
Section 1111(b) of the Bankruptcy Code, First Security or Owner
Participant is required, by reason of First Security or Owner
Participant being held to have recourse liability to any
Certificate Holder or Mortgagee directly or indirectly (other
than the recourse liability of First Security or Owner
Participant under this Agreement, the Trust Indenture or by
separate agreement), to make payment on account of any amount
payable as principal, Make-Whole Amount, if any, interest or
other amounts on the Loan Certificates, and (c) any Certificate
Holder or Mortgagee actually receives any Excess Amount, as
defined below, which reflects any payment by First Security or
Owner Participant on account of (b) above, then such Certificate
Holder or Mortgagee, as the case may be, shall promptly refund to
First Security or Owner Participant (whichever shall have made
such payment) such Excess Amount.  

     For purposes of this Section 8.7.4, "Excess Amount" means
the amount by which such payment exceeds the amount that would
have been received by a Certificate Holder or Mortgagee if First
Security or Owner Participant had not become subject to the
recourse liability referred to in clause (b) above.  Nothing
contained in this Section 8.7.4 shall prevent a Certificate
Holder or Mortgagee from enforcing any personal recourse
obligation (and retaining the proceeds thereof) of First Security
or Owner Participant under this Agreement (other than as referred
to in clause (b) above) or the Trust Indenture (and any exhibits
or annexes thereto) or from retaining any amount paid by Owner
Participant under Sections 2.14 or 4.03 of the Trust Indenture.  

            8.7.5     Quiet Enjoyment; Sale by Owner Trustee
                      Binding

     (a)  Each Participant, each Certificate Holder, Owner
Trustee and Mortgagee agrees as to itself with Lessee that, so
long as no Lease Event of Default shall have occurred and be
continuing, such Person shall not (and shall not permit any
Affiliate or other Person claiming by, through or under it to)
interfere with Lessee's rights in accordance with the Lease to
the quiet enjoyment, possession and use of the Aircraft during
the Term.  The foregoing, however, shall not be construed or
deemed to modify or condition in any respect the obligations of
Lessee pursuant to Section 16 of the Lease, which obligations are
absolute and unconditional.

     (b)  Any assignment, sale, transfer or other conveyance of
the Aircraft by Owner Trustee made pursuant to the terms of this
Agreement or the Lease shall bind Owner Participant and shall be
effective to transfer or convey all right, title and interest of
Owner Trustee and Owner Participant in and to the Aircraft.  No
purchaser or other grantee shall be required to inquire as to the
authorization, necessity, expediency or regularity of such
assignment, sale, transfer or conveyance, or as to the
application of any sale or other proceeds with respect thereto by
Owner Trustee, as regards Owner Participant.

            8.7.6     Effect of Lessee's Merger

     Section 13.2.2 of the Lease is incorporated by reference
herein.

            8.7.7     Non-Recourse

     Loan Participant and Mortgagee agree that (a) obligations of
Owner Trustee under the Trust Indenture or any other Operative
Agreement and with respect to the Loan Certificates shall be non-
recourse to Owner Participant and to First Security and (b) they
will look solely to the income and proceeds from the Trust Estate
and the Trust Indenture Estate to the extent available for
distribution to Loan Participant or Mortgagee as provided in the
Trust Indenture and that neither Owner Participant nor First
Security will be personally liable to Loan Participant or
Mortgagee for any amounts payable by Owner Trustee under the
Trust Indenture or any other Operative Agreement.  The foregoing
is not intended to limit any liability of Owner Participant or
First Security to the extent that such liability is expressly set
forth in this Agreement (with respect to Owner Participant) or in
any of the Operative Agreements (with respect to First Security).

            8.7.8     Other Documents; Amendment

     (a)  Each Participant hereby consents to the terms of the
Lease, the Trust Agreement and the Trust Indenture.  Lessee
acknowledges receipt of executed copies of the Trust Agreement
and the Trust Indenture and hereby consents to the execution and
delivery of the Trust Agreement and the Trust Indenture and to
all the terms thereunder, including, without limitation, the
creation of a Lien in respect of, among other things, the
Aircraft and the Lease pursuant to the Trust Indenture.  Nothing
in this Section 8.7.8 shall be construed to require Lessee's
consent to any future supplement to, or amendment, waiver or
modification of any other terms of, the Trust Agreement or the
Trust Indenture.  Notwithstanding the foregoing, so long as the
Lease has not terminated or expired, Owner Trustee and Mortgagee
hereby agree for the benefit of Lessee (i) to comply with the
provisions of the Trust Indenture if failure to so comply would
have an adverse effect on Lessee and such noncompliance is not
the direct result of an act or failure to act by Lessee, and (ii)
not, without the consent of Lessee, directly or indirectly to
amend or modify any provisions of Section 2.01, 2.07 (as to
reduction of the minimum denominations of Loan Certificates),
2.08, 2.09, 3.02, 3.04, 5.05, 5.06, 5.07, 5.08, 5.09, 8.02
(insofar as Lessee is specified to have rights thereunder), 10.04
or 10.05 of the Trust Indenture, Article I or Article VII of the
Trust Indenture or any Loan Certificate in a manner adversely
affecting Lessee.  Owner Trustee agrees to furnish promptly to
Lessee and Owner Participant copies of any amendment,
modification, supplement or waiver relating to any of the
Operative Agreements to which Lessee or Owner Participant, as the
case may be, is not a party.

     (b)  Owner Trustee agrees to join with Lessee to the extent
that action on its part is necessary or appropriate (i) to cause
the following to be duly accomplished in accordance with
applicable United States federal Law by the time the Aircraft is
delivered under this Agreement and the Lease:  (A) the
application for registration of the Aircraft in the name of Owner
Trustee and (B) all related action necessary in order for Lessee
to have temporary or permanent authority to operate the Aircraft
as contemplated by the Lease and (ii) forthwith upon delivery of
the Aircraft under this Agreement and the Lease, to cause all
necessary documents to be duly filed for recording in accordance
with applicable United States federal Law.

            8.7.9     Consents

     Each Participant, Owner Trustee and Mortgagee covenants and
agrees, for the benefit of Lessee, that it shall not unreasonably
withhold its consent to any consent or approval requested of it
or of Owner Trustee or Mortgagee under the terms of any of the
Operative Agreements which by its terms is not to be unreasonably
withheld.  

            8.7.10    Insurance

     Each party hereto (other than Lessee) agrees not to obtain
or maintain insurance for its own account as permitted by
Section 11.3 of the Lease if such insurance would limit or
otherwise adversely affect the coverage of any insurance required
to be obtained or maintained by Lessee pursuant to Section 11 and
Annex D of the Lease.

            8.7.11    Extent of Interest of Certificate Holders

     A Certificate Holder shall not, as such, have any further
interest in, or other right with respect to, the Trust Estate or
the Trust Indenture Estate when and if the principal and Make-
Whole Amount, if any, of and interest on the Loan Certificate
held by such Holder, and all other sums, then due and payable to
such Holder hereunder and under any other Operative Agreement,
shall have been paid in full.

            8.7.12    Foreign Registration

     Each Participant, Owner Trustee and Mortgagee (for purposes
of this Section 8.7.12, acting only at the direction of a
Majority in Interest of Certificate Holders determined without
reference to the second sentence of the definition thereof)
hereby agrees, for the benefit of Lessee but subject to the
provisions of Section 7.1.2 of the Lease: 

     (a)  that Lessee shall be entitled to register the Aircraft
or cause the Aircraft to be registered in a country other than
the United States subject to compliance with the following:

          (i)  each of Lessor and Mortgagee gives its prior
     written consent; and

          (ii) each of the following requirements is satisfied:

          (A)  Lessee shall deliver such request to Lessor and
               Mortgagee at least 30 days in advance of the date
               of any such proposed change of registration;

          (B)  such registration shall be made, if at all, only
               after the close of the calendar year in which the
               seventh anniversary of the Delivery Date occurs or
               if a Lessee Act (as defined in the Tax Indemnity
               Agreement) as a result of which indemnification
               has been required under the Tax Indemnity
               Agreement has created a longer Tax Attribute
               Period (as defined in the Tax Indemnity
               Agreement), after the close of the Tax Attribute
               Period, unless in either case Lessee prepays any
               liability Owner Participant determines would be
               due under the Tax Indemnity Agreement as a result
               of such registration based upon the assumption
               that such registration would continue for the
               remainder of the term of the Permitted Sublease
               described in clause (D) below;

          (C)  no Lease Default or Lease Event of Default shall
               have occurred and be continuing at the time of
               such request;

          (D)  such proposed change of registration is made in
               connection with a Permitted Sublease to a
               Permitted Air Carrier;

          (E)  such country (1) is the domicile of Permitted
               Sublessee and the country in which Permitted
               Sublessee maintains its principal place of
               business and (2) is a country with which the
               United States then maintains normal diplomatic
               relations;

          (F)  such country would recognize the interests of, and
               would provide substantially equivalent protection
               (including the right to take possession of the
               Aircraft in the event of (1) a Lease Event of
               Default or a default by Permitted Sublessee or
               (2) the bankruptcy of Lessee or Permitted
               Sublessee) for the rights and remedies of, owner
               participants, lessors, lenders and mortgagees in
               similar transactions as provided under the Law of
               the United States; 

          (G)  the courts of such country would give effect to
               Lessor's title to and leasehold interest in the
               Aircraft, to the registration of the Aircraft in
               the name of Lessor and to the priority of the Lien
               of the Trust Indenture, in each case substantially
               to the same extent as provided under the Law of
               the United States; and 

          (H)  if requested by Lessor, Lessee or any Permitted
               Sublessee shall, for purposes of enforcement of
               the rights and remedies provided for in Section 15
               of the Lease, execute an irrevocable power of
               attorney in form and substance satisfactory to
               Lessor providing for, among other things, upon and
               during the continuance of a Lease Event of
               Default, (1) the deregistration of the Aircraft
               and (2) the reregistration of the Aircraft in the
               United States by Lessor, including the ability to
               obtain export licenses and take any other action
               necessary or advisable for the repossession,
               export and redelivery to Lessor of the Airframe,
               any Engine and any airframe or engine substituted
               for the Airframe or any Engine, all in accordance
               with the Lease.

     (b)  Neither Lessor nor Mortgagee shall unreasonably
withhold its consent to such a request by Lessee for a change of
registration of the Aircraft in accordance with this Section, if:

         (i)   Lessee shall have given to Lessor and Mortgagee
     assurances reasonably satisfactory to each of them:

          (A)  to the effect that the provisions of Section 11 of
               the Lease have been complied with after giving
               effect to such change of registration;

          (B)  of the payment by Lessee of all reasonable
               expenses of Lessor, each Participant, each
               Certificate Holder and Mortgagee in connection
               with such change of registry, including, without
               limitation (1) the reasonable fees and
               disbursements of counsel, (2) any filing or
               recording fees, Taxes or similar payments incurred
               in connection with the change of registration of
               the Aircraft and the creation and perfection of
               the security interest therein in favor of
               Mortgagee for the benefit of Certificate Holders,
               (3) all costs and expenses incurred in connection
               with any filings necessary to continue in the
               United States the perfection of the security
               interest in the Aircraft and the Lease in favor of
               Mortgagee for the benefit of Certificate Holders
               and (4) any and all other costs, expenses and
               Taxes under the Law of the country of registry,
               whether initial or on a continuing basis, incurred
               by Lessor, each Participant, each Certificate
               Holder or Mortgagee as a result of the
               registration of the Aircraft, or the creation,
               attachment and perfection of the security interest
               therein, under the laws of the country of
               registry;

          (C)  to the effect that the tax and other indemnities
               in favor of each person named as an indemnitee
               under any other Operative Agreement afford each
               such person substantially the same protection as
               provided prior to such change of registration (or
               Lessee shall have agreed upon additional
               indemnities that, together with such original
               indemnities, in the reasonable judgment of Lessor
               and Mortgagee, afford such protection);

          (D)  as to the continued status of the Trust Indenture
               as a first priority perfected Lien (subject to
               Permitted Liens) on the Trust Indenture Estate
               (including, without limitation, the Aircraft);

          (E)  that any import or export permits necessary to
               take the Aircraft into or out of such country and
               any exchange permits necessary to allow all Rent
               and other payments provided for under the Lease
               shall be in full force and effect;

          (F)  that any value-added tax, customs or import fee or
               duty, tariff, other Tax or similar governmental
               charge relating to the change in jurisdiction of
               registration of the Aircraft shall have been paid
               in full or adequately provided for by Lessee;

          (G)  that such new country of registry imposes aircraft
               maintenance standards no less stringent than those
               of the FAA;

          (H)  that no Lease Default or Lease Event of Default
               exists and that no Lease Default or Lease Event of
               Default will occur or exist upon, or result from,
               such reregistration; and

          (I)  with respect to such other matters as Lessor, any
               Participant, Owner Participant or Mortgagee may
               reasonably request; and

        (ii)   Lessee shall deliver to Lessor, Certificate
     Holders and Mortgagee a favorable opinion, in form and
     substance and from counsel in such country, in each case,
     reasonably satisfactory to Lessor and Mortgagee, to the
     effect that:

          (A)  the terms (including, without limitation, the
               governing law, service-of-process and
               jurisdictional submission provisions, and the
               remedies) of this Agreement, the Lease, the
               applicable Permitted Sublease and the Trust
               Indenture are legal, valid, binding and
               enforceable in such country;

          (B)  it is not necessary for Lessor, any Participant,
               Certificate Holders or Mortgagee to register or
               qualify to do business in such country as a
               result, in whole or in part, of the registration
               of the Aircraft in such country;

          (C)  there is no tort liability of or imputed to the
               owner or lessor, or of persons lending money, on a
               secured or unsecured basis, or any guarantor of
               any such person, to such an owner or lessor for
               the purchase of, an aircraft, under the laws of
               such country (it being understood that, in the
               event such latter opinion cannot be given in a
               form satisfactory to Lessor and each Participant,
               such opinion shall be waived if insurance or
               third-party indemnities satisfactory to Lessor and
               each Participant are available to cover such risk
               and is provided at or before the time of such
               change of registration, at Lessee's expense);

          (D)  unless Lessee shall have agreed to provide
               insurance satisfactory to Lessor and each
               Participant covering the risk of requisition of
               use of the Aircraft by the government of such
               country (so long as the Aircraft is registered
               under the laws of such country), the laws of such
               country require fair compensation by the
               government of such country payable in currency
               freely convertible into Dollars and freely
               removable from such country (without license or
               permit, unless Lessee prior to such proposed
               reregistration has obtained such license or
               permit) for the taking or loss of use of the
               Aircraft in the event of the taking or requisition
               by such government of such use;

          (E)  the registration of the Aircraft would be
               terminable without material burden, penalty or
               delay by Lessor or Mortgagee upon the occurrence
               of a Lease Event of Default; 

          (F)  there shall not exist possessory rights in favor
               of the government of such country, Lessee or
               Permitted Sublessee (including, without
               limitation, a defense of sovereign immunity) that
               would, upon the bankruptcy of Lessee or Permitted
               Sublessee or upon the occurrence of a Lease Event
               of Default, prevent or delay the return of the
               Aircraft pursuant to the Lease; 

     and covering the matters set forth in
     Sections 8.7.12(a)(ii)(F) and (G) and to such further effect
     with respect to such other matters as Lessor, each
     Participant or Certificate Holders may reasonably request.

     (c)  The parties hereto acknowledge to each other that none
of such parties has conducted a review of the countries in which
the Permitted Air Carriers are domiciled to determine whether any
of the criteria set forth in Section 8.7.12(a) or (b) are
currently met.

     (d)  Any such change in registration shall be at the sole
expense of Lessee, and Lessee shall pay all reasonable expenses
of Lessor, each Participant, Certificate Holders and Mortgagee in
connection with any request to change (and the evaluation
thereof), and any actual change, of registration of the Aircraft.

            8.7.13    Other Commercial Relations Unaffected

     Notwithstanding anything to the contrary set forth in any
Operative Agreement:

     (a)  Except as set forth in the Purchase Agreement
Assignment, nothing contained in the Lessee Operative Agreements
shall constitute or be deemed to be a waiver by Lessee of any
rights, remedies or claims it may have against Airframe
Manufacturer or Engine Manufacturer or any subcontractor or
supplier of either; and the Lessee Operative Agreements do not
and shall not be construed or deemed to create any rights,
waivers, immunities or indemnities in favor of Airframe
Manufacturer, Engine Manufacturer or any subcontractor or
supplier of either with respect to any such rights, remedies or
claims of Lessee; and

     (b)  None of Airframe Manufacturer, by its execution and
delivery of the Consent and Agreement, Owner Participant Parent,
by its execution and delivery of the Owner Participant Guaranty,
and Engine Manufacturer, by its execution and delivery of the
Engine Consent and Agreement, shall be deemed to have waived any
rights, remedies or claims which Airframe Manufacturer, Engine
Manufacturer (or any subcontractor or supplier of either) or
Owner Participant Parent, as the case may be, may have against
Lessee; and the Operative Agreements do not and shall not be
construed or deemed to create any rights, waivers, immunities or
indemnities in favor of Lessee with respect to any such rights,
remedies or claims of Airframe Manufacturer, Engine Manufacturer
(or any subcontractor or supplier of either) or Owner Participant
Parent.

            8.7.14    Interest in Certain Engines

     Each Participant, Owner Trustee and Mortgagee agree, for the
benefit of each of the lessor, conditional seller, mortgagee or
secured party of any airframe or engine leased to, or purchased
by, Lessee or any Permitted Sublessee subject to a lease,
conditional sale, trust indenture or other security agreement
that it will not acquire or claim, as against such lessor,
conditional seller, mortgagee or secured party, any right, title
or interest in any engine as the result of such engine being
installed on the Airframe at any time while such engine is
subject to such lease, conditional sale, trust indenture or other
security agreement and owned by such lessor or conditional seller
or subject to a trust indenture or security interest in favor of
such mortgagee or secured party; provided, that Lessee or any
such Permitted Sublessee shall have received from the lessor,
conditional seller, mortgagee or secured party in respect of such
airframe a written agreement (which may be the lease, conditional
sale agreement, trust indenture or other security agreement
covering such airframe) whereby such lessor, conditional seller,
mortgagee or secured party effectively agrees that neither it nor
its successors or assigns will acquire or claim any right, title
or interest in any Engine by reason of such Engine being
installed on such airframe at any time while such Engine is
subject to the Lease or is owned by Owner Trustee. 

            8.7.15    Trust Agreement

     Each of First Security and Owner Trustee hereby (i) agrees
with Lessee, Loan Participant and Mortgagee not to amend,
supplement, terminate or otherwise modify any provision of the
Trust Agreement in such a manner as to adversely affect the
rights of any such party without the prior written consent of
such party and (ii) agrees with Lessee, Loan Participant and
Mortgagee not to revoke the trust created by the Trust Agreement
so long as the Trust Indenture remains undischarged or if such
revocation would have an adverse effect on the Lessee.  Nothing
contained in this Agreement shall impair any right under the
Trust Agreement of First Security to resign as Owner Trustee.

            8.7.16    Release of Lien of Trust Indenture

     Each of Lessee, Owner Trustee and Mortgagee agree that in
each instance referred to in the Lease in which a transfer of any
property is required to be made by Owner Trustee to Lessee or any
other Person (other than Mortgagee or Owner Participant), upon
full compliance by Lessee with Lessee's obligations, if any,
under the applicable section thereof, Mortgagee shall (upon
certification by Lessee and Owner Trustee of any such event and
without the consent of Certificate Holders) promptly execute such
instruments as Owner Trustee or Lessee may reasonably request to
evidence the release of the Lien of the Trust Indenture with
respect to such property.

            8.7.17    [Intentionally Omitted]

SECTION 9.  OPTIMIZATION OF AMORTIZATION SCHEDULE

     (a)  In the event that there shall be a Post-Delivery Change
in Tax Law, then Lessee may, pursuant to this Section 9 and in
accordance with the requirements of Section 3.2.1 of the Lease,
request an optimization of the Amortization Schedule by notice
given to Owner Participant and Owner Trustee.  After receipt of
such notice, Owner Participant shall deliver to Lessee,
Certificate Holders and Mortgagee, together with the information
required to be delivered pursuant to Section 3.2.1(c) of the
Lease, a certificate of an authorized representative of the Owner
Participant (the "Optimization Certificate") setting forth the
proposed revised Amortization Schedule which shall, subject to
Section 9(b), minimize Net Present Value of Rents to Lessee while
preserving the Net Economic Return.  Lessee may demand a
verification, pursuant to Section 3.2.1 of the Lease, of the
information set forth in the Optimization Certificate.  Upon the
acceptance by Lessee of the accuracy of the information set forth
in the Optimization Certificate or the determination pursuant to
such verification procedures of such information, Owner
Participant will cause Owner Trustee no sooner than 30 days after
delivery of the initial Optimization Certificate, to exchange
such new Amortization Schedule for the Amortization Schedule
attached to each Loan Certificate outstanding immediately prior
to such optimization and Certificate Holders will cause Mortgagee
to execute any amendments to the Trust Indenture necessary to
effectuate the foregoing.

     (b)  In connection with optimization adjustments pursuant to
this Section 9, (i) Certificate Holders will agree to changes in
the Amortization Schedule made in accordance with this Section 9
and (ii) each Certificate Holder will promptly destroy the
Amortization Schedules attached to the Loan Certificates held by
it immediately prior to such optimization upon receipt of the new
Amortization Schedule; provided, that such changes do not (w)
increase or decrease the outstanding principal amount of the Loan
Certificates as of the time of such exchange, (x) change the
final maturity date of any Loan Certificate or, without the prior
written consent of all Certificate Holders, increase or decrease
the original Weighted Average Life to Maturity of the Loan
Certificates by more than six months, (y) result in any interest
being capitalized or (z) reduce Basic Rent, Stipulated Loss Value
or Termination Value percentages below the amount necessary
(together with all other amounts simultaneously payable by
Lessee) to permit payment of all amounts payable pursuant to the
Loan Certificates.

     (c)  Lessee shall be entitled to optimize pursuant to this
Section 9 only one time.  Any optimization hereunder shall be
requested by Lessee not later than the end of 15th month after
the Delivery Date.

     (d)  With respect to an optimization pursuant to this
Section 9, Lessee shall pay on an after-tax basis all Expenses of
all parties hereto incurred in connection with such optimization,
including, without limitation, the reasonable fees and expenses
of such parties' counsel.

     (e)  Notwithstanding the foregoing, no optimization shall be
permitted under this Section 9 unless:

         (i)   Lessee shall have caused to be delivered to Owner
     Trustee and Mortgagee a form of trust indenture supplement
     to give effect to the optimization;

        (ii)   Lessee shall have delivered to Mortgagee an
     Officer's Certificate of Lessee stating that the new
     Amortization Schedule complies with the proviso to
     Section 9(b); and

       (iii)   [Intentionally Omitted]

     (f)  [Intentionally Omitted]

SECTION 10. INDEMNIFICATION AND EXPENSES

     10.1   General Indemnity

            10.1.1    Indemnity

     Whether or not any of the transactions contemplated hereby
are consummated, Lessee shall indemnify, protect, defend and hold
harmless each Indemnitee from, against and in respect of, and
shall pay on demand, any and all Expenses of any kind or nature
whatsoever, and whether arising before, on or after the Delivery
Date, that may be imposed on, incurred by or asserted against any
Indemnitee, in any way relating to, resulting from, or arising
out of or in connection with, in each case, directly or
indirectly, any one or more of the following:

     (a)  The Operative Agreements or any Permitted Sublease or
the enforcement of any of the terms of any of the Operative
Agreements or any Permitted Sublease;

     (b)  The Aircraft, the Airframe, any Engine or any Part,
including, without limitation, with respect thereto, (i) the
manufacture, design, purchase, acceptance, nonacceptance or
rejection, ownership, registration, reregistration,
deregistration, financing, delivery, nondelivery, lease,
sublease, assignment, possession, use or non-use, operation,
maintenance, testing, repair, overhaul, condition, alteration,
modification, addition, improvement, storage, airworthiness,
replacement, repair, sale, substitution, return, abandonment,
redelivery or other disposition of the Aircraft, any Engine or
any Part, (ii) any claim or penalty arising out of violations of
applicable Laws by Lessee (or any Permitted Sublessee),
(iii) tort liability, whether or not arising out of the
negligence of any Indemnitee (whether active, passive or
imputed), (iv) death or property damage of passengers, shippers
or others, (v) environmental control, noise or pollution and
(vi) any Liens in respect of the Aircraft, any Engine or any
Part;

     (c)  The offer, sale, resale, purchase, delivery or holding
of any Loan Certificate or any interest therein or represented
thereby or any refunding thereof pursuant to Section 13, whether
before, on or after the Delivery Date; 

     (d)  The offer or sale of any interest in the Aircraft, the
Loan Certificates, the Trust Estate or the Trust Agreement or any
similar interest or in any way resulting from or arising out of
the Trust Agreement and the Trust Estate and the Trust Indenture
Estate (including for claims resulting from or arising under the
Securities Act or other applicable federal, state or foreign
securities Law or at common law) in each case on or prior to the
Delivery Date; 

     (e)  Any breach of or failure to perform or observe, or any
other noncompliance with, any covenant or agreement or other
obligation to be performed by Lessee under any Lessee Operative
Agreement or the falsity of any representation or warranty of
Lessee in any Lessee Operative Agreement other than in the Tax
Indemnity Agreement or the occurrence of any Lease Default or
Lease Event of Default; and

     (f)  Any "prohibited transaction," within the meaning of
Section 406 of ERISA or Section 4975(c)(1) of the Code, in any
way relating to, resulting from, or arising out of or in
connection with, directly or indirectly, the offer, sale, resale,
purchase, delivery or holding of any Loan Certificate or any
interest therein or represented thereby or any refunding thereof
pursuant to Section 13, or any other transaction contemplated
under the Operative Agreements, whether such prohibited
transaction occurs before, on or after the Delivery Date.

            10.1.2    Exceptions

     Notwithstanding anything contained in Section 10.1.1, Lessee
shall not be required to indemnify, protect, defend and hold
harmless any Indemnitee pursuant to Section 10.1.1 in respect of
any Expense of such Indemnitee:

     (a)  For any Taxes (other than Taxes related to ERISA or
assessed under Section 4975 of the Code) or a loss of Tax
benefit, whether or not Lessee is required to indemnify therefor
pursuant to Section 10.3 or the Tax Indemnity Agreement;

     (b)  Except to the extent fairly attributable to acts or
events occurring or conditions or circumstances existing prior
thereto, acts or events (other than acts or events related to the
performance by Lessee of its obligations pursuant to the terms of
the Lessee Operative Agreements) that occur after the earliest
of: (i) with respect to the Airframe, any Engine or any Part, the
return of possession of such Airframe, Engine or Part pursuant to
the terms of and in compliance with the Lease (other than
pursuant to Section 15 thereof, in which case Lessee's liability
under this Section 10.1 shall survive for so long as Lessor shall
be entitled to exercise remedies under such Section 15), (ii) the
termination of the Term in accordance with Sections 9 or 17.3 of
the Lease or (iii) the termination of the Term in accordance with
Section 10.1.2 of the Lease and the payment by Lessee of all
amounts then due and payable under the Lease and hereunder as a
result of an Event of Loss with respect to the Aircraft;
provided, that nothing in this clause (b) shall be deemed to
exclude or limit any claim that any Indemnitee may have under
applicable Law by reason of a Lease Event of Default or for
damages from Lessee for breach of Lessee's covenants contained in
the Lessee Operative Agreements or to release Lessee from any of
its obligations under the Lessee Operative Agreements that
expressly provide for performance after termination of the Term;

     (c)  If such Indemnitee shall be a Loan Participant or any
Certificate Holder, for any Expense attributable to any Transfer
(voluntary or involuntary) by or on behalf of such Indemnitee of
any Loan Certificate or interest therein, except for out-of-
pocket costs and expenses incurred as a result of any such
Transfer pursuant to the exercise of remedies under any Operative
Agreement resulting from a Lease Event of Default or any such
Transfer required by an Operative Agreement; 

     (d)  If such Indemnitee shall be Owner Participant, for any
Expense asserted against Owner Participant to the extent that the
same is so asserted by reason of any Transfer (voluntary or
involuntary) by or on behalf of Owner Participant of any interest
in the Aircraft, or the Trust Estate except for out-of-pocket
costs and expenses incurred as a result of such Transfer, if, at
the time of such Transfer, a Lease Event of Default shall have
occurred and be continuing;

     (e)  To the extent such Expense is attributable to the gross
negligence or willful misconduct of such Indemnitee or any
related Indemnitee (as defined below) (other than gross
negligence or willful misconduct imputed to such person by reason
of its interest in the Aircraft or any Operative Agreement);

     (f)  If such Indemnitee is Owner Trustee any Expense or
other amount that is enumerated in the proviso to Section 17;

     (g)  Any Expense to the extent attributable to the
incorrectness or breach of any representation or warranty of such
Indemnitee or related Indemnitee contained in or made pursuant to
any Operative Agreement; 

     (h)  Any Expense to the extent attributable to the failure
by such Indemnitee or any related Indemnitee to perform or
observe any agreement, covenant or condition on its part to be
performed or observed in any Operative Agreement; 

     (i)  Any Expense to the extent attributable to the offer or
sale by such Indemnitee or any related Indemnitee of any interest
in the Aircraft, the Loan Certificates, the Trust Estate or the
Trust Agreement or any similar interest, in violation of the
Securities Act or other applicable federal, state or foreign
securities Laws, in each case, on or prior to the Delivery Date; 

     (j)  With respect to any Indemnitee (other than Mortgagee),
any Expense to the extent attributable to the failure of the
Mortgagee to distribute funds received and distributable by it in
accordance with the Trust Indenture or the Owner Trustee to
distribute funds received and distributable by it in accordance
with the Trust Agreement and, with respect to Mortgagee, any
Expense to the extent attributable to the negligence or willful
misconduct of Mortgagee in the distribution of funds received and
distributable by it in accordance with the Trust Indenture;

     (k)  Other than during the continuation of a Lease Event of
Default, any Expense attributable to the authorization or giving
or withholding of any future amendments, supplements, waivers or
consents with respect to any Operative Agreement other than such
as have been requested by Lessee or as are required by or made
pursuant to the terms of the Operative Agreements (unless such
requirement results from the actions of an Indemnitee not
required by or made pursuant to the Operative Agreements); 

     (l)  Any Expense or other amount which such Indemnitee
expressly agrees to pay or such Indemnitee expressly agrees shall
not be paid by or be reimbursed by Lessee including, without
limitation, with respect to Owner Participant, pursuant to
Section 15;

     (m)  Any Expense that is an ordinary and usual operating or
overhead expense;

     (n)  Any Expense by the Owner Participant or Owner Trustee
attributable to the deregistration of the Aircraft under the Act
as a result of Owner Participant's or Owner Trustee's (or any
related Indemnitee of either) not being a Citizen of the United
States as a result of any act (other than reregistration of the
Aircraft pursuant to Section 7.1.2 of the Lease) of the Owner
Participant or the Owner Trustee, or any related Indemnitee of
either of the foregoing (not taken at the request of the Lessee);

     (o)  For any Lessor Lien attributable to such Indemnitee or
any related Indemnitee;

     (p)  Any Expense to the extent constituting principal, Make-
Whole Amount or interest on the Loan Certificates attributable
solely to an Event of Default not constituting a Lease Event of
Default;

     (q)  If such Indemnitee shall be a Loan Participant or a
Certificate Holder, or any related Indemnitee of either, for any
Expense incurred by or asserted against such Indemnitee as a
result of any "prohibited transaction", within the meaning of
Section 406 of ERISA or Section 4975(c)(1) of the Code, including
a prohibited transaction described in 10.1.1(f); provided, that
this clause (q) shall not negate Lessee's obligation under
Section 10.1.1, or any other provision of any Lessee Operative
Agreement, to indemnify an Indemnitee, other than a Loan
Participant or a Certificate Holder, or any related Indemnitee of
either, for any Expense incurred by or asserted against such
Indemnitee as a result of a "prohibited transaction", within the
meaning of Section 406 of ERISA or Section 4975(c)(1) of the
Code, in any way relating to, resulting from, or arising out of
or in connection with, directly or indirectly, the offer, sale,
resale, purchase, delivery or holding of any Loan Certificate or
any interest therein or represented thereby or any refunding
thereof pursuant to Section 13, or any other transaction
contemplated under the Operative Agreements, whether such
prohibited transaction occurs before, on or after the Delivery
Date; or

     (r)  [Intentionally Omitted]

     For purposes of this Section 10.1, a Person shall be
considered a "related" Indemnitee with respect to an Indemnitee
if such Person is a director, officer, employee, agent, Affiliate
or employer thereof. 

            10.1.3    Separate Agreement

     This Agreement constitutes a separate agreement with respect
to each Indemnitee and is enforceable directly by each such
Indemnitee.

            10.1.4    Notice

     If a claim for any material Expense that an Indemnitee shall
be indemnified against under this Section 10.1 is made, such
Indemnitee shall give prompt written notice thereof to Lessee. 
Notwithstanding the foregoing, the failure of any Indemnitee to
notify Lessee as provided in this Section 10.1.4, or in Section
10.1.5, shall not release Lessee from any of its obligations to
indemnify such Indemnitee hereunder, unless such failure is
solely responsible for effectively foreclosing Lessee's right to
contest such claim.

            10.1.5    Notice of Proceedings; Defense of Claims;
                      Limitations

     (a)  In case any action, suit or proceeding shall be brought
against any Indemnitee for which Lessee is responsible under this
Section 10.1, such Indemnitee shall notify Lessee of the
commencement thereof and Lessee may, at its expense, participate
in and to the extent that it shall wish (subject to the
provisions of the following paragraph), assume and control the
defense thereof, with counsel reasonably satisfactory to such
Indemnitee and, subject to Section 10.1.5(c), settle or
compromise the same.

     (b)  Lessee or its insurer(s) shall have the right, at its
or their expense, to investigate or, if Lessee or its insurer(s)
shall agree not to dispute liability hereunder or under any
insurance policies pursuant to which coverage is sought, defend,
or participate in the defense of, any action, suit or proceeding,
with counsel reasonably satisfactory to the relevant Indemnitee,
relating to any Expense for which indemnification is sought
pursuant to this Section 10.1, and each Indemnitee shall
cooperate with Lessee or its insurer(s) with respect thereto;
provided, that Lessee shall not be entitled to control the
defense of any such action, suit, proceeding or compromise any
such Expense (i) during the continuance of any Lease Event of
Default, (ii) if in the reasonable judgment of any Indemnitee,
compromise of such Expense could have an adverse impact on the
business of such Indemnitee or involve the potential imposition
of criminal liability on such Indemnitee or (iii) if such defense
or compromise would at any time involve any material risk of the
sale, forfeiture or loss of, or the loss of use of, or the
creation of any Lien (other than a Permitted Lien) on, the
Aircraft, the Airframe, any Engine, any Part, the Trust Indenture
Estate or the Trust Estate unless Lessee shall have posted a bond
or other security reasonably satisfactory to Owner Participant,
Mortgagee and such Indemnitee with respect to such risk.  In
connection with any such action, suit or proceeding being
controlled by Lessee, such Indemnitee shall have the right to
participate therein, at its sole cost and expense, with counsel
of its choice; provided, that such Indemnitee's participation
does not, in the reasonable opinion of the independent counsel
appointed by the Lessee or its insurers to conduct such
proceedings, interfere with the defense of such case.  Lessee
shall supply the Indemnitee with such information reasonably
requested by the Indemnitee as is necessary or advisable for the
Indemnitee to control or participate in any proceeding to the
extent permitted by this Section 10.1.

     (c)  In no event shall any Indemnitee enter into a
settlement or other compromise with respect to any Expense
without the prior written consent of Lessee (except during the
continuance of a Lease Event of Default when such consent shall
not be required, if the Indemnitee has given Lessee at least 30
days' prior written notice of the nature and scope of the
proposed settlement or compromise), which consent shall not be
unreasonably withheld or delayed, unless such Indemnitee waives
its right to be indemnified with respect to such Expense under
this Section 10.1.  Lessee shall not enter into a settlement or
other compromise with respect to any Expense absent the giving to
such Indemnitee of prior written notice of such settlement or
compromise, and Lessee will not enter into such a settlement or
other compromise absent such Indemnitee's prior written consent,
which consent shall not be unreasonably withheld or delayed
(provided that such consent shall not be required if such
settlement or compromise provides for the total and irrevocable
release of such Indemnitee with respect to all claims relating to
such Expense without admission of any liability of such
Indemnitee with respect to such Expense and imposes no conditions
or restrictions upon such Indemnitee).

     (d)  In any circumstance in which Lessee shall not be
entitled to control the defense of any action, suit or proceeding
described above, or compromise any Expense, Lessee shall have the
right to participate therein, at its sole cost and expense, with
counsel reasonably acceptable to the involved Indemnitee;
provided, that Lessee's participation does not, in the reasonable
opinion of independent counsel appointed by such Indemnitee to
conduct such proceedings, interfere with the defense of such
case.

     (e)  In the case of any Expense indemnified by the Lessee
hereunder which is covered by a policy of insurance maintained by
Lessee pursuant to Section 11 of the Lease, at Lessee's expense,
each Indemnitee agrees to cooperate with the insurers in the
exercise of their rights to investigate, defend or compromise
such Expense as may be required to retain the benefits of such
insurance with respect to such Expense.

     (f)  If an Indemnitee is not a party to this Agreement,
Lessee may require such Indemnitee to agree in writing to the
terms of this Section 10 and Section 19.8 prior to making any
payment to such Indemnitee under this Section 10.

     (g)  Nothing herein shall be deemed to be an assumption by
Lessee of obligations of Owner Trustee with respect to, or a
guarantee by Lessee of, any amounts payable by Owner Trustee upon
Loan Certificates or a guarantee of any residual value of the
Aircraft.

     (h)  Nothing contained in this Section 10.1.5 shall be
deemed to require an Indemnified Party to contest any Expense or
to assume responsibility for or control of any judicial
proceeding with respect thereto.

            10.1.6    Information

     Lessee will provide the relevant Indemnitee with such
information not within the control of such Indemnitee, as is in
Lessee's control or is reasonably available to Lessee, which such
Indemnitee may reasonably request and will otherwise cooperate
with such Indemnitee so as to enable such Indemnitee to fulfill
its obligations under Section 10.1.5.  The Indemnitee shall
supply Lessee with such information not within the control of
Lessee, as is in such Indemnitee's control or is reasonably
available to such Indemnitee, which Lessee may reasonably request
to control or participate in any proceeding to the extent
permitted by Section 10.1.5.

            10.1.7    Effect of Other Indemnities; Subrogation;
                      Further Assurances

     Lessee's obligations under the indemnities provided for in
this Agreement shall be those of a primary obligor whether or not
the person indemnified is also indemnified with respect to the
same matter under the terms of this Agreement, any Operative
Agreement or any other agreement, instrument or document, whether
or not related to the transactions contemplated hereby, and the
person seeking indemnification from Lessee pursuant to any
provision of this Agreement may proceed directly against Lessee
without first seeking to enforce any other right of
indemnification.  Upon the payment in full by Lessee of any
indemnity provided for under this Agreement, Lessee, without any
further action and to the full extent permitted by Law, will be
subrogated to all rights and remedies of the person indemnified
(other than with respect to any of such Indemnitee's insurance
policies or in connection with any indemnity claim such
Indemnitee may have under Section 5.03 or 7.01 of the Trust
Indenture or Section 5.3 or 7 of the Trust Agreement) in respect
of the matter as to which such indemnity was paid.  Each
Indemnitee will give such further assurances or agreements and
cooperate with Lessee to permit Lessee to pursue such claims, if
any, to the extent reasonably requested by Lessee and at Lessee's
expense.

            10.1.8    Refunds

     If an Indemnitee receives any refund, in whole or in part,
with respect to any Expense paid by Lessee hereunder, it will
promptly pay the amount refunded (but not an amount in excess of
the amount Lessee or any of its insurers has paid in respect of
such Expense) over to Lessee unless a Lease Event of Default
shall have occurred and be continuing, in which case such amounts
shall be paid over to Owner Trustee (or, so long as the Trust
Indenture shall not have been discharged, to Mortgagee) to hold
as security for Lessee's obligations under the Lessee Operative
Agreements or, if requested by Lessee, applied to satisfy such
obligations.

     10.2   Expenses

     Whether or not all or any portion of the transactions
contemplated herein are consummated, Lessee shall pay on demand
all Transaction Expenses.

     10.3   General Tax Indemnity

            10.3.1    General

     Except as provided in Section 10.3.2, Lessee agrees that
each payment of Rent paid by Lessee pursuant to the Lease, and
any other payment or indemnity paid by Lessee to a Tax Indemnitee
or Indemnitee under any Operative Agreement, shall be free of all
withholdings or deductions with respect to Taxes of any nature
(other than U.S. federal, state or local withholding taxes on,
based on or measured by gross or net income), and in the event
that Lessee shall be required by applicable law to make any such
withholding or deduction for any such payment, (x) the amount
payable by Lessee shall be increased so that after making all
required withholdings or deductions such Indemnitee or Tax
Indemnitee, as the case may be, receives the same amount that it
would have received had no such withholdings or deductions been
made, (y) Lessee shall make all such withholdings or deductions
and (z) Lessee shall pay the full amount withheld or deducted to
the relevant Taxing Authority in accordance with applicable law. 
Except as provided in Section 10.3.2 and whether or not any of
the transactions contemplated hereby are consummated, Lessee
shall pay, indemnify, protect, defend and hold each Tax
Indemnitee harmless from all Taxes imposed by any Taxing
Authority that may from time to time be imposed on or asserted
against any Tax Indemnitee or the Aircraft, the Airframe, any
Engine or any Part or any interest in any of the foregoing
(whether or not indemnified against by any other Person), upon or
with respect to the Operative Agreements or the transactions or
payments contemplated thereby, including but not limited to any
Tax imposed upon or with respect to (x) the Aircraft, the
Airframe, any Engine, any Part, any Operative Agreement
(including without limitation any Loan  Certificate) or any data
or any other thing delivered or to be delivered under an
Operative Agreement, (y) the purchase, manufacture, acceptance,
rejection, sale, transfer of title, return, ownership,
mortgaging, delivery, transport, charter, rental, lease, re-
lease, sublease, assignment, possession, repossession, presence,
use, condition, storage, preparation, maintenance, modification,
alteration, improvement, operation, registration, transfer or
change of registration, reregistration, repair, replacement,
overhaul, location, control, the imposition of any Lien (other
than a Lessor Lien), financing, refinancing requested by the
Lessee, abandonment or other disposition of the Aircraft, the
Airframe, any Engine, any Part, any data or any other thing
delivered or to be delivered under an Operative Agreement or
(z) rent, interest, fees or any other income, proceeds, receipts
or earnings, whether actual or deemed, arising upon, in
connection with, or in respect of, any of the Operative
Agreements (including the property or income or other proceeds
with respect to property held as part of the Trust Indenture
Estate) or the transactions contemplated thereby.

            10.3.2    Certain Exceptions

     The provisions of Section 10.3.1 shall not apply to, and
Lessee shall have no liability pursuant to Section 10.3.1 for,
Taxes:

         (a)   imposed on a Tax Indemnitee by the United States
     Federal government on, based on or measured by gross or net
     income (including any capital gains taxes, excess profits
     taxes, minimum taxes from tax preferences, alternative
     minimum taxes, branch profits taxes, accumulated earnings
     taxes, personal holding company taxes, succession taxes and
     estate taxes and any withholding taxes on, based on or
     measured by net or gross income but excluding any Taxes in
     the nature of sales, use, rental, ad valorem, license,
     property, value added or similar Taxes);

         (b)   imposed on a Tax Indemnitee by any Taxing
     Authority (other than the United States Federal government)
     (i) on, based on, or measured by, the gross or net income or
     gross or net receipts of any Tax Indemnitee, including
     capital gains taxes, excess profits taxes, minimum taxes
     from tax preferences, alternative minimum taxes, branch
     profits taxes, accumulated earnings taxes, personal holding
     company taxes, succession taxes and estate taxes, and any
     state or local withholding taxes on, based on or measured by
     gross or net income or (ii) on, or with respect to, or
     measured by, the capital or net worth of any Tax Indemnitee
     or in the nature of a franchise tax or a tax for the
     privilege of doing business (other than, in the case of
     clause (i) or (ii), (A) any such Taxes in the nature of
     sales, use, rental, ad valorem, license, property, value
     added or similar Taxes, (B) any withholding Taxes (other
     than state or local withholding taxes on, based on or
     measured by gross or net income), and (C) any such Tax if
     Taxes of such type would not have been imposed on such Tax
     Indemnitee by such Taxing Authority (other than any Taxing
     Authority within the jurisdiction of which the Tax
     Indemnitee is incorporated or maintains its principal place
     of business) but for (I) the location, use or operation of
     the Aircraft, the Airframe, any Engine or any Part by a
     Lessee Person within the jurisdiction of the Taxing
     Authority imposing such Tax, (II) the activities of any
     Lessee Person (except for activities of a Lessee Person that
     is not an Affiliate, successor or assign of the Lessee,
     which activities are unrelated to the transactions
     contemplated by the Operative Agreements) in such
     jurisdiction, including, but not limited to, use of any
     other aircraft by Lessee in such jurisdiction, (III) the
     status of any Lessee Person as a foreign entity or as an
     entity owned in whole or in part by foreign persons, or (IV)
     Lessee having made (or having been deemed to have made)
     payments to such Tax Indemnitee from the relevant
     jurisdiction);

         (c)   on, or with respect to, or measured by, any
     trustee fees, commissions or compensation received by Owner
     Trustee or Mortgagee;

         (d)   on the Trust or the Trust Estate that result from
     treatment of the Trust or the Trust Estate as an entity,
     such as a corporation, separate and apart from the Owner
     Participant, provided that such Taxes are not imposed in
     lieu of indemnifiable Taxes that would have been imposed on
     another Tax Indemnitee were it not for such treatment;

         (e)   that are being contested as provided in
     Section 10.3.4 hereof;

         (f)   imposed on any Tax Indemnitee to the extent that
     such Taxes result from the gross negligence or willful
     misconduct of such Tax Indemnitee or any Affiliate thereof;

         (g)   imposed on or with respect to a Tax Indemnitee
     (including the transferee in those cases in which the Tax on
     transfer is imposed on, or is collected from, the
     transferee) as a result of a transfer or other disposition
     by such Tax Indemnitee (or, in the case of the Owner
     Participant, by Owner Trustee) of any interest in the
     Aircraft, the Airframe, any Engine or any Part of any of the
     foregoing, the Rent (other than the assignment of Rent to
     the Mortgagee pursuant to the Trust Indenture), the Trust or
     the Trust Estate or any interest arising under the Operative
     Agreements or any Loan Certificate or a transfer of any
     interest in the Tax Indemnitee (other than (A) a transfer to
     Lessee pursuant to Section 17.3 of the Lease or a transfer
     otherwise initiated at the request of Lessee (other than
     pursuant to Section 9 of the Lease), (B) a substitution or
     replacement of the Aircraft, Airframe, any Engine or any
     Part by a Lessee Person that is treated for Tax purposes as
     a transfer or disposition, (C) a refunding or refinancing
     pursuant to Section 13 that is treated for Tax purposes as a
     transfer or disposition, (D) a transfer pursuant to an
     exercise of remedies upon a Lease Event of Default that
     shall have occurred and have been continuing, (E) a transfer
     pursuant to Section 20.2 or (F) any involuntary transfer or
     disposition of any of the foregoing interests resulting from
     any bankruptcy, foreclosure or other proceedings for the
     relief of debtors in which such Tax Indemnitee is the debtor
     that is caused by a Lease Event of Default that shall have
     occurred and be continuing);

         (h)   imposed on the Owner Participant and indemnified
     by Lessee pursuant to the Tax Indemnity Agreement;

         (i)   imposed with respect to any period after the later
     of (A) the expiration or earlier termination of the Term
     and, if required pursuant to the terms of the Lease, the
     return of possession of the Aircraft to Lessor or placement
     in storage at the request of Lessor in accordance with the
     Lease and the satisfaction of all of Lessee's obligations
     under the Lease (but, in the case of the time period after
     termination or expiration of the Term and before such
     satisfaction, Lessee will have liability only with respect
     to Taxes imposed in connection with the satisfaction of or
     failure to satisfy such obligations, and in the case of
     storage requested by a Tax Indemnitee, only with respect to
     Taxes imposed up through the time of delivery of the
     Aircraft to storage in accordance with the terms of the
     Lease) or (B) the discharge in full of Lessee's obligation,
     if any, to pay Stipulated Loss Value or Termination Value,
     as the case may be, for the Aircraft in accordance with the
     Lease, unless, in each case, (I) such Taxes relate to
     events, obligations or other matters arising or occurring
     prior to or coincidental with such expiration, return or
     payment, as the case may be, or (II) a Lease Event of
     Default shall have occurred and be continuing;

         (j)   consisting of any interest, penalties or additions
     to tax imposed on a Tax Indemnitee as a result of (in whole
     or in part) failure of a Tax Indemnitee to file any return
     properly and timely unless such failure shall be caused by
     the failure of Lessee to fulfill its obligations, if any,
     under Section 10.3.6 with respect to such return; 

         (k)   resulting from, or that would not have been
     imposed but for, any Lessor Liens arising as a result of
     claims against, or acts or omissions of, or otherwise
     attributable to such Tax Indemnitee or any Affiliate
     thereof;

         (l)   imposed on any Tax Indemnitee as a result of the
     breach by such Tax Indemnitee or any Affiliate thereof of
     any covenant of such Tax Indemnitee or any Affiliate thereof
     contained in any Operative Agreement or the inaccuracy of
     any representation or warranty by such Tax Indemnitee or any
     Affiliate thereof in any Operative Agreement;

         (m)   imposed on any Tax Indemnitee solely as a result
     of any Special Structure (as defined in Section 15.1) or
     refinancing pursuant to Section 15 or redemption or
     refinancing of the Loan Certificates other than at the
     request of Lessee except to the extent that the amount of
     such Taxes does not exceed the amount of Taxes similar in
     nature and indemnifiable hereunder that would have been
     imposed on another Tax Indemnitee were it not for such
     Special Structure (but were not so imposed as a result
     thereof);

         (n)   in the nature of an intangible or similar Tax (i)
     upon or with respect to the value or principal amount of the
     interest of Loan Participant or any Certificate Holder in
     any Loan Certificate or the loan evidenced thereby or (ii)
     upon or with respect to the value of the interest of the
     Owner Participant in the Trust Estate or the Trust, in each
     case only if such Taxes are in the nature of franchise Taxes
     or result from the Tax Indemnitee doing business in the
     taxing jurisdiction and are imposed because of the place of
     incorporation or the activities in the taxing jurisdiction
     of such Tax Indemnitee;

         (o)   that is included in Lessor's Cost and paid to the
     appropriate Taxing Authority; 

         (p)   imposed on any Tax Indemnitee that is incorporated
     or has its principal place of business outside the United
     States by any foreign government or political subdivision or
     taxing authority thereof or any territory of possession of
     the United States or by any international authority (a
     "Foreign Jurisdiction"), other than any such Tax that would
     not have been imposed but for, or the amount of which was
     increased as a result of, the registration, operation,
     location or use of the Aircraft or the operations of any
     Lessee Person in the Foreign Jurisdiction imposing such Tax
     (but only to the extent attributable to the registration,
     operation, location or use of the Aircraft or activities of
     the Lessee Person in such jurisdiction); or 

         (q)   Taxes described in the parenthetical of
     Section 10.1.2(a) relating to ERISA and Section 4975 of the
     Code.

            10.3.3    Payment

     (a)  Lessee's indemnity obligation to a Tax Indemnitee under
this Section 10.3 shall equal the amount which, after taking into
account any Tax imposed upon the receipt or accrual of the
amounts payable under this Section 10.3 and any tax benefits
actually recognized by such Tax Indemnitee (including, without
limitation, any benefits recognized as a result of an
indemnifiable Tax being utilized by such Tax Indemnitee as a
credit against Taxes not indemnifiable under this Section 10.3),
as determined in good faith by the relevant Tax Indemnitee
(provided, that none of Loan Participant or any Certificate
Holder shall have any obligation to claim any benefits, credits
or deductions in priority to any other benefits, credits or
deductions available to it), shall equal the amount of the Tax
indemnifiable under this Section 10.3.  

     (b)  At Lessee's request, the computation of the amount of
any indemnity payment owed by Lessee or any amount owed by a Tax
Indemnitee to Lessee pursuant to this Section 10.3 shall be
verified and certified by an independent public accounting firm
selected by such Tax Indemnitee and reasonably satisfactory to
Lessee.  Such verification shall be binding.  The costs of such
verification (including the fee of such public accounting firm)
shall be borne by Lessee unless such verification shall result in
an adjustment in Lessee's favor of 5% or more of the net present
value of the payment as computed by such Tax Indemnitee, in which
case the costs shall be paid by such Tax Indemnitee.

     (c)  Each Tax Indemnitee shall provide Lessee with such
certifications, information and documentation as shall be in such
Tax Indemnitee's possession and as shall be reasonably requested
by Lessee to minimize any indemnity payment pursuant to this
Section 10.3; provided, that notwithstanding anything to the
contrary contained herein, no Tax Indemnitee shall be required to
provide Lessee with any Tax returns.

     (d)  If Owner Participant reimburses Owner Trustee or
Mortgagee for any Tax for which indemnification by Lessee would
be required hereunder, Lessee will reimburse Owner Participant
therefor.

     (e)  Each Tax Indemnitee shall promptly forward to Lessee
any written notice, bill or advice received by it from any Taxing
Authority concerning any Tax for which it seeks indemnification
under this Section 10.3.  Except as provided in the first
sentence of Section 10.3.1 or in Section 10.3.11, Lessee shall
pay any amount for which it is liable pursuant to this Section
10.3 directly to the appropriate Taxing Authority if legally
permissible or upon demand of a Tax Indemnitee, to such Tax
Indemnitee within 30 days of such demand (or, if a contest occurs
in accordance with Section 10.3.4, within 30 days after a Final
Determination (as defined below)), but in no event more than one
Business Day prior to the date the Tax to which such amount
payable hereunder relates is due.  If requested by a Tax
Indemnitee in writing, Lessee shall furnish to the appropriate
Tax Indemnitee the original or a certified copy of a receipt for
Lessee's payment of any Tax paid by Lessee or such other evidence
of payment of such Tax as is acceptable to such Tax Indemnitee. 
Lessee shall also furnish promptly upon written request such data
as any Tax Indemnitee may reasonably require to enable such Tax
Indemnitee to comply with the requirements of any taxing
jurisdiction unless such data is not reasonably available to
Lessee or, unless such data is specifically requested by a Taxing
Authority, is not customarily furnished by domestic air carriers
under similar circumstances.  For purposes of this Section 10.3,
a "Final Determination" shall mean (i) a decision, judgment,
decree or other order by any court of competent jurisdiction that
occurs pursuant to the provisions of Section 10.3.4, which
decision, judgment, decree or other order has become final and
unappealable, (ii) a closing agreement or  settlement agreement
entered into in accordance with Section 10.3.4 that has become
binding and is not subject to further review or appeal (absent
fraud, misrepresentation, etc.), or (iii) the termination of
administrative proceedings and the expiration of the time for
instituting a claim in a court proceeding.

     (f)  If any Tax Indemnitee shall actually recognize (as
determined in good faith by the relevant Tax Indemnitee) a tax
benefit by reason of any Tax paid or indemnified by Lessee
pursuant to this Section 10.3 (whether such tax benefit shall be
by means of a foreign tax credit, depreciation or cost recovery
deduction or otherwise) not otherwise taken into account in
computing such payment or indemnity such Tax Indemnitee shall pay
to Lessee an amount equal to the lesser of (i) the amount of such
tax benefit plus any tax benefit recognized as the result of any
payment made pursuant to this sentence, when, as, if, and to the
extent, recognized or (ii) the amount of all payments pursuant to
this Section 10.3 by Lessee to such Tax Indemnitee (less any
payments previously made by such Tax Indemnitee to Lessee
pursuant to this Section 10.3.3 (f))(and the excess, if any, of
the amount described in clause (i) over the amount described in
clause (ii) shall be carried forward and applied to reduce pro
tanto any subsequent obligations of Lessee to make payments
pursuant to this Section 10.3); provided, that such Tax
Indemnitee shall not be required to make any payment pursuant to
this sentence if and so as long as a Lease Event of Default of a
monetary nature has occurred and is continuing.  For purposes of
the preceding sentence, tax benefits shall be calculated on the
assumption that Owner Participant utilizes all deductions and
credits available to it otherwise than by reason of its having
entered into the transactions contemplated by the Operative
Agreements before it utilizes any deductions or credits available
by reason of its having entered into the transactions
contemplated by the Operative Agreements.  If a tax benefit is
later disallowed or denied, the disallowance or denial shall be
treated as a Tax indemnifiable under Section 10.3.1 without
regard to the provisions of Section 10.3.2 (other than Section
10.3.2 (f)).  Each such Tax Indemnitee shall in good faith use
reasonable efforts in filing its tax returns and in dealing with
Taxing Authorities to seek and claim any such tax benefit
(provided, that none of Loan Participant or any Certificate
Holder shall have any obligation to claim any benefits, credits
or deductions in priority to any other benefits, credits or
deductions available to it).

            10.3.4    Contest

     (a)  If a written claim is made against a Tax Indemnitee for
Taxes with respect to which Lessee could be liable for payment or
indemnity hereunder, or if a Tax Indemnitee makes a determination
that a Tax is due for which Lessee could have an indemnity
obligation hereunder, such Tax Indemnitee shall promptly give
Lessee notice in writing of such claim; (provided, that failure
to so notify Lessee shall not relieve Lessee of its indemnity
obligations hereunder unless such failure to notify effectively
forecloses Lessee's rights to require a contest of such claim)
and shall take no action with respect to such claim without the
prior written consent of Lessee for 30 days following the receipt
of such notice by Lessee; provided, further, that, in the case of
a claim made against a Tax Indemnitee, if such Tax Indemnitee
shall be required by law to take action prior to the end of such
30-day period, such Tax Indemnitee shall, in such notice to
Lessee, so inform Lessee, and such Tax Indemnitee shall take no
action for as long as it is legally able to do so (it being
understood that a Tax Indemnitee shall be entitled to pay the tax
claimed and sue for a refund prior to the end of such 30-day
period if (i)(A) the failure to so pay the tax would result in
substantial penalties (unless immediately reimbursed by Lessee)
and the act of paying the tax would not materially prejudice the
right to contest or (B) the failure to so pay would result in
criminal penalties and (ii) such Tax Indemnitee shall take any
action so required in connection with so paying the tax in a
manner that is the least prejudicial to the pursuit of the
contest).  In addition, such Tax Indemnitee shall (provided, that
Lessee shall have agreed to keep such information confidential
other than to the extent necessary in order to contest the claim)
furnish Lessee with copies of any requests for information from
any Taxing Authority relating to such Taxes with respect to which
Lessee may be required to indemnify hereunder.  If requested by
Lessee in writing within 30 days after its receipt of such
notice, such Tax Indemnitee shall, at the expense of Lessee
(including, without limitation, all reasonable costs, expenses
and reasonable attorneys' and accountants' fees and
disbursements), in good faith contest (or, if permitted by
applicable law and in such Tax Indemnitee's sole discretion,
allow Lessee to contest) through appropriate administrative and
judicial proceedings (including, without limitation, by pursuit
of appeals, other than an appeal to the U.S. Supreme Court) the
validity, applicability or amount of such Taxes by, in the
relevant Tax Indemnitee's sole discretion, (I) resisting payment
thereof, (II) not paying the same except under protest if protest
is necessary and proper or (III) if the payment is made, using
reasonable efforts to obtain a refund thereof in an appropriate
administrative and/or judicial proceeding.  Such Tax Indemnitee
shall consult with Lessee in good faith regarding the manner of
contesting such claim and shall keep Lessee reasonably informed
regarding the progress of such contest.  If and to the extent the
Tax Indemnitee is able to separate the contested issue or issues
from other issues arising in the same administrative or judicial
proceeding that are unrelated to the transactions contemplated by
the Operative Agreements without, in the good faith judgment of
such Tax Indemnitee, adversely affecting such Tax Indemnitee or
any Affiliate, agent or customer thereof, such Tax Indemnitee
shall permit Lessee to participate in the conduct of any such
proceeding.  A Tax Indemnitee shall not fail to take any action
expressly required by this Section 10.3.4 (including, without
limitation, any action regarding any appeal of an adverse
determination with respect to any claim) or settle or compromise
any claim without the prior written consent of the Lessee (except
as contemplated by Section 10.3.4(b) or (c)).

     (b)  Notwithstanding the foregoing, in no event shall a Tax
Indemnitee be required to pursue any contest (or to permit Lessee
to pursue any contest) unless (i) Lessee shall have agreed to pay
such Tax Indemnitee on demand all reasonable costs and expenses
incurred by such Tax Indemnitee in connection with contesting
such Taxes, including, without limitation, all reasonable out of
pocket costs and expenses and reasonable attorneys' and
accountants' fees and disbursements, (ii) if such contest shall
involve the payment of the claim, Lessee shall advance the amount
thereof (to the extent indemnified hereunder) plus interest,
penalties and additions to tax with respect thereto that are
required to be paid prior to the commencement of such contest on
an interest-free after-Tax basis to such Tax Indemnitee (and such
Tax Indemnitee shall promptly pay to the Lessee any net realized
tax benefits resulting from such advance including any tax
benefits resulting from making such payment to the extent Lessee
realizes any net tax detriment from having made the advance),
(iii) such Tax Indemnitee shall have reasonably determined that
the action to be taken will not result in any material risk of
forfeiture, sale or loss of the Aircraft (unless Lessee shall
have made provisions to protect the interests of any such Tax
Indemnitee in a manner reasonably satisfactory to such Tax
Indemnitee) (provided, that such Tax Indemnitee agrees to notify
Lessee in writing promptly after it becomes aware of any such
risk), (iv) no Lease Default relating to payments or bankruptcy
or Lease Event of Default shall have occurred and be continuing
unless Lessee has provided security for its obligations hereunder
by advancing to such Tax Indemnitee before proceeding or
continuing with  such contest, the amount of the Tax being
contested, plus any interest and penalties and an amount
estimated in good faith by such Tax Indemnitee for expenses and
(v) prior to commencing any judicial action, Lessee shall have
acknowledged its liability for such claim hereunder, provided
that Lessee shall not be bound by its acknowledgment if the Final
Determination articulates conclusions of law and fact that
clearly and unambiguously demonstrate that Lessee has no
liability for the contested amounts hereunder.  Notwithstanding
the foregoing, if any Tax Indemnitee shall release, waive,
compromise or settle any claim which may be indemnifiable by
Lessee pursuant to this Section 10.3 without the written
permission of Lessee, Lessee's obligation to indemnify such Tax
Indemnitee with respect to such claim (and all directly related
claims and claims based on the outcome of such claim) shall
terminate, subject to Section 10.3.4(c), and subject to Section
10.3.4(c), such Tax Indemnitee shall repay to Lessee any amount
previously paid or advanced to such Tax Indemnitee with respect
to such claim, plus interest at the rate that would have been
payable by the relevant Taxing Authority with respect to a refund
of such Tax.

     (c)  Notwithstanding anything contained in this
Section 10.3, a Tax Indemnitee will not be required to contest
the imposition of any Tax and shall be permitted to settle or
compromise any claim without Lessee's consent if such Tax
Indemnitee (i) shall waive its right to indemnity under this
Section 10.3 with respect to such Tax (and any directly related
claim and any claim the outcome of which is determined based upon
the outcome of such claim), (ii) shall pay to Lessee any amount
previously paid or advanced by Lessee pursuant to this Section
10.3 with respect to such Tax, plus interest at the rate that
would have been payable by the relevant Taxing Authority with
respect to a refund of such Tax, and (iii) shall agree to discuss
with Lessee the views or positions of any relevant Taxing
Authority with respect to the imposition of such Tax; provided,
that if Lessee has agreed in writing to settle a claim for a
stated amount and the relevant Tax Indemnitee settles the claim
at a higher amount, such Tax Indemnitee shall not be required to
waive the indemnity for such claim to the extent of the amount
agreed to by Lessee.

            10.3.5    Refund

     If any Tax Indemnitee shall receive a refund of, or be
entitled to a credit against other liability for, all or any part
of any Taxes paid, reimbursed or advanced by Lessee, such Tax
Indemnitee shall pay to Lessee within 30 days of such receipt  an
amount equal to the lesser of (a) the amount of such refund or
credit plus any net tax benefit (taking into account any Taxes
incurred by such Tax Indemnitee by reason of the receipt of such
refund or realization of such credit) actually recognized by such
Tax Indemnitee as a result of any payment by such Tax Indemnitee
made pursuant to this sentence (including this clause (a)) and
(b) such tax payment, reimbursement or advance by Lessee to such
Tax Indemnitee theretofore made pursuant to this Section 10.3
(and the excess, if any, of the amount described in clause (a)
over the amount described in clause (b) shall be carried forward
and applied to reduce pro tanto any subsequent obligation of
Lessee to make payments pursuant to this Section 10.3).  If, in
addition to such refund or credit, such Tax Indemnitee shall
receive (or be credited with) an amount representing interest on
the amount of such refund or credit, such Tax Indemnitee shall
pay to Lessee within 30 days of such receipt or realization of
such credit that proportion of such interest that shall be fairly
attributable to Taxes paid, reimbursed or advanced by Lessee
prior to the receipt of such refund or realization of such
credit.

            10.3.6    Tax Filing

     If any report, return or statement is required to be filed
with respect to any Tax which is subject to indemnification under
this Section 10.3, Lessee shall timely file the same (except for
any such report, return or statement which a Tax Indemnitee has
timely notified the Lessee in writing that such Tax Indemnitee
intends to file, or for which such Tax Indemnitee is required by
law to file, in its own name); provided, that the relevant Tax
Indemnitee shall furnish Lessee with any information in such Tax
Indemnitee's possession or control that is reasonably necessary
to file any such return, report or statement and is reasonably
requested in writing by Lessee (it being understood that the Tax
Indemnitee shall not be required to furnish copies of its actual
tax returns, although it may be required to furnish relevant
information contained therein).  Lessee shall either file such
report, return or statement and send a copy of such report,
return or statement to such Tax Indemnitee, and Owner Trustee if
the Tax Indemnitee is not Owner Trustee, or, where Lessee is not
permitted to file such report, return or statement, it shall
notify such Tax Indemnitee of such requirement and prepare and
deliver such report, return or statement to such Tax Indemnitee
in a manner satisfactory to such Tax Indemnitee within a
reasonable time prior to the time such report, return or
statement is to be filed.

            10.3.7    Forms

     Each Tax Indemnitee agrees to furnish from time to time to
Lessee or Mortgagee or to such other person as Lessee or
Mortgagee may designate, at Lessee's or Mortgagee's request, such
duly executed and properly completed forms as may be necessary or
appropriate in order to claim any reduction of or exemption from
any withholding or other Tax imposed by any Taxing Authority, if
(x) such reduction or exemption is available to such Tax
Indemnitee and (y) Lessee has provided such Tax Indemnitee with
any information necessary to complete such form not otherwise
reasonably available to such Tax Indemnitee.

            10.3.8    Non-Parties

     If a Tax Indemnitee is not a party to this Agreement, Lessee
may require the Tax Indemnitee to agree in writing, in a form
reasonably acceptable to Lessee, to the terms of this
Section 10.3 and Section 19.8 prior to making any payment to such
Tax Indemnitee under this Section 10.3.

            10.3.9    Subrogation

     Upon payment of any Tax by Lessee pursuant to this
Section 10.3 to or on behalf of a Tax Indemnitee, Lessee, without
any further action, shall be subrogated to any claims that such
Tax Indemnitee may have relating thereto.  Such Tax Indemnitee
shall cooperate with Lessee (to the extent such cooperation does
not result in any unreimbursed cost, expense or liability to such
Tax Indemnitee) to permit Lessee to pursue such claims.

            10.3.10   Foreign Withholding Tax On Loan Payments

     If an Owner Participant is a resident of a country other
than the United States or of a territory, possession or
commonwealth of the United States (within the meaning of the tax
law of that foreign jurisdiction) or is participating in the
transactions contemplated by the Operative Agreements through a
branch or office outside the United States and if as a result of
such residence or branch or office participation any withholding
Taxes are imposed on or with respect to the Loan Certificates or
payments thereon, Owner Participant shall reimburse Lessee for
any payments Lessee is required to make to or on behalf of Loan
Participant or any Certificate Holder under this Section 10.3 as
a result of the imposition of such withholding Taxes.  The amount
payable by Owner Participant to Lessee shall be an amount which,
after taking into account any such Taxes, any Tax imposed upon
the receipt or accrual by Lessee of such payment by Owner
Participant and any tax benefits or tax savings realized by
Lessee with respect to the payment of such withholding Tax or the
payment hereunder, shall equal the amount of Lessee's payment to
or on behalf of Loan Participant or such Certificate Holder.

            10.3.11   [Intentionally Omitted]

     10.4   [Intentionally Omitted]

     10.5   Payments

     Any payments made pursuant to this Section 10 shall be due
on demand therefor and shall be made directly to the relevant
Indemnitee or Tax Indemnitee or to Lessee, in immediately
available funds at such bank or to such account as specified by
such Indemnitee or Tax Indemnitee or Lessee, as the case may be,
in written directives to the payor, or, if no such direction
shall have been given, by check of the payor payable to the order
of, and mailed to, such Indemnitee or Tax Indemnitee or Lessee,
as the case may be, by certified mail, postage prepaid, at its
address as set forth in this Agreement.

     10.6   Interest

     If any amount, payable by Lessee, any Indemnitee or any Tax
Indemnitee under this Section 10 is not paid when due, Lessee,
such Indemnitee or such Tax Indemnitee shall pay on demand, to
the extent permitted by Law, to the person entitled thereto,
interest on any such amount for the period from and including the
due date for such amount to but excluding the date the same is
paid, at the Payment Due Rate.  Such interest shall be paid in
the same manner as the unpaid amount in respect of which such
interest is due.

     10.7   Benefit of Indemnities

     The obligations of Lessee in respect of all indemnities,
obligations, adjustments and payments in this Section 10 are
expressly made for the benefit of, and shall be enforceable by,
the Indemnitee or Tax Indemnitee entitled thereto, without
declaring the Lease to be in default or taking other action
thereunder, and notwithstanding any provision of the Trust
Indenture.

SECTION 11. [INTENTIONALLY OMITTED]

SECTION 12. ASSIGNMENT OR TRANSFER OF INTERESTS

     12.1   Participants, Owner Trustee and Certificate Holders

            12.1.1    Owner Participant

     (a)  During the Term, Owner Participant shall not Transfer
any or all of its right, title or interest in the Trust Estate or
the Trust Agreement and to this Agreement unless:

         (i)   The Transferee shall have full power, authority
     and legal right to execute and deliver and to perform
     whatever obligations under this Agreement and the other
     Owner Participant Agreements shall be assumed by such
     Transferee and shall provide reasonably satisfactory
     evidence of such power and authority to Lessee, Owner
     Trustee and Mortgagee;

        (ii)   The Transferee shall enter into one or more legal,
     valid, binding and enforceable agreements (accompanied by an
     opinion of counsel (who may be internal counsel for Owner
     Participant) addressed to Lessee, Owner Trustee and
     Mortgagee to the effect that such agreement or agreements
     are legal, binding and enforceable in accordance with its or
     their terms, subject to customary bankruptcy and equitable
     remedies exceptions) effective to confirm that such
     Transferee agrees for the benefit of Lessee, Owner Trustee
     and Mortgagee to be bound by all the terms of and to
     undertake all of the obligations arising after such Transfer
     of the transferring Owner Participant under this Agreement
     and the other Owner Participant Agreements, and in which it
     makes representations and warranties comparable to those
     contained in Section 7.2;

       (iii)   Owner Participant shall deliver to Lessee and
     Mortgagee an opinion of counsel (which may be internal
     counsel for Owner Participant) to the effect that such
     Transfer will not violate the Act, the Securities Act or any
     other applicable Federal law, and is in accordance with this
     Section 12.1; 

        (iv)   The Transferee is a Citizen of the United States,
     if such citizenship is necessary to maintain registration of
     the Aircraft under the Act (it being understood that the
     existence of any such requirement is to be determined
     without giving consideration to Section 47.9 of the FAA
     Regulations), or shall use a voting powers trust or similar
     arrangement in order to hold an interest in the Trust Estate
     such that the Aircraft can be registered in the United
     States (without giving consideration to Section 47.9 of the
     FAA Regulations); and

         (v)   Its Transferee shall be either (A) a Permitted
     Institution or (B) any other person (other than, without
     Lessee's consent, a commercial air carrier or Affiliate
     thereof that is in direct competition with Lessee) the
     obligations of which under the Owner Participant Agreements
     are guaranteed by a Permitted Institution or a guarantor
     consented to by Lessee, Owner Trustee and Mortgagee, in any
     case, pursuant to a written guaranty, in form and substance
     reasonably satisfactory to Lessee, Owner Trustee and
     Mortgagee.

     (b)  Notwithstanding anything to the contrary contained in
this Section 12.1:

         (i)   Owner Participant may at any time grant
     participations in its interest in and to this Agreement, the
     Trust Estate or the Trust Agreement to any person
     (hereinafter in this Section 12.1.1(b) referred to as a
     "participant"), so long as (A) no such participant shall be
     an Owner Participant of record, it being agreed that Lessee,
     the Certificate Holders, Owner Trustee and Mortgagee shall
     be entitled to deal solely with Owner Participant of record
     (who shall not (unless such participant is the sole
     participant and is a Permitted Institution) be required by
     contract to obtain the consent of any such participant in
     order to take action under the Operative Agreements) in
     connection with the transactions contemplated by this
     Agreement and the other Operative Agreements and (B) Owner
     Participant shall provide Lessee, the Certificate Holders,
     Owner Trustee and Mortgagee with written notice of any such
     participation specifying the name and address of the
     proposed participant and shall reimburse Lessee, the
     Certificate Holders, Owner Trustee and Mortgagee for all
     reasonable Expenses incurred by such party relating to any
     such participation;

        (ii)   Owner Participant may at any time Transfer any or
     all of its right to receive payment of residual value of the
     Aircraft (including, without limitation, with respect to a
     Transfer of all or a portion of (y) any net proceeds from a
     sale or re-lease of the Aircraft whether at the end of the
     Term or pursuant to any provision of the Lease or otherwise
     or (z) the net proceeds received as a result of an Event of
     Loss or an Event of Default), subject in each case to the
     Lien of the Trust Indenture (to the extent applicable); 

       (iii)   There shall be no more than two Owner Participants
     of record at any one time; and

        (iv)   After the end of the Term, Owner Participant may
     freely Transfer all or any of its right, title or interest
     in and to this Agreement the Trust Estate and the Trust
     Agreement;

provided, that (A) no participant under clause (i) above or
transferee under clause (ii) above shall have any direct rights
under the Operative Agreements or any Lien on all or any part of
the Aircraft, Trust Estate or Trust Indenture Estate, (B) Lessee
shall not have any increased liability or obligations as a result
of any participation under clause (i) above or Transfer under
clause (ii) above and (C) any participation under clause (i)
above or Transfer under clause (ii) above shall not cause the
Aircraft to be or become ineligible for registration in the name
of Owner Trustee under the Act and regulations then applicable
thereunder (without giving consideration to Section 47.9 of the
FAA Regulations).

     (c)  Owner Participant shall give written notice to Lessee,
Mortgagee and Owner Trustee at least 10 days prior to any such
Transfer, specifying the name and address of the proposed
Transferee, and providing financial statements of the proposed
Transferee evidencing the requirements described in Section
12.1.1(a)(v)(A) or (B) above.

     (d)  Any fees, charges and expenses, including the
reasonable legal fees, charges and expenses incurred by Lessee,
Owner Participant, any Certificate Holder or Owner Trustee in
connection with any Transfer by Owner Participant permitted by
this Section 12.1.1, or by the Transferee in any such case, will
be paid for by Lessee, in the case of any Transfer by the initial
Owner Participant, and thereafter by the Owner Participant making
a transfer, or its Transferee.

            12.1.2    Owner Trustee

     Owner Trustee may transfer its interests in the Trust
Agreement pursuant to Section 9 thereof.

            12.1.3    Loan Participant and Certificate Holders

     Subject to Section 2.07 of the Trust Indenture, Loan
Participant and any other Certificate Holder may, at any time and
from time to time, Transfer or grant participations in all or any
portion of the Loan Certificates and/or all or any portion of its
beneficial interest in its Loan Certificate and the Trust
Indenture Estate to any person; provided, that any participant in
any such participations shall not have any direct rights under
the Operative Agreements or any Lien on all or any part of the
Aircraft or Trust Indenture Estate and Lessee shall not have any
increased liability or obligations as a result of any such
participation.  In the case of any such Transfer, the Transferee,
by acceptance of Loan Certificates in connection with such
Transfer, shall be deemed to have made each of the
representations contained in Section 7.4.

     12.2   Effect of Transfer

     Upon any Transfer in accordance with Section 12.1.1, 12.1.2
or 12.1.3 (other than any Transfer (a) by Owner Participant
pursuant to Section 12.1.1(b)(i) or (ii), or (b) by Loan
Participant or any Certificate Holder, in each case, to the
extent it only grants participations in Loan Certificates or in
its beneficial interest therein), Transferee shall be deemed an
"Owner Participant," "Owner Trustee" or a "Certificate Holder,"
respectively, for all purposes of this Agreement and the other
Operative Agreements and, in the case of a Transferee of any
Participant or Certificate Holder, shall be deemed to have paid
its ratable portion of Lessor's Cost previously made by Owner
Participant or Loan Participant, respectively, making such
conveyance and represented by the interest being conveyed, and
each reference herein to Owner Participant, Owner Trustee or
Certificate Holder, respectively, shall thereafter be deemed a
reference to such Transferee for all purposes, and the
transferring Owner Participant, Owner Trustee, Loan Participant
or Certificate Holder shall be released (except, in the case of
Owner Participant, to the extent of any guaranty provided by it
under Section 12.1.1(a)(v)) from all of its liabilities and
obligations under this Agreement and any other Operative
Agreements to the extent such liabilities and obligations arise
after such Transfer and, in each case, to the extent such
liabilities and obligations are assumed by the transferee;
provided, that such transferring Owner Participant, Owner
Trustee, Loan Participant or Certificate Holder (and its
respective Affiliates, successors, assigns, agents, servants,
representatives, directors and officers) will continue to have
the benefit of any rights or indemnities under any Operative
Agreement vested or relating to circumstances, conditions, acts
or events prior to such Transfer.

     12.3   Majority in Interest of Certificate Holders

     For purposes of this Section 12, Mortgagee shall only act at
the direction of a Majority in Interest of Certificate Holders
determined without reference to the second sentence of the
definition thereof.

SECTION 13. REFUNDING AND CERTAIN OTHER MATTERS

     13.1   Refunding Generally

     Subject to Sections 13.3 and 13.4, in the event that at any
time Lessee shall have given written notice to Owner Participant,
Owner Trustee, and Mortgagee that Lessee is requesting a
voluntary redemption of all, but not less than all, of the
outstanding Loan Certificates (in compliance with the provisions
of Sections 2.11 and 2.12 of the Trust Indenture) by Owner
Trustee as part of a refunding transaction, Owner Participant
agrees to negotiate in good faith and promptly conclude an
agreement, in form and substance reasonably satisfactory to Owner
Participant, with Lessee as to the terms of such refunding
transaction (including the terms of any debt to be issued in
connection with such refunding transaction and the documentation
to be executed in connection therewith), and after Lessee and
Owner Participant shall have concluded such an agreement:

            13.1.1    Refunding Certificate

     Within ten Business Days after reaching such agreement,
Owner Participant will deliver to Lessee a Refunding Certificate. 
The terms of the Refunding Certificate shall not provide for an
increase in the then-outstanding principal amount of the Loan
Certificates.  Within ten Business Days of its receipt of the
Refunding Certificate, Lessee may demand a verification pursuant
to Section 3.2.1(d) of the Lease of the information set forth in
the Refunding Certificate.  Upon the acceptance by Lessee of the
accuracy of the information set forth in the Refunding
Certificate or the determination pursuant to such verification
procedures of the Refunding Information, the appropriate parties
will take the actions specified in Sections 13.1.2 through 13.1.8
below.

            13.1.2    Financing Agreements

     Owner Trustee, Mortgagee and other appropriate parties will
enter into a financing or loan agreement in form and substance
satisfactory to Owner Participant with the institution or
institutions to be named therein providing for (a) the issuance
and sale by Owner Trustee to such institution or institutions on
the Refunding Date of the New Debt and (b) the application of the
proceeds of the sale of the New Debt to the redemption of all
such Loan Certificates on the Refunding Date.

            13.1.3    Lease Amendments

     As a condition to the closing of the refunding transaction,
Lessee and Owner Trustee will amend the Lease, as contemplated by
Section 3.2.1(b) of the Lease, to provide that (a) Basic Rent in
respect of the period from and after the Refunding Date shall be
as provided in the Refunding Information and (b) amounts payable
in respect of Stipulated Loss Value and Termination Value from
and after the Refunding Date shall be as provided in the
Refunding Information.

            13.1.4    Security Agreements

     Owner Trustee will enter into an agreement to provide for
the securing thereunder of the New Debt in like manner as the
Loan Certificates and will enter into such amendments and
supplements to the Trust Indenture (or such new indenture or
other security agreement) as may be necessary to effect such
refunding).

            13.1.5    Make-Whole Amount

     At the closing of such refunding (and as indemnification for
the loss resulting therefrom), Owner Trustee shall pay, upon
receipt of the same from Lessee (which Lessee shall pay as
Supplemental Rent as a condition to the closing to the refunding
transaction), to each Certificate Holder, the Make-Whole Amount,
if any, payable to such Certificate Holder, except that if the
Debt Rate on any Loan Certificate is to be reset pursuant to
Paragraph A of Schedule 5, no Make-Whole Amount shall be required
to be paid by Owner Trustee or Lessee in connection with any
refunding transaction occurring within the period from and
including the date of commencement of the subsequent Funding
Period to and excluding the date sixty days following such date
of commencement.  

            13.1.6    Expenses

     Whether or not such refunding transaction is consummated,
Lessee shall pay or reimburse all of the reasonable Expenses of
all parties to such refunding transaction, including, without
limitation, the reasonable fees and expenses of such parties'
counsel and any related loan or commitment fees and the
reasonable fees and expenses of one advisor to Owner Participant.

            13.1.7    Return of Loan Certificates

     Subject to compliance by Owner Trustee and Lessee with all
applicable terms and conditions for voluntary prepayment under
the Trust Indenture and this Agreement, each Certificate Holder
will transfer to Owner Trustee the Loan Certificates held by it
for cancellation (and Owner Trustee shall cancel the same),
against receipt by such Certificate Holder of the then-
outstanding principal amount of such Loan Certificates, accrued
and unpaid interest and Make-Whole Amount, if any, thereon,
together with payment in full of all other amounts then payable
to such Certificate Holder and Mortgagee hereunder or under the
Trust Indenture.

            13.1.8    [Intentionally Omitted]

     13.2   Private Offering

     No refunding shall involve a public offering of the New
Debt.

     13.3   Timing; Refunding Limit; Notice

     No such optional refunding shall be permitted until after
the last day of the calendar year in which the fifth anniversary
of the Delivery Date occurs.  Only one such refunding shall be
permitted during the Term.  Lessee, acting on behalf of Owner
Trustee, shall give Mortgagee at least 30 days' revocable prior
written notice of the proposed date of the optional redemption.  

     13.4   Limitations on Obligation to Refund

     Notwithstanding the foregoing, Owner Participant shall have
no obligation to proceed with any refunding transaction as
contemplated by this Section 13:

     (a)  If in Owner Participant's reasonable good faith
judgment, such transaction would have an adverse impact on it
(including, without limitation, the risk of adverse tax
consequences to Owner Participant for which it is not indemnified
by Lessee or the unavailability to Owner Trustee or Mortgagee of
the benefits of Section 1110 with respect to the Aircraft);

     (b)  Unless a third party or parties, unaffiliated with
Lessee or Owner Participant, shall have committed to (and shall)
provide the financing needed to consummate the proposed refunding
transaction, it being understood that Owner Participant shall not
have any obligation to locate any such party or parties;

     (c)  Unless Lessee indemnifies Owner Trustee and Owner
Participant by agreement in form and substance satisfactory to
each of them for any liability, obligation (other than the
obligation to pay principal and interest and related payments in
respect of the New Debt), cost or expense (including, without
limitation, reasonable attorneys' fees) related to or arising out
of any such refunding transaction; 

     (d)  [Intentionally Omitted] 

     (e)  If a Lease Default or a Lease Event of Default shall
have occurred and be continuing; or

     (f)  If such refunding is to be denominated in any currency
other than Dollars.

     13.5   All Loan Certificates

     Any refinancing pursuant to this Section 13 shall be of all
Loan Certificates then outstanding.

     13.6   Execution of Certain Documents

     Lessee, Owner Participant, Owner Trustee and Mortgagee each
agree to execute any document necessary or advisable to implement
this Section 13 (including, without limitation, the execution,
delivery and/or provision of any appropriate additional or
modified amendment, representation, warranty, certificate,
opinion or other document that may reasonably be requested by
Lessee or any other person).

     13.7   ERISA

     Owner Participant shall not be obligated to conclude the
proposed refunding transaction unless the agreements utilized to
effect such refunding contain provisions satisfactory to Owner
Participant, and appropriate to the form of refunding being
employed, to reflect the agreement of Lessee and Owner
Participant that no funds constituting assets of a Plan shall at
any time be used to acquire or hold the New Debt, and the
indemnities in respect thereof have been revised, as appropriate,
to reflect any changes from such provisions as originally set
forth herein.

     13.8   Consent to Optional Redemptions

     Each of Owner Participant, Owner Trustee and Mortgagee
agrees with Lessee not to cause an optional redemption of the
Loan Certificates that would cause an increase in Lessee's
periodic Rent obligations or adversely affect Lessee's voluntary
redemption rights under this Section 13 or any of Lessee's other
rights or obligations under the Operative Agreements without the
prior written consent of Lessee or at Lessee's expense except in
connection with the exercise of remedies under the Trust
Indenture upon the occurrence and continuation of a Lease Event
of Default.

     13.9   Certain Additional Rights Of Lessee

            13.9.1    Other Sections Not Applicable

     The provisions of Section 13.1 through 13.8 shall not be
applicable to this Section 13.9.

            13.9.2    Loan Certificates Initially Issued to
            Boeing

     Subject to Section 13.9.2(e), with respect to any Loan
Certificate, the provisions of this Section 13.9.2 shall be
applicable to the holder of such Loan Certificate if, and only so
long as, such Certificate Holder is The Boeing Company or any
majority-owned subsidiary of The Boeing Company (collectively,
"The Boeing Group").

     (a)  Such Certificate Holder shall give Lessee prior written
notice of its intention to Transfer to any Person (other than a
Person within The Boeing Group) a Loan Certificate held by such
Certificate Holder, and Lessee shall then have a period of
30 days following such notice to elect, by written notice to such
Certificate Holder, either (i) to provide a Person willing to
purchase such Loan Certificate, which Person must be reasonably
acceptable to Owner Participant, or (ii) to request that Owner
Trustee effect a voluntary redemption of such Loan Certificate. 
Lessee shall not be obligated to make any election under the
prior sentence, and if Lessee fails to make such election the
provisions of this Section 13.9.2 shall not be applicable to any
Transfer by such Certificate Holder of such Loan Certificate
completed after the end of the 30-day period referred to above
and on or prior to the 60th day after and excluding the last day
of such 30-day period.

     (b)  If Lessee makes the election under
Section 13.9.2(a)(i), then on the date reasonably specified by
Lessee, which shall be not earlier than the 15th day after and
excluding the date of such election by Lessee and not later than
the 60th day after and excluding the last day of the 30-day
period referred to in Section 13.9.2(a), such Certificate Holder
shall transfer good title to such Loan Certificate, free and
clear of all Liens, to the purchaser designated by Lessee,
against and subject to payment to and receipt by such Certificate
Holder of a purchase price equal to the principal amount of such
Loan Certificate outstanding on the date of purchase plus accrued
but unpaid interest to such date plus all other sums then due and
owing to such Certificate Holder hereunder or under such Loan
Certificate or the Trust Indenture, provided that Make-Whole
Amount shall not be payable in connection with such purchase.  If
Lessee makes such election, Lessee may request that Owner Trustee
and Mortgagee, concurrently with such sale and purchase
transaction, enter into such amendments as Lessee may specify,
and Owner Trustee, Owner Participant and Mortgagee agree to
negotiate in good faith with Lessee to conclude such amendments
as may be reasonably satisfactory in form and substance to each
of them.

     (c)  If Lessee makes the election under
Section 13.9.2(a)(ii), on the date reasonably specified by
Lessee, which shall be not later than the 60th day after and
excluding the last day of the 30-day period referred to in
paragraph (a) above, Owner Trustee shall redeem such Loan
Certificate on such date, subject to payment by Lessee to Owner
Trustee on such date of the amount required to be paid by Owner
Trustee to such Certificate Holder under Section 2.11 of the
Trust Indenture in connection with such redemption, provided that
Make-Whole Amount shall not be payable in connection with such
redemption.

     (d)  If Lessee makes an election under Section 13.9.2(a)(i)
or Section 13.9.2(a)(ii) and such purchase or redemption, as the
case may be, shall fail to be completed on or prior to the 60th
day after and excluding the last day of the 30-day period
referred to in Section 13.9.2(a), then, unless such failure would
not have resulted but for such Certificate Holder's default, the
Debt Rate applicable to such Loan Certificate shall be reset in
accordance with the provisions of Paragraph B of Schedule 5
hereto.  If any purchase transaction elected under
Section 13.9.2(a)(i) fails to be completed as contemplated above
in this paragraph (d), then Lessee shall be entitled, upon not
less than 15 days' prior written notice to the Certificate
Holder, to provide another Person willing to purchase the subject
Loan Certificate, which Person must be reasonably acceptable to
Owner Participant; and any such purchase transaction shall be
effected in accordance with, and subject to the terms and
conditions of, Sections 13.9.2(b), 13.9.4, 13.9.5 and 13.9.6. 
Lessee agrees, however, that notwithstanding its continuing right
to provide any such purchaser, the Certificate Holder shall have
the continuing right to arrange a Transfer of such Loan
Certificate, subject to the requirements and limitations set
forth in Sections 13.9.2(a), 13.9.2(b), 13.9.4, 13.9.5 and
13.9.6.

     (e)  The provisions of this Section 13.9.2 shall not be
applicable with respect to any Loan Certificate previously
transferred to a Person not within The Boeing Group and later
reacquired by a Person within The Boeing Group from any other
Person.

            13.9.3    Additional Redemption Rights

     (a)  If the Debt Rate applicable to a Loan Certificate is to
be reset pursuant to Paragraph A of Schedule 5, and if there has
not previously been effected any optional refunding as provided
for in Sections 13.1 through 13.8, then Lessee may elect to
request that Owner Trustee effect a voluntary redemption of such
Loan Certificate.  Any such election must be made by written
notice of Lessee to Owner Participant, such Certificate Holder,
Owner Trustee and Mortgagee, given not earlier than 30 days prior
to and excluding the Reset Date (as defined in Schedule 5 hereto)
and not later than one day prior to and excluding the Reset Date. 
If Lessee makes any such election, then on the date reasonably
specified by Lessee, which shall be not earlier than 30 days
after and excluding the date of Lessee's election and not later
than the 60th day after and excluding the Reset Date, Owner
Trustee shall arrange to redeem such Loan Certificate, against
and subject to payment to and receipt by Owner Trustee of the
amount required to be paid by Owner Trustee to such Certificate
Holder under Section 2.11 of the Trust Indenture in connection
with such redemption, provided that Make-Whole Amount shall not
be payable in connection with any such redemption.

     (b)  Lessee may, at any time after the last day of the
calendar year in which the fifth anniversary of the Delivery Date
occurs, request that Owner Trustee effect a voluntary redemption
of all Loan Certificates.  Any such request must be made by
written notice of Lessee to Owner Participant, Certificate
Holders, Owner Trustee and Mortgagee given not less than 30 days
prior to and excluding the proposed date of such redemption.  If
Lessee gives such notice, then on the first Payment Date
occurring after and excluding the 30th day following such notice
by Lessee, Owner Trustee shall arrange to redeem all Loan
Certificates, against and subject to payment to and receipt by
Owner Trustee of the amount (including, without limitation, Make-
Whole Amount, if any) required to be paid by Owner Trustee to the
Certificate Holders under Section 2.11 of the Trust Indenture in
connection with such redemption.

     (c)  In connection with, and as a condition to, (i) any
redemption under Section 13.9.3(a) that would apply to all then-
outstanding Loan Certificates, and (ii) any redemption under
Section 13.9.3(b), Lessee shall concurrently with any such
redemption purchase or cause to be purchased all right, title and
interest of Owner Participant in and to the Trust Estate, Trust
Agreement and the other Operative Agreements and in and to the
Transactions (except as contemplated by the proviso to
Section 12.2) for an amount and on terms reasonably satisfactory
to Owner Participant.

            13.9.4    Lease Amendments

     In connection with any amendment under Section 13.9.2(b) or
redemption under Section 13.9.2(c) or Section 13.9.3, and subject
to the consent of Owner Participant and (except in the case of a
redemption of all Loan Certificates) Mortgagee, such consent not
to be unreasonably withheld, Lessee and Owner Trustee will
concurrently with such amendment or redemption, as the case may
be (or as soon thereafter as reasonably practicable), amend the
Lease, as contemplated by Section 3.2.1(b) of the Lease, to
provide that Basic Rent, Stipulated Loss Value and Termination
Value in respect of the period from and after the date of such
amendment or redemption, as the case may be, shall be
appropriately adjusted to reflect such amendment or redemption,
as the case may be.

            13.9.5    Cooperation; Limitations

     Lessee, Owner Participant, each Certificate Holder, Owner
Trustee and Mortgagee shall cooperate in effecting the
transactions contemplated by this Section 13.9, including,
without limitation, executing and delivering such documents as
may be reasonably satisfactory in form and substance to each of
such Persons, and that may be reasonably requested by any such
Person, as necessary or advisable to effect such transactions. 
Notwithstanding the foregoing, Owner Participant shall have no
obligation to proceed with any transaction contemplated by this
Section 13.9:

     (a)  If in Owner Participant's reasonable good faith
judgment, such transaction would have an adverse impact on it
(including, without limitation, the risk of adverse tax
consequences to Owner Participant for which it is not indemnified
by Lessee or the unavailability to Owner Trustee or Mortgagee of
the benefits of Section 1110 with respect to the Aircraft);

     (b)  Unless Lessee indemnifies Owner Trustee and Owner
Participant by agreement in form and substance reasonably
satisfactory to each of them for any liability, obligation, cost
or expense (including, without limitation, reasonable attorneys'
fees) related to or arising out of any such transaction; or 

     (c)  If a Lease Default or a Lease Event of Default shall
have occurred and be continuing.

            13.9.6    Expenses; Notices

     Whether or not any such transaction described in this
Section 13.9 is consummated, Lessee shall pay or reimburse all
reasonable out-of-pocket expenses incurred by each Participant,
Owner Trustee and Mortgagee in connection with such transaction,
including, without limitation, the reasonable fees and expenses
of each such Person's counsel.  Upon any notice or election under
this Section 13.9 becoming effective, as provided for in the last
sentence of Section 19.7, such notice or election shall become
irrevocable.

SECTION 14. LEASE FOR ALL PURPOSES; SECTION 1110

     (a)  Each of Lessee, Owner Participant, Loan Participant,
Owner Trustee and Mortgagee agrees that the Lease constitutes an
agreement of lease and nothing contained therein shall be
construed as conveying to Lessee any right, title or interest in
the Aircraft except as a lessee only.  

     (b)  It is the intention of each of Lessee, Owner
Participant, Loan Participant, the Certificate Holders (such
intention being evidenced by each of their acceptance of a Loan
Certificate), Owner Trustee and Mortgagee that Owner Trustee, as
lessor under the Lease (and Mortgagee as assignee of Owner
Trustee under the Trust Indenture), shall be entitled to the
benefits of Section 1110 with respect to the right to take
possession of the Aircraft, Airframe, Engines and Parts as
provided in the Lease in the event of a case under Chapter 11 of
the Bankruptcy Code in which Lessee is a debtor, and in any
instance where more than one construction is possible of the
terms and conditions of the Lease or any other pertinent
Operative Agreement, each such party agrees that a construction
which would preserve such benefits shall control over any
construction which would not preserve such benefits.

SECTION 15. OWNER PARTICIPANT'S RIGHT TO RESTRUCTURE

     15.1   General Right to Restructure

     Lessee, Loan Participant and each Certificate Holder agree
that after the Delivery Date and subject to the limitations of
Section 15.2, the original Owner Participant (or any transferee
Owner Participant that is an Affiliate of the Owner Participant
Parent) shall have the right to restructure the Transactions
using (a) a "cross-border lease," a tax lease or a head-
lease/sublease structure and (b) any other type of transaction,
which may involve special structural arrangements, as such Owner
Participant may elect (any such structure described above, a
"Special Structure").  Any Special Structure may result in
additional persons participating in the Transactions, which
persons shall agree to provisions comparable to Sections 8.7.5(a)
and 8.7.14.  Subject to the provisions of Sections 15.2 and 15.3,
Lessee, Loan Participant and each Certificate Holder agree to
cooperate in the implementation of any such restructuring and
take such action as may reasonably be requested by the original
Owner Participant to accomplish such restructuring, including
taking such actions as may be reasonable or customary in the type
of Special Structure selected.  In connection with any proposed
Special Structure, Owner Participant shall provide all
information reasonably requested by Lessee, Loan Participant or
any Certificate Holder with respect thereto.  The original Owner
Participant shall be entitled to retain all of the benefits of
any such transaction.

     15.2   Limitations on Restructuring Provisions; Additional
            Terms

            15.2.1    Lessee

     (a)  Notwithstanding Section 15.1 or 15.2.1(b), in no event
shall any such Special Structure (a) change the terms and
conditions of Lessee's rights and obligations, from those which
Lessee would otherwise possess or be subject to in the absence of
any such Special Structure, in a manner which is materially
adverse to Lessee, (b) expose Lessee to any additional risks
(including overall tax risks) beyond those to which Lessee would
be exposed in the absence of any such Special Structure unless
Lessee shall have been indemnified against such additional risks
by Owner Participant Parent, or other participants in such
transaction (so long as such other participants shall, as to
their creditworthiness at the time any such indemnity is given,
be reasonably acceptable to Lessee) in a manner reasonably
satisfactory to Lessee.  In no event shall Lessee be required to
provide an indemnity with respect to any foreign tax benefit of a
Special Structure or to indemnify against the failure of a head
lease not to constitute a true lease for U.S. federal income tax
purposes.

     (b)  In any Special Structure that may be entered into
pursuant to this Section 15, the Termination Values under the
Lease (as the same may be restructured) shall not be affected by
the termination values under any head-lease, except that any
prepayment premiums and any funding or swap breakage costs under
such head-lease or similar arrangement will be added in
calculating the Termination Values and Stipulated Loss Values
under the Lease (as the same may be restructured).  Further, upon
implementation of any Special Structure, the Stipulated Loss
Values payable by Lessee under the Lease (as the same may be
restructured) shall in no event be less than the stipulated loss
values payable under the applicable head-lease or similar
arrangement.  

            15.2.2    Loan Participant and Certificate Holders

     Notwithstanding Section 15.1, in no event shall any such
Special Structure (a) change the terms and conditions of Loan
Participant's or any Certificate Holder's rights and obligations
under the Operative Agreements, from those which Loan Participant
and Certificate Holders would otherwise possess or be subject to
in the absence of such Special Structure (including, without
limitation, the amount and timing of any payment of principal or
interest under the Loan Certificates and the priority of
Mortgagee's Lien on the Trust Indenture Estate under the Trust
Indenture) or (b) expose Loan Participant or any such Certificate
Holder to any additional risks beyond those to which Loan
Participant or such Certificate Holder would be exposed in the
absence of such Special Structure.

            15.2.3    [Intentionally Omitted]

     15.3   Transaction Expenses

     Whether or not any proposed restructuring transaction under
this Section 15 is consummated, the original Owner Participant
shall pay (or cause to be paid) the reasonable costs and expenses
incurred by all parties in connection therewith; provided, that,
only in connection with a consummated transaction (unless Lessee
shall have, by failing to act in good faith, caused a transaction
not to be consummated), Lessee shall pay or reimburse such Owner
Participant for the original Owner Participant's reasonable
estimate of the costs and expenses that would have been incurred
by all parties if the Transactions had been restructured as a
head-lease/sublease transaction in which the original Owner
Participant, or an Affiliate or designee thereof, were the head
lessee/sublessor and Lessee were the sublessee.

SECTION 16. CHANGE OF CITIZENSHIP

     16.1   Generally

     Without prejudice to the representations, warranties or
covenants regarding the status of any party hereto as a Citizen
of the United States:

     (a)  Each of Lessee, First Security, WTC and Mortgagee
agrees that it will, immediately upon obtaining knowledge of any
facts that would cast doubt upon its continuing status as a
Citizen of the United States and promptly upon public disclosure
of negotiations in respect of any transaction which would or
might adversely affect such status, notify in writing all parties
hereto of all relevant matters in connection therewith; and

     (b)  Owner Participant agrees that, in the event its status
is to change or has changed as a Citizen of the United States, or
it makes public disclosure of circumstances as a result of which
it believes that such status is likely to change, it will notify
all the other parties to this Participation Agreement of (i) such
change in status promptly after obtaining Actual Knowledge
thereof or (ii) such belief as soon as practicable after such
public disclosure but in any event within ten Business Days after
such public disclosure.

     16.2   Owner Participant

     Owner Participant agrees, solely for the benefit of Lessee
and Loan Participant that if, during such time as the Aircraft is
registered in the United States, (a) it shall not be a Citizen of
the United States and (b) the Aircraft shall be, or would
therefore become, ineligible for registration in the name of
Owner Trustee under the Act and regulations then applicable
thereunder (without giving consideration to Section 47.9 of the
FAA Regulations), then Owner Participant shall as soon as is
reasonably practicable, but in any event within 30 days after
obtaining Actual Knowledge of such ineligibility and of such loss
of citizenship, (y) effect voting trust or other similar
arrangements (in which case any provisions contained in the
Operative Agreements restricting Owner Participant's or Owner
Trustee's ability to amend the Trust Agreement shall not apply to
the extent necessary to permit the use of such a voting trust or
other similar arrangement) or take any other action as may be
necessary to prevent any deregistration or maintain the United
States registration of the Aircraft or (z) transfer in accordance
with the terms of this Agreement all its right, title and
interest in and to this Agreement, the Trust Estate and the Trust
Agreement in accordance with Section 12.1.

     16.3   Owner Trustee

     Upon First Security giving any notice in accordance with
Section 16.1(a), Owner Trustee shall, subject to Section 9.1.1 of
the Trust Agreement, resign as Owner Trustee.  Upon its receipt
of such notice, Owner Participant shall as promptly as
practicable appoint a Citizen of the United States as successor
Owner Trustee pursuant to Section 9.1 of the Trust Agreement.

     16.4   Mortgagee

     Upon WTC giving any notice in accordance with
Section 16.1(a), Mortgagee shall (if and so long as such
citizenship is necessary under the Act as in effect at such time
or, if it is not necessary, if and so long as Mortgagee's
citizenship could have any adverse effect on Lessee, any
Participant or any Certificate Holder), subject to Section 8.02
of the Trust Indenture, resign as Mortgagee promptly upon its
ceasing to be such a citizen.

SECTION 17. CONCERNING OWNER TRUSTEE 

     It is understood and agreed that, except as otherwise
expressly provided herein or in the Trust Agreement or the Trust
Indenture, Owner Trustee is entering into this Agreement solely
in its capacity as trustee as provided in the Trust Agreement and
not in its individual capacity and in no case whatsoever will it
be liable or accountable in its individual capacity for any of
the statements, representations, warranties, agreements or
obligations of Owner Trustee hereunder, or for any loss in
respect thereof, as to all of which the parties agree to look
solely to the Trust Estate; provided, that nothing in this
Section 17 shall be deemed to limit in scope or substance the
personal liability of First Security (a) to Owner Participant as
expressly set forth in the Trust Agreement, (b) in respect of the
representations, warranties and agreements of First Security
expressly made as such herein or in any other Operative Agreement
to which it is a party, and (c) for the consequences of its own
gross negligence, willful misconduct, and, in receiving, handling
or remitting of funds only, its willful misconduct or simple
negligence as a trustee.

SECTION 18. CONFIDENTIALITY

     So long as such documents shall be provided to such party
marked confidential on the cover page thereof, Lessee, Owner
Participant, Certificate Holders, Owner Trustee and Mortgagee
shall keep Annexes B, C and D and Schedules 1, 2, 3 and 4 to the
Lease, the Participation Agreement, the Purchase Agreement
Assignment and the Tax Indemnity Agreement confidential and shall
not disclose, or cause to be disclosed, the same to any Person,
except (A) to prospective and permitted transferees of Lessee's,
Owner Participant's, a Certificate Holder's, Owner Trustee's or
Mortgagee's interest or their respective counsel or special
counsel, independent insurance brokers, auditors, or other agents
who agree to hold such information confidential, (B) to Lessee's,
Owner Participant's, a Certificate Holder's, Owner Trustee's or
Mortgagee's counsel or special counsel, independent insurance
brokers, auditors, or other agents, Affiliates or investors who
agree to hold such information confidential, (C) as may be
required by any statute, court or administrative order or decree,
legal process or governmental ruling or regulation, including
those of any applicable insurance regulatory bodies (including,
without limitation, the National Association of Insurance
Commissioners), federal or state banking examiners, Internal
Revenue Service auditors or any stock exchange, (D) with respect
to Lessee and Owner Participant, by mutual agreement of such
parties, to prospective participants in future aircraft
transactions of Lessee in which Owner Participant Parent or any
Affiliate thereof is to be a party, which prospective
participants agree to hold such information confidential, (E)
with respect to a Certificate Holder, to a nationally recognized
rating agency for the purpose of obtaining a rating on the Loan
Certificates or to support an NAIC rating for the Loan
Certificates or (F) such other Persons as are reasonably deemed
necessary by the disclosing party in order to protect the
interests of such party or for the purposes of enforcing such
documents by such party; provided, that any and all disclosures
permitted by clauses (C), (D), (E) or (F) above shall be made
only to the extent necessary to meet the specific requirements or
needs of the Persons making such disclosures.

SECTION 19. MISCELLANEOUS

     19.1   Amendments

     No provision of this Agreement may be amended, supplemented,
waived, modified, discharged, terminated or otherwise varied
orally, but only by an instrument in writing that specifically
identifies the provision of this Agreement that it purports to
amend, supplement, waive, modify, discharge, terminate or
otherwise vary and is signed by the party against which the
enforcement of the amendment, supplement, waiver, modification,
discharge, termination or variance is sought.  Each such
amendment, supplement, waiver, modification, discharge,
termination or variance shall be effective only in the specific
instance and for the specific purpose for which it is given.  No
provision of this Agreement shall be varied or contradicted by
oral communication, course of dealing or performance or other
manner not set forth in an agreement, document or instrument in
writing and signed by the party against which enforcement of the
same is sought.

     19.2   Severability

     If any provision hereof shall be held invalid, illegal or
unenforceable in any respect in any jurisdiction, then, to the
extent permitted by Law, (a) all other provisions hereof shall
remain in full force and effect in such jurisdiction and (b) such
invalidity, illegality or unenforceability shall not affect the
validity, legality or enforceability of such provision in any
other jurisdiction.  If, however, any Law pursuant to which such
provisions are held invalid, illegal or unenforceable may be
waived, such Law is hereby waived by the parties hereto to the
full extent permitted, to the end that this Agreement shall be
deemed to be a valid and binding agreement in all respects,
enforceable in accordance with its terms.

     19.3   Survival

     The representations, warranties, indemnities and covenants
set forth herein shall survive the making available of the
respective Commitments by Participants, the delivery or return of
the Aircraft, the Transfer of any interest of Owner Participant
in this Agreement, the Trust Estate and the Trust Agreement, the
Transfer of any interest by any Certificate Holder of its Loan
Certificate and the expiration or other termination of this
Agreement or any other Operative Agreement.

     19.4   Reproduction of Documents

     This Agreement, all annexes, schedules and exhibits hereto
and all agreements, instruments and documents relating hereto,
including, without limitation, (a) consents, waivers and
modifications that may hereafter be executed and (b) financial
statements, certificates and other information previously or
hereafter furnished to any party hereto, may be reproduced by
such party by any photographic, photostatic, microfilm, micro-
card, miniature photographic or other similar process, and such
party may destroy any original documents so reproduced.  Any such
reproduction shall be as admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or
not the original is in existence and whether or not such
reproduction was made by such party in the regular course of
business) and any enlargement, facsimile or further reproduction
of such reproduction likewise is admissible in evidence.

     19.5   Counterparts

     This Agreement and any amendments, waivers, consents or
supplements hereto may be executed in any number of counterparts
(or upon separate signature pages bound together into one or more
counterparts), each of which when so executed shall be deemed to
be an original, and all of which counterparts, taken together,
shall constitute one and the same instrument.

     19.6   No Waiver

     No failure on the part of any party hereto to exercise, and
no delay by any party hereto in exercising, any of its respective
rights, powers, remedies or privileges under this Agreement or
provided at Law, in equity or otherwise shall impair, prejudice
or constitute a waiver of any such right, power, remedy or
privilege or be construed as a waiver of any breach hereof or
default hereunder or as an acquiescence therein nor shall any
single or partial exercise of any such right, power, remedy or
privilege preclude any other or further exercise thereof by it or
the exercise of any other right, power, remedy or privilege by
it.  No notice to or demand on any party hereto in any case
shall, unless otherwise required under this Agreement, entitle
such party to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of any
party hereto to any other or further action in any circumstances
without notice or demand.

     19.7   Notices

     Unless otherwise expressly permitted by the terms hereof,
all notices, requests, demands, authorizations, directions,
consents, waivers and other communications required or permitted
to be made, given, furnished or filed hereunder shall be in
writing (it being understood that the specification of a writing
in certain instances and not in others does not imply an
intention that a writing is not required as to the latter), shall
refer specifically to this Agreement or other applicable
Operative Agreement, and shall be personally delivered, sent by
facsimile or telecommunication transmission (which in either case
provides written confirmation to the sender of its delivery),
sent by registered mail or certified mail, return receipt
requested, postage prepaid, or sent by overnight courier service,
in each case to the respective address, or facsimile number set
forth for such party in Schedule 1, or to such other address,
facsimile or other number as each party hereto may hereafter
specify by notice to the other parties hereto.  Each such notice,
request, demand, authorization, direction, consent, waiver or
other communication shall be effective when received or, if made,
given, furnished or filed (a) by facsimile or telecommunication
transmission, when confirmed, or (b) by registered or certified
mail, three Business Days after being deposited, properly
addressed, with the U.S. Postal Service.

     19.8   GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE

     (a)  THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS.  THIS AGREEMENT IS BEING
DELIVERED IN THE STATE OF NEW YORK.

     (b)(i)    EXCEPT AS PROVIDED IN SECTION 19.8(b)(ii), EACH
PARTY HERETO HEREBY IRREVOCABLY AGREES, ACCEPTS AND SUBMITS TO,
FOR ITSELF AND IN RESPECT OF ANY OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK IN THE CITY AND COUNTY OF NEW YORK AND OF THE
UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION
WITH ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO ANY
MATTER RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT, EXCEPT AS PROVIDED IN
SECTION 19.8(g).  TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH
PARTY HERETO AGREES FIRST TO SEEK JURISDICTION AGAINST ANY OTHER
PARTY HERETO WITH RESPECT TO ANY SUCH ACTION, SUIT OR PROCEEDING
IN SUCH COURTS OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF
NEW YORK.

     (ii) NOTWITHSTANDING THE FOREGOING AGREEMENT AS TO THE
EXCLUSIVE NATURE OF SUCH JURISDICTION, IF ANY PARTY HERETO OTHER
THAN LESSEE SHALL IN THE FIRST INSTANCE BRING ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THE OPERATIVE AGREEMENTS
IN THE COURTS DESCRIBED IN SECTION 19.8(b)(i), AND IF EACH OF
SUCH COURTS OF THE UNITED STATES AND OF THE STATE OF NEW YORK
REFUSES TO ACCEPT JURISDICTION WITH RESPECT THERETO, SUCH SUIT,
ACTION OR PROCEEDING MAY BE BROUGHT IN ANY OTHER COURT WITH
JURISDICTION.

     (iii) NO PARTY TO THIS AGREEMENT MAY MOVE TO (x) TRANSFER
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE
OPERATIVE AGREEMENTS BROUGHT IN SUCH COURTS OF THE UNITED STATES
OR OF THE STATE OF NEW YORK TO ANOTHER JURISDICTION, (y)
CONSOLIDATE ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH
COURTS OF THE UNITED STATES OR OF THE STATE OF NEW YORK WITH A
SUIT, ACTION OR PROCEEDING IN ANOTHER JURISDICTION OR (z) DISMISS
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURTS OF THE
UNITED STATES OR OF THE STATE OF NEW YORK FOR THE PURPOSE OF
BRINGING THE SAME IN ANOTHER JURISDICTION.

     (c)  EACH PARTY HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS,
SUITS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT BROUGHT IN ANY OF THE
AFORESAID COURTS, AND HEREBY FURTHER IRREVOCABLY AND
UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM THAT ANY
SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.

     (d)(i)  EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS AND
AGREES THAT SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS,
NOTICES AND DOCUMENTS OF ANY OF THE AFOREMENTIONED COURTS IN ANY
SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY MAILING COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT THE
ADDRESS IN THE STATE, CITY AND COUNTY OF NEW YORK SET FORTH IN
SECTION 19.7 OR, IN THE CASE OF LESSEE, AT THE ADDRESS SET FORTH
IN SCHEDULE 2, OR AT SUCH OTHER ADDRESS OR UPON SUCH AGENT AS MAY
BE DETERMINED PURSUANT TO SECTION 19.8(d)(ii).  EACH PARTY HERETO
HEREBY AGREES THAT SERVICE UPON IT, OR ANY OF ITS AGENTS, IN EACH
CASE IN ACCORDANCE WITH THIS SECTION 19.8(d), SHALL CONSTITUTE
VALID AND EFFECTIVE PERSONAL SERVICE UPON SUCH PARTY, AND EACH
SUCH PARTY HEREBY AGREES THAT THE FAILURE OF ANY OF ITS AGENTS TO
GIVE ANY NOTICE OF SUCH SERVICE TO SUCH PARTY SHALL NOT IMPAIR OR
AFFECT IN ANY WAY THE VALIDITY OF SUCH SERVICE ON SUCH PARTY OR
ANY JUDGMENT RENDERED IN ANY ACTION OR PROCEEDING BASED THEREON.

     (ii) LESSEE SHALL GIVE EACH OTHER PARTY TO THIS AGREEMENT 30
DAYS' PRIOR WRITTEN NOTICE OF ANY CHANGE IN THE LOCATION, OR
CLOSING, OF LESSEE'S PLACE OF BUSINESS SET FORTH IN SCHEDULE 2. 
ANY SUCH NOTICE SHALL (y) IF LESSEE SHALL CONTINUE TO MAINTAIN A
PLACE OF BUSINESS IN THE STATE, CITY AND COUNTY OF NEW YORK,
SPECIFY THE ADDRESS OF SUCH PLACE OF BUSINESS OR (z) IF LESSEE
SHALL NO LONGER MAINTAIN A PLACE OF BUSINESS IN THE STATE, CITY
AND COUNTY OF NEW YORK, AND, UNDER THE LAW OF THE STATE OF NEW
YORK AS THEN IN EFFECT, ANY PARTY HERETO SHALL NOT BE PERMITTED
TO EFFECT OUT-OF-STATE SERVICE UPON LESSEE BY MAIL IN THE MANNER
SPECIFIED IN SECTION 19.8(d)(i) (AND SHALL SO NOTIFY LESSEE),
DESIGNATE AN AGENT (WHICH AGENT SHALL BE REASONABLY ACCEPTABLE TO
OWNER TRUSTEE AND MORTGAGEE), IN EITHER CASE, IN THE STATE, CITY
AND COUNTY OF NEW YORK, AT OR UPON WHICH ANY OF THE PARTIES
HERETO MAY SERVE PROCESS ON LESSEE PERSONALLY OR IN ACCORDANCE
WITH THIS SECTION 19.8(d).  IF LESSEE DESIGNATES AN AGENT IN
ACCORDANCE WITH CLAUSE (z) ABOVE, LESSEE SHALL PROMPTLY PROVIDE
EACH OTHER PARTY HERETO EVIDENCE OF THE APPOINTMENT OF SUCH AGENT
(FOR THE THEN-REMAINING TERM) AND THE ACCEPTANCE THEREOF BY SUCH
AGENT.

     (e)  EACH PARTY HERETO HEREBY WAIVES ITS RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION IN ANY COURT IN
ANY JURISDICTION BASED UPON OR ARISING OUT OF OR RELATING TO THIS
AGREEMENT.  EACH PARTY HERETO ACKNOWLEDGES THAT THE WAIVER OF
JURY TRIAL BY IT IN THIS SECTION 19.8(e) IS A MATERIAL INDUCEMENT
TO THE OTHER PARTIES HERETO TO ENTER INTO A BUSINESS RELATIONSHIP
WITH IT AND THAT THE OTHER PARTIES HERETO HAVE RELIED ON THIS
SECTION 19.8(e) IN ENTERING INTO THIS AGREEMENT AND THE OTHER
OPERATIVE AGREEMENTS.

     (f)  EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY AGREES
THAT FINAL JUDGMENT AGAINST IT RENDERED BY SUCH COURTS IN ANY OF
THE AFORESAID ACTIONS, SUITS OR PROCEEDINGS SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN ANY OTHER JURISDICTION, WITHIN OR WITHOUT
THE UNITED STATES, BY SUIT ON THE JUDGMENT, A CERTIFIED OR
EXEMPLIFIED COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE
FACT AND AMOUNT OF ITS OBLIGATIONS AND LIABILITIES.

     (g)  NOTHING HEREIN SHALL, OR SHALL BE CONSTRUED SO AS TO,
LIMIT THE RIGHT OF LESSEE, ANY PARTICIPANT, GUARANTOR, OWNER
TRUSTEE OR MORTGAGEE TO DEFEND OR TO ASSERT A COUNTERCLAIM IN, OR
TO SEEK RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT RENDERED IN,
ANY ACTION, SUIT OR PROCEEDING IN THE COURTS OF WHATEVER
JURISDICTION THAT MAY BE APPROPRIATE IN THE OPINION OF LESSEE,
SUCH PARTICIPANT, GUARANTOR, OWNER TRUSTEE OR MORTGAGEE, AS THE
CASE MAY BE.

     (h)  EACH PARTY HERETO REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS SECTION 19.8 WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY ACCEPTS AND AGREES TO THIS SECTION 19.8
FOLLOWING CONSULTATION WITH SUCH LEGAL COUNSEL.  THIS
SECTION 19.8 IS IRREVOCABLE AND UNCONDITIONAL AND SHALL APPLY TO
ANY AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.  

     19.9   Third-Party Beneficiary

     This Agreement is not intended to, and shall not, provide
any person not a party hereto with any rights of any nature
whatsoever against any of the parties hereto and no person not a
party hereto shall have any right, power or privilege in respect
of any party hereto, or have any benefit or interest, arising out
of this Agreement.

     19.10  Entire Agreement

     This Agreement, together with the other Operative
Agreements, on and as of the date hereof, constitutes the entire
agreement of the parties hereto with respect to the subject
matter hereof, and all prior or contemporaneous understandings or
agreements, whether written or oral, among any of the parties
hereto with respect to such subject matter are hereby superseded
in their entireties.

     19.11  Further Assurances

     Each party hereto shall execute, acknowledge and deliver or
shall cause to be executed, acknowledged and delivered, all such
further agreements, instruments, certificates or documents, and
shall do and cause to be done such further acts and things, in
any case, as any other party hereto shall reasonably request in
connection with the administration of, or to carry out more
effectually the purposes of, or to better assure and confirm into
such other party the rights and benefits to be provided under
this Agreement and the other Operative Agreements.  

SECTION 20. ERISA

     20.1   Generally

     Without prejudice to the representations, warranties or
covenants regarding the Law related to any Plan, including
Sections 7.1.3, 7.1.13(b)(iii), 7.2.3, 7.2.9, 7.3.3, 7.4.3 and
7.6.3, each of Lessee, Owner Participant, each Certificate
Holder, First Security, Owner Trustee, WTC and Mortgagee agrees
that it will, immediately upon obtaining Actual Knowledge (with
respect to Lessee, Owner Participant, First Security, Owner
Trustee, WTC and Mortgagee) or actual knowledge of a Vice
President or more senior officer, or any other officer having
responsibility for the Transactions (with respect to any
Certificate Holder (or any beneficial owner of a Loan
Certificate)) that, with respect to a Certificate Holder, its
source of funding with respect to the Loan Certificates it then
holds or, with respect to Lessee, Owner Participant, First
Security, Owner Trustee, WTC or Mortgagee, its continued
participation in the Transaction has resulted in a "prohibited
transaction" within the meaning of Section 406 of ERISA or
Section 4975(c)(1) of the Code, promptly notify in writing all
other parties hereto.  In addition, if any such party obtains any
such Knowledge or knowledge with respect to another party, such
party shall promptly notify in writing all such other parties
hereto.

     20.2   Owner Participant

     If, at any time, Owner Participant becomes a "party in
interest" (as defined in Section 3(14) of ERISA) or a
"disqualified person" (as defined in Section 4975(e)(2) of the
Code) with respect to Plan assets so as to cause such a
prohibited transaction, and Owner Participant has decided to
Transfer, under Section 12.1.1(a), in order to correct such
prohibited transaction, then for purposes of such Transfer only
(and not any subsequent Transfer unless the provisions of this
Section 20.2 are applicable) a "Permitted Institution" shall only
be required to have a combined capital and surplus or combined
net worth of $15 million).

     20.3   Certificate Holders

     Upon any Certificate Holder giving any notice in accordance
with the first sentence of Section 20.1, such Certificate Holder
shall comply with Section 8.5.3(c).

     20.4   [Intentionally Omitted]

     20.5   Owner Trustee

     Upon First Security giving any notice in accordance with the
first sentence of Section 20.1, Owner Trustee shall, subject to
Section 9.1.1 of the Trust Agreement, resign as Owner Trustee. 
Upon its receipt of such notice, Owner Participant shall as soon
as is reasonably practicable appoint a successor Owner Trustee
pursuant to Section 9.1 of the Trust Agreement.

     20.6   Mortgagee

     Upon WTC giving any notice in accordance with the first
sentence of Section 20.1, Mortgagee shall, subject to Section
8.02 of the Trust Indenture, resign as Mortgagee.

     20.7   Representations

     The parties hereto acknowledge and agree that in the event
John Hancock Mutual Life Ins. Co. v. Harris Trust & Savings Bank,
114 S. Ct. 517 (1993), or any subsequent decision, ruling, law or
regulation is interpreted to invalidate the position stated by
the Department of Labor in paragraph (b) of Interpretive
Bulletin 29 C.F.R. Section 2509.75-2, the parties making the
representations contained in Section 7.1.3, 7.1.13(b)(iii),
7.2.3, 7.4.3 or 7.5.3 shall not be considered to have breached
such representation as a result of such interpretation.

     20.8   Certain Agreements

     Owner Participant shall not be entitled to give the notice
described in Section 8.5.3(c)(ii) unless, as a result of the
occurrence of a prohibited transaction as described in
Section 8.5.3(c), Owner Participant would be exposed to any
material risk of liability, cost or other Expense (after taking
into account the indemnity of Lessee under Section 10.1.1(f) and
the creditworthiness of Lessee at such time).  If the procedures
specified in Section 8.5.3(c)(ii) are invoked, Owner Participant
shall, upon request of Lessee, use reasonable efforts to confirm
to Lessee whether or not it believes a transfer to a proposed
transferee would correct such prohibited transaction and whether
or not such transfer, immediately upon its consummation, would
result in another such prohibited transaction.  A copy of any
notice given by either Lessee or Owner Participant under
Section 8.5.3(c)(ii) shall, within one Business Day, be delivered
by such party to the other.

     Notwithstanding anything in Section 8.5.3(c) to the
contrary, if there is a change of law that, in the reasonable
judgment of Lessee, Owner Participant and an affected Certificate
Holder, establishes a clear standard under which a prohibited
transaction in connection with, arising out of, or resulting from
the use of the assets of an insurance company's general account
would be exempt from excise tax under Section 4975 of the Code,
the restrictions imposed by Sections 406 and 407 of ERISA and any
penalty under Section 502(i) of ERISA (an "ERISA change of law"),
then Lessee, Owner Participant and the Certificate Holders shall
negotiate in good faith in order to agree upon a revised
representation to cover the use of insurance company general
account assets that is reasonably satisfactory to Lessee, Owner
Participant and a Majority in Interest of Certificate Holders. 
Except as otherwise agreed between Lessee, Owner Participant and
the Certificate Holders, upon and after delivery of the revised
representation covering the use of insurance company general
account assets, a Certificate Holder or proposed Certificate
Holder shall no longer be permitted to make a representation
pursuant to Section 7.4.3(a), but such Certificate Holder or
proposed Certificate Holder may in lieu thereof make the revised
representation covering the insurance company general account
assets used or to be used by it to acquire or hold any Loan
Certificate, or any interest in, or represented by, any Loan
Certificate.  After a Certificate Holder or proposed Certificate
Holder makes the revised representation, Section 8.5.3(c) shall
no longer be applicable to such Certificate Holder or proposed
Certificate Holder; provided, that this sentence shall apply only
if each of Lessee and Owner Participant reasonably determines
that (i) the ERISA change of law is applicable to Certificate
Holder or proposed Certificate Holder making the revised
representation and (ii) the elimination of the applicability of
Section 8.5.3(c) shall not increase such party's risk of
incurring additional costs or penalties on account of, resulting
from, or with respect to a prohibited transaction relating to
Certificate Holder's or proposed Certificate Holder's source of
funding for the acquisition or holding of any Loan Certificate,
or any interest in, or represented by, any Loan Certificate.

     

[This space intentionally left blank]



     IN WITNESS WHEREOF, each of the parties hereto confirms that
it has had an opportunity to review, become familiar with and
negotiate this Participation Agreement, including, without
limitation, Section 19.8, and has caused this Participation
Agreement to be duly executed and delivered as of the day and
year first above written.

                              CONTINENTAL AIRLINES, INC.,
                                Lessee



                              By  /s/ Michael B. Cox
                                --------------------------------
                                Name:  Michael B. Cox
                                Title:  Vice President
                                         and Treasurer


                              GAUCHO-2 INC.,
                                Owner Participant



                              By  /s/ David A. Edgerton
                                --------------------------------
                                Name:  David A. Edgerton
                                Title:  Attorney-in-fact



                              THE BOEING COMPANY,
                                Loan Participant



                              By  /s/ David A. Edgerton
                                --------------------------------
                                Name:  David A. Edgerton
                                Title:  Attorney-in-fact

                              

                              FIRST SECURITY BANK OF UTAH,
                              NATIONAL ASSOCIATION,
                                not in its individual
                                capacity, except as expressly
                                provided herein, but solely as
                                Owner Trustee,
                                Owner Trustee



                              By  /s/ Nancy M. Dahl
                                ------------------------------
                                Name:  Nancy M. Dahl
                                Title:  Assistant Vice
                                         President


                              WILMINGTON TRUST COMPANY,
                                not in its individual
                                capacity,except as expressly 
                                provided herein, but solely as 
                                Mortgagee,
                                Mortgagee



                              By  /s/ David A. Vanaskey, Jr.
                                ------------------------------
                                Name:  David A. Vanaskey, Jr.
                                Title:  Senior Financial
                                         Services Officer




                                            ANNEX A - DEFINITIONS
                                      PARTICIPATION AGREEMENT 104

                             ANNEX A

                           DEFINITIONS

GENERAL PROVISIONS

     (a)  In each Operative Agreement, unless otherwise expressly
provided, a reference to:

          (i)  each of "Lessee," "Lessor," "Owner Trustee,"
     "Owner Participant," "Loan Participant," "Mortgagee,"
     "Certificate Holder" or any other person includes, without
     prejudice to the provisions of any Operative Agreement, any
     successor in interest to it and any permitted transferee,
     permitted purchaser or permitted assignee of it;

          (ii)  words importing the plural include the singular
     and words importing the singular include the plural;

          (iii)  any agreement, instrument or document, or any
     annex, schedule or exhibit thereto, or any other part
     thereof, includes, without prejudice to the provisions of
     any Operative Agreement, that agreement, instrument or
     document, or annex, schedule or exhibit, or part,
     respectively, as amended, modified or supplemented from time
     to time in accordance with its terms and in accordance with
     the Operative Agreements, and any agreement, instrument or
     document entered into in substitution or replacement
     therefor;

          (iv)  any provision of any Law includes any such
     provision as amended, modified, supplemented, substituted,
     reissued or reenacted prior to the Delivery Date, and
     thereafter from time to time;

          (v)  the words "Agreement," "this Agreement," "hereby,"
     "herein," "hereto," "hereof" and "hereunder" and words of
     similar import when used in any Operative Agreement refer to
     such Operative Agreement as a whole and not to any
     particular provision of such Operative Agreement;

          (vi)  the words "including," "including, without
     limitation," "including, but not limited to," and terms or
     phrases of similar import when used in any Operative
     Agreement, with respect to any matter or thing, mean
     including, without limitation, such matter or thing; and

          (vii)  a "Section," an "Exhibit," an "Annex" or a
     "Schedule" in any Operative Agreement, or in any annex
     thereto, is a reference to a section of, or an exhibit, an
     annex or a schedule to, such Operative Agreement or such
     annex, respectively.

     (b)  Each exhibit, annex and schedule to each Operative
Agreement is incorporated in, and shall be deemed to be a part
of, such Operative Agreement.

     (c)  Unless otherwise defined or specified in any Operative
Agreement, all accounting terms therein shall be construed and
all accounting determinations thereunder shall be made in
accordance with GAAP.

     (d)  Headings used in any Operative Agreement are for
convenience only and shall not in any way affect the construction
of, or be taken into consideration in interpreting, such
Operative Agreement.

DEFINED TERMS

     "Act" means the Federal Aviation Act of 1958.

     "Actual Knowledge" means (a) as it applies to Owner Trustee
or Mortgagee, as the case may be, actual knowledge of a
responsible officer in the Corporate Trust Department or the
Corporate Trust Office, respectively, and (b) as it applies to
Lessee or Owner Participant, actual knowledge of a Vice President
or more senior officer of Owner Participant or Lessee,
respectively, or any other officer of Owner Participant or
Lessee, respectively, in each case having responsibility for the
transactions contemplated by the Operative Agreements; provided,
that each of Lessee, Owner Participant, Owner Trustee and
Mortgagee shall be deemed to have "Actual Knowledge" of any
matter as to which it has received notice from Lessee, Owner
Participant, any Certificate Holder, Owner Trustee or Mortgagee,
such notice having been given pursuant to Section 19.7 of the
Participation Agreement.

     "Additional Insured" is defined by reference to Section 11
of the Lease.

     "Adverse Change in Tax Law" means (a) for Lessee, a Change
in Tax Law that Lessee regards as one that could adversely affect
the economic consequences of the transactions contemplated by the
Participation Agreement and the other Operative Agreements
anticipated by Lessee or (b) for Owner Participant, any Change in
Tax Law that would adversely affect any of the following tax
assumptions:

          (i)  For federal income tax purposes, the Lease will be
     a "true" lease for purposes of the Code and Owner
     Participant will be treated as the owner of the Aircraft and
     Lessee will be treated as the lessee thereof;

          (ii)  For federal income tax purposes, Owner
     Participant will be entitled to depreciation or cost
     recovery deductions with respect to Lessor's Cost of the
     Aircraft; and

          (iii)  For federal income tax purposes, Owner
     Participant will be entitled to deductions for interest
     payments on the Loan Certificates.

     "Affiliate" means, with respect to any person, any other
person directly or indirectly controlling, controlled by or under
common control with such person.  For purposes of this
definition, "control" means the power, directly or indirectly, to
direct or cause the direction of the management and policies of
such person, whether through the ownership of voting securities
or by contract or otherwise and "controlling," "controlled by"
and "under common control with" have correlative meanings.

     "Aircraft" means, collectively, the Airframe and Engines.

     "Aircraft Bill of Sale" means the full warranty bill of sale
covering the Aircraft delivered by Airframe Manufacturer to Owner
Trustee on the Delivery Date.

     "Aircraft Documents" means all technical data, manuals and
log books, and all inspection, modification and overhaul records
and other service, repair, maintenance and technical records that
are required by the FAA (or the relevant Aviation Authority), the
Lease or the Maintenance Program to be maintained with respect to
the Aircraft, Airframe, Engines or Parts, or that are of a type
required to be delivered by Lessee upon return of the Aircraft,
Airframe or Engines under Section 5 of the Lease; and such term
shall include all additions, renewals, revisions and replacements
of any such materials from time to time made, or required to be
made, in accordance with the Lease, the Maintenance Program or
such FAA (or other Aviation Authority) regulations, and in each
case in whatever form and by whatever means or medium (including,
without limitation, microfiche, microfilm, paper or computer
disk) such materials may be maintained or retained by or on
behalf of Lessee (provided, that all such materials shall be
maintained in the English language); and such term shall include,
without limitation, the documents described in Section N of
Annex B to the Lease.

     "Airframe" means (a) the aircraft (excluding Engines or
engines from time to time installed thereon) manufactured by
Airframe Manufacturer and identified by Airframe Manufacturer's
model number, United States registration number and Airframe
Manufacturer's serial number set forth in Lease Supplement No. 1
and any Replacement Airframe and (b) any and all Parts
incorporated or installed in or attached or appurtenant to such
airframe, and any and all Parts removed from such airframe,
unless title to such Parts shall not be vested in Lessor in
accordance with Section 8.1 and Annex C of the Lease.  Upon
substitution of a Replacement Airframe under and in accordance
with the Lease, such Replacement Airframe shall become subject to
the Lease and shall be the "Airframe" for all purposes of the
Lease and the other Operative Agreements and thereupon the
Airframe for which the substitution is made shall no longer be
subject to the Lease, and such replaced Airframe shall cease to
be the "Airframe."

     "Airframe Manufacturer" means The Boeing Company, a Delaware
corporation, solely in its capacity as manufacturer or seller of
the Aircraft, Airframe, Engines or Parts (other than BFE and
other than any Parts incorporated or installed in or attached or
appurtenant to the Aircraft, Airframe or any Engine after
delivery of the Aircraft, Airframe and Engines to Tramco, Inc.
prior to the Delivery Date) under the Purchase Agreement or any
other contract or other services provided for thereunder or
related thereto.

     "Amortization Amount" means, with respect to any Loan
Certificate, as of any Payment Date, the amount determined by
multiplying the percentage set forth opposite such Date on the
Amortization Schedule by the Original Amount of such Loan
Certificate.

     "Amortization Schedule" means, with respect to each Loan
Certificate, the amortization schedule for the Loan Certificates
delivered pursuant to Section 2.02 of the Trust Indenture or, if
a revised amortization schedule shall be established pursuant to
Section 9 of the Participation Agreement, the amortization
schedule so established.

     "Appraiser" means a firm of internationally recognized,
independent aircraft appraisers.

     "APU" means the auxiliary power unit installed on the
Aircraft on the Delivery Date, whether or not installed on the
Aircraft from time to time thereafter, unless title to such APU
shall not be vested in Lessor in accordance with Section 8.1 of
the Lease, and any replacement or substituted auxiliary power
unit installed on the Aircraft in accordance with the Lease.

     "Aviation Authority" means the FAA or, if the Aircraft is
permitted to be, and is, registered with any other Government
Entity under and in accordance with Section 7.1.2 of the Lease,
such other Government Entity.

     "Bankruptcy Code" means the United States Bankruptcy Code,
11 U.S.C. Section 102 et seq.

     "Base Lease Term" means the period beginning on and
including the Commencement Date and ending on the Scheduled
Expiration Date, or such earlier date on which the Term
terminates in accordance with the provisions of the Lease.

     "Basic Rent" means the rent payable for the Aircraft
pursuant to Section 3.2.1(a) of the Lease.

     "Beneficial Owner" when used in relation to a Loan
Certificate means a Person that, by reason of direct ownership,
contract, share ownership or otherwise, has the right to receive
or participate in receiving, directly or indirectly, payments of
principal, interest or Make Whole Amount in respect of such Loan
Certificate; provided, that a Person shall not be deemed to be a
Beneficial Owner of a Loan Certificate solely because another
Person in which such a Person owns common stock or other equity
securities is a registered holder or Beneficial Owner of such
Loan Certificate unless such Person is an Affiliate of such other
Person.

     "Bills of Sale" means the FAA Bill of Sale, the Aircraft
Bill of Sale and the BFE Bill of Sale.

     "BFE" means all appliances, parts, instruments,
appurtenances, accessories, furnishings or other equipment of
whatever nature sold by Lessee to Owner Trustee pursuant to the
BFE Bill of Sale.

     "BFE Amount" means the amount paid by Owner Trustee to
Lessee to purchase the BFE, and is designated by Dollar amount in
Schedule 4 to the Participation Agreement.

     "BFE Bill of Sale" means the full warranty bill of sale
executed by Lessee in favor of Owner Trustee, dated the Delivery
Date, identifying and covering the BFE.

     "Business Day" means any day other than a Saturday, Sunday
or other day on which commercial banks are authorized or required
by law to close in New York, New York, Houston, Texas or Salt
Lake City, Utah.

     "Cash Equivalents" means the following securities (which
shall mature within 90 days of the date of purchase thereof): 
(a) direct obligations of the U.S. Government; (b) obligations
fully guaranteed by the U.S. Government; (c) certificates of
deposit issued by, or bankers' acceptances of, or time deposits
or a deposit account with, Owner Trustee, Mortgagee or any bank,
trust company or national banking association incorporated or
doing business under the laws of the United States or any state
thereof having a combined capital and surplus and retained
earnings of at least $500,000,000 and having a rate of "C" or
better from the Thomson BankWatch Service; or (d) commercial
paper of any issuer doing business under the laws of the United
States or one of the states thereof and in each case having a
rating assigned to such commercial paper by Standard & Poor's
Corporation or Moody's Investors Service, Inc. equal to A1 or
higher.  

     "Certificate Holder" means at any time each holder of one or
more Loan Certificates.

     "Change in Tax Law" means any amendment, modification,
addition or change in or to the provisions of the Code, any other
federal tax statutes, the Treasury Regulations promulgated
thereunder, the Internal Revenue Service Revenue Rulings, Revenue
Procedures or other administrative or judicial interpretations of
the Code or the federal tax statutes that affects the tax
assumptions set forth in the Tax Indemnity Agreement or otherwise
affects Owner Participant's anticipated Net Economic Return
(other than a change in the alternative minimum tax or other
change that results in Owner Participant being subject to
alternative minimum tax or unable to fully utilize tax benefits
because of its particular tax situation).

     "Citizen of the United States" is defined in Section 102(16)
of the Act and in the FAA Regulations.

     "Closing" means the closing of the transactions contemplated
by the Participation Agreement on the Delivery Date.

     "Code" means the Internal Revenue Code of 1986, as amended;
provided, that when used in relation to a Plan, "Code" shall mean
the Internal Revenue Code of 1986 and any regulations and rulings
issued thereunder, all as amended and in effect from time to
time.

     "Commencement Date" is defined in Schedule 1 to the Lease.

     "Commitment" means, for any Participant, the amount of its
participation in the payment of Lessor's Cost.

     "Commitment Termination Date" is defined in Schedule 4 to
the Participation Agreement.

     "Consent and Agreement" means the Manufacturer Consent and
Agreement 104, dated as of even date with the Participation
Agreement, of Airframe Manufacturer.

     "Corporate Trust Department" or "Trust Office" means the
principal corporate trust office of Owner Trustee located from
time to time at Owner Trustee's address for notices under the
Participation Agreement or such other office at which Owner
Trustee's corporate trust business shall be administered which
Owner Trustee shall have specified by notice in writing to
Lessee, Mortgagee and each Certificate Holder.

     "Corporate Trust Office" means the principal office of
Mortgagee located at Mortgagee's address for notices under the
Participation Agreement or such other office at which Mortgagee's
corporate trust business shall be administered which Mortgagee
shall have specified by notice in writing to Lessee, Owner
Trustee and each Certificate Holder.

     "CRAF" means the Civil Reserve Air Fleet Program established
pursuant to 10 U.S.C. Section 9511-13 or any similar substitute
program.

     "Damage Payment Threshold" is defined in Schedule 1 to the
Lease.

     "Debt" means any liability for borrowed money, or any
liability for the payment of money in connection with any letter
of credit transaction or any other liabilities evidenced or to be
evidenced by bonds, debentures, notes or other similar
instruments.

     "Debt Rate" (a) for the initial Funding Period, is defined
in Schedule 4 to the Participation Agreement and (b) for the
subsequent Funding Period shall be as determined pursuant to
Schedule 5 to the Participation Agreement.

     "Default" means any event or condition that with the giving
of notice or the lapse of time or both would become an Event of
Default.

     "Definitive Purchase Notice" is defined in Section 17.1 of
the Lease.

     "Delayed Delivery Date" means a delayed Delivery Date
notified to each Participant, Owner Trustee andMortgagee by
Lessee pursuant to Section 5.3.1 of the Participation Agreement,
which delayed Delivery Date shall be a Business Day not later
than the Commitment Termination Date.

     "Delivery Date" means the Business Day specified in Lease
Supplement No. 1 as the date on which, among other things, the
Aircraft is delivered to and accepted by Lessee under the Lease
and the Closing occurs.

     "Dollars," "United States Dollars" or "$" means the lawful
currency of the United States.

     "DOT" means the Department of Transportation of the United
States or any Government Entity succeeding to the functions of
such Department of Transportation.

     "Engine" means (a) each of the engines manufactured by
Engine Manufacturer and identified by Engine Manufacturer's model
number and Engine Manufacturer's serial number set forth in Lease
Supplement No. 1 and originally installed on the Airframe on
delivery thereof pursuant to the Lease, and any Replacement
Engine, in any case whether or not from time to time installed on
such Airframe or installed on any other airframe or aircraft, and
(b) any and all Parts incorporated or installed in or attached or
appurtenant to such engine, and any and all Parts removed from
such engine, unless title to such Parts shall not be vested in
Lessor in accordance with Section 8.1 and Annex C of the Lease. 
Upon substitution of a Replacement Engine under and in accordance
with the Lease, such Replacement Engine shall become subject to
the Lease and shall be an "Engine" for all purposes of the Lease
and the other Operative Agreements and thereupon the Engine for
which the substitution is made shall no longer be subject to the
Lease, and such replaced Engine shall cease to be an "Engine."

     "Engine Consent and Agreement" means the Engine Manufacturer
Consent and Agreement 104 dated as of even date with the
Participation Agreement, of Engine Manufacturer.

     "Engine Manufacturer" means Rolls-Royce plc, a corporation
organized under the laws of England.

     "ERISA" means the Employee Retirement Income Security Act of
1974 and any regulations and rulings issued thereunder all as
amended and in effect from time to time.

     "Event of Default" is defined in Section 4.02 of the Trust
Indenture.

     "Event of Loss" means, with respect to the Aircraft,
Airframe or any Engine, any of the following circumstances,
conditions or events with respect to such property, for any
reason whatsoever:

     (a)  the destruction of such property, damage to such
          property beyond practical or economic repair or
          rendition of such property permanently unfit for normal
          use;

     (b)  the actual or constructive total loss of such property
          or any damage to such property, or requisition of title
          or use of such property, which results in an insurance
          settlement with respect to such property on the basis
          of a total loss or constructive or compromised total
          loss;

     (c)  any loss of such property or loss of use of such
          property for a period of 90 days or more as a
          consequence of any theft, hijacking or disappearance of
          such property;

     (d)  any seizure, condemnation, confiscation, taking or
          requisition of title to such property by any Government
          Entity or purported non-U.S. Government Entity;

     (e)  any seizure, condemnation, confiscation, taking or
          requisition of use of such property, that continues
          until the earliest of (i) the last day of the Term,
          (ii) the date upon which the Aircraft is modified,
          altered or adapted in such a manner as would render
          conversion of such property for use in normal
          commercial passenger service impractical or
          uneconomical, (iii) the date on which such property is
          operated or located in any area excluded from coverage
          by any insurance policy required to be maintained in
          respect of such property pursuant to the Lease (unless
          an indemnity in lieu of insurance is provided to Lessor
          and Mortgagee in accordance with Section 11.4 of the
          Lease) or (iv) the date that is 90 days following the
          commencement of such loss of use (unless such loss of
          use results from action by the U.S. Government, in
          which case this clause (iv) shall not apply to such
          loss of use); and 

     (f)  as a result of any law, rule, regulation, order or
          other action by the Aviation Authority or by any
          Government Entity of the government of registry of the
          Aircraft or by any Government Entity otherwise having
          jurisdiction over the operation or use of the Aircraft,
          the use of such property in the normal course of
          Lessee's business of passenger air transportation is
          prohibited for a period expiring on the earlier to
          occur of (i) the last day of the Term or (ii) the date
          that is 180 days following commencement of such
          prohibition, provided, that if Lessee, prior to the
          expiration of such 180-day period, shall have
          undertaken and shall be diligently carrying forward all
          steps which are necessary or desirable to permit the
          normal use of such property by Lessee, then the date
          that is 360 days following commencement of such
          prohibition.

The date of such Event of Loss shall be the date of such loss,
damage, insurance settlement, seizure, condemnation,
confiscation, taking or requisition of title or use or
prohibition, except that for purposes of clauses (c), (e) and (f)
above, no Event of Loss shall be deemed to have occurred until
the date of expiration of the applicable period referred to
therein.

     "Excluded Payments" means (i) indemnity payments paid or
payable by Lessee to or in respect of Owner Participant, or Owner
Trustee in its individual capacity, their respective Affiliates,
successors and permitted assigns and their directors, officers,
employees, servants and agents pursuant to Section 10 of the
Participation Agreement or any corresponding payments under the
Trust Indenture, (ii) proceeds of public liability insurance paid
or payable as a result of insurance claims made, or losses
suffered, by Owner Trustee in its individual capacity or by Owner
Participant, that are payable directly to Owner Trustee in its
individual capacity, or Owner Participant,  respectively, for
their own account, (iii) proceeds of insurance maintained with
respect to the Aircraft by Owner Participant or any Affiliate
thereof for its or their own account or benefit (whether directly
or through Owner Trustee) and permitted under Section 11.3 of the
Lease, (iv) all payments required to be made under the Tax
Indemnity Agreement by Lessee whether or not denominated as
Supplemental Rent, (v) any interest that pursuant to the
Operative Agreements may from time to time accrue in respect of
any of the amounts described in clauses (i) through (iv) above,
(vi) any right to enforce the payment of any amount described in
clauses (i) through (v) above (provided, that the rights referred
to in this clause (vi) shall not be deemed to include the
exercise of any remedies provided for in the Lease other than the
right to sue for specific performance of any covenant to make
such payment or to sue for damages in respect of the breach of
any such covenant) and (vii) any right to exercise any election
or option or make any decision or determination, or to give or
receive any notice, consent, waiver or approval, or to take any
other action in respect of, but in each case, only to the extent
relating to, any Excluded Payments.

     "Expenses" means any and all liabilities, obligations,
losses, damages, settlements, penalties, claims (including,
without limitation, claims or liabilities based or asserted upon
(a) negligence, (b) strict or absolute liability, (c) liability
in tort, (d) infringement of patent, trademark or other property
or other right and (e) liabilities arising out of violation of
any Law), actions, suits, costs, expenses and disbursements
(including, without limitation, reasonable fees and disbursements
of legal counsel, accountants, appraisers, inspectors or other
professionals, and costs of investigation), including, without
limitation, all such costs, expenses and disbursements incurred
by any person in asserting or establishing, or in defending any
claims arising out of its assertion of, any rights it may have
under, or its cooperation in connection with any Expenses
indemnified pursuant to, Section 10 of the Participation
Agreement.

     "FAA" means the Federal Aviation Administration of the
United States or any Government Entity succeeding to the
functions of such Federal Aviation Administration.

     "FAA Bill of Sale" means a bill of sale for the Aircraft on
AC Form 8050-2 (or such other form as may be approved by the FAA)
delivered to Owner Trustee on the Delivery Date by Airframe
Manufacturer.

     "FAA Filed Documents" means the Lease, Lease Supplement
No. 1, the Trust Indenture, the Trust Agreement, the Trust
Indenture Supplement, the FAA Bill of Sale and an application for
registration of the Aircraft with the FAA in the name of Owner
Trustee.

     "FAA Regulations" means the Federal Aviation Regulations
issued or promulgated pursuant to the Act from time to time.

     "Fair Market Rental Value" means the fair market rental
value in Dollars for the Aircraft that would apply in an arm's-
length transaction between an informed and willing lessee under
no compulsion to lease, and an informed and willing lessor under
no compulsion to lease, the Aircraft, for the First Renewal Lease
Term or the Second Renewal Lease Term, as the case may be,
assuming that (a) the Aircraft has been maintained in accordance
with, and is in the condition required by, the Lease, (b)
payments of rent would be made quarterly, and (c) the Aircraft
would be leased during any such Renewal Term on the same terms
and conditions as are set forth in the Lease with respect to the
Base Lease Term.

     "Fair Market Sales Value" means the fair market sales value
in Dollars for the Aircraft that would apply in an arm's-length
transaction between an informed and willing buyer under no
compulsion to buy, and an informed and willing seller under no
compulsion to sell, the Aircraft, in a transaction that would
close on or about the relevant time of determination, assuming
that (a) the Aircraft has been maintained in accordance with, and
is in the condition required by, the Lease and (b) the Aircraft
would be delivered to such informed and willing buyer in the
return condition required by the Lease.

     "Financing Statements" means, collectively, UCC-1 (and,
where appropriate, UCC-3) financing statements (a) covering the
Trust Indenture Estate, by Owner Trustee, as debtor, showing
Mortgagee as secured party, for filing in Utah and each other
jurisdiction that, in the opinion of Mortgagee, is necessary to
perfect its Lien on the Indenture Estate, (b) covering the Lease
and the Aircraft, as a precautionary matter, by Lessee, as
lessee, showing Owner Trustee as lessor and Mortgagee as assignee
of Owner Trustee, for filing in Texas and each other jurisdiction
that, in the opinion of Owner Trustee and Mortgagee, is
reasonably desirable and (c) for purposes of Section 6.1.2 of the
Participation Agreement only, terminating the lien of the
(i) Purchase Contract Security Agreement dated December 7, 1993,
between Lessee and Engine Manufacturer and (ii) 757 Purchase
Agreement Assignment dated February 7, 1994 between Lessee and
Airframe Manufacturer.

     "First Renewal Lease Term" means, if Lessee exercises its
option to renew the Lease at the end of the Base Lease Term
pursuant to and in accordance with Section 17.2 of the Lease, the
period commencing on the first day following the Scheduled
Expiration Date, and ending on the First Renewal Term Expiration
Date or such earlier date on which the Term terminates in
accordance with the provisions of the Lease.

     "First Renewal Term Expiration Date" means the first
anniversary of the Scheduled Expiration Date.

     "First Security" means First Security Bank of Utah, National
Association, a national banking association, not in its capacity
as Owner Trustee under the Trust Agreement, but in its individual
capacity.

     "Funding Period" means each of the two successive periods,
the first commencing upon the Delivery Date and ending on (but
excluding) the Payment Date next preceding the tenth anniversary
of the Delivery Date and the second commencing on such Payment
Date and ending on (but excluding) the final maturity date of the
Loan Certificates.

     "GAAP" means generally accepted accounting principles as set
forth in the statements of financial accounting standards issued
by the Financial Accounting Standards Board of the American
Institute of Certified Public Accountants, as such principles may
at any time or from time to time be varied by any applicable
financial accounting rules or regulations issued by the SEC and,
with respect to any person, shall mean such principles applied on
a basis consistent with prior periods except as may be disclosed
in such person's financial statements.

     "Government Entity" means (a) any federal, state, provincial
or similar government, and any body, board, department,
commission, court, tribunal, authority, agency or other
instrumentality of any such government or otherwise exercising
any executive, legislative, judicial, administrative or
regulatory functions of such government or (b) any other
government entity having jurisdiction over any matter
contemplated by the Operative Agreements or relating to the
observance or performance of the obligations of any of the
parties to the Operative Agreements.

     "GTA" means the Purchase Contract reference RR/CAL/DEG 2124
dated December 7, 1993, by and between Engine Manufacturer and
Lessee (including all exhibits thereto, together with all letter
agreements that by their terms constitute part of such Purchase
Contract), to the extent assigned pursuant to the Purchase
Agreement Assignment.

     "Inclusion Event" is defined in the Tax Indemnity Agreement.

     "Indemnitee" means (a) First Security and Owner Trustee,
(b) WTC and Mortgagee, (c) each separate or additional trustee
appointed pursuant to the Trust Agreement or the Trust Indenture,
(d) each Participant, (e) Owner Participant Parent (but only in
its capacity as issuer of the Owner Participant Guaranty),
(f) the Trust Estate and the Trust Indenture Estate, (g) each
Affiliate of the persons described in clauses (a) through (e),
inclusive, (h) the respective directors, officers, employees,
agents and servants of each of the persons described in
clauses (a) through (g), inclusive and (i) the successors and
permitted assigns of the persons described in clauses (a) through
(h), inclusive.  If any Indemnitee is Airframe Manufacturer or
Engine Manufacturer or any subcontractor or supplier of either
thereof, such Person shall be an Indemnitee only in its capacity
as Owner Participant, Owner Participant Parent, Loan Participant
orCertificate Holder.

     "Indenture Default" means any condition, circumstance, act
or event that, with the giving of notice, the lapse of time or
both, would constitute an Indenture Event of Default.

     "Indenture Agreements" means the Participation Agreement,
the Lease, the Purchase Agreement, the Purchase Agreement
Assignment, the Consent and Agreement, the Engine Consent and
Agreement, the Bills of Sale and any other contract, agreement or
instrument from time to time assigned or pledged under the Trust
Indenture.

     "Indenture Event of Default" means any one or more of the
conditions, circumstances, acts or events set forth in
Section 4.02 of the Trust Indenture.

     "Independent Tax Counsel" means independent tax counsel of
recognized reputation selected by Owner Participant and
reasonably acceptable to Lessee.

     "Interim Lease Term" means the period commencing on and
including the Delivery Date, and ending on and including the day
immediately preceding the Commencement Date or such earlier date
on which the Term terminates in accordance with the provisions of
the Lease.

     "Interim Term Value Date" is defined in Schedule 1 to the
Lease.

     "IRS" means the Internal Revenue Service of the United
States or any Government Entity succeeding to the functions of
such Internal Revenue Service.

     "Law" means (a) any constitution, treaty, statute, law,
decree, regulation, order, rule or directive of any Government
Entity, and (b) any judicial or administrative interpretation or
application of, or decision under, any of the foregoing.

     "Lease" or "Lease Agreement" means the Lease Agreement 104,
dated as of even date with the Participation Agreement, between
Owner Trustee and Lessee.

     "Lease Default" means any condition, circumstance, act or
event that, with the giving of notice, the lapse of time or both,
would constitute a Lease Event of Default.

     "Lease Event of Default" means any one or more of the
conditions, circumstances, acts or events set forth in Section 14
of the Lease.

     "Lease Supplement" means a supplement to the Lease, in the
form of Exhibit A to the Lease.

     "Lease Supplement No. 1" means the initial Lease Supplement,
dated the Delivery Date.

     "Lessee" means Continental Airlines, Inc., a Delaware
corporation.

     "Lessee Operative Agreements" means the Participation
Agreement, the Lease, Lease Supplement No. 1, the Tax Indemnity
Agreement, the BFE Bill of Sale, the Purchase Agreement
Assignment and each other agreement between Lessee and any other
party to the Participation Agreement, relating to the
Transactions, delivered on the Delivery Date.

     "Lessee Person" means Lessee, any sublessee, assignee,
successor or other user or person in possession of the Aircraft,
Airframe or an Engine with or without color of right, or any
Affiliate of any of the foregoing (other than any Indemnitee or
any related Indemnitee with respect thereto, or any person using
or claiming any rights with respect to the Aircraft, Airframe or
an Engine directly by or through any of the persons in this
parenthetical).

     "Lessor" means Owner Trustee in its capacity as lessor under
the Lease.

     "Lessor Lien" means, with respect to any person and in
respect of any property (including, without limitation, the
Aircraft, Airframe, Engines, Parts or Aircraft Documents), any
Lien on such property which (a) arises from claims against such
person (if such person is a trustee, whether in its individual
capacity or in its capacity as a trustee) not related to or
arising out of, directly or indirectly (i) its ownership of, Lien
on or other interest in the Aircraft, Airframe, Engines, Parts or
Aircraft Documents or all or any other part of the Trust Estate
or Indenture Estate or (ii) any of the transactions contemplated
by the Operative Agreements, (b) results from actions taken by
such person (if such person is a trustee, whether in its
individual capacity or in its capacity as a trustee) (i) in
violation of such person's obligations under any of the terms of
the Operative Agreements, (ii) not participated in or consented
to by Lessee and (iii) not taken in connection with or by reason
of the occurrence of a Lease Default or a Lease Event of Default,
or (c) is imposed as a result of Taxes against such person (if
such person is a trustee, whether in its individual capacity or
in its capacity as a trustee) or any of its Affiliates not
required to be indemnified by Lessee under the Participation
Agreement, the Tax Indemnity Agreement or any other Operative
Agreement; provided, that, for purposes of Sections 8.2.1 and
8.3.1 of the Participation Agreement, any Lien that is
attributable solely to Owner Participant, First Security or
Lessor and would otherwise constitute a Lessor Lien thereunder
shall not constitute a Lessor Lien thereunder, so long as (A) the
existence of such Lien poses no material risk of the sale,
forfeiture or loss of the Aircraft, Airframe or any Engine or any
interest therein, (B) the existence of such Lien does not
interfere in any way with the use or operation of the Aircraft by
Lessee (or any Permitted Sublessee), (C) the existence of such
Lien does not affect the priority or perfection of, or otherwise
jeopardize, the Lien of the Trust Indenture, (D) First Security,
Lessor or Owner Participant, as the case may be, is diligently
contesting such Lien by appropriate proceedings, (E) the
existence of such Lien does not result in actual interruption in
the receipt and distribution by Mortgagee in accordance with the
Trust Indenture of Rent assigned to Mortgagee for the benefit of
the Certificate Holders, and (F) any property subject to such
Lien is not then required to be conveyed to any other Person
pursuant to Section 4.6 of the Lease.

     "Lessor's Cost" means the aggregate of the amounts paid by
Owner Trustee to Airframe Manufacturer, and, with respect to BFE,
Lessee, to purchase the Aircraft pursuant to the Purchase
Agreement and the Purchase Agreement Assignment, and is
designated by Dollar amount in Schedule 4 to the Participation
Agreement.

     "Liability Deductible" is defined in Schedule 1 to the
Lease.

     "Lien" means any mortgage, pledge, lien, charge, claim,
encumbrance, lease or security interest affecting the title to or
any interest in property.

     "Loan Certificate Register" is defined in Section 2.07 of
the Trust Indenture.

     "Loan Certificates" means and includes any Loan Certificates
outstanding under the Trust Indenture.

     "Loan Participant" means, on or prior to the Delivery Date,
the Person executing the Participation Agreement as Loan
Participant and thereafter, each Certificate Holder.

     "Loan Participant Agreements" means the Participation
Agreement and each other agreement or document delivered by Loan
Participant under the Participation Agreement or any other
Operative Agreement.

     "Loan Participant's Percentage," with respect to the Loan
Participant, means the Percentage of Lessor's Cost allocated to
such Loan Participant in Schedule 3 to the Participation
Agreement.

     "MACRS Deductions" is defined in the Tax Indemnity
Agreement.

     "Maintenance Program" is defined in Annex C to the Lease.

     "Majority in Interest of Certificate Holders" means as of a
particular date of determination, the holders of a majority in
aggregate unpaid Original Amount of all Loan Certificates
outstanding as of such date (excluding any Loan Certificates held
by Owner Trustee, Lessee, Mortgagee or Owner Participant or any
Affiliate of any such party or any interests of Owner Trustee or
Owner Participant therein by reason of subrogation pursuant to
Section 4.03 of the Trust Indenture (unless all Loan Certificates
then outstanding shall be held by Owner Trustee, Owner
Participant or any Affiliate of any thereof)).  

     "Make-Whole Amount" means, with respect to a prepayment or
purchase of a Loan Certificate, an amount equal to the greater of
(i) zero and (ii) (x) the present value, discounted on a
quarterly compounded basis utilizing an interest factor equal to
the Reinvestment Yield, of the principal payments provided for in
the Amortization Schedule for such Loan Certificate (including
the payment at final maturity) and the scheduled interest
payments from the respective dates on which, but for such
prepayment or purchase, such principal payments and interest
payments would have been payable on such Loan Certificate, minus
(y) the principal amount of such Loan Certificate so to be
prepaid or purchase or purchase plus accrued but unpaid interest
thereon.  For purposes of this definition, "Reinvestment Yield"
shall mean the sum of the Yield Adjustment plus the arithmetic
mean of the two most recent weekly average yields to maturity for
actively traded marketable U.S. Treasury fixed interest rate
securities (adjusted to constant maturities equal to the
remaining Weighted Average Life to Maturity of such Loan
Certificate as of the date of the proposed prepayment), as
published by the Federal Reserve Board in its Statistical Release
H.15(519) or any successor publication for the two calendar weeks
ending on the Saturday next preceding such date or, if such
average is not published for such period, of such reasonably
comparable index as may be designated in good faith by the holder
or holders of at least 66-2/3% of the unpaid Original Amount of
the Loan Certificates for such period.  If no possible maturity
exactly corresponds to such Weighted Average Life to Maturity,
yields for the two most closely corresponding published
maturities shall be calculated pursuant to the immediately
preceding sentence and the Reinvestment Yield shall be
interpolated from such yields on a straight-line basis, rounding
each of such relevant periods to the nearest month.  

     "Material Adverse Change" means, with respect to any person,
any event, condition or circumstance that materially and
adversely affects such person's business or consolidated
financial condition, or its ability to observe or perform its
obligations, liabilities and agreements under the Operative
Agreements.

     "Minimum Liability Insurance Amount" is defined in
Schedule 1 to the Lease.

     "Minimum Residual Percentage" is defined in Schedule 1 to
the Lease.

     "Minimum Value Percentage" is defined in Schedule 1 to the
Lease.

     "Mortgaged Property" is defined in Section 3.03 of the Trust
Indenture.

     "Mortgagee" means Wilmington Trust Company, a Delaware
banking corporation, not in its individual capacity but solely as
mortgagee under the Trust Indenture.

     "Mortgagee Agreements" means, collectively, the
Participation Agreement, the Trust Indenture and each other
agreement between Mortgagee and any other party to the
Participation Agreement, relating to the Transactions, delivered
on the Delivery Date.

     "Mortgagee Event" means either (i) the Loan Certificates
shall have become due and payable pursuant to Section 4.04(b) of
the Trust Indenture or (ii) Mortgagee has taken action or
notified Owner Trustee that it intends to take action to
foreclose the Lien of the Trust Indenture or otherwise commence
the exercise of any significant remedy under the Trust Indenture
or the Lease.

     "Net Economic Return" means Owner Participant's net after-
tax yield and aggregate after-tax cash flow computed on the basis
of the same methodology and assumptions as were utilized by the
initial Owner Participant in determining Basic Rent, Stipulated
Loss Value percentages and Termination Value percentages as of
the Delivery Date, as such assumptions may be adjusted for events
that have been the basis for adjustments to Basic Rent pursuant
to Section 3.2.1(b) of the Lease or events giving rise to
indemnity payments pursuant to Section 5.1 of the Tax Indemnity
Agreement; provided, that, if the initial Owner Participant shall
have transferred its interest, Net Economic Return shall be
calculated as if the initial Owner Participant had retained its
interest; provided further, that, notwithstanding the preceding
proviso, solely for purposes of Section 13 of the Participation
Agreement and calculating any adjustments to Basic Rent,
Stipulated Loss Values and Termination Values in connection with
a refunding pursuant to such Section 13 at a time when Owner
Participant is a transferee (other than an Affiliate of the
initial Owner Participant), the after-tax yield (but not the
after-tax cash flow) component of Net Economic Return shall be
calculated on the basis of the methodology and assumptions
utilized by the transferee Owner Participant as of the date on
which it acquired its interest.

     "Net Present Value of Rents" means the present value, as of
the date of determination, discounted at ten percent per annum,
compounded quarterly to the date of determination, of all unpaid
Basic Rent payments during the then-remaining portion of the Base
Lease Term, expressed as a percentage of Lessor's Cost.

     "Net Worth" means, for any person, the excess of its total
assets over its total liabilities.

     "New Debt" means debt securities in an aggregate principal
amount specified in the Refunding Information, which amount shall
be no greater than the aggregate principal amount of all Loan
Certificates outstanding on the Refunding Date.

     "Non-U.S. Person" means any Person other than a United
States person, as defined in Section 7701(a)(30) of the Code.

     "Officer's Certificate" means, in respect of any party to
the Participation Agreement, a certificate signed by the
Chairman, the President, any Vice President or Assistant Vice
President, the Treasurer or the Secretary of such party.

     "Operative Agreements" means, collectively, the
Participation Agreement, the Trust Agreement, the Purchase
Agreement Assignment, the Consent and Agreement, the Engine
Consent and Agreement, the Lease, Lease Supplement No. 1, the
Trust Indenture, the initial Trust Indenture Supplement, the
Bills of Sale, the Tax Indemnity Agreement, the Owner Participant
Guaranty, the Loan Certificates and each other Lessee Operative
Agreement.

     "Optimization Certificate" is defined in Section 9(a) of the
Participation Agreement.

     "Original Amount," with respect to a Loan Certificate, means
the stated original principal amount of such Loan Certificate
and, with respect to all Loan Certificates, means the aggregate
stated original principal amounts of all Loan Certificates.

     "Owner Participant" means the person executing the
Participation Agreement as "Owner Participant" or, if a second
person becomes an "Owner Participant" pursuant to Section 12.1.1
of the Participation Agreement, both of such persons.

     "Owner Participant Agreements" means, collectively, the
Participation Agreement, the Tax Indemnity Agreement, the Trust
Agreement and each other agreement between Owner Participant and
any other party to the Participation Agreement relating to the
Transactions, delivered on the Delivery Date.

     "Owner Participant Guaranty" means the Guaranty by Corporate
Affiliate of Owner Participant 104 dated the Delivery Date from
Owner Participant Parent to the beneficiaries named therein.

     "Owner Participant Parent" means the person executing the
Owner Participant Guaranty.

     "Owner Participant's Percentage" means the percentage of
Lessor's Cost allocated to the Owner Participant in Schedule 3 to
the Participation Agreement.

     "Owner Trustee" means First Security Bank of Utah, National
Association, a national banking association, not in its
individual capacity, except as expressly provided in any
Operative Agreement, but solely as Owner Trustee under the Trust
Agreement.

     "Owner Trustee Agreements" means, collectively, the
Participation Agreement, the Lease, Lease Supplement No. 1, the
Trust Agreement, the Trust Indenture, the initial Trust Indenture
Supplement, the Loan Certificates, the Purchase Agreement
Assignment, and each other agreement between Owner Trustee and
any other party to the Participation Agreement, relating to the
Transactions, delivered on the Delivery Date.

     "Participants" means, collectively, Owner Participant and
Loan Participant and "Participant" means Owner Participant or
Loan Participant, individually.

     "Participation Agreement" means the Participation Agreement
104 dated as of July 15, 1994 among Lessee, Owner Participant,
Loan Participant, Owner Trustee and Mortgagee.

     "Parts" means all appliances, parts, components,
instruments, appurtenances, accessories, furnishings, seats and
other equipment of whatever nature (including, without
limitation, all BFE, avionics, the APU and Passenger Convenience
Equipment, but excluding Engines or engines), that may from time
to time be installed or incorporated in or attached or
appurtenant to the Airframe or any Engine; provided, that the
term "Parts" shall not be deemed to include any Passenger
Convenience Equipment if and for so long as such Equipment shall
be owned by, or shall be subject to a security interest, license
or other interest of, another Person (other than any Affiliate of
Lessee) as provided under Section D.3 of Annex C to the Lease.

     "Passenger Convenience Equipment" means components or
systems installed on or affixed to the Airframe that are used to
provide individual telecommunications or electronic entertainment
to passengers aboard the Aircraft.

     "Payment Date" is defined in Schedule 1 to the Lease.

     "Payment Due Rate" is defined in Schedule 1 to the Lease.

     "Permitted Air Carrier" means any U.S. Air Carrier or any
air carrier listed on Schedule 5 to the Lease.

     "Permitted Institution" means (a) any bank, trust company,
insurance company, pension trust, finance or leasing corporation,
financial institution or other person (other than, without
Lessee's consent, a commercial air carrier or Affiliate thereof
that is in direct competition with Lessee), in each case with a
combined capital and surplus or net worth of at least
$50,000,000, or (b) any Affiliate of any person described in
clause (a) in respect of which such person has provided a written
guarantee of the obligations assumed by such Affiliate under the
Owner Participant Agreements in form and substance reasonably
satisfactory to Lessee, Owner Trustee and Mortgagee.

     "Permitted Lien" means any Lien described in clauses (a)
through (f), inclusive, of Section 6 of the Lease.

     "Permitted Sublease" means a sublease permitted under
Section 7.2.7 of the Lease.

     "Permitted Sublessee" means the sublessee under a Permitted
Sublease.

     "Persons" or "persons" means individuals, firms,
partnerships, joint ventures, trusts, trustees, Government
Entities, organizations, associations, corporations, government
agencies, committees, departments, authorities and other bodies,
corporate or incorporate, whether having distinct legal status or
not, or any member of any of the same.

     "Plan" means any employee benefit plan within the meaning of
Section 3(3) of ERISA, and any plan within the meaning of
Section 4975(e)(1) of the Code.

     "Post-Delivery Change in Tax Law" means a Change in Tax Law
that is enacted, promulgated or issued after the Delivery Date
and on or prior to the first anniversary of the Delivery Date
that is based on or similar in substance or effect to one or more
elements of the provisions of a proposal made after April 27,
1993 and on or before the Delivery Date by the President, the
Department of the Treasury, the Majority Leader or Minority
Leader of the House of Representatives or the staff or any member
of the House Ways and Means Committee, the Senate Finance
Committee or the Joint Committee on Taxation; provided, that such
proposal was active or pending on the Delivery Date.

     "Preliminary Notice" is defined in Section 17.1 of the
Lease.

     "Purchase Agreement" means the Purchase Agreement No. 1783,
dated March 18, 1993 between Airframe Manufacturer and Lessee
(including all exhibits thereto, together with all letter
agreements entered into that by their terms constitute part of
such Purchase Agreement), to the extent assigned pursuant to the
Purchase Agreement Assignment.

     "Purchase Agreement Assignment" means the Purchase Agreement
and Engine Warranties Assignment 104, dated as of even date with
the Participation Agreement, between Lessee and Owner Trustee.

     "Purchase Date" means the last Business Day of any of the
Base Lease Term, First Renewal Lease Term, Second Renewal Lease
Term, Third Renewal Lease Term or Fourth Renewal Lease Term, as
specified in any Purchase Notice.

     "Purchase Notice" is defined in Section 17.3.1 of the Lease.

     "Refunding Certificate" means a certificate of an authorized
representative of Owner Participant delivered pursuant to
Section 13.1.1 of the Participation Agreement, setting forth
(a) the Refunding Date and (b) the following information, subject
to the limitations set forth in Section 13 of the Participation
Agreement:  (i) the principal amount of debt to be issued by
Owner Trustee on the Refunding Date and (ii) the proposed revised
schedules of Basic Rent, Stipulated Loss Value percentages and
Termination Value percentages and the proposed Amortization
Schedules.

     "Refunding Date" means the proposed date on which the
outstanding Loan Certificates will be redeemed and refinanced
pursuant to Section 13 of the Participation Agreement.

     "Refunding Information" means the information set forth in
the Refunding Certificate (other than the Refunding Date) as such
information may have been revised by any verification procedures
demanded by Lessee pursuant to Section 3.2.1(d) of the Lease.

     "Renewal Lease Term" means, collectively, the First Renewal
Lease Term and the Second Renewal Lease Term, in each case, if
any.

     "Renewal Notice" is defined in Section 17.2.1 of the Lease.

     "Renewal Rent" for the Aircraft means the rent payable
therefor in respect of a Renewal Lease Term determined pursuant
to Section 17.2.2 of the Lease.

     "Rent" means, collectively, Basic Rent, Renewal Rent and
Supplemental Rent.

     "Replacement Airframe" means any airframe substituted for
the Airframe pursuant to Section 10 of the Lease.

     "Replacement Engine" means an engin