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
--------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
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.
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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
71
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
72
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
73
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
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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
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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
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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
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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)
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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.
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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.
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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
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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
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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
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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
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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
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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
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No person has been authorized to give any
information or to make any representations other
than those contained or incorporated by reference
in this Prospectus 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
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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
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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
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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
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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
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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)
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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
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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 