View:
As filed with the Securities and Exchange Commission on July 23, 1996
Registration No. 333-04601
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Continental Airlines, Inc.
Continental Airlines Finance Trust
(Exact name of registrant as specified in its charter)
Delaware 74-2099724
Delaware 51-6502566
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
2929 Allen Parkway, Suite 2010
Houston, Texas 77019
(713) 834-2950
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Jeffery A. Smisek, Esq.
Senior Vice President, General Counsel and Secretary
Continental Airlines, Inc.
2929 Allen Parkway, Suite 2010
Houston, Texas 77019
(713) 834-2950
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
Copies of correspondence to:
Michael L. Ryan, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this Registration Statement
becomes effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following box: [ ]
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, other than the securities
offered only in connection with dividend or interest reinvestment
plans, check the following box. [ X ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
[ ]
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
===============================================================================
PROPOSED PROPOSED
AMOUNT TO MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF BE OFFERING AGGREGATE AMOUNT OF
SECURITIES REGISTERED PRICE PER OFFERING REGISTRATION
TO BE REGISTERED (1) UNIT (4) PRICE (4) FEE(1)
- -------------------------------------------------------------------------------
Convertible Preferred
Securities of
Continental Airlines
Finance Trust 4,997,000 $66.75(1) $333,549,750(1) $115,018
- -------------------------------------------------------------------------------
Convertible
Subordinated
Deferrable Interest
Debentures of
Continental
Airlines, Inc. (2) -- -- --
- -------------------------------------------------------------------------------
Class B common
stock of
Continental Airlines,
Inc. (3) -- -- --
- -------------------------------------------------------------------------------
Preferred Securities
Guarantee of
Continental
Airlines, Inc. and
certain back-up
undertakings(5)
- -------------------------------------------------------------------------------
Total 4,997,000 100% $333,549,750 $115,018
===============================================================================
(1) Estimated solely for the purpose of computing the
registration fee in accordance with Rule 457(c) of the
Securities Act. The registration fee was previously
paid.
(2) $249,850,000 in aggregate principal amount of 8-1/2%
Convertible Subordinated Deferrable Interest Debentures
(the "Convertible Subordinated Debentures") of Continental
Airlines, Inc. (the "Company") were issued and sold to
Continental Airlines Finance Trust (the "Trust") in
connection with the issuance by the Trust of 4,997,000 of
its 8-1/2% Convertible Preferred Securities (the "Preferred
Securities"). The Convertible Subordinated Debentures may
be distributed, under certain circumstances, to the
holders of Preferred Securities for no additional
consideration.
(3) Such indeterminate number of shares of Continental
Airlines, Inc. Class B common stock as may be issuable
upon conversion of the Preferred Securities registered
hereunder, including such shares as may be issuable
pursuant to anti-dilution adjustments.
(4) Exclusive of accrued interest and distributions, if any.
(5) No separate consideration will be received for the
Preferred Securities Guarantee. The Preferred Securities
Guarantee includes the rights of holders of the Preferred
Securities under the Preferred Securities Guarantee, the
Convertible Subordinated Debentures and certain back-up
undertakings, comprised of obligations of Continental
Airlines, Inc. under the Indenture and pursuant to the
Declaration to provide certain indemnities in respect of,
and be responsible for certain costs, expenses, debts and
liabilities of Continental Airlines Finance Trust, as
described in the Registration Statement. All obligations
under the Declaration, including the indemnity obligation,
are included in the back-up undertakings.
---------------------------------------------
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.
==================================================================
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 23, 1996
PROSPECTUS
4,997,000 Preferred Securities
Continental Airlines Finance Trust
8 1/2% Convertible Trust Originated Preferred
Securities SM (Convertible TOPrS SM)
(Liquidation Amount $50 per Preferred Security)
Fully and Unconditionally Guaranteed by,
and convertible into Class B common stock of,
Continental Airlines, Inc.
This Prospectus relates to the offering for resale of the 8
1/2% Convertible Trust Originated Preferred Securities SM (the
"Convertible TOPrS SM" or "Preferred Securities"), liquidation
amount $50 per Preferred Security, which represent preferred
undivided beneficial interests in the assets of Continental
Airlines Finance Trust, a statutory business trust formed under
the laws of the State of Delaware (the "Issuer" or the "Trust")
and the shares of Class B common stock, par value $.01 per share
("Class B common stock") of Continental Airlines, Inc., a
Delaware corporation ("Continental" or the "Company"), issuable
upon conversion of the Preferred Securities. The Preferred
Securities were issued and sold (the "Original Offering") on
November 28, 1995 and December 12, 1995 (the "Original Offering
Date") to the Initial Purchasers (as defined herein, see "Selling
Holders") and were simultaneously sold by the Initial Purchasers
in transactions exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), in the
United States to persons reasonably believed by the Initial
Purchasers to be qualified institutional buyers as defined in
Rule 144A under the Securities Act and outside the United States
to non-U.S. persons in offshore transactions in reliance on
Regulation S under the Securities Act. Continental directly or
indirectly owns all the common securities (the "Common
Securities" and, together with the Preferred Securities, the
"Trust Securities") representing undivided beneficial interests
in the assets of the Issuer. The Issuer exists for the sole
purpose of issuing the Trust Securities and using the proceeds
thereof to purchase from Continental its 8 1/2% Convertible
Subordinated Deferrable Interest Debentures due 2020 (the
"Convertible Subordinated Debentures") having the terms described
herein. Upon an event of default under the Declaration
(as defined herein), the holders of Preferred Securities will
have a preference over the holders of the Common Securities with
respect to payments in respect of distributions and payments upon
redemption, liquidation and otherwise.
The Preferred Securities and the Class B common stock
issuable upon conversion of the Preferred Securities (the
"Offered Securities") may be offered and sold from time to time
by the holders named herein or by their transferees, pledgees,
donees or their successors (collectively, the "Selling Holders")
pursuant to this Prospectus. The Offered Securities may be sold
by the Selling Holders from time to time directly to purchasers
or through agents, underwriters or dealers. See "Plan of
Distribution" and "Selling Holders." If required, the names of
any such agents or underwriters involved in the sale of the
Offered Securities and the applicable agent's commission,
dealer's purchase price or underwriter's discount, if any, will
be set forth in an accompanying supplement to this Prospectus
(the "Prospectus Supplement"). The Selling Holders will receive
all of the net proceeds from the sale of the Offered Securities
and will pay all underwriting discounts and selling commissions,
if any, applicable to any such sale. The Company is responsible
for payment of all other expenses incident to the offer and sale
of the Offered Securities. The Selling Holders and any
broker-dealers, agents or underwriters which participate in the
distribution of the Offered Securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the
Offered Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
See "Plan of Distribution" for a description of indemnification
arrangements. (continued on following page)
"Convertible Trust Originated Preferred Securities" and
"Convertible TOPrS" are service marks of Merrill Lynch & Co.,
Inc.
Prospective investors should carefully consider the matters
discussed under the caption "Risk Factors" commencing on page 6.
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.
(continued from cover page)
Holders of the Preferred Securities are entitled to receive
cumulative cash distributions at an annual rate of 8 1/2% of the
liquidation amount of $50 per Preferred Security, accruing from
the date of original issuance and payable quarterly in arrears on
each March 1, June 1, September 1 and December 1, commencing
March 1, 1996 ("distributions"). The payment of distributions out
of moneys held by the Issuer and payments on liquidation of the
Issuer or the redemption of Preferred Securities, as set forth
below, are guaranteed by Continental (the "Guarantee") to the
extent described under "Description of the Guarantee." The
Guarantee covers payments of distributions and other payments on
the Preferred Securities only if and to the extent that the Trust
has funds available therefor, which will not be the case unless
the Company has made a payment of interest or principal or other
payments on the Convertible Subordinated Debentures held by the
Trust as its sole asset. The Guarantee, when taken together with
the Company's obligations under the Convertible Subordinated
Debentures and the Indenture (as defined herein) and its
obligations under the Declaration (as defined herein), including
its liabilities to pay costs, expenses, debts and obligations of
the Trust (other than with respect to the Trust Securities),
provides a full and unconditional guarantee of amounts due on the
Preferred Securities. See "Risk Factors--Rights under the
Guarantee." Continental's obligations under the Guarantee are
subordinate and junior to all liabilities of Continental, except
any liabilities that may be made pari passu expressly by their
terms, and are pari passu with the most senior preferred stock
issued from time to time by Continental and certain other
guarantees. The obligations of Continental under the Convertible
Subordinated Debentures are subordinate and junior in right of
payment to Senior Indebtedness (as defined herein) of
Continental. At March 31, 1996, Senior Indebtedness of
Continental aggregated approximately $ 1.7 billion.
The distribution rate and the distribution payment dates
and other payment dates for the Preferred Securities will
correspond to the interest rate and interest payment dates and
other payment dates on the Convertible Subordinated Debentures,
which are the sole assets of the Issuer. As a result, if
principal or interest is not paid on the Convertible Subordinated
Debentures, no amounts will be paid on the Preferred Securities.
If Continental does not make principal or interest payments on
the Convertible Subordinated Debentures, the Issuer will not have
sufficient funds to make distributions on the Preferred
Securities, in which event the Guarantee will not apply to such
distributions until the Issuer has sufficient funds available
therefor.
Continental has the right to defer payments of interest on
the Convertible Subordinated Debentures at any time for up to 20
consecutive quarters (each, an "Extension Period"). If interest
payments are so deferred, distributions on the Preferred
Securities also will be deferred. During any Extension Period, distributions
will continue to accrue with interest thereon (to the extent
permitted by applicable law) at a rate of 8 1/2% per annum
compounded quarterly. During any Extension Period, holders of
Preferred Securities will be required to include such deferred
interest in their gross income for United States federal income
tax purposes in advance of receipt of the cash distributions with
respect to such deferred interest payments. There could be
multiple Extension Periods of varying lengths throughout the term
of the Convertible Subordinated Debentures (but distributions
would continue to accumulate quarterly and accrue interest) until
the end of any such Extension Period. See "Risk Factors--Option
to Extend Interest Payment Period," "Description of the Preferred
Securities--Distributions" and "Description of the Convertible
Subordinated Debentures--Option to Extend Interest Payment
Period." The Convertible Subordinated Debentures will mature on
December 1, 2020.
Each Preferred Security will be convertible at any time, at
the option of the holder thereof, into shares of Continental's
Class B common stock (the "Class B common stock") at a conversion
rate of 2.068 shares of Class B common stock for each Preferred
Security (equivalent to $24.18 per share of Class B common
stock), subject to adjustment in certain circumstances. Such
conversion rate and conversion price have been adjusted for
the 2-for-1 stock split announced by Continental on June 26,
1996 and payable on July 16, 1996 to holders of record of its
Class B common stock and Class A common stock on July 2, 1996.
The Class B common stock is quoted on the New York Stock Exchange
("NYSE") under the symbol CAI.B. On July 22, 1996, the last
reported sale price of the Class B common stock on the NYSE was
$23.50, which price gives effect to the stock split.
The Convertible Subordinated Debentures are redeemable by
Continental, in whole or in part, from time to time, on or after
December 1, 1998 at the redemption prices set forth herein. The
Convertible Subordinated Debentures may also be redeemed at any
time upon the occurrence of a Tax Event (as defined herein). If
Continental redeems Convertible Subordinated Debentures, the
Trust must redeem Trust Securities on a pro rata basis having an
aggregate liquidation amount equal to the aggregate principal
amount of the Convertible Subordinated Debentures so redeemed at
a redemption price corresponding to the redemption price of the
Convertible Subordinated Debentures plus accrued and unpaid
distributions thereon (the "Redemption Price") to the date fixed
for redemption. See "Description of the Preferred
Securities--Mandatory Redemption." The Preferred Securities will
be redeemed upon maturity of the Convertible Subordinated
Debentures. In addition, the Trust will be dissolved upon the
occurrence of a Tax Event arising from a change in law or a
change in legal interpretation regarding tax matters, unless the
Convertible Subordinated Debentures are redeemed in the limited
circumstances described herein. The Trust will also be dissolved
upon the occurrence of an Investment Company Event (as defined
herein). Upon dissolution of the Trust, the Convertible
Subordinated Debentures will be distributed to the holders of the
Preferred Securities, on a pro rata basis, in lieu of any cash
distribution. See "Description of the Preferred Securities--Tax
Event or Investment Company Event Redemption or Distribution." If
the Convertible Subordinated Debentures are distributed to the
holders of the Preferred Securities, Continental will use its
best efforts to have the Convertible Subordinated Debentures
listed on the NYSE or on such other exchange as the Preferred
Securities are then listed. See "Description of the Preferred
Securities--Tax Event or Investment Company Event Redemption or
Distribution" and "Description of the Convertible Subordinated
Debentures."
In the event of the liquidation, winding up or termination
of the Trust, the holders of the Preferred Securities will be
entitled to receive for each Preferred Security a liquidation
amount of $50 plus accrued and unpaid distributions thereon
(including interest thereon) to the date of payment, unless, in
connection with such dissolution, Convertible Subordinated
Debentures are distributed to the holders of the Preferred
Securities. Pursuant to the Declaration, the Trust shall
terminate on December 1, 2030 or upon the occurrence of
certain specified events (including the bankruptcy of
Continental). See "Description of the Preferred
Securities--Liquidation Distribution Upon Dissolution."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and
other information may be inspected and copied at the following
public reference facilities maintained by the Commission: Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549; Suite 1300, Seven World Trade Center, New York, New York
10048; and The Citicorp Center, Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material may also
be obtained from the Public Reference Section of the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed rates. The
Commission maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information
regarding registrants that file electronically with the
Commission, including the Company. In addition, reports, proxy
statements and other information concerning Continental may be
inspected and copied at the offices of the 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.
No separate financial statements of the Issuer have been
included herein. Continental does not consider that such
financial statements would be material to holders of Preferred
Securities because (i) all of the voting securities of the Issuer
are owned, directly or indirectly, by Continental, a reporting
company under the Exchange Act, (ii) the Issuer has no
independent operations and exists for the sole purpose of issuing
securities representing undivided beneficial interests in the
assets of the Issuer and investing the proceeds thereof in the
Convertible Subordinated Debentures issued by Continental and
(iii) the Guarantee, when taken together with the Company's
obligations under the Convertible Subordinated Debentures and the
Indenture (as defined herein) and its obligations under the
Declaration (as defined herein), including its liabilities to
pay costs, expenses, debts and obligations of the Trust (other
than with respect to the Trust Securities), provides a full and
unconditional guarantee of amounts due on the Preferred
Securities. See "Continental Airlines Finance Trust", "Description of the
Convertible Subordinated Debentures" and "Description of the
Guarantee".
This Prospectus constitutes a part of a registration
statement on Form S-3 (together with all amendments and exhibits,
the "Registration Statement") filed by Continental with the
Commission under the Securities Act with respect to the
securities offered hereby. This Prospectus omits certain of the
information contained in the Registration Statement, and
reference is hereby made to the Registration Statement for
further information with respect to Continental and Holdings and
the securities offered hereby. Although statements concerning and
summaries of certain documents are included herein, reference is
made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission.
These documents may be inspected without charge at the office of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained at fees and
charges prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No.
0-9781) are hereby incorporated by reference in this Prospectus:
(i) Continental's Annual Report on Form 10-K for the year ended
December 31, 1995 (as amended by Forms 10-K/A1 and 10-K/A2 filed
on March 8, 1996 and April 10, 1996, respectively), (ii) the
description of 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 Form 8-K, filed on January 31, 1996, March 26, 1996,
May 7, 1996, June 27, 1996 and July 22, 1996.
All reports and any definitive proxy or information
statements filed by Continental pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the
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.
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE PREFERRED SECURITIES SHOULD
CAREFULLY REVIEW THE INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND SHOULD PARTICULARLY CONSIDER THE FOLLOWING
MATTERS.
Risk Factors Relating to the Company
Continental's History of Operating Losses
Although Continental recorded net income of $224 million in
1995 and $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 significant encumbered assets.
Continental had firm commitments with The Boeing Company
("Boeing") to take delivery of 43 new jet aircraft during the years
1997 through 2002.
Continental has recently amended the terms of these firm commitments
with Boeing to take delivery of 61 new jet aircraft during the years
1997 through 2003. The estimated aggregate cost of these aircraft
is $2.7 billion. These amendments changed the product mix and timing
of delivery of aircraft without significantly changing the aggregate
cost of the prior order, in order to more closely match Continental's
anticipated future aircraft needs. In addition, the Company took
delivery of one Beech 1900-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. Continental has also entered into letters of intent
with several parties to lease three DC10-30 aircraft and to
purchase three DC10-30 aircraft. These six aircraft are expected
to be delivered by mid-year 1997, and Continental expects to
finance the aircraft to be purchased from available cash or
from third party sources.
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's 91%-indirect owned subsidiary, Continental
Micronesia, Inc. ("CMI"), recently entered into a credit
agreement with a group of banks and other financial institutions,
whereby CMI borrowed $320 million from such lenders. The loan is
secured by substantially all the assets of CMI, and is guaranteed
by Continental and its Air Micronesia, Inc. subsidiary. The loan
was made in two tranches: a $180 million five year amortizing
term loan and a $140 million seven year amortization extended
loan. Each tranche bears interest at a floating rate.
CMI used the net proceeds of the financing to prepay $160
million in principal amount of indebtedness to an affiliate of
General Electric Company (General Electric Company and
affiliates, collectively "GE") and the expenses of the
transaction, and Continental used the proceeds received by it as
an indirect dividend of approximately $136 million from CMI,
together with approximately $28 million of cash on hand, to
prepay approximately $164 million in principal amount of
indebtedness to GE. The new financing does not contain any
restrictive covenants at the Continental Airlines, Inc. level,
and none of the assets of Continental (other than its stock in
Air Micronesia, Inc.) is pledged in connection with the new
financing.
The new financing contains significant financial covenants
relating to CMI, including maintenance of a minimum fixed charge
coverage ratio, a minimum consolidated net worth, and minimum
liquidity, and covenants restricting CMI's leverage, its
incurrence of certain indebtedness and its pledge of assets. The
financial covenants also limit the ability of CMI to pay
dividends to Continental.
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 six months)
against a sharp increase in jet fuel prices. In the event of a
fuel supply shortage resulting from a disruption of oil imports
or otherwise, higher fuel prices or curtailment of scheduled
service could result.
Certain Tax Matters
The Company's United States federal income tax return
reflects net operating loss carryforwards ("NOLs") of $2.5
billion, subject to audit by the Internal Revenue Service, of
which $1.2 billion are not subject to the limitations of Section
382 of the Internal Revenue Code ("Section 382"). As a result,
the Company will not pay United States federal income taxes
(other than alternative minimum tax) until it has recorded
approximately an additional $1.2 billion of taxable income
following December 31, 1995. For financial reporting purposes,
Continental 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 & 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.
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) which was
completed on May 14, 1996 and the conversion by Air Canada
of its Class A common stock, $.01 par value (the "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, L.P.
("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 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 (the "Certificate
of Incorporation") and Bylaws (the "Bylaws") currently
provide Air Partners with the right to elect one-third
of the directors in certain circumstances; these provisions
could have the effect of delaying, deferring or preventing
a change in control of the Company. See "Recent Developments"
and "Description of Capital Stock".
Risk Factors Relating to the Airline Industry
Industry Conditions and Competition
The airline industry is highly competitive and susceptible
to price discounting. The Company has in the past both responded
to discounting actions taken by other carriers and initiated
significant discounting actions itself. Continental's competitors
include carriers with substantially greater financial resources,
as well as smaller carriers with lower cost structures. Airline
profit levels are highly sensitive to, and during recent years
have been severely impacted by, changes in fuel costs, fare
levels (or "average yield") and passenger demand. Passenger
demand and yields have been adversely affected by, among other
things, the general state of the economy, international events
and actions taken by carriers with respect to fares. From 1990 to
1993, these factors contributed to the domestic airline
industry's incurring unprecedented losses. Although fare levels
have increased recently, significant industry-wide discounts
could be reimplemented at any time, and the introduction of
broadly available, deeply discounted fares by a major United
States airline would likely result in lower yields for the entire
industry and could have a material adverse effect on the
Company's operating results.
The airline industry has consolidated in past years as a
result of mergers and liquidations and may further consolidate in
the future. Among other effects, such consolidation has allowed
certain of Continental's major competitors to expand (in
particular) their international operations and increase their
market strength. Furthermore, the emergence in recent years of
several new carriers, typically with low cost structures, has
further increased the competitive pressures on the major United
States airlines. In many cases, the new entrants have initiated
or triggered price discounting. Aircraft, skilled labor and gates
at most airports continue to be readily available to start-up
carriers. Although management believes that Continental is better
able than some of its major competitors to compete with fares
offered by start-up carriers because of its lower cost structure,
competition with new carriers or other low cost competitors on
Continental's routes could negatively impact Continental's
operating results.
Regulatory Matters
In the last several years, the United States Federal Aviation
Administration (the "FAA") has issued a number of maintenance
directives and other regulations relating to, among other things,
retirement of older aircraft, collision avoidance systems, airborne
windshear avoidance systems, noise abatement, commuter aircraft
safety and increased inspections and maintenance procedures to be
conducted on older aircraft. The Company expects to continue
incurring expenses for the purpose of complying with the FAA's
noise and aging aircraft regulations. In addition, several
airports have recently sought to increase substantially the rates
charged to airlines, and the ability of airlines to contest such
increases has been restricted by federal legislation, U.S.
Department of Transportation regulations and judicial decisions.
Management believes that the Company benefitted
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 on what terms the ticket
tax may be reenacted, although there are certain provisions
currently before Congress to reinstate the ticket tax in the form
existing prior to its expiration.
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 Preferred Securities
Ranking of Subordinate Obligations Under the Guarantee and
Convertible Subordinated Debentures
Continental's obligations under the Guarantee are
subordinate and junior in right of payment to all liabilities of
Continental and pari passu with the most senior preferred stock
issued, from time to time, if any, by Continental. The
obligations of Continental under the Convertible Subordinated
Debentures are subordinate to all present and future Senior
Indebtedness of Continental and pari passu with obligations to or
rights of Continental's other general unsecured creditors. As of
March 31, 1996, Senior Indebtedness aggregated approximately $1.7
billion. There are no terms in the Preferred Securities, the
Convertible Subordinated Debentures or the Guarantee that limit
Continental's ability to incur additional indebtedness, including
indebtedness that ranks senior to the Convertible Subordinated
Debentures and the Guarantee. See "Description of the
Guarantee--Status of the Guarantee; Subordination" and
"Description of the Convertible Subordinated
Debentures--Subordination."
Rights Under the Guarantee
The Guarantee will be qualified as an indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). Wilmington Trust Company will act as indenture trustee
under the Guarantee for the purposes of compliance with the Trust
Indenture Act (the "Guarantee Trustee"). The Guarantee Trustee
will hold the Guarantee for the benefit of the holders of the
Preferred Securities.
The Guarantee guarantees to the holders of the
Preferred Securities the payment of (i) any accrued and
unpaid distributions that are required to be paid on the
Preferred Securities, to the extent the Trust has funds available
therefor, (ii) the Redemption Price, including all accrued and
unpaid distributions with respect to Preferred Securities called
for redemption by the Trust, to the extent the Trust has funds
available therefor, and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than
in connection with the distribution of Convertible Subordinated
Debentures to the holders of Preferred Securities or a redemption
of all the Preferred Securities), the lesser of (a) the aggregate
of the liquidation amount and all accrued and unpaid
distributions on the Preferred Securities to the date of the
payment to the extent the Trust has funds available therefor or
(b) the amount of assets of the Trust remaining available for
distribution to holders of the Preferred Securities in
liquidation of the Trust. The holders of a majority in
liquidation amount of the Preferred Securities have the right to
direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee or to direct
the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee. Notwithstanding the foregoing, any
holder of Preferred Securities may institute a legal proceeding
directly against Continental to enforce such holder's rights to
receive payment under the Guarantee without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity. If Continental were to default on its
obligation to pay amounts payable on the Convertible Subordinated
Debentures or otherwise, the Trust would lack available funds for
the payment of distributions or amounts payable on redemption of
the Preferred Securities or otherwise, and, in such event,
holders of the Preferred Securities would not be able to rely
upon the Guarantee for payment of such amounts. Instead, holders
of the Preferred Securities would rely on the enforcement (i) by
the Property Trustee (as defined herein) of its rights as
registered holder of the Convertible Subordinated Debentures or
(ii) by such holders of their rights against the Company to enforce
payments on the Convertible Subordinated Debentures. See
"Description of the Guarantee" and "Description of the
Convertible Subordinated Debentures." The Declaration (as defined
herein) provides that each holder of Preferred Securities, by
acceptance thereof, agrees to the provisions of the Guarantee,
including the subordination provisions thereof, and the
Indenture.
Enforcement of Certain Rights by Holders of Preferred Securities
If a Declaration Event of Default (as defined herein)
occurred and were continuing, then the holders of Preferred
Securities would rely on the enforcement by the Property Trustee
of its rights as a holder of the Convertible Subordinated
Debentures against Continental. In addition, the holders of a
majority in aggregate liquidation amount of the Preferred
Securities will have the right to direct the time, method, and
place of conducting any proceeding for any remedy available to
the Property Trustee or to direct the exercise of any trust or
power conferred upon the Property Trustee under the Declaration,
including the right to direct the Property Trustee to exercise
the remedies available to it as a holder of the Convertible
Subordinated Debentures. If the Property Trustee fails to enforce
its rights under the Convertible Subordinated Debentures, a
holder of Preferred Securities may institute a legal proceeding
directly against Continental to enforce the Property Trustee's
rights under the Convertible Subordinated Debentures without
first instituting any legal proceeding against the Property
Trustee or any other person or entity. Notwithstanding any of
the foregoing, if a Declaration Event of Default has occurred
and is continuing and such event is attributable to the failure
of the Company to pay interest or principal on the Convertible
Subordinated Debentures on the date such interest or principal
is otherwise payable (or in the case of redemption, the redemption
date), then a holder of Preferred Securities may directly
institute a proceeding for enforcement of payment to such holder
of the principal of or interest on the Convertible Subordinated
Debentures having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of such holder on
or after the respective due date specified in the Convertible
Subordinated Debentures.
Option to Extend Interest Payment Period
Continental has the right under the Indenture (as defined
herein), to defer payments of interest on the Convertible
Subordinated Debentures by extending the interest payment period
at any time, and from time to time, on the Convertible
Subordinated Debentures. As a consequence of such an extension,
quarterly distributions on the Preferred Securities would be
deferred (but despite such deferral would continue to accrue with
interest thereon compounded quarterly) by the Trust during any
such extended interest payment period. Such right to extend the
interest payment period for the Convertible Subordinated
Debentures is limited to a period not exceeding 20 consecutive
quarters. During any Extension Period Continental will not (a)
declare or pay dividends on, or make a distribution with respect
to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock, except for dividends
or distributions in shares of its capital stock of the same class
on which such dividend or distribution is being made and
conversions of common stock of one class into common stock of
another class or (b) make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt
securities issued by Continental that rank pari passu with or
junior to the Convertible Subordinated Debentures (except by
conversion into or exchange for shares of its capital stock and
except for purchases or other acquisition of shares of its
capital stock made for the purpose of an employee incentive plan
or benefit plan of the Company or any of its subsidiaries). Prior
to the termination of any Extension Period, Continental may
further extend the interest payment period; provided, however,
that such Extension Period, together with all such previous and
further extensions thereof, may not exceed 20 consecutive
quarters and may not extend beyond the maturity of the Convertible
Subordinated Debentures. Upon the termination of any Extension Period
and the payment of all amounts then due, Continental may commence
a new Extension Period, subject to the above requirements. See
"Description of the Preferred Securities--Distributions" and
"Description of the Convertible Subordinated Debentures--Option
to Extend Interest Payment Period."
Should Continental exercise its right to defer payments of
interest by extending the interest payment period, each holder of
Preferred Securities will continue to accrue income (as original
issue discount) in respect of the deferred interest allocable to
its Preferred Securities for United States federal income tax
purposes, which will be allocated but not distributed, to holders
of record of Preferred Securities. As a result, each such holder
of Preferred Securities will recognize income for United States
federal income tax purposes in advance of the receipt of cash and
will not receive the cash from the Trust related to such income
if such holder disposes of its Preferred Securities prior to the
record date for the date on which distributions of such amounts
are made. Continental has no current intention of exercising its
right to defer payments of interest by extending the interest
payment period on the Convertible Subordinated Debentures.
However, should Continental determine to exercise such right in
the future, the market price of the Preferred Securities is
likely to be affected. A holder that disposes of its Preferred
Securities during an Extension Period, therefore, might not
receive the same return on its investment as a holder that
continues to hold its Preferred Securities. In addition, as a
result of the existence of Continental's right to defer interest
payments, the market price of the Preferred Securities (which
represent an undivided beneficial interest in the Convertible
Subordinated Debentures) may be more volatile than other
securities on which original issue discount accrues that do not
have such rights. See "United States Taxation--Potential
Extension of Interest Payment Period and Original Issue
Discount."
Tax Event or Investment Company Event Redemption or Distribution
Upon the occurrence of a Tax Event or Investment Company
Event, the Trust shall be dissolved, except in the limited
circumstance described below, with the result that the
Convertible Subordinated Debentures would be distributed to the
holders of the Trust Securities in connection with the
liquidation of the Trust. Upon the occurrence of a Tax Event and
in certain circumstances, Continental will have the right to
redeem the Convertible Subordinated Debentures, in whole and not
in part, in lieu of a distribution of the Convertible
Subordinated Debentures by the Trust; in which event the Trust
will redeem the Trust Securities on a pro rata basis to the same
extent as the Convertible Subordinated Debentures are redeemed by
Continental. See "Description of the Preferred Securities--Tax
Event or Investment Company Event Redemption or Distribution."
Under current United States federal income tax law, a
distribution of Convertible Subordinated Debentures upon the
dissolution of the Trust would not be a taxable event to holders
of the Preferred Securities. Upon occurrence of a Tax Event or
Investment Company Event, however, a dissolution of the Trust in
which holders of the Preferred Securities receive cash would be a
taxable event to such holders. See "United States
Taxation--Receipt of Convertible Subordinated Debentures or Cash
Upon Liquidation of the Trust."
There can be no assurance as to the market prices for the
Preferred Securities or the Convertible Subordinated Debentures
that may be distributed in exchange for Preferred Securities if a
dissolution or liquidation of the Trust were to occur. Accordingly,
the Preferred Securities that an investor may purchase, whether
pursuant to the offer made hereby or in the secondary market, or
the Convertible Subordinated Debentures that a holder of
Preferred
Securities may receive on dissolution and liquidation of the
Trust, may trade at a discount to the price that the investor
paid to purchase the Preferred Securities offered hereby. Because
holders of Preferred Securities may receive Convertible
Subordinated Debentures upon the occurrence of a Tax Event or
Investment Company Event, prospective purchasers of Preferred
Securities are also making an investment decision with regard to
the Convertible Subordinated Debentures and should carefully
review all the information regarding the Convertible Subordinated
Debentures contained herein. See "Description of the Preferred
Securities--Tax Event or Investment Company Event Redemption or
Distribution" and "Description of the Convertible Subordinated
Debentures--General."
Effect of Proposed Changes in Tax Laws
The Clinton Administration has proposed statutory changes
in the Federal income tax rules relating to financial
instruments. Under one such proposal, debt with a maximum
maturity of more than 20 years that is not shown as debt on the
applicable balance sheet of the issuer would be characterized as
equity of the issuer, with the result that interest would be
nondeductible to the issuer. If this proposal were enacted and
applied to the Preferred Securities, a Tax Event would occur.
The Company has been advised by counsel that, under certain
transition rules contained in the proposed legislation, the
Preferred Securities would not be subject to such legislation.
Moreover, the Chairman of the House Ways and Means Committee and
the Senate Finance Committee, as well as the Ranking Minority
Members of the House Ways and Means Committee, have publicly
indicated that the proposals, if enacted, would not apply prior to
the date of "appropriate Congressional action." Thus, the
Company believes such proposed legislation, if ultimately
enacted, will not apply to the Preferred Securities.
Nevertheless, no absolute assurance can be given in this regard.
Limited Voting Rights
Generally, holders of the Preferred Securities will not have
any voting rights. See "Description of the Preferred Securities--Voting
Rights."
Original Issue Discount
The Preferred Securities may trade at a price that does not
fully reflect the value of accrued but unpaid interest with
respect to the underlying Convertible Subordinated Debentures. A
holder that disposes of its Preferred Securities between record
dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Convertible
Subordinated Debentures through the date of disposition in income
as ordinary income (i.e., original issue discount), and to add
such amount to its adjusted tax basis in its pro rata share of
the underlying Convertible Subordinated Debentures deemed
disposed of. To the extent the selling price is less than a
holder's adjusted tax basis (which will include, in the form of
original issue discount, all accrued but unpaid interest), the
holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary
income for United States federal income tax purposes. See "United
States Taxation--Potential Extension of Interest Payment Period
and Original Issue Discount" and "--Disposition of Preferred
Securities."
Absence of Trading Market
There is no existing trading market for the Preferred
Securities and there can be no assurance as to the liquidity of
any such market that may develop, the ability of the holders of
Preferred Securities to sell such securities, the price at which
the holders of Preferred Securities would be able to sell such
securities or whether a trading market, if it develops, will
continue. If such a market were to exist, the Preferred Securities
could trade at prices higher or lower than their liquidation amount,
depending on many factors, including prevailing interest rates,
the market for similar securities and the operating results
of the Company. In the event that the Convertible Subordinated
Debentures are distributed by the Trust to the holders of the
Preferred Securities, the preceding considerations would be
equally applicable to the Convertible Subordinated Debentures.
See "Description of Preferred Securities--Registration Rights."
CONTINENTAL AIRLINES FINANCE TRUST
The Trust is a statutory business trust formed under
Delaware law pursuant to (i) an amended and restated declaration
of trust dated as of November 28, 1995 executed by Continental,
as sponsor (the "Sponsor"), and the trustees of the Trust (the
"Continental Trustees"), as amended (the "Declaration"),
and (ii) the filing of a certificate of trust with the
Secretary of State of the State of Delaware. Upon issuance
of the Preferred Securities, the purchasers thereof owned
all of the Preferred Securities. See "Description of the
Preferred Securities--Book-entry-only Issuance--The Depository
Trust Company." Continental directly or indirectly acquired
Common Securities in an aggregate liquidation amount equal to 3%
of the total capital of the Trust. The Trust exists for the
exclusive purposes of (i) issuing the Trust Securities
representing undivided beneficial interests in the assets of the
Trust, (ii) investing the gross proceeds of the Trust Securities
in the Convertible Subordinated Debentures and (iii) engaging in
only those other activities necessary or incidental thereto. The
Trust has a term of 35 years, but may terminate earlier as
provided in the Declaration.
Pursuant to the Declaration, the number of Continental
Trustees is initially three. Two of the Continental Trustees are
persons who are employees or officers of, or who are affiliated
with, Continental (the "Regular Trustees"). The third trustee is
a financial institution that maintains its principal place of
business in the state of Delaware and is unaffiliated with
Continental, which trustee serves as property trustee under the
Declaration and as indenture trustee for the purposes of the
Trust Indenture Act (the "Property Trustee"). Wilmington Trust
Company, a Delaware banking corporation, is the Property Trustee
until removed or replaced by the holder of the Common Securities
and acts as indenture trustee under the Guarantee (the "Guarantee
Trustee"). See "Description of the Guarantee."
The Property Trustee holds title to the Convertible
Subordinated Debentures for the benefit of the holders of the Trust
Securities and the Property Trustee has the power to exercise all
rights, powers, and privileges under the Indenture (as defined
herein) as the holder of the Convertible Subordinated Debentures.
In addition, the Property Trustee maintains exclusive control of
a segregated non-interest bearing bank account (the "Property
Account") to hold all payments made in respect of the Convertible
Subordinated Debentures for the benefit of the holders of the
Trust Securities. The Property Trustee will make payments of
distributions and payments on liquidation, redemption and otherwise
to the holders of the Trust Securities out of funds from the Property
Account. The Guarantee Trustee holds the Guarantee for the benefit
of the holders of the Preferred Securities. Continental, as the
direct or indirect holder of all the Common Securities, has the
right to appoint, remove or replace any Continental Trustee and
to increase or decrease the number of Continental Trustees;
provided that, (i) the number of Continental Trustees shall be at
least three and (ii) at least two shall be Regular Trustees.
Continental will pay all fees and expenses related to the Trust,
the offering of the Trust Securities and the issuance of the
Convertible Subordinated Debentures. See "Description of the
Convertible Subordinated Debentures--Miscellaneous."
The rights of the holders of the Preferred Securities,
including economic rights, rights to information and voting
rights, are set forth in the Declaration, the Delaware Business
Trust Act (the "Trust Act") and the Trust Indenture Act. See
"Description of the Preferred Securities."
The financial statements of the Trust will be consolidated
with Continental's financial statements, and in the event that
the Trust obtains an exemption from the periodic reporting
requirements of the Exchange Act pursuant to the Commission's
Staff Accounting Bulletin 53, the Trust will not file separate
financial statements under the Exchange Act and the Company's
future filings under the Exchange Act will (i) present the
Trust's securities as a separate line item on the balance sheet
entitled "Continental-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust holding solely Convertible
Subordinated Debentures"; (ii) state in a footnote to the
financial statements that the sole assets of the Trust are the
Convertible Subordinated Debentures with an aggregate principal
amount of $250 million, which bear interest at the rate of 8-1/2%
per annum and mature on December 1, 2020; (iii) include in an
audited footnote to the financial statements disclosure that (A)
the Trust is wholly-owned; (B) the sole assets of the Trust are
the Convertible Subordinated Debentures with an aggregate
principal amount of $250 million, which bear interest at the rate
of 8-1/2% per annum and mature on December 1, 2020; and (C) the
Guarantee, when taken together with the Company's obligations
under the convertible Subordinated Debentures and the Indenture
and its obligations under the Declaration, including its
liabilities to pay costs, expenses, debts and obligations of the
Trust, constitutes a full and unconditional guarantee by the
Company of the Trust's obligations under the Preferred
Securities.
The place of business and the telephone number of the Trust
are the principal executive offices and telephone number of
Continental. See "The Company."
THE COMPANY
Continental Airlines, Inc. is a major United States
air carrier engaged in the business of transporting passengers,
cargo and mail. Continental is the fifth largest United States
airline (as measured by revenue passenger miles in the first
three months of 1996) and, together with its wholly owned
subsidiary, Continental Express, Inc. ("Express"), and CMI,
serves 190 airports worldwide.
The Company operates its route system primarily through
domestic hubs at Newark, Houston Intercontinental and Cleveland,
and a Pacific hub on Guam and Saipan. Each of Continental's three
U.S. hubs is located in a large business and population center,
contributing to a high volume of "origin and destination"
traffic. The Guam/Saipan hub is strategically located to provide
service from Japanese and other Asian cities to popular resort
destinations in the western Pacific. Continental is the primary
carrier at each of these hubs, accounting for 52%, 79%, 53% and
72% of all daily jet departures, respectively.
Continental directly serves 131 U.S. cities, with
additional cities (principally in the western and southwestern
United States) connected to Continental's route system under
agreements with America West Airlines, Inc. ("America West").
Internationally, Continental flies to 59 destinations and offers
additional connecting service through alliances with foreign
carriers. Continental operates 66 weekly departures to six
European cities and markets service to 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.
RECENT DEVELOPMENTS
General
Continental recently announced unaudited second quarter
1996 net income of $167 million ($2.53 primary and $2.04 fully
diluted earnings per share adjusted for the Company's recent
two-for-one stock split), on revenue of $1,639 million.
Continental also reported a cash balance of $825 million at
June 30, 1996.
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 in 1993.
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 shares of Class B common stock.
Under agreements put in place at the time of the Company's
reorganization in 1993, and designed in part to ensure compliance
with the foreign ownership limitations applicable to United
States air carriers in light of the substantial stake in the
Company then held by Air Canada, holders of Class A common stock
were not permitted under the Company's Certificate of
Incorporation to convert their shares to Class B common stock. In
recent periods, the market price of Class A common stock has
generally been below the 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 reduced 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 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.
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.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
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 combined fixed charges and preferred stock
dividends. Additional earnings of $316 million, $131 million,
$979 million, $63 million, $673 million and $30 million,
respectively, would have been required to achieve ratios of
earnings to combined fixed charges of 1.0. The ratio of earnings
to combined fixed charges and preferred stock dividends for the
year ended December 31, 1995 was 1.50. The ratio of earnings to
combined fixed charges and preferred stock dividends 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. Combined fixed
charges and preferred stock dividends consist of preferred stock
dividend requirements, interest expense and the portion of rental
expense representative of interest expense.
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from
the sale of the Offered Securities. Neither Continental nor the
Trust will receive any proceeds from the sale of the Offered
Securities.
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
Reorganiz- Period
ation from
(April January
Three Months 28, 1993 1, 1993
Ended March Year Ended through through
31, December 31, December April
----------- --------------- 31, 27,
1996 1995 1995 1994 1993) 1993
---- ---- ---- ---- ---- ----
Statement of
Operations Data: (In millions of dollars, except per share data)
Operating Revenue: (unaudited)
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)
----- ----- ----- ----- ----- -----
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 Subsidiary Trust
holding solely
Convertible Subordinated
Debentures(7) 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 Subordinated
Debentures with an aggregate principal amount of $250 million, which
bear interest at the rate of 8-1/2% per annum and mature on December 1,
2020. Upon repayment of the Convertible Subordinated Debentures, the
Continental-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust will be mandatorily redeemed.
DESCRIPTION OF THE PREFERRED SECURITIES
The following summary of certain material terms and
provisions of the Preferred Securities does not purport to be
complete, and reference is made to the Declaration filed as an
exhibit to the Registration Statement. The Preferred Securities
were issued pursuant to the terms of the Declaration. The
Declaration incorporates by reference terms of The Trust
Indenture Act. The Declaration will be qualified under the Trust
Indenture Act. Wilmington Trust Company, as Trustee, acts as
Indenture Trustee for the Declaration for purposes of compliance
with the Trust Indenture Act. Capitalized terms not otherwise
defined herein have the meanings assigned to them in the
Declaration.
General
The Declaration authorizes the Regular Trustees to issue on
behalf of the Trust the Trust Securities, which represent
undivided beneficial interests in the assets of the Trust. All of
the Common Securities are owned, directly or indirectly, by
Continental. The Common Securities rank pari passu, and payments
will be made thereon on a pro rata basis, with the Preferred
Securities, except that upon the occurrence of a Declaration
Event of Default (as defined herein), the rights of the holders
of the Common Securities to receive payment of periodic
distributions and payments upon liquidation, redemption and
otherwise are subordinated to the rights of the holders of the
Preferred Securities. The Declaration does not permit the
issuance by the Trust of any securities other than the Trust
Securities or the incurrence of any indebtedness by the Trust.
Pursuant to the Declaration, the Property Trustee owns the
Convertible Subordinated Debentures purchased by the Trust for
the benefit of the holders of the Trust Securities. The payment
of distributions out of money held by the Trust, and payments
upon redemption of the Preferred Securities or liquidation of the
Trust, are guaranteed by Continental to the extent described
under "Description of the Guarantee." The Guarantee is held by
Wilmington Trust Company, as Guarantee Trustee, for the benefit
of the holders of the Preferred Securities. The Guarantee does
not cover payment of distributions when the Trust does not have
sufficient funds to pay such distributions. In such event, the
remedy of the holder of Preferred Securities is to vote to direct
the Property Trustee to enforce the Property Trustee's rights
under the Convertible Subordinated Debentures except in the
limited circumstances in which a holder may take Direct Action
(as defined herein). See "--Voting Rights" and "--Declaration
Events of Default.
Distributions
Distributions on the Preferred Securities are fixed at a
rate per annum of 8 1/2% of the stated liquidation amount of $50
per Preferred Security. Distributions in arrears for more than
one quarter will bear interest thereon at the rate per annum of 8
1/2% thereof compounded quarterly. The term "distribution" as
used herein includes any such interest payable plus any
Additional Interest or Liquidated Damages (each as defined
herein) paid on the Convertible Subordinated Debentures unless
otherwise stated. The amount of distributions payable for any
period will be computed on the basis of a 360-day year of twelve
30-day months.
Distributions on the Preferred Securities will be
cumulative, will accrue from November 28, 1995, and will be
payable quarterly in arrears on March 1, June 1, September 1 and
December 1 of each year, commencing March 1, 1996, when, as and
if available for payment. Distributions will be made by the
Property Trustee, except as otherwise described below.
Continental has the right under the Indenture to defer
payments of interest on the Convertible Subordinated Debentures
by extending the interest payment period thereon, which right, if
exercised, would defer quarterly distributions on the Preferred
Securities (though such distributions would continue to accrue
with interest since interest would continue to accrue on the
Convertible Subordinated Debentures) during any such Extension
Period. Such right to extend the interest payment period for the
Convertible Subordinated Debentures is limited to periods not
exceeding 20 consecutive quarters. In the event that Continental
exercises this right, Continental will not, subject to certain
exceptions, declare or pay dividends on or make distributions
with respect to any of its capital stock, or make any payment on
or repay, repurchase or redeem any debt securities that rank pari
passu with or junior to the Convertible Subordinated Debentures.
See "Description of the Convertible Subordinated
Debentures--Certain Covenants." Prior to the termination of any
such Extension Period, Continental may further extend the
interest payment period; provided, however, that such Extension
Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters and may not
extend beyond the maturity of the Convertible Subordinated
Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, Continental may select a new
Extension Period, subject to the above requirements. See
"Description of the Convertible Subordinated
Debentures--Interest" and "--Option to Extend Interest Payment
Period." If distributions are deferred, the deferred
distributions and accrued interest thereon will be paid to
holders of record of the Preferred Securities as they appear on
the books and records of the Trust on the record date next
following the termination of such deferral period.
Distributions on the Preferred Securities must be paid on
the dates payable to the extent that the Trust has funds
available for the payment of such distributions in the Property
Account (as defined herein). The Trust's funds available for
distribution to the holders of the Preferred Securities will be
limited to payments received from Continental on the Convertible
Subordinated Debentures. See "Description of the Convertible
Subordinated Debentures." The payment of distributions out of
moneys held by the Trust is guaranteed by Continental to the
extent set forth under "Description of the Guarantee."
Distributions on the Preferred Securities will be payable
to the holders thereof as they appear on the books and records of
the Trust on the relevant record dates, which will be fifteen
calendar days prior to the relevant payment dates. Such
distributions will be paid through the Property Trustee who will
hold amounts received in respect of the Convertible Subordinated
Debentures in the Property Account for the benefit of the holders
of the Trust Securities. Subject to any applicable laws and
regulations and the provisions of the Declaration, each such
payment will be made as described under "Book-entry-only
Issuance--The Depository Trust Company" below. In the event that
any date on which distributions are to be made on the Preferred
Securities is not a Business Day, then payment of the
distributions payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay), except that, if
such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day,
in each case with the same force and effect as if made on such
record date. A "Business Day" shall mean any day other than
Saturday, Sunday or any other day on which banking institutions
in the City of New York or Wilmington, Delaware are permitted or
required by any applicable law to close.
Conversion Rights
General
Preferred Securities will be convertible at any time, at
the option of the holder thereof and in the manner described
below, into shares of Class B common stock at an initial
conversion rate of 2.068 shares of Class B common stock for each
Preferred Security (equivalent to a conversion price of $24.18
per share of Class B common stock), subject to adjustment as
described under "--Conversion Price Adjustments" below. Such
conversion rate and conversion price have been adjusted for the
2-for-1 stock split announced by Continental on June 26, 1996
and payable on July 16, 1996 to holders of record of its Class B
common stock and Class A common stock on July 2, 1996. A holder
of a Preferred Security wishing to exercise its conversion right
shall deliver an irrevocable conversion notice, together, if the
Preferred Security is a Certificated Security (as defined
herein), with such Certificated Security, to the Conversion
Agent, Wilmington Trust Company, which shall, on behalf of such
holder, exchange such Preferred Security for a portion of the
Convertible Subordinated Debentures and immediately convert such
Convertible Subordinated Debentures into Class B common stock.
Holders may obtain copies of the required form of the conversion
notice from the Conversion Agent.
Holders of Preferred Securities at the close of business on
a distribution record date will be entitled to receive the
distribution payable on such Preferred Securities on the
corresponding distribution payment date notwithstanding the
conversion of such Preferred Securities following such
distribution record date but prior to such distribution payment
date. Except as provided in the immediately preceding sentence,
neither the Issuer nor Continental will make, or be required to
make, any payment, allowance or adjustment for accumulated and
unpaid distributions, whether or not in arrears, on converted
Preferred Securities. Continental will make no payment or
allowance for distributions on the shares of Class B common stock
issued upon such conversion, except to the extent that such
shares of Class B common stock are held of record on the record
date for any such distributions. Each conversion will be deemed
to have been effected immediately prior to the close of business
on the day on which the related conversion notice was received by
the Conversion Agent.
No fractional shares will be issued upon conversion of
Preferred Securities, but if such conversion results in a
fraction, an amount will be paid in cash by Continental equal to
the Current Market Price (as defined herein) of the fractional
share of the Class B common stock. If more than one Preferred
Security is surrendered for conversion at one time by the same
holder, the number of full shares of the Class B common stock
which shall be issuable on conversion thereof shall be computed
on the basis of the aggregate number of Preferred Securities so
surrendered.
Conversion Price Adjustments--General
The conversion price will be subject to adjustment in
certain events including, without duplication: (i) the issuance
of shares of any class of Continental common stock as a stock
dividend; (ii) the subdivision, combination or reclassification
of any class of Continental common stock; (iii) the issuance to
all holders of any class of Continental common stock of rights or
warrants entitling them (within a 45 calendar-day period) to
subscribe for or purchase shares of Continental common stock at
less than the Current Market Price (determined as of the record
date for stockholders entitled to receive such rights or
warrants); (iv) the payment of any dividend or distribution to
holders of any class of Continental common stock other than (a)
dividends described in (i) above, (b) any rights or warrants
described in (iii) above and (c) any other dividends or
distributions made solely in cash, if the per share amount
thereof, when added to the per share amount of other
distributions made within the preceding 12 months (other than
those distributions that resulted in a conversion price
adjustment and certain other exceptions), does not exceed 15% of
the average of the Current Market Price per share of Class B
common stock for 20 consecutive trading days ending not more than
ten days prior to the date of declaration of such dividend or
distribution; and (v) payments to holders of any class of
Continental common stock in respect of a tender or exchange offer
(other than an odd-lot offer) by Continental or any subsidiary of
Continental for Continental common stock at a price in excess of
110% of the Current Market Price per share as of the trading day
next succeeding the last date tenders or exchanges may be made
pursuant to such tender or exchange offer. No adjustment in the
conversion price will be required unless such adjustment would
require a change of at least 1% in the conversion price then in
effect; provided, however, that any adjustment that would
otherwise be required to be made shall be carried forward and
taken into account in determining whether any subsequent
adjustment is required.
The term "Current Market Price" of any class of Continental
common stock for any day means the reported last sale price,
regular way, on such day, or, if no sale takes place on such day,
the average of the reported closing bid and asked prices on such
day, regular way, in either case as reported on the NYSE
Composite Tape, or, if such class of Continental common stock is
not then listed or admitted to trading on the NYSE, on the
principal national securities exchange on which such class of
Continental common stock is listed or admitted to trading, or if
such class of Continental common stock is not listed or admitted
to trading on a national securities exchange, on the National
Market System of the National Association of Securities Dealers,
Inc., or, if such class of Continental common stock is not quoted
or admitted to trading on such quotation system, on the principal
quotation system on which such class of Continental common stock
is listed or admitted to trading or quoted, or, if not listed or
admitted to trading or quoted on any national securities exchange
or quotation system, the average of the closing bid and asked
prices of such class of Continental common stock in the
over-the-counter market on the day in question as reported by the
National Quotation Bureau Incorporated, or a similar generally
accepted reporting service, or, if not so available in such
manner, as furnished by any NYSE member firm selected from time
to time by the Board of Directors of Continental for that purpose
or, if not so available in such manner, as otherwise determined
in good faith by such Board of Directors.
Continental from time to time may reduce the conversion
price of the Convertible Subordinated Debentures (and thus the
conversion price of the Preferred Securities) by any amount
selected by Continental for any period of at least 20 days, in
which case Continental shall give at least 15 days notice of such
reduction. Continental may, at its option, make such reductions
in the conversion price, in addition to those set forth above, as
the Board of Directors deems advisable to avoid or diminish any
income tax to holders of Class B common stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or
from any event treated as such for income tax purposes. See
"United States Taxation--Adjustment of the Conversion Price."
No adjustment of the conversion price will be made upon the
issuance of any shares of Class B common stock pursuant to any
present or future plan providing for the reinvestment of
dividends or interest payable on securities of Continental and
the investment of additional optional amounts in shares of Class
B common stock under any such plan or the issuance of any shares
of common stock or options or rights to purchase such shares
pursuant to any present or future employee, director or
consultant benefit plan or program of Continental or pursuant to
any option, warrant, right, or exercisable, exchangeable or
convertible security outstanding as of the date the Preferred
Securities are first issued. There shall also be no adjustment of
the conversion price in case of the issuance of any Continental
common stock (or securities convertible into or exchangeable for
Continental common stock), except as specifically described
above. If any action would require adjustment of the conversion
price pursuant to more than one of the anti-dilution provisions,
only one adjustment shall be made and such adjustment shall be
the amount of adjustment that has the highest absolute value to
holders of the Preferred Securities.
Conversion Price Adjustments--Merger, Consolidation Or Sale
Of Assets Of Continental
In case of any (i) consolidation or merger of Continental
with or into any other entity (other than a consolidation or
merger in which Continental is the surviving entity), (ii) sale,
transfer, lease or conveyance of all or substantially all of the
assets of Continental, (iii) reclassification, capital
reorganization or change of the Class B common stock (other than
solely a change in par value, or from par value to no par value),
or (iv) consolidation or merger of another entity into the
Company in which there is a reclassification or change of the
Class B common stock (other than solely a change in par value, or
from par value to no par value), then any holder of the Preferred
Securities will be entitled, on or after the occurrence of any
such event, to receive on conversion of the Preferred Securities
the kind and amount of shares of stock or other securities, cash
or other property (or any combination thereof) which the holder
would have received had such holder converted such holder's
Preferred Securities immediately prior to the occurrence of such
event. If the consideration into which the Preferred Securities
are convertible following any such event consists of Class B
common stock or common stock of the surviving entity (as the case
may be), then from and after the occurrence of such event the
conversion price for each Preferred Security into such common
stock shall be subject to the same anti-dilution and other
adjustments described under "--Conversion Price
Adjustments--General" above, applied as if such common stock were
Class B common stock. In addition, the Board is authorized, in
its discretion, to make such adjustments to the conversion
provisions applicable to the Convertible Subordinated Debentures
as may be necessary to protect the intended rights of the holders
of Preferred Securities.
Conversion price adjustments or omissions in making such
adjustments may, under certain circumstances, be deemed to be
distributions that could be taxable as dividends to holders of
Preferred Securities or to the holders of the Class B common
stock. See "United States Taxation."
Optional Redemption
Continental is permitted to redeem the Convertible
Subordinated Debentures in whole or in part, from time to time,
after December 1, 1998, upon not less than 30 nor more than 60
days notice. See "Description of the Convertible Subordinated
Debentures--Optional Redemption." Upon any redemption in whole or
in part of the Convertible Subordinated Debentures at the option
of Continental, the Issuer will, to the extent of the proceeds of
such redemption, redeem Preferred Securities and Common
Securities at the Redemption Price.
Mandatory Redemption
The Convertible Subordinated Debentures will mature on
December 1, 2020. Upon the repayment of the Convertible
Subordinated Debentures, whether at maturity or upon redemption,
the proceeds from such repayment or redemption shall
simultaneously be applied to redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate principal
amount of the Convertible Subordinated Debentures so repaid or
redeemed at the Redemption Price. Holders of Trust Securities
shall be given not less than 30 nor more than 60 days' notice of
such redemption.
Tax Event Or Investment Company Event Redemption Or Distribution
If a Tax Event (as defined herein) occurs and is
continuing, Continental will cause the Regular Trustees to
liquidate the Issuer and cause Convertible Subordinated
Debentures to be distributed to the holders of the Preferred
Securities in liquidation of the Issuer within 90 days following
the occurrence of such Tax Event; provided, however, that such
liquidation and distribution will be conditioned on (i) the
Regular Trustees' receipt of an opinion of nationally recognized
independent tax counsel (reasonably acceptable to the Regular
Trustees) experienced in such matters (a "No Recognition
Opinion"), which opinion may rely on published revenue rulings of
the Internal Revenue Service, to the effect that the holders of
the Preferred Securities will not recognize any income, gain or
loss for United States federal income tax purposes as a result of
such liquidation and distribution of Convertible Subordinated
Debentures and (ii) Continental's being unable to avoid such Tax
Event within such 90-day period by taking some ministerial action
or pursuing some other reasonable measure that, in the sole
judgment of Continental, will have no adverse effect on the
Issuer, Continental or the holders of the Preferred Securities
and will involve no material cost. Furthermore, if (i)
Continental has received an opinion (a "Redemption Tax Opinion")
of nationally recognized independent tax counsel (reasonably
acceptable to the Regular Trustees) experienced in such matters
that, as a result of a Tax Event, there is more than an
insubstantial risk that Continental would be precluded from
deducting the interest on the Convertible Subordinated Debentures
for United States federal income tax purposes, even after the
Convertible Subordinated Debentures were distributed to the
holders of the Preferred Securities upon liquidation of the
Issuer as described above or (ii) the Regular Trustees shall have
been informed by such tax counsel that it cannot deliver a No
Recognition Opinion, Continental will have the right upon not
less than 30 nor more than 60 days' notice and within 90 days
following the occurrence of the Tax Event, to redeem the
Convertible Subordinated Debentures, in whole (but not in part)
for cash, at par plus accrued and unpaid interest (including any
Additional Interest, Compounded Interest and Liquidated Damages)
and, following such redemption, all the Preferred Securities will
be redeemed by the Issuer at the liquidation amount of $50 per
Preferred Security plus accrued and unpaid distributions;
provided, however, that if, at the time there is available to
Continental or the Issuer the opportunity to eliminate, within
such 90-day period, the Tax Event by taking some ministerial
action or pursuing some other reasonable measure that, in the
sole judgment of Continental, will have no adverse effect on the
Issuer, Continental or the holders of the Preferred Securities
and will involve no material cost, the Issuer or Continental will
pursue such measure in lieu of redemption. See "--Mandatory
Redemption." In lieu of the foregoing options, Continental also
will have the option of causing the Preferred Securities to
remain outstanding and paying Additional Interest (as defined
herein) on the Convertible Subordinated Debentures. See
"Description of the Convertible Subordinated
Debentures--Additional Interest."
"Tax Event" means that the Regular Trustees shall have
obtained an opinion of nationally recognized independent tax
counsel experienced in such matters to the effect that, as a
result of (a) any amendment to or change (including any announced
prospective change) in the laws (or any regulations thereunder)
of the United States or any political subdivision or taxing
authority thereof or therein or (b) any amendment to or change in
an interpretation or application of such laws or regulations by
any legislative body, court, governmental agency or regulatory
authority (including the enactment of any legislation and the
publication of any judicial decision or regulatory determination
on or after the Original Offering Date), which amendment or
change is effective or which interpretation or pronouncement is
announced on or after the Original Offering Date, there is more
than an insubstantial risk that (i) the Issuer is or will be
subject to United States federal income tax with respect to
interest accrued or received on the Convertible Subordinated
Debentures, (ii) interest payable to the Issuer on the
Convertible Subordinated Debentures is not or will not be
deductible by Continental in whole or in part for United States
federal income tax purposes or (iii) the Issuer is or will be
subject to more than a de minimis amount of other taxes, duties,
assessments or other governmental charges.
If an Investment Company Event (as defined herein) shall
occur and be continuing, Continental shall cause the Regular
Trustees to liquidate the Issuer and cause the Convertible
Subordinated Debentures to be distributed to the holders of the
Preferred Securities in liquidation of the Issuer within 90 days
following the occurrence of such Investment Company Event.
The distribution by Continental of the Convertible
Subordinated Debentures will effectively result in the
cancellation of the Preferred Securities.
"Investment Company Event" means that the Regular Trustees
shall have obtained an opinion from independent counsel
experienced in practice under the Investment Company Act of 1940,
as amended (the "1940 Act"), to the effect that, as a result of
the occurrence of a change in law or regulation or a written
change in interpretation or application of law or regulation by
any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), there is more than an
insubstantial risk that the Issuer is or will be considered an
investment company which is required to be registered under the
1940 Act", which Change in 1940 Act Law becomes effective on or
after the Original Offering Date.
After the date fixed for any distribution of Convertible
Subordinated Debentures, (i) the Preferred Securities will no
longer be deemed to be outstanding, (ii) DTC (the "Depositary")
or its nominee, as the record holder of the Global Certificates,
will receive a registered global certificate or certificates
representing the Convertible Subordinated Debentures to be
delivered upon such distribution and (iii) any certificates
representing Preferred Securities not held by DTC or its nominee
will be deemed to represent Convertible Subordinated Debentures
having a principal amount equal to the aggregate of the stated
liquidation amount of such Preferred Securities, with accrued and
unpaid interest equal to the amount of accrued and unpaid
distributions on such Preferred Securities, until such
certificates are presented to Continental or its agent for
transfer or reissuance.
Redemption Procedures
The Trust may not redeem fewer than all of the outstanding
Preferred Securities unless all accrued and unpaid distributions
have been paid on all Preferred Securities for all quarterly
distribution periods terminating on or prior to the date of
redemption.
If the Trust gives a notice of redemption in respect of
Preferred Securities (which notice will be irrevocable), and if
Continental has paid to the Property Trustee a sufficient amount
of cash in connection with the related redemption or maturity of
the Convertible Subordinated Debentures, then, by 12:00 noon, New
York City time, on the redemption date, the Trust will
irrevocably deposit with the Depositary funds sufficient to pay
the applicable Redemption Price and will give the Depositary
irrevocable instructions and authority to pay the Redemption
Price to the holders of the Preferred Securities. See
"--Book-entry-only Issuance--The Depository Trust Company." If
notice of redemption shall have been given and funds deposited as
required, then, immediately prior to the close of business on the
date of such deposit, distributions will cease to accrue and all
rights of holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such
Preferred Securities to receive the Redemption Price but without
interest on such Redemption Price. In the event that any date
fixed for redemption of Preferred Securities is not a Business
Day, then payment of the Redemption Price payable on such date
will be made on the next succeeding day that is a Business Day
(without any interest or other payment in respect of any such
delay), except that, if such Business Day falls in the next
calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the
Redemption Price in respect of Preferred Securities is improperly
withheld or refused and not paid either by the Trust, or by
Continental pursuant to the Guarantee, distributions on such
Preferred Securities will continue to accrue at the then
applicable rate from the original redemption date to the date of
payment, in which case the actual payment date will be considered
the date fixed for redemption for purposes of calculating the
Redemption Price.
In the event that fewer than all of the outstanding
Preferred Securities are to be redeemed, the Preferred Securities
will be redeemed pro rata as described below under
"--Book-entry-only Issuance--The Depository Trust Company."
In the event of any redemption in part, the Trust shall not
be required to (i) issue, register the transfer of or exchange
any Certificated Security during a period beginning at the
opening of business 15 days before any selection for redemption
of Preferred Securities and ending at the close of business on
the earliest date on which the relevant notice of redemption is
deemed to have been given to all holders of Preferred Securities
to be so redeemed or (ii) register the transfer of or exchange
any Certificated Securities so selected for redemption, in whole
or in part, except for the unredeemed portion of any Certificated
Securities being redeemed in part.
Subject to the foregoing and applicable law (including,
without limitation, United States federal securities laws),
Continental or its subsidiaries may at any time, and from time to
time, purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
Liquidation Distribution Upon Dissolution
In the event of any voluntary or involuntary liquidation,
dissolution, winding-up or termination of the Trust (each a
"Liquidation"), the then holders of the Preferred Securities will
be entitled to receive out of the assets of the Trust, after
satisfaction of liabilities to creditors, distributions in an
amount equal to the aggregate of the stated liquidation amount of
$50 per Preferred Security plus accrued and unpaid distributions
thereon to the date of payment (the "Liquidation Distribution"),
unless, in connection with such Liquidation, Convertible
Subordinated Debentures in an aggregate stated principal amount
equal to the aggregate stated liquidation amount of, with an
interest rate identical to the distribution rate of, and accrued
and unpaid interest (including any Additional Interest,
Compounded Interest and Liquidated Damages) equal to accrued and
unpaid distributions on, the Preferred Securities have been
distributed on a pro rata basis to the holders of the Preferred
Securities.
If, upon any such Liquidation, the Liquidation Distribution
can be paid only in part because the Trust has insufficient
assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Trust on
the Preferred Securities shall be paid on a pro rata basis. The
holders of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders
of the Preferred Securities, except that if a Declaration Event
of Default (as defined herein) has occurred and is continuing,
the Preferred Securities shall have a preference over the Common
Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall terminate (i)
on December 1, 2030, (ii) upon the bankruptcy of Continental or
the holder of the Common Securities, (iii) upon the filing of a
certificate of dissolution or its equivalent with respect to the
holder of the Common Securities or Continental, the filing of a
certificate of cancellation with respect to the Trust, or the
revocation of the charter of the holder of the Common Securities
or Continental and the expiration of 90 days after the date of
revocation without a reinstatement thereof, (iv) upon the
distribution of all of the Convertible Subordinated Debentures
upon the occurrence of a Tax Event or Investment Company Event,
(v) upon the entry of a decree of a judicial dissolution of
the holder of the Common Securities, Continental or the Trust
or (vi) upon the redemption of all the Trust Securities.
Merger, Consolidation Or Amalgamation Of The Issuer
The Issuer may not consolidate, amalgamate, merge with or
into, or be replaced by, or convey, transfer or lease its
properties and assets substantially as an entirety to any
corporation or other entity or person, except as described below.
The Issuer may, without the consent of the holders of the
Preferred Securities, the Delaware Trustee or the Property
Trustee, consolidate, amalgamate, merge with or into, or be
replaced by, a trust organized as such under the laws of any
state of the United States of America or of the District of
Columbia; provided, however, that (i) if the Issuer is not the
survivor, such successor entity either (x) expressly assumes all
of the obligations of the Issuer under the Trust Securities or
(y) substitutes for the Preferred Securities other securities
having substantially the same terms as the Preferred Securities
(the "Successor Securities") as long as the Successor Securities
rank, with respect to participation in the profits and
distributions or in the assets of the successor entity, at least
as high as the Preferred Securities rank with respect to
participation in the profits and dividends or in the assets of
the Issuer, (ii) Continental expressly acknowledges a trustee of
such successor entity that possesses the same powers and duties
as the Property Trustee as the holder of the Convertible
Subordinated Debentures, (iii) the Preferred Securities or any
Successor Securities are listed, or any Successor Securities will
be listed upon notification of issuance, on any national
securities exchange or other organization on which the Preferred
Securities are then listed or quoted, (iv) such merger,
consolidation, amalgamation or replacement does not cause the
Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and
privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect (other than
with respect to any dilution of the holders' interest in the
successor entity), (vi) such successor entity has a purpose
substantially identical to that of the Issuer, (vii) Continental
provides a guarantee to the holders of the Successor Securities
with respect to such successor entity having substantially the
same terms as the Preferred Securities Guarantee and (viii) prior
to such merger, consolidation, amalgamation or replacement,
Continental has received an opinion of nationally recognized
independent counsel (reasonably acceptable to the Property
Trustee) to the Issuer experienced in such matters to the effect
that (x) such successor entity will be treated as a grantor trust
for United States federal income tax purposes, (y) following such
merger, consolidation, amalgamation or replacement, neither
Continental nor such successor entity will be required to
register as an investment company under the 1940 Act and (z) such
merger, consolidation, amalgamation or replacement will not
adversely affect the rights, preferences and privileges of the
holders of the Trust Securities (including any Successor
Securities) in any material respect (other than with respect to
any dilution of the holders' interest in the new entity).
Notwithstanding the foregoing, the Issuer shall not, except with
the consent of holders of 100% in liquidation amount of the
Common Securities, consolidate, amalgamate, merge with or into,
or be replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it, if
such consolidation, amalgamation, merger or replacement would
cause the Issuer or the Successor Entity to be classified as
other than a grantor trust for United States federal income tax
purposes.
Declaration Events of Default
An event of default under the Indenture (an "Indenture
Event of Default") constitutes an event of default under the
Declaration with respect to the Trust Securities (a "Declaration
Event of Default"); provided, however, that pursuant to the
Declaration, the holder of the Common Securities will be deemed
to have waived any Declaration Event of Default with respect to
the Common Securities until all Declaration Events of Default
with respect to the Preferred Securities have been cured, waived
or otherwise eliminated. Until such Declaration Events of Default
with respect to the Preferred Securities have been so cured,
waived, or otherwise eliminated, the Property Trustee will be
deemed to be acting solely on behalf of the holders of the
Preferred Securities and only the holders of the Preferred
Securities will have the right to direct the Property Trustee
with respect to certain matters under the Declaration, and
therefore the Indenture. If the Property Trustee fails to enforce
its rights under the Convertible Subordinated Debentures after a
holder of Preferred Securities has made a written request, such
holder of Preferred Securities may institute a legal proceeding
directly against the Company to enforce the Property Trustee's
rights under the Convertible Subordinated Debentures without
first instituting any legal proceeding against the Property
Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is
continuing and such event is attributable to the failure of the
Company to pay interest or principal on the Convertible
Subordinated Debentures on the date such interest or principal is
otherwise payable (or in the case of a redemption, the redemption
date), then a holder of Preferred Securities may directly
institute a proceeding for enforcement of payment to such holder
directly of the principal of or interest on the Convertible
Subordinated Debentures having a principal amount equal to the
aggregate liquidation amount of the Preferred Securities of such
holder (a "Direct Action") on or after the respective due date
specified in the Convertible Subordinated Debentures. In
connection with such Direct Action, the Company will be
subrogated to the rights of such holder of Preferred Securities
under the Declaration to the extent of any payment made by the
Company to such holder of Preferred Securities in such Direct
Action. The holders of Preferred Securities will not be able to
exercise directly any other remedy available to the holders of
the Convertible Subordinated Debentures.
Upon the occurrence of a Declaration Event of Default, the
Property Trustee, as the sole holder of the Convertible
Subordinated Debentures, will have the right under the Indenture
to declare the principal of and interest on the Convertible
Subordinated Debentures to be immediately due and payable.
Continental and the Trust are each required to file annually with
the Property Trustee an officer's certificate as to its
compliance with all conditions and covenants under the
Declaration.
Voting Rights
Except as described herein, under the Trust Act and under
"Description of the Guarantee--Amendments and Assignment" and as
otherwise required by law and the Declaration, the holders of the
Preferred Securities will have no voting rights. In the event
that Continental elects to defer payments of interest on the
Convertible Subordinated Debentures as described above under
"--Distributions," the holders of the Preferred Securities do not
have the right to appoint a special representative or trustee or
otherwise to protect their interest.
The holders of a majority in aggregate liquidation amount
of the Preferred Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy
available to the Property Trustee, or direct the exercise of any
trust or power conferred upon the Property Trustee under the
Declaration including the right to direct the Property Trustee,
as holder of the Convertible Subordinated Debentures, to (i)
exercise the remedies available under the Indenture with respect
to the Convertible Subordinated Debentures, (ii) waive any past
Indenture Event of Default that is waivable under the Indenture,
(iii) exercise any right to rescind or annul a declaration that
the principal of all the Convertible Subordinated Debentures
shall be due and payable or (iv) consent to any amendments,
modification or termination of the Indenture or the Convertible
Subordinated Debentures requiring the consent of the holders of
the Convertible Subordinated Debentures; provided, however, that
where a consent or action under the Indenture would require the
consent or act of more than a majority of the holders (a
"Super-Majority") affected thereby, only the holders of at least
such Super-Majority of the Preferred Securities may direct the
Property Trustee to give such consent or take such action. If the
Property Trustee fails to enforce its rights under the
Convertible Subordinated Debentures after any holder of Preferred
Securities shall have made a written request, a record holder of
Preferred Securities may institute a legal proceeding directly
against Continental to enforce the Property Trustee's rights
under the Convertible Subordinated Debentures without first
instituting any legal proceeding against the Property Trustee or
any other person or entity. Notwithstanding the foregoing, if a
Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay
interest or principal on the Convertible Subordinated Debentures
on the date such interest or principal is otherwise payable (or
in the case of redemption, the redemption date), then a holder
of Preferred Securities may directly institute a proceeding
for enforcement of payment to such holder of the principal of or
interest on the Convertible Subordinated Debentures having
a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder on or after the
respective due date specified in the Convertible Subordinated
Debentures. The Property Trustee shall notify all holders of the
Preferred Securities of any notice of default received from the
Indenture Trustee with respect to the Convertible Subordinated
Debentures. Such notice shall state that such Indenture Event of
Default also constitutes a Declaration Event of Default. The
Property Trustee shall not take any of the actions described in
clauses (i), (ii), (iii) or (iv) above unless the Property
Trustee has obtained an opinion of independent tax counsel to the
effect that, as a result of such action, the Trust will not fail
to be classified as a grantor trust for United States federal
income tax purposes and each holder of Trust Securities will be
treated as owning undivided beneficial interests in the
Convertible Subordinated Debentures.
In the event the consent of the Property Trustee, as the
holder of the Convertible Subordinated Debentures, is required
under the Indenture with respect to any amendment, modification
or termination of the Indenture, the Property Trustee shall
request the direction of the holders of the Trust Securities with
respect to such amendment, modification or termination and shall
vote with respect to such amendment, modification or termination
as directed by a majority in liquidation amount of the Trust
Securities voting together as a single class; provided, however,
that where a consent under the Indenture would require the
consent of a Super-Majority, the Property Trustee may only give
such consent at the direction of the holders of at least the
proportion in liquidation amount of the Trust Securities which
the relevant Super-Majority represents of the aggregate principal
amount of the Convertible Subordinated Debentures outstanding.
The Property Trustee shall be under no obligation to take any
such action in accordance with the directions of the holders of
the Trust Securities unless the Property Trustee has obtained an
opinion of tax counsel to the effect that for the purposes of
United States federal income taxation the Trust will not be
classified as other than a grantor trust.
A waiver of an Indenture Event of Default will constitute a
waiver of the corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred
Securities may be given at a separate meeting of holders of
Preferred Securities convened for such purpose, at a meeting of
all of the holders of Trust Securities or pursuant to written
consent. The Regular Trustee will cause a notice of any meeting
at which holders of Preferred Securities are entitled to vote, or
of any matter upon which action by written consent of such
holders is to be taken, to be mailed to each holder of record of
Preferred Securities. Each such notice will include a statement
setting forth the following information: (i) the date of such
meeting or the date by which such action is to be taken; (ii) a
description of any resolution proposed for adoption at such
meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and (iii)
instructions for the delivery of proxies or consents. No vote or
consent of the holders of Preferred Securities will be required
for the Trust to redeem and cancel Preferred Securities or
distribute Convertible Subordinated Debentures in accordance with
the Declaration.
Notwithstanding that holders of Preferred Securities are
entitled to vote or consent under any of the circumstances
described above, any of the Preferred Securities that are owned
at such time by Continental or any entity directly or indirectly
controlling or controlled by, or under direct or indirect common
control with, Continental, shall not be entitled to vote or
consent and shall, for purposes of such vote or consent, be
treated as if such Preferred Securities were not outstanding.
The procedures by which holders of Preferred Securities may
exercise their voting rights are described below. See
"--Book-entry-only Issuance--The Depository Trust Company" below.
Holders of the Preferred Securities will have no rights to
appoint or remove the Regular Trustees, who may be appointed,
removed or replaced solely by Continental as the indirect or
direct holder of all of the Common Securities.
Modification of the Declaration
The Declaration may be modified and amended if approved by
the Regular Trustees (and in certain circumstances the Property
Trustee), provided that, if any proposed amendment provides for,
or the Regular Trustees otherwise propose to effect, (i) any
action that would adversely affect the powers, preferences or
special rights of the Trust Securities, whether by way of
amendment to the Declaration or otherwise, or (ii) the
dissolution, winding-up or termination of the Trust other than
pursuant to the terms of the Declaration, then the holders of the
Trust Securities voting together as a single class will be
entitled to vote on such amendment or proposal and such amendment
or proposal will not be effective except with the approval of at
least 66 2/3% in liquidation amount of the Trust Securities
affected thereby; provided, however, that if any amendment or
proposal referred to in clause (i) above would adversely affect
only the Preferred Securities or the Common Securities, then only
the affected class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective
except with the approval of 66 2/3% in liquidation amount of such
class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification
may be made to the Declaration if such amendment or modification
would (i) cause the Trust to be classified for purposes of United
States federal income taxation as other than a grantor trust,
(ii) reduce or otherwise adversely affect the powers of the
Property Trustee or (iii) cause the Trust to be deemed an
"investment company" which is required to be registered under the
1940 Act.
Registration Rights
In connection with the Original Offering, the Company and
the Issuer entered into a registration rights agreement with the
Initial Purchasers dated November 28, 1995 (the "Registration
Rights Agreement") pursuant to which the Company and the Trust
agreed, at the Company's expense, for the benefit of the holders
of the Preferred Securities, the Guarantee, the Convertible
Subordinated Debentures and the shares of Class B common stock
issuable upon conversion thereof (together, the "Registrable
Securities"), to (i) file with the Commission within 180 days
after the Original Offering Date the Registrable Securities, a
registration statement (the "Shelf Registration Statement")
covering resales of the Registrable Securities, (ii) use their
best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act within 60 days after
the date of filing of the Shelf Registration Statement and (iii)
use their best efforts to keep effective the Shelf Registration
Statement until three years after the date it is declared
effective or such earlier date as all Registrable Securities
shall have been disposed of or on which all Registrable
Securities held by persons that are not affiliates of Continental
or the Trust may be resold without registration pursuant to Rule
144(k) under the Securities Act (the "Effectiveness Period"). The
Company agreed to provide to each holder of Registrable
Securities copies of the prospectus which is a part of the Shelf
Registration Statement, notify each holder when the Shelf
Registration Statement has become effective and take certain
other actions as are required to permit unrestricted resales of
the Registrable Securities. A holder of Registrable Securities
that sells such Registrable Securities pursuant to the Shelf
Registration Statement will be required to be named as a selling
security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with
such sales and will be bound by the provisions of the
Registration Rights Agreement, including certain indemnification
obligations.
If (i) by May 27, 1996, a Shelf Registration Statement has
not been filed with the Commission, or (ii) on or prior to the
60th day following the filing of such Shelf Registration
Statement, such Shelf Registration Statement has not been
declared effective (each, a "Registration Default"), additional
interest ("Liquidated Damages") will accrue on the Convertible
Subordinated Debentures and, accordingly, additional
distributions will accrue on the Preferred Securities, in each
case from and including the day following such Registration
Default. Liquidated Damages will be paid quarterly in arrears,
with the first quarterly payment due on the first interest or
distribution payment date, as applicable, following the date on
which such Liquidated Damages begin to accrue, and will accrue at
a rate per annum equal to an additional one-quarter of one
percent (0.25%) of the principal amount or liquidation amount, as
applicable, to and including the 90th day following such
Registration Default and one-half of one percent (0.50%) thereof
from and after the 91st day following such Registration Default.
In the event that the Shelf Registration Statement ceases to be
effective during the Effectiveness Period for more than 60 days,
whether or not consecutive, during any 12-month period then the
interest rate borne by the Convertible Subordinated Debentures
and the distribution rate borne by the Preferred Securities will
each increase by an additional one-half of one percent (0.50%)
per annum 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.
Continental and the Trust agreed in the Registration Rights
Agreements to use their best efforts to cause the Class B common
stock issuable upon conversion of the Convertible Subordinated
Debentures and the Preferred Securities to be listed on the NYSE
upon effectiveness of the Shelf Registration Statement.
Continental and the Trust expect that the Class B Common Stock
issuable upon conversion of the Convertible Subordinated
Debentures will be authorized, upon official notice of issuance,
for listing on the NYSE in the near future. The Company applied
for listing of the Preferred Securities on the NYSE on June 21,
1996. The Company has been informed, however, that the Preferred
Securities will not be eligible for listing on the NYSE unless
and until there are at least 400 holders of the Preferred
Securities, which is not currently the case.
This summary of the material provisions of the Registration
Rights Agreement does not purport to be complete, and reference is
made to the Registration Rights Agreement filed as an exhibit to
the Registration Statement.
Book-entry-only Issuance--The Depository Trust Company
The description of book-entry procedures in this Prospectus
includes summaries of certain rules and operating procedures of
DTC that affect transfers of interests in the global certificate
or certificates issued in connection with sales of Preferred
Securities made pursuant to this Prospectus. The Preferred
Securities were issued only as fully registered securities
registered in the name of Cede & Co. (as nominee for DTC). One or
more fully registered global Preferred Security certificates (the
"Global Certificates") were issued, representing, in the
aggregate, Preferred Securities sold pursuant to this Prospectus,
and were deposited with DTC. In the event of a transfer of
securities which were issued in fully registered, certificated
form, the holder of such certificates will be required to
exchange them for interests in the Global Certificates
representing the number of Preferred Securities being
transferred.
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 the provisions of Section 17A of the Exchange Act.
DTC holds securities that its participants ("Participants")
deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates.
Participants in DTC include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other
organizations. DTC is owned by a number of its Participants and
by the NYSE, the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system
is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain
a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system
must be made by or through Participants, which will receive a
credit for the Preferred Securities on DTC's records. The
ownership interest of each actual purchaser of Preferred
Securities (the "Beneficial Owner") is in turn to be recorded on
the Participants' and Indirect Participants' records. Beneficial
Owners will not receive written confirmation from DTC of their
purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as
periodic statements of their holdings, from the Participants or
Indirect Participants through which the Beneficial Owners
purchased Preferred Securities. Transfers of ownership interests
in the Preferred Securities are to be accomplished by entries
made on the books of Participants and Indirect Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in
Preferred Securities, except in the event that use of the
book-entry system for the Preferred Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the
Preferred Securities; DTC's records reflect only the identity of
the Participants to whose accounts such Preferred Securities are
credited, which may or may not be the Beneficial Owners. The
Participants and Indirect Participants will remain responsible
for keeping account of their holdings on behalf of their
customers.
So long as DTC, or its nominee, is the registered owner or
holder of a Global Certificate, DTC or such nominee, as the case
may be, will be considered the sole owner or holder of the
Preferred Securities represented thereby for all purposes under
the Declaration and the Preferred Securities. No beneficial owner
of an interest in a Global Certificate will be able to transfer
that interest except in accordance with DTC's applicable
procedures, in addition to those provided for under the
Declaration.
Transfers between Participants in DTC will be effected in
the ordinary way in accordance with DTC rules and will be settled
in same-day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Preferred
Securities to persons in states which require such delivery of
such Preferred Securities or to pledge such Preferred Securities,
such holder must transfer its interest in the Global Certificate
in accordance with the normal procedures of DTC and the
procedures set forth in the Declaration.
DTC has advised the Company that it will take any action
permitted to be taken by a holder of Preferred Securities
(including the presentation of Preferred Securities for exchange
as described below) only at the direction of one or more
Participants to whose account the DTC interests in the Global
Certificates are credited and only in respect of such portion of
the aggregate liquidation amount of Preferred Securities as to
which such Participant or Participants has or have given such
direction. However, if there is an Event of Default under the
Preferred Securities, DTC will exchange the Global Certificates
for Certificated Securities, which it will distribute to its
Participants.
Conveyance of notices and other communications by DTC to
Participants, by Participants to Indirect Participants, and by
Participants and Indirect Participants to Beneficial Owners will
be governed by arrangements among them, subject to any statutory
or regulatory requirements as may be in effect from time to time.
Redemption notices in respect of the Preferred Securities
held in book-entry form will be sent to Cede & Co. If less than
all of the Preferred Securities are being redeemed, DTC will
determine the amount of the interest of each Participant to be
redeemed in accordance with its procedures.
Although voting with respect to the Preferred Securities is
limited, in those cases where a vote is required, neither DTC nor
Cede & Co. will itself consent or vote with respect to Preferred
Securities. Under its usual procedures, DTC would mail an Omnibus
Proxy to the Issuer as soon as possible after the record date.
The Omnibus Proxy assigns Cede & Co.'s consenting or voting
rights to those Participants to whose accounts the Preferred
Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Distributions on the Preferred Securities held in
book-entry form will be made to DTC in immediately available
funds. DTC's practice is to credit Participants' accounts on the
relevant payment date in accordance with their respective holdings
shown on DTC's records unless it has reason to believe that it will
not receive payments on such payment date. Payments by Participants
and Indirect Participants to Beneficial Owners will be governed
by standing instructions and customary practices and will be the
responsibility of such Participants and Indirect Participants and
not of DTC, the Issuer or Continental, subject to any statutory
or regulatory requirements as may be in effect from time to time.
Payment of distributions to DTC is the responsibility of the
Issuer, disbursement of such payments to Participants is the
responsibility of DTC, and disbursement of such payments to the
Beneficial Owners is the responsibility of Participants and
Indirect Participants.
Except as provided herein, a Beneficial Owner of an
interest in a Global Certificate will not be entitled to receive
physical delivery of Preferred Securities. Accordingly, each
Beneficial Owner must rely on the procedures of DTC to exercise
any rights under the Preferred Securities.
Although DTC has agreed to the foregoing procedures in
order to facilitate transfers of interests in the Global
Certificates among Participants of DTC, DTC is under no
obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the
Company, the Issuer nor the Trustee will have any responsibility
for the performance by DTC or its Participants or Indirect
Participants under the rules and procedures governing DTC. DTC
may discontinue providing its services as securities depository
with respect to the Preferred Securities at any time by giving
notice to the Issuer. Under such circumstances, in the event that
a successor securities depository is not obtained, Preferred
Security certificates are required to be printed and delivered.
Additionally, the Issuer (with the consent of Continental) may
decide to discontinue use of the system of book-entry transfers
through DTC (or a successor depository). In that event,
certificates for the Preferred Securities will be printed and
delivered. In each of the above circumstances, Continental will
appoint a paying agent with respect to the Preferred Securities.
The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of securities in
definitive form. Such laws may impair the ability to transfer
beneficial interest in the Preferred Securities as represented by
a Global Certificate.
Payment And Paying Agency
Payments in respect of the Preferred Securities shall be
made to DTC, which shall credit the relevant accounts at DTC on
the applicable distribution dates or, in the case of Certificated
Securities, such payments shall be made by check mailed to the
address of the holder entitled thereto as such address shall
appear on the Register. The Paying Agent will initially be
Wilmington Trust Company. The Paying Agent will be permitted to
resign as Paying Agent upon 30 days written notice to the Regular
Trustees. In the event that Wilmington Trust Company shall no
longer be the Paying Agent, the Trustee will appoint a successor
to act as Paying Agent (which must be a bank or trust company).
Property Trustee, Transfer Agent, Registrar, Paying Agent and
Conversion Agent
Wilmington Trust Company will act as Property Trustee,
Transfer Agent, Registrar and Paying Agent, and Conversion Agent
for the Preferred Securities, but the Trust may designate an
additional or substitute Transfer Agent, Registrar and Paying
Agent, or Conversion Agent. In the event that the Preferred
Securities do not remain in book-entry-only form, registration of
transfers of Preferred Securities will be effected without charge
by or on behalf of the Trust, but upon payment in respect of any
tax or other governmental charges which may be imposed in
connection therewith (and/or the giving of such indemnity as the
Trust may require with respect thereto). Exchanges of Preferred
Securities for Convertible Subordinated Debentures will be
effected without charge by or on behalf of the Trust, but upon
payment in respect of any tax or other governmental charges which
may be imposed (and/or the giving of such indemnity as the Trust
may require with respect thereto) in connection with the issuance
of any Convertible Subordinated Debentures in the name of any
person other than the registered holder of the Preferred Security
for which the Convertible Subordinated Debenture is being
exchanged or for any reason other than such exchange. The Trust
will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities
have been called for redemption or exchange.
The Property Trustee, prior to the occurrence of a
default with respect to the Trust Securities, undertakes
to perform only such duties as are specifically set forth
in the Declaration and, after default, shall exercise the
same degree of care as a prudent individual would exercise
in the conduct of his or her own affairs. Subject to such
provisions, the Property Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at
the request of any holder of Preferred Securities, unless offered
reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The holders of
Preferred Securities will not be required to offer such indemnity
in the event such holders, by exercising their voting rights,
direct the Property Trustee to take any action following a
Declaration Event of Default. The Property Trustee also serves as
trustee under the Guarantee and the Indenture.
Continental and certain of its subsidiaries maintain
deposit accounts and conduct other banking transactions with
Wilmington Trust Company in the ordinary course of their
businesses.
Governing Law
The Declaration and the Trust Securities will be governed
by, and construed in accordance with, the internal laws of the
State of Delaware.
Miscellaneous
The Regular Trustees are authorized and directed to operate
the Trust in such a way so that the Trust will not be required to
register as an "investment company" under the 1940 Act or
characterized as other than a grantor trust for United States
federal income tax purposes. Continental is authorized and
directed to conduct its affairs so that the Convertible
Subordinated Debentures will be treated as indebtedness of
Continental for United States federal income tax purposes. In
this connection, Continental and the Regular Trustees are
authorized to take any action, not inconsistent with applicable
law, the certificate of trust of the Trust or the Certificate of
Incorporation of Continental, that each of Continental and the
Regular Trustees determine in their discretion to be necessary or
desirable to achieve such end, as long as such action does not
adversely affect the interests of the holders of the Preferred
Securities or vary the terms thereof.
Holders of the Preferred Securities have no preemptive
rights.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of the principal terms and
provisions of the Guarantee, as amended, executed and delivered by
Continental for the benefit of the holders from time to time of
Preferred Securities. This summary does not purport to be
complete, and reference is made to the Guarantee filed as an
exhibit to the Registration Statement. The Guarantee incorporates
by reference terms of the Trust Indenture Act. The Guarantee will
be qualified under the Trust Indenture Act. The Guarantee Trustee
holds the Guarantee for the benefit of the holders of the
Preferred Securities.
General
Pursuant to the Guarantee, Continental irrevocably agreed,
to the extent set forth therein, to pay in full, to the holders
of the Preferred Securities, the Guarantee Payments (as defined
below), as and when due, regardless of any defense, right of
set-off or counterclaim which the Issuer may have or assert. The
following payments with respect to the Preferred Securities, to
the extent not paid by the Issuer (the "Guarantee Payments"),
will be subject to the Guarantee (without duplication): (i) any
accrued and unpaid distributions that are required to be paid on
the Preferred Securities to the extent of funds of the Trust
available therefor, (ii) the amount payable upon redemption of
the Preferred Securities, payable out of funds of the Trust
available therefor with respect to any Preferred Securities
called for redemption by the Issuer and (iii) upon a Liquidation
of the Issuer, the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid distributions on the Preferred
Securities to the date of payment, to the extent of funds of the
Trust available therefor, and (b) the amount of assets of the
Issuer remaining available for distribution to holders of
Preferred Securities. Continental's obligation to make a
Guarantee Payment may be satisfied by direct payment of the
required amounts by Continental to the holders of Preferred
Securities or by causing the Issuer to pay such amounts to such
holders.
The Guarantee will not apply to the payment of
distributions and other payments on the Preferred Securities when
the Property Trustee does not have sufficient funds in the
Property Account to make such distributions or other payments. If
Continental does not make interest payments on the Convertible
Subordinated Debentures held by the Property Trustee, the Trust
will not make distributions on the Preferred Securities issued by
the Trust and will not have funds available therefor. See
"Description of the Convertible Subordinated Debentures--Certain
Covenants." The Guarantee, when taken together with the Company's
obligations under the Convertible Subordinated Debentures, the
Indenture and the Declaration, including its obligations to pay
costs, expenses, debts and liabilities of the Trust (other than with
respect to the Trust Securities), will provide a full and
unconditional guarantee on a subordinated basis by the Company of
amounts due on the Preferred Securities.
Because the Guarantee is a guarantee of payment and not of
collection, holders of the Preferred Securities may proceed
directly against Continental as guarantor, rather than having to
proceed against the Issuer before attempting to collect from
Continental, and Continental waives any right or remedy to
require that any action be brought against the Issuer or any
other person or entity before proceeding against Continental.
Such obligations will not be discharged except by payment of the
Guarantee Payments in full. The Guarantee will be deposited with
the Guarantee Trustee to be held for the benefit of the holders
of Preferred Securities. Subject to the rights of holders of the
Preferred Securities to institute legal action directly against
Continental to enforce such holder's rights under the Guarantee
without first instituting a legal proceeding against any other
person or entity, the Guarantee Trustee has the right to enforce
the Guarantee on behalf of the holders of the Preferred
Securities.
Continental has also agreed separately to irrevocably
guarantee the obligations of the Trust with respect to the
Common Securities (the "Common Securities Guarantee") to
the same extent as the Guarantee, except that upon the
occurrence and during the continuation of an Event of Default
with respect to the Convertible Subordinated Debentures,
holders of Preferred Securities shall have priority over
holders of Common Securities with respect to distributions and
payments on liquidation, redemption or otherwise.
Certain Covenants of Continental
In the Guarantee, Continental has covenanted that, so long
as any Preferred Securities remain outstanding, if (i)
Continental has exercised its option to defer interest payments
on the Convertible Subordinated Debentures and such deferral is
continuing, (ii) Continental shall be in default with respect to
its payment or other obligations under the Guarantee or (iii)
there shall have occurred and be continuing any event that, with
the giving of notice of the lapse of time or both, would
constitute an Event of Default under the Indenture, then
Continental will not (a) declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or
make a liquidation payment with respect to, any of its capital
stock, except for dividends or distributions in shares of its
capital stock of the same class on which such dividend or
distribution is being paid and conversions or exchanges of common
stock of one class into common stock of another class, or (b)
make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities of Continental
that rank pari passu with or junior to the Convertible
Subordinated Debentures (except by conversion into or exchange
for shares of its capital stock and except for a redemption,
purchase or other acquisition of shares of its capital stock made
for the purpose of an employee incentive plan or benefit plan of
the Company or any of its subsidiaries).
As part of the Guarantee, Continental has agreed that it
will honor all obligations described therein relating to the
conversion of the Preferred Securities into Class B common stock
as described in "Description of the Preferred
Securities--Conversion Rights."
Amendments and Assignment
Except with respect to any changes that do not materially
adversely affect the rights of holders of Preferred Securities
(in which case no vote will be required), the Guarantee may be
amended only with the prior approval of the holders of not less
than 66 2/3% in aggregate stated liquidation amount of the
outstanding Preferred Securities. The manner of obtaining any
such approval of holders of the Preferred Securities will be as
set forth under "Description of the Preferred Securities--Voting
Rights." All guarantees and agreements contained in the Guarantee
shall bind the successors, assigns, receivers, trustees and
representatives of Continental and shall inure to the benefit of
the holders of the Preferred Securities then outstanding. Except
in connection with any permitted merger or consolidation of
Continental with or into another entity or any permitted sale,
transfer or lease of Continental's assets to another entity as
described below under "Description of the Convertible
Subordinated Debentures--Restrictions," Continental may not
assign its rights or delegate its obligations under the Guarantee
without the prior approval of the holders of at least 66 2/3% of
the aggregate stated liquidation amount of the Preferred
Securities then outstanding.
Termination of the Guarantee
The Guarantee will terminate as to each holder of Preferred
Securities and be of no further force and effect upon (a) full
payment of the applicable redemption price of such holder's
Preferred Securities, (b) the distribution of Class B common
stock to such holder in respect of the conversion of such
holder's Preferred Securities into Class B common stock, or (c)
the distribution of Convertible Subordinated Debentures to the
holders of all of the Preferred Securities, and will terminate
completely upon full payment of the amounts payable upon
liquidation of the Issuer. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any
time any holder of Preferred Securities must restore payment of
any sums paid under such Preferred Securities or the Guarantee.
Events of Default
An event of default under the Guarantee will occur upon the
failure of Continental to perform any of its payment or other
obligations thereunder.
The holders of a majority in liquidation amount of the
Preferred Securities have the right to direct the time, method
and place of conducting any proceeding for any remedy available
to the Guarantee Trustee in respect of the Guarantee or to direct
the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee. If the Guarantee Trustee fails to
enforce the Guarantee, any holder of Preferred Securities may
institute a legal proceeding directly against Continental to
enforce the Guarantee Trustee's rights under the Guarantee,
without first instituting a legal proceeding against the Trust,
the Guarantee Trustee or any other person or entity.
Notwithstanding the foregoing, if the Company has failed to make
a guarantee payment, a holder of Preferred Securities may
directly institute a proceeding against the Company for
enforcement of the Guarantee for such payment. The Company waives
any right or remedy to require that any action be brought first
against the Trust or any other person or entity before proceeding
directly against the Company.
Status of the Guarantee; Subordination
The Guarantee constitutes an unsecured obligation of
Continental and ranks (i) subordinate and junior in right of
payment to all liabilities of Continental except any liabilities
that may be made pari passu expressly by their terms, (ii) pari
passu with the most senior preferred or preference stock now or
hereafter issued by Continental, which as of the date hereof
would be Continental's Series A 12% Cumulative Preferred Stock
(the "Series A 12% Preferred"), and with any guarantee now or
hereafter entered into by Continental in respect of any preferred
or preference stock of any affiliate of Continental and (iii)
senior to Continental's common stock. The Declaration provides
that each holder of Preferred Securities by acceptance thereof
agrees to the subordination provisions and other terms of the
Guarantee. Upon the bankruptcy, liquidation or winding up of
Continental, its obligations under the Guarantee will rank junior
to all its other liabilities (except as aforesaid) and,
therefore, funds may not be available for payment under the
Guarantee.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, prior to the occurrence of a
default, has undertaken to perform only such duties as are
specifically set forth in the Guarantee and, after default with
respect to the Guarantee, shall exercise the same degree of care
as a prudent individual would exercise in the conduct of his or
her own affairs. Subject to such provision, the Guarantee Trustee
is under no obligation to exercise any of the powers vested in it
by the Guarantee at the request of any holder of Preferred
Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
The Guarantee Trustee also serves as the Property Trustee and the
Indenture Trustee.
The Guarantee will constitute a guarantee of payment and
not of collection (that is, the guaranteed party may institute a
legal proceeding directly against the guarantor to enforce its
rights under the Guarantee without instituting a legal proceeding
against any other person or entity).
Governing Law
The Guarantee is governed by and construed in accordance
with the laws of the State of New York.
DESCRIPTION OF THE CONVERTIBLE SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of
the Convertible Subordinated Debentures in which the Trust
invested the proceeds from the issuance and sale of the Trust
Securities. The following description does not purport to be
complete, and reference is made to the Indenture (the
"Indenture") between Continental and Wilmington Trust Company as
Indenture Trustee, as amended, filed as an exhibit to the
Registration Statement and a copy of which may be obtained
from Continental upon request. The Indenture will be qualified
under the Trust Indenture Act.
Under certain circumstances involving the dissolution of
the Trust following the occurrence of a Tax Event or Investment
Company Event, Convertible Subordinated Debentures may be
distributed to the holders of the Trust Securities in liquidation
of the Trust. See "Description of the Preferred Securities--Tax
Event Or Investment Company Event Redemption or Distribution."
If the Convertible Subordinated Debentures are distributed
to the holders of the Preferred Securities subsequent to the
effectiveness of the Shelf Registration Statement, Continental
will use its best efforts to have the Convertible Subordinated
Debentures listed on the New York Stock Exchange or on such other
national securities exchange or similar organization on which the
Preferred Securities are then listed or quoted.
General
The Convertible Subordinated Debentures have been issued as
unsecured debt under the Indenture. The Convertible Subordinated
Debentures were limited in aggregate principal amount to
approximately $258 million, such amount being the sum of the
aggregate stated liquidation amount of the Preferred Securities
and the capital contributed by Continental in exchange for the
Common Securities (the "Continental Payment").
The Convertible Subordinated Debentures are not subject to
a sinking fund provision. The entire principal amount of the
Convertible Subordinated Debentures will mature and become due
and payable, together with any accrued and unpaid interest
thereon including Compounded Interest (as defined herein) and
Additional Interest (as hereinafter defined), if any, on December
1, 2020.
If Convertible Subordinated Debentures are distributed to
holders of Preferred Securities in liquidation of such holders'
interests in the Trust, such Convertible Subordinated Debentures
will initially be issued as a Global Security (as defined below).
As described herein, under certain limited circumstances,
Convertible Subordinated Debentures may be issued in certificated
form in exchange for a Global Security (as defined below). See
"--Book-Entry and Settlement" below. In the event that
Convertible Subordinated Debentures are issued in certificated
form, such Convertible Subordinated Debentures will be in
denominations of $50 and integral multiples thereof and may be
transferred or exchanged at the offices described below. Payments
on Convertible Subordinated Debentures issued as a Global
Security will be made to DTC, a successor depositary or, in the
event that no depositary is used, to a Paying Agent for the
Convertible Subordinated Debentures. In the event Convertible
Subordinated Debentures are issued in certificated form,
principal and interest will be payable, the transfer of the
Convertible Subordinated Debentures will be registrable and
Convertible Subordinated Debentures will be exchangeable for
Convertible Subordinated Debentures of other denominations of a
like aggregate principal amount at the corporate trust office of
the Indenture Trustee in Wilmington, Delaware; provided, however,
that payment of interest may be made at the option of Continental
by check mailed to the address of the persons entitled thereto.
Subordination
The Indenture provides that the Convertible Subordinated
Debentures are subordinated and junior in right of payment to all
existing and future Senior Indebtedness of Continental. Upon any
distribution of assets of Continental to creditors upon any
dissolution, winding up, liquidation or reorganization, whether
voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all principal, premium, if
any, and interest due or to become due on all Senior Indebtedness
of Continental must be paid in full before the holders of
Convertible Subordinated Debentures are entitled to receive or
retain any payment. Upon payment in full of all Senior
Indebtedness then outstanding, the rights of the holders of the
Convertible Subordinated Debentures will be subrogated to the
rights of the holders of Senior Indebtedness to receive payments
or distributions applicable to Senior Indebtedness until all
amounts owing on the Convertible Subordinated Debentures are paid
in full.
In addition, no payment of principal (including redemption
payments), premium, if any, or interest (including any Additional
Interest, Compounded Interest or Liquidated Damages) on the
Convertible Subordinated Debentures may be made (i) if any
payment of principal, premium, interest or any other payment due
on any Designated Senior Indebtedness of Continental is not paid
when due and any applicable grace period with respect to such
default has ended and such default has not been cured or waived
or ceased to exist, or (ii) if the maturity of any Designated
Senior Indebtedness of Continental has been accelerated because
of a default.
The term "Senior Indebtedness" means, with respect to
Continental, (i) the principal, premium, if any, and interest in
respect of (A) indebtedness of such obligor for money borrowed
and (B) indebtedness evidenced by securities, debentures, bonds
or other similar instruments issued by such obligor (ii) all
capital lease obligations of such obligor, (iii) all obligations
of such obligor issued or assumed as the deferred purchase price
of property, all conditional sale obligations of such obligor and
all obligations of such obligor under any title retention
agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such
obligor for the reimbursement on any letter of credit, bankers
acceptance, security purchase facility or similar credit
transaction, (v) all obligations of the type referred to in
clauses (i) through (iv) above of other persons for the payment
of which such obligor is responsible or liable as obligor,
guarantor or otherwise, and (vi) all obligations of the type
referred to in clauses (i) through (v) above of other persons
secured by any lien on any property or asset of such obligor
(whether or not such obligation is assumed by such obligor),
except for (1) any such indebtedness that is by its terms
subordinated to or pari passu with the Convertible Subordinated
Debentures and (2) any indebtedness between or among such obligor
or its affiliates, including all other debt securities and
guarantees in respect of those debt securities, initially issued
to any other trust, or a trustee of such trust, partnership or
other entity affiliated with Continental that, directly or
indirectly, is a financing vehicle of Continental (a "financing
entity") in connection with the issuance by such financing entity
of preferred securities or other securities that rank pari passu
with, or junior to, the Preferred Securities. Such Senior
Indebtedness shall continue to be Senior Indebtedness and be
entitled to the benefits of the subordination provisions
irrespective of any amendment, modification or waiver of any term
of such Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior
Indebtedness that may be issued by Continental. As of March 31,
1996, Senior Indebtedness of Continental aggregated approximately
$1.7 billion.
The term "Designated Senior Indebtedness" means (i) all
Senior Indebtedness of Continental outstanding from time to time
under agreements between Continental, on the one hand, and
General Electric Company, General Electric Capital Corporation,
any of their respective direct or indirect subsidiaries, or any
affiliates of any of the foregoing, or any trust of which any of
the foregoing is a beneficiary, on the other hand, in effect on
the original issue date of the Convertible Subordinated
Debentures, and any renewal, refunding, replacement or extension
thereof and (ii) any Senior Indebtedness of Continental incurred,
issued or assumed after the original issue date of the
Convertible Subordinated Debentures and any renewal, refunding,
replacement or extension thereof. As of the date hereof, there
are no defaults under any outstanding Designated Senior
Indebtedness.
Optional Redemption
Continental will have the right to redeem the Convertible
Subordinated Debentures, in whole or in part, at any time or from
time to time, on or after December 1, 1998, at the optional
redemption prices (expressed as a percentage of principal amount)
specified below for the twelve-month period beginning December 1,
Optional
Redemption
Year Price
---- ----------
1998..................... 105.95%
1999..................... 105.10
2000..................... 104.25
2001..................... 103.40
2002..................... 102.55
2003..................... 101.70
2004..................... 100.85
2005 and thereafter...... 100.00
plus, in each case, accrued and unpaid interest, including
Additional Interest, Compounded Interest and Liquidated Damages,
if
any, to the date set for redemption.
Continental may also redeem the Convertible Subordinated
Debentures at any time in certain circumstances upon the
occurrence of a Tax Event as described under "Description of the
Preferred Securities--Tax Event Or Investment Company Event
Redemption or Distribution," upon not less than 30 nor more than
60 days notice, at a redemption price equal to 100% of the
principal amount to be redeemed plus any accrued and unpaid
interest, including Additional Interest, Compounded Interest and
Liquidated Damages, if any, to the redemption date.
If a partial redemption of the Preferred Securities
resulting from a partial redemption of the Convertible
Subordinated Debentures would result in the delisting of the
Preferred Securities, Continental may only redeem the Convertible
Subordinated Debentures in whole.
Interest
Each Convertible Subordinated Debenture bears interest at
the rate of 8 1/2% per annum from the original date of issuance,
payable quarterly in arrears on March 1, June 1, September 1 and
December 1 of each year (each an "Interest Payment Date"),
commencing March 1, 1996, to the person in whose name such
Convertible Subordinated Debenture is registered, subject to
certain exceptions, at the close of business on the Business Day
next preceding such Interest Payment Date. At any time when
Convertible Subordinated Debentures are not held solely in
book-entry-only form, the record date for each Interest Payment
Date shall be 15 days prior to such Interest Payment Date.
The amount of interest payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months.
The amount of interest payable for any period shorter than a full
quarterly period for which interest is computed will be computed
on the basis of the actual number of days elapsed in such a
30-day month. In the event that any date on which interest is
payable on the Convertible Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date
will be made on the next succeeding day that is a Business Day
(and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next
succeeding calendar year, then such payment shall be made on the
immediately preceding Business Day, in each case with the same
force and effect as if made on such date.
Option to Extend Interest Payment Period
Continental shall have the right, at any time and from time
to time during the term of the Convertible Subordinated
Debentures, to defer payments of interest (including Additional
Interest and Liquidated Damages, if any) by extending the
interest payment period for a period not exceeding 20 consecutive
quarters, at the end of which Extension Period, Continental shall
pay all interest then accrued and unpaid (including Additional
Interest and Liquidated Damages, if any) together with interest
thereon compounded quarterly at the rate specified for the
Convertible Subordinated Debentures to the extent permitted by
applicable law ("Compounded Interest"); provided, however, that
during any such Extension Period Continental will not, subject to
certain exceptions, declare or pay dividends on or make any
distributions with respect to any of its capital stock, or make
any payment on or repay, repurchase or redeem any debt securities
that rank pari passu with or junior to the Convertible
Subordinated Debentures. See "--Certain Covenants." Prior to the
termination of any such Extension Period, Continental may further
defer payments of interest by extending the interest payment
period; provided, however, that, such Extension Period, including
all such previous and further extensions, may not exceed 20
consecutive quarters. Upon the termination of any Extension
Period and the payment of all amounts then due, Continental may
commence a new Extension Period, subject to the terms set forth
in this section. No interest during an Extension Period, except
at the end thereof, shall be due and payable. Continental has no
current intention of exercising its right to defer payments of
interest by extending the interest payment period on the
Convertible Subordinated Debentures. If the Property Trustee is
the sole holder of the Convertible Subordinated Debentures,
Continental will give the Regular Trustees and the Property
Trustee notice of its selection of such Extension Period at least
one Business Day prior to the earlier of (i) the date distributions
on the Preferred Securities are payable or (ii) if applicable, the
date the Regular Trustees are required to give notice to the New
York Stock Exchange (or other applicable self-regulatory
organization) or to holders of the Preferred Securities of
the record date or the date such distribution is payable. The
Regular Trustees will give notice of Continental's selection of
such Extension Period to the holders of the Preferred Securities.
If the Property Trustee is not the sole holder of the Convertible
Subordinated Debentures, Continental shall give the holders of
the Convertible Subordinated Debentures notice of its selection
of such Extension Period at least ten (10) Business Days prior to
the earlier of (i) the Interest Payment Date or (ii) if
applicable, the date upon which Continental is required to give
notice to the New York Stock Exchange (or other applicable
self-regulatory organization) or to holders of the Convertible
Subordinated Debentures of the record or payment date of such
related interest payment.
Conversion into Class B common stock
The Convertible Subordinated Debentures will be convertible
into Class B common stock at the option of the holders of the
Convertible Subordinated Debentures at any time at the initial
conversion price of $48.36 principal amount of Convertible
Subordinated Debentures per share of Class B common stock,
subject to the conversion price adjustments described under
"Description of the Preferred Securities--Conversion Rights." The
procedures for conversion of the Convertible Subordinated
Debentures for Class B common stock will be as described under
"Description of the Preferred Securities--Conversion Rights." No
fractional shares will be issued upon conversion. In lieu
thereof, cash will be paid by Continental based upon the Current
Market Price of Class B common stock on the date the conversion
notice was received by the Conversion Agent. Holders of
Convertible Subordinated Debentures may obtain copies of the
required form of conversion notice from the Conversion Agent.
Continental's delivery to the holders of the Convertible
Subordinated Debentures (through the Conversion Agent or
otherwise) of the whole number of shares of Class B common stock
into which the Convertible Subordinated Debentures so delivered
are convertible (together with the cash payment, if any, in lieu
of fractional shares) will be deemed to satisfy Continental's
obligation to pay the principal amount of such Convertible
Subordinated Debentures, and the accrued and unpaid interest
thereon, including any Additional Interest (other than any
Additional Amounts), and no payment shall be made for accrued
interest, whether or not in arrears. If, however, any Convertible
Subordinated Debenture is converted after any record date for the
payment of interest and on or prior to the related interest
payment date, the interest payable on such succeeding interest
payment date with respect to such Convertible Subordinated
Debenture shall be paid despite such conversion. Each conversion
will be deemed to have been effected immediately prior to the
close of business on the day on which the related conversion
notice was received by the Conversion Agent.
Additional Interest
If at any time the Trust shall be required to pay any taxes,
duties, assessments or governmental charges of whatever nature
(other than withholding taxes) imposed by the United States, or
any
other taxing authority, then, in any such case, Continental will
pay as additional interest ("Additional Interest") such
additional amounts as shall be required so that the net amounts
received and retained by the Trust after paying any such taxes,
duties, assessments or other governmental charges will be not
less than the amounts the Trust would have received had no such
taxes, duties, assessments or other governmental charges been
imposed.
Certain Covenants
In the Indenture, Continental has covenanted that, so long
as any Convertible Subordinated Debentures are outstanding, if
(i) there shall have occurred and be continuing an event that,
with the giving of notice or the lapse of time or both, would
constitute an Event of Default with respect to the Convertible
Subordinated Debentures, (ii) Continental shall be in
default with respect to its payment of any obligations under the
Guarantee, or (iii) Continental shall have given notice of its
election to defer payments of interest on the Convertible
Subordinated Debentures by extending the interest payment period
as provided in the Indenture and such period, or any extension
thereof, shall be continuing, then Continental will not (a)
declare or pay dividends on, make distributions with respect to,
or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock, except for dividends
or distributions in shares of its capital stock of the same class
on which such dividend or distribution is being paid and
conversions or exchanges of common stock of one class into common
stock of another class, or (b) make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem
any debt securities issued by Continental that rank pari passu
with or junior to the Convertible Subordinated Debentures (except
by conversion into or exchange for shares of its capital stock
and except for a redemption, purchase or other acquisition of
shares of its capital stock made for the purpose of an employee
incentive plan or benefit plan of the Company or any of its
subsidiaries).
For so long as the Trust Securities remain outstanding,
Continental has agreed to (i) directly or indirectly maintain
100% ownership of the Common Securities of the Trust, provided,
however, that any permitted successor of Continental under the
Indenture may succeed to Continental's ownership of such Common
Securities and (ii) use its reasonable efforts to cause the Trust
to (x) remain a statutory business trust, except in connection
with the distribution of Convertible Subordinated Debentures to
the holders of Trust Securities in liquidation of the Trust, the
redemption of all of the Trust Securities of the Trust, or
certain mergers, consolidations or amalgamations, each as
permitted by the Declaration, and (y) otherwise continue to be
classified as a grantor trust for United States federal income
tax purposes.
Restrictions
The Indenture provides that Continental shall not consolidate
with or merge with or into any other corporation or person, or,
directly or indirectly, convey, transfer or lease all or
substantially all of the properties and assets of Continental on
a consolidated basis to any person, unless either Continental is
the continuing corporation or such corporation or person
expressly assumes by supplemental indenture all the obligations
of Continental under the Indenture and the Convertible
Subordinated Debentures, no default or Event of Default under the
Indenture shall exist immediately after the transaction, and the
surviving corporation or such person is a corporation,
partnership or trust organized and validly existing under the
laws of the United States of America, any state thereof or the
District of Columbia.
Events of Default
The Indenture provides that any one or more of the
following described events which has occurred and is continuing
constitutes an "Event of Default" with respect to the Convertible
Subordinated Debentures: (i) failure for 30 days to pay interest
on the Convertible Subordinated Debentures, including any
Additional Interest, Compounded Interest and Liquidated Damages
in respect thereof, when due, provided that a valid extension of
an interest payment period will not constitute a default in the
payment of interest (including any Additional Interest,
Compounded Interest or Liquidated Damages) for this purpose; or
(ii) failure to pay principal of or premium, if any, on the
Convertible Subordinated Debentures when due whether at maturity,
upon redemption, by declaration or otherwise; or (iii) failure by
Continental to issue and deliver shares of Class B common stock
upon an election by a holder of Preferred Securities to convert
such Preferred Securities; or (iv) failure to observe or perform
any other covenant contained in the Indenture for 90 days after
notice to the Company by the Trustee or by the holders of not
less than 25% in aggregate outstanding principal amount of the
Convertible Subordinated Debentures; or (v) the dissolution,
winding up or termination of the Issuer, except in connection
with the distribution of Convertible Subordinated Debentures to
the holders of Preferred Securities in Liquidation of the Issuer
or in connection with certain mergers, consolidations or
amalgamations permitted by the Declaration; or (vi) certain
events in bankruptcy, insolvency or reorganization of
Continental.
The Indenture Trustee or the holders of not less than 25%
in aggregate principal amount of the outstanding Convertible
Subordinated Debentures may declare the principal of and interest
(including any Additional Interest, Compounded Interest and
Liquidated Damages) on the Convertible Subordinated Debentures
due and payable immediately on the occurrence of an Event of
Default with respect to the Convertible Subordinated Debentures;
provided, however, that, after such acceleration, but
before a judgment or decree based on acceleration, the holders of
a majority in aggregate principal amount of outstanding
Convertible Subordinated Debentures may, under certain
circumstances, rescind and annul such acceleration if all Events
of Default, other than the nonpayment of accelerated principal,
have been cured or waived as provided in the Indenture. For
information as to waiver of defaults, see "--Modification of
the Indenture."
A default under any other indebtedness of Continental or
the Trust would not constitute an Event of Default under the
Convertible Subordinated Debentures.
Subject to the provisions of the Indenture relating to the
duties of the Indenture Trustee in case an Event of Default with
respect to the Convertible Subordinated Debentures occurs and
is continuing, the Indenture Trustee will be under no
obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any holders of
Convertible Subordinated Debentures, unless such holders shall
have offered to the Indenture Trustee reasonable indemnity.
Subject to such provisions for the indemnification of the
Indenture Trustee, the holders of a majority in aggregate
principal amount of the outstanding Convertible Subordinated
Debentures will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to
the Indenture Trustee, or exercising any trust or power conferred
on the Indenture Trustee.
No holder of any Convertible Subordinated Debenture will
have any right to institute any proceeding with respect to the
Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Indenture Trustee written notice of
a continuing Event of Default with respect to the Convertible
Subordinated Debentures, and if the Issuer is not the sole
holder of Convertible Subordinated Debentures, unless the holders
of at least 25% in aggregate principal amount of the outstanding
Convertible Subordinated Debentures shall also have made written
request, and offered reasonable indemnity, to the Indenture
Trustee to institute such proceeding as Indenture Trustee, and
the Indenture Trustee shall not have received from the holders of
a majority in aggregate principal amount of the outstanding
Convertible Subordinated Debentures a direction inconsistent with
such request. However, such limitations do not apply to a suit
instituted by a holder of a Convertible Subordinated Debentures
for enforcement of payment of the principal of or interest
(including any Additional Interest, Compounded Interest and
Liquidated Damages) on such Convertible Subordinated Debenture on
or after the respective due dates expressed in such Convertible
Subordinated Debenture.
The holders of a majority in aggregate principal amount of
the outstanding Convertible Subordinated Debentures may, on
behalf of the holders of all the Convertible Subordinated
Debentures, waive any past default, except a default in the
payment of principal, premium, if any, or interest (including any
Additional Interest, Compounded Interest and Liquidated Damages)
on the Convertible Subordinated Debentures. However, while any of
the Preferred Securities are outstanding, the Indenture does not
permit the waiver of any Event of Default with respect to the
Convertible Subordinated Debentures without the consent of
holders of 66 2/3% in aggregate liquidation amount of the
Preferred Securities then outstanding.
The Property Trustee is the initial holder of the
Convertible Subordinated Debentures. An Event of Default with
respect to the Convertible Subordinated Debentures also
constitutes a Declaration Event of Default. The holders of
Preferred Securities in certain circumstances have the right to
direct the Property Trustee to exercise its rights as the holder
of the Convertible Subordinated Debentures . See "Description of
the Preferred Securities--Declaration Events of Default" and
"--Voting Rights." Notwithstanding the foregoing, if an Event of
Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or
principal on the Convertible Subordinated Debentures on the date
such interest or principal is otherwise payable (or in the case
of redemption, the redemption date), the Company acknowledges
that a holder of Preferred Securities may institute a Direct
Action for payment on or after the respective due date specified
in the Convertible Subordinated Debentures. Notwithstanding any
payments made to such holder of Preferred Securities by the
Company in connection with a Direct Action, the Company shall
remain obligated to pay the principal of or interest on the
Convertible Subordinated Debentures held by the Trust or the
Property Trustee of the Trust, and the Company shall be
subrogated to the rights of the holder of such Preferred
Securities with respect to payments on the Preferred Securities
to the extent of any payments made by the Company to such holder
in any Direct Action. The holders of Preferred Securities will
not be able to exercise directly any other remedy available to
the holders of the Convertible Subordinated Debentures.
Continental is required to file annually with the Indenture
Trustee and the Property Trustee a certificate as to whether or
not Continental is in compliance with all the conditions and
covenants under the Indenture.
Modification of the Indenture
The Indenture contains provisions permitting Continental
and the Indenture Trustee, with the consent of the holders of not
less than a majority in aggregate principal amount of the
outstanding Convertible Subordinated Debentures, to modify the
Indenture or the rights of the holders of Convertible
Subordinated Debentures; provided, however, that no such
modification may, without the consent of the holder of each
outstanding Convertible Subordinated Debenture affected thereby,
(i) extend the stated maturity of the Convertible Subordinated
Debentures or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon, or reduce
any premium payable upon the redemption thereof, or adversely
affect the right to convert Convertible Subordinated Debentures
or the subordination provisions of the Indenture, or (ii) reduce
the percentage in aggregate principal amount of outstanding
Convertible Subordinated Debentures, the holders of which are
required to consent to any such supplemental indenture.
In addition, Continental and the Indenture Trustee may
execute, without the consent of any holder of Convertible
Subordinated Debentures, any supplemental indenture to cure any
ambiguities, comply with the Trust Indenture Act and for certain
other customary purposes.
Governing Law
The Indenture and the Convertible Subordinated Debentures
are governed by, and construed in accordance with, the laws of
the State of New York.
Information Concerning the Indenture Trustee
The Indenture Trustee, prior to default, undertakes to
perform only such duties as are specifically set forth in the
Indenture and, after default, shall exercise the same degree of
care as a prudent individual would exercise in the conduct of his
or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers
vested in it by the Indenture at the request of any holder of
Convertible Subordinated Debentures, unless offered reasonable
indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Indenture
Trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance
of its duties if the Indenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
Book-Entry and Settlement
If distributed to holders of Preferred Securities in
connection with the involuntary or voluntary dissolution,
winding-up or liquidation of the Trust as a result of the
occurrence of a Tax Event, the Convertible Subordinated
Debentures will be issued in the form of one or more global
certificates (each a "Global Security") registered in the name of
the depositary or its nominee. Except under the limited
circumstances described below, Convertible Subordinated
Debentures represented by Global Securities will not be
exchangeable for, and will not otherwise be issuable as,
Convertible Subordinated Debentures in definitive form. The
Global Securities described above may not be transferred except
by the depositary to a nominee of the depositary or by a nominee
of the depositary to the depositary or another nominee of the
depositary or to a successor depositary or its nominee.
The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such
securities in definitive form. Such laws may impair the ability
to transfer beneficial interests in such a Global Security.
Except as provided below, owners of beneficial interests in
such a Global Security will not be entitled to receive physical
delivery of Convertible Subordinated Debentures in definitive
form and will not be considered the holders (as defined in the
Indenture) thereof for any purpose under the Indenture, and no
Global Security representing Convertible Subordinated Debentures
shall be exchangeable, except for another Global Security of like
denomination and tenor to be registered in the name of the
Depositary or its nominee or to a successor Depositary or its
nominee. Accordingly, each Beneficial Owner must rely on the
procedures of the Depositary or 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 Indenture.
The Depositary
If Convertible Subordinated Debentures are distributed to
holders of Preferred Securities in liquidation of such holders'
interests in the Trust, DTC will act as securities depositary for
the Convertible Subordinated Debentures. For a description of DTC
and the specific terms of the depositary arrangements, see
"Description of the Preferred Securities--Book-entry-only
Issuance--The Depository Trust Company." As of the date of this
Prospectus, the description therein of DTC's book-entry
system and DTC's practices as they relate to purchases,
transfers, notices and payments with respect to the Preferred
Securities apply in all material respects to any debt obligations
represented by one or more Global Securities held by DTC.
Continental may appoint a successor to DTC or any successor
depositary in the event DTC or such successor depositary is
unable or unwilling to continue as a depository for the Global
Securities.
None of Continental, the Trust, the Indenture Trustee, any
paying agent and any other agent of Continental or the Indenture
Trustee will have any responsibility or liability for any aspect
of the records relating to or payments made on account of
beneficial ownership interests in a Global Security for such
Convertible Subordinated Debentures or for maintaining,
supervising or reviewing any records relating to such beneficial
ownership interests.
Discontinuance of the Depositary's Services
A Global Security shall be exchangeable for Convertible
Subordinated Debentures registered in the names of persons other
than the Depositary or its nominee only if (i) the Depositary
notifies Continental that it is unwilling or unable to continue
as a depositary for such Global Security and no successor
depositary shall have been appointed, (ii) the Depositary, at any
time, ceases to be a clearing agency registered under the
Exchange Act at which time the Depositary is required to be so
registered to act as such depositary and no successor depositary
shall have been appointed, (iii) Continental, in its sole
discretion, determines that such Global Security shall be so
exchangeable or (iv) there shall have occurred an Event of
Default with respect to such Convertible Subordinated Debentures.
Any Global Security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for Convertible
Subordinated Debentures registered in such names as the
Depositary shall direct. It is expected that such instructions
will be based upon directions received by the Depositary from its
Participants with respect to ownership of beneficial interests in
such Global Security.
Miscellaneous
The Indenture provides that Continental will pay all debts
and obligations (other than with respect to the Trust Securities)
and all costs and expenses of the Trust, including, but not
limited to, the fees and expenses of the Continental Trustees and
any taxes and the costs and expenses with respect thereto, to
which the Trust may become subject, except for United States
withholding taxes.
EFFECT OF OBLIGATIONS UNDER THE CONVERTIBLE SUBORDINATED
DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the
Trust is to issue the Trust Securities evidencing undivided
beneficial interests in the assets of the Trust, and to invest
the proceeds from such issuance and sale in the Convertible
Subordinated Debentures.
As long as payments of interest and other payments are made
when due on the Convertible Subordinated Debentures, such
payments will be sufficient to cover distributions and payments
due on the Trust Securities because of the following factors: (i)
the aggregate principal amount of Convertible Subordinated
Debentures will be equal to the sum of the aggregate stated
liquidation amount of the Trust Securities; (ii) the interest
rate and the interest and other payment dates on the Convertible
Subordinated Debentures will match the distribution rate and
distribution and other payment dates for the Preferred
Securities; (iii) Continental shall pay all, and the Trust shall
not be obligated to pay, directly or indirectly, any costs or
expenses of the Trust; and (iv) the Declaration further provides
that the Continental Trustees shall not cause or permit the Trust
to, among other things, engage in any activity that is not
consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are
available) and other payments due on the Preferred Securities (to
the extent funds therefor are available) are guaranteed by
Continental as and to the extent set forth under "Description of
the Guarantee." If Continental does not make interest payments on
the Convertible Subordinated Debentures purchased by the Trust, it
is expected that the Trust will not have sufficient funds to pay
distributions on the Preferred Securities. The Guarantee does not
apply to any payment of distributions unless and until the Trust
has sufficient funds for the payment of such distributions. The
Guarantee covers the payment of distributions and other payments
on the Preferred Securities only if and to the extent that the
Company has made a payment of interest or principal on the
Convertible Subordinated Debentures held by the Trust as its sole
asset.
If Continental fails to make interest or other payments on
the Convertible Subordinated Debentures when due (taking into
account any Extension Period), the Declaration provides a
mechanism whereby the holders of the Preferred Securities, using
the procedures described in "Description of the Preferred
Securities--Voting Rights," may direct the Property Trustee to
enforce its rights under the Convertible Subordinated Debentures,
including proceeding directly against Continental to enforce the
Convertible Subordinated Debentures. If the Indenture Trustee
fails to enforce its rights under the Convertible Subordinated
Debentures, a holder of Preferred Securities may institute a
legal proceeding directly against Continental to enforce the
Indenture Trustee's rights under the Convertible Subordinated
Debentures without first instituting any legal proceeding against
the Indenture Trustee or any other person or entity, including
the Trust. Notwithstanding the foregoing, if a Declaration Event
of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or
principal on the Convertible Subordinated Debentures on the date
such interest or principal is otherwise payable (or in the case
of redemption, the redemption date), then a holder of Preferred
Securities may directly institute a proceeding for enforcement
of payment to such holder of the principal of or interest on
the Convertible Subordinated Debentures having a principal amount
equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date
specified in the Convertible Subordinated Debentures. In
connection with such Direct Action, the Company will be
subrogated to the rights of such holder of Preferred Securities
under the Declaration to the extent of any payment made by the
Company to such holder of Preferred Securities. If the Company
fails to make payments under the Guarantee, the Guarantee
provides a mechanism whereby the holders of the Preferred
Securities may direct the Guarantee Trustee to enforce its
rights thereunder. Any holder of Preferred Securities may
institute a legal proceeding directly against the Company
to enforce the Guarantee Trustee's rights under the
Guarantee without first instituting a legal proceeding against
the Trust, the Guarantee Trustee or any other person or entity.
The Guarantee, when taken together with the Company's
obligations under the Convertible Subordinated Debentures and the
Indenture and its obligations under the Declaration, including
its obligations to pay costs, expenses, debts and liabilities of
the Trust (other than with respect to the Trust Securities),
provides a full and unconditional guarantee by the Company of
amounts due on the Preferred Securities. See "Description of the
Guarantee--General."
Continental's obligations under the Declaration, the
Guarantee, the Indenture and the Convertible Subordinated
Debentures, in the aggregate provides a full and unconditional
guarantee on a subordinated basis by Continental of payments due
on the Preferred Securities. See "Description of the
Guarantee--General" and "Description of the Convertible
Subordinated Debentures--Events of Default."
DESCRIPTION OF CAPITAL STOCK
The current authorized capital stock of the Company
consists of 50,000,000 shares of Class A common stock,
200,000,000 shares of Class B common stock and 50,000,000 shares
of Class D common stock (the "Class D Common Stock") (such
classes of common stock referred to collectively as the "common
stock"), and 10,000,000 shares of preferred stock, $.01 par value
(the "Preferred Stock"). On June 26, 1996, the Company announced
a 2-for-1 stock split with respect to the Company's Class A
common stock and Class B common stock, which was distributed on
July 16, 1996 to stockholders of record as of July 2, 1996. As
of June 30, 1996 and after giving effect to such stock split,
there were 9,280,000 outstanding shares of Class A common stock,
46,631,326 outstanding shares of Class B common stock and 421,717
outstanding shares of Series A 12% Cumulative Preferred Stock.
Pursuant to the Reorganization, on April 27, 1993 the
Company issued 1,900,000 shares of Class A common stock and
5,042,368 shares of Class B common stock to a distribution agent
for the benefit of the Company's general unsecured nonpriority
prepetition creditors ("Prepetition Creditors"). As of June 30,
1996, there remained 582,906 shares of Class A common stock and
1,524,548 shares of Class B common stock (after giving effect to
the recent 2-for-1 stock split), and approximately $1 million of
cash available for distribution. Pending resolution of certain
disputed claims, a distribution agent will continue to hold
undistributed Class A common stock and Class B common stock and
will vote such shares of each class pro rata in accordance with
the vote of all other shares of such class on any matter
submitted to a vote of stockholders. Also pursuant to the
Reorganization, the Company issued 493,621 shares of Class B
common stock to its retirement plan.
The following summary description of capital stock
accurately describes the material matters with respect thereto,
but is not intended to be complete and reference is made to the
provisions of the Company's Certificate of Incorporation and
Bylaws and the agreements referred to in this summary
description. As used in this section, except as otherwise stated
or required by context, each reference to Air Canada or Air
Partners includes any successor by merger, consolidation or
similar transaction and any wholly owned subsidiary of such
entity or such successor.
Common Stock--All Classes
Holders of common stock of all classes participate ratably
as to any dividends or distributions on the common stock, except
that dividends payable in shares of common stock, or securities
to acquire common stock, are paid in common stock, or securities
to acquire common stock, of the same class as that upon which the
dividend or distribution is being paid. Upon any liquidation,
dissolution or winding up of the Company, holders of common stock
of all outstanding classes are entitled to share ratably the
assets of the Company available for distribution to the
stockholders, subject to the prior rights of holders of any
outstanding Preferred Stock. Holders of common stock have no
preemptive, subscription, conversion or redemption rights (other
than the conversion rights of holders of Class A common stock
described under "--Class B Common Stock and Class A Common Stock"
and the anti-dilution rights described under "--Corporate
Governance and Control"), and are not subject to further calls or
assessments. Holders of common stock have no right to cumulate
their votes in the election of directors. All classes of common
stock vote together as a single class, subject to the right to a
separate class vote in certain instances required by law and to
the rights of holders of Class D common stock to vote separately
as a class to elect directors as described under "--Special
Classes of Common Stock."
Class B Common Stock and Class A Common Stock
The holders of Class B common stock are entitled to one
vote per share, and the holders of Class A common stock are
entitled to ten votes per share, on all matters submitted to a
vote of stockholders, except that voting rights of non-U.S.
citizens are limited as set forth below under "--Limitation on
Voting by Foreign Owners" and no holder of Class D common stock
can vote any of its Class B common stock for the election of
directors (see "--Special Classes of Common Stock").
Air Canada and Air Partners owned as of May 31, 1996 in the
aggregate approximately 19.8% of the outstanding Class A common
stock and Class B common stock, representing approximately 43.3%
of total voting power (after conversion by Air Canada of its
Class A common stock into Class B common stock, but excluding the
exercise of warrants held by Air Partners) and Air Partners has
warrants to acquire an additional 6,765,264 shares of Class B
common stock and 3,039,468 of Class A common stock (together
representing approximately 21% of total voting power, assuming
exercise of such warrants).
At any time after January 1, 1997 shares of Class A common
stock will become freely convertible into an equal number of
shares of Class B common stock. Because the Class A common stock
has ten votes per share and the Class B common stock has one vote
per share, any such conversion would effectively increase the
relative voting power of those Class A stockholders who do not
convert.
Limitation on Voting by Foreign Owners
The Company's Certificate of Incorporation defines "Foreign
Ownership Restrictions" as "applicable statutory, regulatory and
interpretive restrictions regarding foreign ownership or control
of U.S. air carriers (as amended or modified from time to time)."
Such restrictions currently require that no more than 25% of the
voting stock of the Company be owned or controlled, directly or
indirectly, by persons who are not U.S. Citizens ("Foreigners")
for purposes of the Foreign Ownership Restrictions, and that the
Company's president and at least two-thirds of its other managing
officers and directors be U.S. Citizens. For purposes of the
Certificate of Incorporation, "U.S. Citizen" means (i) an
individual who is a citizen of the United States; (ii) a
partnership each of whose partners is an individual who is a
citizen of the United States; or (iii) a corporation or
association organized under the laws of the United States or a
State, the District of Columbia, or a territory or possession of
the United States, of which the president and at least two-thirds
of the board of directors and other managing officers are
citizens of the United States, and in which at least 75% of the
voting interest is owned or controlled by persons that are
citizens of the United States. The Certificate of Incorporation
provides that no shares of capital stock may be voted by or at
the direction of Foreigners, unless such shares are registered on
a separate stock record (the "Foreign Stock Record") maintained
by the Company for the registration of ownership of voting stock
by Foreigners. The Company's Bylaws further provide that no
shares will be registered on the Foreign Stock Record if the
amount so registered would exceed the Foreign Ownership
Restrictions or adversely affect the Company's operating
certificates or authorities. Registration on the Foreign Stock
Record is made in chronological order based on the date the
Company receives a written request for registration, except that
certain shares acquired by Air Partners in connection with its
original investment in the Company that are subsequently
transferred to any Foreigner are entitled to be registered prior
to, and to the exclusion of, other shares. Shares currently owned
by Air Canada and registered on the Foreign Stock Record
constitute a portion of the shares that may be voted by
Foreigners under the Foreign Ownership Restrictions.
Corporate Governance and Control
Board of Directors
The Certificate of Incorporation provides that the
Company's Board of Directors shall consist of such number of
directors as may be determined from time to time by the Board of
Directors in accordance with the Bylaws. The Board of Directors
currently consists of twelve directors to be elected by holders
of common stock, subject to the rights of holders of preferred
stock to elect additional directors as set forth in any preferred
stock designation.
Business Combinations
The Certificate of Incorporation provides that the Company
is not governed by Section 203 of the General Corporation Law of
Delaware that, in the absence of such provisions, would have
imposed additional requirements regarding mergers and other
business combinations.
Anti-dilution Rights of Air Partners
Pursuant to the Certificate of Incorporation, Air Partners
has the right to purchase from the Company additional shares of
Class B common stock to the extent necessary to maintain its pro
rata ownership of the outstanding Class B common stock. Such
anti-dilution rights terminate as to Air Partners if the total
voting power of the common stock beneficially owned by it is less
than 20% of the total voting power of all of the outstanding
common stock. Because Air Partners currently does not own any
Class B common stock, such anti-dilution rights are not
operative.
Procedural Matters
The Company's Bylaws require stockholders seeking to
nominate directors or propose other matters for action at a
stockholders' meeting to deliver notice thereof to the Company
certain specified periods in advance of the meeting and to follow
certain other specified procedures.
Change in Control
The cumulative effect of the provisions of the Certificate
of Incorporation and Bylaws referred to under this heading
"Description of Capital Stock," and the Stockholders' Agreement
is to maintain certain rights of the Air Partners to elect
directors and otherwise to preserve its relative ownership and
voting positions. These provisions may have the effect of
delaying, deferring or preventing a change in control of the
Company.
Special Class of Common Stock
The Certificate of Incorporation authorizes Class D
common stock as a mechanism to provide, under certain
circumstances, a specified level of Board representation
for Air Partners. No shares of Class D common stock are
currently outstanding, and they may only be issued in limited
circumstances upon conversion of Class A common stock
held by Air Partners. Air Partners has the option, which
may be exercised only once, to convert all (but not less than
all) shares of Class A common stock held by it into an equal
number of shares of Class D common stock. Such right of
conversion is further conditioned upon Air Partners' holding
common stock having at least 20% of the total voting power of all
classes of common stock.
After such conversion, Air Partners is entitled to elect
one-third of the number of directors determined by the Board of
Directors pursuant to the Bylaws (rounded to the nearest whole
number), voting as a separate class. When shares of Class D
common stock are outstanding, Air Partners may not vote any of
its shares of Class B common stock for the election of directors;
and if Air Partners becomes the beneficial owner of any
additional shares of Class A common stock during such time, such
shares will automatically be converted into Class D common stock.
Each share of Class D common stock has ten votes and, as to
matters other than the election of directors, votes together with
all other classes of common stock as a single class. In the event
the voting power of all common stock held by Air Partners
represents less than 20% of the voting power of all classes of
common stock, all Class D common stock held by Air Partners will
automatically convert into an equal number of shares of Class A
common stock. Shares of Class D common stock also convert
automatically into an equal number of shares of Class A common
stock upon the transfer of record or beneficial ownership of such
Class D common stock to any person other than certain related
parties of the original holder. Air Partners may also at any time
voluntarily convert all (but not less than all) shares of Class D
common stock held by it into an equal number of shares of Class A
common stock. All shares of Class D common stock surrendered by
Air Partners for conversion into Class A common stock will be
canceled and may not be reissued.
Redeemable Preferred Stock
The Company has authorized and issued a class of preferred
stock, designated as Series A 12% Cumulative Preferred Stock.
Holders of the Series A 12% Preferred are entitled to
receive, when, as and if declared by the Board of Directors,
cumulative dividends payable quarterly in additional shares of
such preferred stock for dividends accumulating through December
31, 1996. Thereafter dividends are payable in cash at an annual
rate of $12 per share; provided, however, that to the extent net
income (as defined in the certificate of designation for the
preferred stock) for any calendar quarter is less than the amount
of dividends due on all outstanding shares of the Series A 12%
Preferred for such quarter, the Board of Directors may declare
dividends payable in additional shares of Series A 12% Preferred
in lieu of cash. At any time, the Company may redeem, in whole or
in part, on a pro rata basis among the stockholders, any
outstanding shares of the Series A 12% Preferred. All outstanding
shares of the Series A 12% Preferred are mandatorily redeemable
on April 27, 2003 out of legally available funds. The redemption
price is $100 per share plus accrued and unpaid dividends. Shares
of the Series A 12% Preferred are not convertible into shares of
common stock and such shares do not have voting rights, except
under limited circumstances described in the following two
paragraphs. Shares of the Series A 12% Preferred have a
liquidation preference of $100 per share plus accrued and unpaid
dividends, senior to any distribution on shares of common stock.
In the event the Company violates certain covenants set
forth in the certificate of designation relating to the Series A
12% Preferred, or fails to pay the full amount of dividends on
the preferred stock for nine consecutive quarterly payment dates
or shall not have redeemed the preferred stock within five days
of the date of any redemption of which the Company has given, or
is required to give, notice (a "Default"), the holders of the
Series A 12% Preferred as to which a Default exists, voting
(subject to the Foreign Ownership Restrictions) together as one
class, are entitled to elect one member of the Board of
Directors. In the event the Company pays in full all dividends
accrued on the preferred stock for three consecutive payment
dates following such Default (and no dividend arrearages exist as
to such stock), or otherwise cures any other default that gives
rise to such voting rights, the holders of the Series A 12%
Preferred will cease to have the right to elect a director.
The consent or approval of the holders of a majority of the
then-outstanding shares of Series A 12% Preferred is required for
the creation of certain classes of senior or parity stock,
certain mergers or sales of substantially all of the Company's
assets, the voluntary liquidation or dissolution of the Company
and amendments to the terms of the preferred stock that would
adversely affect the Series A 12% Preferred.
The Board of Directors of the Company has the authority,
without any vote by the stockholders, to issue additional shares
of preferred stock, up to the number of shares authorized in the
Certificate of Incorporation, as it may be amended from time to
time, in one or more series, and to fix the number of shares
constituting any such series, the designations, preferences and
relative rights and qualifications of such series, including the
voting rights, dividend rights, dividend rate, terms of
redemption (including sinking fund provisions), redemption price
or prices, conversion rights and liquidation preferences of the
shares constituting any series.
Limitation of Director Liability and Indemnification
The Company's Certificate of Incorporation provides, to the
fullest extent permitted by Delaware law as it may from time to
time be amended, that no director shall be liable to the Company
or any stockholder for monetary damages for breach of fiduciary
duty as a director. As required under current Delaware law, the
Company's Certificate of Incorporation and Bylaws provide that
such waiver may not apply to liability (i) for any
breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation
Law (governing distributions to stockholders), or (iv) for any
transaction from which the director derived any improper personal
benefit. However, in the event the Delaware General Corporation
Law is amended to authorize corporate action further eliminating
or limiting the personal liability of directors, then the
liability of a director of the Company shall be eliminated or
limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. The Certificate of Incorporation
further provides that the Company will indemnify each of its
directors and officers to the full extent permitted by Delaware
law and may indemnify certain other persons as authorized by law.
The foregoing provisions do not eliminate any monetary liability
of directors under the federal securities laws.
SHARES ELIGIBLE FOR FUTURE SALE
As of June 30, 1996 (except as described below), Continental
had a total of 9,280,000 shares of Class A common stock and 46,631,326
shares of Class B common stock outstanding. As of such date,
approximately 582,906 shares of Class A common stock and
approximately 1,524,548 shares of Class B common stock were held in
trust by a distribution agent pending resolution of certain disputed
claims and subsequent distribution to, or sale for the benefit of,
Prepetition Creditors. Upon distribution to Prepetition Creditors,
these shares will also be freely tradable. An independent investment
manager has discretion over the continued holding or sale of the 100,000
shares of Class B common stock held in trust for the benefit of the
Company's retirement plan. All of the above numbers of shares of Class A
common stock and Class B common stock give effect to the 2-for-1 stock
split announced by Continental on June 26, 1996 and payable on July 16,
1996 to holders of record of Continental's Class A common stock and
Class B common stock on July 2, 1996.
Shares of Class A common stock and Class B common stock held by
Air Partners and Air Canada are "restricted" securities within the
meaning of Rule 144 under the Securities Act and may not be sold in
the absence of registration under the Securities Act, unless an
exemption from registration is available, including the exemption
provided by Rule 144. The Company has granted Air Partners and
Air Canada extensive demand and incidental registration rights to
have their common stock registered under the Securities Act in
connection with proposed sales of such stock. Each of Air Canada
and Air Partners have entered into agreements with Continental
restricting, prior to December 16, 1996, the disposition of
Continental stock held by either of them. Air Canada has
indicated its intention to dispose of its remaining equity
interest in the Company by early 1997, subject to market
conditions. See "Recent Developments."
UNITED STATES TAXATION
General
This section is a summary of the material United States
federal income tax considerations that may be relevant to the
purchasers of Preferred Securities and represents the opinion of
Cleary, Gottlieb, Steen & Hamilton, special counsel to
Continental and the Trust, insofar as it relates to matters of
law and legal conclusions. The conclusions expressed herein are
based upon current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), regulations thereunder and current
administrative rulings and court decisions, all of which are
subject to change. Subsequent changes may cause tax consequences
to vary substantially from the consequences described below.
No attempt has been made in the following discussion to
comment on all United States federal income tax matters affecting
purchasers of Preferred Securities. Moreover, the discussion
generally focuses on holders of Preferred Securities who are
individual citizens or residents of the United States and who
hold Preferred Securities as capital assets. This discussion has
only limited application to dealers in securities, corporations,
estates, trusts or nonresident aliens. Accordingly, each
prospective purchaser of Preferred Securities should consult, and
should rely exclusively on, the purchaser's own tax advisor in
analyzing the federal, state, local and foreign tax consequences
of the purchase, ownership or disposition of Preferred
Securities.
Classification of the Convertible Subordinated Debentures
With respect to the Convertible Subordinated Debentures,
Cleary, Gottlieb, Steen & Hamilton, special counsel to
Continental and the Trust, has rendered its opinion generally
to the effect that, under then current law and assuming
full compliance with the terms of the Indenture (and
certain other documents), and based on certain facts and
assumptions contained in such opinion, the Convertible
Subordinated Debentures held by the Trust are classified for
United States federal income tax purposes as indebtedness of
Continental.
Classification of the Trust
With respect to the Preferred Securities, Cleary, Gottlieb,
Steen & Hamilton, special counsel to Continental and the Trust,
has rendered its opinion generally to the effect that, under then
current law and assuming full compliance with the terms of the
Declaration and the Indenture (and certain other documents), the
Trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as
a corporation. Accordingly, for United States federal income tax
purposes, each holder of Preferred Securities generally will be
considered the owner of an undivided interest in the Convertible
Subordinated Debentures, and each holder will be required to
include in its gross income any original issue discount ("OID")
accrued with respect to its allocable share of the Convertible
Subordinated Debentures.
Potential Extension of Interest Payment Period and Original Issue
Discount
Because Continental has the option, under the terms of the
Convertible Subordinated Debentures, to defer payments of
interest by extending interest payment periods for up to 20
quarters, all of the stated interest payments on the Convertible
Subordinated Debentures will be treated as "original issue
discount." Holders of debt instruments issued with OID must
include that discount in income on an economic accrual basis
before the receipt of cash attributable to the interest,
regardless of their method of tax accounting. Generally, all of a
holder's taxable interest income with respect to the Convertible
Subordinated Debentures will be accounted for as OID. Actual
payments and distributions of stated interest will not, however,
be separately reported as taxable income. The amount of OID that
accrues in any quarter will approximately equal the amount of the
interest that accrues on the Convertible Subordinated Debentures
in that quarter at the stated interest rate. In the event that
the interest payment period is extended, holders will continue to
accrue OID approximately equal to the amount of the interest
payment due at the end of the extended interest payment period on
an economic accrual basis over the length of the extended
interest payment period.
Because income on the Preferred Securities will constitute
OID, corporate holders of Preferred Securities will not be
entitled to a dividends-received deduction with respect to any
income recognized with respect to the Preferred Securities.
Market Discount and Acquisition Premium
Holders of Preferred Securities other than a holder who
purchased the Preferred Securities upon original issuance may be
considered to have acquired their undivided interests in the
Convertible Subordinated Debentures with market discount or
acquisition premium as such phrases are defined for United States
federal income tax purposes. Such holders are advised to consult
their tax advisors as to the income tax consequences of the
acquisition, ownership and disposition of the Preferred
Securities.
Receipt of the Convertible Subordinated Debentures or Cash Upon
Liquidation of the Trust
Under certain circumstances, as described under
"Description of the Preferred Securities--Tax Event or Investment
Company Event Redemption or Distribution," the Convertible
Subordinated Debentures may be distributed to holders of
Preferred Securities upon a liquidation of the Trust. Under
current United States federal income tax law, such a distribution
would be treated as a nontaxable exchange to each such holder and
would result in such holder having an aggregate tax basis in the
Convertible Subordinated Debentures received in the liquidation
equal to such holder's aggregate tax basis in the Preferred
Securities immediately before the distribution. A holder's
holding period in the Convertible Subordinated Debentures so
received in liquidation of the Trust would include the period for
which such holder held the Preferred Securities. If, however,
a Tax Event occurs which results in the Trust being treated
as an association taxable as a corporation, the distribution
would likely constitute a taxable event to holders
of the Preferred Securities. Under certain circumstances
described herein (see "Description of the Preferred Securities"),
the Convertible Subordinated Debentures may be redeemed for cash
and the proceeds of such redemption distributed to holders in
redemption of their Preferred Securities. Under current law, such
a redemption would, for United States federal income tax
purposes, constitute a taxable disposition of the redeemed
Preferred Securities, and a holder would recognize gain or loss
as if it sold such redeemed Preferred Securities for cash. See
"--Disposition of Preferred Securities."
Disposition of Preferred Securities
A holder that sells Preferred Securities will recognize
gain or loss equal to the difference between the amount realized
on the sale of the Preferred Securities and the holder's adjusted
tax basis in such Preferred Securities. A holder's adjusted tax
basis in the Preferred Securities generally will be its initial
purchase price increased by OID previously includible in such
holder's gross income to the date of disposition and decreased by
payments received on the Preferred Securities to the date of
disposition. Such gain or loss will be a capital gain or loss and
will be a long-term capital gain or loss if the Preferred
Securities have been held for more than one year at the time of
sale.
The Preferred Securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest with
respect to the underlying Convertible Subordinated Debentures. A
holder that disposes of or converts his Preferred Securities
between record dates for payments of distributions thereon will
be required to include accrued but unpaid interest on the
Convertible Subordinated Debentures through the date of
disposition in income as ordinary income, and to add such amount
to his adjusted tax basis in his pro rata share of the underlying
Convertible Subordinated Debentures deemed disposed of. To the
extent the selling price is less than the holder's adjusted tax
basis (which basis will include, in the form of OID, all accrued
but unpaid interest), a holder will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal
income tax purposes.
Exchange of Preferred Securities for Continental Class B Common
Stock
A holder of Preferred Securities will not recognize gain or
loss upon the exchange, through the Conversion Agent, of
Preferred Securities for a proportionate share of the Convertible
Subordinated Debentures held by the Trust.
A holder of Preferred Securities will not recognize gain or
loss upon the conversion, through the Conversion Agent, of the
Convertible Subordinated Debentures into Continental Class B
common stock. A holder of Preferred Securities will, however,
recognize gain upon the receipt of cash in lieu of a fractional
share of Continental Class B common stock equal to the amount of
cash received less such holder's tax basis in such fractional
share. The tax basis of a holder of Preferred Securities in
Continental Class B common stock received upon exchange and
conversion should generally be equal to such holder's tax basis
in the Preferred Securities delivered to the Conversion Agent for
exchange less the basis allocated to any fractional share for
which cash is received and such holder's holding period in
Continental Class B common stock generally begin on the date the
holder of the Preferred Securities acquired the Preferred
Securities delivered to the Conversion Agent for exchange.
Adjustment of the Conversion Price
Treasury Regulations promulgated under Section 305 of the
Code would treat holders of Preferred Securities as having
received a constructive distribution from Continental in the
event the conversion ratio of the Convertible Subordinated
Debentures were adjusted if (i) as a result of such adjustment,
the proportionate interest (measured by the quantum of
Continental Class B common stock into which the Convertible
Subordinated Debentures is convertible) of the holders of the
Preferred Securities in the assets or earnings and profits of
Continental were increased, and (ii) the adjustment was not made
pursuant to a bona fide, reasonable antidilution formula. An
adjustment in the conversion ratio would not be considered made
pursuant to such a formula if the adjustment were made to
compensate for certain taxable distributions with respect to
Continental Class B common stock. Thus, under certain
circumstances, a reduction in the conversion price for the
holders of Preferred Securities may result in deemed dividend
income to such holders to the extent of the current or
accumulated earnings and profits of Continental. Holders of
Preferred Securities would be required to include their allocable
share of such deemed dividend income in gross income but would
not receive any cash related thereto. Corporate holders of
Preferred Securities may be eligible for a dividends received
deduction with respect to such amount. In addition, the holders
of the Preferred Securities will receive a basis increase with
respect to the Convertible Subordinated Debentures and the
Preferred Securities in an amount equal to such deemed dividend.
Effect of Proposed Changes in Tax Laws
The Clinton Administration has proposed statutory changes
in the Federal income tax rules relating to financial
instruments. Under one such proposal, debt with a maximum
maturity of more than 20 years that is not shown as debt on the
applicable balance sheet of the issuer would be characterized as
equity of the issuer, with the result that interest would be
nondeductible to the issuer. If this proposal were enacted and
applied to the Preferred Securities, a Tax Event would occur.
The Company has been advised by counsel that, under certain
transition rules contained in the proposed legislation, the
Preferred Securities would not be subject to such legislation.
Moreover, the Chairman of the House Ways and Means Committee and
the Senate Finance Committee, as well as the Ranking Minority
Members of the House Ways and Means Committee, have publicly
indicated that the proposals, if enacted, would not apply prior to
the date of "appropriate Congressional action." Thus, the
Company believes such proposed legislation, if ultimately
enacted, will not apply to the Preferred Securities.
Nevertheless, no absolute assurance can be given in this regard.
United States Alien Holders
For purposes of this discussion, a "United States Alien
Holder" is any holder that is (i) a nonresident alien individual
or (ii) a foreign corporation, partnership or estate or trust, in
either case not subject to United States federal income tax on a
net income basis in respect of Preferred Securities.
Under current United States federal income tax law, subject
to the discussion below with respect to backup withholding:
(i) payments by the Trust or any of its paying agents to
any holder of Preferred Securities that is a United States Alien
Holder should not be subject to United States federal withholding
tax provided that (a) the beneficial owner of the Preferred
Securities does not actually or constructively (including by
virtue of its interest in the underlying Convertible Subordinated
Debentures) own 10% or more of the total combined voting power of
all classes of stock of Continental entitled to vote, (b) the
beneficial owner of the Preferred Securities is not a controlled
foreign corporation that is related to Continental through stock
ownership, and (c) either (x) the beneficial owner of the
Preferred Securities certifies to the Trust or its agent, under
penalties of perjury, that it is a United States Alien Holder and
provides its name and address or (y) the holder of the Preferred
Securities is a securities clearing organization, bank or other
financial institution that holds customers' securities in the
ordinary course of its trade or business (a "Financial
Institution"), and such holder certifies to the Trust or its
agent, under penalties of perjury, that such statement has been
received from the beneficial owner by it or by a Financial
Institution between it and the beneficial owner and furnishes the
Trust or its agent with a copy thereof; and
(ii) a United States Alien Holder of Preferred Securities
who is a natural person generally should not be subject to United
States federal withholding tax on any gain realized on the sale
or exchange of Preferred Securities unless such holder is present
in the United States for 183 days or more in the taxable year of
sale and either has a "tax home" in the United States or certain
other requirements are met.
In the event that Preferred Securities were characterized
as stock or other equity of Continental, payments to a holder
could be characterized as dividends and subject to a 30%
withholding tax or such lesser amount as may be provided under an
applicable treaty. If a United States Alien Holder is treated as
receiving a deemed dividend as a result of an adjustment of the
conversion price of the Convertible Subordinated Debentures, as
described above under "--Adjustment of the Conversion Price,"
such deemed dividend will be subject to a 30% withholding tax (or
a lesser amount under an applicable treaty).
Backup Withholding and Information Reporting
Subject to the qualifications discussed below, income on
the Preferred Securities will be reported to holders on Forms
1099, which forms should be mailed to holders of Preferred
Securities by January 31 following each calendar year.
The Trust will be obligated to report annually to Cede &
Co., as holder of record of the Preferred Securities, the OID
related to the Convertible Subordinated Debentures that accrued
during the year. The Trust currently intends to report such
information on Form 1099 prior to January 31 following each
calendar year even though the Trust is not legally required to
report to record holders until April 15 following each calendar
year. The Initial Purchasers have indicated to the Trust that, to
the extent that they hold Preferred Securities as nominees for
beneficial holders, they currently expect to report to such
beneficial holders on Forms 1099 by January 31 following each
calendar year. Under current law, holders of Preferred Securities
who hold as nominees for beneficial holders will not have any
obligation to report information regarding the beneficial holders
to the Trust. The Trust, moreover, will not have any obligation
to report to beneficial holders who are not also record holders.
Thus, beneficial holders of Preferred Securities who hold their
Preferred Securities through the Initial Purchasers will receive
Forms 1099 reflecting the income on their Preferred Securities
from such nominee holders rather than the Trust.
Payments made on, and proceeds from the sale of, the
Preferred Securities may be subject to a "backup" withholding tax
of 31% unless the holder complies with certain identification
requirements. Any withheld amounts will be allowed as a credit
against the holder's United States federal income tax, provided
the required information is provided to the Internal Revenue
Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH
ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE
APPLICABLE DEPENDING UPON THE PARTICULAR SITUATION OF A HOLDER OF
PREFERRED SECURITIES. HOLDERS OF PREFERRED SECURITIES SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES
TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code ("Plans"), may purchase
Preferred Securities, subject to the investing fiduciary's
determination that the investment in Preferred Securities
satisfies ERISA's fiduciary standards and other requirements
applicable to investments by the Plan.
In any case, Continental and/or any of its affiliates may
be considered a "party in interest" (within the meaning of ERISA)
or a "disqualified person" (within the meaning of Section 4975 of
the Code) with respect to certain plans (generally, Plans
maintained or sponsored by, or contributed to by, any such
persons). The acquisition and ownership of Preferred Securities
by a Plan (or by an individual retirement arrangement or other
Plans described in Section 4975(e)(1) of the Code) with respect
to which Continental or any of its affiliates is considered a
party in interest or a disqualified person, may constitute or
result in a prohibited transaction under ERISA or Section 4975 of
the Code, unless such Preferred Securities are acquired pursuant
to and in accordance with an applicable exemption.
As a result, Plans with respect to which Continental or any
of its affiliates is a party in interest or a disqualified person
should not acquire Preferred Securities unless such Preferred
Securities are acquired pursuant to and in accordance with an
applicable exemption. Any other Plans or other entities whose
assets include Plan assets subject to ERISA or Section 4975 of
the Code proposing to acquire Preferred Securities should consult
with their own counsel.
SELLING HOLDERS
The Preferred Securities were originally issued by the Trust
and sold by Merrill Lynch, Pierce, Fenner & Smith Incorporated,
CS First Boston Corporation, Donaldson, Lufkin & Jenrette
Securities Corporation and Smith Barney Inc. (the "Initial
Purchasers"), in transactions exempt from the registration
requirements of the Securities Act, to persons reasonably
believed by such Initial Purchasers to be "qualified
institutional buyers" (as defined in Rule 144A under the
Securities Act) or outside the United States to non-U.S. persons
in offshore transactions in reliance on Regulation S under the
Securities Act. The Selling Holders may from time to time offer
and sell pursuant to this Prospectus any or all of the Preferred
Securities, any Convertible Subordinated Debentures and
Continental Class B common stock issued upon conversion of the
Preferred Securities. The term Selling Holder includes the
holders listed below and the beneficial owners of the Preferred
Securities and their transferees, pledgees, donees or other
successors.
The following table sets forth information with respect to
the Selling Holders and the respective number of Preferred
Securities beneficially owned by each Selling Holder that may be
offered pursuant to this Prospectus. Such information has been
obtained from the Selling Holders and the Property Trustee.
Kidder, Peabody & Co. Incorporated (an affiliate of Kidder,
Peabody Group Inc. Retirement Plan for Salaried and Commissioned
Employees Trust), Lehman Brothers, Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, NatWest Securities Limited (an
affiliate of NatWest Securities Corporation #2), and Salomon
Brothers Inc have in the past provided to Continental and/or its
affiliates investment banking and/or investment advisory services
for which they have received customary fees, and may in the
future provide such services. Fidelity Convertible Securities
Fund and Fidelity Equity-Income Fund are advised by Fidelity
Management & Research Company. Fidelity Management & Research
Company and Fidelity Management Trust Company each are wholly
owned subsidiaries of FMR Corp., a principal stockholder of the
Company. As of April 30, 1996, FMR Corp. held approximately
16.6% of Continental's outstanding Class B common stock and
approximately 4.3% of the general voting power of its common
stock. General Electric Company and certain of its affiliates
(which are related to or affiliated with General Electric Pension
Trust, GE S&S Program Mutual Fund, GE Investments Group Trust, GE
U.S. Equity Trust, a series of GE Funds, GE Investments Canada
Fund and GE U.S. Equity Portfolio, a series of Variable
Investment Trusts) have or have had various business
relationships with the Company, including as a secured lender and
a supplier of certain equipment and services to the Company.
Number of
Preferred
Selling Holder Securities
- -------------- ----------
Income Fund of America Inc. . . . . . . . . . . . . 450,000
Lipco Partners L.P. . . . . . . . . . . . . . . . . 405,000
Alpine Associates . . . . . . . . . . . . . . . . . 400,000
Oppenheimer Main Street Funds Inc. for the
account of Oppenheimer Main Street Income
& Growth Fund . . . . . . . . . . . . . . . . . . . 400,000
Oppenheimer Equity Income Fund. . . . . . . . . . . 250,000
Fidelity Financial Trust: Fidelity
Convertible Securities Fund(1). . . . . . . . . . . 246,000
Fidelity Management Trust Company(2). . . . . . . . 165,600
Fidelity Devonshire Trust: Fidelity
Equity-Income Fund(1) . . . . . . . . . . . . . . . 103,700
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . . . . . 100,000
Nomura Securities (Bermuda) Ltd. . . . . . . . . . 100,000
STI Classic Capital Growth Fund . . . . . . . . . 100,000
TQA Vantage Fund Ltd. . . . . . . . . . . . . . . . 100,000
General Electric Pension Trust . . . . . . . . . . 90,000
Lehman Brothers, Inc. . . . . . . . . . . . . . . . 80,000
Vista Growth & Income Fund . . . . . . . . . . . . 75,000
Equitable Life Assurance Separate
Account - Convertibles . . . . . . . . . . . . . . 54,000
Commonwealth Life Ins. Co. -
Stock TRAC (Teamsters I) . . . . . . . . . . . . . 50,000
NatWest Securities Corporation #2 . . . . . . . . . 50,000
JMG Convertible Investments . . . . . . . . . . . . 47,000
Southport Management Partners L.P. . . . . . . . . 40,000
Salomon Brothers Inc . . . . . . . . . . . . . . . 39,900
GE S&S Program Mutual Fund . . . . . . . . . . . . 39,792
Southport Partners International Ltd. . . . . . . . 30,000
Hudson River Trust Balanced Portfolio . . . . . . 28,200
Carrigaholt Capital (Bermuda) L.P. . . . . . . . . 25,000
Allstate Insurance Company. . . . . . . . . . . . . 20,000
Ince & Co. . . . . . . . . . . . . . . . . . . . . 20,000
McMahan Securities Co. L.P. . . . . . . . . . . . . 20,000
Hudson River Trust Growth Investors . . . . . . . . 19,200
Equitable Life Assurance Separate
Account - Equity Pooled . . . . . . . . . . . . . . 15,000
The Class IC Company, Ltd. . . . . . . . . . . . . 13,000
Employers Reinsurance Corporation . . . . . . . . . 11,983
Hudson River Trust Growth & Income Portfolio . . . 11,100
GE Investments Group Trust . . . . . . . . . . . . 9,564
Michael Angelo, L.P. . . . . . . . . . . . . . . . 7,500
Raphael, L.P. . . . . . . . . . . . . . . . . . . . 7,500
Equitable Life Assurance Separate
Account - Equity Pension Plus . . . . . . . . . . . 6,600
Ronald Special . . . . . . . . . . . . . . . . . . 5,500
Mass State Teachers Retirement Trust . . . . . . . 5,000
STI Classic Balanced Fund . . . . . . . . . . . . 5,000
GE U.S. Equity Trust, a series of GE Funds. . . . . 3,436
Minnesota State Board of Investment Assigned
Risk Plan . . . . . . . . . . . . . . . . . . . . . 2,180
Vista Equity Income Fund . . . . . . . . . . . . . 2,000
Chrysler Corporation Master Retirement Trust. . . . 1,802
GE Investments Canada Fund . . . . . . . . . . . . 1,246
Her Majesty the Queen in Right of the Province
of Alberta as represented by the Provincial
Treasurer . . . . . . . . . . . . . . . . . . . . . 1,199
Baftelle Huntington National Pension Trust . . . . 1,153
Commonwealth Edison Pooled Fund . . . . . . . . . . 867
Kidder, Peabody Group Inc. Retirement Plan
for Salaried and Commissioned Employees Trust . . . 767
GE U.S. Equity Portfolio, a series of Variable
Investment Trusts . . . . . . . . . . . . . . . . . 224
Any other holder of Preferred Securities or
future transferee from any such holder . . . . . . 1,335,987
----------
Total . . . . . . . . . . . . . . . . . . . . . . 4,997,000
==========
__________________
(1) Each of such entities is either an investment company or a
portfolio of an investment company registered under Section
8 of the Investment Company Act of 1940, as amended, or a
private investment account advised by Fidelity Management &
Research Company ("FMR Co."). FMR Co. is a Massachusetts
corporation and an investment advisor registered under
Section 203 of the Investment Advisers Act of 1940, as
amended, and provides investment advisory services to each
of such entities mentioned above, and to other registered
investment companies and to certain other funds which are
generally offered to a limited group of investors. FMR Co.
is a wholly-owned subsidiary of FMR Corp. ("FMR"), a
Massachusetts corporation.
(2) Shares indicated as owned by such entity are owned directly
by various private investment accounts, primarily employee
benefit plans for which Fidelity Management Trust Company
("FMTC") serves as trustee or investment manager. FMTC is a
wholly-owned subsidiary of FMR and a bank as defined in
Section 3(a)(6) of the Securities Exchange Act of 1934, as
amended.
None of the other Selling Holders has, or within the past three
years has had, any position, office or other material
relationship with the Trust or the Company or any of their
predecessors or affiliates, except as noted above. Because the
Selling Holders may, pursuant to this Prospectus, offer all or
some portion of the Preferred Securities, the Convertible
Subordinated Debentures or the Continental Class B common stock
issuable upon conversion of the Preferred Securities, no estimate
can be given as to the amount of the Preferred Securities, the
Convertible Subordinated Debentures or the Continental Class B
common stock issuable upon conversion of the Preferred Securities
that will be held by the Selling Holders upon termination of any
such sales. In addition, the Selling Holders identified above
may have sold, transferred or otherwise disposed of all or a
portion of their Preferred Securities, since the date on which
they provided the information regarding their Preferred
Securities, in transactions exempt from the registration
requirements of the Securities Act. See "Plan of Distribution."
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to
purchasers directly by the Selling Holders. Alternatively, the
Selling Holders may from time to time offer the Offered
Securities to or through underwriters, broker/dealers or agents,
who may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Holders or
the purchasers of such securities for whom they may act as
agents. The Selling Holders and any underwriters, broker/dealers
or agents that participate in the distribution of Offered
Securities may be deemed to be "underwriters" within the meaning
of the Securities Act and any profit on the sale of such
securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/dealer or
agent may be deemed to be underwriting discounts and commissions
under the Securities Act.
The Offered Securities may be sold from time to time in one
or more transactions at fixed prices, at prevailing market prices
at the time of sale, at varying prices determined at the time of
sale or at negotiated prices. The sale of the Offered Securities
may be effected in transactions (which may involve crosses or
block transactions) (i) on any national securities exchange or
quotation service on which the Offered Securities may be listed
or quoted at the time of sale, (ii) in the over-the-counter
market, (iii) in transactions otherwise than on such exchanges or
in the over-the-counter market or (iv) through the writing of
options. At the time a particular offering of the Offered
Securities is made, a Prospectus Supplement, if required, will be
distributed which will set forth the aggregate amount and type of
Offered Securities being offered and the terms of the offering,
including the name or names of any underwriters, broker/dealers
or agents, any discounts, commissions and other terms
constituting compensation from the Selling Holders and any
discounts, commissions or concessions allowed or reallowed or
paid to broker/dealers.
To comply with the securities laws of certain
jurisdictions, if applicable, the Offered Securities will be
offered or sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold
unless they have been registered or qualified for sale in such
jurisdictions or any exemption from registration or qualification
is available and is complied with.
The Selling Holders will be subject to applicable
provisions of the Exchange Act and the rules and regulations
thereunder, which provisions may limit the timing of purchases
and sales of any of the Offered Securities by the Selling
Holders. The foregoing may affect the marketability of such
securities.
Pursuant to the Registration Rights Agreement, all expenses
of the registration of the Offered Securities will be paid by the
Company, including, without limitation, Commission filing fees
and expenses of compliance with state securities or "blue sky"
laws; provided, however, that the Selling Holders will pay all
underwriting discounts and selling commissions, if any. The
Selling Holders will be indemnified by the Company and the Trust,
jointly and severally against certain civil liabilities,
including certain liabilities under the Securities Act, or will
be entitled to contribution in connection therewith. The Company
and the Trust will be indemnified by the Selling Holders
severally against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
LEGAL MATTERS
The validity of the Convertible Subordinated Debentures
and the Guarantee, and certain United States Federal income
taxation matters with respect to the Convertible Subordinated
Debentures, the Preferred Securities and Section 382, will be
passed upon for the Issuer and the Company by Cleary, Gottlieb,
Steen & Hamilton, New York, New York, the validity of the Preferred
Securities will be passed upon for the Issuer and the Company by
Richards, Layton & Finger and the validity of any Continental
Class B common stock issuable upon conversion of the Preferred
Securities will be passed upon for the Issuer and the Company by
Jeffery A. Smisek, General Counsel of Continental.
EXPERTS
The consolidated financial statements (including schedules)
of Continental Airlines, Inc. appearing in Continental Airlines,
Inc.'s Annual Report (Form 10-K) as of December 31, 1995 and
1994, and for the two years ended December 31, 1995 and the
period April 28, 1993 through December 31, 1993, and the
consolidated statements of operations, redeemable and
non-redeemable preferred stock and common stockholders' equity
and cash flows of Continental Airlines Holdings, Inc. for the
period January 1, 1993 to April 27, 1993, incorporated by
reference in this Prospectus have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference, in
reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
===================================== ====================================
No dealer, salesperson or CONTINENTAL AIRLINES FINANCE
other person has been TRUST
authorized to give any
information or to make any
representations not contained
in this prospectus and, if 4,997,000
given or made, such
information or representation
must not be relied upon as
having been authorized by 8 1/2% Convertible Trust
Continental Airlines, Inc. or Originated
Continental Airlines Finance
Trust or any of their agents. Preferred Securities
This prospectus does not
constitute an offer to sell or
a solicitation of an offer to
buy any of the securities Fully and Unconditionally
offered hereby in any Guaranteed by,
jurisdiction to any person to
whom it is unlawful to make and convertible into
such offer or solicitation in
such jurisdiction. Neither Class B common stock of,
the delivery of this
prospectus nor any sale made
hereunder shall, under any
circumstances, create any Continental Airlines, Inc.
implication that the
information contained herein
is correct as of any time
subsequent to the date hereof
or that there has been no
change in the affairs of
Continental Airlines, Inc. or
Continental Airlines Finance
Trust since such date.
---------------
TABLE OF CONTENTS
Page
Available Information........ 4
Incorporation of Certain
Documents by Reference..... 4
Risk Factors................. 6
Continental Airlines
Finance Trust.............. 14 PROSPECTUS
The Company.................. 16
Recent Developments.......... 16
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock
Dividends.................. 18 Dated , 1996
Use of Proceeds.............. 18
Selected Financial Data...... 19
Description of the Preferred
Securities................... 21
Description of the
Guarantee.................. 35
Description of the
Convertible Subordinated
Debentures................. 38
Effect of Obligations
Under the Convertible
Subordinated Debentures
and the Guarantee.......... 47
Description of Capital
Stock...................... 49
Shares Eligible for
Future Sale................ 53
United States Taxation....... 53
ERISA Considerations......... 57
Selling Holders.............. 58
Plan of Distribution......... 59
Legal Matters................ 60
Experts...................... 60
===================================== ====================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with the
distribution of the securities being registered hereunder, other
than underwriting discounts and commissions, are:
Securities and Exchange Commission
registration filing fee...................... $ 115,018
Blue Sky qualification fees and
expenses, including legal fee................ 10,000
Printing and engraving expenses............... 144,473
Transfer agent and trustee fees
and expenses................................. 10,850
Accounting fees and expenses.................. 209,947
Legal fees and expenses....................... 425,030
Miscellaneous................................. 9,682
Total......................................... $ 925,000
Item 15. Indemnification of Directors and Officers of the
Company.
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.
(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 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.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE TRUST
The Declaration of the Trust provides that no Trustee,
affiliate of any Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives or
agent of the Trust, or any employee or agent of the Trust or its
affiliates (each an "Indemnified Person") shall be liable,
responsible or accountable in damages or otherwise to the Trust
or any officer, director, shareholder, partner, member,
representative, employee or agent of the Trust or its affiliates
or any holder of Preferred Securities for any loss, damage or
claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the
Trust and in a manner such indemnified Person reasonably believed
to be within the scope of the authority conferred on such
Indemnified Person by the Declaration or by law, except that an
Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's negligence
or willful misconduct with respect to such acts or omissions. The
Declaration of the Trust also provides that to the fullest extent
permitted by applicable law, Continental shall indemnify and hold
harmless each Indemnified Person from and against any loss,
damage, liability, tax, penalty, expense or claim incurred by
such Indemnified Person by reason of the creation, operation or
termination of the Trust or any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the
Trust and in a manner such Indemnified Person reasonably believed
to be within the scope of authority conferred on such Indemnified
Person by the Declaration, except that no Indemnified Person
shall be entitled to be indemnified in respect of any loss,
damage or claim incurred by such Indemnified Person by reason of
negligence or willful misconduct with respect to such acts or
omissions. The Declaration of the Trust further provides that, to
the fullest extent permitted by applicable law, expenses
(including legal fees and expenses) incurred by an Indemnified
Person in defending any claim, demand, action, suit or proceeding
shall, from time to time, be advanced by Continental prior to the
final disposition of such claim, demand, action, suit or
proceeding upon receipt by or an undertaking by or on behalf of
the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be
indemnified for the underlying cause of action as authorized by
the Declaration. The directors and officers of Continental and
the Regular Trustees are covered by insurance policies
indemnifying them against certain liabilities, including certain
liabilities arising under the Securities Act of 1933, as amended
(the "Securities Act"), which might be incurred by them in such
capacities and against which they may not be indemnified by
Continental or the Trust. The Selling Holders will be
indemnified by Continental and the Trust, jointly and severally,
against certain civil liabilities, including certain liabilities
under the Securities Act, or will be entitled to contribution in
connection therewith. Continental and the Trust will be
indemnified by the Selling Holders severally against certain
civil liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection
therewith.
Item 16. Exhibits.
Exhibit No. Exhibit Description
----------- -------------------
4.1* Declaration of Trust of Continental Airlines Finance
Trust, dated as of November 17, 1995
4.2* Amended and Restated Declaration of Trust of
Continental Airlines Finance Trust, dated as of
November 28, 1995 among Continental Airlines, Inc.,
as Sponsor, Wilmington Trust Company, as Property
Trustee and Delaware Trustee and Lawrence W. Kellner
and Jeffery A. Smisek, as Regular Trustees
4.3* Amendment to the Amended and Restated Declaration of
Trust, dated as of May 9, 1996
4.4* Indenture for the 8 1/2% Convertible Subordinated
Debentures, dated as of November 28, 1995 among
Continental Airlines, Inc. and Wilmington Trust
Company, as Trustee
4.5* Form of 8 1/2% Preferred Securities (included in
Exhibit 4.2 above)
4.6* Form of 8 1/2% Convertible Subordinated Debentures
(included in Exhibit 4.4 above)
4.7* Continental Airlines, Inc. Preferred Securities
Guarantee, dated as of November 28, 1995, between
Continental Airlines, Inc., as Guarantor, and
Wilmington Trust Company, as Preferred Guarantee
Trustee
4.8* Form of Second Amendment to Amended and Restated
Declaration of Trust, as amended, as amended
4.9* Form of Amendment to Preferred Securities Guarantee
4.10* Form of First Supplemental Indenture to Indenture
5.1* Opinion of Richards, Layton & Finger as to the
validity of the Preferred Securities registered
hereby
5.2* Opinion of Cleary, Gottlieb, Steen & Hamilton as to
the validity of the Convertible Subordinated
Debentures and Preferred Securities Guarantee
registered hereby
5.3* Opinion of Jeffery A. Smisek, General Counsel of
Continental Airlines, Inc., as to the validity of the
Class B common stock being registered hereby
8.1* Opinion of Cleary, Gottlieb, Steen & Hamilton
relating to certain tax matters
10.1* Registration Rights Agreement, dated November 28,
1995, between Continental Airlines Finance Trust,
Continental Airlines, Inc. and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
as First Boston Corporation, Donaldson, Lufkin &
Jenrette Securities Corporation and Smith Barney Inc.
as Representatives of the several Initial Purchasers
23.1** Consent of Ernst & Young LLP
23.2* Consent of Richards, Layton & Finger (included in its
opinion filed as Exhibit 5.1)
23.3* Consent of Cleary, Gottlieb, Steen & Hamilton
(included in its opinion filed as Exhibit 5.2)
23.4* Consent of Cleary, Gottlieb, Steen & Hamilton
(included in its opinion filed as Exhibit 8.1)
23.5* Consent of Jeffery A. Smisek, General Counsel of
Continental Airlines, Inc. (included in his opinion
filed as Exhibit 5.3)
23.6** Consent of Cleary, Gottlieb, Steen & Hamilton
24.1* Powers of Attorney
25.1* Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of Wilmington
Trust Company, as Trustee under the 8 1/2% Convertible
Subordinated Debentures Indenture
25.2* Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of Wilmington
Trust Company, as Property Trustee under the Amended
and Restated Declaration of Trust
25.3* Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of Wilmington
Trust Company, as Preferred Guarantee Trustee under
the Preferred Securities Guarantee
- -------------------
* Previously filed
** Filed herewith
Item 17. Undertakings.
(a) 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;
(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.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, 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.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit
plan's annual 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.
(c) Insofar as the 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 such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
(d) To the extent the registrant intends to rely on section
305(b)(2) of the Trust Indenture Act of 1939 for determining the
eligibility of the trustee under indentures for securities to be
used, offered or sold on a delayed basis by or on behalf of the
registrant, the undersigned registrant hereby undertakes to file
an application for the purpose of determining the eligibility of
the trustee to act under subsection (a) of section 310 of such
Act in accordance with the rules and regulations prescribed by
the Commission under section 305(b)(2) of such Act.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of Houston, State of Texas, on July 23, 1996.
CONTINENTAL AIRLINES FINANCE TRUST
By: /s/Lawrence W. Kellner
------------------------------
Lawrence W. Kellner
Regular Trustee
By: /s/ Jeffery A. Smisek
------------------------------
Jeffery A. Smisek
Regular Trustee
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of Houston, State of Texas, on July 23, 1996.
CONTINENTAL AIRLINES, INC.
By: /s/ Jeffery A. Smisek
-------------------------------
Jeffrey 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 23, 1996.
Signature Title
--------- -----
*
----------------------------
Gordon M. Bethune President, Chief Executive
Officer (Principal Executive
Officer) and Director
*
----------------------------
Lawrence W. Kellner Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
*
----------------------------
Michael P. Bonds Staff Vice President and
Controller
(Principal Accounting Officer)
*
----------------------------
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 Director
*By: /s/ Jeffery A. Smisek
--------------------------
Jeffery A. Smisek,
Attorney-in-fact
EXHIBIT INDEX
Exhibit No. Exhibit Description
----------- -------------------
4.1* Declaration of Trust of Continental Airlines Finance
Trust, dated as of November 17, 1995
4.2* Amended and Restated Declaration of Trust of
Continental Airlines Finance Trust, dated as of
November 28, 1995 among Continental Airlines, Inc.,
as Sponsor, Wilmington Trust Company, as Property
Trustee and Delaware Trustee and Lawrence W. Kellner
and Jeffery A. Smisek, as Regular Trustees
4.3* Amendment to the Amended and Restated Declaration of
Trust, dated as of May 9, 1996
4.4* Indenture for the 8 1/2% Convertible Subordinated
Debentures, dated as of November 28, 1995 among
Continental Airlines, Inc. and Wilmington Trust
Company, as Trustee
4.5* Form of 8 1/2% Preferred Securities (included in
Exhibit 4.2 above)
4.6* Form of 8 1/2% Convertible Subordinated Debentures
(included in Exhibit 4.4 above)
4.7* Continental Airlines, Inc. Preferred Securities
Guarantee, dated as of November 28, 1995, between
Continental Airlines, Inc., as Guarantor, and
Wilmington Trust Company, as Preferred Guarantee
Trustee
4.8* Form of Second Amendment to Amended and Restated
Declaration of Trust, as amended
4.9* Form of Amendment to Preferred Securities Guarantee
4.10* Form of First Supplemental Indenture to Indenture
5.1* Opinion of Richards, Layton & Finger as to the
validity of the Preferred Securities registered
hereby
5.2* Opinion of Cleary, Gottlieb, Steen & Hamilton as to
the validity of the Convertible Subordinated
Debentures and Preferred Securities Guarantee
registered hereby
5.3* Opinion of Jeffery A. Smisek, General Counsel of
Continental Airlines, Inc., as to the validity of the
Class B common stock being registered hereby
8.1* Opinion of Cleary, Gottlieb, Steen & Hamilton
relating to certain tax matters
10.1* Registration Rights Agreement, dated November 28,
1995, between Continental Airlines Finance Trust,
Continental Airlines, Inc. and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
as First Boston Corporation, Donaldson, Lufkin &
Jenrette Securities Corporation and Smith Barney Inc.
as Representatives of the several Initial Purchasers
23.1** Consent of Ernst & Young LLP
23.2* Consent of Richards, Layton & Finger (included in its
opinion filed as Exhibit 5.1)
23.3* Consent of Cleary, Gottlieb, Steen & Hamilton
(included in its opinion filed as Exhibit 5.2)
23.4* Consent of Cleary, Gottlieb, Steen & Hamilton
(included in its opinion filed as Exhibit 8.1)
23.5* Consent of Jeffery A. Smisek, General Counsel of
Continental Airlines, Inc. (included in his opinion
filed as Exhibit 5.3)
23.6** Consent of Cleary, Gottlieb, Steen & Hamilton
24.1* Powers of Attorney
25.1* Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of Wilmington
Trust Company, as Trustee under the 8 1/2% Convertible
Subordinated Debentures Indenture
25.2* Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of Wilmington
Trust Company, as Property Trustee under the Amended
and Restated Declaration of Trust
25.3* Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of Wilmington
Trust Company, as Preferred Guarantee Trustee under
the Preferred Securities Guarantee
- -------------------
* Previously filed
** Filed herewith
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" in Amendment No. 2 to the Registration Statement (Form
S-3) and related Prospectus of Continental Airlines, Inc. for
the registration of 4,997,000 Convertible Preferred Securities of
Continental Airlines Finance Trust and to the incorporation by
reference therein of our reports dated February 12, 1996, with
respect to the consolidated financial statements and schedules of
Continental Airlines, Inc. included in its Annual Report (Form
10-K) for the year ended December 31, 1995, filed with the
Securities and Exchange Commission.
Ernst & Young LLP
Houston, Texas
July 19, 1996
EXHIBIT 23.6
[LETTERHEAD OF CLEARY, GOTTLIEB, STEEN & HAMILTON]
July 19, 1996
Continental Airlines, Inc.
2929 Allen Parkway
Houston, Texas 77019
Re: Registration Statement on Form S-3 (File No. 333-04601)
Ladies & Gentlemen:
We hereby consent to the reference to this firm in the
above-referenced Registration Statement and the related
prospectus under the headings "Risk Factors-Certain Tax Matters"
and "Legal Matters", without admitting that we are "experts"
within the meaning of the Act or the rules and regulations of the
Securities and Exchange Commission issued thereunder with respect
to any part of the Registration Statement, including this
Exhibit.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By /s/ Dana L. Trier
-------------------------------
Dana L. Trier, a Partner