UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
0-9781
(Commission File Number)
CONTINENTAL AIRLINES, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2099724
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1600 Smith Street, Dept. HQSEO, Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 713-324-2950
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Class A Common Stock, New York Stock Exchange
par value $.01 per share
Class B Common Stock, New York Stock Exchange
par value $.01 per share
Series A Junior Participating New York Stock Exchange
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting common
equity stock held by non-affiliates of the registrant was $1.9
billion as of February 17, 1999.
_______________
As of February 17, 1999, 11,406,732 shares of Class A Common
Stock and 57,400,355 shares of Class B Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting
of Stockholders to be held on May 18, 1999: PART III
PART I
ITEM 1. BUSINESS.
Continental Airlines, Inc. (the "Company" or "Continental") 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 1998 revenue
passenger miles) and, together with its wholly owned subsidiaries,
Continental Express, Inc. ("Express") and Continental Micronesia,
Inc. ("CMI"), each a Delaware corporation, serves 206 airports
worldwide at February 1, 1999. As of February 1, 1999, Continental
flies to 127 domestic and 79 international destinations and offers
additional connecting service through alliances with domestic and
foreign carriers. Continental directly serves 13 European cities,
eight South American cities and Tokyo and is one of the leading
airlines providing service to Mexico and Central America, serving
more destinations there than any other United States airline.
Through its Guam hub, CMI provides extensive service in the western
Pacific, including service to more Japanese cities than any other
United States carrier.
As used in this Form 10-K, the terms "Continental" and "Company"
refer to Continental Airlines, Inc. and its subsidiaries, unless
the context indicates otherwise. This Form 10-K may contain
forward-looking statements. In connection therewith, please see
the cautionary statements contained in Item 1. "Business - Risk
Factors Relating to the Company" and "Business - Risk Factors
Relating to the Airline Industry" which identify important factors
that could cause actual results to differ materially from those in
the forward-looking statements.
Business Strategy
In 1995, Continental implemented a plan, labeled the "Go Forward
Plan", which was a "back to basics" approach focusing on improving
profitability and financial condition, delivering a consistent,
reliable, quality product to customers and improving employee
morale and working conditions. The Company's 1999 strategic plan,
as discussed below, retains the four basic components of the Go
Forward Plan: Fly to Win, Fund the Future, Make Reliability a
Reality and Working Together, with initiatives intended to build
upon Continental's operational and strategic strengths.
Fly to Win
The Company's 1999 Fly to Win initiatives center around three
principal themes: Grow Hub Operations, Improve Business/Leisure
Mix and Strengthen Alliance Network.
Grow Hub Operations. Continental will continue to add select
flights and refine its flight schedules to maximize the potential
of its hubs. In addition, Continental plans to focus on expanding
international traffic through service to new destinations and
additional code-sharing and other marketing alliances with foreign
carriers.
Management believes that by adding domestic and international
flights to the Company's hubs, attracting more international
passengers through alliances with foreign carriers and further
refining the efficiency of the Company's hub operations,
Continental will continue to capture additional flow traffic
through its hubs and attract a larger share of higher-yielding
business travelers.
Improve Business/Leisure Mix. The Company's passenger load factors
increased from 70.9% in 1997 to 72.1% in 1998, facilitating
management of the business/leisure traveler mix on its aircraft.
Since business travelers typically pay a higher fare (on a revenue-
per-seat-mile basis) for the convenience of being able to make and
change last minute travel plans, increases in business traffic
contribute disproportionately to incremental profitability.
Unrestricted business fares accounted for approximately 44.3% of
the Company's domestic passenger revenue in 1998 compared to 43.8%
in 1997 (excluding Express). Many of the Company's product and
schedule improvements have been made to appeal to business
travelers. The Company has invested in state-of-the-art revenue
management and pricing systems to enhance its ability to manage its
fare mix.
Strengthen Alliance Network. Management believes that
strengthening the Company's network of alliance partners will allow
it to compete with larger global airline alliances, better leverage
the Company's hub assets and result in improved returns to the
Company. Focusing on strategic global alliances allows the Company
to benefit from the strengths of its alliance partners in their
local markets while reducing the Company's reliance on any
individual alliance partner.
The Company seeks alliance relationships that, together with the
Company's own flying, will permit expanded service through Newark
to major destinations in Latin America, Europe and Asia, and
expanded service through Houston to Latin America and Europe as
well as service to Japan. Route authorities that would be required
for the Company's own service to certain of these destinations are
not currently available to the Company. In November 1998, the
Company began implementing its long-term global alliance with
Northwest Airlines, Inc. ("Northwest"), which will continue to be
phased in over a multi-year period. See "Domestic Carrier
Alliances" and "Foreign Carrier Alliances" below for a discussion
of alliances recently entered into with other carriers.
Fund the Future
Having achieved its 1995 goals of building the Company's overall
liquidity and improving its financial condition, management shifted
its financial focus in 1996 and 1997 to target the Company's
interest and lease expenses. In 1998, the Company concentrated on
securing favorable financing for new aircraft and other assets as
well as buying back common stock.
In 1998 and early 1999, the Company completed a number of
transactions intended to strengthen its long-term financial
position and enhance earnings:
- - In February 1998, the Company completed an offering of $773
million of pass-through certificates used to finance (through
either leveraged leases or secured debt financings) the debt
portion of the acquisition cost of 24 aircraft delivered from
February 1998 through December 1998.
- - During the first quarter of 1998, Continental completed several
offerings totaling approximately $98 million aggregate principal
amount of tax-exempt special facilities revenue bonds to finance
or refinance certain airport facility projects. These bonds are
payable solely from rentals paid by Continental under long-term
lease agreements with the respective governing bodies.
- - In April 1998, the Company completed an offering of $187 million
of pass-through certificates used to refinance the debt related
to 14 aircraft currently owned by Continental.
- - During the fourth quarter of 1998, the Company completed an
offering of $524 million of pass-through certificates to be used
to finance (through either leveraged leases or secured debt
financings) the debt portion of the acquisition cost of up to 14
aircraft scheduled to be delivered from December 1998 through May
1999.
- - In November 1998, the Company exercised its right and called for
redemption approximately half of its outstanding 8-1/2%
Convertible Trust Originated Preferred Securities ("TOPrS"). The
TOPrS were convertible into shares of Class B common stock at a
conversion price of $24.18 per share of Class B common stock. As
a result of the call for redemption, 2,688,173 TOPrS were
converted into 5,558,649 shares of Class B common stock. In
December 1998, the Company called for redemption the remaining
outstanding TOPrS. As a result of the second call, the remaining
2,298,327 TOPrS were converted into 4,752,522 shares of Class B
common stock during January 1999.
- - In December 1998, the Company sold $200 million principal amount
of 8% unsecured senior notes due in December 2005. The proceeds
will be used for general corporate purposes.
- -In February 1999, the Company completed an offering of $806
million of pass-through certificates to be used to finance
(through either leveraged leases or secured debt financings) the
debt portion of the acquisition cost of up to 22 aircraft
scheduled to be delivered from March 1999 through September 1999.
The focus in 1999 is to maintain stable cash balances while
continuing to secure financing for aircraft deliveries in 1999 and
beyond and, under appropriate circumstances, buy back common stock
or common stock equivalents. The Company expects to continue,
through refinancings and other initiatives, to eliminate excess
interest and lease expenses and complete its transition from Stage
2 to Stage 3 aircraft.
Make Reliability a Reality
Customer service continues to be a principal focus in 1999.
Management believes Continental's on-time performance record is
crucial to its other operational objectives and, together with its
initiatives to improve baggage handling and customer satisfaction
and appropriately manage involuntary denied boardings, is an
important tool to attract higher-margin business travelers.
Continental's goal for 1999 is to be ranked monthly by the
Department of Transportation ("DOT") among the top half of major
air carriers (excluding those airlines who do not report
electronically) in on-time performance, baggage handling, customer
satisfaction and avoidance of involuntary denied boarding. For
1998, Continental ranked sixth in on-time performance, second in
baggage handling, fifth in fewest customer complaints and first in
fewest involuntary denied boardings. In 1998, bonuses of $65 were
paid to substantially all employees for each month that Continental
ranked second or third or achieved 80% or above (for arrivals
within 14 minutes) in on-time performance, and bonuses of $100 were
paid for each month that Continental ranked first among the top 10
U.S. air carriers (excluding those airlines who do not report
electronically) in on-time performance. For 1998, a total of $23
million of on-time bonuses were paid. This successful on-time
performance bonus program continues in 1999.
In addition to programs intended to improve Continental's standings
in DOT performance data, the Company has acted in a number of
additional areas to enhance its attractiveness to business
travelers and the travel agent community. Specifically,
Continental implemented various initiatives designed to offer
travelers cleaner and more attractive aircraft interiors,
consistent interior and exterior decor, first class seating on all
jet aircraft (other than regional jets), better meals and greater
benefits under its award-winning frequent flyer program.
Continental continues to make product improvements, such as new and
refurbished Presidents Clubs with specialty bars, and on-board
specialty coffees and microbrewery beer, among others. All the
Company's jets expected to remain in service after 1999 now have
reliable air-to-ground telephone service for customers, and its new
long-range jets have state-of-the-art video equipment.
In January 1998, Continental launched its TransContinental service
whereby passengers traveling coast-to-coast from Newark
International Airport ("Newark") experience new enhancements on
their flights, including new check-in options at nine New York
locations, flexible meal options and door-to-door pick-up service.
In addition, the Company successfully integrated the Boeing 777 and
737-700/800 aircraft into its fleet. The Company has also
continued to refine its award-winning BusinessFirst service.
Working Together
Management believes that Continental's employees are its greatest
asset, as well as the cornerstones of improved reliability and
customer service. Management has introduced a variety of programs
to increase employee participation and foster a sense of shared
community. These initiatives include significant efforts to
communicate openly and honestly with all employees through daily
news bulletins, weekly voicemail updates from the Company's Chief
Executive Officer, monthly and quarterly Continental publications,
videotapes mailed to employees reporting on the Company's growth
and progress, Go Forward Plan bulletin boards in over 600 locations
system-wide, and daily news electronic display signs in many
Continental employee locations. In addition, regularly scheduled
visits to airports throughout the route system are made by the
senior executives of the Company (each of whom is assigned an
airport for this purpose). Monthly meetings open to all employees,
as well as other periodic on-site visits by management, are
designed to encourage employee participation, knowledge and
cooperation. Continental was recently named among the best
companies to work for in America, finishing 40th in Fortune
Magazine's 1998 "100 Best Companies to Work for in America" list.
Continental also reached long-term agreements with a majority of
its employee workgroups regarding wages, benefits and other
workplace matters.
Continental's goals for 1999 include (i) to be ranked among the top
three major air carriers in employee measures such as turnover,
lost time, productivity and on-the-job injury claims, (ii) to
continue working with all employee groups in a way that is fair to
both the employees and the Company, (iii) to continue to improve
work environment safety, and (iv) to maintain Continental as one of
the 100 best companies to work for in America.
In September 1997, Continental announced that it intended to bring
all employees to industry standard wages over a three-year period,
and has made substantial progress in doing so. See "Employees"
below.
Domestic Operations
Continental operates its domestic route system primarily through
its hubs at Newark, George Bush Intercontinental Airport ("Bush
Intercontinental") in Houston and Hopkins International Airport
("Hopkins International") in Cleveland. The Company's hub system
allows it to transport passengers between a large number of
destinations with substantially more frequent service than if each
route were served directly. The hub system also allows Continental
to add service to a new destination from a large number of cities
using only one or a limited number of aircraft. Each of
Continental's domestic hubs is located in a large business and
population center, contributing to a high volume of "origin and
destination" traffic.
Newark. As of February 1, 1999, Continental operated 55% (237
departures) of the average daily jet departures (excluding regional
jets) and, together with Express, 58% (333 departures) of all
average daily departures (jet, regional jet and turboprop) from
Newark. Considering the three major airports serving New York City
(Newark, LaGuardia and John F. Kennedy), Continental and Express
accounted for 24% of all daily departures, while the next largest
carrier, American Airlines, Inc., and its commuter affiliate
accounted for 14% of all daily departures.
Houston. As of February 1, 1999, Continental operated 78%
(328 departures) of the average daily jet departures (excluding
regional jets) and, together with Express, 82% (467 departures) of
all average daily departures from Bush Intercontinental. Southwest
Airlines Co. ("Southwest") also has a significant share of the
Houston market through Hobby Airport. Considering both Bush
Intercontinental and Hobby Airport, Continental operated 56% and
Southwest operated 25% of the daily jet departures (excluding
regional jets) from Houston.
Cleveland. As of February 1, 1999, Continental operated 51% (86
departures) of the average daily jet departures (excluding regional
jets) and, together with Express, 65% (232 departures) of all
average daily departures from Hopkins International. The next
largest carrier, US Airways, Inc. ("US Airways"), accounted for 6%
of all daily departures.
Continental Express. Continental Airlines' jet service at each of
its domestic hub cities is coordinated with Express, which operates
new-generation turboprop aircraft and regional jets under the name
"Continental Express". The turboprop aircraft average
approximately seven years of age and seat 64 or fewer passengers
while the regional jets average one year of age and seat 50
passengers.
As of February 1, 1999, Express served 30 destinations from Newark
(15 by regional jet), 32 destinations from Bush Intercontinental
(12 by regional jet) and 41 destinations from Hopkins International
(13 by regional jet). In addition, commuter feed traffic is
currently provided by other code-sharing partners. See "Domestic
Carrier Alliances" below.
Management believes Express's turboprop and regional jet operations
complement Continental's jet operations by allowing more frequent
service to small cities than could be provided economically with
conventional jet aircraft and by carrying traffic that connects
onto Continental's jets. In many cases, Express (and Continental)
compete for such connecting traffic with commuter airlines owned by
or affiliated with other major airlines operating out of the same
or other cities. Continental believes that Express's new regional
jets provide greater comfort and enjoy better customer acceptance
than turboprop aircraft. The regional jets also allow Express to
serve certain routes that cannot be served by its turboprop
aircraft.
Domestic Carrier Alliances. Pursuant to the Company's Fly to Win
initiative under the Go Forward Plan, Continental has entered into
and continues to develop alliances with domestic carriers:
- - In January 1998, the Company announced that it had entered into
a long-term global alliance with Northwest ("Northwest
Alliance"). The Northwest Alliance includes the placing by each
carrier of its code on a large number of the flights of the other
and reciprocal frequent flyer programs and executive lounge
access. Significant other joint marketing activities will be
undertaken, while preserving the separate identities of the
carriers. See "Risk Factors Relating to the Company - Risks
Regarding Continental/Northwest Alliance".
- - Continental has a series of agreements with America West
Airlines, Inc. ("America West"), including agreements related to
code-sharing and ground handling, which have created substantial
benefits for both airlines. These code-sharing agreements cover
63 city-pairs at February 1, 1999, and allow Continental to link
additional destinations to its route network and derive
additional traffic from America West's distribution strength in
cities where Continental has less sales presence. The sharing of
facilities and employees by Continental and America West in their
respective key markets has resulted in significant cost savings.
- - Continental has a code-sharing agreement with Gulfstream
International Airlines, Inc. ("Gulfstream") which commenced in
April 1997. Gulfstream serves as a connection for Continental
passengers throughout Florida as well as six markets in the
Bahamas.
- - Continental has a code-sharing arrangement with Colgan Air, Inc.
which commenced in July 1997 on flights connecting in four cities
in the eastern United States and offers connections for
Continental passengers to 11 cities in the Northeastern and mid-
Atlantic regions of the United States.
- - Continental has a code-sharing agreement with Mesaba Aviation,
Inc. ("Mesaba"), operating as a Northwest affiliate, which
commenced on January 14, 1999. Mesaba serves as a connection for
Continental passengers through Detroit and Minneapolis/St. Paul.
- - Continental and CMI entered into a cooperative marketing
agreement with Hawaiian Airlines that began October 1, 1997 on
flights connecting in Honolulu.
International Operations
International Operations. Continental directly serves destinations
throughout Europe, Canada, Mexico, Central and South America, and
the Caribbean, as well as Tokyo, and has extensive operations in
the western Pacific conducted by CMI. As measured by 1998
available seat miles, approximately 33.8% of Continental's jet
operations, including CMI, were dedicated to international traffic,
compared with 31.4% in 1997. Continental anticipates that a
majority of its capacity growth in 1999 will be international. As
of February 1, 1999, the Company offered 132 weekly departures to
13 European cities and marketed service to 33 other cities through
code-sharing agreements. Continental is one of the leading
airlines providing service to Mexico and Central America, serving
more destinations there than any other United States airline.
The Company's Newark hub is a significant international gateway.
From Newark at February 1, 1999, the Company serves 13 European
cities and four Canadian cities, three Mexican cities, two Central
American cities, six South American cities and six Caribbean
destinations, and markets other destinations through code-sharing
arrangements with foreign carriers. In addition, Continental
commenced non-stop service to Tokyo in November 1998, and has
announced plans to begin non-stop service to Amsterdam (subject to
government approval), Brussels, Tel Aviv and Zurich in 1999.
The Company's Houston hub is the focus of its operations in Mexico
and Central America. As of February 1, 1999, Continental flies
from Houston to 13 cities in Mexico, every country in Central
America, five cities in South America, two Caribbean destinations,
three cities in Canada and two cities in Europe. In addition,
Continental commenced non-stop service to Tokyo in January 1999,
and has been tentatively awarded non-stop service to Sao Paulo.
Continental also flies to Toronto, San Juan and Cancun from its hub
in Cleveland and has announced service to London, subject to
receipt of appropriate take-off and landing slots at Gatwick
airport.
Continental Micronesia. CMI is a United States-certificated
international air carrier engaged in the business of transporting
passengers, cargo and mail in the western Pacific. From its hub
operations based on the island of Guam, CMI provides service to
eight cities in Japan, more than any other United States carrier,
as well as other Pacific rim destinations, including Taiwan, the
Philippines, Hong Kong, Australia, New Caledonia and Indonesia.
Service to these Japanese cities and certain other Pacific Rim
destinations is subject to a variety of regulatory restrictions
limiting the ability of other carriers to service these markets.
CMI is the principal air carrier in the Micronesian Islands, where
it pioneered scheduled air service in 1968. CMI's route system is
linked to the United States market through Honolulu, which CMI
serves non-stop from both Tokyo and Guam, and Tokyo. CMI and
Continental also maintain a code-sharing agreement and coordinate
schedules on certain flights from the west coast of the United
States to Honolulu, and from Honolulu to Guam and Tokyo, to
facilitate travel from the United States into CMI's route system.
Foreign Carrier Alliances. Over the last decade, major United
States airlines have developed and expanded alliances with foreign
air carriers, generally involving adjacent terminal operations,
coordinated flights, code-sharing and other joint marketing
activities. Continental is the sole major United States carrier to
operate a hub in the New York City area. Consequently, Continental
believes it is uniquely situated to attract alliance partners from
Europe, the Far East and South America and has aggressively pursued
such alliances. The Company believes that the Northwest Alliance
will enhance its ability to attract foreign alliance partners. See
"Risk Factors Relating to Continental - Risks Regarding
Continental/Northwest Alliance".
Continental believes that developing a network of international
alliance partners will better leverage the Company's hub assets by
attracting high-yield flow traffic and by strengthening
Continental's position in large, local (non-connecting) markets and
will result in improved returns to the Company. Additionally,
Continental can enlarge its scope of service more rapidly and enter
additional markets with lower capital and start-up costs through
formation of alliances with partners as compared with entering
markets independently of other carriers.
Continental has a goal of developing alliance relationships that,
together with the Company's own flying, will permit expanded
service through Newark and Houston to major destinations in South
America, Central America, Europe and Asia. Route authorities
necessary for the Company's own service to certain of these
destinations are not currently available to the Company.
Continental has implemented international code-sharing agreements
with Alitalia Linee Aeree Italiane, S.P.A. ("Alitalia"), Transavia
Airlines, CSA Czech Airlines, British Midland, China Airlines, EVA
Airways Corporation, an airline based in Taiwan, Virgin Atlantic
Airways ("Virgin"), Viacao Aerea Sao Paulo ("VASP") and Societe Air
France ("Air France"), and is in the process of implementing a
code-share agreement and other joint marketing and service
agreements with Compania Panamena de Aviacion, S.A., 49% of the
common equity of which is owned by Continental. Upon receipt of
government approval, Continental will commence code-sharing
arrangements with Aeroservicios Carabobo S.A., a Venezuelan
carrier, Avant Airlines, a Chilean carrier, and Air Aruba. In
addition, the Northwest Alliance contemplates formation of a joint
venture with KLM Royal Dutch Airlines ("KLM"), a Dutch carrier.
Continental has entered into joint market agreements with Air China
and Aerolineas Centrales de Colombia, for which government approval
has not yet been sought.
Certain of Continental's code-sharing agreements involve block-
space arrangements (pursuant to which carriers agree to share
capacity and bear economic risk for blocks of seats on certain
routes). Alitalia has agreed to purchase blocks of seats on
Continental flights between Newark and Rome and Milan. VASP has
agreed to purchase blocks of seats on Continental flights between
Newark and Rio de Janeiro and Sao Paulo. Continental and Air
France purchase blocks of seats on each other's flights between
Houston and Newark and Paris. Continental and Virgin exchange
blocks of seats on each other's flights between Newark and London.
Continental's agreement with Virgin also includes the purchase by
Continental of blocks of seats on eight other routes flown by
Virgin between the United Kingdom and the United States.
The majority of the Company's alliance agreements provide that a
party may terminate the agreement upon certain changes in ownership
or control of the other party. As a result of the transfer by
Continental's principal stockholder of its Continental Class A
common stock to an affiliate of Northwest (which affiliate is
referred to hereafter together with Northwest as "Northwest"),
certain of the Company's alliance partners could rely on such
provision to attempt to terminate their alliance relationship with
the Company. To date, none has done so, and the Company does not
believe that the Northwest transaction would provide the basis for
such a termination.
The Company might enter into other code-sharing, joint marketing
and block-space agreements in 1999, which might include the Company
undertaking the financial commitment to purchase seats from other
carriers.
Employees
As of December 31, 1998, the Company had approximately 43,900 full-
time equivalent employees, including approximately 19,200 customer
service agents, reservations agents, ramp and other airport
personnel, 7,750 flight attendants, 7,000 management and clerical
employees, 6,150 pilots, 3,650 mechanics and 150 dispatchers.
Labor costs are a significant component of the Company's expenses
and can substantially impact airline results. In 1998, labor costs
(including employee incentives) constituted 31.1% of the Company's
total operating expenses (excluding fleet disposition/impairment
loss). While there can be no assurance that the Company's
generally good labor relations and high labor productivity will
continue, management has established as a significant component of
its business strategy the preservation of good relations with the
Company's employees, approximately 40% of whom are represented by
unions. In September 1997, the Company announced a plan to bring
all employees to industry standard wages no later than the end of
the year 2000. Wage increases began in 1997, and will continue to
be phased in through 2000 as revenue, interest rates and rental
rates reach industry standards.
The following is a table of the Company's, Express's and CMI's
principal collective bargaining agreements, and their respective
amendable dates:
Approximate Contract
Employee Number of Representing Amendable
Group Employees Union Date
Continental Pilots 5,050 Independent October 2002
Association
of Continental
Pilots
Express Pilots 1,100 Independent October 2002
Association
of Continental
Pilots
Dispatchers 150 Transport Workers October 2003
Union of America
Continental 3,220 International January 2002
Mechanics Brotherhood of
Teamsters
Express Mechanics 280 International (Negotiations
Brotherhood of for initial
Teamsters contract
ongoing)
CMI Mechanics 150 International March 2001
Brotherhood of
Teamsters
Continental 6,925 International December 1999
Flight Attendants Association of
Machinists and
Aerospace Workers
Express 375 International November 1999
Flight Attendants Association of
Machinists and
Aerospace Workers
CMI 450 International June 2000
Flight Attendants Association of
Machinists and
Aerospace Workers
CMI Fleet and 300 International March 2001
Passenger Service Brotherhood of
Employees Teamsters
The other employees of Continental, Express and CMI are not covered
by collective bargaining agreements.
Competition and Marketing
The airline industry is highly competitive and susceptible to price
discounting. The Company competes with other air carriers that
have substantially greater resources (and in certain cases, lower
cost structures) as well as smaller air carriers with low-cost
structures. Overall industry profit margins have historically been
low. However, during 1995 through 1998, industry profit margins
improved substantially. See Item 1. "Business. Risk Factors
Relating to the Airline Industry" and Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations".
As with other carriers, most tickets for travel on Continental are
sold by travel agents. Travel agents generally receive commissions
measured by the price of tickets sold. Accordingly, airlines
compete not only with respect to the price of tickets sold, but
also with respect to the amount of commissions paid. Airlines
often pay additional commissions in connection with special revenue
programs.
In 1998, Continental Airlines continued to expand its electronic
ticketing ("E-Ticket") product to international destinations. E-
Tickets result in lower distribution costs to the Company while
providing enhanced customer and revenue information. Continental
recorded over $2.4 billion in E-Ticket sales in 1998, representing
27% of total customers traveling by the end of 1998. Further
expansion in 1999 will complete the offering of E-Ticket to all
international destinations, expand the number of E-Ticket machines
in major airports, and enhance the Company's ability to interline
with other carriers on a bilateral basis. The Company expects
these features to contribute to an increase in E-Ticket usage and
a further reduction in distribution costs.
Frequent Flyer Program
Each major airline has established a frequent flyer program
designed to encourage repeat travel on its system. Continental's
OnePass program allows passengers to earn mileage credits by flying
Continental and certain other carriers including Northwest, America
West, Alitalia and Air France. The Company also sells mileage
credits to hotels, car rental agencies, credit card companies and
others participating in the OnePass program.
Continental accrues the incremental cost associated with the earned
flight awards based on expected redemptions. The incremental cost
to transport a passenger on a free trip includes the cost of
incremental fuel, meals, telecommunications, insurance and
miscellaneous supplies and does not include any charge for
potential displacement of revenue passengers or costs for aircraft
ownership, maintenance, labor or overhead allocation. Due to the
structure of the program and the low level of redemptions as a
percentage of total travel, Continental believes that displacement
of revenue passengers by passengers using flight awards has
historically been minimal. The number of awards used on
Continental represented less than 7% of Continental's total revenue
passenger miles in each of the years 1998 and 1997.
During the fourth quarter of 1998, Continental, as part of the
Northwest Alliance, entered into a frequent flyer arrangement with
Northwest designed to allow Continental and Northwest to combine
their frequent flyer programs while continuing to administer them
as two separate programs.
Industry Regulation and Airport Access
Continental and its subsidiaries operate under certificates of
public convenience and necessity issued by the DOT. Such
certificates may be altered, amended, modified or suspended by the
DOT if public convenience and necessity so require, or may be
revoked for intentional failure to comply with the terms and
conditions of a certificate.
The airlines are also regulated by the Federal Aviation
Administration ("FAA"), primarily in the areas of flight
operations, maintenance, ground facilities and other technical
matters. Pursuant to these regulations, Continental has
established, and the FAA has approved, a maintenance program for
each type of aircraft operated by the Company that provides for the
ongoing maintenance of such aircraft, ranging from frequent routine
inspections to major overhauls. Certain regulations require phase-
out of certain aircraft and modifications to aging aircraft. Such
regulations can significantly increase costs and affect a carrier's
ability to compete.
The DOT allows local airport authorities to implement procedures
designed to abate special noise problems, provided such procedures
do not unreasonably interfere with interstate or foreign commerce
or the national transportation system. Certain airports, including
the major airports at Boston, Washington, D.C., Chicago, Los
Angeles, San Diego, Orange County and San Francisco, have
established airport restrictions to limit noise, including
restrictions on aircraft types to be used and limits on the number
of hourly or daily operations or the time of such operations. In
some instances, these restrictions have caused curtailments in
services or increases in operating costs, and such restrictions
could limit the ability of Continental to expand its operations at
the affected airports. Local authorities at other airports are
considering adopting similar noise regulations.
Airports from time to time seek to increase the rates charged to
airlines, and the ability of airlines to contest such increases has
been restricted by federal legislation, DOT regulations and
judicial decisions. In addition, public airports generally impose
passenger facility charges ("PFC's") of up to $3 per departing or
connecting passenger. Congress has from time to time considered
legislation increasing PFC's, and the Company is unable to predict
whether PFC's will increase. With certain exceptions, these
charges are passed on to the customers.
The FAA has designated John F. Kennedy, LaGuardia, O'Hare and Wash-
ington National airports as "high density traffic airports" and has
limited the number of departure and arrival slots at those
airports. Currently, slots at the high density traffic airports
may be voluntarily sold or transferred between the carriers. The
DOT has in the past reallocated slots to other carriers and
reserves the right to withdraw slots. Various amendments to the
slot system, proposed from time to time by the FAA, members of
Congress and others, could, if adopted, significantly affect
operations at the high density traffic airports or expand slot
controls to other airports. Certain of such proposals could
restrict the number of flights, limit transfer of the ownership of
slots, increase the risk of slot withdrawals or require charges to
the Company's financial statements. The DOT recently proposed the
elimination of slot restrictions at high-density airports.
Continental cannot predict whether any of these proposals will be
adopted.
The availability of international routes to United States carriers
is regulated by treaties and related agreements between the United
States and foreign governments. The United States has in the past
generally followed the practice of encouraging foreign governments
to accept multiple carrier designation on foreign routes, although
certain countries have sought to limit the number of carriers.
Foreign route authorities may become less valuable to the extent
that the United States and other countries adopt "open skies"
policies liberalizing entry on international routes. Continental
cannot predict what laws and regulations will be adopted or their
impact, but the impact may be significant.
Many aspects of Continental's operations are subject to
increasingly stringent federal, state and local laws protecting the
environment. Future regulatory developments could adversely affect
operations and increase operating costs in the airline industry.
Risk Factors Relating to the Company
Leverage and Liquidity. Continental has a higher proportion of
debt compared to its equity capital than some of its principal
competitors. In addition, a majority of Continental's property and
equipment is subject to liens securing indebtedness. Accordingly,
Continental may be less able than some of its competitors to
withstand a prolonged recession in the airline industry or respond
as flexibly to changing economic and competitive conditions.
As of December 31, 1998, Continental had approximately $2.7 billion
(including current maturities) of long-term debt and capital lease
obligations and had approximately $1.3 billion of Continental-
obligated mandatorily redeemable preferred securities of subsidiary
trust and common stockholders' equity. As of December 31, 1998,
Continental had $1.4 billion in cash and cash equivalents.
Continental has lines of credit totaling $225 million and
significant encumbered assets.
Continental has substantial commitments for capital expenditures,
including for the acquisition of new aircraft. As of February 8,
1999, Continental had agreed to acquire a total of 109 Boeing jet
aircraft through 2005. The Company anticipates taking delivery of
57 Boeing jet aircraft in 1999. Continental also has options for
an additional 114 aircraft (exercisable subject to certain
conditions). The estimated aggregate cost of the Company's firm
commitments for Boeing aircraft is approximately $5.4 billion.
Continental currently plans to finance its new Boeing aircraft with
a combination of enhanced pass through trust certificates, lease
equity and other third-party financing, subject to availability and
market conditions. As of February 8, 1999, Continental had
approximately $1.1 billion in financing arranged for such future
Boeing deliveries. In addition, Continental had commitments or
letters of intent for backstop financing for approximately one-
third of the anticipated remaining acquisition cost of such Boeing
deliveries. In addition, at February 8, 1999, Continental has firm
commitments to purchase 32 spare engines related to the new Boeing
aircraft for approximately $167 million, which will be deliverable
through December 2004.
As of February 8, 1999, Express had firm commitments for 37 Embraer
ERJ-145 ("ERJ-145") 50-seat regional jets and 25 Embraer ERJ-135
("ERJ-135") 37-seat regional jets, with options for an additional
125 ERJ-145 and 50 ERJ-135 aircraft exercisable through 2008.
Express anticipates taking delivery of 19 ERJ-145 and six ERJ-135
regional jets in 1999. Neither Express nor Continental will have
any obligation to take any of the firm ERJ-145 aircraft that are
not financed by a third party and leased to Continental.
For 1998, cash expenditures under operating leases relating to
aircraft approximated $702 million, compared to $626 million for
1997, and approximated $263 million relating to facilities and
other rentals compared to $236 million in 1997. Continental
expects that its operating lease expenses for 1999 will increase
over 1998 amounts.
Additional financing will be needed to satisfy the Company's
capital commitments. Continental cannot predict whether sufficient
financing will be available for capital expenditures not covered by
firm financing commitments.
Continental's History of Operating Losses. Continental recorded
net income (including special charges) of $383 million in 1998,
$385 million in 1997, $319 million in 1996 and $224 million in
1995. However, Continental experienced significant operating
losses in the previous eight years. Historically, the financial
results of the U.S. airline industry have been cyclical.
Continental cannot predict whether current industry conditions will
continue.
Aircraft Fuel. Fuel costs constitute a significant portion of
Continental's operating expense. Fuel costs were approximately
10.2% of operating expenses for the year ended December 31, 1998
(excluding fleet disposition/impairment loss) and 13.6% for the
year ended December 31, 1997. Fuel prices and supplies are
influenced significantly by international political and economic
circumstances. Continental enters into petroleum swap contracts,
petroleum call option contracts and jet fuel purchase commitments
to provide some short-term protection (generally three to six
months) against a sharp increase in jet fuel prices. The Company's
fuel hedging strategy could result in the Company not fully
benefiting from certain fuel price declines. If a fuel supply
shortage were to arise from a disruption of oil imports or
otherwise, higher fuel prices or curtailment of scheduled airline
service could result. Significant changes in fuel costs would
materially affect Continental's operating results.
Labor Matters. In September 1997, the Company announced a plan to
bring all employees to industry standard wages no later than the
end of the year 2000. Wage increases began in 1997, and will
continue to be phased in through 2000, as revenue, interest rates
and rental rates reach industry standards.
Certain Tax Matters. At December 31, 1998, Continental had
estimated net operating loss carryforwards ("NOLs") of $1.1 billion
for federal income tax purposes that will expire through 2009 and
federal investment tax credit carryforwards of $45 million that
will expire through 2001. As a result of the change in ownership
of Continental on April 27, 1993, the ultimate utilization of
Continental's NOLs and investment tax credits could be limited.
Reflecting this possible limitation, Continental has recorded a
valuation allowance of $263 million at December 31, 1998.
Continental had, as of December 31, 1998, deferred tax assets
aggregating $803 million, including $372 million of NOLs. During
the first quarter of 1998, the Company consummated several
transactions, the benefit of which resulted in the elimination of
reorganization value in excess of amounts allocable to identifiable
assets of $164 million. During the third and fourth quarters of
1998, the Company determined that additional NOLs of the Company's
predecessor could be benefitted and accordingly reduced both the
valuation allowance and routes, gates and slots by $190 million.
To the extent the Company were to determine in the future that
additional NOLs of the Company's predecessor could be recognized in
the accompanying consolidated financial statements, such benefit
would further reduce routes, gates and slots.
As a result of NOLs, Continental will not pay United States federal
income taxes (other than alternative minimum tax) until it has
earned approximately an additional $1.1 billion of taxable income
following December 31, 1998. Section 382 of the Internal Revenue
Code ("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. In the event that an ownership change should occur,
utilization of Continental's NOLs would be subject to an annual
limitation under Section 382 determined by multiplying the value of
Continental's stock at the time of the ownership change by the
applicable long-term tax-exempt rate (which was 4.71% for February
1999). Any unused annual limitation may be carried over to later
years, and the amount of the limitation may under certain
circumstances be increased by the built-in gains in assets held by
Continental 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 annual NOL
utilization would be limited to approximately $102 million per year
other than through the recognition of future built-in gain
transactions.
On November 20, 1998, Northwest completed its acquisition of
certain equity of the Company previously held by Air Partners, L.P.
("Air Partners") and its affiliates, together with certain Class A
common stock of the Company held by certain other investors,
totaling 8,661,224 shares of the Class A common stock (the "Air
Partners Transaction"). Based on information currently available,
the Company does not believe that the Air Partners Transaction
resulted in an ownership change for purposes of Section 382.
Continental Micronesia. 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. As a result of the devaluation of
the yen against the dollar, a weak Japanese economy and increased
fuel costs, CMI's operating earnings declined during 1996 and 1997.
Although CMI's results in Asia have declined significantly in
recent years, the Company successfully redeployed CMI capacity into
the stronger domestic markets and CMI's most recent results have
improved.
To reduce the potential negative impact on CMI's earnings, the
Company has entered into forward contracts and purchased foreign
currency average rate option contracts as a hedge against a portion
of its expected net yen cash flow position. As of December 31,
1998, the Company had hedged approximately 100% of its first and
second quarter 1999 projected net yen-denominated cash flows and
75% of its third quarter 1999 projected net yen-denominated cash
flows.
Principal Stockholder. As of December 31, 1998, Northwest held
approximately 13.5% of the common equity interest and 45.8% of the
fully-diluted voting power of the Company. In addition, Northwest
holds a limited proxy to vote certain additional shares of the
Company's common stock that would raise its voting power to
approximately 50.3% of the Company's fully diluted voting power.
In connection with the Air Partners Transaction, the Company
entered into a corporate governance agreement with certain
affiliates of Northwest (the "Northwest Parties") designed to
assure the independence of the Company's Board and management
during the six-year term of the governance agreement. Under the
governance agreement, as amended, the Northwest Parties have agreed
not to beneficially own voting securities of the Company in excess
of 50.1% of the fully diluted voting power of the Company's voting
securities, subject to certain exceptions, including third-party
acquisitions or tender offers for 15% or more of the voting power
of the Company's voting securities and a limited exception
permitting a one-time ownership of approximately 50.4% of the fully
diluted voting power. The Northwest Parties have deposited all
voting securities of the Company beneficially owned by them (other
than the shares for which they hold only a limited proxy) in a
voting trust with an independent voting trustee requiring that such
securities be voted (i) on all matters other than the election of
directors, in the same proportion as the votes cast by other
holders of voting securities, and (ii) in the election of
directors, for the election of independent directors (who must
constitute a majority of the Board) nominated by the Board of
Directors. However, in the event of a merger or similar business
combination or a recapitalization, liquidation or similar
transaction, a sale of all or substantially all of the Company's
assets, or an issuance of voting securities that would represent
more than 20% of the voting power of the Company prior to issuance,
or any amendment of the Company's charter or bylaws that would
materially and adversely affect Northwest (each, an "Extraordinary
Transaction"), the shares may be voted as directed by the Northwest
Party owning such shares, and if a third party is soliciting
proxies in an election of directors, the shares may be voted at the
option of such Northwest Party either as recommended by the
Company's Board of Directors or in the same proportion as the votes
cast by the other holders of voting securities.
The Northwest Parties have also agreed to certain restrictions on
the transfer of voting securities owned by them, have agreed not to
seek to affect or influence the Company's Board of Directors or the
control of the management of the Company or the business,
operations, affairs, financial matters or policies of the Company
or to take certain other actions, and have agreed to take all
actions necessary to cause independent directors to at all times
constitute at least a majority of the Company's Board of Directors.
The Company has granted preemptive rights to a Northwest Party with
respect to issuances of Class A common stock and certain issuances
of Class B common stock. The Northwest Parties have agreed that
certain specified actions, together with any material transactions
between the Company and Northwest or its affiliates, including any
modifications or waivers of the governance agreement or the
alliance agreement, may not be taken without the prior approval of
a majority of the Board of Directors, including the affirmative
vote of a majority of the independent directors. The governance
agreement also required the Company to adopt a shareholder rights
plan with reasonably customary terms and conditions, with an
acquiring person threshold of 15% and with appropriate exceptions
for the Northwest Parties for actions permitted by and taken in
compliance with the governance agreement. A rights plan meeting
these requirements was adopted effective November 20, 1998.
The governance agreement will expire on November 20, 2004, or if
earlier, upon the date that the Northwest Parties cease to
beneficially own voting securities representing at least 10% of the
fully diluted voting power of the Company's voting securities.
However, in response to concerns raised by the Department of
Justice ("DOJ") in its antitrust review of the Northwest Alliance,
the Air Partners Transaction and the related governance agreement
between the Company and the Northwest Parties (collectively, the
"Northwest Transaction"), a supplemental agreement was adopted,
which extended the effect of a number of the provisions of the
governance agreement for an additional four years. For instance,
the Northwest Parties must act to ensure that a majority of the
Company's Board is comprised of independent directors, and certain
specified actions, together with material transactions between the
Company and Northwest or its affiliates, including any
modifications or waivers of the supplemental agreement or the
alliance agreement, may not be taken without the prior approval of
a majority of the Board of Directors, including the affirmative
vote of a majority of the independent directors. The Northwest
Parties will continue to have the right to vote in their discretion
on any Extraordinary Transaction during the supplemental period,
but also will be permitted to vote in their discretion on other
matters up to 20% of the outstanding voting power (their remaining
votes to be cast neutrally, except in a proxy contest, as
contemplated in the governance agreement), subject to their
obligation set forth in the previous sentence. If, during the term
of the supplemental agreement, the Company's rights plan were
amended to allow certain parties to acquire more shares than is
currently permitted, or if the rights issued thereunder were
redeemed, the Northwest Parties could vote all of their shares in
their discretion. Certain transfer limitations are imposed on the
Northwest Parties during the supplemental period. The Company has
granted preemptive rights to a Northwest Party with respect to
issuances of Class A common stock and certain issuances of Class B
common stock that occur during such period. The Company has agreed
to certain limitations upon its ability to amend its charter,
bylaws, executive committee charter and rights plan during the term
of the supplemental agreement. Following the supplemental period,
the supplemental agreement requires the Northwest Parties to take
all actions necessary to cause Continental's Board to have at least
five independent directors, a majority of whom will be required to
approve material transactions between Continental and Northwest or
its affiliates, including the amendment, modification or waiver of
any provisions of the supplemental agreement or the alliance
agreement.
In certain circumstances, particularly in cases where a change in
control of the Company could otherwise be caused by another party,
Northwest could exercise its voting power so as to delay, defer or
prevent a change in control of the Company.
Risks Regarding Continental/Northwest Alliance. In November 1998,
the Company and Northwest began implementing a long-term global
alliance involving extensive code-sharing, frequent flyer
reciprocity, and other cooperative activities.
Continental's ability to implement the Northwest Alliance
successfully and to achieve the anticipated benefits is subject to
certain risks and uncertainties, including (a) disapproval or delay
by regulatory authorities or adverse regulatory developments; (b)
competitive pressures, including developments with respect to
alliances among other air carriers; (c) customer reaction to the
alliance, including reaction to differences in products and
benefits provided by Continental and Northwest; (d) economic
conditions in the principal markets served by Continental and
Northwest; (e) increased costs or other implementation
difficulties, including those caused by employees; (f)
Continental's ability to modify certain contracts that restrict
certain aspects of the alliance; and (g) the outcome of lawsuits
commenced by certain stockholders of Continental challenging the
Northwest Transaction and certain related matters.
The alliance agreement provides that if after four years the
Company has not entered into a code share with KLM or is not
legally able (but for aeropolitical restrictions) to enter into a
new trans-Atlantic joint venture with KLM and Northwest and place
its airline code on certain Northwest flights, Northwest can elect
to (i) cause good faith negotiations among the Company, KLM and
Northwest as to the impact, if any, on the contribution to the
joint venture resulting from the absence of the code share, and the
Company will reimburse the joint venture for the amount of any loss
until it enters into a code share with KLM, or (ii) terminate
(subject to cure rights of the Company) after one year's notice any
or all of such alliance agreement and any or all of the agreements
contemplated thereunder.
On October 23, 1998, the DOJ filed a lawsuit against Northwest and
Continental challenging Northwest's acquisition of an interest in
Continental. The DOJ did not seek to preliminarily enjoin the
transaction before it closed on November 20, 1998, nor is the DOJ
challenging the Northwest Alliance at this time, although the DOJ
has informed the parties that it continues to investigate certain
specific aspects of the alliance. Continental is in the process of
implementing its alliance with Northwest. While it is not possible
to predict the ultimate outcome of this litigation, management does
not believe that this litigation will have a material adverse
effect on Continental.
The DOT is reviewing the changes in Continental's ownership
pursuant to DOT procedures for confirming the continuing fitness of
airlines when their ownership changes. In connection with this
review, DOT has exempted Continental and Northwest from regulatory
provisions which DOT has interpreted to require approval for de
facto route transfers when one airline holding international route
authority acquires control of another airline holding international
route authority, and has deferred action until December 10, 1999 as
to its review of the governance and other agreements between
Continental and Northwest to determine whether there has been a de
facto route transfer.
If DOT were to conclude that a de facto route transfer of
Continental routes to Northwest were occurring, it would institute
a proceeding to determine whether such a transfer was in the public
interest. In the past, DOT has approved numerous transfers, but it
has also concluded on occasion that certain overlapping routes in
limited-entry markets should not be transferred. In those
instances, DOT has decided those routes should instead become
available to other airlines to enhance competition on overlapping
routes or between two countries. Continental and Northwest operate
overlapping flights on certain limited entry routes, and
Continental and Northwest offer service between their primary U.S.
hubs and various other countries. If DOT were to institute a route
transfer proceeding, it could consider whether certain of
Continental's international routes overlapping with Northwest's on
a point-to-point or country-to-country basis should be transferred
to Northwest or to another airline. Continental believes that
Northwest has not acquired control of Continental, and that there
is a significant question as to DOT's authority to apply a de facto
route transfer theory to the current relationship between Northwest
and Continental. Continental would vigorously oppose any attempt
by DOT to institute a route transfer proceeding which would
consider any reductions in Continental's route authorities.
Stockholder Litigation. Following the announcement of the
Northwest Transaction, to the Company's knowledge as of February 1,
1999, six separate lawsuits had been filed against the Company and
its Directors and certain other parties (the "Stockholder
Litigation"). The complaints in the Stockholder Litigation, which
were filed in the Court of Chancery of the State of Delaware in and
for New Castle County and seek class certification, and which have
been consolidated under the caption In re Continental Airlines,
Inc. Shareholder Litigation, generally allege that the Company's
Directors improperly accepted the Northwest Transaction in
violation of their fiduciary duties owed to the public stockholders
of the Company. They further allege that Delta Air Lines, Inc.
submitted a proposal to purchase the Company which, in the
plaintiffs' opinion, was superior to the Northwest Transaction.
The Stockholder Litigation seeks, inter alia, to enjoin the
Northwest Transaction and the award of unspecified damages to the
plaintiffs.
While there can be no assurance that the Stockholder Litigation
will not result in a delay in the implementation of any aspect of
the Northwest Transaction, or the enjoining of the Northwest
Transaction, the Company believes the Stockholder Litigation to be
without merit and intends to defend it vigorously.
Year 2000 Computer Risk. The Year 2000 issue arises as a result of
computer programs having been written using two digits (rather than
four) to define the applicable year, among other problems. Any
information technology ("IT") systems that have time-sensitive
software might recognize a date using "00" as the year 1900 rather
than the year 2000, which could result in miscalculations and
system failures. The problem also extends to many "non-IT"
systems; that is, operating and control systems that rely on
embedded chip systems. In addition, the Company is at risk from
Year 2000 failures on the part of third-party suppliers and
governmental agencies with which the Company interacts.
The Company uses a significant number of computer software programs
and embedded operating systems that are essential to its
operations. For this reason, the Company implemented a Year 2000
project in late 1996 so that the Company's computer systems would
function properly in the year 2000 and thereafter. The Company's
Year 2000 project involves the review of a number of internal and
third-party systems. Each system is subjected to the project's
five phases which consist of systems inventory, evaluation and
analysis, modification implementation, user testing and integration
compliance. The systems are currently in various stages of
completion. The Company anticipates completing its review of
systems in the second quarter of 1999 and believes that, with
modifications to its existing software and systems and/or
conversions to new software, the Year 2000 issue will not pose
significant operational problems for its computer systems.
The Company has also initiated communications and on-site visits
with its significant suppliers, vendors and governmental agencies
with which its systems interface and exchange data or upon which
its business depends. The Company is coordinating efforts with
these parties to minimize the extent to which its business may be
vulnerable to their failure to remediate their own Year 2000
problems. The Company's business is dependent upon certain
domestic and foreign governmental organizations or entities such as
the FAA that provide essential aviation industry infrastructure.
There can be no assurance that the systems of such third parties on
which the Company's business relies (including those of the FAA)
will be modified on a timely basis. The Company's business,
financial condition or results of operations could be materially
adversely affected by the failure of its equipment or systems or
those operated by other parties to operate properly beyond 1999.
Although the Company currently has day-to-day operational
contingency plans, management is in the process of updating these
plans for possible Year 2000-specific operational requirements.
The Company anticipates completing the revision of current
contingency plans and the creation of additional contingency plans
by September 1999. In addition, the Company will continue to
monitor third-party (including governmental) readiness and will
modify its contingency plans accordingly. While the Company does
not currently expect any significant modification of it operations
in response to the Year 2000 issue, in a worst-case scenario the
Company could be required to alter its operations significantly.
Risks Factors Relating to the Airline Industry
Competition and Industry Conditions. The airline industry is
highly competitive and susceptible to price discounting. Carriers
have used discount fares to stimulate traffic during periods of
slack demand, to generate cash flow and to increase market share.
Some of Continental's competitors have substantially greater
financial resources or lower cost structures than Continental.
Airline profit levels are highly sensitive to changes in fuel
costs, fare levels and passenger demand. Passenger demand and fare
levels have in the past been influenced by, among other things, the
general state of the economy (both in international regions and
domestically), international events, airline capacity and pricing
actions taken by carriers. Domestically, from 1990 to 1993, the
weak U.S. economy, turbulent international events and extensive
price discounting by carriers contributed to unprecedented losses
for U.S. airlines. In the last several years, the U.S. economy has
improved and excessive price discounting has abated. Continental
cannot predict the extent to which these industry conditions will
continue.
In recent years, the major U.S. airlines have sought to form
marketing alliances with other U.S. and foreign air carriers. Such
alliances generally provide for "code-sharing", frequent flyer
reciprocity, coordinated scheduling of flights of each alliance
member to permit convenient connections and other joint marketing
activities. Such arrangements permit an airline to market flights
operated by other alliance members as its own. This increases the
destinations, connections and frequencies offered by the airline,
which provide an opportunity to increase traffic on its segment of
flights connecting with its alliance partners. The Northwest
Alliance is an example of such an arrangement, and Continental has
existing alliances with numerous other air carriers. Other major
U.S. airlines have alliances or planned alliances more extensive
than Continental's. Continental cannot predict the extent to which
it will benefit from its alliances or be disadvantaged by competing
alliances.
Regulatory Matters. Airlines are subject to extensive regulatory
and legal compliance requirements that engender significant costs.
In the last several years, the FAA has issued a number of
directives and other regulations relating to the maintenance and
operation of aircraft that have required significant expenditures.
Some FAA requirements cover, among other things, retirement of
older aircraft, security measures, collision avoidance systems,
airborne windshear avoidance systems, noise abatement, commuter
aircraft safety and increased inspections and maintenance
procedures to be conducted on older aircraft. Continental expects
to continue incurring expenses in complying with the FAA's
regulations.
Additional laws, regulations, taxes and airport rates and charges
have been proposed from time to time that could significantly
increase the cost of airline operations or reduce revenues.
Congress and the DOT have also proposed the regulation of airlines'
competitive responses and other activities, including ticketing
practices and the treatment of customers. Restrictions on the
ownership and transfer of airline routes and takeoff and landing
slots have also been proposed. The ability of United States
carriers to operate international routes is subject to change
because the applicable arrangements between the United States and
foreign governments may be amended from time to time, or because
appropriate slots or facilities are not made available.
Continental cannot provide assurance that laws or regulations
enacted in the future will not adversely affect it.
Seasonal Nature of Airline Business. Due to the greater demand for
air travel during the summer months, revenue in the airline
industry in the third quarter of the year is generally
significantly greater than revenue in the first quarter of the year
and moderately greater than revenue in the second and fourth
quarters of the year for the majority of air carriers.
Continental's results of operations generally reflect this
seasonality, but have also been impacted by numerous other factors
that are not necessarily seasonal, including the extent and nature
of competition from other airlines, fare wars, excise and similar
taxes, changing levels of operations, fuel prices, foreign currency
exchange rates and general economic conditions.
ITEM 2. PROPERTIES.
Flight Equipment
As shown in the following table, Continental's (including CMI's)
jet aircraft fleet (excluding regional jets) consisted of 363 jets
and was comprised of 13 different types and series of aircraft at
December 31, 1998.
Seats
Total in Standard Average Age
Type Aircraft Owned Leased Configuration (In Years)
Four Engine
747-200* 3 1 2 426 25.9
Three Engine
DC-10-10 5 - 5 287 26.1
DC-10-30 31 6 25 242 22.8
727-200* 32 4 28 149 22.4
Two Engine
777-200 6 1 5 283 0.2
737-800 15 - 15 155 0.4
737-700 16 - 16 124 0.5
757-200 32 5 27 183 2.6
737-500 67 15 52 104 2.7
737-300 65 14 51 128 11.4
737-200* 2 2 - 100 29.5
MD-80 69 17 52 141 14.0
DC-9-30* 20 3 17 103 26.8
363 68 295 11.6
*Stage 2 (noise level) aircraft (excluding five 727 aircraft
operated by CMI) which are scheduled to be replaced prior to the
year 2000.
The table above excludes six all-cargo 727 CMI aircraft and one
A300 and one 747 Continental aircraft that were removed from
service in 1995 and 1998, respectively.
A majority of the aircraft and engines owned by Continental are
subject to mortgages.
The FAA has adopted rules pursuant to the Airport Noise and
Capacity Act of 1990 that require a scheduled phase-out of Stage 2
aircraft during the 1990s. As a result of Continental's
acquisition of a number of new aircraft and the retirement of older
Stage 2 aircraft in recent years, 84.3% of Continental's current
jet fleet was composed of Stage 3 aircraft at December 31, 1998.
The Company plans to retire the remainder of its Stage 2 jet fleet
(excluding five 727 aircraft operated by CMI) prior to the year
2000 in order to comply with such rules. Scheduled deliveries of
the Company's new Boeing aircraft on order are expected to reduce
the average age of the Company's jet fleet (excluding regional
jets) from 11.6 years to 8.6 years by the end of 1999.
During 1998, Continental took delivery of a total of 65 new Boeing
aircraft which consisted of sixteen 737-500 aircraft, sixteen 737-
700 aircraft, seventeen 737-800 aircraft, ten 757-200 aircraft and
six 777-200 aircraft. The Company anticipates taking delivery of
57 new Boeing aircraft in 1999.
As of December 31, 1998, Express operated a fleet of 127 aircraft,
as follows:
Seats
Total in Standard Average Age
Type Aircraft Owned Leased Configuration (In Years)
Turboprop
ATR-72 3 3 - 64 4.4
ATR-42-320 30 3 27 46 8.9
ATR-42-500 8 - 8 48 2.3
EMB-120 26 16 10 30 9.2
Beech 1900-D 25 25 - 19 2.9
Regional jets
ERJ-145 35 - 35 50 1.0
127 47 80 5.1
The table above excludes one ATR-42 aircraft owned by the Company
and currently leased to a third party and six EMB-120s owned by the
Company but removed from service for remarketing. On January 26,
1999, one such EMB-120 was sold.
During 1998, Express took delivery of 18 ERJ-145 aircraft. Express
anticipates taking delivery of another 18 ERJ-145 aircraft and six
new ERJ-135 aircraft in 1999.
See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Commitments" for a discussion of the Company's order for new firm
commitment aircraft and related financing arrangements.
Facilities
The Company's principal facilities are located at Newark, Bush
Intercontinental in Houston, Hopkins International in Cleveland and
A.B. Won Pat International Airport in Guam. All these facilities,
as well as substantially all of Continental's other facilities, are
leased on a long-term, net-rental basis, and Continental is
responsible for maintenance, taxes, insurance and other facility-
related expenses and services. In certain locations, Continental
owns hangars and other facilities on land leased on a long-term
basis, which facilities will become the property of the lessor on
termination of the lease. At each of its three domestic hub cities
and most other locations, Continental's passenger and baggage
handling space is leased directly from the airport authority on
varying terms dependent on prevailing practice at each airport.
In July 1996, the Company announced plans to expand its gates and
related facilities into Terminal B at Bush Intercontinental, as
well as planned improvements at Terminal C and the construction of
a new automated people mover system linking Terminal B and Terminal
C. In April 1997 and January 1999, the City of Houston completed
the offering of $190 million and $46 million, respectively,
aggregate principal amount of tax-exempt special facilities revenue
bonds (the "IAH Bonds"). The IAH Bonds are unconditionally
guaranteed by Continental. In connection therewith, the Company
has entered into long-term leases (or amendments to existing
leases) with the City of Houston providing for the Company to make
rental payments sufficient to service the related tax-exempt bonds,
which have a term no longer than 30 years. The majority of the
Company's expansion and improvements at Bush Intercontinental are
expected to be completed during the summer of 1999.
In 1998, the Company built a wide-body aircraft maintenance hangar
in Honolulu, Hawaii at an approximate cost of $25 million. The
construction was financed by tax-exempt special facilities revenue
bonds issued by the State of Hawaii. In connection therewith, the
Company has entered into long-term leases providing for the Company
to make rental payments sufficient to service the related tax-
exempt bonds.
In 1998, Continental completed construction of a new hangar and
improvements to a cargo facility at Newark. Continental completed
the financing of these projects in April 1998 with $23 million of
tax-exempt bonds issued by the New Jersey Economic Development
Authority. Continental is also planning a major facility expansion
at Newark which will require, among other matters, agreements to be
reached with the applicable airport authority and significant tax-
exempt bond financing for the project.
Continental has commenced the expansion of its facilities at
Hopkins International, which expansion is expected to be completed
in the third quarter of 1999. The expansion, which will include a
new jet concourse for the regional jet service offered by Express,
as well as other facility improvements, is expected to cost
approximately $156 million and is being funded principally by a
combination of tax-exempt special facilities revenue bonds (issued
in March 1998) and general airport revenue bonds (issued in
December 1997) by the City of Cleveland. In connection therewith,
Continental has entered into a long-term lease with the City of
Cleveland under which rental payments will be sufficient to service
the related bonds.
The Company has lease agreements with the City and County of Denver
covering ten gates and several support facilities at Denver
International Airport. The gates and facilities exceed
Continental's needs at the airport and the Company has subleased a
portion of the space.
The Company has cargo facilities at Los Angeles International
Airport. In July 1996, the Company subleased such facilities to
another carrier. If such carrier fails to comply with its
obligations under the sublease, the Company would be required to
perform those obligations.
CMI operates a hub on the island of Guam. In September 1996, the
Guam International Airport Authority completed the first phase of
a $240 million airport terminal expansion and renovation project.
This provided new arrival facilities, inbound baggage carousels and
customs halls and increased the number of gates available to CMI
from six to 12. The second (and final) phase of the project was
completed in November 1998. This added five new gates, additional
ticket counters and a new pier-sort outbound baggage system. The
completed project tripled the size of the terminal complex.
Continental also maintains administrative offices, airport and
terminal facilities, training facilities and other facilities
related to the airline business in the cities it serves.
Continental remains contingently liable until December 1, 2015, on
$202 million of long-term lease obligations of US Airways related
to the East End Terminal at LaGuardia Airport in New York. If US
Airways defaulted on these obligations, Continental could be
required to cure the default, at which time it would have the
right to reoccupy the terminal.
ITEM 3. LEGAL PROCEEDINGS.
Antitrust Litigation
United States of America v. Northwest Airlines Corp. & Continental
Airlines, Inc., in the United States District Court for the
Eastern District of Michigan, Southern Division. In this
litigation, the Antitrust Division of the Department of Justice is
challenging under Section 7 of the Clayton Act and Section 1 of the
Sherman Act the acquisition by Northwest of shares of Continental's
Class A common stock bearing, together with certain shares for
which Northwest has a limited proxy, more than 50% of the fully
diluted voting power of all Continental stock. The government's
position is that, notwithstanding various agreements that severely
restrict Northwest's ability to exercise voting control over
Continental and are designed to assure Continental's competitive
independence, Northwest's control of the Class A common stock will
reduce actual and potential competition in various ways and in a
variety of markets. Continental believes that because of
agreements restricting Northwest's right to exercise control over
Continental, the companies remain independent competitors;
Northwest's stock acquisition was made solely for investment
purposes and thus is expressly exempt under Section 7 of the
Clayton Act; and Northwest's stock acquisition was necessary in
order for Northwest and Continental to enter into an alliance
agreement that is highly pro-competitive. The government seeks an
order requiring Northwest to divest all voting stock in Continental
on terms and conditions as may be agreed to by the government and
the Court. No specific relief is sought against Continental.
Environmental Proceedings
Under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (commonly known
as "Superfund") and similar state environment cleanup laws,
generators of waste disposed of at designated sites may, under
certain circumstances, be subject to joint and several liability
for investigation and remediation costs. The Company (including
its predecessors) has been identified as a potentially responsible
party at four federal and two state sites that are undergoing or
have undergone investigation or remediation. The Company believes
that, although applicable case law is evolving and some cases may
be interpreted to the contrary, some or all of any liability claims
associated with these sites were discharged by confirmation of the
Company's Plan of Reorganization, principally because the Company's
exposure is based on alleged offsite disposal known as of the date
of confirmation. Even if any such claims were not discharged, on
the basis of currently available information, the Company believes
that its potential liability for its allocable share of the cost to
remedy each site (to the extent the Company is found to have
liability) is not, in the aggregate, material; however, the Company
has not been designated a "de minimis" contributor at any of such
sites.
The Company is also involved in other environmental matters,
including the investigation and/or remediation of environmental
conditions at properties used or previously used by the Company.
Although the Company is not currently subject to any environmental
cleanup orders imposed by regulatory authorities, it is undertaking
voluntary investigation or remediation at certain properties in
consultation with such authorities. The full nature and extent of
any contamination at these properties and the parties responsible
for such contamination have not been determined, but based on
currently available information, the Company does not believe that
any environmental liability associated with such properties will
have a material adverse effect on the Company.
Stockholder Litigation
Following the announcement of the Northwest Transaction, to the
Company's knowledge as of February 1, 1999, six separate lawsuits
had been filed against the Company and its Directors and certain
other parties. The complaints in the Stockholder Litigation, which
were filed in the Court of Chancery of the State of Delaware in and
for New Castle County and seek class certification, and which have
been consolidated under the caption In re Continental Airlines,
Inc. Shareholder Litigation, generally allege that the Company's
Directors improperly accepted the Northwest Transaction in
violation of their fiduciary duties owed to the public stockholders
of the Company. They further allege that Delta Air Lines, Inc.
submitted a proposal to purchase the Company which, in the
plaintiffs' opinion, was superior to the Northwest Transaction.
The Stockholder Litigation seeks, inter alia, to enjoin the
Northwest Transaction and the award of unspecified damages to the
plaintiffs.
While there can be no assurance that the Stockholder Litigation
will not result in a delay in the implementation of any aspect of
the Northwest Transaction, or the enjoining of the Northwest
Transaction, the Company believes the Stockholder Litigation to be
without merit and intends to defend it vigorously.
General
Various other claims and lawsuits against the Company are pending
that are of the type generally consistent with the Company's
business. The Company cannot at this time reasonably estimate the
possible loss or range of loss that could be experienced if any of
the claims were successful. Typically, such claims and lawsuits
are covered in whole or in part by insurance. The Company does not
believe that the foregoing matters will have a material adverse
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Continental's common stock trades on the New York Stock Exchange.
The table below shows the high and low sales prices for the
Company's Class A common stock and Class B common stock as reported
on the New York Stock Exchange during 1997 and 1998.
Class A Class B
Common Stock Common Stock
High Low High Low
1997 First Quarter . . . 33-3/4 27 33-5/8 27
Second Quarter. . . 36-3/4 30-1/8 35-7/8 29-1/2
Third Quarter . . . 41-7/16 34 41-3/8 34
Fourth Quarter. . . 50-1/2 38-1/2 50-3/16 38-5/8
1998 First Quarter . . . 64-1/4 47-3/4 62-1/16 44
Second Quarter. . . 64-1/2 55-3/4 64 54-1/16
Third Quarter . . . 64-3/4 36-1/2 65-1/8 35-3/4
Fourth Quarter. . . 43-5/16 30-7/8 42-13/16 28-7/8
As of February 17, 1999, there were approximately 2,953 and 15,494
holders of record of Continental's Class A common stock and Class B
common stock, respectively.
The Company has paid no cash dividends on its common stock.
Because management believes it is important to continue
strengthening the Company's balance sheet and liquidity, the
Company has no current intention of paying cash dividends on its
common stock. During 1998, the Company's Board of Directors
authorized the expenditure of up to $300 million to repurchase
shares of the Company's Class A and Class B common stock or
securities convertible into Class B common stock. As of February
17, 1999, the Company has repurchased 4,952,700 Class B common
shares for $240 million. Certain of the Company's credit
agreements and indentures restrict the ability of the Company and
certain of its subsidiaries to pay cash dividends by imposing
minimum unrestricted cash requirements on the Company, limiting the
amount of such dividends when aggregated with certain other
payments or distributions and requiring that the Company comply
with other covenants specified in such instruments.
The Company's Certificate of Incorporation provides that no shares
of capital stock may be voted by or at the direction of persons who
are not United States citizens unless such shares are registered on
a separate stock record. The Company's Bylaws further provide that
no shares will be registered on such separate stock record if the
amount so registered would exceed United States foreign ownership
restrictions. United States law currently requires that no more
than 25% of the voting stock of the Company (or any other domestic
airline) may be owned directly or indirectly by persons who are not
citizens of the United States.
ITEM 6. SELECTED FINANCIAL DATA.
The table on the following page sets forth certain consolidated
financial data of the Company at December 31, 1998, 1997, 1996,
1995 and 1994 and for each of the five years in the period ended
December 31, 1998.
ITEM 6. SELECTED FINANCIAL DATA (Continued)
December 31, (1)(2)
1998 1997 1996 1995 1994
Operating revenue. . . . . . $7,951 $7,213 $6,360 $5,825 $5,670
Operating income (loss). . . 701 716 525 385 (11)
Income (loss) before
extraordinary charge . . . 387 389 325 224 (613)
Net income (loss). . . . . . 383 385 319 224 (613)
Earnings (loss) per
common share:
Income (loss) before
extraordinary charge . 6.40 6.72 5.87 4.07 (11.88)
Net income (loss). . . . 6.34 6.65 5.75 4.07 (11.88)
Earnings (loss) per common
share assuming dilution:
Income (loss) before
extraordinary charge . 5.06 5.03 4.25 3.37 (11.88)
Net income (loss). . . . 5.02 4.99 4.17 3.37 (11.88)
ITEM 6. SELECTED FINANCIAL DATA (Continued)
December 31, (1)
1998 1997 1996 1995 1994
Total assets . . . . . . . . . . . $7,086 $5,830 $5,206 $4,821 $4,601
Debt and capital lease obligations
in default (3) . . . . . . . . . - - - - 490
Long-term debt and capital lease
obligations. . . . . . . . . . . 2,480 1,568 1,624 1,658 1,202
Minority interest (4). . . . . . . - - 15 27 26
Continental-Obligated Mandatorily
Redeemable Preferred Securities
of Subsidiary Trust holding
solely Convertible Subordinated
Debentures (5) . . . . . . . . . 111 242 242 242 -
Redeemable preferred stock (6) . . - - 46 41 53
(1) See Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Results of Operations" for a discussion of significant transactions in
1998, 1997, 1996 and 1995. 1998 results include a $122 million fleet disposition/
impairment charge resulting from the Company's decision to accelerate the retirement of
certain jet and turboprop aircraft. 1996 results include a $128 million fleet
disposition charge associated with the Company's decision to accelerate the replacement
of its DC-9-30, DC-10-10, 727-200, 737-100 and 737-200 aircraft. 1995 results include
a $108 million gain ($30 million after taxes) from the System One transactions. 1994
results include a provision of $447 million associated with the planned early retirement
of certain aircraft and closed or underutilized airport and maintenance facilities and
other assets.
(2) No cash dividends were paid on common stock during the periods shown.
(3) The Company's failure to make certain required payments in 1994 to certain lenders and
aircraft lessors constituted events of default under the respective agreements with such
parties. These events of default were cured in 1995.
(4) Continental purchased UMDA's 9% interest in Air Micronesia, Inc. in 1997.
(5) The sole assets of the Continental-Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trust ("Trust") are Convertible Subordinated Debentures. In 1998,
approximately $134 million principal amount of such Preferred Securities converted into
shares of Class B common stock, and in January 1999, the remainder of such Preferred
Securities converted into shares of Class B common stock.
(6) Continental redeemed for cash all of the outstanding shares of its Series A 12%
Cumulative Preferred Stock in 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion may contain forward-looking statements.
In connection therewith, please see the cautionary statements
contained in Item 1. "Business - Risk Factors Relating to the
Company" and "Business - Risk Factors Relating to the Airline
Industry" which identify important factors that could cause actual
results to differ materially from those in the forward-looking
statements. Hereinafter, the terms "Continental" and the "Company"
refer to Continental Airlines, Inc. and its subsidiaries, unless
the context indicates otherwise.
Continental's results of operations are impacted by seasonality
(the second and third quarters are generally stronger than the
first and fourth quarters) as well as numerous other factors that
are not necessarily seasonal, including the extent and nature of
competition from other airlines, fare sale activities, excise and
similar taxes, changing levels of operations, fuel prices, foreign
currency exchange rates and general economic conditions. To date,
the recent turmoil in the world's financial markets has not had a
material adverse impact on the Company's results of operations,
although the Company has experienced yield degradations in domestic
and certain international markets. Although the results in Asia of
Continental Micronesia, Inc. ("CMI"), a wholly owned subsidiary of
the Company, have declined in recent years, the Company
successfully redeployed CMI capacity into stronger domestic markets
and CMI's recent results have improved. In addition, the Company
believes it is well positioned to respond to market conditions in
the event of a sustained economic downturn for the following
reasons: underdeveloped hubs with strong local traffic; a flexible
fleet plan; a strong cash balance, a $225 million unused revolving
credit facility and a well developed alliance network.
Results of Operations
The following discussion provides an analysis of the Company's
results of operations and reasons for material changes therein for
the three years ended December 31, 1998.
Comparison of 1998 to 1997. The Company recorded consolidated net
income of $383 million and $385 million for the years ended
December 31, 1998 and 1997 (including special charges),
respectively. Net income in 1998 was significantly impacted by a
$77 million ($122 million before taxes) fleet
disposition/impairment loss resulting from the Company's decision
to accelerate the retirement of certain jet and turboprop aircraft.
Management believes that the Company benefitted in the first
quarter of 1997 from the expiration of the aviation trust fund tax
(the "ticket tax"). The ticket tax was reinstated on March 7,
1997. Management believes that the ticket tax has a negative
impact on the Company, although neither the amount of such negative
impact directly resulting from the reimposition of the ticket tax,
nor the benefit realized by its previous expiration, can be
precisely determined.
Passenger revenue increased 10.6%, $706 million, during 1998 as
compared to 1997. The increase was due to a 12.5% increase in
revenue passenger miles, partially offset by a 2.6% decrease in
yield. The decrease in yield was due to lower industry-wide fare
levels and an 8% increase in average stage length.
Cargo and mail increased 6.6%, $17 million, due to an increase in
freight revenue resulting from strong international volumes and
strong growth in Continental's express delivery service.
Other operating revenue increased 5.1%, $15 million, due to an
increase in revenue related to the Company's frequent flyer program
("OnePass").
Wages, salaries and related costs increased 22.3%, $404 million,
during 1998 as compared to 1997, primarily due to an 11.2% increase
in average full-time equivalent employees to support increased
flying and higher wage rates resulting from the Company's decision
to increase employee wages to industry standards by the year 2000.
Aircraft fuel expense decreased 17.9%, $158 million, in 1998 as
compared to the prior year. The average price per gallon decreased
25.6% from 62.91 cents in 1997 to 46.83 cents in 1998. This
reduction was partially offset by a 9.6% increase in the quantity
of jet fuel used principally reflecting increased capacity.
Aircraft rentals increased 19.6%, $108 million, during 1998 as
compared to 1997, due primarily to the delivery of new leased
aircraft.
Maintenance, materials and repairs increased 8.4%, $45 million,
during 1998 as compared to 1997. Aircraft maintenance expense in
the second quarter of 1997 was reduced by $16 million due to the
reversal of reserves that were no longer required as a result of
the acquisition of 10 aircraft previously leased by the Company.
In addition, maintenance expense increased due to the overall
increase in flight operations offset by newer aircraft and the
volume and timing of engine overhauls as part of the Company's
ongoing maintenance program.
Depreciation and amortization expense increased 15.7%, $40 million,
in 1998 compared to 1997 primarily due to the addition of new
aircraft and related spare parts. These increases were partially
offset by an approximate $18 million reduction in the amortization
of reorganization value in excess of amounts allocable to
identifiable assets and routes, gates and slots resulting from the
recognition of previously unbenefitted net operating losses
("NOLs").
On August 11, 1998, Continental announced that CMI plans to
accelerate the retirement of its four Boeing 747 aircraft by April
1999 and its remaining thirteen Boeing 727 aircraft by December
2000. The Boeing 747s will be replaced by DC-10-30 aircraft and
the Boeing 727 aircraft will be replaced with a reduced number of
Boeing 737 aircraft. In addition, Continental Express, Inc.
("Express"), a wholly owned subsidiary of the Company, will
accelerate the retirement of certain turboprop aircraft by December
2000, including its fleet of 32 Embraer 120 ("EMB-120") turboprop
aircraft, as regional jets are acquired to replace turboprops. As
a result of its decision to accelerate the retirement of these
aircraft, Continental recorded a fleet disposition/impairment loss
of $77 million ($122 million before taxes) in the third quarter of
1998.
Other operating expense increased 10.5%, $157 million, in 1998 as
compared to the prior year, primarily as a result of increases in
passenger and aircraft servicing expense, reservations and sales
expense and other miscellaneous expense, primarily due to the 10.6%
increase in available seat miles.
Interest expense increased 7.2%, $12 million, due to an increase in
long-term debt resulting from the purchase of new aircraft.
Interest capitalized increased 57.1%, $20 million, due to increased
capital spending and a higher average balance of purchase deposits
for flight equipment.
The Company's other nonoperating income (expense) in 1998 included
a $6 million gain on the sale of America West Holdings Corporation
("America West Holdings") stock.
Comparison of 1997 to 1996. The Company recorded consolidated net
income of $385 million and $319 million for the years ended
December 31, 1997 and 1996, respectively, including a $77 million
fleet disposition loss ($128 million before taxes) in 1996 and
after-tax extraordinary charges relating to the early
extinguishment of debt of $4 million and $6 million in 1997 and
1996, respectively. Management believes that the Company
benefitted in the first three quarters of 1996 and in the first
quarter of 1997 from the expiration of the ticket tax on December
31, 1995 and December 31, 1996, respectively. The ticket tax was
reinstated on August 27, 1996 and again on March 7, 1997.
Management believes that the ticket tax has a negative impact on
the Company, although neither the amount of such negative impact
directly resulting from the reimposition of the ticket tax, nor the
benefit realized by its expiration, can be precisely determined.
Additionally, the Company benefitted in the first six months of
1996 from the recognition of previously unbenefitted post-
reorganization NOLs.
Passenger revenue increased 13.4%, $789 million, during 1997
compared to 1996. The increase was due to a 14.3% increase in
revenue passenger miles on capacity growth of 9.9% offset by a 1.1%
decrease in yield.
Cargo and mail revenue increased 11.2%, $26 million, during 1997
compared to 1996 due to an increase in cargo capacity and mail
volumes, primarily in international markets.
Other operating revenue increased 14.8%, $38 million, from 1996 to
1997 primarily as a result of an increase in revenue related to
frequent flyer mileage credits sold to participating partners in
the OnePass program.
Wages, salaries and related costs increased 17.1%, $265 million,
during 1997 as compared to 1996 due in part to a 9.6% increase in
the average number of full-time equivalent employees from
approximately 34,300 for the year ended December 31, 1996 to 37,600
for the year ended December 31, 1997. Wages and salaries also
increased in 1997 due to a $29 million accrual for the impact of
the tentative collective bargaining agreement with the pilots and
an increase in employee incentives of $29 million.
Aircraft fuel expense increased 14.3%, $111 million, from 1996 to
1997 primarily due to a 10.5% increase in the quantity of jet fuel
used from 1.228 billion gallons during 1996 to 1.357 billion
gallons during 1997, resulting from increased flying. In addition,
the average price per gallon, net of fuel hedging gains of $65
million in 1996, increased 3.3% from 60.9 cents in 1996 to
62.9 cents in 1997.
Aircraft rentals increased 8.3%, $42 million, from 1996 to 1997,
primarily as a result of the delivery of new aircraft throughout
1997, net of retirements.
Commissions expense increased 11.2%, $57 million, in 1997 compared
to 1996, primarily due to increased passenger revenue.
Maintenance, materials and repairs increased 16.5%, $76 million,
during 1997 as compared to 1996, principally due to the volume and
timing of engine overhauls, increase in component costs and routine
maintenance as part of the Company's ongoing maintenance program.
Aircraft maintenance expense was reduced by $16 million in 1997 due
to the reversal of reserves that are no longer required as a result
of the acquisition of 10 aircraft previously leased by the Company.
Other rentals and landing fees increased 12.9%, $45 million, during
1997 compared to 1996 due to higher facilities rentals and landing
fees resulting from increased operations.
During the third quarter of 1996, the Company recorded a fleet
disposition loss of $77 million ($128 million before taxes),
related primarily to (i) the writedown of Stage 2 aircraft
inventory to its estimated fair value; and (ii) a provision for
costs associated with the return of leased aircraft at the end of
their respective lease terms.
Other operating expense increased 14.9%, $194 million, in 1997 as
compared to 1996, primarily as a result of increases in passenger
services, advertising and publicity, reservations and sales expense
and other miscellaneous expense.
Interest income increased 30.2%, $13 million, in 1997 compared to
the prior year principally due to an increase in the average
invested balance of cash and cash equivalents.
Interest capitalized increased $30 million in 1997 compared to 1996
as a result of higher average purchase deposits for flight
equipment resulting from the pending acquisition of new aircraft.
Other nonoperating income (expense) for the year ended December 31,
1996 included an $18 million gain related to the sale of America
West Holdings common stock and warrants.
The income tax provision for the year ended December 31, 1997 and
1996 of $237 million and $86 million, respectively, consists of
federal, state and foreign income taxes. During the second quarter
of 1996, the Company had fully utilized previously unbenefitted
post-reorganization NOLs, and began accruing income tax expense.
Certain Statistical Information
An analysis of statistical information for Continental's jet
operations, excluding regional jets operated by Express, for each
of the three years in the period ended December 31, 1998 is as
follows:
Net Increase/ Net Increase/
(Decrease) (Decrease)
1998 1998-1997 1997 1997-1996 1996
Revenue pas-
senger miles
(millions) (1) . 53,910 12.5 % 47,906 14.3 % 41,914
Available seat
miles
(millions) (2) . 74,727 10.6 % 67,576 9.9 % 61,515
Passenger load
factor (3) . . . 72.1% 1.2 pts. 70.9% 2.8 pts. 68.1%
Breakeven pas-
senger load
factor (4), (5). 61.4% 1.4 pts. 60.0% (0.7)pts. 60.7%
Passenger revenue
per available
seat mile
(cents). . . . . 9.10 (1.0)% 9.19 2.9 % 8.93
Total revenue per
available seat
mile (cents) . . 9.98 (1.1)% 10.09 3.0 % 9.80
Operating cost
per available
seat mile
(cents) (5). . . 8.93 (1.5)% 9.07 3.4 % 8.77
Average yield
per revenue
passenger mile
(cents) (6). . . 12.62 (2.6)% 12.96 (1.1)% 13.10
Average fare per
revenue
passenger. . . . $155.95 3.53% $150.63 5.1 % $143.27
Revenue passengers
(thousands). . . 43,625 5.9 % 41,210 7.5 % 38,332
Average length of
aircraft flight
(miles). . . . . 1,044 8.0 % 967 7.9 % 896
Average daily
utilization of
each aircraft
(hours) (7). . . 10:13 0.0 % 10:13 2.3 % 9:59
Actual aircraft
in fleet at end
of period (8). . 363 7.7 % 337 6.3 % 317
_______________
Continental has entered into block space arrangements with certain
other carriers whereby one or both of the carriers is obligated to
purchase capacity on the other. The table above excludes 1.9
billion and 738 million available seat miles, together with related
revenue passenger miles and enplanements, operated by Continental
but purchased and marketed by the other carrier in 1998 and 1997,
respectively, and includes 358 million available seat miles,
together with related revenue passenger miles and enplanements,
operated by other carriers but purchased and marketed by
Continental in 1998.
(1) The number of scheduled miles flown by revenue passengers.
(2) The number of seats available for passengers multiplied by
the number of scheduled miles those seats are flown.
(3) Revenue passenger miles divided by available seat miles.
(4) The percentage of seats that must be occupied by revenue
passengers in order for the airline to break even on an
income before income taxes basis, excluding nonrecurring
charges, nonoperating items and other special items.
(5) 1998 excludes a fleet disposition/impairment loss totaling
$122 million and 1996 excludes a fleet disposition loss
totaling $128 million.
(6) The average revenue received for each mile a revenue
passenger is carried.
(7) The average number of hours per day that an aircraft flown in
revenue service is operated (from gate departure to gate
arrival).
(8) Excludes all-cargo 727 aircraft (six in 1998 and 1997 and
four in 1996) at CMI.
Liquidity and Capital Resources
During 1998 and early 1999, the Company completed a number of
transactions intended to strengthen its long-term financial
position and enhance earnings:
- - In February 1998, the Company completed an offering of $773
million of pass-through certificates used to finance (through
either leveraged leases or secured debt financings) the debt
portion of the acquisition cost of 24 aircraft delivered from
February 1998 through December 1998.
- - During the first quarter of 1998, Continental completed several
offerings totaling approximately $98 million aggregate principal
amount of tax-exempt special facilities revenue bonds to finance
or refinance certain airport facility projects. These bonds are
payable solely from rentals paid by Continental under long-term
lease agreements with the respective governing bodies.
- - In April 1998, the Company completed an offering of $187 million
of pass-through certificates used to refinance the debt related
to 14 aircraft currently owned by Continental.
- - During the fourth quarter of 1998, the Company completed an
offering of $524 million of pass-through certificates to be used
to finance (through either leveraged leases or secured debt
financings) the debt portion of the acquisition cost of up to 14
aircraft scheduled to be delivered from December 1998 through May
1999.
- - In November 1998, the Company exercised its right and called for
redemption approximately half of its outstanding 8-1/2%
Convertible Trust Originated Preferred Securities ("TOPrS"). The
TOPrS were convertible into shares of Class B common stock at a
conversion price of $24.18 per share of Class B common stock. As
a result of the call for redemption, 2,688,173 TOPrS were
converted into 5,558,649 shares of Class B common stock. In
December 1998, the Company called for redemption the remaining
outstanding TOPrS. As a result of the second call, the remaining
2,298,327 TOPrS were converted into 4,752,522 shares of Class B
common stock during January 1999.
- - In December 1998, the Company sold $200 million principal amount
of 8% unsecured senior notes due in December 2005. The proceeds
will be used for general corporate purposes.
- - In February 1999, the Company completed an offering of $806
million of pass-through certificates to be used to finance
(through either leveraged leases or secured debt financings) the
debt portion of the acquisition cost of up to 22 aircraft
scheduled to be delivered from March 1999 through September 1999.
At the direction of an independent trustee, the cash proceeds from
the pass-through certificate transactions are deposited with an
escrow agent and enable the Company to finance (through either
leveraged leases or secured debt financings) the debt portion of
the acquisition cost of new aircraft. As of February 8, 1999,
approximately $1.1 billion of the proceeds remain on deposit. If
any funds remain as deposits at the end of the specified delivery
periods, such funds will be distributed back to the certificate
holders.
As of December 31, 1998, Continental had approximately $2.7 billion
(including current maturities) of long-term debt and capital lease
obligations, and had approximately $1.3 billion of Continental-
obligated mandatorily redeemable preferred securities of subsidiary
trust and common stockholders' equity, a ratio of 2.1 to 1,
compared to 1.6 to 1 at December 31, 1997.
As of December 31, 1998, the Company had $1.4 billion in cash and
cash equivalents (excluding restricted cash), compared to $1.0
billion as of December 31, 1997. Net cash provided by operating
activities decreased $80 million during the year ended December 31,
1998 compared to the same period in the prior year primarily due to
an increase in accounts receivable due to increased operations.
Net cash used by investing activities for the year ended December
31, 1998 compared to the same period in the prior year increased
$41 million, primarily as a result of higher capital and fleet-
related expenditures in 1998 offset by higher purchase deposits
refunded in connection with aircraft delivered in 1998. Net cash
provided by financing activities increased $474 million primarily
due to a decrease in payments on long-term debt and capital lease
obligations and an increase in proceeds received from the issuance
of long-term debt.
Continental has lines of credit totaling $225 million, and
significant encumbered assets.
Deferred Tax Assets. During the first quarter of 1998, the Company
consummated several transactions, the benefit of which resulted in
the elimination of reorganization value in excess of amounts
allocable to identifiable assets of $164 million. During the third
and fourth quarters of 1998, the Company determined that additional
NOLs of the Company's predecessor could be benefited and
accordingly reduced both the valuation allowance and routes, gates
and slots by $190 million. To the extent the Company were to
determine in the future that additional NOLs of the Company's
predecessor could be recognized in the accompanying consolidated
financial statements, such benefit would further reduce routes,
gates and slots. As of December 31, 1998, the Company had deferred
tax assets aggregating $803 million, including $372 million of
NOLs, and a valuation allowance of $263 million.
As a result of NOLs, the Company will not pay United States federal
income taxes (other than alternative minimum tax) until it has
recorded approximately an additional $1.1 billion of taxable income
following December 31, 1998. Section 382 of the Internal Revenue
Code ("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. In the event that an ownership change should occur,
utilization of Continental's NOLs would be subject to an annual
limitation under Section 382 determined by multiplying the value of
the Company's stock at the time of the ownership change by the
applicable long-term tax exempt rate (which was 4.71% for February
1999). Any unused annual limitation may be carried over to later
years, and the amount of 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 annual NOL
utilization would be limited to approximately $102 million per year
other than through the recognition of future built-in gain
transactions.
On November 20, 1998, an affiliate of Northwest Airlines, Inc.
("Northwest") completed its acquisition of certain equity of the
Company previously held by Air Partners, L.P. ("Air Partners") and
its affiliates, together with certain Class A common stock of the
Company held by certain other investors, totaling 8,661,224 shares
of the Class A common stock (the "Air Partners Transaction").
Based on information currently available, the Company does not
believe that the Air Partners transaction resulted in an ownership
change for purposes of Section 382.
Purchase Commitments. Continental has substantial commitments for
capital expenditures, including for the acquisition of new
aircraft. As of February 8, 1999, Continental had agreed to
acquire a total of 109 Boeing jet aircraft through 2005. The
Company anticipates taking delivery of 57 Boeing jet aircraft in
1999. Continental also has options for an additional 114 aircraft
(exercisable subject to certain conditions). The estimated
aggregate cost of the Company's firm commitments for Boeing
aircraft is approximately $5.4 billion. Continental currently
plans to finance its new Boeing aircraft with a combination of
enhanced pass through trust certificates, lease equity and other
third party financing, subject to availability and market
conditions. As of February 8, 1999, Continental had approximately
$1.1 billion in financing arranged for such future Boeing
deliveries. In addition, Continental has commitments or letters of
intent for backstop financing for approximately one-third of the
anticipated remaining acquisition cost of such Boeing deliveries.
In addition, at February 8, 1999, Continental has firm commitments
to purchase 32 spare engines related to the new Boeing aircraft for
approximately $167 million which will be deliverable through
December 2004. Additional financing will be needed to satisfy the
Company's capital commitments for other aircraft and aircraft-
related expenditures such as engines, spare parts, simulators and
related items. There can be no assurance that sufficient financing
will be available for all aircraft and other capital expenditures
not covered by firm financing commitments. Deliveries of new
Boeing aircraft are expected to increase aircraft rental,
depreciation and interest costs while generating cost savings in
the areas of maintenance, fuel and pilot training.
As of February 8, 1999, Express had firm commitments for 37 Embraer
ERJ-145 ("ERJ-145") regional jets and 25 Embraer ERJ-135 ("ERJ-
135") regional jets, with options for an additional 125 ERJ-145 and
50 ERJ-135 aircraft exercisable through 2008. Express anticipates
taking delivery of 19 ERJ-145 and six ERJ-135 regional jets in
1999. Neither Express nor Continental will have any obligation to
take any of the firm ERJ-145 aircraft that are not financed by a
third party and leased to Continental.
Continental expects its cash outlays for 1999 capital expenditures,
exclusive of fleet plan requirements, to aggregate $254 million,
primarily relating to mainframe, software application and
automation infrastructure projects, aircraft modifications and
mandatory maintenance projects, passenger terminal facility
improvements and office, maintenance, telecommunications and ground
equipment. Continental's capital expenditures during 1998
aggregated $179 million, exclusive of fleet plan requirements.
The Company expects to fund its future capital commitments through
internally generated funds together with general Company financings
and aircraft financing transactions. However, there can be no
assurance that sufficient financing will be available for all
aircraft and other capital expenditures not covered by firm
financing commitments.
Year 2000 and Euro. The Year 2000 issue arises as a result of
computer programs having been written using two digits (rather than
four) to define the applicable year, among other problems. Any
information technology ("IT") systems that have time-sensitive
software might recognize a date using "00" as the year 1900 rather
than the year 2000, which could result in miscalculations and
system failures. The problem also extends to many "non-IT"
systems; that is, operating and control systems that rely on
embedded chip systems. In addition, the Company is at risk from
Year 2000 failures on the part of third party-suppliers and
governmental agencies with which the Company interacts.
The Company uses a significant number of computer software programs
and embedded operating systems that are essential to its
operations. For this reason, the Company implemented a Year 2000
project in late 1996 so that the Company's computer systems would
function properly in the year 2000 and thereafter. The Company's
Year 2000 project involves the review of a number of internal and
third-party systems. Each system is subjected to the project's
five phases which consist of systems inventory, evaluation and
analysis, modification implementation, user testing and integration
compliance. The systems are currently in various stages of
completion. The Company anticipates completing its review of
systems in the second quarter of 1999 and believes that, with
modifications to its existing software and systems and/or
conversions to new software, the Year 2000 issue will not pose
significant operational problems for its computer systems.
The Company has also initiated communications and on-site visits
with its significant suppliers, vendors and governmental agencies
with which its systems interface and exchange data or upon which
its business depends. The Company is coordinating efforts with
these parties to minimize the extent to which its business may be
vulnerable to their failure to remediate their own Year 2000
problems. The Company's business is dependent upon certain
domestic and foreign governmental organizations or entities such as
the Federal Aviation Administration ("FAA") that provide essential
aviation industry infrastructure. There can be no assurance that
the systems of such third parties on which the Company's business
relies (including those of the FAA) will be modified on a timely
basis. The Company's business, financial condition or results of
operations could be materially adversely affected by the failure of
its equipment or systems or those operated by other parties to
operate properly beyond 1999. Although the Company currently has
day-to-day operational contingency plans, management is in the
process of updating these plans for possible Year 2000-specific
operational requirements. The Company anticipates completing the
revision of current contingency plans and the creation of
additional contingency plans by September 1999. In addition, the
Company will continue to monitor third-party (including
governmental) readiness and will modify its contingency plans
accordingly. While the Company does not currently expect any
significant modification of its operations in response to the Year
2000 issue, in a worst-case scenario the Company could be required
to alter its operations significantly.
The total cost of the Company's Year 2000 project (excluding
internal payroll) is currently estimated at $16-18 million and has
been and will be funded through cash from operations. As of
December 31, 1998, the Company had incurred and expensed
approximately $15 million relating to its Year 2000 project. The
cost of the Year 2000 project is limited by the substantial
outsourcing of the Company's systems and the significant
implementation of new systems following the Company's emergence
from bankruptcy. The costs of the Company's Year 2000 project and
the date on which the Company believes it will be completed are
based on management's best estimates and include assumptions
regarding third-party modification plans. However, in particular
due to the potential impact of third-party modification plans,
there can be no assurance that these estimates will be achieved and
actual results could differ materially from those anticipated.
Effective January 1, 1999, eleven of the fifteen countries
comprising the European Union began a transition to a single
monetary unit, the "euro", which is scheduled to be completed by
July 1, 2002. The Company has developed processes designed to
allow it to effectively operate in euros. Management does not
anticipate that the implementation of this single currency plan
will have a material effect on the Company's operations or
financial condition.
Bond Financings. In July 1996, the Company announced plans to
expand its gates and related facilities into Terminal B at Bush
Intercontinental Airport, as well as planned improvements at
Terminal C and the construction of a new automated people mover
system linking Terminal B and Terminal C. In April 1997 and
January 1999, the City of Houston completed the offering of $190
million and $46 million, respectively, aggregate principal amount
of tax-exempt special facilities revenue bonds (the "IAH Bonds").
The IAH Bonds are unconditionally guaranteed by Continental. In
connection therewith, the Company has entered into long-term leases
(or amendments to existing leases) with the City of Houston
providing for the Company to make rental payments sufficient to
service the related tax-exempt bonds, which have a term no longer
than 30 years. The majority of the Company's expansion project is
expected to be completed during the summer of 1999.
In 1998, Continental completed construction of a new hangar and
improvements to a cargo facility at Continental's hub at Newark
International Airport ("Newark"). Continental completed the
financing of these projects in April 1998 with $23 million of tax-
exempt bonds issued by the New Jersey Economic Development
Authority. Continental is also planning a major facility expansion
at Newark which would require, among other matters, agreements to
be reached with the applicable airport authority and significant
tax-exempt bond financing for the project.
In 1998, the Company built a wide-body aircraft maintenance hangar
in Honolulu, Hawaii at an approximate cost of $25 million.
Construction of the hangar was financed by tax-exempt special
facilities revenue bonds issued by the State of Hawaii. In
connection therewith, the Company has entered into long-term leases
providing for the Company to make rental payments sufficient to
service the related tax-exempt bonds.
Continental has commenced the expansion of its facilities at its
Hopkins International Airport hub in Cleveland, which expansion is
expected to be completed in the third quarter of 1999. The
expansion, which will include a new jet concourse for the regional
jet service offered by Express, as well as other facility
improvements, is expected to cost approximately $156 million and is
being funded principally by a combination of tax-exempt special
facilities revenue bonds (issued in March 1998) and general airport
revenue bonds (issued in December 1997) by the City of Cleveland.
In connection therewith, Continental has entered into a long-term
lease with the City of Cleveland under which rental payments will
be sufficient to service the related bonds.
Employees. In September 1997, the Company announced a plan to
bring all employees to industry standard wages no later than the
end of the year 2000. Wage increases began in 1997, and will
continue to be phased in through 2000 as revenue, interest rates
and rental rates reach industry standards.
The following is a table of the Company's, Express's and CMI's
principal collective bargaining agreements, and their respective
amendable dates:
Approximate Contract
Employee Number of Representing Amendable
Group Employees Union Date
Continental Pilots 5,050 Independent October 2002
Association
of Continental
Pilots
Express Pilots 1,100 Independent October 2002
Association
of Continental
Pilots
Dispatchers 150 Transport Workers October 2003
Union of America
Continental 3,220 International January 2002
Mechanics Brotherhood of
Teamsters
Express 280 International (Negotiations
Mechanics Brotherhood of for initial
Teamsters contract
ongoing)
CMI Mechanics 150 International March 2001
Brotherhood of
Teamsters
Continental 6,925 International December 1999
Flight Attendants Association of
Machinists and
Aerospace Workers
Express 375 International November 1999
Flight Attendants Association of
Machinists and
Aerospace Workers
CMI 450 International June 2000
Flight Attendants Association of
Machinists and
Aerospace Workers
CMI Fleet and 300 International March 2001
Passenger Service Brotherhood of
Employees Teamsters
The other employees of Continental, Express and CMI are not covered
by collective bargaining agreements.
Other. As a result of the decline of the yen against the dollar,
a weak Japanese economy and increased fuel costs, CMI's operating
earnings declined during 1996 and 1997. Although CMI's results in
Asia have declined significantly in recent years, the Company
successfully redeployed CMI capacity into the stronger domestic
markets and CMI's most recent results have improved.
In addition, the Company has entered into petroleum call option
contracts, petroleum swap contracts and jet fuel purchase
commitments to provide some short-term protection (generally three
to six months) against a sharp increase in jet fuel prices, and has
entered into forward contracts and purchased foreign currency
average rate option contracts to hedge a portion of its Japanese
yen-denominated ticket sales against a significant depreciation in
the value of the yen versus the United States dollar.
During 1998, Continental began block-space arrangements whereby it
is committed to purchase capacity on other carriers at an aggregate
cost of approximately $ 150 million per year. These arrangements
are for 10 years. Pursuant to other block-space arrangements,
other carriers are committed to purchase capacity at a cost of
approximately $100 million on Continental.
Management believes that the Company's costs are likely to be
affected in the future by (i) higher aircraft rental expense as new
aircraft are delivered, (ii) higher wages, salaries and related
costs as the Company compensates its employees comparable to
industry average, (iii) changes in the costs of materials and
services (in particular, the cost of fuel, which can fluctuate
significantly in response to global market conditions),
(iv) changes in governmental regulations and taxes affecting air
transportation and the costs charged for airport access, including
new security requirements, (v) changes in the Company's fleet and
related capacity and (vi) the Company's continuing efforts to
reduce costs throughout its operations, including reduced
maintenance costs for new aircraft, reduced distribution expense
from using Continental's electronic ticket product, E-Ticket and
the Internet for bookings, and reduced interest expense.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market Risk Sensitive Instruments and Positions
The Company is subject to certain market risks, including commodity
price risk (i.e., aircraft fuel prices), interest rate risk,
foreign currency risk and price changes related to investments in
equity securities. The adverse effects of potential changes in
these market risks are discussed below. The sensitivity analyses
presented do not consider the effects that such adverse changes may
have on overall economic activity nor do they consider additional
actions management may take to mitigate the Company's exposure to
such changes. Actual results may differ. See the notes to the
consolidated financial statements for a description of the
Company's accounting policies and other information related to
these financial instruments.
Aircraft Fuel. The Company's results of operations are
significantly impacted by changes in the price of aircraft fuel.
During 1998, aircraft fuel accounted for 10.2% of the Company's
operating expenses (excluding fleet disposition/impairment loss).
Based on the Company's 1999 projected fuel consumption, a one cent
change in the average annual price per gallon of aircraft fuel
would impact the Company's annual aircraft fuel expense by
approximately $12 million, after the effect of hedging instruments
and jet fuel purchase commitments in place as of December 31, 1998.
In order to provide short-term protection (generally three to six
months), the Company has entered into petroleum call options,
petroleum swap contracts and jet fuel purchase commitments. The
Company's fuel hedging strategy could result in the Company not
fully benefiting from certain fuel price declines. As of December
31, 1998, the Company had hedged approximately 25% of its projected
1999 fuel requirements, including 93% related to the first quarter
and 9% related to the second quarter using petroleum swap
contracts. The Company estimates that at December 31, 1998, a ten
percent change in the price per gallon of aircraft fuel would have
changed the fair value of the existing petroleum swap contracts by
$8 million.
Foreign Currency. The Company is exposed to the effect of exchange
rate fluctuations on the U.S. dollar value of foreign currency
denominated operating revenue and expenses. The Company's largest
exposure comes from the Japanese yen. The result of a uniform 25%
strengthening in the value of the U.S. dollar from December 31,
1998 levels relative to the yen would result in an estimated
decrease in operating income of approximately $13 million for 1999,
after the effect of hedging instruments in place. However, the
Company is attempting to mitigate the effect of certain potential
foreign currency losses by purchasing foreign currency average rate
option contracts and entering into forward contracts that
effectively enable it to sell Japanese yen expected to be received
from yen-denominated ticket sales over the next nine to twelve
months at specified dollar amounts. As of December 31, 1998, the
Company had purchased average rate options and entered into forward
contracts to hedge approximately 100% of its first and second
quarter 1999 projected net yen-denominated cash flows and 75% of
its third quarter 1999 projected net yen-denominated cash flows.
The Company estimates that at December 31, 1998, a 25%
strengthening in the value of the U.S. dollar relative to the yen
would have increased the fair value of the existing average rate
options and forward contracts by $22 million.
Interest Rates. The Company's results of operations are affected
by fluctuations in interest rates (e.g., interest expense on debt
and interest income earned on short-term investments).
The Company had approximately $599 million of variable-rate debt as
of December 31, 1998. The Company has mitigated its exposure on
certain variable-rate debt by entering into an interest rate cap
(notional amount of $125 million as of December 31, 1998) which
expires in July 2001. The interest rate cap limits the amount of
potential increase in the LIBOR rate component of the floating rate
to a maximum of 9% over the term of the contract. If average
interest rates increased by 1.0% during 1999 as compared to 1998,
the Company's projected 1999 interest expense would increase by
approximately $5 million. The interest rate cap does not mitigate
this increase in interest expense materially.
As of December 31, 1998, the fair value of $1.52 billion (carrying
value) of the Company's fixed-rate debt was estimated to be $1.47
billion, based upon discounted future cash flows using current
incremental borrowing rates for similar types of instruments or
market prices. Market risk, estimated as the potential increase in
fair value resulting from a hypothetical 1.0% decrease in interest
rates, was approximately $70 million as of December 31, 1998. The
fair value of the remaining fixed-rate debt (with a carrying value
of $287 million and primarily relating to aircraft modification
notes and various loans with immaterial balances) was not
practicable to estimate due to the large number and small dollar
amounts of these notes.
If 1999 average short-term interest rates decreased by 1.0% over
1998 average rates, the Company's projected interest income from
short-term investments would decrease by approximately $13 million
during 1999.
Investments in Equity Securities. Continental's investment in
America West Holdings at December 31, 1998, which was recorded at
its fair value of $3 million and includes unrealized gains of $1
million, has exposure to price risk. This risk is estimated as the
potential loss in fair value resulting from a hypothetical 10%
adverse change in prices quoted by stock exchanges and amounts to
less than $1 million.
The Company also has a 12.4% investment in AMADEUS Global Travel
Distribution S.A. ("AMADEUS") and a 49% equity investment in
Compania Panamena de Aviacion, S.A. ("COPA") which are also subject
to price risk. However, since a readily determinable market value
does not exist for either AMADEUS or COPA (each is privately held),
the Company is unable to quantify the amount of price risk
sensitivity inherent in these investments. At December 31, 1998,
the carrying value of these investments was $95 million and $53
million, respectively. At December 31, 1997, the carrying value of
AMADEUS was $95 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Consolidated Financial Statements
Page No.
Report of Independent Auditors F-2
Consolidated Statements of Operations for each of the
Three Years in the Period Ended December 31, 1998 F-3
Consolidated Balance Sheets as of December 31, 1998
and 1997 F-5
Consolidated Statements of Cash Flows for each of the
Three Years in the Period Ended December 31, 1998 F-7
Consolidated Statements of Redeemable Preferred Stock
and Common Stockholders' Equity for each of the
Three Years in the Period Ended December 31, 1998 F-10
Notes to Consolidated Financial Statements F-15
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Continental Airlines, Inc.
We have audited the accompanying consolidated balance sheets of
Continental Airlines, Inc. (the "Company") as of December 31, 1998
and 1997, and the related consolidated statements of operations,
redeemable preferred stock and common stockholders' equity and cash
flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 1998 and 1997,
and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
January 20, 1999
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Year Ended December 31,
1998 1997 1996
Operating Revenue:
Passenger. . . . . . . . . . . . . . . . $7,366 $6,660 $5,871
Cargo and mail . . . . . . . . . . . . . 275 258 232
Other. . . . . . . . . . . . . . . . . . 310 295 257
7,951 7,213 6,360
Operating Expenses:
Wages, salaries and related costs. . . . 2,218 1,814 1,549
Aircraft fuel. . . . . . . . . . . . . . 727 885 774
Aircraft rentals . . . . . . . . . . . . 659 551 509
Commissions. . . . . . . . . . . . . . . 583 567 510
Maintenance, materials and repairs . . . 582 537 461
Other rentals and landing fees . . . . . 414 395 350
Depreciation and amortization. . . . . . 294 254 254
Fleet disposition/impairment losses:
Jet . . . . . . . . . . . . . . . . . . 65 - 128
Turboprop . . . . . . . . . . . . . . . 57 - -
Other. . . . . . . . . . . . . . . . . . 1,651 1,494 1,300
7,250 6,497 5,835
Operating Income 701 716 525
Nonoperating Income (Expense):
Interest expense . . . . . . . . . . . . (178) (166) (165)
Interest income. . . . . . . . . . . . . 59 56 43
Interest capitalized . . . . . . . . . . 55 35 5
Other, net . . . . . . . . . . . . . . . 11 (1) 20
(53) (76) (97)
Income before Income Taxes, Minority
Interest and Extraordinary Charge. . . . 648 640 428
Income Tax Provision. . . . . . . . . . . (248) (237) (86)
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Year Ended December 31,
1998 1997 1996
Income before Minority Interest
and Extraordinary Charge . . . . . . . . $ 400 $ 403 $ 342
Minority Interest . . . . . . . . . . . . - - (3)
Distributions on Preferred Securities
of Trust, net of applicable income taxes
of $7, $8 and $8, respectively . . . . . (13) (14) (14)
Income before Extraordinary Charge. . . . 387 389 325
Extraordinary Charge, net of applicable
income taxes of $2, $2 and $4,
respectively . . . . . . . . . . . . . . (4) (4) (6)
Net Income. . . . . . . . . . . . . . . . 383 385 319
Preferred Dividend Requirements and
Accretion to Liquidation Value . . . . . - (2) (5)
Income Applicable to Common Shares. . . . $ 383 $ 383 $ 314
Earnings per Common Share:
Income before Extraordinary Charge. . . $ 6.40 $ 6.72 $ 5.87
Extraordinary Charge. . . . . . . . . . (0.06) (0.07) (0.12)
Net Income. . . . . . . . . . . . . . . $ 6.34 $ 6.65 $ 5.75
Earnings per Common Share Assuming
Dilution:
Income before Extraordinary Charge. . . $ 5.06 $ 5.03 $ 4.25
Extraordinary Charge. . . . . . . . . . (0.04) (0.04) (0.08)
Net Income. . . . . . . . . . . . . . . $ 5.02 $ 4.99 $ 4.17
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
December 31, December 31,
ASSETS 1998 1997
Current Assets:
Cash and cash equivalents, including
restricted cash and cash equivalents
of $11 and $15, respectively. . . . . . $1,399 $1,025
Accounts receivable, net of allowance
for doubtful receivables of $22 and
$23, respectively . . . . . . . . . . . 449 361
Spare parts and supplies, net of
allowance for obsolescence of $46 and
$51, respectively . . . . . . . . . . . 166 128
Deferred income taxes. . . . . . . . . . 234 111
Prepayments and other assets . . . . . . 106 103
Total current assets . . . . . . . . . 2,354 1,728
Property and Equipment:
Owned property and equipment:
Flight equipment. . . . . . . . . . . . 2,459 1,636
Other . . . . . . . . . . . . . . . . . 582 456
3,041 2,092
Less: Accumulated depreciation . . . . 625 473
2,416 1,619
Purchase deposits for flight equipment . 410 437
Capital leases:
Flight equipment. . . . . . . . . . . . 361 274
Other . . . . . . . . . . . . . . . . . 56 40
417 314
Less: Accumulated amortization . . . . 178 145
239 169
Total property and equipment . . . . . 3,065 2,225
Other Assets:
Routes, gates and slots, net of
accumulated amortization
of $283 and $270, respectively. . . . . 1,181 1,425
Reorganization value in excess of
amounts allocable to identifiable
assets, net of accumulated amortization
of $71 in 1997. . . . . . . . . . . . . - 164
Investments. . . . . . . . . . . . . . . 151 104
Other assets, net. . . . . . . . . . . . 335 184
Total other assets . . . . . . . . . . 1,667 1,877
Total Assets . . . . . . . . . . . . $7,086 $5,830
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except for share data)
December 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
Current Liabilities:
Current maturities of long-term debt . . $ 184 $ 243
Current maturities of capital leases . . 47 40
Accounts payable . . . . . . . . . . . . 843 781
Air traffic liability. . . . . . . . . . 854 746
Accrued payroll and pensions . . . . . . 265158
Accrued other liabilities. . . . . . . . 249 317
Total current liabilities . . . . . . . 2,442 2,285
Long-Term Debt. . . . . . . . . . . . . . 2,267 1,426
Capital Leases. . . . . . . . . . . . . . 213 142
Deferred Credits and Other Long-Term
Liabilities:
Deferred income taxes. . . . . . . . . . 372 435
Accruals for aircraft retirements and
excess facilities . . . . . . . . . . . 95 123
Other. . . . . . . . . . . . . . . . . . 393 261
Total deferred credits and other
long-term liabilities. . . . . . . . . 860 819
Commitments and Contingencies
Continental-Obligated Mandatorily
Redeemable Preferred Securities
of Subsidiary Trust Holding Solely
Convertible Subordinated
Debentures (1) . . . . . . . . . . . . . 111 242
Common Stockholders' Equity:
Class A common stock - $.01 par,
50,000,000 shares authorized;
11,406,732 shares issued and out-
standing in 1998 and 8,379,464
shares issued and outstanding
in 1997 . . . . . . . . . . . . . . . . - -
Class B common stock - $.01 par,
200,000,000 shares authorized;
53,370,741 shares issued in 1998
and 50,512,010 shares issued and
outstanding in 1997 . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . 634 641
Retained earnings. . . . . . . . . . . . 659 276
Accumulated other comprehensive income . (88) (2)
Treasury Stock - 399,524 Class B
shares in 1998, at cost . . . . . . . . (13) -
Total common stockholders' equity . . . 1,193 916
Total Liabilities and Stockholders'
Equity . . . . . . . . . . . . . . . $7,086 $5,830
(1) The sole assets of the Trust were convertible subordinated
debentures. At December 31, 1998 and 1997, the debentures had an
aggregate principal amount of $115 and $249 million, respectively,
bore interest at the rate of 8-1/2% per annum and were to mature on
December 1, 2020. In November and December 1998, approximately
$134 million of such securities converted into 5,558,649 shares of
Class B common stock, and in January 1999, the remainder of such
securities were converted into 4,752,522 shares of Class B common
stock.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Year Ended December 31,
1998 1997 1996
Cash Flows From Operating
Activities:
Net income . . . . . . . . . . . . . . . $ 383 $ 385 $ 319
Adjustments to reconcile net income
to net cash provided by operating
activities:
Deferred income taxes. . . . . . . . . 241 212 72
Depreciation . . . . . . . . . . . . . 211 162 153
Fleet disposition/impairment losses. . 122 - 128
Amortization . . . . . . . . . . . . . 83 92 101
Other, net . . . . . . . . . . . . . . (4) 34 11
Changes in operating assets and
liabilities:
Increase in air traffic liability. . 108 85 82
Increase in accounts receivable. . . (102) (1) (42)
Increase in spare parts and
supplies. . . . . . . . . . . . . . (71) (38) (43)
Increase in accounts payable . . . . 59 71 103
Other. . . . . . . . . . . . . . . . (150) (42) (53)
Net cash provided by operating
activities. . . . . . . . . . . . . . . 880 960 831
Cash Flows from Investing Activities:
Purchase deposits paid in connection
with future aircraft deliveries . . . . (818) (409) (116)
Purchase deposits refunded in
connection with aircraft delivered. . . 758 141 20
Capital expenditures, net of returned
purchase deposits in 1996 . . . . . . . (610) (417) (198)
Investment in partner airline. . . . . . (53) - -
Proceeds from disposition of property
and equipment . . . . . . . . . . . . . 46 29 11
Other. . . . . . . . . . . . . . . . . . (21) (1) 32
Net cash used by investing activities . (698) (657) (251)
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Year Ended December 31,
1998 1997 1996
Cash Flows From Financing Activities:
Proceeds from issuance of
long-term debt, net . . . . . . . . . . $ 737 $ 517 $ 797
Payments on long-term debt and
capital lease obligations . . . . . . . (423) (676) (975)
Purchase of Class B treasury stock . . . (223) - -
Proceeds from sale-leaseback
transactions. . . . . . . . . . . . . . 71 39 47
Proceeds from issuance of common stock . 56 24 18
Dividends paid on preferred securities
of trust. . . . . . . . . . . . . . . . (22) (22) (22)
Purchase of warrants to purchase
Class B common stock. . . . . . . . . . - (94) (50)
Redemption of preferred stock. . . . . . - (48) -
Other. . . . . . . . . . . . . . . . . . - (18) (13)
Net cash provided (used) by financing
activities . . . . . . . . . . . . . . 196 (278) (198)
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Year Ended December 31,
1998 1997 1996
Net Increase in Cash and
Cash Equivalents . . . . . . . . . . . . $ 378 $ 25 $ 382
Cash and Cash Equivalents
Beginning of Period (1). . . . . . . . . 1,010 985 603
Cash and Cash Equivalents
End of Period (1). . . . . . . . . . . . $1,388 $1,010 $ 985
Supplemental Cash Flows Information:
Interest paid. . . . . . . . . . . . . . $ 157 $ 156 $ 161
Income taxes paid. . . . . . . . . . . . $ 25 $ 12 $ 4
Financing and Investing Activities
Not Affecting Cash:
Property and equipment acquired
through the issuance of debt . . . . . $ 425 $ 207 $ 119
Conversion of trust originated
preferred securities . . . . . . . . . $ 134 $ - $ -
Capital lease obligations incurred. . . $ 124 $ 22 $ 32
Reduction of capital lease
obligations in connection with
refinanced aircraft. . . . . . . . . . $ - $ 97 $ -
Financed purchase deposits for flight
equipment, net . . . . . . . . . . . . $ - $ 14 $ 19
(1) Excludes restricted cash of $11 million, $15 million, $76 million
and $144 million at December 31, 1998, 1997, 1996 and 1995,
respectively.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY
(In millions)
Retained Accumulated
Redeemable Additional Earnings Other Treasury
Preferred Paid-In (Accumulated Comprehensive Comprehensive Stock,
Stock Capital Deficit) Income Income at Cost
Balance, December 31, 1995 . . $ 41 $ 723 $ (428) $ 10 $ - $ -
Net Income . . . . . . . . . . - - 319 - 319 -
Purchase of Warrants . . . . . - (50) - - - -
Accumulated Dividends:
Series A 12% Cumulative
Preferred Stock. . . . . . . 5 (5) - - - -
Additional Minimum Pension
Liability, net of applicable
income taxes of $2. . . . . . - - - 6 6 -
Unrealized Gain on Marketable
Equity Securities, net of
applicable income taxes
of $1 . . . . . . . . . . . . - - - 4 4 -
Reclassification to realized
gains . . . . . . . . . . . . - - - (18) - -
Other. . . . . . . . . . . . . - 20 - - - -
Balance, December 31, 1996 . . 46 688 (109) 2 329 -
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY
(In millions)
Retained Accumulated
Redeemable Additional Earnings Other Treasury
Preferred Paid-In (Accumulated Comprehensive Comprehensive Stock,
Stock Capital Deficit) Income Income at Cost
Net Income . . . . . . . . . . $ - $ - $ 385 - $385 $ -
Purchase of Warrants . . . . . - (94) - - - -
Accumulated Dividends on
Series A 12% Cumulative
Preferred Stock . . . . . . . 2 (2) - - - -
Redemption of Series A
12% Cumulative Preferred
Stock . . . . . . . . . . . . (48) - - - - -
Additional Minimum Pension
Liability, net of applicable
income taxes of $2. . . . . . - - - (4) (4) -
Other. . . . . . . . . . . . . - 49 - - - -
Balance, December 31, 1997 . . - 641 276 (2) 381 -
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY
(In millions)
Retained Accumulated
Redeemable Additional Earnings Other Treasury
Preferred Paid-In (Accumulated Comprehensive Comprehensive Stock,
Stock Capital Deficit) Income Income at Cost
Net Income . . . . . . . . . . $ - $ - $ 383 $ - $383 $ -
Cumulative Effect of
Adopting SFAS 133 (see Note 5)
as of October 1, 1998, net of
applicable income taxes
of $1 . . . . . . . . . . . . - - - 1 1 -
Net loss on derivative
instruments designated and
qualifying as cash flow
hedging instruments, net of
applicable income taxes
of $4 . . . . . . . . . . . . - - - (7) (7) -
Additional Minimum Pension
Liability, net of applicable
income taxes of $41 . . . . . - - - (76) (76) -
Unrealized Gain on Marketable
Equity Securities, net of
applicable income taxes
of $1 . . . . . . . . . . . . - - - (4) (4) -
Purchase of Common Stock . . . - - - - - (223)
Reissuance of Treasury Stock
pursuant to Stock Plans . . . - - - - - 50
Issuance of Common Stock
pursuant to Stock Plans . . . - 9 - - - -
Conversion of Trust Originated
Preferred Securities into
Common Stock. . . . . . . . . - (32) - - - 160
Other. . . . . . . . . . . . . - 16 - - - -
Balance, December 31, 1998 . . - $ 634 $ 659 $ (88) $297 $(13)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY
NUMBER OF SHARES
Redeemable Class A Class B
Preferred Common Common Treasury
Stock Stock Stock Stock
Balance, December 31, 1995 . . . . . . . 397,948 12,602,112 42,856,548 -
Conversion of Class A to Class B
Common Stock by Air Canada. . . . . . . - (3,322,112) 3,322,112 -
Forfeiture of Restricted Class B
Common Stock. . . . . . . . . . . . . . - - (60,000) 60,000
Purchase of Common Stock . . . . . . . . - - (133,826) 133,826
Reissuance of Treasury Stock . . . . . . - - 193,826 (193,826)
Preferred Stock In-kind Dividend . . . . 49,134 - - -
Issuance of Common Stock pursuant to
Stock Plans and Awards. . . . . . . . . - - 1,764,683 -
Balance, December 31, 1996 . . . . . . . 447,082 9,280,000 47,943,343 -
Conversion of Class A to Class B
Common Stock. . . . . . . . . . . . . . - (900,536) 900,536 -
Purchase of Common Stock . . . . . . . . - - (154,882) 154,882
Reissuance of Treasury Stock pursuant
to Stock Plans. . . . . . . . . . . . . - - 154,882 (154,882)
Issuance of Preferred Stock Dividends
on Series A 12% Cumulative Preferred
Stock . . . . . . . . . . . . . . . . . 13,165 - - -
Redemption of Series A 12% Cumulative
Preferred Stock . . . . . . . . . . . . (460,247) - - -
Issuance of Common Stock pursuant to
Stock Plans . . . . . . . . . . . . . . - - 1,646,419 -
Conversion of Trust Originated
Preferred Securities into
Common Stock. . . . . . . . . . . . . . - - 21,712 -
Balance, December 31, 1997 . . . . . . . - 8,379,464 50,512,010 -
(continued on next page)
CONTINENTAL AIRLINES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED
STOCK AND COMMON STOCKHOLDERS' EQUITY
NUMBER OF SHARES
Redeemable Class A Class B
Preferred Common Common Treasury
Stock Stock Stock Stock
Purchase of Common Stock . . . . . . . . - - (4,452,700) 4,452,700
Reissuance of Treasury Stock pursuant
to Stock Plans. . . . . . . . . . . . . - - 859,080 (859,080)
Reissuance of Treasury Stock pursuant
to Conversion of Trust Originated
Preferred Securities. . . . . . . . . . - - 3,181,896 (3,181,896)
Conversion of Class A to Class B
Common Stock. . . . . . . . . . . . . . - (12,200) 12,200 (12,200)
Issuance of Common Stock pursuant to
Stock Plans . . . . . . . . . . . . . . - - 235,290 -
Conversion of Trust Originated
Preferred Securities into
Common Stock. . . . . . . . . . . . . . - - 2,376,753 -
Exercise of warrants . . . . . . . . . . - 3,039,468 246,688 -
Balance, December 31, 1998 . . . . . . . - 11,406,732 52,971,217 399,524
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CONTINENTAL AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continental Airlines, Inc. (the "Company" or "Continental") 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 1998 revenue
passenger miles) and, together with its wholly owned subsidiaries,
Continental Express, Inc. ("Express"), and Continental Micronesia,
Inc. ("CMI"), each a Delaware corporation, serves 206 airports
worldwide on December 31, 1998. As of December 31, 1998,
Continental flies to 127 domestic and 79 international destinations
and offers additional connecting service through alliances with
domestic and foreign carriers. Continental directly serves 13
European cities, eight South American cities and is one of the
leading airlines providing service to Mexico and Central America,
serving more destinations there than any other United States
airline. Through its Guam hub, CMI provides extensive service in
the western Pacific, including service to more Japanese cities than
any other United States carrier.
As used in these Notes to Consolidated Financial Statements, the
terms "Continental" and "Company" refer to Continental Airlines,
Inc. and, unless the context indicates otherwise, its subsidiaries.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation -
The consolidated financial statements of the Company include
the accounts of Continental and its operating subsidiaries,
Express and CMI. All significant intercompany transactions
have been eliminated in consolidation.
(b) Use of Estimates -
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
(c) Cash and Cash Equivalents -
Cash and cash equivalents consist of cash and short-term,
highly liquid investments which are readily convertible into
cash and have a maturity of three months or less when
purchased. Approximately $11 million and $15 million of cash
and cash equivalents at December 31, 1998 and 1997,
respectively, were held in restricted arrangements relating
primarily to payments for workers' compensation claims and in
accordance with the terms of certain other agreements.
(d) Spare Parts and Supplies -
Flight equipment expendable parts and supplies are valued at
average cost. An allowance for obsolescence for flight
equipment expendable parts and supplies is accrued to allocate
the costs of these assets, less an estimated residual value,
over the estimated useful lives of the related aircraft and
engines.
(e) Property and Equipment -
Property and equipment were recorded at fair market values as
of April 27, 1993. Subsequent purchases were recorded at cost
and are depreciated to estimated residual values over their
estimated useful lives using the straight-line method.
Effective January 1, 1998, the Company increased the
depreciable life on certain new generation Boeing aircraft
from 25 to 30 years. The Company also increased the estimated
residual values on certain Stage 3 and new generation Boeing
aircraft from 10% to 15%. All owned turboprop aircraft are
depreciated over an 18-year useful life with an estimated
residual value of 10%. Flight and ground equipment under
capital leases are depreciated on a straight-line method over
the respective original lease terms. Ground property and
equipment, including airport facility improvements, are
depreciated on a straight-line method from 2 to 25 years.
(f) Intangible Assets -
During 1998, the Company determined that it would be able to
recognize additional net operating losses ("NOLs")
attributable to the Company's predecessor as a result of the
completion of several transactions resulting in recognition of
built-in gains for federal income tax purposes. This benefit
was used to reduce to zero reorganization value in excess of
amounts allocable to identifiable assets in the first quarter
of 1998. During the third and fourth quarters of 1998, the
Company determined that additional NOLs of the Company's
predecessor could be benefitted and accordingly reduced the
deferred tax valuation allowance and routes, gates and slots
by $190 million.
Routes, Gates and Slots
Routes are amortized on a straight-line basis over 40 years,
gates over the stated term of the related lease and slots over
20 years. Routes, gates and slots are comprised of the
following (in millions):
Balance at Accumulated Amortization
December 31, 1998 at December 31, 1998
Routes. . . . $ 754 $123
Gates . . . . 327 120
Slots . . . . 100 40
$1,181 $283
Reorganization Value In Excess of Amounts Allocable to
Identifiable Assets
Reorganization value in excess of amounts allocable to
identifiable assets, arising from Continental's emergence from
bankruptcy reorganization in 1993, was amortized on a
straight-line basis over 20 years.
(g) Air Traffic Liability -
Passenger revenue is recognized when transportation is
provided rather than when a ticket is sold. The amount of
passenger ticket sales not yet recognized as revenue is
reflected in the accompanying Consolidated Balance Sheets as
air traffic liability. The Company performs periodic
evaluations of this estimated liability, and any adjustments
resulting therefrom, which can be significant, are included in
results of operations for the periods in which the evaluations
are completed.
Continental sponsors a frequent flyer program ("OnePass") and
records an estimated liability for the incremental cost
associated with providing the related free transportation at
the time a free travel award is earned. The liability is
adjusted periodically based on awards earned, awards redeemed
and changes in the OnePass program.
The Company also sells mileage credits in the OnePass program
to participating partners, such as hotels, car rental agencies
and credit card companies. The resulting revenue, net of the
estimated incremental cost of the credits sold, is recorded in
the accompanying Consolidated Statements of Operations during
the period in which the credits are sold as other operating
revenue.
(h) Passenger Traffic Commissions -
Passenger traffic commissions are recognized as expense when
the transportation is provided and the related revenue is
recognized. The amount of passenger traffic commissions not
yet recognized as expense is included in Prepayments and other
assets in the accompanying Consolidated Balance Sheets.
(i) Deferred Income Taxes -
Deferred income taxes are provided under the liability method
and reflect the net tax effects of temporary differences
between the tax basis of assets and liabilities and their
reported amounts in the financial statements.
(j) Maintenance and Repair Costs -
Maintenance and repair costs for owned and leased flight
equipment, including the overhaul of aircraft components, are
charged to operating expense as incurred.
(k) Advertising Costs -
The Company expenses the costs of advertising as incurred.
Advertising expense was $102 million, $98 million and $76
million for the years ended December 31, 1998, 1997 and 1996,
respectively.
(l) Stock Plans and Awards -
Continental has elected to follow Accounting Principles Board
Opinion No. 25 - "Accounting for Stock Issued to Employees"
("APB 25") in accounting for its employee stock options and
its stock purchase plans because the alternative fair value
accounting provided for under Statement of Financial
Accounting Standards No. 123 - "Accounting for Stock-Based
Compensation" ("SFAS 123") requires use of option valuation
models that were not developed for use in valuing employee
stock options or purchase rights. Under APB 25, since the
exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant,
generally no compensation expense is recognized. Furthermore,
under APB 25, since the stock purchase plans are considered
noncompensatory plans, no compensation expense is recognized.
(m) Measurement of Impairment -
In accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the
carrying amount of those assets.
(n) Recently Issued Accounting Standards -
Statement of Position 98-5, "Reporting on the Costs of Start-
Up Activities" ("SOP 98-5"), requires start-up costs to be
expensed as incurred. Continental will adopt SOP 98-5 in the
first quarter of 1999. This statement requires all
unamortized start up costs (e.g., pilot training costs related
to induction of new aircraft) to be expensed upon adoption,
resulting in approximately a $5 million cumulative effect of
change in accounting, net of tax, in the first quarter of
1999.
(o) Reclassifications -
Certain reclassifications have been made in the prior years'
financial statements to conform to the current year
presentation.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per common share ("EPS") excludes dilution and is
computed by dividing net income available to common stockholders by
the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could
occur if securities or other obligations to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
Company. The following table sets forth the computation of basic
and diluted earnings per share (in millions):
1998 1997 1996
Numerator:
Income before extraordinary charge. $387 $389 $325
Extraordinary charge, net of
applicable income taxes. . . . . . (4) (4) (6)
Net income. . . . . . . . . . . . . 383 385 319
Preferred stock dividends . . . . . - (2) (5)
Numerator for basic earnings per
share - income available to
common stockholders. . . . . . . . 383 383 314
Effect of dilutive securities:
Preferred Securities of Trust. . . 11 14 15
6-3/4% convertible subordinated
notes . . . . . . . . . . . . . . 9 11 8
Series A convertible debentures - - 1
20 25 24
Other . . . . . . . . . . . . . . . - (4) (3)
Numerator for diluted earnings
per share - income available to
common stockholders after
assumed conversions . . . . . . . $403 $404 $335
Denominator:
Denominator for basic earnings per
share - weighted-average shares. . 60.3 57.6 54.6
Effect of dilutive securities:
Employee stock options . . . . . . 1.7 1.6 2.2
Warrants . . . . . . . . . . . . . 0.9 3.5 5.9
Preferred Securities of Trust. . . 9.8 10.3 10.3
6-3/4% convertible subordinated
notes . . . . . . . . . . . . . . 7.6 7.6 5.8
Restricted Class B common stock. . - 0.4 0.8
Series A convertible debentures. . - - 0.7
Dilutive potential common shares. . 20.0 23.4 25.7
Denominator for diluted earnings
per share - adjusted weighted-
average and assumed conversions . 80.3 81.0 80.3
Options to purchase 2,909,130 and 2,643,426 shares of the Company's
Class B common stock, par value $.01 per share ("Class B common
stock"), during the third and fourth quarters of 1998,
respectively, were not included in the computation of diluted
earnings per share in 1998 because the options' exercise price was
greater than the average market price of the common shares and,
therefore, the effect would have been antidilutive.
NOTE 3 - LONG-TERM DEBT
Long-term debt as of December 31 is summarized as follows (in
millions):
1998 1997
Secured
Notes payable, interest rates of 5.00% to
7.52%, payable through 2019 . . . . . . . . $ 886 $ 201
Floating rate notes, interest rates of
LIBOR plus 0.75% to 1.25%, Eurodollar
plus 1.0%, or Commercial Paper,
payable through 2009. . . . . . . . . . . . 223 174
Notes payable, interest rates of 7.13% to
7.15%, payable through 1999 and floating
rates thereafter of LIBOR plus 2%,
payable through 2011. . . . . . . . . . . . 86 91
Notes payable, interest rates of 8.0% to
9.97%, payable through 2019 . . . . . . . . 66 124
Revolving credit facility totaling $160
million, floating interest rates of
LIBOR or Eurodollar plus 1.125%, payable
through 1999. . . . . . . . . . . . . . . . 57 160
Credit facility, floating interest rate of
LIBOR or Eurodollar plus 1.125%, payable
through 2002. . . . . . . . . . . . . . . . - 275
Floating rate note, interest rate of LIBOR
or Eurodollar plus 1.375%, payable
through 2004. . . . . . . . . . . . . . . . - 75
Notes payable, interest rates of 10.0% to
14.0%, payable through 2005 . . . . . . . . - 54
Floating rate notes, interest rates of
LIBOR plus 2.50% to 3.75%, payable
through 2005. . . . . . . . . . . . . . . . - 30
Other. . . . . . . . . . . . . . . . . . . . - 2
Unsecured
Senior notes payable, 9.5%, payable
through 2001. . . . . . . . . . . . . . . . 250 250
Credit facility, floating interest rate
of LIBOR or Eurodollar plus 1.125%,
payable through 2002. . . . . . . . . . . . 245 -
Convertible subordinated notes, interest
rate of 6.75%, payable through 2006 . . . . 230 230
Senior notes payable, interest rate of
8.0%, payable through 2005. . . . . . . . . 200 -
Notes payable, interest rate of 8.125%,
payable through 2008. . . . . . . . . . . . 110 -
Floating rate note, interest rate of LIBOR
or Eurodollar plus 1.375%, payable
through 2004. . . . . . . . . . . . . . . . 74 -
Other. . . . . . . . . . . . . . . . . . . . 24 3
2,451 1,669
Less: current maturities. . . . . . . . . . 184 243
Total. . . . . . . . . . . . . . . . . . . . $2,267 $1,426
At December 31, 1998 and 1997, the LIBOR and Eurodollar rates
associated with Continental's indebtedness approximated 5.1% and
5.8% and 5.1% and 5.8%, respectively. The Commercial Paper rate
was 5.5% as of December 31, 1998.
A majority of Continental's property and equipment is subject to
agreements securing indebtedness of Continental.
In July 1997, Continental entered into a $575 million credit
facility (the "Credit Facility"), including a $275 million term
loan, the proceeds of which were loaned to CMI to repay its
existing $320 million secured term loan. In connection with this
prepayment, Continental recorded a $4 million after tax
extraordinary charge relating to early extinguishment of debt. The
Credit Facility also includes a $225 million revolving credit
facility with a commitment fee of 0.25% per annum on the unused
portion, and a $75 million term loan commitment with a current
floating interest rate of Libor or Eurodollar plus 1.375%. At
December 31, 1998 and 1997, no borrowings were outstanding under
the $225 million revolving credit facility. During 1998, the
Credit Facility became unsecured due to an upgrade of Continental's
credit rating by Standard and Poor's Corporation.
The Credit Facility does not contain any financial covenants
relating to CMI other than covenants restricting CMI's incurrence
of certain indebtedness and pledge or sale of assets. In addition,
the Credit Facility contains certain financial covenants applicable
to Continental and prohibits Continental from granting a security
interest on certain of its international route authorities.
In April 1998, the Company completed an offering of $187 million of
pass-through certificates to be used to refinance the debt related
to 14 aircraft currently owned by Continental. In connection with
this refinancing, Continental recorded a $4 million after tax
extraordinary charge to consolidated earnings in the second quarter
of 1998 related to the early extinguishment of such debt.
At December 31, 1998, under the most restrictive provisions of the
Company's debt and credit facility agreements, the Company had a
minimum cash balance requirement of $600 million, a minimum net
worth requirement of $758 million and was restricted from paying
cash dividends in excess of $533 million.
In March 1996, the Company issued $230 million of 6-3/4%
Convertible Subordinated Notes (the "Notes"). The Notes are
convertible into shares of Class B common stock prior to their
maturity date, April 15, 2006, at a conversion price of $30.195 per
share. The Notes are redeemable at the option of the Company on or
after April 15, 1999, at specified redemption prices.
Maturities of long-term debt due over the next five years are as
follows (in millions):
Year ending December 31,
1999. . . . . . . . . . . . . . . . . . $184
2000. . . . . . . . . . . . . . . . . . 182
2001. . . . . . . . . . . . . . . . . . 419
2002. . . . . . . . . . . . . . . . . . 236
2003. . . . . . . . . . . . . . . . . . 122
NOTE 4 - LEASES
Continental leases certain aircraft and other assets under long-
term lease arrangements. Other leased assets include real
property, airport and terminal facilities, sales offices,
maintenance facilities, training centers and general offices. Most
leases also include renewal options, and some aircraft leases
include purchase options.
At December 31, 1998, the scheduled future minimum lease payments
under capital leases and the scheduled future minimum lease rental
payments required under aircraft and engine operating leases, that
have initial or remaining noncancellable lease terms in excess of
one year, are as follows (in millions):
Capital Operating
Leases Leases
Year ending December 31,
1999. . . . . . . . . . . . . . . . . . $ 66 $ 738
2000. . . . . . . . . . . . . . . . . . 55 729
2001. . . . . . . . . . . . . . . . . . 56 711
2002. . . . . . . . . . . . . . . . . . 30 637
2003. . . . . . . . . . . . . . . . . . 24 575
Later years . . . . . . . . . . . . . . 98 4,818
Total minimum lease payments . . . . . . . . 329 $8,208
Less: amount representing interest. . . . . 69
Present value of capital leases. . . . . . . 260
Less: current maturities of capital
leases. . . . . . . . . . . . . . . . . . . 47
Long-term capital leases . . . . . . . . . . $213
Not included in the above operating lease table is approximately
$404 million of annual average minimum lease payments for each of
the next five years relating to non-aircraft leases, principally
airport and terminal facilities and related equipment.
Continental is the guarantor of $422 million aggregate principal
amount of tax-exempt special facilities revenue bonds. These
bonds, issued by various airport municipalities, are payable solely
from rentals paid by Continental under long-term agreements with
the respective governing bodies.
At December 31, 1998, the Company, including Express, had 350 and
31 aircraft under operating and capital leases, respectively.
These leases have remaining lease terms ranging from one month to
21 years.
The Company's total rental expense for all operating leases, net of
sublease rentals, was $922 million, $787 million and $719 million
in 1998, 1997 and 1996, respectively.
During 1997, the Company acquired 10 aircraft previously leased by
it. Aircraft maintenance expense in the second quarter of 1997 was
reduced by approximately $16 million due to the reversal of
reserves that were no longer required as a result of the
transaction.
NOTE 5 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As part of the Company's risk management program, Continental uses
or used a variety of financial instruments, including petroleum
call options, petroleum swaps, jet fuel purchase commitments,
foreign currency average rate options, foreign currency forward
contracts and interest rate cap agreements. The Company does not
hold or issue derivative financial instruments for trading
purposes.
Effective October 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 133 - "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
requires the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair
value of derivatives are either offset against the change in fair
value of assets, liabilities, or firm commitments through earnings
or recognized in other comprehensive income until the hedged item
is recognized in earnings. The ineffective portion of a
derivative's change in fair value is immediately recognized in
earnings. The adoption of SFAS 133 on October 1, 1998 did not have
a material impact on results of operations but resulted in the
cumulative effect of an accounting change of $2 million pre-tax
being recognized as income in other comprehensive income.
Notional Amounts and Credit Exposure of Derivatives
The notional amounts of derivative financial instruments summarized
below do not represent amounts exchanged between parties and,
therefore, are not a measure of the Company's exposure resulting
from its use of derivatives. The amounts exchanged are calculated
based upon the notional amounts as well as other terms of the
instruments, which relate to interest rates, exchange rates or
other indices.
The Company is exposed to credit losses in the event of non-
performance by counterparties to these financial instruments, but
it does not expect any of the counterparties to fail to meet their
obligations. To manage credit risks, the Company selects
counterparties based on credit ratings, limits its exposure to a
single counterparty under defined Company guidelines, and monitors
the market position with each counterparty.
Fuel Price Risk Management
The Company uses a combination of petroleum call options, petroleum
swap contracts, and jet fuel purchase commitments to provide some
short-term protection against a sharp increase in jet fuel prices.
These instruments generally cover the Company's forecasted jet fuel
needs for three to six months.
The Company accounts for the call options and swap contracts as
cash flow hedges. In accordance with SFAS 133, such financial
instruments are marked-to-market with the offset to other
comprehensive income and then subsequently recognized as a
component of fuel expense when the underlying fuel being hedged is
used. The ineffective portion of these call and swap agreements is
determined based on the correlation between West Texas Intermediate
Crude Oil prices and jet fuel prices, which was not material for
the quarter ended December 31, 1998.
At December 31, 1998, the Company had petroleum swap contracts
outstanding with an aggregate notional amount of approximately $82
million and a fair value of approximately $6 million (loss), which
has been recorded in other current liabilities with the offset to
other comprehensive income, net of applicable income taxes. The
loss will be recognized in earnings within the next six months.
The Company recognized gains of approximately $65 million under
this risk reduction strategy in 1996. Such gains were classified
as a reduction in aircraft fuel expense in the accompanying
consolidated statements of operations.
Additionally, as of December 31, 1998, the Company had entered into
jet fuel purchase commitments of approximately $53 million that
relate to jet fuel to be delivered and used during the first
quarter of 1999.
Foreign Currency Exchange Risk Management
The Company uses a combination of foreign currency average rate
option and forward contracts to hedge against the currency risk
associated with Japanese yen denominated ticket sales for the next
nine to twelve months. The average rate option and forward
contracts have only nominal intrinsic value at the time of
purchase.
The Company accounts for these instruments as cash flow hedges. In
accordance with SFAS 133, such financial instruments are marked-to-
market with the offset to other comprehensive income and then
subsequently recognized as a component of passenger revenue when
the underlying sales transaction is recognized as revenue. The
Company measures hedge effectiveness of average rate options and
forward contracts based on the forward price of the underlying
commodity. Hedge ineffectiveness was not material during the
quarter ended December 31, 1998.
At December 31, 1998, the Company had average rate option and
forward contracts outstanding with an aggregate notional amount of
approximately $78 million and $76 million, respectively. The fair
value of these instruments was $3 million (loss) as of December 31,
1998 which has been recorded in other current liabilities with the
offset to other comprehensive income, net of applicable income
taxes. The loss will be recognized in earnings within the next
twelve months.
Interest Rate Risk Management
The Company entered into an interest rate cap agreement to reduce
the impact of potential increases on floating rate debt. The
interest rate cap has a notional amount of $125 million as of
December 31, 1998 and is effective through July 31, 2001. The
Company accounts for the interest rate cap as a cash flow hedge
whereby the fair value of the interest rate cap is reflected as an
asset in the accompanying consolidated balance sheet with the
offset, net of any hedge ineffectiveness (which is not material)
recorded as interest expense, to other comprehensive income. The
fair value of the interest rate cap was not material as of December
31, 1998. As interest expense on the underlying hedged debt is
recognized, corresponding amounts are removed from other
comprehensive income and charged to interest expense. Such amounts
were not material during 1998.
Accumulated Derivative Gains or Losses
The following table summarizes activity in other comprehensive
income related to derivatives classified as cash flow hedges held
by the Company during the period October 1 (the date of the
Company's adoption of SFAS 133) through December 31, 1998 (in
millions):
Cumulative effect of adopting SFAS 133 as
of October 1, 1998, net . . . . . . . . . . . . $ 1
(Gains)/losses reclassified into earnings from
other comprehensive income, net . . . . . . . . -
Change in fair value of derivatives, net . . . . (7)
Accumulated derivative loss included in other
comprehensive income as of December 31, 1998,
net . . . . . . . . . . . . . . . . . . . . . . $ (6)
Fair Value of Other Financial Instruments
(a) Cash equivalents -
Cash equivalents consist primarily of commercial paper with
original maturities of three months or less and approximate
fair value due to their short maturity.
(b) Investment in Equity Securities -
Continental's investment in America West Holdings Corporation
("America West Holdings") is classified as available-for-sale
and carried at an aggregate market value of $3 million and
$9 million at December 31, 1998 and 1997, respectively.
Included in stockholders' equity at December 31, 1998 and 1997
are net unrealized gains of $1 million and $4 million,
respectively.
In June 1998, the Company sold its remaining 317,140 shares of
America West Holdings Class B common stock realizing net
proceeds of approximately $8.9 million and recognizing a gain
of $6 million. The gain is included in Other, net in the
accompanying Consolidated Statements of Operations.
In February 1996, Continental sold approximately 1.4 million
of the 1.8 million shares it owned in America West Holdings,
realizing net proceeds of $25 million and recognizing a gain
of $13 million. In May 1996, the Company sold all of its
802,860 America West Holdings warrants, realizing net proceeds
of $7 million and recognizing a gain of $5 million. The gains
are included in Other, net in the accompanying Consolidated
Statements of Operations.
In May 1998, the Company acquired a 49% interest in Compania
Panamena de Aviacion, S.A. ("COPA") for $53 million. The
investment is accounted for under the equity method of
accounting. As of December 31, 1998, the excess of the amount
at which the investment is carried and the amount of
underlying equity in the net assets was $43 million. This
difference is being amortized over the investment's estimated
useful life of 40 years.
As of December 31, 1998, Continental had a 12.4% interest in
AMADEUS Global Travel Distribution S.A. ("AMADEUS") with a
carrying value of $95 million. Since a readily determinable
market value does not exist for the Company's investment in
AMADEUS, the investment is carried at cost.
(c) Debt -
The fair value of the Company's debt with a carrying value of
$1.98 billion and $1.49 billion at December 31, 1998 and 1997,
respectively, estimated based on the discounted amount of
future cash flows using the current incremental rate of
borrowing for a similar liability or market prices,
approximate $1.88 billion and $1.47 billion, respectively.
The fair value of the remaining debt (with a carrying value of
$473 million and $179 million, respectively, and primarily
relating to aircraft modification notes and various loans with
immaterial balances) was not practicable to estimate due to
the large number and small dollar amounts of these notes.
(d) Preferred Securities of Trust -
As of December 31, 1998, the fair value of Continental's 8-
1/2% Convertible Trust Originated Preferred Securities
("TOPrS") (with a carrying value of $111 million), estimated
based on market prices, approximated $159 million. The
carrying value of the TOPrS was $242 million and the fair
value approximated $514 as of December 31, 1997. See Note 6.
NOTE 6 - PREFERRED SECURITIES OF TRUST
Continental Airlines Finance Trust, a Delaware statutory business
trust (the "Trust") with respect to which the Company owned all of
the common trust securities, had 2,298,327 and 4,986,500 TOPrS
outstanding at December 31, 1998 and 1997, respectively. In
November 1998, the Company exercised its right and called for
redemption approximately half of its outstanding TOPrS. The TOPrS
were convertible into shares of Class B common stock at a
conversion price of $24.18 per share of Class B common stock. As
a result of the call for redemption, 2,688,173 TOPrS were converted
into 5,558,649 shares of Class B common stock. In December 1998,
the Company called for redemption the remaining outstanding TOPrS.
As a result of the second call, the remaining 2,298,327 TOPrS were
converted into 4,752,522 shares of Class B common stock during
January 1999.
Distributions on the preferred securities were payable by the Trust
at the annual rate of 8-1/2% of the liquidation value of $50 per
preferred security and are included in Distributions on Preferred
Securities of Trust in the accompanying Consolidated Statements of
Operations. At December 31, 1998, outstanding TOPrS totaling $111
million are included in Continental-Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trust Holding Solely
Convertible Subordinated Debentures in the accompanying
Consolidated Balance Sheets.
The sole assets of the trust were 8-1/2% Convertible Subordinated
Deferrable Interest Debentures ("Convertible Subordinated
Debentures") with an aggregate principal amount of $115 million at
December 31, 1998.
The Convertible Subordinated Debentures and related income
statement effects are eliminated in the Company's consolidated
financial statements.
NOTE 7 - REDEEMABLE PREFERRED, PREFERRED, TREASURY AND COMMON STOCK
Redeemable Preferred and Preferred Stock
During the year ended December 31, 1997, the Company's board of
directors declared and issued 13,165 additional shares of Series A
12% Cumulative Preferred Stock ("Series A 12% Preferred") in lieu
of cash dividends. In April 1997, Continental redeemed for cash
all of the 460,247 shares of its Series A 12% Preferred then
outstanding for $100 per share plus accrued dividends thereon. The
redemption price, including accrued dividends, totaled $48 million.
Continental has 10 million shares of authorized preferred stock,
none of which was outstanding as of December 31, 1998 or 1997.
Common Stock
Continental has two classes of common stock issued and outstanding,
Class A common stock, par value $.01 per share ("Class A common
stock"), and Class B common stock. Holders of shares of Class A
common stock and Class B common stock are entitled to receive
dividends when and if declared by the Company's board of directors.
Each share of Class A common stock is entitled to 10 votes per
share and each share of Class B common stock is entitled to one
vote per share. In addition, Continental has authorized 50 million
shares of Class D common stock, par value $.01 per share, none of
which is outstanding.
The Company's Certificate of Incorporation permits shares of the
Company's Class A common stock to be converted into an equal number
of shares of Class B common stock. During 1998 and 1997, 12,200
and 900,536 shares of the Company's Class A common stock,
respectively, were so converted.
Treasury Stock
During 1998, the Company's Board of Directors authorized the
expenditure of up to $300 million to repurchase shares of the
Company's Class A and Class B common stock or securities
convertible into Class B common stock. No time limit was placed on
the duration of the repurchase program. Subject to applicable
securities law, such purchases occur at times and in amounts that
the Company deems appropriate. As of December 31, 1998, the
Company had repurchased 4,452,700 shares of Class B common stock
for $223 million.
Stockholder Rights Plan
Effective November 20, 1998, the Company adopted a stockholder
rights plan (the "Rights Plan") in connection with the disposition
by Air Partners, L.P. ("Air Partners") of its interest in the
Company to an affiliate of Northwest Airlines, Inc. (together with
such affiliate, "Northwest").
The rights become exercisable upon the earlier of (i) the tenth day
following a public announcement or public disclosure of facts
indicating that a person or group of affiliated or associated
persons has acquired beneficial ownership of 15% or more of the
total number of votes entitled to be cast generally by the holders
of the common stock of the Company then outstanding, voting
together as a single class (such person or group being an
"Acquiring Person"), or (ii) the tenth business day (or such later
date as may be determined by action of the Board of Directors prior
to such time as any person becomes an Acquiring Person) following
the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would
result in any person becoming an Acquiring Person. Certain persons
and entities related to the Company, Air Partners or Northwest at
the time the Rights Plan was adopted are exempt from the definition
of "Acquiring Person."
The rights will expire on November 20, 2008 unless extended or
unless the rights are earlier redeemed or exchanged by the Company.
Subject to certain adjustments, if any person becomes an Acquiring
Person, each holder of a right, other than rights beneficially
owned by the Acquiring Person and its affiliates and associates
(which rights will thereafter be void), will thereafter have the
right to receive, upon exercise thereof, that number of Class B
Common Shares having a market value of two times the exercise price
($200, subject to adjustment) of the right.
If at any time after a person becomes an Acquiring Person, (i) the
Company merges into any other person, (ii) any person merges into
the Company and all of the outstanding common stock does not remain
outstanding after such merger, or (iii) the Company sells 50% or
more of its consolidated assets or earning power, each holder of a
right (other than the Acquiring Person and its affiliates and
associates) will have the right to receive, upon the exercise
thereof, that number of shares of common stock of the acquiring
corporation (including the Company as successor thereto or as the
surviving corporation) which at the time of such transaction will
have a market value of two times the exercise price of the right.
At any time after any person becomes an Acquiring Person, and prior
to the acquisition by any person or group of a majority of the
Company's voting power, the Board of Directors may exchange the
rights (other than rights owned by such Acquiring Person which have
become void), in whole or in part, at an exchange ratio of one
share of Class B common stock per right (subject to adjustment).
At any time prior to any person becoming an Acquiring Person, the
Board of Directors may redeem the rights at a price of $.001 per
right. The Rights Plan may be amended by the Board of Directors
without the consent of the holders of the rights, except that from
and after such time as any person becomes an Acquiring Person no
such amendment may adversely affect the interests of the holders of
the rights (other than the Acquiring Person and its affiliates and
associates). Until a right is exercised, the holder thereof, as
such, will have no rights as a stockholder of the Company,
including, without limitation, the right to vote or to receive
dividends.
Warrants
As of December 31, 1997, the Company had outstanding 3,039,468
Class A Warrants and 308,343 Class B Warrants. The warrants
entitled the holder to purchase one share of Class A common stock
or Class B common stock as follows: (i) 2,298,134 Class A Warrants
and 186,134 Class B Warrants with an exercise price $7.50 per
share, and (ii) 741,334 Class A Warrants and 122,209 Class B
Warrants with an exercise price of $15.00 per share. During 1998,
all remaining Class A and Class B Warrants outstanding were
exercised.
On June 2, 1997, the Company purchased from Air Partners warrants
to purchase 3,842,542 shares of Class B common stock for $94
million, the intrinsic value of the warrants (the difference
between the closing market price of the Class B common stock on May
28, 1997 ($34.25) and the applicable exercise price).
On November 21, 1996, Air Partners exercised its right to sell to
the Company, and the Company subsequently purchased, for $50
million, Warrants to purchase 2,614,379 shares of Class B common
stock pursuant to an agreement with the Company entered into
earlier in 1996.
NOTE 8 - STOCK PLANS AND AWARDS
Stock Options
On May 21, 1998, the stockholders of the Company approved the
Continental Airlines, Inc. 1998 Stock Incentive Plan (the "98
Incentive Plan") under which the Company may issue shares of
restricted Class B common stock or grant options to purchase shares
of Class B common stock to non-employee directors and employees of
the Company or its subsidiaries. Subject to adjustment as provided
in the 98 Incentive Plan, the aggregate number of shares of Class
B common stock that may be issued under the 98 Incentive Plan may
not exceed 5,500,000 shares, which may be originally issued or
treasury shares or a combination thereof. The maximum number of
shares of Class B common stock that may be subject to options
granted to any one individual during any calendar year may not
exceed 750,000 shares. In early December 1998, the Company offered
certain employees who were granted options during the period from
May 21, 1998 to November 20, 1998 (excluding the Company's
executive officers, certain other officers and members of its
Board) the opportunity to exchange such options for a lesser number
of new options bearing an exercise price equal to the closing price
of the Class B common stock on the date of grant, which was lower
than that of the exchanged options. Employees who exchanged their
options forfeited the vesting on their old options and received 65
new options for every 100 old options exchanged. As a result,
1,874,000 old options were exchanged for 1,218,100 new options.
The new options are subject to a new four-year vesting schedule
commencing on the date of grant. The exchange did not result in
recognition of compensation expense. The total shares remaining
available for grant under the 98 Incentive Plan at December 31,
1998 was 990,000. Stock options granted under the 98 Incentive
Plan generally vest over a period of four years and have a term of
five years.
On May 16, 1997, the stockholders of the Company approved the
Continental Airlines, Inc. 1997 Stock Incentive Plan, as amended
(the "97 Incentive Plan"), under which the Company may award
restricted stock or grant options to purchase shares of Class B
common stock to non-employee directors of the Company and employees
of the Company or its subsidiaries. Subject to adjustment as
provided in the 97 Incentive Plan, the aggregate number of shares
of Class B common stock that may be issued under the 97 Incentive
Plan may not exceed 2,000,000 shares, which may be originally
issued or treasury shares or a combination thereof. The maximum
number of shares of Class B common stock that may be subject to
options granted to any one individual during any calendar year may
not exceed 200,000 shares (subject to adjustment as provided in the
97 Incentive Plan). The total shares remaining available for grant
under the 97 Incentive Plan at December 31, 1998 was 563,988.
Stock options granted under the 97 Incentive Plan generally vest
over a period of three years and have a term of five years.
Under the Continental Airlines, Inc. 1994 Incentive Equity Plan, as
amended (the "94 Incentive Plan" and, together with the 97
Incentive Plan and the 98 Incentive Plan, the "Incentive Plans"),
key officers and employees of the Company and its subsidiaries
received stock options and/or restricted stock. The 94 Incentive
Plan also provided for each outside director to receive on the day
following the annual stockholders' meeting options to purchase
5,000 shares of Class B common stock. The maximum number of shares
of Class B common stock that may be issued under the 94 Incentive
Plan may not in the aggregate exceed 9,000,000. The total
remaining shares available for grant under the 94 Incentive Plan at
December 31, 1998 was 201,754.
Under the terms of the Incentive Plans, a change of control would
result in all outstanding options under these plans becoming
exercisable in full and restrictions on restricted shares being
terminated. On November 20, 1998, Air Partners disposed of its
interest in the Company to Northwest, resulting in a change of
control under the terms of the 97 Incentive Plan and the 94
Incentive Plan. As a result, all outstanding options and
restricted stock under these plans became exercisable and fully
vested, respectively.
The table on the following page summarizes stock option
transactions pursuant to the Company's Incentive Plans (share data
in thousands):
1998 1997 1996
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
Outstanding at
Beginning of
Year. . . . . . 5,998 $22.62 5,809 $17.37 4,769 $ 8.41
Granted* . . . . 6,504 $43.75 1,968 $29.34 3,307 $25.07
Exercised . . . (807) $19.53 (1,582) $11.72 (1,747) $ 8.23
Cancelled. . . . (2,012) $55.18 (197) $22.49 (520) $14.83
Outstanding at
End of Year . . 9,683 $30.31 5,998 $22.62 5,809 $17.37
Options
exercisable
at end of
year. . . . . . 5,174 $23.56 1,229 $20.61 656 $11.18
*The option price for all stock options is equal to 100% of the fair market value at the date
of grant.
The following tables summarize the range of exercise prices and the
weighted average remaining contractual life of the options
outstanding and the range of exercise prices for the options
exercisable at December 31, 1998 (share data in thousands):
Options Outstanding
Weighted
Average
Remaining
Range of Contractual Weighted Average
Exercise Prices Outstanding Life Exercise Price
$3.88-$8.00 915 2.25 $7.46
$8.19-$28.19 1,881 2.44 $22.68
$28.25-$34.75 3,443 3.75 $29.23
$34.88-$35.00 2,306 4.90 $35.00
$35.31-$56.81 1,138 4.62 $55.05
$3.88-$56.81 9,683 3.73 $30.31
Options Exercisable
Range of Weighted Average
Exercise Prices Exercisable Exercise Price
$3.88-$8.00 915 $ 7.46
$8.19-$28.19 1,881 $22.68
$28.25-$34.75 2,222 $29.25
$34.88-$35.00 2 $35.00
$35.31-$56.81 154 $47.72
$3.88-$56.81 5,174 $23.56
Restricted Stock
The Incentive Plans permit awards of restricted stock to
participants, subject to one or more restrictions, including a
restriction period, and a purchase price, if any, to be paid by the
participant. Under the 98 Incentive Plan, the 97 Incentive Plan
and the 94 Incentive Plan, 250,000, 100,000 and 600,000 shares,
respectively, have been authorized for issuance, of which 250,000,
100,000 and 35,000 shares were available for grant at December 31,
1998.
Additionally, on March 4, 1994, the Board approved a one-time grant
of 2,014,000 shares of restricted Class B common stock to
substantially all employees at or below the manager level. These
shares were issued at no cost to the employees and vested in 25
percent increments on each of January 2, 1995, 1996, 1997 and 1998.
Employee Stock Purchase Plans
On May 16, 1997, the stockholders of the Company approved the
Continental Airlines, Inc. 1997 Employee Stock Purchase Plan (the
"97 Stock Purchase Plan"). Under the 97 Stock Purchase Plan, all
employees of the Company may purchase shares of Class B common
stock of the Company at 85% of the lower of the fair market value
on the first day of the option period or the last day of the option
period. Subject to adjustment, a maximum of 1,750,000 shares of
Class B common stock are authorized for issuance under the 97 Stock
Purchase Plan. In January 1999, 132,928 shares of Class B common
stock were issued for $28.47 per share relating to contributions
made in fourth quarter of 1998. During 1998 and 1997, 305,978 and
148,186 shares of Class B common stock were issued at prices
ranging from $29.33 to $49.41 in 1998 and $23.38 to $29.33 in 1997.
Under the Continental Airlines, Inc. 1994 Employee Stock Purchase
Plan, as amended (the "94 Stock Purchase Plan"), which terminated
on December 31, 1996, substantially all employees of the Company
could purchase shares of Class B common stock at 85% of the lower
of the fair market value on the first or last business day of a
calendar quarter. Subject to adjustment, a maximum of
8,000,000 shares of Class B common stock were authorized for
purchase under the 94 Stock Purchase Plan. During 1997, 1996 and
1995, 70,706, 191,809 and 518,428 shares, respectively, of Class B
common stock were issued at a price of $19.55 in 1997 and at prices
ranging from $15.81 to $23.96 in 1996 and $4.31 to $10.63 in 1995
in connection with the 94 Stock Purchase Plan.
Pro Forma SFAS 123 Results
Pro forma information regarding net income and earnings per share
has been determined as if the Company had accounted for its
employee stock options and purchase rights under the fair value
method of SFAS 123. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions for 1998, 1997 and
1996, respectively: risk-free interest rates of 4.9%, 6.1% and
5.8%; dividend yields of 0%; volatility factors of the expected
market price of the Company's common stock of 40% for 1998, 34% for
1997 and 39% for 1996; and a weighted-average expected life of the
option of 3.0 years, 2.5 years and 2.6 years. The weighted average
grant date fair value of the stock options granted in 1998, 1997
and 1996 was $13.84, $7.87 and $7.55 per option, respectively.
The fair value of the purchase rights under the Stock Purchase
Plans was also estimated using the Black-Scholes model with the
following weighted-average assumptions for 1998, 1997 and 1996,
respectively: risk free interest rates of 4.7%, 5.2% and 5.2%;
dividend yields of 0%; expected volatility of 40% for 1998, 34% for
1997 and 39% for 1996; and an expected life of .25 years for 1998,
.33 years for 1997 and .25 years for 1996. The weighted-average
fair value of the purchase rights granted in 1998, 1997 and 1996
was $9.10, $7.38 and $5.75, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferrable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the
Company's employee stock options and purchase rights have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options and
purchase rights.
Assuming that the Company had accounted for its employee stock
options and purchase rights using the fair value method and
amortized the resulting amount to expense over the options' vesting
period net income would have been reduced by $18 million, $11
million and $9 million for the years ended December 31, 1998, 1997
and 1996, respectively. Basic EPS would have been reduced by 30
cents, 18 cents and 17 cents for the years ended December 31, 1998,
1997 and 1996, respectively, and diluted EPS would have been
reduced by 23 cents, 14 cents and 11 cents for the same periods,
respectively. The pro forma effect on net income is not
representative of the pro forma effects on net income in future
years because it did not take into consideration pro forma
compensation expense related to grants made prior to 1995.
NOTE 9 - ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of accumulated other comprehensive income are as
follows (in millions):
Minimum Unrealized Loss on
Pension Gain/(Loss) Derivative
Liability on Investments Instruments Total
Balance at
December 31, 1995 . $ (8) $ 18 $ - $ 10
Current year change
in other compre-
hensive income. . . 6 (14) - (8)
Balance at
December 31, 1996 . (2) 4 - 2
Current year change
in other compre-
hensive income. . . (4) - - (4)
Balance at
December 31, 1997 . (6) 4 - (2)
Current year change
in other compre-
hensive income. . . (76) (4) (6) (86)
Balance at
December 31, 1998 . $(82) $ - $ (6) $ (88)
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Company has noncontributory defined benefit pension and defined
contribution (including 401(k) savings) plans. Substantially all
domestic employees of the Company are covered by one or more of
these plans. The benefits under the active defined benefit pension
plan are based on years of service and an employee's final average
compensation. For the years ended December 31, 1998, 1997 and
1996, total expense for the defined contribution plan was $8
million, $6 million and $7 million, respectively.
The following table sets forth the defined benefit pension plans'
change in projected benefit obligation for 1998 and 1997:
1998 1997
(in millions)
Projected benefit obligation at
beginning of year . . . . . . . . $ 846 $ 604
Service cost . . . . . . . . . . . 55 38
Interest cost. . . . . . . . . . . 69 51
Plan amendments. . . . . . . . . . 110 -
Actuarial gains, net . . . . . . . 178 176
Benefits paid. . . . . . . . . . . (28) (23)
Projected benefit obligation at
end of year . . . . . . . . . . . $1,230 $ 846
The following table sets forth the defined benefit pension plans'
change in the fair value of plan assets for 1998 and 1997:
1998 1997
(in millions)
Fair value of plan assets at
beginning of year . . . . . . . . $ 633 $ 508
Actual return on plan assets . . . 75 83
Employer contributions . . . . . . 101 65
Benefits paid. . . . . . . . . . . (28) (23)
Fair value of plan assets at
end of year . . . . . . . . . . . $ 781 $ 633
Pension cost recognized in the accompanying Consolidated Balance
Sheets is computed as follows:
1998 1997
(in millions)
Funded status of the plans -
net underfunded . . . . . . . . . $ (449) $ (213)
Unrecognized net actuarial loss. . 256 93
Unrecognized prior service cost. . 113 9
Net amount recognized. . . . . . . (80) (111)
Prepaid benefit cost . . . . . . . 2 16
Accrued benefit liability. . . . . (320) (136)
Intangible asset . . . . . . . . . 113 -
Accumulated other comprehensive
income. . . . . . . . . . . . . . 125 9
Net amount recognized. . . . . . . $ (80) $ (111)
Net periodic defined benefit pension cost for 1998, 1997 and 1996
included the following components:
1998 1997 1996
(in millions)
Service cost . . . . . . . . . . . $ 55 $ 38 $ 38
Interest cost. . . . . . . . . . . 69 51 45
Expected return on plan assets . . (64) (49) (38)
Amortization of prior service
cost . . . . . . . . . . . . . . 6 1 1
Amortization of unrecognized
net actuarial loss . . . . . . . 4 - -
Settlement gain. . . . . . . . . . - - (1)
Net periodic benefit cost. . . . . $ 70 $ 41 $ 45
The projected benefit obligation, accumulated benefit obligation
and the fair value of plan assets for the pension plans with
projected benefit obligations and accumulated benefit obligations
in excess of plan assets were $1.2 billion, $1.1 billion and $771
million, respectively, as of December 31, 1998, and $762 million,
$620 million and $529 million, respectively, as of December 31,
1997.
During 1998, the Company amended its benefit plan as a result of
changes in benefits pursuant to new collective bargaining
agreements.
Plan assets consist primarily of equity securities (including
32,500 and 50,000 shares of Class B common stock with a fair market
value of $1.1 million and $2.4 million as of December 31, 1998 and
1997, respectively), long-term debt securities and short-term
investments.
The weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation was
7.00% to 7.25%, 7.25% and 7.75% for 1998, 1997 and 1996,
respectively. The expected long-term rate of return on assets
(which is used to calculate the Company's return on pension assets
for the current year) was 9.25% to 9.50% for 1998, and 9.25% for
each of 1997 and 1996. The weighted average rate of salary
increases was 5.30% for 1998, and 4.90% for each of 1997 and 1996.
The 1983 Group Annuity Mortality Table (GAM 83) was used to develop
the 1997 and 1998 end-of-year disclosure amounts and 1998 pension
cost. The 1984 Unisex Pensioners Mortality Table (UP 84) was used
to develop 1996 end-of-year disclosure and 1996 and 1997 pension
cost. The unrecognized net gain (loss) is amortized on a straight-
line basis over the average remaining service period of employees
expected to receive a plan benefit.
Continental's policy is to fund the noncontributory defined benefit
pension plans in accordance with Internal Revenue Service ("IRS")
requirements as modified, to the extent applicable, by agreements
with the IRS.
The Company also has a profit sharing program under which an award
pool consisting of 15.0% of the Company's annual pre-tax earnings,
subject to certain adjustments, is distributed each year to
substantially all employees (other than employees whose collective
bargaining agreement provides otherwise or who otherwise receive
profit sharing payments as required by local law) on a pro rata
basis according to base salary. The profit sharing expense
included in the accompanying Consolidated Statements of Operations
for the years ended December 31, 1998, 1997 and 1996 was $86
million, $105 million and $68 million, respectively.
NOTE 11 - INCOME TAXES
The reconciliations of income tax computed at the United States
federal statutory tax rates to income tax provision for the years
ended December 31, 1998, 1997 and 1996 are as follows (in
millions):
Amount Percent
1998 1997 1996 1998 1997 1996
Income tax pro-
vision at
United States
statutory rates . . $227 $224 $150 35.0 % 35.0 % 35.0 %
State income tax
provision . . . . . 10 9 6 1.5 1.4 1.4
Reorganization value
in excess of
amounts allocable
to identifiable
assets. . . . . . . - 4 5 - 0.6 1.2
Meals and
entertainment
disallowance. . . . 10 9 7 1.5 1.4 1.6
Net operating loss
not previously
benefitted. . . . . - (15) (88) - (2.3) (20.5)
Other. . . . . . . . 1 6 6 0.3 1.0 1.4
Income tax
provision, net. . . $248 $237 $ 86 38.3 % 37.1 % 20.1 %
The significant component of the provision for income taxes for the
year ended December 31, 1998, 1997 and 1996 was a deferred tax
provision of $231 million, $220 million and $80 million,
respectively. The provision for income taxes for the period ended
December 31, 1998, 1997 and 1996 also reflects a current tax
provision in the amount of $17 million, $17 million and $6 million,
respectively, as the Company is in an alternative minimum tax
position for federal income tax purposes and pays current state
income tax.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the related amounts used for
income tax purposes. Significant components of the Company's
deferred tax liabilities and assets as of December 31, 1998 and
1997 are as follows (in millions):
1998 1997
Spare parts and supplies, fixed assets
and intangibles . . . . . . . . . . . . . $ 536 $ 639
Deferred gain. . . . . . . . . . . . . . . 57 63
Capital and safe harbor lease activity . . 46 49
Other, net . . . . . . . . . . . . . . . . 39 39
Gross deferred tax liabilities . . . . . . 678 790
Accrued liabilities. . . . . . . . . . . . (347) (370)
Revaluation of leases. . . . . . . . . . . (2) (16)
Net operating loss carryforwards . . . . . (372) (631)
Investment tax credit carryforwards. . . . (45) (45)
Minimum tax credit carryforward. . . . . . (37) (21)
Gross deferred tax assets. . . . . . . . . (803) (1,083)
Deferred tax assets valuation allowance. . 263 617
Net deferred tax liability . . . . . . . . 138 324
Less: current deferred tax (asset)
liability . . . . . . . . . . . . . . . . (234) (111)
Non-current deferred tax liability . . . . $ 372 $ 435
At December 31, 1998, the Company had estimated NOLs of
$1.1 billion for federal income tax purposes that will expire
through 2009 and federal investment tax credit carryforwards of
$45 million that will expire through 2001. As a result of the
change in ownership of the Company on April 27, 1993, the ultimate
utilization of the Company's net operating losses and investment
tax credits could be limited. Reflecting this possible limitation,
the Company has recorded a valuation allowance of $263 million at
December 31, 1998.
Continental had, as of December 31, 1998, deferred tax assets
aggregating $803 million, including $372 million of NOLs and a
valuation allowance of $263 million. During the first quarter of
1998, the Company consummated several transactions, the benefit of
which resulted in the elimination of reorganization value in excess
of amounts allocable to identifiable assets of $164 million.
During the third and fourth quarters of 1998, the Company
determined that additional NOLs of the Company's predecessor could
be benefited and accordingly reduced both the valuation allowance
and routes, gates and slots by $190 million. To the extent the
Company were to determine in the future that additional NOLs of the
Company's predecessor could be recognized in the accompanying
consolidated financial statements, such benefit would further
reduce routes, gates and slots.
NOTE 12 - ACCRUALS FOR AIRCRAFT RETIREMENTS AND EXCESS FACILITIES
In August 1998, the Company announced that CMI plans to accelerate
the retirement of its four Boeing 747 aircraft by April 1999 and
its remaining thirteen Boeing 727 aircraft by December 2000. The
Boeing 747s will be replaced by DC-10-30 aircraft and the Boeing
727 aircraft will be replaced with a reduced number of Boeing 737
aircraft. In addition, Express will accelerate the retirement of
certain turboprop aircraft by December 2000, including its fleet of
32 EMB-120 turboprop aircraft, as regional jets are acquired to
replace turboprops.
In connection with its decision to accelerate the replacement of
these aircraft, the Company performed an evaluation to determine,
in accordance with SFAS 121, whether future cash flows
(undiscounted and without interest charges) expected to result from
the use and eventual disposition of these aircraft would be less
than the aggregate carrying amount of these aircraft and the
related assets. As a result of the evaluation, management
determined that the estimated future cash flows expected to be
generated by these aircraft would be less than their carrying
amount, and therefore these aircraft are impaired as defined by
SFAS 121. Consequently, the original cost basis of these aircraft
and related items was reduced to reflect the fair market value at
the date the decision was made, resulting in a $59 million fleet
disposition/impairment loss. In determining the fair market value
of these assets, the Company considered recent transactions
involving sales of similar aircraft and market trends in aircraft
dispositions. The remaining $63 million of the fleet
disposition/impairment loss includes cash and non-cash costs
related primarily to future commitments on leased aircraft past the
dates they will be removed from service and the write-down of
related inventory to its estimated fair market value. The combined
charge of $122 million was recorded in the third quarter of 1998.
During 1996, the Company made the decision to accelerate the
replacement of certain aircraft between August 1997 and December
1999. As a result of its decision to accelerate the replacement of
these aircraft, the Company recorded a fleet disposition charge of
$128 million. The fleet disposition charge related primarily to
(i) the writedown of Stage 2 aircraft inventory, which is not
expected to be consumed through operations, to its estimated fair
value; and (ii) a provision for costs associated with the return of
leased aircraft at the end of their respective lease terms. The
majority of the aircraft are being accounted for as operating
leases and therefore the Company will continue to recognize rent
and amortization expenses on these aircraft until they are removed
from service.
During 1994, the Company recorded a $447 million provision
associated with (i) the planned early retirement of certain
aircraft ($278 million) and (ii) closed or underutilized airport
and maintenance facilities and other assets ($169 million).
The following represents the activity within these accruals during
the three years ended December 31, 1998 (in millions):
1998 1997 1996
Total accruals at beginning of year. . $151 $205 $220
Net cash payments:
Aircraft related. . . . . . . . . . . (34) (27) (52)
Underutilized facilities and other. . (30) (13) (17)
Increase/(decrease) in accrual for
grounded aircraft . . . . . . . . . . - (16) -
Fleet disposition charge for cost of
return of leased aircraft . . . . . . - 54
Fleet disposition/impairment loss
for the retirement of aircraft. . . . 63 - -
Other. . . . . . . . . . . . . . . . . 5 2 -
Total accruals at end of year. . . . . 155 151 205
Portion included in accrued other
liabilities . . . . . . . . . . . . . (60) (28) (17)
Accrual for aircraft retirements and
excess facilities . . . . . . . . . . $ 95 $123 $188
The remaining accruals relate primarily to anticipated cash outlays
associated with (i) underutilized airport facilities (primarily
associated with Denver International Airport), (ii) the return of
leased aircraft and (iii) the remaining liability associated with
the grounded aircraft. The Company has assumed certain sublease
rental income for these closed and underutilized facilities and
grounded aircraft in determining the accrual at each balance sheet
date. However, should actual sublease rental income be different
from the Company's estimates, the actual charge could be different
from the amount estimated. The remaining accrual represents cash
outlays to be incurred over the remaining lease terms (from one to
12 years).
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Continental has substantial commitments for capital expenditures,
including for the acquisition of new aircraft. As of January 20,
1999, Continental had agreed to acquire a total of 113 Boeing jet
aircraft through 2005, approximately 57 of which are expected to be
delivered in 1999. Continental also has options for an additional
114 aircraft (exercisable subject to certain conditions). The
estimated aggregate cost of the Company's firm commitments for
Boeing aircraft is approximately $5.5 billion. Continental
currently plans to finance its new Boeing aircraft with a
combination of enhanced pass through trust certificates, lease
equity and other third-party financing, subject to availability and
market conditions. As of January 20, 1999, Continental had
approximately $354 million in financing arranged for such future
Boeing deliveries. In addition, Continental had commitments or
letters of intent for backstop financing for approximately one-
third of the anticipated remaining acquisition cost of such Boeing
deliveries. In addition, at January 20, 1999, Continental has firm
commitments to purchase 32 spare engines related to the new Boeing
aircraft for approximately $167 million, which will be deliverable
through December 2004. However, further financing will be needed
to satisfy the Company's capital commitments for other aircraft and
aircraft-related expenditures such as engines, spare parts,
simulators and related items. There can be no assurance that
sufficient financing will be available for all aircraft and other
capital expenditures not covered by firm financing commitments.
Deliveries of new Boeing aircraft are expected to increase aircraft
rental, depreciation and interest costs while generating cost
savings in the areas of maintenance, fuel and pilot training.
As of January 20, 1999, Express had firm commitments for 38 Embraer
ERJ-145 ("ERJ-145") 50-seat regional jets and 25 Embraer ERJ-135
("ERJ-135") 37-seat regional jets, with options for an additional
125 ERJ-145 and 50 ERJ-135 aircraft exercisable through 2008.
Express anticipates taking delivery of 19 ERJ-145 and six ERJ-135
regional jets in 1999. Neither Express nor Continental will have
any obligation to take any ERJ-145 firm aircraft that are not
financed by a third party and leased to Continental.
Continental expects its cash outlays for 1999 capital expenditures,
exclusive of fleet plan requirements, to aggregate $254 million
primarily relating to mainframe, software application and
automation infrastructure projects, aircraft modifications and
mandatory maintenance projects, passenger terminal facility
improvements and office, maintenance, telecommunications and ground
equipment.
Continental remains contingently liable until December 1, 2015, on
$202 million of long-term lease obligations of US Airways, Inc.
("US Airways") related to the East End Terminal at LaGuardia
Airport in New York. If US Airways defaulted on these obligations,
Continental could be required to cure the default, at which time it
would have the right to reoccupy the terminal.
During 1998, Continental began block space arrangements whereby it
is committed to purchase capacity on other carriers at an aggregate
cost of approximately $150 million per year. These arrangements
are for 10 years. Pursuant to other block-space arrangements,
other carriers are committed to purchase capacity at a cost of
approximately $100 million on Continental.
Approximately 40% of the Company's employees are covered by
collective bargaining agreements. The Company's collective
bargaining agreements with its Express flight attendants and
Continental Airlines flight attendants (representing approximately
17% of the Company's employees) become amendable in November and
December 1999. Negotiations are expected to begin in the third
quarter of 1999 to amend these contracts. The Company believes
that mutually acceptable agreements can be reached with such
employees, although the ultimate outcome of the Company's
negotiations is unknown at this time.
Legal Proceedings
United Statement of America v. Northwest Airlines Corp. &
Continental Airlines, Inc.: The Antitrust Division of the
Department of Justice is challenging under Section 7 of the Clayton
Act and Section 1 of the Sherman Act the acquisition by Northwest
of Shares of Continental's Class A common stock bearing, together
with certain shares for which Northwest has a limited proxy, more
than 50% of the fully diluted voting power of all Continental
stock. The government's position is that, notwithstanding various
agreements that severely restrict Northwest's ability to exercise
voting control over Continental and are designed to assure
Continental's competitive independence, Northwest's control of the
Class A common stock will reduce actual and potential competition
in various ways and in a variety of markets. Continental believes
that because of agreements restricting Northwest's right to
exercise control over Continental, the companies remain independent
competitors; Northwest's stock acquisition was made solely for
investment purposes and thus is expressly exempt under Section 7 of
the Clayton Act; and Northwest's stock acquisition was necessary in
order for Northwest and Continental to enter into an alliance
agreement that is highly pro-competitive. The government seeks an
order requiring Northwest to divest all voting stock in Continental
on terms and conditions as may be agreed to by the government and
the Court. No specific relief is sought against Continental.
The Company and/or certain of its subsidiaries are defendants in
various lawsuits, including suits relating to certain environmental
claims, the Company's consolidated Plan of Reorganization under
Chapter 11 of the federal bankruptcy code which became effective on
April 27, 1993, the Company's long-term global alliance agreement
with Northwest entered into in connection with Air Partners'
disposition of its interest in Continental to Northwest (see Note
14) and proceedings arising in the normal course of business.
While the outcome of these lawsuits and proceedings cannot be
predicted with certainty and could have a material adverse effect
on the Company's financial position, results of operations and cash
flows, it is the opinion of management, after consulting with
counsel, that the ultimate disposition of such suits will not have
a material adverse effect on the Company's financial position,
results of operations or cash flows.
NOTE 14 - RELATED PARTY TRANSACTIONS
The following is a summary of significant related party
transactions that occurred during 1998, 1997 and 1996, other than
those discussed elsewhere in the Notes to Consolidated Financial
Statements.
In connection with certain synergies agreements, Continental paid
Air Canada, a former significant stockholder of the Company, $30
million and $16 million for the years ended December 31, 1997 and
1996, respectively, and Air Canada paid Continental $16 million and
$17 million in 1997 and 1996, respectively, primarily relating to
aircraft maintenance.
The Company and America West Airlines, Inc. ("America West"), a
subsidiary of America West Holdings, in which David Bonderman holds
a significant interest, entered into a series of agreements during
1994 related to code-sharing and ground handling that have created
substantial benefits for both airlines. Mr. Bonderman is a
director of the Company and holds a significant interest in the
Company. The services provided are considered normal to the daily
operations of both airlines. As a result of these agreements,
Continental paid America West $15 million, $16 million and $15
million in 1998, 1997 and 1996, respectively, and America West paid
Continental $27 million, $23 million and $22 million in 1998, 1997
and 1996, respectively.
In May 1996, Air Canada converted all of its 3,322,112 shares of
Class A common stock into Class B common stock (pursuant to certain
rights granted to it under the Company's Certificate of
Incorporation) and sold, on the open market, 4,400,000 shares of
the Company's common stock pursuant to the Secondary Offering.
On November 21, 1996, Air Partners, a significant stockholder of
the Company, exercised its right to sell to the Company, and the
Company subsequently purchased, for $50 million, warrants to
purchase 2,614,379 shares of Class B common stock (representing a
portion of the total warrants held by Air Partners) pursuant to an
agreement entered into earlier in 1996 with the Company.
In April 1997, Continental redeemed for cash all of the 460,247
outstanding shares of its Series A 12% Preferred held by an
affiliate of Air Canada for $100 per share plus accrued dividends
thereon. The redemption price, including accrued dividends,
totaled $48 million.
On June 2, 1997, the Company purchased for $94 million from Air
Partners warrants to purchase 3,842,542 shares of Class B common
stock (representing a portion of the total warrants held by Air
Partners). The purchase price represented the intrinsic value of
the warrants (the difference between the closing market price of
the Class B common stock on May 28, 1997 ($34.25) and the
applicable exercise price).
In July 1997, the Company purchased the rights of United Micronesia
Development Association, Inc. ("UMDA") to receive future payments
under a services agreement between UMDA and CMI (pursuant to which
CMI was to pay UMDA approximately 1% of the gross revenues of CMI,
as defined, through January 1, 2012, which payment by CMI to UMDA
totaled $1 million, $6 million and $6 million in 1997, 1996 and
1995, respectively) and UMDA's 9% interest in AMI, terminated the
Company's obligations to UMDA under a settlement agreement entered
into in 1987, and terminated substantially all of the other
contractual arrangements between the Company, AMI and CMI, on the
one hand, and UMDA on the other hand, for an aggregate
consideration of $73 million.
In connection with the Company's $320 million secured term loan
financing, entered into in 1996, CMI paid UMDA a dividend of
approximately $13 million in 1996.
In November 1998, the Company and Northwest, a significant
stockholder of the Company, began implementing a long-term global
alliance involving extensive code-sharing, frequent flyer
reciprocity and other cooperative activities.
NOTE 15 - SEGMENT REPORTING
Continental adopted Statement of Financial Accounting Standards No.
131 - "Disclosure About Segments of an Enterprise and Related
Information" ("SFAS 131") during the first quarter of 1998. SFAS
131 established standards for reporting information about operating
segments in annual financial statements as well as related
disclosures about products and services, geographic areas and major
customers. Operating segments are defined as components of an
enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker,
or decision making group, in deciding how to allocate resources and
in assessing performance. Continental has one reportable operating
segment (air transportation).
Information concerning principal geographic areas is as follows (in
millions):
1998 1997 1996
Operating Operating Operating
Revenue Revenue Revenue
Domestic (U.S.) $5,620 $5,215 $4,761
Atlantic 995 778 494
Latin America 769 572 406
Pacific 567 648 699
$7,951 $7,213 $6,360
The Company attributes revenue among the geographical areas based
upon the origin and destination of each flight segment. The
Company's tangible assets consist primarily of flight equipment
which is mobile across geographic markets and, therefore, has not
been allocated.
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 1998 and 1997 is as follows (in millions,
except per share data):
Three Months Ended
March 31 June 30 September 30 December 31
1998
Operating revenue . . . . . . . . . . . . . $1,854 $2,036 $2,116 $1,945
Operating income. . . . . . . . . . . . . . 150 280 143 128
Nonoperating income (expense), net. . . . . (13) (5) (18) (17)
Net income. . . . . . . . . . . . . . . . . 81 163 73 66
Earnings per common share:
Income before extraordinary charge. . . . $ 1.38 $ 2.74 $ 1.21 $ 1.08
Extraordinary charge, net of tax. . . . . - (0.06) - -
Net income (a). . . . . . . . . . . . . . $ 1.38 $ 2.68 $ 1.21 $ 1.08
Earnings per common share assuming
dilution:
Income before extraordinary charge. . . . $ 1.06 $ 2.11 $ 0.97 $ 0.91
Extraordinary charge, net of tax. . . . . - (0.05) - -
Net income (a). . . . . . . . . . . . . . $ 1.06 $ 2.06 $ 0.97 $ 0.91
(continued on next page)
Three Months Ended
March 31 June 30 September 30 December 31
1997
Operating revenue . . . . . . . . . . . . . $1,698 $1,786 $1,890 $1,839
Operating income. . . . . . . . . . . . . . 146 231 207 132
Nonoperating income (expense), net. . . . . (22) (23) (21) (10)
Net income. . . . . . . . . . . . . . . . . 74 128 110 73
Earnings per common share:
Income before extraordinary charge (a). . $ 1.28 $ 2.22 $ 1.97 $ 1.26
Extraordinary charge, net of tax. . . . . - - (0.07) -
Net income (a). . . . . . . . . . . . . . $ 1.28 $ 2.22 $ 1.90 $ 1.26
Earnings per common share assuming
dilution:
Income before extraordinary charge (a). . $ 0.96 $ 1.63 $ 1.48 $ 0.97
Extraordinary charge, net of tax. . . . . - - (0.04) -
Net income (a). . . . . . . . . . . . . . $ 0.96 $ 1.63 $ 1.44 $ 0.97
(a) The sum of the four quarterly earnings per share amounts does not agree with the
earnings per share as calculated for the full year due to the fact that the full year
calculation uses a weighted average number of shares based on the sum of the four
quarterly weighted average shares divided by four quarters.
During the second quarter of 1998, Continental recorded a $4
million after tax extraordinary charge relating to prepayment of
debt.
During the third quarter of 1998, Continental recorded a fleet
disposition/impairment loss of $122 million ($77 million after tax)
relating to its decision to accelerate the retirement of certain
jet and turboprop aircraft.
During the third quarter of 1997, in connection with the prepayment
of certain indebtedness, Continental recorded a $4 million after
tax extraordinary charge relating to early extinguishment of debt.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
There were no changes in or disagreements on any matters of
accounting principles or financial statement disclosure between the
Company and its independent public auditors during the registrant's
two most recent fiscal years or any subsequent interim period.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated herein by reference from the Company's definitive
proxy statement for the annual meeting of stockholders to be held
on May 18, 1999.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference from the Company's definitive
proxy statement for the annual meeting of stockholders to be held
on May 18, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Incorporated herein by reference from the Company's definitive
proxy statement for the annual meeting of stockholders to be held
on May 18, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference from the Company's definitive
proxy statement for the annual meeting of stockholders to be held
on May 18, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) The following financial statements are included in Item 8.
"Financial Statements and Supplementary Data":
Report of Independent Auditors
Consolidated Statements of Operations for each of the Three
Years in the Period Ended December 31, 1998
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Cash Flows for each of the Three
Years in the Period Ended December 31, 1998
Consolidated Statements of Redeemable Preferred Stock and
Common Stockholders' Equity for each of the Three Years
in the Period Ended December 31, 1998
Notes to Consolidated Financial Statements
(b) Financial Statement Schedules:
Report of Independent Auditors
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are
inapplicable, not required, or the information is included
elsewhere in the consolidated financial statements or notes
thereto.
(c) Reports on Form 8-K:
(i) Report dated November 3, 1998 with respect to Item 7.
Financial Statements and Exhibits, related to the
offering of Continental Airlines, Inc.'s Pass Through
Certificates Series 1998-3.
(ii) Report dated November 20, 1998 with respect to Item 5.
Other Events, related to the Northwest Transaction.
(iii) Report dated December 8, 1998 with respect to Item 7.
Financial Statements and Exhibits, related to the
offering of Continental Airlines, Inc.'s 8% Notes due
December 15, 2005.
(d) See accompanying Index to Exhibits.
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of
Continental Airlines, Inc. as of December 31, 1998 and 1997, and
for each of the three years in the period ended December 31, 1998,
and have issued our report thereon dated January 20, 1999 (included
elsewhere in this Form 10-K). Our audits also included the
financial statement schedule for these related periods listed in
Item 14(b) of this Form 10-K. This schedule is the responsibility
of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Houston, Texas
January 20, 1999
CONTINENTAL AIRLINES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1998, 1997, and 1996
(In millions)
Allowance
for Doubtful Allowance for
Receivables Obsolescence
Balance, December 31, 1995 . . . $ 44 $ 36
Additions charged to expense . 16 18
Deductions from reserve. . . . (31) (8)
Other. . . . . . . . . . . . . (2) 1
Balance, December 31, 1996 . . . 27 47
Additions charged to expense . 12 12
Deductions from reserve. . . . (21) (4)
Other. . . . . . . . . . . . . 5 (4)
Balance, December 31, 1997 . . . 23 51
Additions charged to expense . 18 17
Deductions from reserve. . . . (18) (16)
Other. . . . . . . . . . . . . (1) (6)
Balance, December 31, 1998 . . . $ 22 $ 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONTINENTAL AIRLINES, INC.
By /s/ LAWRENCE W. KELLNER
Lawrence W. Kellner
Executive Vice President and
Chief Financial Officer
(On behalf of Registrant)
Date: February 25, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in the
capacities indicated on February 25, 1999.
Signature Capacity
/s/ GORDON M. BETHUNE Chairman and Chief Executive Officer
Gordon M. Bethune (Principal Executive Officer)
/s/ LAWRENCE W. KELLNER Executive Vice President and
Lawrence W. Kellner Chief Financial Officer
(Principal Financial Officer)
/s/ MICHAEL P. BONDS Vice President and Controller
Michael P. Bonds (Principal Accounting Officer)
THOMAS J. BARRACK, JR.* Director
Thomas J. Barrack, Jr.
LLOYD M. BENTSEN, JR.* Director
Lloyd M. Bentsen, Jr.
DAVID BONDERMAN* Director
David Bonderman
/s/GREGORY D. BRENNEMAN Director
Gregory D. Brenneman
PATRICK FOLEY* Director
Patrick Foley
DOUGLAS McCORKINDALE* Director
Douglas McCorkindale
GEORGE G. C. PARKER* Director
George G. C. Parker
RICHARD W. POGUE* Director
Richard W. Pogue
WILLIAM S. PRICE III* Director
William Price III
DONALD L. STURM* Director
Donald L. Sturm
KAREN HASTIE WILLIAMS* Director
Karen Hastie Williams
CHARLES A. YAMARONE* Director
Charles A. Yamarone
*By /s/ LAWRENCE W. KELLNER
Lawrence W. Kellner
Attorney in-fact
February 25, 1999
INDEX TO EXHIBITS
OF
CONTINENTAL AIRLINES, INC.
2.1 Revised Third Amended Disclosure Statement Pursuant to
Section 1125 of the Bankruptcy Code with Respect to
Debtors' Revised Second Amended Joint Plan of
Reorganization Under Chapter 11 of the United States
Bankruptcy Code, as filed with the Bankruptcy Court on
January 13, 1993 -- incorporated by reference from
Exhibit 2.1 to Continental's Annual Report on Form 10-K
for the year ended December 31, 1992 (File no. 0-9781).
2.2 Modification of Debtors' Revised Second Amended Joint
Plan of Reorganization dated March 12, 1993 --
incorporated by reference to Exhibit 2.2 to Continental's
Current Report on Form 8-K, dated April 16, 1993 (File
no. 0-9781) (the "4/93 8-K").
2.3 Second Modification of Debtors' Revised Second Amended
Joint Plan of Reorganization, dated April 8, 1993 --
incorporated by reference to Exhibit 2.3 to the 4/93 8-K.
2.4 Third Modification of Debtors' Revised Second Amended
Joint Plan of Reorganization, dated April 15, 1993 --
incorporated by reference to Exhibit 2.4 to the 4/93 8-K.
2.5 Confirmation Order, dated April 16, 1993 -- incorporated
by reference to Exhibit 2.5 to the 4/93 8-K.
3.1 Amended and Restated Certificate of Incorporation of
Continental -- incorporated by reference to
Exhibit 4.1(a) to Continental's Form S-8 registration
statement (No. 333-06993) (the "1996 S-8").
3.2 By-laws of Continental, as amended to date --
incorporated by reference to Exhibit 99.3 to
Continental's Current Report on Form 8-K dated November
20, 1998 (the "11/98 8-K").
4.1 Specimen Class A Common Stock Certificate of the Company
-- incorporated by reference to Exhibit 4.1 to
Continental's Annual Report on Form 10-K for the year
ended December 31, 1995 (File no. 0-9781) (the "1995 10-
K").
4.2 Specimen Class B Common Stock Certificate of the Company
-- incorporated by reference to Exhibit 4.1 to
Continental's Form S-1 Registration Statement (No. 33-
68870) (the "1993 S-1").
4.3 Rights Agreement, dated as of November 20, 1998, between
Continental and Harris Trust and Savings Bank --
incorporated by reference to Exhibit 4.1 to the 11/98 8-
K.
4.4 Certificate of Designation of Series A Junior
Participating Preferred Stock, included as Exhibit A to
Exhibit 4.3 -- incorporated by reference to Exhibit 4.2
to the 11/98 8-K.
4.5 Form of Right Certificate, included as Exhibit B to
Exhibit 4.3 -- incorporated by reference to Exhibit 4.3
to the 11/98 8-K.
4.6 Summary of Rights to Purchase Preferred Shares, included
as Exhibit C to Exhibit 4.3 -- incorporated by reference
to Exhibit 4.4 to the 11/98 8-K.
4.7 Governance Agreement dated January 25, 1998 among the
Company, Newbridge Parent Corporation ("Newbridge") and
Northwest Airlines Corporation ("Northwest") --
incorporated by reference to Exhibit 99.1 to
Continental's Current Report on Form 8-K dated January
25, 1998 (File no. 0-9781).
4.7(a) First Amendment to the Governance Agreement dated March
2, 1998. (3)
4.7(b) Second Amendment to the Governance Agreement dated
November 20, 1998 -- incorporated by reference to Exhibit
99.6 to the 11/98 8-K.
4.8 Supplemental Agreement dated November 20, 1998 among the
Company, Newbridge and Northwest -- incorporated by
reference to Exhibit 99.7 to the 11/98 8-K.
4.9 Amended and Restated Registration Rights Agreement dated
April 19, 1996 among the Company, Air Partners, L.P. and
Air Canada -- incorporated by reference to Exhibit 10.2
to Continental's Form S-3 Registration Statement (No.
333-02701).
4.9(a) Amendment dated November 20, 1998 to the Amended and
Restated Registration Rights Agreement among the Company,
Air Partners and Northwest -- incorporated by reference
to Exhibit 99.5 to the November 8-K.
4.10 Warrant Agreement dated as of April 27, 1993, between
Continental and Continental as warrant agent --
incorporated by reference to Exhibit 4.7 to the 4/93 8-K.
4.11 Continental hereby agrees to furnish to the Commission,
upon request, copies of certain instruments defining the
rights of holders of long-term debt of the kind described
in Item 601(b)(4)(iii)(A) of Regulation S-K.
9.1 Northwest Airlines/Air Partners Voting Trust Agreement
dated as of November 20, 1998 among the Company,
Northwest, Northwest Airlines Holdings Corporation, Air
Partners and Wilmington Trust Company, as Trustee --
incorporated by reference to Exhibit 99.4 to the 11/98 8-
K.
10.1 Agreement of Lease dated as of January 11, 1985, between
the Port Authority of New York and New Jersey and People
Express Airlines, Inc., regarding Terminal C (the
"Terminal C Lease") -- incorporated by reference to
Exhibit 10.61 to the Annual Report on Form 10-K (File No.
0-9781) of People Express Airlines, Inc. for the year
ended December 31, 1984.
10.1(a) Supplemental Agreements Nos. 1 through 6 to the Terminal
C Lease -- incorporated by reference to Exhibit 10.3 to
Continental's Annual Report on Form 10-K (File No. 1-
8475) for the year ended December 31, 1987 (the "1987 10-
K").
10.1(b) Supplemental Agreement No. 7 to the Terminal C Lease --
incorporated by reference to Exhibit 10.4 to
Continental's Annual Report on Form 10-K (File No. 1-
8475) for the year ended December 31, 1988.
10.1(c) Supplemental Agreements No. 8 through 11 to the Terminal
C Lease -- incorporated by reference to Exhibit 10.10 to
the 1993 S-1.
10.1(d) Supplemental Agreements No. 12 through 15 to the Terminal
C Lease -- incorporated by reference to Exhibit 10.2(d)
to the 1995 10-K.
10.1(e) Supplemental Agreement No. 16 to the Terminal C Lease --
incorporated by reference to Exhibit 10.1(e) to
Continental's Annual Report on Form 10-K for the year
ended December 31, 1997 (File no. 0-9781) (the "1997 10-
K").
10.2 Assignment of Lease with Assumption and Consent dated as
of August 15, 1987, among the Port Authority of New York
and New Jersey, People Express Airlines, Inc. and
Continental -- incorporated by reference to Exhibit
10.2 to the 1987 10-K.
10.3* Amended and restated employment agreement between the
Company and Gordon Bethune, dated as of November 20,
1998. (3)
10.4* Amended and restated employment agreement between the
Company and Gregory Brenneman, dated as of November 20,
1998. (3)
10.5* Amended and restated employment agreement dated as of
November 15, 1995 between the Company and Lawrence
Kellner -- incorporated by reference to Exhibit 10.3 to
Continental's Quarterly Report on Form 10-Q for the
quarter ended June 30,1996 (File no. 0-9781) (the "1996
Q2 10-Q").
10.5(a)* Amendment dated as of November 20, 1998 to Mr. Kellner's
employment agreement. (3)
10.6* Amended and restated employment agreement dated as of
November 15, 1995 between the Company and C.D. McLean --
incorporated by reference to Exhibit 10.8 to the 1995 10-
K.
10.6(a)* Amendment dated as of November 20, 1998 to Mr. McLean's
employment agreement. (3)
10.7* Form of amendment to employment agreements, dated as of
April 19, 1996, between the Company and, respectively,
Lawrence Kellner and C.D. McLean -- incorporated by
reference to Exhibit 10.4 to the 1996 Q2 10-Q.
10.8* Form of amendment to employment agreements, dated as of
September 30, 1996, between the Company and,
respectively, Lawrence Kellner and C.D. McLean --
incorporated by reference to Exhibit 10.3 to
Continental's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (File no. 0-9781) (the
"1996 Q3 10-Q").
10.9* Amended and restated employment agreement, as amended,
between the Company and Jeffery Smisek -- incorporated by
reference to Exhibit 10.2 to Continental's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997
(File no. 0-9781) (the "1997 Q1 10-Q").
10.9(a)* Amendment dated as of November 20, 1998 to Mr. Smisek's
employment agreement. (3)
10.10* Stay Bonus Agreement between the Company and Gordon
Bethune -- incorporated by reference to Exhibit 10.3 to
Continental's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 (File no. 0-9781) (the "1998
Q2 10-Q").
10.11* Stay Bonus Agreement between the Company and Gregory
Brenneman -- incorporated by reference to Exhibit 10.4 to
the 1998 Q2 10-Q.
10.12* Stay Bonus Agreement between the Company and Lawrence
Kellner -- incorporated by reference to Exhibit 10.5 to
the 1998 Q2 10-Q.
10.13* Stay Bonus Agreement between the Company and C.D. McLean
-- incorporated by reference to Exhibit 10.6 to the 1998
Q2 10-Q.
10.14* Stay Bonus Agreement between the Company and Jeffery
Smisek -- incorporated by reference to Exhibit 10.7 to
the 1998 Q2 10-Q.
10.15* Forms of Stay Bonus Agreements for other executive
officers -- incorporated by reference to Exhibit 10.8 to
the 1998 Q2 10-Q.
10.16* Executive Bonus Program -- incorporated by reference to
Appendix B to the Company's proxy statement relating its
annual meeting of stockholders held on June 26, 1996.
10.17* Continental Airlines, Inc. 1994 Incentive Equity Plan
("1994 Equity Plan") -- incorporated by reference to
Exhibit 4.3 to the Company's Form S-8 Registration
Statement (No. 33-81324).
10.17(a)* First Amendment to 1994 Equity Plan -- incorporated by
reference to Exhibit 10.1 to Continental's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995 (File no. 0-9781).
10.17(b)* Second Amendment to 1994 Equity Plan -- incorporated by
reference to Exhibit 4.3(c) to the 1996 S-8.
10.17(c)* Third Amendment to 1994 Equity Plan -- incorporated by
reference to Exhibit 10.4 to the 1996 Q3 10-Q.
10.17(d)* Fourth Amendment to 1994 Equity Plan -- incorporated by
reference to Exhibit 10.10(d) to the 1997 10-K.
10.17(e)* Form of Employee Stock Option Grant pursuant to the 1994
Equity Plan -- incorporated by reference to Exhibit
10.10(e) to the 1997 10-K.
10.17(f)* Form of Outside Director Stock Option Grant pursuant to
the 1994 Equity Plan -- incorporated by reference to
Exhibit 10.10(f) to the 1997 10-K.
10.17(g)* Form of Restricted Stock Grant pursuant to the 1994
Equity Plan -- incorporated by reference to Exhibit
10.10(g) to the 1997 10-K.
10.18* Continental Airlines, Inc. 1997 Stock Incentive Plan
("1997 Incentive Plan") -- incorporated by reference to
Exhibit 4.3 to Continental's Form S-8 Registration
Statement (No. 333-23165).
10.18(a)* First Amendment to 1997 Incentive Plan -- incorporated by
reference to Exhibit 10.11(a) to the 1997 10-K.
10.18(b)*Form of Employee Stock Option Grant pursuant to the 1997
Incentive Plan -- incorporated by reference to Exhibit
10.11(b) to the 1997 10-K.
10.18(c)* Form of Outside Director Stock Option Grant pursuant to
the 1997 Incentive Plan -- incorporated by reference to
Exhibit 10.11(c) to the 1997 10-K.
10.19* Amendment and Restatement of the 1994 Equity Plan and the
1997 Incentive Plan. (3)
10.20* Continental Airlines, Inc. 1998 Stock Incentive Plan
("1998 Incentive Plan") -- incorporated by reference to
Exhibit 4.3 to Continental's Form S-8 Registration
Statement (No. 333-57297) (the "1998 S-8").
10.20(a)* Form of Employee Stock Option Grant pursuant to the 1998
Incentive Plan -- incorporated by reference to Exhibit
4.4 to the 1998 S-8.
10.21* Continental Airlines, Inc. Deferred Compensation Plan --
incorporated by reference to Exhibit 4.3 to Continental's
Form S-8 Registration Statement (No. 333-68233).
10.22* Form of Letter Agreement relating to certain flight
benefits between the Company and each of its nonemployee
directors -- incorporated by reference to Exhibit 10.19
to the 1995 10-K.
10.23 Purchase Agreement No. 1783, including exhibits and side
letters, between the Company and Boeing, effective
April 27, 1993, relating to the purchase of Boeing 757
aircraft ("P.A. 1783") -- incorporated by reference to
Exhibit 10.2 to Continental's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993 (File no. 0-
9781). (1)
10.23(a) Supplemental Agreement No. 4 to P.A. 1783, dated March
31, 1995 -- incorporated by reference to Exhibit
10.12(a) to Continental's Annual Report on Form 10-K for
the year ended December 31, 1994 (File no. 0-9781). (1)
10.23(b) Supplemental Agreement No. 6 to P.A. 1783, dated June 13,
1996 -- incorporated by reference to Exhibit 10.6 to the
1996 Q2 10-Q. (1)
10.23(c) Supplemental Agreement No. 7 to P.A. 1783, dated July 23,
1996 -- incorporated by reference to Exhibit 10.6(a) to
the 1996 Q2 10-Q. (1)
10.23(d) Supplemental Agreement No. 8 to P.A. 1783, dated October
27, 1996 -- incorporated by reference to Exhibit 10.11(d)
to Continental's Annual Report on Form 10-K for the year
ended December 31, 1996 (File no. 0-9781) (the "1996 10-
K"). (1)
10.23(e) Letter Agreement No. 6-1162-GOC-044 to P.A. 1783, dated
March 21, 1997 -- incorporated by reference to Exhibit
10.4 to the 1997 Q1 10-Q. (1)
10.23(f) Supplemental Agreement No. 9 to P.A. 1783, dated August
13, 1997 -- incorporated by reference to Exhibit 10.1 to
Continental's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 (File no. 0-9781). (1)
10.23(g) Supplemental Agreement No. 10, including side letters, to
P.A. 1783, dated October 10, 1997 -- incorporated by
reference to Exhibit 10.13(g) to the 1997 10-K. (1)
10.23(h) Supplemental Agreement No. 11, including exhibits and
side letters, to P.A. 1783, dated July 30, 1998 --
incorporated by reference to Exhibit 10.2 to
Continental's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 (File no. 0-9781) (the
"1998 Q3 10-Q"). (1)
10.23(i) Supplemental Agreement No. 12, including side letter, to
P.A. 1783, dated September 29, 1998. (2)(3)
10.23(j) Supplemental Agreement No. 13 to P.A. 1783, dated
November 16, 1998. (2)(3)
10.23(k) Supplemental Agreement No. 14, including side letter, to
P.A. 1783, dated December 17, 1998. (2)(3)
10.24 Purchase Agreement No. 1951, including exhibits and side
letters thereto, between the Company and Boeing, dated
July 23, 1996, relating to the purchase of Boeing 737
aircraft ("P.A. 1951") -- incorporated by reference to
Exhibit 10.8 to the 1996 Q2 10-Q. (1)
10.24(a) Supplemental Agreement No. 1 to P.A. 1951, dated October
10, 1996 -- incorporated by reference to Exhibit 10.14(a)
to the 1996 10-K. (1)
10.24(b) Supplemental Agreement No. 2 to P.A. 1951, dated March 5,
1997 -- incorporated by reference to Exhibit 10.3 to the
1997 Q1 10-Q. (1)
10.24(c) Supplemental Agreement No. 3, including exhibit and side
letter, to P.A. 1951, dated July 17, 1997 -- incorporated
by reference to Exhibit 10.14(c) to the 1997 10-K. (1)
10.24(d) Supplemental Agreement No. 4, including exhibits and side
letters, to P.A. 1951, dated October 10, 1997 --
incorporated by reference to Exhibit 10.14(d) to the 1997
10-K. (1)
10.24(e) Supplemental Agreement No. 5, including exhibits and side
letters, to P.A. 1951 dated October 10, 1997 --
incorporated by reference to Exhibit 10.1 to the 1998 Q2
10-Q. (1)
10.24(f) Supplemental Agreememt No. 6, including exhibits and side
letters, to P.A. 1951, dated July 30, 1998 -- incor-
porated by reference to Exhibit 10.1 to the 1998 Q3 10-Q.
(1)
10.24(g) Supplemental Agreement No. 7, including side letters, to
P.A. 1951, dated November 12, 1998. (2)(3)
10.24(h) Supplemental Agreement No. 8, including side letters, to
P.A. 1951, dated December 7, 1998. (2)(3)
10.24(i) Letter Agreement No. 6-1162-GOC-131R1 to P.A. 1951, dated
March 26, 1998 -- incorporated by reference to Exhibit
10.1 to Continental's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 (File no. 0-9781). (1)
10.25 Aircraft General Terms Agreement between the Company and
Boeing, dated October 10, 1997 -- incorporated by
reference to Exhibit 10.15 to the 1997 10-K. (1)
10.25(a) Letter Agreement No. 6-1162-GOC-136 between the Company
and Boeing, dated October 10, 1997, relating to certain
long-term aircraft purchase commitments of the Company --
incorporated by reference to Exhibit 10.15(a) to the 1997
10-K. (1)
10.26 Purchase Agreement No. 2060, including exhibits and side
letters, between the Company and Boeing, dated October
10, 1997, relating to the purchase of Boeing 767 aircraft
("P.A. 2060") -- incorporated by reference to Exhibit
10.16 to the 1997 10-K. (1)
10.26(a) Supplemental Agreement No. 1 to P.A. 2060 dated December
18, 1997 -- incorporated by reference to Exhibit 10.16(a)
to the 1997 10-K. (1)
10.27 Purchase Agreement No. 2061, including exhibits and side
letters, between the Company and Boeing, dated October
10, 1997, relating to the purchase of Boeing 777 aircraft
("P.A. 2061") -- incorporated by reference to Exhibit
10.17 to the 1997 10-K. (1)
10.27(a) Supplemental Agreement No. 1 to P.A. 2061 dated December
18, 1997 -- incorporated by reference to Exhibit 10.17(a)
as to the 1997 10-K. (1)
10.27(b) Supplemental Agreement No. 2, including side letter, to
P.A. 2061, dated July 30, 1998. (2) (3)
10.27(c) Supplemental Agreement No. 3, including side letter, to
P.A. 2061, dated September 25, 1998. (2)(3)
10.28 Purchase Agreement No. 2211, including exhibits and side
letters thereto, between the Company and Boeing, dated
November 16, 1998, relating to the purchase of Boeing 767
aircraft. (2)(3)
10.29 Lease Agreement dated as of May 1992 between the City and
County of Denver, Colorado and Continental regarding
Denver International Airport -- incorporated by reference
to Exhibit 10.17 to the 1993 S-1.
10.29(a) Supplemental Lease Agreement, including an exhibit
thereto, dated as of April 3, 1995 between the City and
County of Denver, Colorado and Continental and United Air
Lines, Inc. regarding Denver International Airport --
incorporated by reference to Exhibit 10.15(a) to
Continental's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 0-9781).
10.30 Airport Use and Lease Agreement dated as of January 1,
1998 between the Company and the City of Houston, Texas
regarding Bush Intercontinental. (3)
10.30(a) Special Facilities Lease Agreement dated as of March 1,
1997 by and between the Company and the City of Houston,
Texas regarding an automated people mover project at Bush
Intercontinental. (3)
10.30(b) Amended and Restated Special Facilities Lease Agreement
dated as of December 1, 1998 by and between the Company
and the City of Houston, Texas regarding certain terminal
improvement projects at Bush Intercontinental. (3)
10.30(c) Amended and Restated Special Facilities Lease Agreement
dated December 1, 1998 by and between the Company and the
City of Houston, Texas regarding certain airport
improvement projects at Bush Intercontinental. (3)
10.31 Agreement and Lease dated as of May 1987, as
supplemented, between the City of Cleveland, Ohio and
Continental regarding Hopkins International --
incorporated by reference to Exhibit 10.6 to
Continental's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993 (File no. 0-9781).
10.31(a) Special Facilities Lease Agreement dated as of October
24, 1997 by and between the Company and the City of
Cleveland, Ohio regarding certain concourse expansion
projects at Hopkins International. (3)
10.32 Third Revised Investment Agreement, dated April 21, 1994,
between America West Airlines, Inc. and AmWest Partners,
L.P. -- incorporated by reference to Exhibit 1 to
Continental's Schedule 13D relating to America West
Airlines, Inc. filed on August 25, 1994.
10.33 Letter Agreement No. 11 between the Company and General
Electric Company, dated December 22, 1997, relating to
certain long-term engine purchase commitments of the
Company -- incorporated by reference to Exhibit 10.23 to
the 1997 10-K. (1)
21.1 List of Subsidiaries of Continental. (3)
23.1 Consent of Ernst & Young LLP. (3)
24.1 Powers of attorney executed by certain directors and
officers of Continental. (3)
27.1 Financial Data Schedule. (3)
99.1 Deferred Compensation Plan Trust Agreement, effective as
of January 1, 1999, between Continental Airlines, Inc.
and Chase Bank of Texas, N.A. (3)
__________
* These exhibits relate to management contracts or compensatory
plans or arrangements.
(1) The Commission has granted confidential treatment for a
portion of this exhibit.
(2) The Company has applied to the Commission for confidential
treatment of a portion of this exhibit.
(3) Filed herewith.
EXHIBIT 4.7(a)
FIRST AMENDMENT
TO THE
GOVERNANCE AGREEMENT
This First Amendment to the Governance Agreement dated as
of March 2, 1998, is by and among Continental Airlines, Inc., a
Delaware corporation (the "Company"), Newbridge Parent Corporation,
a Delaware corporation (the "Stockholder"), and Northwest Airlines
Corporation, a Delaware corporation that is the holder of all of
the outstanding stock of the Stockholder ("Parent").
WHEREAS, the Company, the Stockholder and the Parent have
entered into that certain Governance Agreement dated as of January
25, 1998 (the "Governance Agreement"), pursuant to which the Parent
and the Stockholder have agreed, among other things, that they and
their respective Affiliates will not, subject to certain exceptions
set forth in the Governance Agreement, Beneficially Own any Voting
Securities in excess of the Permitted Percentage; and
WHEREAS, the Parent and the Stockholder have proposed to
enter into a Purchase Agreement (the "Barlow Agreement") with
Barlow Investors III, LLC, a California limited partnership
("Barlow"), and the guarantors signatory thereto, pursuant to which
the Parent and the Stockholder would acquire Beneficial Ownership
of 979,000 shares of Class A Common Stock Beneficially Owned by
Barlow;
WHEREAS, the Parent and the Stockholder entering into the
Barlow Agreement would cause them to Beneficially Own Voting
Securities in excess of the Permitted Percentage as in effect on
the date hereof; and
WHEREAS, the Parent and the Stockholder have requested
that the Company consent to their entering into the Barlow
Agreement, and the Company is willing to agree thereto subject to
the terms and conditions of this First Amendment; and
WHEREAS, the Company, the Parent and the Stockholder desire to
clarify the effect of the conversion of shares of Class A Common
Stock to Class B Common Stock by the holders thereof under Section
1.01 of the Governance Agreement.
NOW THEREFORE, the Company, the Stockholder and the
Parent, intending to be legally bound, hereby agree as follows:
1. Capitalized terms not otherwise defined herein shall
have their respective meanings set forth in the Governance
Agreement.
2. Section 1.01(d) of the Governance Agreement is
amended and restated to read in its entirety as set forth below:
(d) (i) Except as otherwise set forth in
this subsection (d), if at any time the Parent
or the Stockholder becomes aware that it and
its Affiliates Beneficially Own more than the
Permitted Percentage, then the Parent shall
promptly notify the Company, and the Parent
and the Stockholder, as appropriate, shall
promptly take all action necessary to reduce
the amount of Voting Securities Beneficially
Owned by such Persons to an amount not greater
than the Permitted Percentage.
(ii) If the Voting Securities
Beneficially Owned by the Stockholder and its
Affiliates exceed the Permitted Percentage (A)
solely by reason of repurchases of Voting
Securities by the Company or (B) as a result
of the transactions otherwise permitted by the
terms of this Agreement, then the Stockholder
shall not be required to reduce the amount of
Voting Securities Beneficially Owned by such
Persons and the percentage of the Fully
Diluted Voting Power represented by the Voting
Securities Beneficially Owned by such Persons
shall become the Permitted Percentage.
(iii) Notwithstanding the provisions of
Section 1.01(a), if the Voting Securities
Beneficially Owned by the Stockholder and its
Affiliates exceed the Permitted Percentage
solely by reason of the Parent's and the
Stockholder's entering into (A) the Purchase
Agreement dated as of March 2, 1998 (the
"Barlow Agreement") among the Parent, the
Stockholder, Barlow Investors III, LLC, a
California limited liability company
("Barlow"), and the guarantors signatory
thereto, respecting the sale by Barlow of
979,000 shares of Class A Common Stock to the
Stockholder, and (B) the Investment Agreement,
and the purchase of (C) the 979,000 shares of
Class A Common Stock pursuant to the Barlow
Agreement, and (D) Voting Securities pursuant
to the Investment Agreement, the Stockholder
and its Affiliates shall not be required to
reduce the amount of Voting Securities
Beneficially Owned by such Persons; provided
that the Permitted Percentage shall not be
changed as a result thereof, and, if the Fully
Diluted Voting Power of the Voting Securities
Beneficially Owned by the Stockholder and its
Affiliates is subsequently reduced to or below
the Permitted Percentage, neither the
Stockholder, the Parent, nor any of their
respective Affiliates shall Beneficially Own
any Voting Securities in excess of the
Permitted Percentage after such reduction.
(iv) Notwithstanding the provisions of
Section 1.01(a), if the Voting Securities
Beneficially Owned by the Stockholders and its
Affiliates exceed the Permitted Percentage
solely by reason of the conversion of shares
of Class A Common Stock into shares of Class B
Common Stock by the holders thereof, the
Stockholder and its Affiliates shall not be
required to reduce the amount of Voting
Securities Beneficially Owned by such Persons;
provided that, the Permitted Percentage shall
not be changed as a result of any such
conversion, and if the Fully Diluted Voting
Power of the Voting Securities Beneficially
Owned by the Stockholder and its Affiliates is
subsequently reduced to or below the Permitted
Percentage, neither the Stockholder, the
Parent, nor any of their respective Affiliates
shall Beneficially Own any Voting Securities
in excess of the Permitted Percentage after
such reduction.
3. The Company hereby represents and warrants to the
Parent and the Stockholder that this First Amendment to the
Governance Agreement has been approved by a Majority Vote.
4. This First Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same
instrument.
5. Except as expressly modified by this First Amendment
to the Governance Agreement, all of the terms, conditions and
provisions of the Governance Agreement shall remain unchanged and
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
First Amendment to the Governance Agreement to be executed as of
the date first referred to above.
Northwest Airlines Corporation
By:
Douglas M Steenland
Senior Vice President,
General Counsel
and Secretary
Newbridge Parent Corporation
By:
Douglas M Steenland
Vice President, Secretary
and Assistant Treasurer
By:
Continental Airlines, Inc.
By:
Jeffery A. Smisek
Executive Vice President,
General Counsel
and Secretary
EXHIBIT 10.3
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement")
is made by and between CONTINENTAL AIRLINES, INC., a Delaware
corporation ("Company"), and GORDON M. BETHUNE ("Executive").
W I T N E S S E T H:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 15,
1995, as amended by Amendment to Employment Agreement dated as of
April 19, 1996 and Amendment to Employment Agreement dated as of
September 30, 1996 (as so amended, the "Existing Agreement"); and
WHEREAS, Air Partners, L.P., its partners and certain
affiliates have entered into an Investment Agreement dated as of
January 25, 1998, as amended, with Northwest Airlines Corporation
and its affiliate (the "Investment Agreement"), which investment
agreement provides for the acquisition by an affiliate of Northwest
Airlines Corporation of beneficial ownership of the Class A common
stock and warrants held by Air Partners, L.P., subject to certain
conditions; and
WHEREAS, the acquisition by an affiliate of Northwest Airlines
Corporation of beneficial ownership of the Class A common stock
held by Air Partners, L.P. contemplated by the Investment Agreement
(the "Acquisition") will, upon the closing thereof, constitute a
Change in Control for purposes of the Company's 1994 Incentive
Equity Plan, as amended, the Company's 1997 Stock Incentive Plan,
as amended, the Company's Executive Bonus Program and the Existing
Agreement; and
WHEREAS, the Human Resources Committee and the Board of
Directors of the Company have deemed it advisable and in the best
interests of the Company and its stockholders to assure management
continuity for the Company and, consistent therewith, have
authorized the execution, delivery and performance by the Company
of this Agreement;
WHEREAS, in connection therewith, the parties desire to amend
the Existing Agreement and restate it, as so amended, in its
entirety as this Agreement, effective as of the Effective Date (as
defined below);
NOW, THEREFORE, for and in consideration of the mutual
promises, covenants and obligations contained herein, Company and
Executive agree as follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 Employment; Effective Date. Company agrees to employ
Executive and Executive agrees to be employed by Company, beginning
as of the Effective Date (as hereinafter defined) and continuing
for the period of time set forth in Article 2 of this Agreement,
subject to the terms and conditions of this Agreement. For
purposes of this Agreement, the "Effective Date" shall be the date
of the closing of the Acquisition contemplated by the Investment
Agreement.
1.2 Positions. From and after the Effective Date, Company
shall employ Executive in the positions of Chairman of the Board
and Chief Executive Officer of Company, or in such other positions
as the parties mutually may agree, and shall, for the full term of
Executive's employment hereunder, cause Executive to be nominated
for election as a director of Company and use its best efforts to
secure such election.
1.3 Duties and Services. Executive agrees to serve in the
positions referred to in paragraph 1.2 and, if elected, as a
director of Company and to perform diligently and to the best of
his abilities the duties and services appertaining to such offices
as set forth in the Bylaws of Company in effect on the Effective
Date, as well as such additional duties and services appropriate to
such offices which the parties mutually may agree upon from time to
time.
ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT
2.1 Term. Unless sooner terminated pursuant to other
provisions hereof, Company agrees to employ Executive for a five-
year period beginning on the Effective Date. Said term of
employment shall be extended automatically for an additional
successive five-year period as of the fifth anniversary of the
Effective Date and as of the last day of each successive five-year
period of time thereafter that this Agreement is in effect;
provided, however, that if, prior to the date which is six months
before the last day of any such five-year term of employment,
either party shall give written notice to the other that no such
automatic extension shall occur, then Executive's employment shall
terminate on the last day of the five-year term of employment
during which such notice is given.
2.2 Company's Right to Terminate. Notwithstanding the
provisions of paragraph 2.1, Company, acting pursuant to an express
resolution of the Board of Directors of Company (the "Board of
Directors"), shall have the right to terminate Executive's employ-
ment under this Agreement at any time for any of the following
reasons:
(i) upon Executive's death;
(ii) upon Executive's becoming incapacitated for a
period of at least 180 days by accident, sickness or other
circumstance which renders him mentally or physically
incapable of performing the material duties and services
required of him hereunder on a full-time basis during such
period;
(iii) if, in carrying out his duties hereunder,
Executive engages in conduct that constitutes willful gross
neglect or willful gross misconduct resulting in material
economic harm to Company;
(iv) upon the conviction of Executive for a felony or
any crime involving moral turpitude; or
(v) for any other reason whatsoever, in the sole
discretion of the Board of Directors.
2.3 Executive's Right to Terminate. Notwithstanding the
provisions of paragraph 2.1, Executive shall have the right to
terminate his employment under this Agreement at any time for any
of the following reasons:
(i) the assignment to Executive by the Board of
Directors or other officers or representatives of Company of
duties materially inconsistent with the duties associated with
the positions described in paragraph 1.2 as such duties are
constituted as of the Effective Date, or the failure to elect
or reelect Executive to any of the positions described in
paragraph 1.2 or the removal of him from any such positions;
(ii) a material diminution in the nature or scope of
Executive's authority, responsibilities, or titles from those
applicable to him as of the Effective Date, including a
change in the reporting structure so that Executive reports to
someone other than the Board of Directors;
(iii) the occurrence of acts or conduct on the part of
Company, its Board of Directors, or its officers,
representatives or stockholders which prevent Executive from,
or substantively hinder Executive in, performing his duties or
responsibilities pursuant to this Agreement;
(iv) Company requiring Executive to be permanently
based anywhere outside a major urban center in Texas;
(v) the taking of any action by Company that would
materially adversely affect the corporate amenities enjoyed by
Executive on the Effective Date;
(vi) a material breach by Company of any provision of
this Agreement which, if correctable, remains uncorrected for
30 days following written notice of such breach by Executive
to Company, it being agreed that any reduction in Executive's
then current annual base salary, or any reduction in
Executive's annual cash bonus opportunity as a percentage of
such base salary from that percentage in effect on the
Effective Date (i.e, 0% to 125% of base salary) or any
material change in the frequency of payment thereof or the
performance factors on which such bonus is based, shall
constitute a material breach by Company of this Agreement; or
(vii) for any other reason whatsoever, in the sole
discretion of Executive.
2.4 Notice of Termination. If Company or Executive desires
to terminate Executive's employment hereunder at any time prior to
expiration of the term of employment as provided in paragraph 2.1,
it or he shall do so by giving written notice to the other party
that it or he has elected to terminate Executive's employment
hereunder and stating the effective date and reason for such
termination, provided that no such action shall alter or amend any
other provisions hereof or rights arising hereunder.
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 Base Salary. During the period of this Agreement,
Executive shall receive a minimum annual base salary equal to the
greater of (i) $750,000.00 or (ii) such amount as the parties
mutually may agree upon from time to time. Executive's annual base
salary shall be paid in equal installments in accordance with
Company's standard policy regarding payment of compensation to
executives but no less frequently than semimonthly.
3.2 Bonus Programs. Executive shall participate in each
cash bonus program maintained by Company on and after the Effective
Date (including, without limitation, any such program maintained
for the year during which the Effective Date occurs) at a level
which is not less than the maximum participation level made
available to any Company executive (determined without regard to
period of service or other criteria that might otherwise be
necessary to entitle Executive to such level of participation);
provided that Company shall at all times maintain Executive's
annual cash bonus opportunity as a percentage of his base salary in
an amount which is at least as great as that in effect on the
Effective Date (i.e, 0% to 125% of base salary) and shall not
change in any material respect the payment frequency thereof or the
performance factors on which such bonus is based.
3.3 Life Insurance. During the period of this Agreement,
Company shall maintain one or more policies of life insurance on
the life of Executive providing an aggregate death benefit in an
amount not less than the Termination Payment (as such term is
defined in paragraph 4.7). Executive shall have the right to
designate the beneficiary or beneficiaries of the death benefit
payable pursuant to such policy or policies up to an aggregate
death benefit in an amount equal to the Termination Payment. To
the extent that Company's purchase of, or payment of premiums with
respect to, such policy or policies results in compensation income
to Executive, Company shall pay to Executive an additional payment
(the "Policy Payment") in an amount such that after payment by
Executive of all taxes imposed on Executive with respect to the
Policy Payment, Executive retains an amount of the Policy Payment
equal to the taxes imposed upon Executive with respect to such
purchase or the payment of such premiums. If for any reason
Company fails to maintain the full amount of life insurance
coverage required pursuant to the preceding provisions of this
paragraph 3.3, Company shall, in the event of the death of
Executive while employed by Company, pay Executive's designated
beneficiary or beneficiaries an amount equal to the sum of (1) the
difference between the Termination Payment and any death benefit
payable to Executive's designated beneficiary or beneficiaries
under the policy or policies maintained by Company and (2) such
additional amount as shall be required to hold Executive's estate,
heirs, and such beneficiary or beneficiaries harmless from any
additional tax liability resulting from the failure by Company to
maintain the full amount of such required coverage.
3.4 Vacation and Sick Leave. During each year of his
employment, Executive shall be entitled to vacation and sick leave
benefits equal to the maximum available to any Company executive,
determined without regard to the period of service that might
otherwise be necessary to entitle Executive to such vacation or
sick leave under standard Company policy.
3.5 Supplemental Executive Retirement Plan.
(i) Company agrees to pay Executive the deferred
compensation benefits set forth in this paragraph 3.5 as a
supplemental retirement plan (the "Plan"). The base retirement
benefit under the Plan (the "Base Benefit") shall be in the form of
an annual straight life annuity in an amount equal to the product
of (a) 1.6% times (b) the number of Executive's credited years of
service (as defined below) under the Plan times (c) the Executive's
final average compensation (as defined below). For purposes
hereof, Executive's credited years of service under the Plan shall
be equal to the number of Executive's years of benefit service with
Company, calculated as set forth in the Continental Airlines
Retirement Plan beginning at January 1, 1995; provided, however,
that if Executive is paid the Termination Payment under this
Agreement, Executive shall be further credited with three (3)
additional years of service under the Plan. For purposes hereof,
Executive's final average compensation shall be equal to the
greater of (1) $750,000 or (2) the average of the five highest
annual cash compensation amounts (or, if Executive has been
employed less than five years by Company, the average over the full
years employed by Company) paid to Executive by Company during the
consecutive ten calendar years immediately preceding his
termination of employment at retirement or otherwise. For purposes
hereof, cash compensation shall include base salary plus cash
bonuses (including any amounts deferred (other than Stay Bonus
amounts described below) pursuant to any deferred compensation plan
of the Company), but shall exclude (i) any cash bonus paid on or
prior to March 31, 1995, and (ii) any Stay Bonus paid to Executive
pursuant to that certain Stay Bonus Agreement between Company and
Executive dated as of April 14, 1998. All benefits under the Plan
shall be payable in equal monthly installments beginning on the
first day of the month following the Retirement Date. For purposes
hereof, "Retirement Date" is defined as the later of (A) the date
on which Executive attains (or in the event of his earlier death,
would have attained) age 65 or (B) the date of his retirement from
employment with Company. If Executive is not married on the
Retirement Date, benefits under the Plan will be paid to Executive
during his lifetime in the form of the Base Benefit. If Executive
is married on the Retirement Date, benefits under the Plan will be
paid in the form of a joint and survivor annuity that is
actuarially equivalent (as defined below) to the Base Benefit, with
Executive's spouse as of the Retirement Date being entitled during
her lifetime after Executive's death to a benefit (the "Survivor's
Benefit") equal to 50% of the benefit payable to Executive during
their joint lifetimes. In the event of Executive's death prior to
the Retirement Date, his surviving spouse, if he is married on the
date of his death, will receive beginning on the Retirement Date an
amount equal to the Survivor's Benefit calculated as if Executive
had retired with a joint and survivor annuity on the date before
his date of death. The amount of any benefits payable to Executive
and/or his spouse under the Continental Airlines Retirement Plan
shall be offset against benefits due under the Plan. Executive
shall be vested immediately with respect to benefits due under the
Plan. If Executive's employment with Company terminates for any
reason prior to February 14, 1999, Company shall provide further
benefits under the Plan to ensure that Executive is treated for all
purposes as if he were fully vested under the Continental Airlines
Retirement Plan.
(ii) Executive understands that he must rely upon the
general credit of Company for payment of benefits under the Plan.
Company has not and will not in the future set aside assets for
security or enter into any other arrangement which will cause the
obligation created to be other than a general corporate obligation
of Company or will cause Executive to be more than a general
creditor of Company.
(iii) For purposes of the Plan, the terms "actuarial
equivalent," or "actuarially equivalent" when used with respect to
a specified benefit shall mean the amount of benefit of a different
type or payable at a different age that can be provided at the same
cost as such specified benefit, as computed by the Actuary. The
actuarial assumptions used to determine equivalencies between
different forms of annuities under the Plan shall be the 1984
Unisex Pensioners Mortality 50% male, 50% female calculation (with
males set back one year and females set back five years), with
interest at an annual rate of 7%. The term "Actuary" shall mean
the individual actuary or actuarial firm selected by Company to
service its pension plans generally or if no such individual or
firm has been selected, an individual actuary or actuarial firm
appointed by Company and reasonably satisfactory to Executive
and/or his spouse.
(iv) Company shall indemnify Executive on a fully
grossed-up, after-tax basis for any Medicare payroll taxes (plus
any income taxes on such indemnity payments) incurred by Executive
in connection with the accrual and/or payment of benefits under the
Plan.
3.6 Additional Disability Benefit. If Executive shall
begin to receive long-term disability insurance benefits pursuant
to a plan maintained by Company and if such benefits cease prior to
Executive's attainment of age 65 and while Executive remains
disabled, then Company shall immediately pay Executive upon the
cessation of such benefits a lump-sum, cash payment in an amount
equal to the Termination Payment. If Executive receives payment of
a Termination Payment pursuant to the provisions of Article 4, then
the provisions of this paragraph 3.6 shall terminate. If Executive
shall be disabled at the time his employment with Company
terminates and if Executive shall not be entitled to the payment of
a Termination Payment pursuant to the provisions of Article 4 upon
such termination, then Executive's right to receive the payment
upon the occurrence of the circumstances described in this
paragraph 3.6 shall be deemed to have accrued as of the date of
such termination and shall survive the termination of this
Agreement.
3.7 Other Perquisites. During his employment hereunder,
Executive shall be afforded the following benefits as incidences of
his employment:
(i) Automobile - Company will continue to lease an
automobile (including replacements therefor) of Executive's
choice for Executive's use in accordance with its current
practices with respect thereto during the term of this
Agreement. Company agrees to take such actions as may be
necessary to permit Executive, at his option, to acquire title
to any automobile subject to such a lease at the completion of
the lease term by Executive paying the residual payment then
owing under the lease.
(ii) Business and Entertainment Expenses - Subject to
Company's standard policies and procedures with respect to
expense reimbursement as applied to its executive employees
generally, Company shall reimburse Executive for, or pay on
behalf of Executive, reasonable and appropriate expenses
incurred by Executive for business related purposes, including
dues and fees to industry and professional organizations,
costs of entertainment and business development, and costs
reasonably incurred as a result of Executive's spouse
accompanying Executive on business travel. Company shall also
pay on behalf of Executive the expenses of one athletic club
selected by Executive.
(iii) Parking - Company shall provide at no expense to
Executive a reserved parking place convenient to Executive's
headquarters office and a reserved parking place at George
Bush Intercontinental Airport in Houston, Texas consistent
with past practice.
(iv) Other Company Benefits - Executive and, to the
extent applicable, Executive's family, dependents and
beneficiaries, shall be allowed to participate in all
benefits, plans and programs, including improvements or
modifications of the same, which are now, or may hereafter be,
available to similarly-situated Company employees. Such
benefits, plans and programs may include, without limitation,
profit sharing plan, thrift plan, annual physical
examinations, health insurance or health care plan, life
insurance, disability insurance, pension plan, pass privileges
on Continental Airlines, Flight Benefits and the like.
Company shall not, however, by reason of this paragraph be
obligated to institute, maintain, or refrain from changing,
amending or discontinuing, any such benefit plan or program,
so long as such changes are similarly applicable to executive
employees generally; provided, however, that Company shall not
change, amend or discontinue Executive's Flight Benefits
without his consent.
ARTICLE 4: EFFECT OF TERMINATION ON COMPENSATION
4.1 By Expiration. If Executive's employment hereunder
shall terminate upon expiration of the term provided in paragraph
2.1 hereof, then all compensation and all benefits to Executive
hereunder shall terminate contemporaneously with termination of his
employment, except that the Company shall pay Executive on or
before the effective date of such termination a lump sum, cash
payment in an amount equal to the Existing Severance, the benefits
described in paragraph 3.5 shall continue to be payable, Executive
shall be provided Flight Benefits (as such term is defined in
paragraph 4.7) for the remainder of Executive's lifetime, and, if
such termination shall result from Company's delivery of the
written notice described in paragraph 2.1, then Company shall (i)
cause all options and shares of restricted stock awarded to
Executive, including, without limitation, any such awards under
Company's 1998 Stock Incentive Plan (the "1998 Plan"), and other
Awards (as defined in the 1998 Plan) made to Executive under the
1998 Plan, to vest immediately upon such termination and, with
respect to options, be exercisable in full for 30 days after such
termination, (ii) pay Executive on or before the effective date of
such termination a lump-sum, cash payment in an amount equal to the
Termination Payment, (iii) provide Executive with Outplacement,
Office and Related Services (as such term is defined in paragraph
4.7 and for the time periods described therein), and (iv) provide
Executive and his eligible dependents with Continuation Coverage
(as such term is defined in paragraph 4.7) for a period of three
years beginning on the effective date of such termination.
4.2 By Company. If Executive's employment hereunder shall
be terminated by Company prior to expiration of the term provided
in paragraph 2.1 hereof then, upon such termination, regardless of
the reason therefor, all compensation and all benefits to Executive
hereunder shall terminate contemporaneously with the termination of
such employment, except that the Company shall pay Executive on or
before the effective date of such termination a lump sum, cash
payment in an amount equal to the Existing Severance, the benefits
described in paragraph 3.5 shall continue to be payable, Executive
shall be provided Flight Benefits for the remainder of Executive's
lifetime, and:
(i) if such termination shall be for any reason
other than those encompassed by paragraphs 2.2(i), (ii), (iii)
or (iv), then Company shall provide Executive with the
payments and benefits described in clauses (i) through (iv) of
paragraph 4.1; and
(ii) if such termination shall be for a reason
encompassed by paragraphs 2.2(i) or (ii), then Company shall
(1) cause all options and shares of restricted stock awarded
to Executive, including, without limitation, any such awards
under Company's 1998 Plan, and other Awards (as defined in
the 1998 Plan) made to Executive under the 1998 Plan, to vest
immediately upon such termination and, with respect to
options, be exercisable in full for 30 days after such
termination, and (2) provide Executive (or his designated
beneficiary or beneficiaries) with the benefits contemplated
under paragraph 3.3 or paragraph 3.6, as applicable.
4.3 By Executive. If Executive's employment hereunder
shall be terminated by Executive prior to expiration of the term
provided in paragraph 2.1 hereof then, upon such termination,
regardless of the reason therefor, all compensation and benefits to
Executive hereunder shall terminate contemporaneously with the
termination of such employment, except that the Company shall pay
Executive on or before the effective date of such termination a
lump sum, cash payment in an amount equal to the Existing
Severance, the benefits described in paragraph 3.5 shall continue
to be payable, Executive shall be provided Flight Benefits for the
remainder of Executive's lifetime and, if such termination shall be
pursuant to paragraphs 2.3(i), (ii), (iii), (iv), (v), or (vi),
then Company shall provide Executive with the payments and benefits
described in clauses (i) through (iv) of paragraph 4.1.
4.4 Certain Additional Payments by Company.
Notwithstanding anything to the contrary in this Agreement, if any
payment, distribution or provision of a benefit by Company to or
for the benefit of Executive, whether paid or payable, distributed
or distributable or provided or to be provided pursuant to the
terms of this Agreement or otherwise (a "Payment"), would be
subject to an excise or other special additional tax that would not
have been imposed absent such Payment (including, without
limitation, any excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended), or any interest or penalties
with respect to such excise or other additional tax (such excise or
other additional tax, together with any such interest or penalties,
are hereinafter collectively referred to as the "Excise Tax"),
Company shall pay to Executive an additional payment (a "Gross-up
Payment") in an amount such that after payment by Executive of all
taxes (including any interest or penalties imposed with respect to
such taxes), including any income taxes and Excise Taxes imposed on
any Gross-up Payment, Executive retains an amount of the Gross-up
Payment (taking into account any similar gross-up payments to
Executive under the Incentive Plan) equal to the Excise Tax imposed
upon the Payments. Company and Executive shall make an initial
determination as to whether a Gross-up Payment is required and the
amount of any such Gross-up Payment. Executive shall notify
Company in writing of any claim by the Internal Revenue Service
which, if successful, would require Company to make a Gross-up
Payment (or a Gross-up Payment in excess of that, if any, initially
determined by Company and Executive) within ten business days after
the receipt of such claim. Company shall notify Executive in
writing at least ten business days prior to the due date of any
response required with respect to such claim if it plans to contest
the claim. If Company decides to contest such claim, Executive
shall cooperate fully with Company in such action; provided,
however, Company shall bear and pay directly or indirectly all
costs and expenses (including additional interest and penalties)
incurred in connection with such action and shall indemnify and
hold Executive harmless, on an after-tax basis, for any Excise Tax
or income tax, including interest and penalties with respect
thereto, imposed as a result of Company's action. If, as a result
of Company's action with respect to a claim, Executive receives a
refund of any amount paid by Company with respect to such claim,
Executive shall promptly pay such refund to Company. If Company
fails to timely notify Executive whether it will contest such claim
or Company determines not to contest such claim, then Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
4.5 Payment Obligations Absolute. Company's obligation to
pay Executive the amounts and to make the arrangements provided in
this Article 4 shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which
Company (including its subsidiaries and affiliates) may have
against him or anyone else. All amounts payable by Company shall
be paid without notice or demand. Executive shall not be obligated
to seek other employment in mitigation of the amounts payable or
arrangements made under any provision of this Article 4, and,
except as provided in paragraph 4.7 with respect to Continuation
Coverage, the obtaining of any such other employment (or the
engagement in any endeavor as an independent contractor, sole
proprietor, partner, or joint venturer) shall in no event effect
any reduction of Company's obligations to make (or cause to be
made) the payments and arrangements required to be made under this
Article 4.
4.6 Liquidated Damages. In light of the difficulties in
estimating the damages upon termination of this Agreement, Company
and Executive hereby agree that the payments and benefits, if any,
to be received by Executive pursuant to this Article 4 shall be
received by Executive as liquidated damages. Payment of the
Termination Payment and the Existing Severance pursuant to
paragraphs 4.1, 4.2 or 4.3 shall be in lieu of any severance
benefit Executive may be entitled to under any severance plan or
policy maintained by Company.
4.7 Certain Definitions and Additional Terms. As used
herein, the following capitalized terms shall have the meanings
assigned below:
(i) "Continuation Coverage" shall mean the continued
coverage of Executive and his eligible dependents under
Company's welfare benefit plans available to executives of
Company who have not terminated employment (or the provision
of equivalent benefits), including, without limitation,
medical, health, dental, life insurance, disability, vision
care, accidental death and dismemberment, and prescription
drug, at no greater cost to Executive than that applicable to
a similarly situated Company executive who has not terminated
employment; provided, however, that (1) subject to clause (2)
below, the coverage under a particular welfare benefit plan
(or the receipt of equivalent benefits) shall terminate upon
Executive's receipt of comparable benefits from a subsequent
employer and (2) if Executive (and/or his eligible dependents)
would have been entitled to retiree coverage under a
particular welfare benefit plan had he voluntarily retired on
the date of his termination of employment, then such coverage
shall be continued as provided in such plan upon the
expiration of the period Continuation Coverage is to be
provided pursuant to this Article 4. Notwithstanding any
provision in this Article 4 to the contrary, Executive's
entitlement to any benefit continuation pursuant to Section
601 et. seq. of the Employee Retirement Income Security Act of
1974, as amended, shall commence at the end of the period of,
and shall not be reduced by the provision of, any applicable
Continuation Coverage;
(ii) "Existing Severance" shall mean the sum of five
million sixty two thousand five hundred dollars ($5,062,500),
which sum represents the severance payable to Executive upon
termination of employment by him after a Change in Control (as
defined in the Existing Agreement) caused by the Acquisition
under the Existing Agreement;
(iii) "Flight Benefits" shall mean flight benefits on
each airline operated by the Company or any of its affiliates
or any successor or successors thereto (the "CO system"),
consisting of the highest priority space available flight
passes for Executive and his eligible family members (as such
eligibility is in effect on the date hereof), a UATP card (or,
in the event of discontinuance of the UATP program, a similar
charge card permitting the purchase of air travel through
direct billing to the Company or any of its affiliates or any
successor or successors thereto (a "Similar Card")) in
Executive's name for charging flights (in any fare class) on
the CO system for Executive, Executive's spouse, Executive's
family and significant others as determined by Executive, a
Gold Elite OnePass Card (or similar highest category successor
frequent flyer card) in Executive's name for use on the CO
system, a membership for Executive and Executive's spouse in
the Company's President's Club (or any successor program
maintained in the CO system) and reimbursement (while an
officer of the Company) of up to $10,000 annually for U.S.
federal, state or local income taxes on imputed income
resulting from such flights (such imputed income to be
calculated during the term of such Flight Benefits at the
lowest published fare (i.e., 21 day advance purchase coach
fare or other lowest available fare) for the applicable flight
on the date of such flight, regardless of the actual fare
class booked or flown, or as otherwise required by law);
(iv) "Outplacement, Office and Related Services"
shall mean (1) outplacement services, at Company's cost and
for a period of twelve months beginning on the date of
Executive's termination of employment, to be rendered by an
agency selected by Executive and approved by the Board of
Directors (with such approval not to be unreasonably
withheld), (2) appropriate and suitable office space at the
Company's headquarters (although not on its executive office
floor) or at a comparable location in downtown Houston for
use by Executive, together with appropriate and suitable
secretarial assistance, at Company's cost and for a period of
ten years beginning on the date of Executive's termination of
employment, (3) a reserved parking place convenient to the
office so provided and a reserved parking place at George Bush
Intercontinental Airport in Houston, Texas consistent with
past practice, at Company's cost and for as long as Executive
retains a residence in Houston, Texas, and (4) other
incidental perquisites (such as free or discount air travel,
car rental, phone or similar service cards) currently enjoyed
by Executive as a result of his position, to the extent then
available for use by Executive, for Executive's lifetime or a
shorter period if such perquisites become unavailable to the
Company for use by Executive; and
(v) "Termination Payment" shall mean an amount equal
to three times the sum of (1) Executive's annual base salary
pursuant to paragraph 3.1 in effect immediately prior to
Executive's termination of employment and (2) a deemed annual
bonus which shall be equal to the Bonus Percentage of the
amount described in clause (1) of this paragraph 4.7(v). The
"Bonus Percentage" shall be a percentage equal to the annual
percentage of base salary (i.e., 0% to 125%) paid or payable
to a participant under the Company's Executive Bonus Program
(or any successor plan or program) with respect to the most
recent fiscal year ended prior to Executive's termination of
employment.
Executive agrees that, after receipt of an invoice or other
accounting statement therefor, he will promptly (and in any event
within 45 days after receipt of such invoice or other accounting
statement) reimburse the Company for all charges on Executive's
UATP card (or Similar Card) which are not for flights on the CO
system and which are not otherwise reimbursable to Executive under
the provisions of paragraph 3.7(ii) hereof. Executive agrees that
the credit availability under Executive's UATP card (or Similar
Card) may be suspended if Executive does not timely reimburse the
Company as described in the foregoing sentence; provided, that,
immediately upon the Company's receipt of Executive's reimbursement
in full, the credit availability under Executive's UATP card (or
Similar Card) will be restored. The sole cost to Executive of
flights on the CO system pursuant to use of Executive's Flight
Benefits will be the imputed income with respect to flights on the
CO system charged on Executive's UATP card (or Similar Card),
calculated throughout the term of Executive's Flight Benefits at
the lowest published fare (i.e., 21 day advance purchase coach fare
or other lowest available fare) for the applicable flight on the
date of such flight, regardless of the actual fare class booked or
flown, or as otherwise required by law, and reported to Executive
as required by applicable law. With respect to any period with
respect to which the Company is obligated to provide up to $10,000
of reimbursement for income taxes as described in paragraph
4.7(iii) above, Executive will provide to the Company, upon
request, a calculation or other evidence of Executive's marginal
tax rate sufficient to permit the Company to calculate accurately
the amount to be so reimbursed to Executive, and Executive
understands that the Company will not make any gross-up payment to
Executive with respect to the income attributable to such
reimbursement. Executive agrees that he will not resell or permit
to be resold any tickets issued on the CO system in connection with
the Flight Benefits. Executive shall be issued a UATP card (or
Similar Card), a Gold Elite OnePass Card (or similar highest
category successor frequent flyer card), a membership card in the
Company's Presidents Club (or any successor program maintained in
the CO system) for Executive and Executive's spouse, an appropriate
flight pass identification card and an Employee Travel Card, each
valid at all times during the term of Executive's Flight
Benefits.
ARTICLE 5: MISCELLANEOUS
5.1 Interest and Indemnification. If any payment to
Executive provided for in this Agreement is not made by Company
when due, Company shall pay to Executive interest on the amount
payable from the date that such payment should have been made until
such payment is made, which interest shall be calculated at 3% plus
the prime or base rate of interest announced by Chase Bank of Texas
N.A. (or any successor thereto) at its principal office in Houston,
Texas (but not in excess of the highest lawful rate), and such
interest rate shall change when and as any such change in such
prime or base rate shall be announced by such bank. If Executive
shall obtain any money judgment or otherwise prevail with respect
to any litigation brought by Executive or Company to enforce or
interpret any provision contained herein, Company, to the fullest
extent permitted by applicable law, hereby indemnifies Executive
for his reasonable attorneys' fees and disbursements incurred in
such litigation and hereby agrees (i) to pay in full all such fees
and disbursements and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date that payment
to him should have been made under this Agreement until such
judgment shall have been paid in full, which interest shall be
calculated at the rate set forth in the preceding sentence.
5.2 Notices. For purposes of this Agreement, notices and
all other communications provided for herein shall be in writing
and shall be deemed to have been duly given when personally
delivered or when mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as
follows:
If to Company to : Continental Airlines, Inc.
2929 Allen Parkway, Suite 2010
Houston, Texas 77019
Attention: General Counsel
If to Executive to : Mr. Gordon M. Bethune
3340 Del Monte
Houston, Texas 77019
or to such other address as either party may furnish to the other
in writing in accordance herewith, except that notices of changes
of address shall be effective only upon receipt.
5.3 Applicable Law. This contract is entered into under,
and shall be governed for all purposes by, the laws of the State of
Texas.
5.4 No Waiver. No failure by either party hereto at any
time to give notice of any breach by the other party of, or to
require compliance with, any condition or provision of this
Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time.
5.5 Severability. If a court of competent jurisdiction
determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of that
provision shall not affect the validity or enforceability of any
other provision of this Agreement, and all other provisions shall
remain in full force and effect.
5.6 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original,
but all of which together will constitute one and the same
Agreement.
5.7 Withholding of Taxes and Other Employee Deductions.
Company may withhold from any benefits and payments made pursuant
to this Agreement all federal, state, city and other taxes as may
be required pursuant to any law or governmental regulation or
ruling and all other normal employee deductions made with respect
to Company's employees generally.
5.8 Headings. The paragraph headings have been inserted
for purposes of convenience and shall not be used for interpretive
purposes.
5.9 Gender and Plurals. Wherever the context so requires,
the masculine gender includes the feminine or neuter, and the
singular number includes the plural and conversely.
5.10 Successors. This Agreement shall be binding upon and
inure to the benefit of Company and any successor of the Company,
including without limitation any person, association, or entity
which may hereafter acquire or succeed to all or substantially all
of the business or assets of Company by any means whether direct or
indirect, by purchase, merger, consolidation, or otherwise. Except
as provided in the preceding sentence, this Agreement, and the
rights and obligations of the parties hereunder, are personal and
neither this Agreement, nor any right, benefit or obligation of
either party hereto, shall be subject to voluntary or involuntary
assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party.
5.11 Term. This Agreement has a term co-extensive with the
term of employment as set forth in paragraph 2.1. Termination
shall not affect any right or obligation of any party which is
accrued or vested prior to or upon such termination.
5.12 Entire Agreement. Except as provided in (i) the
benefits, plans, and programs referenced in paragraph 3.7(iv) and
any awards under the Company's stock incentive or similar plans,
and (ii) that certain Stay Bonus Agreement dated as of April 14,
1998 between Company and Executive, this Agreement, as of the
Effective Date, will constitute the entire agreement of the parties
with regard to the subject matter hereof, and will contain all the
covenants, promises, representations, warranties and agreements
between the parties with respect to employment of Executive by
Company. Without limiting the scope of the preceding sentence, all
prior understandings and agreements among the parties hereto
relating to the subject matter hereof (including, without
limitation, the Existing Agreement, but only from and after the
Effective Date) are, as of the Effective Date, null and void and of
no further force and effect. Any modification of this Agreement
shall be effective only if it is in writing and signed by the party
to be charged.
5.13 Deemed Resignations. Any termination of Executive's
employment shall constitute an automatic resignation of Executive
as an officer of Company and each affiliate of Company, and an
automatic resignation of Executive from the Board of Directors and
from the board of directors of any affiliate of Company.
5.14 Executive Bonus Program. Executive agrees that the
payment to Executive of the Existing Severance hereunder will not
be deemed to be "in connection with circumstances which would
permit such Participant to receive severance benefits pursuant to
any contract of employment between such Participant and the Company
or any of its subsidiaries" within the meaning of clause (d) of the
last sentence of Section 5 of the Company's Executive Bonus
Program, as in effect on the date hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 20th day of November, 1998, but to be effective
as of the Effective Date.
CONTINENTAL AIRLINES, INC.
By: __________________________
Name: Jeffery A. Smisek
Title: Executive Vice President
"EXECUTIVE"
________________________________
GORDON M. BETHUNE
APPROVED:
_______________________________
Thomas J. Barrack, Jr.
Chair, Human Resources Committee
EXHIBIT 10.4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement")
is made by and between CONTINENTAL AIRLINES, INC., a Delaware
corporation ("Company"), and GREGORY D. BRENNEMAN ("Executive").
W I T N E S S E T H:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 15,
1995, as amended by Amendment to Employment Agreement dated as of
April 19, 1996 and Amendment to Employment Agreement dated as of
September 30, 1996 (as so amended, the "Existing Agreement"); and
WHEREAS, Air Partners, L.P., its partners and certain
affiliates have entered into an Investment Agreement dated as of
January 25, 1998, as amended, with Northwest Airlines Corporation
and its affiliate (the "Investment Agreement"), which investment
agreement provides for the acquisition by an affiliate of Northwest
Airlines Corporation of beneficial ownership of the Class A common
stock and warrants held by Air Partners, L.P., subject to certain
conditions; and
WHEREAS, the acquisition by an affiliate of Northwest Airlines
Corporation of beneficial ownership of the Class A common stock
held by Air Partners, L.P. contemplated by the Investment Agreement
(the "Acquisition") will, upon the closing thereof, constitute a
Change in Control for purposes of the Company's 1994 Incentive
Equity Plan, as amended, the Company's 1997 Stock Incentive Plan,
as amended, the Company's Executive Bonus Program and the Existing
Agreement; and
WHEREAS, the Human Resources Committee and the Board of
Directors of the Company have deemed it advisable and in the best
interests of the Company and its stockholders to assure management
continuity for the Company and, consistent therewith, have
authorized the execution, delivery and performance by the Company
of this Agreement;
WHEREAS, in connection therewith, the parties desire to amend
the Existing Agreement and restate it, as so amended, in its
entirety as this Agreement, effective as of the Effective Date (as
defined below);
NOW, THEREFORE, for and in consideration of the mutual
promises, covenants and obligations contained herein, Company and
Executive agree as follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 Employment; Effective Date. Company agrees to employ
Executive and Executive agrees to be employed by Company, beginning
as of the Effective Date (as hereinafter defined) and continuing
for the period of time set forth in Article 2 of this Agreement,
subject to the terms and conditions of this Agreement. For
purposes of this Agreement, the "Effective Date" shall be the date
of the closing of the Acquisition contemplated by the Investment
Agreement.
1.2 Positions. From and after the Effective Date, Company
shall employ Executive in the positions of President and Chief
Operating Officer of Company, or in such other positions as the
parties mutually may agree, and shall, for the full term of
Executive's employment hereunder, cause Executive to be nominated
for election as a director of Company and use its best efforts to
secure such election.
1.3 Duties and Services. Executive agrees to serve in the
positions referred to in paragraph 1.2 and, if elected, as a
director of Company and to perform diligently and to the best of
his abilities the duties and services appertaining to such offices
as set forth in the Bylaws of Company in effect on the Effective
Date, as well as such additional duties and services appropriate to
such offices which the parties mutually may agree upon from time to
time.
ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT
2.1 Term. Unless sooner terminated pursuant to other
provisions hereof, Company agrees to employ Executive for a five-
year period beginning on the Effective Date. Said term of
employment shall be extended automatically for an additional
successive five-year period as of the fifth anniversary of the
Effective Date and as of the last day of each successive five-year
period of time thereafter that this Agreement is in effect;
provided, however, that if, prior to the date which is six months
before the last day of any such five-year term of employment,
either party shall give written notice to the other that no such
automatic extension shall occur, then Executive's employment shall
terminate on the last day of the five-year term of employment
during which such notice is given.
2.2 Company's Right to Terminate. Notwithstanding the
provisions of paragraph 2.1, Company, acting pursuant to an express
resolution of the Board of Directors of Company (the "Board of
Directors"), shall have the right to terminate Executive's
employment under this Agreement at any time for any of the
following reasons:
(i) upon Executive's death;
(ii) upon Executive's becoming incapacitated for a
period of at least 180 days by accident, sickness or other
circumstance which renders him mentally or physically
incapable of performing the material duties and services
required of him hereunder on a full-time basis during such
period;
(iii) if, in carrying out his duties hereunder,
Executive engages in conduct that constitutes willful gross
neglect or willful gross misconduct resulting in material
economic harm to Company;
(iv) upon the conviction of Executive for a felony or
any crime involving moral turpitude; or
(v) for any other reason whatsoever, in the sole
discretion of the Board of Directors.
2.3 Executive's Right to Terminate. Notwithstanding the
provisions of paragraph 2.1, Executive shall have the right to
terminate his employment under this Agreement at any time for any
of the following reasons:
(i) the assignment to Executive by the Board of
Directors or other officers or representatives of Company of
duties materially inconsistent with the duties associated with
the positions described in paragraph 1.2 as such duties are
constituted as of the Effective Date, or the failure to elect
or reelect Executive to any of the positions described in
paragraph 1.2 or the removal of him from any such positions;
(ii) a material diminution in the nature or scope of
Executive's authority, responsibilities, or titles from those
applicable to him as of the Effective Date, including a
change in the reporting structure so that Executive reports to
someone other than the Chief Executive Officer or the Board of
Directors;
(iii) the occurrence of acts or conduct on the part of
Company, its Board of Directors, or its officers,
representatives or stockholders which prevent Executive from,
or substantively hinder Executive in, performing his duties or
responsibilities pursuant to this Agreement;
(iv) Company requiring Executive to be permanently
based anywhere outside a major urban center in Texas;
(v) the taking of any action by Company that would
materially adversely affect the corporate amenities enjoyed by
Executive on the Effective Date;
(vi) a material breach by Company of any provision of
this Agreement which, if correctable, remains uncorrected for
30 days following written notice of such breach by Executive
to Company, it being agreed that any reduction in Executive's
then current annual base salary, or any reduction in
Executive's annual cash bonus opportunity as a percentage of
such base salary from that percentage in effect on the
Effective Date (i.e, 0% to 125% of base salary) or any
material change in the frequency of payment thereof or the
performance factors on which such bonus is based, shall
constitute a material breach by Company of this Agreement; or
(vii) for any other reason whatsoever, in the sole
discretion of Executive.
2.4 Notice of Termination. If Company or Executive desires
to terminate Executive's employment hereunder at any time prior to
expiration of the term of employment as provided in paragraph 2.1,
it or he shall do so by giving written notice to the other party
that it or he has elected to terminate Executive's employment
hereunder and stating the effective date and reason for such
termination, provided that no such action shall alter or amend any
other provisions hereof or rights arising hereunder.
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 Base Salary. During the period of this Agreement,
Executive shall receive a minimum annual base salary equal to the
greater of (i) $575,000.00 or (ii) such amount as the parties
mutually may agree upon from time to time. Executive's annual base
salary shall be paid in equal installments in accordance with
Company's standard policy regarding payment of compensation to
executives but no less frequently than semimonthly.
3.2 Bonus Programs. Executive shall participate in each
cash bonus program maintained by Company on and after the Effective
Date (including, without limitation, any such program maintained
for the year during which the Effective Date occurs) at a level
which is not less than the maximum participation level made
available to any Company executive (determined without regard to
period of service or other criteria that might otherwise be
necessary to entitle Executive to such level of participation);
provided that Company shall at all times maintain Executive's
annual cash bonus opportunity as a percentage of his base salary in
an amount which is at least as great as that in effect on the
Effective Date (i.e, 0% to 125% of base salary) and shall not
change in any material respect the payment frequency thereof or the
performance factors on which such bonus is based.
3.3 Life Insurance. During the period of this Agreement,
Company shall maintain one or more policies of life insurance on
the life of Executive providing an aggregate death benefit in an
amount not less than the Termination Payment (as such term is
defined in paragraph 4.7). Executive shall have the right to
designate the beneficiary or beneficiaries of the death benefit
payable pursuant to such policy or policies up to an aggregate
death benefit in an amount equal to the Termination Payment. To
the extent that Company's purchase of, or payment of premiums with
respect to, such policy or policies results in compensation income
to Executive, Company shall pay to Executive an additional payment
(the "Policy Payment") in an amount such that after payment by
Executive of all taxes imposed on Executive with respect to the
Policy Payment, Executive retains an amount of the Policy Payment
equal to the taxes imposed upon Executive with respect to such
purchase or the payment of such premiums. If for any reason
Company fails to maintain the full amount of life insurance
coverage required pursuant to the preceding provisions of this
paragraph 3.3, Company shall, in the event of the death of
Executive while employed by Company, pay Executive's designated
beneficiary or beneficiaries an amount equal to the sum of (1) the
difference between the Termination Payment and any death benefit
payable to Executive's designated beneficiary or beneficiaries
under the policy or policies maintained by Company and (2) such
additional amount as shall be required to hold Executive's estate,
heirs, and such beneficiary or beneficiaries harmless from any
additional tax liability resulting from the failure by Company to
maintain the full amount of such required coverage.
3.4 Vacation and Sick Leave. During each year of his
employment, Executive shall be entitled to vacation and sick leave
benefits equal to the maximum available to any Company executive,
determined without regard to the period of service that might
otherwise be necessary to entitle Executive to such vacation or
sick leave under standard Company policy.
3.5 Supplemental Executive Retirement Plan.
(i) Company agrees to pay Executive the deferred
compensation benefits set forth in this paragraph 3.5 as a
supplemental retirement plan (the "Plan"). The base retirement
benefit under the Plan (the "Base Benefit") shall be in the form of
an annual straight life annuity in an amount equal to the product
of (a) 1.6% times (b) the number of Executive's credited years of
service (as defined below) under the Plan times (c) the Executive's
final average compensation (as defined below). For purposes
hereof, Executive's credited years of service under the Plan shall
be equal to the number of Executive's years of benefit service with
Company, calculated as set forth in the Continental Airlines
Retirement Plan beginning at January 1, 1995; provided, however,
that if Executive is paid the Termination Payment under this
Agreement, Executive shall be further credited with three (3)
additional years of service under the Plan. For purposes hereof,
Executive's final average compensation shall be equal to the
greater of (1) $575,000 or (2) the average of the five highest
annual cash compensation amounts (or, if Executive has been
employed less than five years by Company, the average over the full
years employed by Company) paid to Executive by Company during the
consecutive ten calendar years immediately preceding his
termination of employment at retirement or otherwise. For purposes
hereof, cash compensation shall include base salary plus cash
bonuses (including any amounts deferred (other than Stay Bonus
amounts described below) pursuant to any deferred compensation plan
of the Company), but shall exclude (i) any cash bonus paid on or
prior to March 31, 1995, and (ii) any Stay Bonus paid to Executive
pursuant to that certain Stay Bonus Agreement between Company and
Executive dated as of April 14, 1998. All benefits under the Plan
shall be payable in equal monthly installments beginning on the
first day of the month following the Retirement Date. For purposes
hereof, "Retirement Date" is defined as the later of (A) the date
on which Executive attains (or in the event of his earlier death,
would have attained) age 65 or (B) the date of his retirement from
employment with Company. If Executive is not married on the
Retirement Date, benefits under the Plan will be paid to Executive
during his lifetime in the form of the Base Benefit. If Executive
is married on the Retirement Date, benefits under the Plan will be
paid in the form of a joint and survivor annuity that is
actuarially equivalent (as defined below) to the Base Benefit, with
Executive's spouse as of the Retirement Date being entitled during
her lifetime after Executive's death to a benefit (the "Survivor's
Benefit") equal to 50% of the benefit payable to Executive during
their joint lifetimes. In the event of Executive's death prior to
the Retirement Date, his surviving spouse, if he is married on the
date of his death, will receive beginning on the Retirement Date an
amount equal to the Survivor's Benefit calculated as if Executive
had retired with a joint and survivor annuity on the date before
his date of death. The amount of any benefits payable to Executive
and/or his spouse under the Continental Airlines Retirement Plan
shall be offset against benefits due under the Plan. Executive
shall be vested immediately with respect to benefits due under the
Plan. If Executive's employment with Company terminates for any
reason prior to the date which is the fifth anniversary of
Executive's first date of employment by the Company , Company shall
provide further benefits under the Plan to ensure that Executive is
treated for all purposes as if he were fully vested under the
Continental Airlines Retirement Plan.
(ii) Executive understands that he must rely upon the
general credit of Company for payment of benefits under the Plan.
Company has not and will not in the future set aside assets for
security or enter into any other arrangement which will cause the
obligation created to be other than a general corporate obligation
of Company or will cause Executive to be more than a general
creditor of Company.
(iii) For purposes of the Plan, the terms "actuarial
equivalent," or "actuarially equivalent" when used with respect to
a specified benefit shall mean the amount of benefit of a different
type or payable at a different age that can be provided at the same
cost as such specified benefit, as computed by the Actuary. The
actuarial assumptions used to determine equivalencies between
different forms of annuities under the Plan shall be the 1984
Unisex Pensioners Mortality 50% male, 50% female calculation (with
males set back one year and females set back five years), with
interest at an annual rate of 7%. The term "Actuary" shall mean
the individual actuary or actuarial firm selected by Company to
service its pension plans generally or if no such individual or
firm has been selected, an individual actuary or actuarial firm
appointed by Company and reasonably satisfactory to Executive
and/or his spouse.
(iv) Company shall indemnify Executive on a fully
grossed-up, after-tax basis for any Medicare payroll taxes (plus
any income taxes on such indemnity payments) incurred by Executive
in connection with the accrual and/or payment of benefits under the
Plan.
3.6 Additional Disability Benefit. If Executive shall
begin to receive long-term disability insurance benefits pursuant
to a plan maintained by Company and if such benefits cease prior to
Executive's attainment of age 65 and while Executive remains
disabled, then Company shall immediately pay Executive upon the
cessation of such benefits a lump-sum, cash payment in an amount
equal to the Termination Payment. If Executive receives payment of
a Termination Payment pursuant to the provisions of Article 4, then
the provisions of this paragraph 3.6 shall terminate. If Executive
shall be disabled at the time his employment with Company
terminates and if Executive shall not be entitled to the payment of
a Termination Payment pursuant to the provisions of Article 4 upon
such termination, then Executive's right to receive the payment
upon the occurrence of the circumstances described in this
paragraph 3.6 shall be deemed to have accrued as of the date of
such termination and shall survive the termination of this
Agreement.
3.7 Other Perquisites. During his employment hereunder,
Executive shall be afforded the following benefits as incidences of
his employment:
(i) Automobile - Company will continue to lease an
automobile (including replacements therefor) of Executive's
choice for Executive's use in accordance with its current
practices with respect thereto during the term of this
Agreement. Company agrees to take such actions as may be
necessary to permit Executive, at his option, to acquire title
to any automobile subject to such a lease at the completion of
the lease term by Executive paying the residual payment then
owing under the lease.
(ii) Business and Entertainment Expenses - Subject to
Company's standard policies and procedures with respect to
expense reimbursement as applied to its executive employees
generally, Company shall reimburse Executive for, or pay on
behalf of Executive, reasonable and appropriate expenses
incurred by Executive for business related purposes, including
dues and fees to industry and professional organizations,
costs of entertainment and business development, and costs
reasonably incurred as a result of Executive's spouse
accompanying Executive on business travel. Company shall also
pay on behalf of Executive the expenses of one athletic club
selected by Executive.
(iii) Parking - Company shall provide at no expense to
Executive a reserved parking place convenient to Executive's
headquarters office and a reserved parking place at George
Bush Intercontinental Airport in Houston, Texas consistent
with past practice.
(iv) Other Company Benefits - Executive and, to the
extent applicable, Executive's family, dependents and
beneficiaries, shall be allowed to participate in all
benefits, plans and programs, including improvements or
modifications of the same, which are now, or may hereafter be,
available to similarly-situated Company employees. Such
benefits, plans and programs may include, without limitation,
profit sharing plan, thrift plan, annual physical
examinations, health insurance or health care plan, life
insurance, disability insurance, pension plan, pass privileges
on Continental Airlines, Flight Benefits and the like.
Company shall not, however, by reason of this paragraph be
obligated to institute, maintain, or refrain from changing,
amending or discontinuing, any such benefit plan or program,
so long as such changes are similarly applicable to executive
employees generally; provided, however, that Company shall not
change, amend or discontinue Executive's Flight Benefits
without his consent.
ARTICLE 4: EFFECT OF TERMINATION ON COMPENSATION
4.1 By Expiration. If Executive's employment hereunder
shall terminate upon expiration of the term provided in paragraph
2.1 hereof, then all compensation and all benefits to Executive
hereunder shall terminate contemporaneously with termination of his
employment, except that the Company shall pay Executive on or
before the effective date of such termination a lump sum, cash
payment in an amount equal to the Existing Severance, the benefits
described in paragraph 3.5 shall continue to be payable, Executive
shall be provided Flight Benefits (as such term is defined in
paragraph 4.7) for the remainder of Executive's lifetime, and, if
such termination shall result from Company's delivery of the
written notice described in paragraph 2.1, then Company shall (i)
cause all options and shares of restricted stock awarded to
Executive, including, without limitation, any such awards under
Company's 1998 Stock Incentive Plan (the "1998 Plan"), and other
Awards (as defined in the 1998 Plan) made to Executive under the
1998 Plan, to vest immediately upon such termination and, with
respect to options, be exercisable in full for 30 days after such
termination, (ii) pay Executive on or before the effective date of
such termination a lump-sum, cash payment in an amount equal to the
Termination Payment, (iii) provide Executive with Outplacement,
Office and Related Services (as such term is defined in paragraph
4.7 and for the time periods described therein), and (iv) provide
Executive and his eligible dependents with Continuation Coverage
(as such term is defined in paragraph 4.7) for a period of three
years beginning on the effective date of such termination.
4.2 By Company. If Executive's employment hereunder shall
be terminated by Company prior to expiration of the term provided
in paragraph 2.1 hereof then, upon such termination, regardless of
the reason therefor, all compensation and all benefits to Executive
hereunder shall terminate contemporaneously with the termination of
such employment, except that the Company shall pay Executive on or
before the effective date of such termination a lump sum, cash
payment in an amount equal to the Existing Severance, the benefits
described in paragraph 3.5 shall continue to be payable, Executive
shall be provided Flight Benefits for the remainder of Executive's
lifetime, and:
(i) if such termination shall be for any reason
other than those encompassed by paragraphs 2.2(i), (ii), (iii)
or (iv), then Company shall provide Executive with the
payments and benefits described in clauses (i) through (iv) of
paragraph 4.1; and
(ii) if such termination shall be for a reason
encompassed by paragraphs 2.2(i) or (ii), then Company shall
(1) cause all options and shares of restricted stock awarded
to Executive, including, without limitation, any such awards
under Company's 1998 Plan, and other Awards (as defined in
the 1998 Plan) made to Executive under the 1998 Plan, to vest
immediately upon such termination and, with respect to
options, be exercisable in full for 30 days after such
termination, and (2) provide Executive (or his designated
beneficiary or beneficiaries) with the benefits contemplated
under paragraph 3.3 or paragraph 3.6, as applicable.
4.3 By Executive. If Executive's employment hereunder
shall be terminated by Executive prior to expiration of the term
provided in paragraph 2.1 hereof then, upon such termination,
regardless of the reason therefor, all compensation and benefits to
Executive hereunder shall terminate contemporaneously with the
termination of such employment, except that the Company shall pay
Executive on or before the effective date of such termination a
lump sum, cash payment in an amount equal to the Existing
Severance, the benefits described in paragraph 3.5 shall continue
to be payable, Executive shall be provided Flight Benefits for the
remainder of Executive's lifetime and, if such termination shall be
pursuant to paragraphs 2.3(i), (ii), (iii), (iv), (v), or (vi),
then Company shall provide Executive with the payments and benefits
described in clauses (i) through (iv) of paragraph 4.1.
4.4 Certain Additional Payments by Company.
Notwithstanding anything to the contrary in this Agreement, if any
payment, distribution or provision of a benefit by Company to or
for the benefit of Executive, whether paid or payable, distributed
or distributable or provided or to be provided pursuant to the
terms of this Agreement or otherwise (a "Payment"), would be
subject to an excise or other special additional tax that would not
have been imposed absent such Payment (including, without
limitation, any excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended), or any interest or penalties
with respect to such excise or other additional tax (such excise or
other additional tax, together with any such interest or penalties,
are hereinafter collectively referred to as the "Excise Tax"),
Company shall pay to Executive an additional payment (a "Gross-up
Payment") in an amount such that after payment by Executive of all
taxes (including any interest or penalties imposed with respect to
such taxes), including any income taxes and Excise Taxes imposed on
any Gross-up Payment, Executive retains an amount of the Gross-up
Payment (taking into account any similar gross-up payments to
Executive under the Incentive Plan) equal to the Excise Tax imposed
upon the Payments. Company and Executive shall make an initial
determination as to whether a Gross-up Payment is required and the
amount of any such Gross-up Payment. Executive shall notify
Company in writing of any claim by the Internal Revenue Service
which, if successful, would require Company to make a Gross-up
Payment (or a Gross-up Payment in excess of that, if any, initially
determined by Company and Executive) within ten business days after
the receipt of such claim. Company shall notify Executive in
writing at least ten business days prior to the due date of any
response required with respect to such claim if it plans to contest
the claim. If Company decides to contest such claim, Executive
shall cooperate fully with Company in such action; provided,
however, Company shall bear and pay directly or indirectly all
costs and expenses (including additional interest and penalties)
incurred in connection with such action and shall indemnify and
hold Executive harmless, on an after-tax basis, for any Excise Tax
or income tax, including interest and penalties with respect
thereto, imposed as a result of Company's action. If, as a result
of Company's action with respect to a claim, Executive receives a
refund of any amount paid by Company with respect to such claim,
Executive shall promptly pay such refund to Company. If Company
fails to timely notify Executive whether it will contest such claim
or Company determines not to contest such claim, then Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
4.5 Payment Obligations Absolute. Company's obligation to
pay Executive the amounts and to make the arrangements provided in
this Article 4 shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which
Company (including its subsidiaries and affiliates) may have
against him or anyone else. All amounts payable by Company shall
be paid without notice or demand. Executive shall not be obligated
to seek other employment in mitigation of the amounts payable or
arrangements made under any provision of this Article 4, and,
except as provided in paragraph 4.7 with respect to Continuation
Coverage, the obtaining of any such other employment (or the
engagement in any endeavor as an independent contractor, sole
proprietor, partner, or joint venturer) shall in no event effect
any reduction of Company's obligations to make (or cause to be
made) the payments and arrangements required to be made under this
Article 4.
4.6 Liquidated Damages. In light of the difficulties in
estimating the damages upon termination of this Agreement, Company
and Executive hereby agree that the payments and benefits, if any,
to be received by Executive pursuant to this Article 4 shall be
received by Executive as liquidated damages. Payment of the
Termination Payment and the Existing Severance pursuant to
paragraphs 4.1, 4.2 or 4.3 shall be in lieu of any severance
benefit Executive may be entitled to under any severance plan or
policy maintained by Company.
4.7 Certain Definitions and Additional Terms. As used
herein, the following capitalized terms shall have the meanings
assigned below:
(i) "Continuation Coverage" shall mean the continued
coverage of Executive and his eligible dependents under
Company's welfare benefit plans available to executives of
Company who have not terminated employment (or the provision
of equivalent benefits), including, without limitation,
medical, health, dental, life insurance, disability, vision
care, accidental death and dismemberment, and prescription
drug, at no greater cost to Executive than that applicable to
a similarly situated Company executive who has not terminated
employment; provided, however, that (1) subject to clause (2)
below, the coverage under a particular welfare benefit plan
(or the receipt of equivalent benefits) shall terminate upon
Executive's receipt of comparable benefits from a subsequent
employer and (2) if Executive (and/or his eligible dependents)
would have been entitled to retiree coverage under a
particular welfare benefit plan had he voluntarily retired on
the date of his termination of employment, then such coverage
shall be continued as provided in such plan upon the
expiration of the period Continuation Coverage is to be
provided pursuant to this Article 4. Notwithstanding any
provision in this Article 4 to the contrary, Executive's
entitlement to any benefit continuation pursuant to Section
601 et. seq. of the Employee Retirement Income Security Act of
1974, as amended, shall commence at the end of the period of,
and shall not be reduced by the provision of, any applicable
Continuation Coverage;
(ii) "Existing Severance" shall mean the sum of three
million eight hundred eighty-one thousand two hundred fifty
dollars ($3,881,250), which sum represents the severance
payable to Executive upon termination of employment by him
after a Change in Control (as defined in the Existing
Agreement) caused by the Acquisition under the Existing
Agreement;
(iii) "Flight Benefits" shall mean flight benefits on
each airline operated by the Company or any of its affiliates
or any successor or successors thereto (the "CO system"),
consisting of the highest priority space available flight
passes for Executive and his eligible family members (as such
eligibility is in effect on the date hereof), a UATP card (or,
in the event of discontinuance of the UATP program, a similar
charge card permitting the purchase of air travel through
direct billing to the Company or any of its affiliates or any
successor or successors thereto (a "Similar Card")) in
Executive's name for charging flights (in any fare class) on
the CO system for Executive, Executive's spouse, Executive's
family and significant others as determined by Executive, a
Gold Elite OnePass Card (or similar highest category successor
frequent flyer card) in Executive's name for use on the CO
system, a membership for Executive and Executive's spouse in
the Company's President's Club (or any successor program
maintained in the CO system) and reimbursement (while an
officer of the Company) of up to $10,000 annually for U.S.
federal, state or local income taxes on imputed income
resulting from such flights (such imputed income to be
calculated during the term of such Flight Benefits at the
lowest published fare (i.e., 21 day advance purchase coach
fare or other lowest available fare) for the applicable flight
on the date of such flight, regardless of the actual fare
class booked or flown, or as otherwise required by law);
(iv) "Outplacement, Office and Related Services"
shall mean (1) outplacement services, at Company's cost and
for a period of twelve months beginning on the date of
Executive's termination of employment, to be rendered by an
agency selected by Executive and approved by the Board of
Directors (with such approval not to be unreasonably
withheld), (2) appropriate and suitable office space at the
Company's headquarters (although not on its executive office
floor) or at a comparable location in downtown Houston for use
by Executive, together with appropriate and suitable
secretarial assistance, at Company's cost and for a period of
three years beginning on the date of Executive's termination
of employment, (3) a reserved parking place convenient to the
office so provided and a reserved parking place at George Bush
Intercontinental Airport in Houston, Texas consistent with
past practice, at Company's cost and for as long as Executive
retains a residence in Houston, Texas, and (4) other
incidental perquisites (such as free or discount air travel,
car rental, phone or similar service cards) currently enjoyed
by Executive as a result of his position, to the extent then
available for use by Executive, for a period of three years
beginning on the date of Executive's termination of employment
or a shorter period if such perquisites become unavailable to
the Company for use by Executive; and
(v) "Termination Payment" shall mean an amount equal
to three times the sum of (1) Executive's annual base salary
pursuant to paragraph 3.1 in effect immediately prior to
Executive's termination of employment and (2) a deemed annual
bonus which shall be equal to the Bonus Percentage of the
amount described in clause (1) of this paragraph 4.7(v). The
"Bonus Percentage" shall be a percentage equal to the annual
percentage of base salary (i.e., 0% to 125%) paid or payable
to a participant under the Company's Executive Bonus Program
(or any successor plan or program) with respect to the most
recent fiscal year ended prior to Executive's termination of
employment.
Executive agrees that, after receipt of an invoice or other
accounting statement therefor, he will promptly (and in any event
within 45 days after receipt of such invoice or other accounting
statement) reimburse the Company for all charges on Executive's
UATP card (or Similar Card) which are not for flights on the CO
system and which are not otherwise reimbursable to Executive under
the provisions of paragraph 3.7(ii) hereof. Executive agrees that
the credit availability under Executive's UATP card (or Similar
Card) may be suspended if Executive does not timely reimburse the
Company as described in the foregoing sentence; provided, that,
immediately upon the Company's receipt of Executive's reimbursement
in full, the credit availability under Executive's UATP card (or
Similar Card) will be restored. The sole cost to Executive of
flights on the CO system pursuant to use of Executive's Flight
Benefits will be the imputed income with respect to flights on the
CO system charged on Executive's UATP card (or Similar Card),
calculated throughout the term of Executive's Flight Benefits at
the lowest published fare (i.e., 21 day advance purchase coach fare
or other lowest available fare) for the applicable flight on the
date of such flight, regardless of the actual fare class booked or
flown, or as otherwise required by law, and reported to Executive
as required by applicable law. With respect to any period with
respect to which the Company is obligated to provide up to $10,000
of reimbursement for income taxes as described in paragraph
4.7(iii) above, Executive will provide to the Company, upon
request, a calculation or other evidence of Executive's marginal
tax rate sufficient to permit the Company to calculate accurately
the amount to be so reimbursed to Executive, and Executive
understands that the Company will not make any gross-up payment to
Executive with respect to the income attributable to such
reimbursement. Executive agrees that he will not resell or permit
to be resold any tickets issued on the CO system in connection with
the Flight Benefits. Executive shall be issued a UATP card (or
Similar Card), a Gold Elite OnePass Card (or similar highest
category successor frequent flyer card), a membership card in the
Company's Presidents Club (or any successor program maintained in
the CO system) for Executive and Executive's spouse, an appropriate
flight pass identification card and an Employee Travel Card, each
valid at all times during the term of Executive's Flight
Benefits.
ARTICLE 5: MISCELLANEOUS
5.1 Interest and Indemnification. If any payment to
Executive provided for in this Agreement is not made by Company
when due, Company shall pay to Executive interest on the amount
payable from the date that such payment should have been made until
such payment is made, which interest shall be calculated at 3% plus
the prime or base rate of interest announced by Chase Bank of Texas
N.A. (or any successor thereto) at its principal office in Houston,
Texas (but not in excess of the highest lawful rate), and such
interest rate shall change when and as any such change in such
prime or base rate shall be announced by such bank. If Executive
shall obtain any money judgment or otherwise prevail with respect
to any litigation brought by Executive or Company to enforce or
interpret any provision contained herein, Company, to the fullest
extent permitted by applicable law, hereby indemnifies Executive
for his reasonable attorneys' fees and disbursements incurred in
such litigation and hereby agrees (i) to pay in full all such fees
and disbursements and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date that payment
to him should have been made under this Agreement until such
judgment shall have been paid in full, which interest shall be
calculated at the rate set forth in the preceding sentence.
5.2 Notices. For purposes of this Agreement, notices and
all other communications provided for herein shall be in writing
and shall be deemed to have been duly given when personally
delivered or when mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as
follows:
If to Company to : Continental Airlines, Inc.
2929 Allen Parkway, Suite 2010
Houston, Texas 77019
Attention: General Counsel
If to Executive to : Mr. Gregory D. Brenneman
31 Hollymead
The Woodlands, Texas 77381
or to such other address as either party may furnish to the other
in writing in accordance herewith, except that notices of changes
of address shall be effective only upon receipt.
5.3 Applicable Law. This contract is entered into under,
and shall be governed for all purposes by, the laws of the State of
Texas.
5.4 No Waiver. No failure by either party hereto at any
time to give notice of any breach by the other party of, or to
require compliance with, any condition or provision of this
Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time.
5.5 Severability. If a court of competent jurisdiction
determines that any provision of this Agreement is invalid or
unenforceable, then the invalidity or unenforceability of that
provision shall not affect the validity or enforceability of any
other provision of this Agreement, and all other provisions shall
remain in full force and effect.
5.6 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original,
but all of which together will constitute one and the same
Agreement.
5.7 Withholding of Taxes and Other Employee Deductions.
Company may withhold from any benefits and payments made pursuant
to this Agreement all federal, state, city and other taxes as may
be required pursuant to any law or governmental regulation or
ruling and all other normal employee deductions made with respect
to Company's employees generally.
5.8 Headings. The paragraph headings have been inserted
for purposes of convenience and shall not be used for interpretive
purposes.
5.9 Gender and Plurals. Wherever the context so requires,
the masculine gender includes the feminine or neuter, and the
singular number includes the plural and conversely.
5.10 Successors. This Agreement shall be binding upon and
inure to the benefit of Company and any successor of the Company,
including without limitation any person, association, or entity
which may hereafter acquire or succeed to all or substantially all
of the business or assets of Company by any means whether direct or
indirect, by purchase, merger, consolidation, or otherwise. Except
as provided in the preceding sentence, this Agreement, and the
rights and obligations of the parties hereunder, are personal and
neither this Agreement, nor any right, benefit or obligation of
either party hereto, shall be subject to voluntary or involuntary
assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party.
5.11 Term. This Agreement has a term co-extensive with the
term of employment as set forth in paragraph 2.1. Termination
shall not affect any right or obligation of any party which is
accrued or vested prior to or upon such termination.
5.12 Entire Agreement. Except as provided in (i) the
benefits, plans, and programs referenced in paragraph 3.7(iv) and
any awards under the Company's stock incentive or similar plans,
and (ii) that certain Stay Bonus Agreement dated as of April 14,
1998 between Company and Executive, this Agreement, as of the
Effective Date, will constitute the entire agreement of the parties
with regard to the subject matter hereof, and will contain all the
covenants, promises, representations, warranties and agreements
between the parties with respect to employment of Executive by
Company. Without limiting the scope of the preceding sentence, all
prior understandings and agreements among the parties hereto
relating to the subject matter hereof (including, without
limitation, the Existing Agreement, but only from and after the
Effective Date) are, as of the Effective Date, null and void and of
no further force and effect. Any modification of this Agreement
shall be effective only if it is in writing and signed by the party
to be charged.
5.13 Deemed Resignations. Any termination of Executive's
employment shall constitute an automatic resignation of Executive
as an officer of Company and each affiliate of Company, and an
automatic resignation of Executive from the Board of Directors and
from the board of directors of any affiliate of Company.
5.14 Executive Bonus Program. Executive agrees that the
payment to Executive of the Existing Severance hereunder will not
be deemed to be "in connection with circumstances which would
permit such Participant to receive severance benefits pursuant to
any contract of employment between such Participant and the Company
or any of its subsidiaries" within the meaning of clause (d) of the
last sentence of Section 5 of the Company's Executive Bonus
Program, as in effect on the date hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 20th day of November, 1998, but to be effective
as of the Effective Date.
CONTINENTAL AIRLINES, INC.
By: ___________________________
Name: Jeffery A. Smisek
Title: Executive Vice President
"EXECUTIVE"
_______________________________
GREGORY D. BRENNEMAN
APPROVED:
_______________________________
Thomas J. Barrack, Jr.
Chair, Human Resources Committee
EXHIBIT 10.5(a)
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") is
made by and between Continental Airlines, Inc., This Amendment to
Employment Agreement (this "Amendment") is made by and between
Continental Airlines, Inc., a Delaware corporation ("Company"), and
Lawrence W. Kellner ("Executive").
Recitals:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 15,
1995, as amended by Amendment to Employment Agreement dated as of
April 19, 1996 and Amendment to Employment Agreement dated as of
September 30, 1996 (as so amended, the "Existing Agreement"); and
WHEREAS, Air Partners, L.P., its partners and certain
affiliates have entered into an Investment Agreement dated as of
January 25, 1998, as amended, with Northwest Airlines Corporation
and its affiliate (the "Investment Agreement"), which investment
agreement provides for the acquisition by an affiliate of Northwest
Airlines Corporation of beneficial ownership of the Class A common
stock and warrants held by Air Partners, L.P., subject to certain
conditions; and
WHEREAS, the acquisition by an affiliate of Northwest Airlines
Corporation of beneficial ownership of the Class A common stock
held by Air Partners, L.P. contemplated by the Investment Agreement
(the "Acquisition") will, upon the closing thereof, constitute a
Change in Control for purposes of the Company's 1994 Incentive
Equity Plan, as amended, the Company's 1997 Stock Incentive Plan,
as amended, the Company's Executive Bonus Program and the Existing
Agreement; and
WHEREAS, the Human Resources Committee and the Board of
Directors of the Company have deemed it advisable and in the best
interests of the Company and its stockholders to assure management
continuity for the Company and, consistent therewith, have
authorized the execution, delivery and performance by the Company
of this Amendment;
NOW THEREFORE, in consideration of the premises, the mutual
agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Paragraph 1.2 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"1.2 Position. Company shall employ Executive in the
position of Executive Vice President and Chief Financial
Officer, or in such other position or positions as the parties
may mutually agree."
2. Paragraph 2.1 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"2.1 Term. Unless sooner terminated pursuant to other
provisions hereof, Company agrees to employ Executive through
the date which is two years and a day after the date of
closing of the acquisition by an affiliate of Northwest
Airlines Corporation of beneficial ownership of the Class A
common stock held by Air Partners, L.P. (the "Acquisition")
contemplated by the Investment Agreement dated as of January
25, 1998, as amended, among Air Partners, L.P., its partners
and certain affiliates and Northwest Airlines Corporation and
its affiliate (the "Investment Agreement")."
3. For purposes of Paragraph 2.3 of the Existing Agreement only,
the term "Effective Date" shall be construed to mean the date of
this Amendment.
4. A new Paragraph 3.5 is hereby added to the Existing Agreement
to read in its entirety as follows:
"3.5 Supplemental Executive Retirement Plan.
(i) Company agrees to pay Executive the deferred
compensation benefits set forth in this paragraph 3.5 as a
supplemental retirement plan (the "Plan"). The base
retirement benefit under the Plan (the "Base Benefit") shall
be in the form of an annual straight life annuity in an amount
equal to the product of (a) 1.6% times (b) the number of
Executive's credited years of service (as defined below) under
the Plan times (c) the Executive's final average compensation
(as defined below). For purposes hereof, Executive's credited
years of service under the Plan shall be equal to the number
of Executive's years of benefit service with Company,
calculated as set forth in the Continental Airlines Retirement
Plan beginning at January 1, 1995; provided, however, that if
Executive is paid the Termination Payment under this
Agreement, Executive shall be further credited with three (3)
additional years of service under the Plan. For purposes
hereof, Executive's final average compensation shall be equal
to the greater of (1) $420,000.00 or (2) the average of the
five highest annual cash compensation amounts (or, if
Executive has been employed less than five years by Company,
the average over the full years employed by the Company) paid
to Executive by Company during the consecutive ten calendar
years immediately preceding his termination of employment at
retirement or otherwise. For purposes hereof, cash
compensation shall include base salary plus cash bonuses
(including any amounts deferred (other than Stay Bonus amounts
described below) pursuant to any deferred compensation plan of
the Company), but shall exclude (i) any cash bonus paid on or
prior to March 31, 1995, and (ii) any Stay Bonus paid to
Executive pursuant to that certain Stay Bonus Agreement
between Company and Executive dated as of April 14, 1998. All
benefits under the Plan shall be payable in equal monthly
installments beginning on the first day of the month following
the Retirement Date. For purposes hereof, "Retirement Date"
is defined as the later of (A) the date on which Executive
attains (or in the event of his earlier death, would have
attained) age 65 or (B) the date of his retirement from
employment with Company. If Executive is not married on the
Retirement Date, benefits under the Plan will be paid to
Executive during his lifetime in the form of the Base Benefit.
If Executive is married on the Retirement Date, benefits under
the Plan will be paid in the form of a joint and survivor
annuity that is actuarially equivalent (as defined below) to
the Base Benefit, with Executive's spouse as of the Retirement
Date being entitled during her lifetime after Executive's
death to a benefit (the "Survivor's Benefit") equal to 50% of
the benefit payable to Executive during their joint lifetimes.
In the event of Executive's death prior to the Retirement
Date, his surviving spouse, if he is married on the date of
his death, will receive beginning on the Retirement Date an
amount equal to the Survivor's Benefit calculated as if
Executive had retired with a joint and survivor annuity on the
date before his date of death. The amount of any benefits
payable to Executive and/or his spouse under the Continental
Airlines Retirement Plan shall be offset against benefits due
under the Plan. Executive shall be vested immediately with
respect to benefits due under the Plan. If Executive's
employment with Company terminates for any reason prior to the
date which is the fifth anniversary of Executive's first date
of employment by the Company, Company shall provide further
benefits under the Plan to ensure that Executive is treated
for all purposes as if he were fully vested under the
Continental Airlines Retirement Plan.
(ii) Executive understands that he must rely upon the
general credit of Company for payment of benefits under the
Plan. Company has not and will not in the future set aside
assets for security or enter into any other arrangement which
will cause the obligation created to be other than a general
corporate obligation of Company or will cause Executive to be
more than a general creditor of Company.
(iii) For purposes of the Plan, the terms "actuarial
equivalent," or "actuarially equivalent" when used with
respect to a specified benefit shall mean the amount of
benefit of a different type or payable at a different age that
can be provided at the same cost as such specified benefit, as
computed by the Actuary. The actuarial assumptions used to
determine equivalencies between different forms of annuities
under the Plan shall be the 1984 Unisex Pensioners Mortality
50% male, 50% female calculation (with males set back one year
and females set back five years), with interest at an annual
rate of 7%. The term "Actuary" shall mean the individual
actuary or actuarial firm selected by Company to service its
pension plans generally or if no such individual or firm has
been selected, an individual actuary or actuarial firm
appointed by Company and reasonably satisfactory to Executive
and/or his spouse.
(iv) Company shall indemnify Executive on a fully grossed-
up, after-tax basis for any Medicare payroll taxes (plus any
income taxes on such indemnity payments) incurred by Executive
in connection with the accrual and/or payment of benefits
under the Plan."
5. Paragraph 4.1 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"4.1 By Expiration. If Executive's employment hereunder
shall terminate upon expiration of the term provided in
paragraph 2.1 hereof, then all compensation and all benefits
to Executive hereunder shall terminate contemporaneously with
termination of his employment; provided, however, that
Executive shall be provided with Flight Benefits for the
remainder of Executive's lifetime, the benefits described in
paragraph 3.5 shall continue to be payable, the benefits
described in clauses (2) through (4) of paragraph 4.7(vi)
shall be provided for the time periods specified therein and
Company shall cause all options and shares of restricted stock
awarded to Executive, including, without limitation, any such
awards under Company's 1998 Stock Incentive Plan (the "1998
Plan"), and other Awards (as defined in the 1998 Plan) made to
Executive under the 1998 Plan, to vest immediately upon such
termination and, with respect to options, be exercisable in
full for 30 days after such termination."
6. Paragraph 4.2 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"4.2 By Company. If Executive's employment hereunder shall
be terminated by Company prior to expiration of the term
provided in paragraph 2.1 hereof then, upon such termination,
regardless of the reason therefor, all compensation and all
benefits to Executive hereunder shall terminate
contemporaneously with the termination of such employment,
except the benefits described in paragraph 3.5 shall continue
to be payable, and if such termination shall be for any reason
other than those encompassed by paragraphs 2.2(i), (ii), (iii)
or (iv), then Company shall (a) pay Executive on or before the
effective date of such termination a lump-sum, cash payment in
an amount equal to the Termination Payment (as such term is
defined in paragraph 4.7) and cause all options and shares of
restricted stock awarded to Executive, including, without
limitation, any such awards under Company's 1998 Plan, and
other Awards (as defined in the 1998 Plan) made to Executive
under the 1998 Plan, to vest immediately upon such termination
and, with respect to options, be exercisable in full for 30
days after such termination, (b) provide Executive with Flight
Benefits (as such term is defined in paragraph 4.7) for the
remainder of Executive's lifetime, (c) provide Executive with
Outplacement Services (as such term is defined in
paragraph 4.7), and (d) provide Executive and his eligible
dependents with Continuation Coverage (as such term is defined
in paragraph 4.7) for the Severance Period."
7. Paragraph 4.3 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"4.3 By Executive. If Executive's employment hereunder
shall be terminated by Executive prior to expiration of the
term provided in paragraph 2.1 hereof then, upon such
termination, regardless of the reason therefor, all
compensation and benefits to Executive hereunder shall
terminate contemporaneously with the termination of
employment, except Executive shall be provided Flight Benefits
(as such term is defined in paragraph 4.7) for the remainder
of Executive's lifetime, the benefits described in paragraph
3.5 shall continue to be payable, and if such termination
shall be pursuant to paragraphs 2.3(i), (ii), (iii), (iv),
(v), or (vi), then Company shall provide Executive with the
payments and benefits described in clauses (a), (c) and (d) of
paragraph 4.2."
8. Paragraph 4.7(ii) of the Existing Agreement is hereby amended
to read in its entirety as follows:
"(ii) "Change in Control" shall have the meaning assigned to
such term in the 1998 Plan (as adopted by the Board of
Directors on April 14, 1998 and in effect on such date, it
being understood that such term shall be the new Change in
Control term contained in the 1998 Plan, and not the alternate
Change in Control term (identical to that contained in the
1997 Stock Incentive Plan) also set forth in the 1998 Plan for
the eventuality that the Acquisition does not close);
provided, however, that Company and Executive agree that the
Acquisition will, upon the closing thereof, constitute a
Change in Control (as defined in this Agreement prior to the
amendment to this Agreement dated as of November 20, 1998) and
will be considered to be, and to have the effect of, a Change
in Control under this Agreement."
9. Paragraph 4.7(vi) of the Existing Agreement is hereby amended
to read in its entirety as follows:
"(vi) "Outplacement Services" shall mean (1) outplacement
services, at Company's cost and for a period of twelve months
beginning on the date of Executive's termination of
employment, to be rendered by an agency selected by Executive
and approved by the Board of Directors or HR Committee (with
such approval not to be unreasonably withheld), (2)
appropriate and suitable office space at the Company's
headquarters (although not on its executive office floor) or
at a comparable location in downtown Houston for use by
Executive, together with appropriate and suitable secretarial
assistance, at Company's cost and for a period of three years
beginning on the date of Executive's termination of
employment, (3) a reserved parking place convenient to the
office so provided and a reserved parking place at George Bush
Intercontinental Airport in Houston, Texas consistent with
past practice, at Company's cost and for as long as Executive
retains a residence in Houston, Texas, and (4) other
incidental perquisites (such as free or discount air travel,
car rental, phone or similar service cards) currently enjoyed
by Executive as a result of his position, to the extent then
available for use by Executive, for a period of three years
beginning on the date of Executive's termination of employment
or a shorter period if such perquisites become unavailable to
the Company for use by Executive;"
10. This Amendment shall be dated as of the date set forth below,
but shall be effective as of the date of closing of the Acquisition
as contemplated by the Investment Agreement.
11. The Existing Agreement, as amended by this Amendment, is
hereby ratified and confirmed and shall continue in full force and
effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the 20th day of November, 1998.
CONTINENTAL AIRLINES, INC.
By:____________________________
Name:
Title:
EXECUTIVE
________________________________
Lawrence W. Kellner
APPROVED:
_______________________________
Thomas J. Barrack, Jr.
Chair, Human Resources Committee
EXHIBIT 10.6(a)
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") is
made by and between Continental Airlines, Inc., a Delaware
corporation ("Company"), and C.D. McLean ("Executive").
Recitals:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 15,
1995, as amended by Amendment to Employment Agreement dated as of
April 19, 1996 and Amendment to Employment Agreement dated as of
September 30, 1996 (as so amended, the "Existing Agreement"); and
WHEREAS, Air Partners, L.P., its partners and certain
affiliates have entered into an Investment Agreement dated as of
January 25, 1998, as amended, with Northwest Airlines Corporation
and its affiliate (the "Investment Agreement"), which investment
agreement provides for the acquisition by an affiliate of Northwest
Airlines Corporation of beneficial ownership of the Class A common
stock and warrants held by Air Partners, L.P., subject to certain
conditions; and
WHEREAS, the acquisition by an affiliate of Northwest Airlines
Corporation of beneficial ownership of the Class A common stock
held by Air Partners, L.P. contemplated by the Investment Agreement
(the "Acquisition") will, upon the closing thereof, constitute a
Change in Control for purposes of the Company's 1994 Incentive
Equity Plan, as amended, the Company's 1997 Stock Incentive Plan,
as amended, the Company's Executive Bonus Program and the Existing
Agreement; and
WHEREAS, the Human Resources Committee and the Board of
Directors of the Company have deemed it advisable and in the best
interests of the Company and its stockholders to assure management
continuity for the Company and, consistent therewith, have
authorized the execution, delivery and performance by the Company
of this Amendment;
NOW THEREFORE, in consideration of the premises, the mutual
agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Paragraph 1.2 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"1.2 Position. Company shall employ Executive in the
position of Executive Vice President - Operations, or in such
other position or positions as the parties may mutually
agree."
2. Paragraph 2.1 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"2.1 Term. Unless sooner terminated pursuant to other
provisions hereof, Company agrees to employ Executive through
the date which is two years and a day after the date of
closing of the acquisition by an affiliate of Northwest
Airlines Corporation of beneficial ownership of the Class A
common stock held by Air Partners, L.P. (the "Acquisition")
contemplated by the Investment Agreement dated as of January
25, 1998, as amended, among Air Partners, L.P., its partners
and certain affiliates and Northwest Airlines Corporation and
its affiliate (the Investment Agreement")."
3. For purposes of Paragraph 2.3 of the Existing Agreement only,
the term "Effective Date" shall be construed to mean the date of
this Amendment.
4. A new Paragraph 3.5 is hereby added to the Existing Agreement
to read in its entirety as follows:
"3.5 Supplemental Executive Retirement Plan.
(i) Company agrees to pay Executive the deferred
compensation benefits set forth in this paragraph 3.5 as a
supplemental retirement plan (the "Plan"). The base
retirement benefit under the Plan (the "Base Benefit") shall
be in the form of an annual straight life annuity in an amount
equal to the product of (a) 1.6% times (b) the number of
Executive's credited years of service (as defined below) under
the Plan times (c) the Executive's final average compensation
(as defined below). For purposes hereof, Executive's credited
years of service under the Plan shall be equal to the number
of Executive's years of benefit service with Company,
calculated as set forth in the Continental Airlines Retirement
Plan beginning at January 1, 1995; provided, however, that if
Executive is paid the Termination Payment under this
Agreement, Executive shall be further credited with three (3)
additional years of service under the Plan. For purposes
hereof, Executive's final average compensation shall be equal
to the greater of (1) $375,000.00 or (2) the average of the
five highest annual cash compensation amounts (or, if
Executive has been employed less than five years by Company,
the average over the full years employed by the Company) paid
to Executive by Company during the consecutive ten calendar
years immediately preceding his termination of employment at
retirement or otherwise. For purposes hereof, cash
compensation shall include base salary plus cash bonuses
(including any amounts deferred (other than Stay Bonus amounts
described below) pursuant to any deferred compensation plan of
the Company), but shall exclude (i) any cash bonus paid on or
prior to March 31, 1995, and (ii) any Stay Bonus paid to
Executive pursuant to that certain Stay Bonus Agreement
between Company and Executive dated as of April 14, 1998. All
benefits under the Plan shall be payable in equal monthly
installments beginning on the first day of the month following
the Retirement Date. For purposes hereof, "Retirement Date"
is defined as the later of (A) the date on which Executive
attains (or in the event of his earlier death, would have
attained) age 65 or (B) the date of his retirement from
employment with Company. If Executive is not married on the
Retirement Date, benefits under the Plan will be paid to
Executive during his lifetime in the form of the Base Benefit.
If Executive is married on the Retirement Date, benefits under
the Plan will be paid in the form of a joint and survivor
annuity that is actuarially equivalent (as defined below) to
the Base Benefit, with Executive's spouse as of the Retirement
Date being entitled during her lifetime after Executive's
death to a benefit (the "Survivor's Benefit") equal to 50% of
the benefit payable to Executive during their joint lifetimes.
In the event of Executive's death prior to the Retirement
Date, his surviving spouse, if he is married on the date of
his death, will receive beginning on the Retirement Date an
amount equal to the Survivor's Benefit calculated as if
Executive had retired with a joint and survivor annuity on the
date before his date of death. The amount of any benefits
payable to Executive and/or his spouse under the Continental
Airlines Retirement Plan shall be offset against benefits due
under the Plan. Executive shall be vested immediately with
respect to benefits due under the Plan. If Executive's
employment with Company terminates for any reason prior to the
date which is the fifth anniversary of Executive's first date
of employment by the Company, Company shall provide further
benefits under the Plan to ensure that Executive is treated
for all purposes as if he were fully vested under the
Continental Airlines Retirement Plan.
(ii) Executive understands that he must rely upon the
general credit of Company for payment of benefits under the
Plan. Company has not and will not in the future set aside
assets for security or enter into any other arrangement which
will cause the obligation created to be other than a general
corporate obligation of Company or will cause Executive to be
more than a general creditor of Company.
(iii) For purposes of the Plan, the terms "actuarial
equivalent," or "actuarially equivalent" when used with
respect to a specified benefit shall mean the amount of
benefit of a different type or payable at a different age that
can be provided at the same cost as such specified benefit, as
computed by the Actuary. The actuarial assumptions used to
determine equivalencies between different forms of annuities
under the Plan shall be the 1984 Unisex Pensioners Mortality
50% male, 50% female calculation (with males set back one year
and females set back five years), with interest at an annual
rate of 7%. The term "Actuary" shall mean the individual
actuary or actuarial firm selected by Company to service its
pension plans generally or if no such individual or firm has
been selected, an individual actuary or actuarial firm
appointed by Company and reasonably satisfactory to Executive
and/or his spouse.
(iv) Company shall indemnify Executive on a fully grossed-
up, after-tax basis for any Medicare payroll taxes (plus any
income taxes on such indemnity payments) incurred by Executive
in connection with the accrual and/or payment of benefits
under the Plan."
5. Paragraph 4.1 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"4.1 By Expiration. If Executive's employment hereunder
shall terminate upon expiration of the term provided in
paragraph 2.1 hereof, then all compensation and all benefits
to Executive hereunder shall terminate contemporaneously with
termination of his employment; provided, however, that
Executive shall be provided with Flight Benefits for the
remainder of Executive's lifetime, the benefits described in
paragraph 3.5 shall continue to be payable, the benefits
described in clauses (2) through (4) of paragraph 4.7(vi)
shall be provided for the time periods specified therein and
Company shall cause all options and shares of restricted stock
awarded to Executive, including, without limitation, any such
awards under Company's 1998 Stock Incentive Plan (the "1998
Plan"), and other Awards (as defined in the 1998 Plan) made to
Executive under the 1998 Plan, to vest immediately upon such
termination and, with respect to options, be exercisable in
full for 30 days after such termination."
6. Paragraph 4.2 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"4.2 By Company. If Executive's employment hereunder shall
be terminated by Company prior to expiration of the term
provided in paragraph 2.1 hereof then, upon such termination,
regardless of the reason therefor, all compensation and all
benefits to Executive hereunder shall terminate
contemporaneously with the termination of such employment,
except the benefits described in paragraph 3.5 shall continue
to be payable, and if such termination shall be for any reason
other than those encompassed by paragraphs 2.2(i), (ii), (iii)
or (iv), then Company shall (a) pay Executive on or before the
effective date of such termination a lump-sum, cash payment in
an amount equal to the Termination Payment (as such term is
defined in paragraph 4.7) and cause all options and shares of
restricted stock awarded to Executive, including, without
limitation, any such awards under Company's 1998 Plan, and
other Awards (as defined in the 1998 Plan) made to Executive
under the 1998 Plan, to vest immediately upon such termination
and, with respect to options, be exercisable in full for 30
days after such termination, (b) provide Executive with Flight
Benefits (as such term is defined in paragraph 4.7) for the
remainder of Executive's lifetime, (c) provide Executive with
Outplacement Services (as such term is defined in para-
graph 4.7), and (d) provide Executive and his eligible
dependents with Continuation Coverage (as such term is defined
in paragraph 4.7) for the Severance Period."
7. Paragraph 4.3 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"4.3 By Executive. If Executive's employment hereunder
shall be terminated by Executive prior to expiration of the
term provided in paragraph 2.1 hereof then, upon such
termination, regardless of the reason therefor, all
compensation and benefits to Executive hereunder shall
terminate contemporaneously with the termination of
employment, except Executive shall be provided Flight Benefits
(as such term is defined in paragraph 4.7) for the remainder
of Executive's lifetime, the benefits described in paragraph
3.5 shall continue to be payable, and if such termination
shall be pursuant to paragraphs 2.3(i), (ii), (iii), (iv),
(v), or (vi), then Company shall provide Executive with the
payments and benefits described in clauses (a), (c) and (d) of
paragraph 4.2."
8. Paragraph 4.7(ii) of the Existing Agreement is hereby amended
to read in its entirety as follows:
"(ii) "Change in Control" shall have the meaning assigned to
such term in the 1998 Plan (as adopted by the Board of
Directors on April 14, 1998 and in effect on such date, it
being understood that such term shall be the new Change in
Control term contained in the 1998 Plan, and not the alternate
Change in Control term (identical to that contained in the
1997 Stock Incentive Plan) also set forth in the 1998 Plan for
the eventuality that the Acquisition does not close);
provided, however, that Company and Executive agree that the
Acquisition will, upon the closing thereof, constitute a
Change in Control (as defined in this Agreement prior to the
amendment to this Agreement dated as of November 20, 1998) and
will be considered to be, and to have the effect of, a Change
in Control under this Agreement."
9. Paragraph 4.7(vi) of the Existing Agreement is hereby amended
to read in its entirety as follows:
"(vi) "Outplacement Services" shall mean (1) outplacement
services, at Company's cost and for a period of twelve months
beginning on the date of Executive's termination of
employment, to be rendered by an agency selected by Executive
and approved by the Board of Directors or HR Committee (with
such approval not to be unreasonably withheld), (2)
appropriate and suitable office space at the Company's
headquarters (although not on its executive office floor) or
at a comparable location in downtown Houston for use by
Executive, together with appropriate and suitable secretarial
assistance, at Company's cost and for a period of three years
beginning on the date of Executive's termination of
employment, (3) a reserved parking place convenient to the
office so provided and a reserved parking place at George Bush
Intercontinental Airport in Houston, Texas consistent with
past practice, at Company's cost and for as long as Executive
retains a residence in Houston, Texas, and (4) other
incidental perquisites (such as free or discount air travel,
car rental, phone or similar service cards) currently enjoyed
by Executive as a result of his position, to the extent then
available for use by Executive, for a period of three years
beginning on the date of Executive's termination of employment
or a shorter period if such perquisites become unavailable to
the Company for use by Executive;"
10. This Amendment shall be dated as of the date set forth below,
but shall be effective as of the date of closing of the Acquisition
as contemplated by the Investment Agreement.
11. The Existing Agreement, as amended by this Amendment, is
hereby ratified and confirmed and shall continue in full force and
effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the 20th day of November, 1998.
CONTINENTAL AIRLINES, INC.
By:____________________________
Name:
Title:
EXECUTIVE
________________________________
C.D. McLean
APPROVED:
_______________________________
Thomas J. Barrack, Jr.
Chair, Human Resources Committee
EXHIBIT 10.9(a)
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") is
made by and between Continental Airlines, Inc., a Delaware
corporation ("Company"), and Jeffery A. Smisek ("Executive").
Recitals:
WHEREAS, Company and Executive are parties to that certain
Amended and Restated Employment Agreement dated as of November 15,
1995, as amended by Amendment to Employment Agreement dated as of
April 19, 1996 and Amendment to Employment Agreement dated as of
September 30, 1996 (as so amended, the "Existing Agreement"); and
WHEREAS, Air Partners, L.P., its partners and certain
affiliates have entered into an Investment Agreement dated as of
January 25, 1998, as amended, with Northwest Airlines Corporation
and its affiliate (the "Investment Agreement"), which investment
agreement provides for the acquisition by an affiliate of Northwest
Airlines Corporation of beneficial ownership of the Class A common
stock and warrants held by Air Partners, L.P., subject to certain
conditions; and
WHEREAS, the acquisition by an affiliate of Northwest Airlines
Corporation of beneficial ownership of the Class A common stock
held by Air Partners, L.P. contemplated by the Investment Agreement
(the "Acquisition") will, upon the closing thereof, constitute a
Change in Control for purposes of the Company's 1994 Incentive
Equity Plan, as amended, the Company's 1997 Stock Incentive Plan,
as amended, the Company's Executive Bonus Program and the Existing
Agreement; and
WHEREAS, the Human Resources Committee and the Board of
Directors of the Company have deemed it advisable and in the best
interests of the Company and its stockholders to assure management
continuity for the Company and, consistent therewith, have
authorized the execution, delivery and performance by the Company
of this Amendment;
NOW THEREFORE, in consideration of the premises, the mutual
agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Paragraph 1.2 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"1.2 Position. Company shall employ Executive in the
position of Executive Vice President, General Counsel and
Secretary, or in such other position or positions as the
parties may mutually agree."
2. Paragraph 2.1 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"2.1 Term. Unless sooner terminated pursuant to other
provisions hereof, Company agrees to employ Executive through
the date which is two years and a day after the date of
closing of the acquisition by an affiliate of Northwest
Airlines Corporation of beneficial ownership of the Class A
common stock held by Air Partners, L.P. (the "Acquisition")
contemplated by the Investment Agreement dated as of January
25, 1998, as amended, among Air Partners, L.P., its partners
and certain affiliates and Northwest Airlines Corporation and
its affiliate (the "Investment Agreement")."
3. For purposes of Paragraph 2.3 of the Existing Agreement only,
the term "Effective Date" shall be construed to mean the date of
this Amendment.
4. A new Paragraph 3.5 is hereby added to the Existing Agreement
to read in its entirety as follows:
"3.5 Supplemental Executive Retirement Plan.
(i) Company agrees to pay Executive the deferred
compensation benefits set forth in this paragraph 3.5 as a
supplemental retirement plan (the "Plan"). The base
retirement benefit under the Plan (the "Base Benefit") shall
be in the form of an annual straight life annuity in an amount
equal to the product of (a) 1.6% times (b) the number of
Executive's credited years of service (as defined below) under
the Plan times (c) the Executive's final average compensation
(as defined below). For purposes hereof, Executive's credited
years of service under the Plan shall be equal to the number
of Executive's years of benefit service with Company,
calculated as set forth in the Continental Airlines Retirement
Plan beginning at January 1, 1995; provided, however, that if
Executive is paid the Termination Payment under this
Agreement, Executive shall be further credited with three (3)
additional years of service under the Plan. For purposes
hereof, Executive's final average compensation shall be equal
to the greater of (1) $350,000.00 or (2) the average of the
five highest annual cash compensation amounts (or, if
Executive has been employed less than five years by Company,
the average over the full years employed by the Company) paid
to Executive by Company during the consecutive ten calendar
years immediately preceding his termination of employment at
retirement or otherwise. For purposes hereof, cash
compensation shall include base salary plus cash bonuses
(including any amounts deferred (other than Stay Bonus amounts
described below) pursuant to any deferred compensation plan of
the Company), but shall exclude (i) any cash bonus paid on or
prior to March 31, 1995, and (ii) any Stay Bonus paid to
Executive pursuant to that certain Stay Bonus Agreement
between Company and Executive dated as of April 14, 1998. All
benefits under the Plan shall be payable in equal monthly
installments beginning on the first day of the month following
the Retirement Date. For purposes hereof, "Retirement Date"
is defined as the later of (A) the date on which Executive
attains (or in the event of his earlier death, would have
attained) age 65 or (B) the date of his retirement from
employment with Company. If Executive is not married on the
Retirement Date, benefits under the Plan will be paid to
Executive during his lifetime in the form of the Base Benefit.
If Executive is married on the Retirement Date, benefits under
the Plan will be paid in the form of a joint and survivor
annuity that is actuarially equivalent (as defined below) to
the Base Benefit, with Executive's spouse as of the Retirement
Date being entitled during her lifetime after Executive's
death to a benefit (the "Survivor's Benefit") equal to 50% of
the benefit payable to Executive during their joint lifetimes.
In the event of Executive's death prior to the Retirement
Date, his surviving spouse, if he is married on the date of
his death, will receive beginning on the Retirement Date an
amount equal to the Survivor's Benefit calculated as if
Executive had retired with a joint and survivor annuity on the
date before his date of death. The amount of any benefits
payable to Executive and/or his spouse under the Continental
Airlines Retirement Plan shall be offset against benefits due
under the Plan. Executive shall be vested immediately with
respect to benefits due under the Plan. If Executive's
employment with Company terminates for any reason prior to the
date which is the fifth anniversary of Executive's first date
of employment by the Company, Company shall provide further
benefits under the Plan to ensure that Executive is treated
for all purposes as if he were fully vested under the
Continental Airlines Retirement Plan.
(ii) Executive understands that he must rely upon the
general credit of Company for payment of benefits under the
Plan. Company has not and will not in the future set aside
assets for security or enter into any other arrangement which
will cause the obligation created to be other than a general
corporate obligation of Company or will cause Executive to be
more than a general creditor of Company.
(iii) For purposes of the Plan, the terms "actuarial
equivalent," or "actuarially equivalent" when used with
respect to a specified benefit shall mean the amount of
benefit of a different type or payable at a different age that
can be provided at the same cost as such specified benefit, as
computed by the Actuary. The actuarial assumptions used to
determine equivalencies between different forms of annuities
under the Plan shall be the 1984 Unisex Pensioners Mortality
50% male, 50% female calculation (with males set back one year
and females set back five years), with interest at an annual
rate of 7%. The term "Actuary" shall mean the individual
actuary or actuarial firm selected by Company to service its
pension plans generally or if no such individual or firm has
been selected, an individual actuary or actuarial firm
appointed by Company and reasonably satisfactory to Executive
and/or his spouse.
(iv) Company shall indemnify Executive on a fully grossed-
up, after-tax basis for any Medicare payroll taxes (plus any
income taxes on such indemnity payments) incurred by Executive
in connection with the accrual and/or payment of benefits
under the Plan."
5. Paragraph 4.1 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"4.1 By Expiration. If Executive's employment hereunder
shall terminate upon expiration of the term provided in
paragraph 2.1 hereof, then all compensation and all benefits
to Executive hereunder shall terminate contemporaneously with
termination of his employment; provided, however, that
Executive shall be provided with Flight Benefits for the
remainder of Executive's lifetime, the benefits described in
paragraph 3.5 shall continue to be payable, the benefits
described in clauses (2) through (4) of paragraph 4.7(vi)
shall be provided for the time periods specified therein and
Company shall cause all options and shares of restricted stock
awarded to Executive, including, without limitation, any such
awards under Company's 1998 Stock Incentive Plan (the "1998
Plan"), and other Awards (as defined in the 1998 Plan) made to
Executive under the 1998 Plan, to vest immediately upon such
termination and, with respect to options, be exercisable in
full for 30 days after such termination."
6. Paragraph 4.2 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"4.2 By Company. If Executive's employment hereunder shall
be terminated by Company prior to expiration of the term
provided in paragraph 2.1 hereof then, upon such termination,
regardless of the reason therefor, all compensation and all
benefits to Executive hereunder shall terminate
contemporaneously with the termination of such employment,
except the benefits described in paragraph 3.5 shall continue
to be payable, and if such termination shall be for any reason
other than those encompassed by paragraphs 2.2(i), (ii), (iii)
or (iv), then Company shall (a) pay Executive on or before the
effective date of such termination a lump-sum, cash payment in
an amount equal to the Termination Payment (as such term is
defined in paragraph 4.7) and cause all options and shares of
restricted stock awarded to Executive, including, without
limitation, any such awards under Company's 1998 Plan, and
other Awards (as defined in the 1998 Plan) made to Executive
under the 1998 Plan, to vest immediately upon such termination
and, with respect to options, be exercisable in full for 30
days after such termination, (b) provide Executive with Flight
Benefits (as such term is defined in paragraph 4.7) for the
remainder of Executive's lifetime, (c) provide Executive with
Outplacement Services (as such term is defined in para-
graph 4.7), and (d) provide Executive and his eligible
dependents with Continuation Coverage (as such term is defined
in paragraph 4.7) for the Severance Period."
7. Paragraph 4.3 of the Existing Agreement is hereby amended to
read in its entirety as follows:
"4.3 By Executive. If Executive's employment hereunder
shall be terminated by Executive prior to expiration of the
term provided in paragraph 2.1 hereof then, upon such
termination, regardless of the reason therefor, all
compensation and benefits to Executive hereunder shall
terminate contemporaneously with the termination of
employment, except Executive shall be provided Flight Benefits
(as such term is defined in paragraph 4.7) for the remainder
of Executive's lifetime, the benefits described in paragraph
3.5 shall continue to be payable, and if such termination
shall be pursuant to paragraphs 2.3(i), (ii), (iii), (iv),
(v), or (vi), then Company shall provide Executive with the
payments and benefits described in clauses (a), (c) and (d) of
paragraph 4.2."
8. Paragraph 4.7(ii) of the Existing Agreement is hereby amended
to read in its entirety as follows:
"(ii) "Change in Control" shall have the meaning assigned to
such term in the 1998 Plan (as adopted by the Board of
Directors on April 14, 1998 and in effect on such date, it
being understood that such term shall be the new Change in
Control term contained in the 1998 Plan, and not the alternate
Change in Control term (identical to that contained in the
1997 Stock Incentive Plan) also set forth in the 1998 Plan for
the eventuality that the Acquisition does not close);
provided, however, that Company and Executive agree that the
Acquisition will, upon the closing thereof, constitute a
Change in Control (as defined in this Agreement prior to the
amendment to this Agreement dated as of November 20, 1998) and
will be considered to be, and to have the effect of, a Change
in Control under this Agreement."
9. Paragraph 4.7(vi) of the Existing Agreement is hereby amended
to read in its entirety as follows:
"(vi) "Outplacement Services" shall mean (1) outplacement
services, at Company's cost and for a period of twelve months
beginning on the date of Executive's termination of
employment, to be rendered by an agency selected by Executive
and approved by the Board of Directors or HR Committee (with
such approval not to be unreasonably withheld), (2)
appropriate and suitable office space at the Company's
headquarters (although not on its executive office floor) or
at a comparable location in downtown Houston for use by
Executive, together with appropriate and suitable secretarial
assistance, at Company's cost and for a period of three years
beginning on the date of Executive's termination of
employment, (3) a reserved parking place convenient to the
office so provided and a reserved parking place at George Bush
Intercontinental Airport in Houston, Texas consistent with
past practice, at Company's cost and for as long as Executive
retains a residence in Houston, Texas, and (4) other
incidental perquisites (such as free or discount air travel,
car rental, phone or similar service cards) currently enjoyed
by Executive as a result of his position, to the extent then
available for use by Executive, for a period of three years
beginning on the date of Executive's termination of employment
or a shorter period if such perquisites become unavailable to
the Company for use by Executive;"
10. This Amendment shall be dated as of the date set forth below,
but shall be effective as of the date of closing of the Acquisition
as contemplated by the Investment Agreement.
11. The Existing Agreement, as amended by this Amendment, is
hereby ratified and confirmed and shall continue in full force and
effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the 20th day of November, 1998.
CONTINENTAL AIRLINES, INC.
By:____________________________
Name:
Title:
EXECUTIVE
________________________________
Jeffery A. Smisek
APPROVED:
_______________________________
Thomas J. Barrack, Jr.
Chair, Human Resources Committee
EXHIBIT 10.19
AMENDMENT AND RESTATEMENT OF 1994 PLAN AND 1997 PLAN
WHEREAS, both the Company's 1994 Incentive Equity Plan, as
amended (the "1994 Plan") and the Company's 1997 Stock Incentive
Plan, as amended (the "1997 Plan") contain provisions different
from those contained in the Company's 1998 Stock Incentive Plan;
and
WHEREAS, the Company desires to utilize the unused shares
authorized under the 1994 Plan and the 1997 Plan for future Awards
(as defined therein) thereunder, and wishes to have consistent
terms and conditions of its stock incentive plans with respect to
all Awards made thereunder from and after the date of closing of
the acquisition of Air Partners' interest in the Company
contemplated by the Investment Agreement dated as of January 25,
1998 among Northwest Airlines Corporation, Newbridge Parent
Corporation, Air Partners, L.P., the partners of Air Partners, L.P.
signatory thereto, Bonderman Family Limited Partnership, 1992 Air,
Inc. and Air Saipan, Inc., as amended by Amendment No. 1 thereto
dated as of February 27, 1998 (such date of closing being referred
to herein as the "Closing");
NOW THEREFORE, BE IT RESOLVED, that the terms and provisions
of each of the 1994 Plan and the 1997 Plan be amended and restated
in their entirety, with respect to grants of Awards thereunder from
and after the date of Closing (but not with respect to Awards
outstanding prior to the date of Closing), to be identical to the
terms and provisions of the Company's 1998 Stock Incentive Plan,
and that the form of Option Agreements and Restricted Stock
Agreements approved or to be approved in connection with the
Company's 1998 Stock Incentive Plan be approved for usage in
connection with the Company's 1998 Stock Incentive Plan be approved
for usage in connection with Awards made under the 1994 Plan and
the 1997 Plan from and after the date of Closing, and that the
Company is authorized to perform its obligations thereunder;
provided, however, that no such amendment and restatement shall
affect the share amounts set forth in the 1994 Plan or the 1997
Plan, or shall affect Awards outstanding thereunder prior to the
date of Closing.
EXHIBIT 10.23(i)
Supplemental Agreement No. 12
to
Purchase Agreement No. 1783
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 757-224 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of
September 29,1998 by and between THE BOEING COMPANY, a Delaware
corporation with its principal office in Seattle, Washington,
(Boeing) and CONTINENTAL AIRLINES, INC., a Delaware corporation
with its principal office in Houston, Texas (Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 1783 dated March 18, 1993, as amended and supplemented,
relating to Boeing Model 757-224 aircraft (the Agreement); and
WHEREAS, Buyer wishes to [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
WHEREAS, Boeing and Buyer have agreed to amend the Agreement
to incorporate certain other changes as set forth herein;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:
1. Table of Contents and Articles:
1.1 Remove and replace, in its entirety, the Table of
Contents with a new Table of Contents (attached hereto) to reflect
amendment of the Agreement as of the date of this Supplemental
Agreement.
1.2 Remove and replace, in its entirety, Article 1, Subject
Matter of Sale, with new Article 1 (attached hereto) to incorporate
a revised number of Block C Aircraft.
1.3 Remove and replace, in its entirety, Article 2,
Delivery, Title and Risk of Loss, with new Article 2 (attached
hereto) to incorporate a revised delivery schedule for the
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] Block C Aircraft.
1.4 Remove and replace, in its entirety, Article 3, Price
of Aircraft, with new Article 3 (attached hereto) to incorporate
revised Advance Payment Base Prices for the [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] Block
C Aircraft.
1.5 Remove and replace, in its entirety, the Delivery
Schedule for Model 757-224 Aircraft, following Article 15, with a
revised delivery schedule (attached hereto) to incorporate current
Aircraft delivery data.
2. Letter Agreements:
2.1 Remove and replace, in its entirety, Letter Agreement
1783-10R3, Option Aircraft, with a new revision 1783-10R4 to
reflect [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. Payment of Additional Advance Payments.
Within three (3) business days after execution of this
Supplemental Agreement, Buyer shall transfer to Boeing's account at
Chase Manhattan Bank, New York, N.Y., the sum of [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] which sum represents advance payments then due with
respect to the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT] Option Aircraft being exercised as of
the effective date of the Supplemental Agreement.
The Agreement will be deemed to be supplemented to the extent
herein provided and as so supplemented will continue in full force
and effect.
EXECUTED IN DUPLICATE as of the day and year first above written.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ John A. McGarvey By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
TABLE OF CONTENTS
ARTICLES Page Revised
By
ARTICLE 1. Subject Matter of Sale.............. 1-1 SA#12
ARTICLE 2. Delivery, Title and Risk of Loss.... 2-1 SA#12
ARTICLE 3. Price of Aircraft................... 3-1 SA#12
ARTICLE 4. Taxes............................... 4-1
ARTICLE 5. Payment............................. 5-1
ARTICLE 6. Excusable Delay..................... 6-1
ARTICLE 7. Changes to the Detail Specification. 7-1 SA#4
ARTICLE 8. Federal Aviation Requirements and
Certificates ....................... 8-1
ARTICLE 9. Representatives, Inspection,
Flights and Test Data............... 9-1
ARTICLE 10. Assignment, Resale or Lease......... 10-1
ARTICLE 11. Termination for Certain Events...... 11-1
ARTICLE 12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance....................... 12-1
ARTICLE 13. Buyer Furnished Equipment and
Spare Parts......................... 13-1 SA#2
ARTICLE 14. Contractual Notices and Requests.... 14-1
ARTICLE 15. Miscellaneous....................... 15-1
Schedule for Delivery of Model 757-224 Aircraft SA#12
TABLE OF CONTENTS (Continued)
EXHIBITS
EXHIBIT A Aircraft Configuration ............. A-1 SA#8
EXHIBIT B Product Assurance Document ......... B-1 SA#2
EXHIBIT C Customer Support Document .......... C-1 SA#2
EXHIBIT D Price Adjustments Due to Economic
Fluctuations - Airframe and Engines D-1 SA#11
EXHIBIT E Buyer Furnished Equipment Provisions
Document ........................... E-1 SA#4
EXHIBIT F Defined Terms Document ........... F-1 SA#2
LETTER AGREEMENTS
1783-1 Spare Parts Support SA#2
1783-2 Seller Purchased Equipment SA#2
1783-4 Waiver of Aircraft Demonstration SA#2
Flights
1783-5 Promotional Support SA#2
1783-6 Configuration Matters SA#2
1783-7 Price Adjustment on Rolls-Royce Engines SA#2
1783-8 Spare Parts Provisioning SA#2
1783-9R1 Escalation Sharing SA#10
1783-10R4 Option Aircraft SA#12
6-1162-WLJ-359 Aircraft Performance Guarantees SA#2
6-1162-WLJ-367R5 Disclosure of Confidential Info SA#9
6-1162-WLJ-369 Additional Considerations SA#2
6-1162-WLJ-372 Conditions Relating to SA#2
Purchase Agreement
TABLE OF CONTENTS (Continued)
6-1162-WLJ-380 Performance Guarantees, Demonstrated SA#2
Compliance
6-1162-WLJ-384 [CONFIDENTIAL MATERIAL OMITTED AND SA#2
FILED SEPARATELY WITH THE SECURITIES
EXCHANGE AND COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-WLJ-391R1 Special Purchase Agreement Provisions SA#4
6-1162-WLJ-393 [CONFIDENTIAL MATERIAL OMITTED AND SA#2
FILED SEPARATELY WITH THE SECURITIES
EXCHANGE AND COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-WLJ-405 Certain Additional ContractuaL SA#2
Matters
6-1162-WLJ-409 Satisfaction of Conditions Relating SA#2
to the Purchase Agreement
6-1162-WLJ-497 [CONFIDENTIAL MATERIAL OMITTED AND SA#3
FILED SEPARATELY WITH THE SECURITIES
EXCHANGE AND COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-RGP-946R1 Special Provisions Relating to SA#5
the Rescheduled Aircraft
6-1162-MMF-289R1 [CONFIDENTIAL MATERIAL OMITTED AND SA#10
FILED SEPARATELY WITH THE SECURITIES
EXCHANGE AND COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-MMF-319 Special Provisions Relating to SA#7
the Rescheduled Aircraft
6-1162-GOC-132 Special Matters SA#10
TABLE OF CONTENTS (Continued)
SUPPLEMENTAL AGREEMENTS Dated as of:
Supplemental Agreement No. 1 April 29, 1993
Supplemental Agreement No. 2 November 4, 1993
Supplemental Agreement No. 3 November 19, 1993
Supplemental Agreement No. 4 March 31, 1995
Supplemental Agreement No. 5 November 30, 1995
Supplemental Agreement No. 6 June 13, 1996
Supplemental Agreement No. 7 July 23, 1996
Supplemental Agreement No. 8 October 27, 1996
Supplemental Agreement No. 9 August 13, 1997
Supplemental Agreement No.10 October 10, 1997
Supplemental Agreement No. 11 July 30, 1998
Supplemental Agreement No. 12 September 29, 1998
ARTICLE 1. Subject Matter of Sale.
1.1 The Aircraft. Boeing will manufacture and deliver
to Buyer and Buyer will purchase and accept delivery from Boeing of
the following Boeing Model 757-224 aircraft (the Aircraft).
1.1.1 Block A, A-1 and B Aircraft. [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] manufactured in accordance with Boeing detail
specification D924N104-3, dated as of even date herewith, as
described in Exhibit A, and as modified from time to time in
accordance with this Agreement (Detail Specification).
1.2 Additional Goods and Services. In connection with
the sale of the Aircraft, Boeing will also provide to Buyer certain
other things under this Agreement, including data, documents,
training and services, all as described in this Agreement.
1.3 Performance Guarantees. Any performance guarantees
applicable to the Aircraft will be expressly included in this
Agreement. Where performance guarantees are included in this
Agreement other than within the Detail Specification, such
guarantees will be treated as being incorporated in the Detail
Specification by this reference.
1.4 Defined Terms. For ease of use, certain terms are
treated as defined terms in this Agreement. Such terms are
identified with a capital letter and set forth and/or defined in
Exhibit F.
ARTICLE 2. Delivery, Title and Risk of Loss.
2.1 Time of Delivery. The Aircraft will be delivered
to Buyer by Boeing, and Buyer will accept delivery of the Aircraft,
in accordance with the following schedule:
Month and Year
of Delivery Quantity of Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2.2 Notice of Target Delivery Date. Boeing will give
Buyer notice of the Target Delivery Date of the Aircraft
approximately 30 days prior to the scheduled month of delivery.
2.3 Notice of Delivery Date. Boeing will give Buyer at
least 7 days' notice of the delivery date of the Aircraft. If an
Aircraft delivery is delayed beyond such delivery date due to the
responsibility of Buyer, Buyer will reimburse Boeing for all costs
incurred by Boeing as a result of such delay, including amounts for
storage, insurance, Taxes, preservation or protection of the
Aircraft and interest on payments due.
2.4 Place of Delivery. The Aircraft will be delivered at
a facility selected by Boeing in the State of Washington, unless
mutually agreed otherwise.
2.5 Title and Risk of Loss. Title to and risk of loss of
an Aircraft will pass from Boeing to Buyer upon delivery of such
Aircraft, but not prior thereto.
2.6 Documents of Title. Upon delivery of and payment for
each Aircraft, Boeing shall deliver to Buyer a bill of sale duly
conveying to Buyer good title to such Aircraft free and clear of
all liens, claims, charges and encumbrances of every kind
whatsoever, and such other appropriate documents of title as Buyer
may reasonably request.
ARTICLE 3. Price of Aircraft.
3.1 Definitions.
3.1.1 Special Features are the features listed in
Exhibit A which have been selected by Buyer.
3.1.2 Base Airframe Price is the Aircraft Basic
Price excluding the price of Special Features and Engines.
3.1.3 Engine Price is the price established by the
Engine manufacturer for the Engines installed on the Aircraft
including all accessories, equipment and parts set forth in Exhibit
D.
3.1.4 Aircraft Basic Price is comprised of the Base
Airframe Price, the Engine Price and the price of the Special
Features.
3.1.5 Economic Price Adjustment is the adjustment to
the Aircraft Basic Price (Base Airframe, Engine and Special
Features) as calculated pursuant to Exhibit D.
3.1.6 Aircraft Price is the total amount Buyer is to
pay for the Aircraft at the time of delivery.
3.1.7 Price First Published is the first price
published by Boeing for the same model of aircraft to be delivered
in the same general time period as the affected Aircraft and is
used to establish the Base Airframe Price when the Base Airframe
Price was not established at the time of execution of this
Agreement.
3.2 Aircraft Basic Price.
3.2.1 Block A Aircraft. The Aircraft Basic Price of
the Block A Aircraft, expressed in July 1992 dollars, is set forth
below:
Base Airframe Price: [CONFIDENTIAL MATERIAL
Special Features OMITTED AND FILED
Engine Price SEPARATELY WITH THE
SECURITIES AND EXCHANGE
Block A Aircraft COMMISSION PURSUANT TO
Basic Price A REQUEST FOR
CONFIDENTIAL TREATMENT]
3.2.2 Block A-1 and Block B Aircraft. The Aircraft
Basic Price of the Block A-1 and Block B Aircraft with delivery,
expressed in July 1992 dollars, is set forth below:
Base Airframe Price: [CONFIDENTIAL MATERIAL
Special Features OMITTED AND FILED
Engine Price SEPARATELY WITH THE
SECURITIES AND EXCHANGE
Block A-1/B Aircraft COMMISSION PURSUANT TO
Basic Price A REQUEST FOR
CONFIDENTIAL TREATMENT]
The special features value above for the Block A-1 and Block B
Aircraft incorporates the special features reprice activity noted
in Exhibit A-1 which includes Exhibit A, Change Orders 1,2, and 3
plus accepted Master Changes as of June 1, 1996.
3.2.2 Block C Aircraft. The Aircraft Basic Price of
the Block C Aircraft with delivery, expressed in July 1997 dollars,
is set forth below:
Base Airframe Price: [CONFIDENTIAL MATERIAL
Special Features OMITTED AND FILED
Engine Price SEPARATELY WITH THE
SECURITIES AND EXCHANGE
Block C Aircraft COMMISSION PURSUANT TO
Basic Price A REQUEST FOR
CONFIDENTIAL TREATMENT]
The special features value above for the Block C Aircraft
incorporates the special features reprice activity noted in Exhibit
A-1 which includes Exhibit A, Change Orders 1,2, and 3 plus
accepted Master Changes as of June 1, 1996.
3.3 Aircraft Price.
3.3.1 Block A Aircraft, Block A-1 Aircraft and Block
B Aircraft. The Aircraft Price of the Block A Aircraft, Block A-1
Aircraft and Block B Aircraft will be established at the time of
delivery of such Aircraft to Buyer and will be the sum of:
3.3.1.1 the Block A Aircraft Basic
Price, which is [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT] and the Block A-1 Aircraft and Block B
Aircraft which is [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT] ; plus
3.3.1.2 the Economic Price Adjustments
for the Aircraft Basic Price, as calculated pursuant to the
formulas set forth in Exhibit D (Price Adjustments Due to Economic
Fluctuations - Airframe and Engine - Block A, Block A-1 and Block
B Aircraft) plus
3.3.1.3 other price adjustments made
pursuant to this Agreement or other written agreements executed by
Boeing and Buyer.
3.3.1 Block C Aircraft. The Aircraft Price of the
Block C Aircraft will be established at the time of delivery of
such Aircraft to Buyer and will be the sum of:
3.3.1.1 the Block C Aircraft Basic
Price, which is [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT]; plus
3.3.1.2 the Economic Price Adjustments
for the Aircraft Basic Price, as calculated pursuant to the
formulas set forth in Exhibit D (Price Adjustments Due to Economic
Fluctuations - Airframe and Engine - Block C Aircraft) plus
3.3.1.3 other price adjustments made
pursuant to this Agreement or other written agreements executed by
Boeing and Buyer.
3.4 Advance Payment Base Price.
3.4.1 Advance Payment Base Price. For advance
payment purposes, the following estimated delivery prices of the
Aircraft have been established, using currently available forecasts
of the escalation factors used by Boeing as of the date of signing
this Agreement. The Advance Payment Base Price of each Aircraft is
set forth below:
Month and Year of Advance Payment Base
Scheduled Delivery Price per Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
3.4.2 Adjustment of Advance Payment Base Prices - Long-Lead
Aircraft. For Aircraft scheduled for delivery 36 months or more
after the date of this Agreement, the Advance Payment Base Prices
appearing in Article 3.4.1 will be used to determine the amount of
the first advance payment to be made by Buyer on the Aircraft. No
later than 25 months before the scheduled month of delivery of the
first Aircraft scheduled for delivery in a calendar year (First
Aircraft), Boeing will increase or decrease the Advance Payment
Base Price of the First Aircraft and all Aircraft scheduled for
delivery after the First Aircraft as required to reflect the
effects of (i) any adjustments in the Aircraft Price pursuant to
this Agreement and (ii) the then-current forecasted escalation
factors used by Boeing. Boeing will provide the adjusted Advance
Payment Base Prices for each affected Aircraft to Buyer, and the
advance payment schedule will be considered amended to substitute
such adjusted Advance Payment Base Prices.
Continental Airlines, Inc.
Delivery Schedule for Model 757-224 Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
September 29, 1998
1783-10R4
Continental Airlines, Inc.
2929 Allen Parkway
Houston, Texas 77019
Subject: Letter Agreement No. 1783-10R4 to
Purchase Agreement No. 1783 - Option Aircraft
Ladies and Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1783 dated
March 18, 1993 (the Purchase Agreement) between THE BOEING COMPANY
(Boeing) and CONTINENTAL AIRLINES, INC. (Buyer) relating to Model
757-224 aircraft (Aircraft). This Letter Agreement supersedes and
replaces in its entirety Letter Agreement 1783-10R3.
All terms used and not defined herein shall have the same meaning
as in the Purchase Agreement.
In consideration of Buyer's purchase of the Aircraft, Boeing hereby
agrees to manufacture and sell up to [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] additional Model
757-224 Aircraft (the Option Aircraft) to Buyer, on the same terms
and conditions set forth in the Purchase Agreement, except as
otherwise described in Attachment A hereto, and subject to the
terms and conditions set forth below.
1. Delivery.
The Option Aircraft will be delivered to Buyer during or
before the months set forth in the following schedule:
Month and Year Number of
of Delivery Option Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT]
3. Option Aircraft Deposit.
In consideration of Boeing's grant to Buyer of options to
purchase the Option Aircraft as set forth herein, and concurrent
with Buyer's payment to Boeing of initial advance payments required
under Supplemental Agreement No. 6 to the Purchase Agreement for
the Aircraft, Buyer will pay a deposit to Boeing of [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] for each Option Aircraft (the Option Deposit). In the
event Buyer exercises an option herein for an Option Aircraft, the
amount of the Option Deposit for such Option Aircraft will be
credited against the first advance payment due for such Option
Aircraft pursuant to the advance payment schedule set forth in
Article 5 of the Purchase Agreement.
In the event that Buyer does not exercise its option to purchase a
particular Option Aircraft pursuant to the terms and conditions set
forth herein, Boeing shall be entitled to retain the Option Deposit
for such Option Aircraft.
4. Option Exercise.
To exercise its option to purchase the Option Aircraft,
Buyer shall give written notice thereof to Boeing on or before the
first business day of the month in each Option Exercise Date shown
below:
Option Aircraft Option Exercise Date
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Contract Terms.
Within thirty (30) days after Buyer exercises an option to
purchase Option Aircraft pursuant to paragraph 4 above, Boeing and
Buyer will use their best reasonable efforts to enter into a
supplemental agreement amending the Purchase Agreement to add the
applicable Option Aircraft to the Purchase Agreement as a firm
Aircraft (the Option Aircraft Supplemental Agreement).
In the event the parties have not entered into such an Option
Aircraft Supplemental Agreement within the time period contemplated
herein, either party shall have the right, exercisable by written
or telegraphic notice given to the other within ten (10) days after
such period, to cancel the purchase of such Option Aircraft.
6. Cancellation of Option to Purchase.
Either Boeing or Buyer may cancel the option to purchase an
Option Aircraft if any of the following events are not accomplished
by the respective dates contemplated in this letter agreement, or
in the Purchase Agreement, as the case may be:
(i) purchase of an Aircraft under the Purchase Agreement
for any reason not attributable to the canceling party;
(ii) payment by Buyer of the Option Deposit with respect
to such Option Aircraft pursuant to paragraph 3 herein; or
(iii) exercise of the option to purchase such Option
Aircraft pursuant to the terms hereof.
Any cancellation of an option to purchase by Boeing which is based
on the termination of the purchase of an Aircraft under the
Purchase Agreement shall be on a one-for-one basis, for each
Aircraft so terminated.
Cancellation of an option to purchase provided by this letter
agreement shall be caused by either party giving written notice to
the other within ten (10) days after the respective date in
question. Upon receipt of such notice, all rights and obligations
of the parties with respect to an Option Aircraft for which the
option to purchase has been canceled shall thereupon terminate.
Boeing shall promptly refund to Buyer, without interest, any
payments received from Buyer with respect to the affected Option
Aircraft. Boeing shall be entitled to retain the Option Deposit
unless cancellation is attributable to Boeing's fault, in which
case the Option Deposit shall also be returned to Buyer without
interest.
7. Applicability.
Except as otherwise specifically provided, limited or
excluded herein, all Option Aircraft that are added to the Purchase
Agreement by an Option Aircraft Supplemental Agreement as firm
Aircraft shall benefit from all the applicable terms, conditions
and provisions of the Purchase Agreement.
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By /s/ John A. McGarvey
Its Attorney-in-Fact
ACCEPTED AND AGREED TO this
Date: September 29, 1998
CONTINENTAL AIRLINES, INC.,
By /s/ Brian Davis
Its Vice President
Attachment
Model 757-224 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft are
described by Boeing Detail Specification D924N104-3, dated March
18, 1993, as amended and revised pursuant to the Purchase
Agreement.
1.2 Changes. The Option Aircraft Detail Specification
shall be revised to include:
(1) Changes applicable to the basic
Model 757-200 aircraft which are developed by Boeing between the
date of the Detail Specification and the signing of an Option
Aircraft Supplemental Agreement.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a
Standard Certificate of Airworthiness.
1.3 Effect of Changes. Changes to the Detail
Specification pursuant to the provisions of the clauses above shall
include the effects of such changes upon Option Aircraft weight,
balance, design and performance.
2. Price Description.
2.1 Price Adjustments.
2.1.1 Base Price Adjustments. The base airframe
and base engine price (pursuant to Article 3 of the Purchase
Agreement) of the Option Aircraft will be adjusted to Boeing's and
the engine manufacturer's then-current prices as of the date of
execution of the Option Aircraft Supplemental Agreement.
2.1.2 Special Features. The price for special
features incorporated in the Option Aircraft Detail Specification
will be adjusted to Boeing's then-current prices for such features
as of the date of execution of the Option Aircraft Supplemental
Agreement [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2.1.3 Escalation Adjustments. The base airframe
and special features price will be escalated according to the
applicable airframe and engine manufacturer escalation provisions
contained in Exhibit D of the Purchase Agreement.
Buyer agrees that the engine escalation provisions will be adjusted
if they are changed by the engine manufacturer prior to the signing
the Option Aircraft Supplemental Agreement. In such case, the
then-current engine escalation provisions in effect at the time of
execution of the Option Aircraft Supplemental Agreement will be
incorporated into such agreement.
2.1.4 Price Adjustments for Changes. Boeing may
adjust the basic price and the advance payment base prices for any
changes mutually agreed upon by Buyer and Boeing subsequent to the
date that Buyer and Boeing enter into the Option Aircraft
Supplemental Agreement.
2.1.5 BFE to SPE. An estimate of the total price
for items of Buyer Furnished Equipment (BFE) changed to Seller
Purchased Equipment (SPE) pursuant to the Detail Specification is
included in the Option Aircraft price build-up. The purchase price
of the Option Aircraft will be adjusted by the price charged to
Boeing for such items plus 10% of such price.
2.1.6 Certification of Rolls-Royce Engines. It is
understood by the parties that the price offered hereunder of the
Rolls-Royce Engines may be adjusted by Rolls-Royce to reflect
changes required to be incorporated to satisfy any new or amended
United States Federal Aviation Administration (FAA) regulations.
Therefore, in the event that after May 31, 1990, the FAA or other
applicable U.S. Federal Agency issues new rules or regulations or
changes or amends then-existing rules or regulations, and such new,
changed or amended rules or regulations require changes to or
modification of the Engines (Engine Modifications), then: (i)
Boeing shall adjust the purchase price of the Option Aircraft in
the amount by which Rolls-Royce revises its price of the Engines to
Boeing as a result of such Engine Modifications; (ii) if the
Engine Modifications require any change, modification or alteration
to the Option Aircraft (Option Aircraft Modifications), the charge
for making the Option Aircraft Modifications shall be added to the
purchase price of the Option Aircraft; (iii) notwithstanding the
provisions of paragraph 1 of this Letter Agreement, the time of
delivery of the Option Aircraft shall be extended to the extent of
any delay attributable to the Engine or Option Aircraft
Modifications and said delay shall be deemed excusable; and (iv)
Boeing shall, if necessary, revise the Option Aircraft Detail
Specification as required to reflect the effects of the Engine
Modifications or Option Aircraft Modifications.
3. Advance Payments.
3.1 Buyer shall pay to Boeing advance payments for the
Option Aircraft pursuant to the schedule for payment of advance
payments provided in the Purchase Agreement.
EXHIBIT 10.23(j)
Supplemental Agreement No. 13
to
Purchase Agreement No. 1783
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 757-224 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of
November 16,1998 by and between THE BOEING COMPANY, a Delaware
corporation with its principal office in Seattle, Washington,
(Boeing) and CONTINENTAL AIRLINES, INC., a Delaware corporation
with its principal office in Houston, Texas (Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 1783 dated March 18, 1993, as amended and supplemented,
relating to Boeing Model 757-224 aircraft (the Agreement); and
WHEREAS, Buyer wishes to remove the remaining [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
WHEREAS, Buyer wishes to remove the remaining [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
WHEREAS, Buyer wishes to [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
WHEREAS, Boeing and Buyer have agreed to amend the Agreement
to incorporate certain other changes as set forth herein;
NOW THEREFORE, in consideration of the mutual covenants
herein contained, the parties agree to amend the Agreement as
follows:
1. Table of Contents and Articles:
1.1 Remove and replace, in its entirety, the Table of
Contents with a new Table of Contents (attached hereto) to reflect
amendment of the Agreement as of the date of this Supplemental
Agreement.
2. Letter Agreements:
2.1 Remove in its entirety, Letter Agreement 1783-10R4,
Option Aircraft, to reflect the removal of [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
The Agreement will be deemed to be supplemented to the extent
herein provided and as so supplemented will continue in full force
and effect.
EXECUTED IN DUPLICATE as of the day and year first above written.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ J. A. McGarvey By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
TABLE OF CONTENTS
ARTICLES Page Revised
By
ARTICLE 1. Subject Matter of Sale.............. 1-1 SA#12
ARTICLE 2. Delivery, Title and Risk of Loss.... 2-1 SA#12
ARTICLE 3. Price of Aircraft................... 3-1 SA#12
ARTICLE 4. Taxes............................... 4-1
ARTICLE 5. Payment............................. 5-1
ARTICLE 6. Excusable Delay..................... 6-1
ARTICLE 7. Changes to the Detail Specification. 7-1 SA#4
ARTICLE 8. Federal Aviation Requirements and
Certificates ....................... 8-1
ARTICLE 9. Representatives, Inspection,
Flights and Test Data............... 9-1
ARTICLE 10. Assignment, Resale or Lease......... 10-1
ARTICLE 11. Termination for Certain Events...... 11-1
ARTICLE 12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance....................... 12-1
ARTICLE 13. Buyer Furnished Equipment and
Spare Parts......................... 13-1 SA#2
ARTICLE 14. Contractual Notices and Requests.... 14-1
ARTICLE 15. Miscellaneous....................... 15-1
Schedule for Delivery of Model 757-224 Aircraft SA#12
TABLE OF CONTENTS (Continued)
EXHIBITS
EXHIBIT A Aircraft Configuration ............. A-1 SA#8
EXHIBIT B Product Assurance Document ......... B-1 SA#2
EXHIBIT C Customer Support Document .......... C-1 SA#2
EXHIBIT D Price Adjustments Due to Economic
Fluctuations - Airframe and Engines D-1 SA#11
EXHIBIT E Buyer Furnished Equipment Provisions
Document ........................... E-1 SA#4
EXHIBIT F Defined Terms Document ........... F-1 SA#2
LETTER AGREEMENTS
1783-1 Spare Parts Support SA#2
1783-2 Seller Purchased Equipment SA#2
1783-4 Waiver of Aircraft Demonstration SA#2
Flights
1783-5 Promotional Support SA#2
1783-6 Configuration Matters SA#2
1783-7 Price Adjustment on Rolls-Royce Engines SA#2
1783-8 Spare Parts Provisioning SA#2
1783-9R1 Escalation Sharing SA#10
6-1162-WLJ-359 Aircraft Performance Guarantees SA#2
6-1162-WLJ-367R5 Disclosure of Confidential Info SA#9
6-1162-WLJ-369 Additional Considerations SA#2
6-1162-WLJ-372 Conditions Relating to
Purchase Agreement
TABLE OF CONTENTS (Continued)
6-1162-WLJ-380 Performance Guarantees, Demonstrated SA#2
Compliance
6-1162-WLJ-384 [CONFIDENTIAL MATERIAL OMITTED AND SA#2
FILED SEPARATE WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-WLJ-391R1 Special Purchase Agreement Provisions SA#4
6-1162-WLJ-393 [CONFIDENTIAL MATERIAL OMITTED AND SA#2
FILED SEPARATE WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-WLJ-405 Certain Additional Contractual SA#2
Matters
6-1162-WLJ-409 Satisfaction of Conditions Relating SA#2
to the Purchase Agreement
6-1162-WLJ-497 [CONFIDENTIAL MATERIAL OMITTED AND SA#3
FILED SEPARATE WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-RGP-946R1 Special Provisions Relating to SA#5
the Rescheduled Aircraft
6-1162-MMF-289R1 [CONFIDENTIAL MATERIAL OMITTED AND SA#10
FILED SEPARATE WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-MMF-319 Special Provisions Relating to SA#7
the Rescheduled Aircraft
6-1162-GOC-132 Special Matters SA#10
TABLE OF CONTENTS (Continued)
SUPPLEMENTAL AGREEMENTS Dated as of:
Supplemental Agreement No. 1 April 29, 1993
Supplemental Agreement No. 2 November 4, 1993
Supplemental Agreement No. 3 November 19, 1993
Supplemental Agreement No. 4 March 31, 1995
Supplemental Agreement No. 5 November 30, 1995
Supplemental Agreement No. 6 June 13, 1996
Supplemental Agreement No. 7 July 23, 1996
Supplemental Agreement No. 8 October 27, 1996
Supplemental Agreement No. 9 August 13, 1997
Supplemental Agreement No.10 October 10, 1997
Supplemental Agreement No. 11 July 30, 1998
Supplemental Agreement No. 12 September 29,1998
Supplemental Agreement No. 13 November 16, 1998
EXHIBIT 10.23(k)
Supplemental Agreement No. 14
to
Purchase Agreement No. 1783
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 757-224 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of December_17,
1998 by and between THE BOEING COMPANY, a Delaware corporation
with its principal office in Seattle, Washington, (Boeing) and
CONTINENTAL AIRLINES, INC., a Delaware corporation with its
principal office in Houston, Texas (Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 1783 dated as of March 18, 1993, as amended and supplemented,
relating to Boeing Model 757-224 aircraft (the Agreement); and
WHEREAS, Buyer has requested and Boeing has agreed to revise
the terms of the business offer applicable to the Aircraft with
respect to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] and
Whereas, Buyer and Boeing have mutually agreed to amend the
Agreement to incorporate the effects of these and certain other
changes;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:
1. Table of Contents and Articles:
Remove and replace, in its entirety, the Table of Contents
with a new Table of Contents (attached hereto) to reflect amendment
of the Agreement as of the date of this Supplemental Agreement No.
14.
2. Letter Agreements:
Remove and replace, in its entirety, Letter Agreement No. 6-
1162-GOC-132, "Special Matters" with new Letter Agreement No. 6-
1162-GOC-132R1, "Special Matters" (attached hereto) to incorporate
the effect of a revised business offer.
The Agreement will be deemed to be supplemented to the extent
herein provided and as so supplemented will continue in full force
and effect.
EXECUTED IN DUPLICATE as of the day and year first above written.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By:_/s/ J. A. McGarvey____ By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
TABLE OF CONTENTS
ARTICLES Page Revised
By
ARTICLE 1. Subject Matter of Sale.............. 1-1 SA#12
ARTICLE 2. Delivery, Title and Risk of Loss.... 2-1 SA#12
ARTICLE 3. Price of Aircraft................... 3-1 SA#12
ARTICLE 4. Taxes............................... 4-1
ARTICLE 5. Payment............................. 5-1
ARTICLE 6. Excusable Delay..................... 6-1
ARTICLE 7. Changes to the Detail Specification. 7-1 SA#4
ARTICLE 8. Federal Aviation Requirements and
Certificates ....................... 8-1
ARTICLE 9. Representatives, Inspection,
Flights and Test Data............... 9-1
ARTICLE 10. Assignment, Resale or Lease......... 10-1
ARTICLE 11. Termination for Certain Events...... 11-1
ARTICLE 12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance....................... 12-1
ARTICLE 13. Buyer Furnished Equipment and
Spare Parts......................... 13-1 SA#2
ARTICLE 14. Contractual Notices and Requests.... 14-1
ARTICLE 15. Miscellaneous....................... 15-1
Schedule for Delivery of Model 757-224 Aircraft SA#12
TABLE OF CONTENTS (Continued)
EXHIBITS
EXHIBIT A Aircraft Configuration ............. A-1 SA#8
EXHIBIT B Product Assurance Document ......... B-1 SA#2
EXHIBIT C Customer Support Document .......... C-1 SA#2
EXHIBIT D Price Adjustments Due to Economic
Fluctuations - Airframe and
Engines D-1 SA#11
EXHIBIT E Buyer Furnished Equipment Provisions
Document ........................... E-1 SA#4
EXHIBIT F Defined Terms Document ........... F-1 SA#2
LETTER AGREEMENTS
1783-1 Spare Parts Support SA#2
1783-2 Seller Purchased Equipment SA#2
1783-4 Waiver of Aircraft Demonstration SA#2
Flights
1783-5 Promotional Support SA#2
1783-6 Configuration Matters SA#2
1783-7 Price Adjustment on Rolls-Royce
Engines SA#2
1783-8 Spare Parts Provisioning SA#2
1783-9R1 Escalation Sharing SA#10
6-1162-WLJ-359 Aircraft Performance Guarantees SA#2
6-1162-WLJ-367R5 Disclosure of Confidential Info SA#9
6-1162-WLJ-369 Additional Considerations SA#2
6-1162-WLJ-372 Conditions Relating to SA#2
Purchase Agreement
TABLE OF CONTENTS (Continued)
6-1162-WLJ-380 Performance Guarantees, Demonstrated SA#2
Compliance
6-1162-WLJ-384 [CONFIDENTIAL MATERIAL OMITTED AND SA#2
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-WLJ-391R1 Special Purchase Agreement Provisions SA#4
6-1162-WLJ-393 [CONFIDENTIAL MATERIAL OMITTED AND SA#2
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-WLJ-405 Certain Additional Contractual SA#2
Matters
6-1162-WLJ-409 Satisfaction of Conditions Relating SA#2
to the Purchase Agreement
6-1162-WLJ-497 [CONFIDENTIAL MATERIAL OMITTED AND SA#3
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-RGP-946R1 Special Provisions Relating to SA#5
the Rescheduled Aircraft
6-1162-MMF-289R1 [CONFIDENTIAL MATERIAL OMITTED AND SA#10
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-MMF-319 Special Provisions Relating to SA#7
the Rescheduled Aircraft
6-1162-GOC-132R1 Special Matters SA#14
TABLE OF CONTENTS (Continued)
SUPPLEMENTAL AGREEMENTS Dated as of:
Supplemental Agreement No. 1 April 29, 1993
Supplemental Agreement No. 2 November 4, 1993
Supplemental Agreement No. 3 November 19, 1993
Supplemental Agreement No. 4 March 31, 1995
Supplemental Agreement No. 5 November 30, 1995
Supplemental Agreement No. 6 June 13, 1996
Supplemental Agreement No. 7 July 23, 1996
Supplemental Agreement No. 8 October 27, 1996
Supplemental Agreement No. 9 August 13, 1997
Supplemental Agreement No.10 October 10, 1997
Supplemental Agreement No. 11 July 30, 1998
Supplemental Agreement No. 12 September 29,1998
Supplemental Agreement No. 13 November 16, 1998
Supplemental Agreement No. 14 December 17,1998
December 17, 1998
6-1162-GOC-132R1
CONTINENTAL AIRLINES, INC.
1600 Smith
Houston, Texas 77002
Subject: Letter Agreement No. 6-1162-GOC-132R1 to
Purchase Agreement No. 1783 - Special Matters
Ladies and Gentlemen:
This Letter Agreement amends and supplements Purchase Agreement No.
1783 dated as of March 18, 1993 (the Purchase Agreement) between
The Boeing Company (Boeing) and Continental Airlines, Inc. (Buyer)
relating to Model 757-224 aircraft (the Aircraft). This Letter
Agreement supersedes and replaces in its entirety Letter Agreement
6-1162-GOC-132, dated October 10, 1997.
All terms used herein and in the Purchase Agreement, and not
defined herein, will have the same meaning as in the Purchase
Agreement.
1. Credit Memoranda.
In consideration of Buyer's purchase of Model 757-224
Aircraft, Boeing shall issue at the time of delivery of each
Aircraft and Option Aircraft, a credit memorandum in an amount
equal to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] The 757-224 Credit Memorandum Amount is
subject to the same airframe escalation as is used to calculate the
Aircraft price at the time of delivery.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
3. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
4. Option Aircraft.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Increased Gross Weight.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
6. Assignment of Credits.
Buyer may not assign the credit memoranda described in this
Letter Agreement without Boeing's prior written consent
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
7. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
8. Confidential Treatment.
Boeing and Buyer understand that certain information
contained in this Letter Agreement, including any attachments
hereto, are considered by both parties to be confidential.
Notwithstanding the provisions of Letter Agreement 6-1162-WLJ-
367R4, Boeing and Buyer agree that each party will treat this
Letter Agreement and the information contained herein as
confidential and will not, without the other party's prior written
consent, disclose this Letter Agreement or any information
contained herein to any other person or entity except as may be
required by applicable law or governmental regulations.
Very truly yours,
THE BOEING COMPANY
By /s/ J. A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: December 17, 1998
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
EXHIBIT 10.24(g)
Supplemental Agreement No. 7
to
Purchase Agreement No. 1951
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 737 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of November 12,
1998, by and between THE BOEING COMPANY, a Delaware corporation
with its principal office in Seattle, Washington, (Boeing) and
CONTINENTAL AIRLINES, INC., a Delaware corporation with its
principal office in Houston, Texas (Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 1951 dated July 23, 1996 (the Agreement), as amended and
supplemented, relating to Boeing Model 737-500, 737-600, 737-700,
737-800, and 737-900 aircraft (the Aircraft); and
WHEREAS, Buyer has requested to exercise [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]; and
WHEREAS, Buyer has requested to exercise [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]; and
WHEREAS, Boeing and Buyer have mutually agreed to amend the
Purchase Agreement to incorporate the effect of these and certain
other changes;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Purchase Agreement as
follows:
1. Table of Contents and Articles:
1.1 Remove and replace, in its entirety, the "Table of
Contents", with the Table of Contents attached hereto, to reflect
the changes made by this Supplemental Agreement No. 7.
1.2 Remove and replace, in its entirely, Table T-2
entitled "Aircraft Deliveries and Descriptions, Model 737-700
Aircraft" with new Table T-2 attached hereto for the Model 737-700
Aircraft reflecting the addition of [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
1.3 Remove and replace, in its entirely, Table T-3
entitled "Aircraft Deliveries and Descriptions, Model 737-800
Aircraft" with new Table T-3 attached hereto for the Model 737-800
Aircraft reflecting the addition of [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
2. Letter Agreements:
2.1 Remove and replace, in its entirety, Letter Agreement
1951-3R3, "Option Aircraft - Model 737-824 Aircraft" with Letter
Agreement 1951-3R4, "Option Aircraft - Model 737-824 Aircraft",
attached hereto, to reflect the deletion of the [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] and a clarification of the wording of Paragraph 3,
"Option Aircraft Deposit".
2.2 Remove and replace, in its entirety, Letter Agreement
1951-9R2, "Option Aircraft - Model 737-724 Aircraft" with Letter
Agreement 1951-9R3, "Option Aircraft - Model 737-724 Aircraft",
attached hereto, to reflect the deletion of the [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT], and a clarification of the wording of Paragraph 3,
"Option Aircraft Deposit".
The Purchase Agreement will be deemed to be supplemented to the
extent herein provided as of the date hereof and as so supplemented
will continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first written above.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ D. M. Hurt By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
TABLE OF CONTENTS
Page SA
Number Number
ARTICLES
1. Subject Matter of Sale. . . . . . . . . 1-1 SA 5
2. Delivery, Title and Risk
of Loss . . . . . . . . . . . . . . . . 2-1
3. Price of Aircraft . . . . . . . . . . . 3-1 SA 5
4. Taxes . . . . . . . . . . . . . . . . . 4-1
5. Payment . . . . . . . . . . . . . . . . 5-1
6. Excusable Delay . . . . . . . . . . . . 6-1
7. Changes to the Detail
Specification . . . . . . . . . . . . . 7-1 SA 5
8. Federal Aviation Requirements and
Certificates and Export License . . . . 8-1 SA 5
9. Representatives, Inspection,
Flights and Test Data . . . . . . . . . 9-1
10. Assignment, Resale or Lease . . . . . .10-1
11. Termination for Certain Events. . . . .11-1
12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance . . . . . . . . . . . . .12-1
13. Buyer Furnished Equipment and
Spare Parts . . . . . . . . . . . . . .13-1
14. Contractual Notices and Requests. . . .14-1
15. Miscellaneous . . . . . . . . . . . . .15-1
TABLE OF CONTENTS
Page SA
Number Number
TABLES
1. Aircraft Deliveries and
Descriptions - 737-500. . . . . . . . . T-1 SA 3
Aircraft Deliveries and
Descriptions - 737-700. . . . . . . . . T-2 SA 7
Aircraft Deliveries and
Descriptions - 737-800. . . . . . . . . T-3 SA 7
Aircraft Deliveries and
Descriptions - 737-600. . . . . . . . . T-4 SA 4
Aircraft Deliveries and
Descriptions - 737-900. . . . . . . . . T-5 SA 5
EXHIBITS
A-1 Aircraft Configuration - Model 737-724 SA 2
A-2 Aircraft Configuration - Model 737-824 SA 2
A-3 Aircraft Configuration - Model 737-624 SA 1
A-4 Aircraft Configuration - Model 737-524 SA 3
A-5 Aircraft Configuration - Model 737-924 SA 5
B Product Assurance Document . . . . . . SA 1
C Customer Support Document - Code Two -
Major Model Differences. . . . . . . . SA 1
C1 Customer Support Document - Code Three -
Minor Model Differences. . . . . . . . SA 1
D Aircraft Price Adjustments - New
Generation Aircraft (1995 Base Price). SA 1
D1 Airframe and Engine Price Adjustments - Current
Generation Aircraft. . . . . . . . . . SA 1
D2 Aircraft Price Adjustments - New
Generation Aircraft (1997 Base Price). SA 5
E Buyer Furnished Equipment
Provisions Document. . . . . . . . . . SA 5
F Defined Terms Document . . . . . . . . SA 5
TABLE OF CONTENTS
SA
Number
LETTER AGREEMENTS
1951-1 Not Used . . . . . . . . . . . . . . .
1951-2R3 Seller Purchased Equipment . . . . . . SA 5
1951-3R4 Option Aircraft-Model 737-824 Aircraft SA 7
1951-4R1 Waiver of Aircraft Demonstration . . . SA 1
1951-5R2 Promotional Support - New Generation . SA 5
Aircraft
1951-6 Configuration Matters. . . . . . . . .
1951-7R1 Spares Initial Provisioning. . . . . . SA 1
1951-8R2 Escalation Sharing - New Generation
Aircraft . . . . . . . . . . . . . . . SA 4
1951-9R3 Option Aircraft-Model 737-724 Aircraft SA 7
1951-11R1 Escalation Sharing-Current Generation
Aircraft . . . . . . . . . . . . . . . SA 4
1951-12 Option Aircraft - Model 737-924 Aircraft SA 5
1951-13 Configuration Matters - Model 737-924. SA 5
TABLE OF CONTENTS
SA
Number
RESTRICTED LETTER AGREEMENTS
6-1162-MMF-295 Performance Guarantees - Model
737-724 Aircraft . . . . . . . .
6-1162-MMF-296 Performance Guarantees - Model
737-824 Aircraft . . . . . . . .
6-1162-MMF-308R3 Disclosure of Confidential . . . SA 5
Information
6-1162-MMF-309R1 [CONFIDENTIAL MATERIAL OMITTED. . SA 1
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
6-1162-MMF-311R3 [CONFIDENTIAL MATERIAL OMITTED. . SA 5
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
6-1162-MMF-312R1 Special Purchase Agreement
Provisions . . . . . . . . . . . SA 1
6-1162-MMF-319 Special Provisions Relating to
the Rescheduled Aircraft . . . .
6-1162-MMF-378R1 Performance Guarantees - Model
737-524 Aircraft . . . . . . . . SA 3
6-1162-GOC-015 [CONFIDENTIAL MATERIAL OMITTED. . SA 2
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
6-1162-GOC-131R2 Special Matters . . . . . . . . . SA 5
6-1162-DMH-365 Performance Guarantees - Model
737-924 Aircraft. . . . . . . . . SA 5
TABLE OF CONTENTS
SUPPLEMENTAL AGREEMENTS DATED AS OF:
Supplemental Agreement No. 1 . . . . . . . . October 10,1996
Supplemental Agreement No. 2 . . . . . . . . March 5, 1997
Supplemental Agreement No. 3 . . . . . . . . July 17, 1997
Supplemental Agreement No. 4 . . . . . . . . October 10,1997
Supplemental Agreement No. 5 . . . . . . . . May 21,1998
Supplemental Agreement No. 6 . . . . . . . . July 30,1998
Supplemental Agreement No. 7 . . . . . . . . November 12,1998
1951-3R4
November 12, 1998
Continental Airlines, Inc.
2929 Allen Parkway
Houston, Texas 77019
Subject: Letter Agreement No. 1951-3R4 to
Purchase Agreement No. 1951 -
Option Aircraft - Model 737-824 Aircraft
Ladies and Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1951 dated
July 23, 1996(the Agreement) between The Boeing Company (Boeing)
and Continental Airlines, Inc. (Buyer) relating to Model 737-824
aircraft (the Aircraft). This Letter Agreement supersedes and
replaces in its entirety Letter Agreement 1951-3R3 dated July 30,
1998.
All terms used and not defined herein shall have the same meaning
as in the Agreement.
In consideration of Buyer's purchase of the Aircraft, Boeing
hereby agrees to manufacture and sell up to [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] additional Model 737-824 Aircraft (the Option
Aircraft) to Buyer, on the same terms and conditions set forth in
the Agreement, except as otherwise described in Attachment A
hereto, and subject to the terms and conditions set forth below.
1. Delivery.
The Option Aircraft will be delivered to Buyer during or
before the months set forth in the following schedule:
Month and Year Number of
of Delivery Option Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT]
3. Option Aircraft Deposit.
In consideration of Boeing's grant to Buyer of options to
purchase the Option Aircraft as set forth herein, Buyer will pay
a deposit to Boeing of $200,000 for each Option Aircraft (the
Option Deposit) on the date of this Letter Agreement. In the
event Buyer exercises an option herein for an Option Aircraft,
the amount of the Option Deposit for such Option Aircraft will be
credited against the first advance payment due for such Option
Aircraft pursuant to the advance payment schedule set forth in
Article 5 of the Agreement.
In the event that Buyer does not exercise its option to purchase
a particular Option Aircraft pursuant to the terms and conditions
set forth herein, Boeing shall be entitled to retain the Option
Deposit for such Option Aircraft.
4. Option Exercise.
To exercise its option to purchase the Option Aircraft,
Buyer shall give written notice thereof to Boeing on or before
the first business day of the month in each Option Exercise Date
shown below:
Option Aircraft Option Exercise Date
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Contract Terms.
Within thirty (30) days after Buyer exercises an option to
purchase Option Aircraft pursuant to paragraph 4 above, Boeing
and Buyer will use their best reasonable efforts to enter into a
supplemental agreement amending the Agreement to add the
applicable Option Aircraft to the Agreement as a firm Aircraft
(the Option Aircraft Supplemental Agreement).
In the event the parties have not entered into such an Option
Aircraft Supplemental Agreement within the time period
contemplated herein, either party shall have the right,
exercisable by written or telegraphic notice given to the other
within ten (10) days after such period, to cancel the purchase of
such Option Aircraft.
6. Cancellation of Option to Purchase.
Either Boeing or Buyer may cancel the option to purchase
an Option Aircraft if any of the following events are not
accomplished by the respective dates contemplated in this Letter
Agreement, or in the Agreement, as the case may be:
(i) purchase of the Aircraft under the Agreement for
any reason not attributable to the cancelling party;
(ii) payment by Buyer of the Option Deposit with
respect to such Option Aircraft pursuant to paragraph 3 herein;
or
(iii) exercise of the option to purchase such Option
Aircraft pursuant to the terms hereof.
Any cancellation of an option to purchase by Boeing which is
based on the termination of the purchase of an Aircraft under the
Agreement shall be on a one-for-one basis, for each Aircraft so
terminated.
Cancellation of an option to purchase provided by this letter
agreement shall be caused by either party giving written notice
to the other within ten (10) days after the respective date in
question. Upon receipt of such notice, all rights and
obligations of the parties with respect to an Option Aircraft for
which the option to purchase has been cancelled shall thereupon
terminate.
Boeing shall promptly refund to Buyer, without interest, any
payments received from Buyer with respect to the affected Option
Aircraft. Boeing shall be entitled to retain the Option Deposit
unless cancellation is attributable to Boeing's fault, in which
case the Option Deposit shall also be returned to Buyer without
interest.
7. Applicability.
Except as otherwise specifically provided, limited or
excluded herein, all Option Aircraft that are added to the
Agreement by an Option Aircraft Supplemental Agreement as firm
Aircraft shall benefit from all the applicable terms, conditions
and provisions of the Agreement.
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By /s/ D. M. Hurt
Its Attorney-in-Fact
ACCEPTED AND AGREED TO this
Date: November 12, 1998
CONTINENTAL AIRLINES, INC.,
By /s/ Brian Davis
Its Vice President
Attachment
Model 737-824 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft are
described by Boeing Detail Specification D6-38808, Revision E,
dated September 15, 1995, as amended and revised pursuant to the
Agreement.
1.2 Changes. The Option Aircraft Detail Specification
shall be revised to include:
(1) Changes applicable to the basic Model 737-
800 aircraft which are developed by Boeing between the date of
the Detail Specification and the signing of an Option Aircraft
Supplemental Agreement.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard
Certificate of Airworthiness.
1.3 Effect of Changes. Changes to the Detail
Specification pursuant to the provisions of the clauses above
shall include the effects of such changes upon Option Aircraft
weight, balance, design and performance.
2. Price Description.
2.1 Price Adjustments.
2.1.1 Base Price Adjustments. The base aircraft
price (pursuant to Article 3 of the Agreement) of the Option
Aircraft will be adjusted to Boeing's and the engine
manufacturer's then-current prices as of the date of execution of
the Option Aircraft Supplemental Agreement.
2.1.2 Special Features. The price for special
features incorporated in the Option Aircraft Detail Specification
will be adjusted to Boeing's then-current prices for such
features as of the date of execution of the Option Aircraft
Supplemental Agreement [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT]
2.1.3 Escalation Adjustments. The base airframe
and special features price will be escalated according to the
applicable airframe and engine manufacturer escalation provisions
contained in Exhibit D of the Agreement.
Buyer agrees that the engine escalation provisions will be
adjusted if they are changed by the engine manufacturer prior to
signing the Option Aircraft Supplemental Agreement. In such
case, the then-current engine escalation provisions in effect at
the time of execution of the Option Aircraft Supplemental
Agreement will be incorporated into such agreement.
2.1.4 Price Adjustments for Changes. Boeing may
adjust the basic price and the advance payment base prices for
any changes mutually agreed upon by Buyer and Boeing subsequent
to the date that Buyer and Boeing enter into the Option Aircraft
Supplemental Agreement.
2.1.5 BFE to SPE. An estimate of the total price
for items of Buyer Furnished Equipment (BFE) changed to Seller
Purchased Equipment (SPE) pursuant to the Detail Specification is
included in the Option Aircraft price build-up. The purchase
price of the Option Aircraft will be adjusted by the price
charged to Boeing for such items plus 10% of such price.
3. Advance Payments.
3.1 Buyer shall pay to Boeing advance payments for the
Option Aircraft pursuant to the schedule for payment of advance
payments provided in the Purchase Agreement.
1951-9R3
November 12, 1998
Continental Airlines, Inc.
2929 Allen Parkway
Houston, Texas 77019
Subject: Letter Agreement No. 1951-9R3 to
Purchase Agreement No. 1951 -
Option Aircraft - Model 737-724 Aircraft
Ladies and Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1951 dated
July 23, 1996(the Agreement) between The Boeing Company (Boeing)
and Continental Airlines, Inc. (Buyer) relating to Model 737-724
aircraft (the Aircraft). This Letter Agreement supersedes and
replaces in its entirety Letter Agreement 1951-9R2 dated July 30,
1998.
All terms used and not defined herein shall have the same meaning
as in the Agreement.
In consideration of Buyer's purchase of the Aircraft, Boeing
hereby agrees to manufacture and sell up to - [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] additional Model 737-724 Aircraft (the Option
Aircraft) to Buyer, on the same terms and conditions set forth in
the Agreement, except as otherwise described in Attachment A
hereto, and subject to the terms and conditions set forth below.
1. Delivery.
The Option Aircraft will be delivered to Buyer during or
before the months set forth in the following schedule:
Month and Year Number of
of Delivery Option Aircraft
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT]
3. Option Aircraft Deposit.
In consideration of Boeing's grant to Buyer of options to
purchase the Option Aircraft as set forth herein, Buyer will pay
a deposit to Boeing of $200,000 for each Option Aircraft (the
Option Deposit) on the date of this Letter Agreement. In the
event Buyer exercises an option herein for an Option Aircraft,
the amount of the Option Deposit for such Option Aircraft will be
credited against the first advance payment due for such Option
Aircraft pursuant to the advance payment schedule set forth in
Article 5 of the Agreement.
In the event that Buyer does not exercise its option to purchase
a particular Option Aircraft pursuant to the terms and conditions
set forth herein, Boeing shall be entitled to retain the Option
Deposit for such Option Aircraft.
4. Option Exercise.
To exercise its option to purchase the Option Aircraft,
Buyer shall give written notice thereof to Boeing on or before
the first business day of the month in each Option Exercise Date
shown below:
Option Aircraft Option Exercise Date
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Contract Terms.
Within thirty (30) days after Buyer exercises an option to
purchase Option Aircraft pursuant to paragraph 4 above, Boeing
and Buyer will use their best reasonable efforts to enter into a
supplemental agreement amending the Agreement to add the
applicable Option Aircraft to the Agreement as a firm Aircraft
(the Option Aircraft Supplemental Agreement).
In the event the parties have not entered into such an Option
Aircraft Supplemental Agreement within the time period
contemplated herein, either party shall have the right,
exercisable by written or telegraphic notice given to the other
within ten (10) days after such period, to cancel the purchase of
such Option Aircraft.
6. Cancellation of Option to Purchase.
Either Boeing or Buyer may cancel the option to purchase
an Option Aircraft if any of the following events are not
accomplished by the respective dates contemplated in this Letter
Agreement, or in the Agreement, as the case may be:
(i) purchase of the Aircraft under the Agreement for
any reason not attributable to the cancelling party;
(ii) payment by Buyer of the Option Deposit with respect
to such Option Aircraft pursuant to paragraph 3 herein; or
(iii) exercise of the option to purchase such Option
Aircraft pursuant to the terms hereof.
Any cancellation of an option to purchase by Boeing which is
based on the termination of the purchase of an Aircraft under the
Agreement shall be on a one-for-one basis, for each Aircraft so
terminated.
Cancellation of an option to purchase provided by this letter
agreement shall be caused by either party giving written notice
to the other within ten (10) days after the respective date in
question. Upon receipt of such notice, all rights and
obligations of the parties with respect to an Option Aircraft for
which the option to purchase has been cancelled shall thereupon
terminate.
Boeing shall promptly refund to Buyer, without interest, any
payments received from Buyer with respect to the affected Option
Aircraft. Boeing shall be entitled to retain the Option Deposit
unless cancellation is attributable to Boeing's fault, in which
case the Option Deposit shall also be returned to Buyer without
interest.
7. Applicability.
Except as otherwise specifically provided, limited or
excluded herein, all Option Aircraft that are added to the
Agreement by an Option Aircraft Supplemental Agreement as firm
Aircraft shall benefit from all the applicable terms, conditions
and provisions of the Agreement.
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By /s/ D. M. Hurt
Its Attorney-in-Fact
ACCEPTED AND AGREED TO this
Date: November 12, 1998
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
Attachment
Model 737-724 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft are
described by Boeing Detail Specification D6-38808-42, dated as of
January 6, 1997, as amended and revised pursuant to the
Agreement.
1.2 Changes. The Option Aircraft Detail Specification
shall be revised to include:
(1) Changes applicable to the basic Model 737-
700 aircraft which are developed by Boeing between the date of
the Detail Specification and the signing of an Option Aircraft
Supplemental Agreement.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard
Certificate of Airworthiness.
1.3 Effect of Changes. Changes to the Detail
Specification pursuant to the provisions of the clauses above
shall include the effects of such changes upon Option Aircraft
weight, balance, design and performance.
2. Price Description.
2.1 Price Adjustments.
2.1.1 Base Price Adjustments. The base aircraft
price (pursuant to Article 3 of the Agreement) of the Option
Aircraft will be adjusted to Boeing's and the engine
manufacturer's then-current prices as of the date of execution of
the Option Aircraft Supplemental Agreement.
2.1.2 Special Features. The price for special
features incorporated in the Option Aircraft Detail Specification
will be adjusted to Boeing's then-current prices for such
features as of the date of execution of the Option Aircraft
Supplemental Agreement [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO A REQUEST FOR CONFIDENTIAL TREATMENT]
2.1.3 Escalation Adjustments. The base airframe
and special features price will be escalated according to the
applicable airframe and engine manufacturer escalation provisions
contained in Exhibit D of the Agreement.
Buyer agrees that the engine escalation provisions will be
adjusted if they are changed by the engine manufacturer prior to
signing the Option Aircraft Supplemental Agreement. In such
case, the then-current engine escalation provisions in effect at
the time of execution of the Option Aircraft Supplemental
Agreement will be incorporated into such agreement.
2.1.4 Price Adjustments for Changes. Boeing may
adjust the basic price and the advance payment base prices for
any changes mutually agreed upon by Buyer and Boeing subsequent
to the date that Buyer and Boeing enter into the Option Aircraft
Supplemental Agreement.
2.1.5 BFE to SPE. An estimate of the total price
for items of Buyer Furnished Equipment (BFE) changed to Seller
Purchased Equipment (SPE) pursuant to the Detail Specification is
included in the Option Aircraft price build-up. The purchase
price of the Option Aircraft will be adjusted by the price
charged to Boeing for such items plus 10% of such price.
3. Advance Payments.
3.1 Buyer shall pay to Boeing advance payments for the
Option Aircraft pursuant to the schedule for payment of advance
payments provided in the Agreement.
EXHIBIT 10.24(h)
Supplemental Agreement No. 8
to
Purchase Agreement No. 1951
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 737 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of Dec. 7, 1998,
by and between THE BOEING COMPANY, a Delaware corporation with its
principal office in Seattle, Washington, (Boeing) and CONTINENTAL
AIRLINES, INC., a Delaware corporation with its principal office in
Houston, Texas (Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 1951 dated July 23, 1996 (the Agreement), as amended and
supplemented, relating to Boeing Model 737-500, 737-600, 737-700,
737-800, and 737-900 aircraft (the Aircraft); and
WHEREAS, Buyer has requested that Boeing [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]; and
WHEREAS, Buyer has requested that Boeing [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
WHEREAS, Boeing and Buyer have mutually agreed to amend the
Agreement to incorporate the effect of these and certain other
changes;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:
1. Table of Contents and Articles:
1.1 Remove and replace, in its entirety, the "Table of
Contents", with the Table of Contents attached hereto, to reflect
the changes made by this Supplemental Agreement No. 8.
1.2 Remove and replace, in its entirely, Table T-2 entitled
"Aircraft Deliveries and Descriptions, Model 737-700 Aircraft" with
new Table T-2 attached hereto for the Model 737-700 Aircraft
reflecting [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. Letter Agreements:
2.1 Remove and replace, in its entirety, Letter Agreement
1951-3R4, "Option Aircraft - Model 737-824 Aircraft" with Letter
Agreement 1951-3R5, "Option Aircraft - Model 737-824 Aircraft",
attached hereto, to reflect the [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
2.2 Add new Letter Agreement 6-1162-DMH-624, [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
The Agreement will be deemed to be supplemented to the extent
herein provided as of the date hereof and as so supplemented will
continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first written above.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ D. M. Hurt By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
TABLE OF CONTENTS
Page SA
Number Number
ARTICLES
1. Subject Matter of Sale. . . . . . . . . 1-1 SA 5
2. Delivery, Title and Risk of Loss. . . . 2-1
3. Price of Aircraft . . . . . . . . . . . 3-1 SA 5
4. Taxes . . . . . . . . . . . . . . . . . 4-1
5. Payment . . . . . . . . . . . . . . . . 5-1
6. Excusable Delay . . . . . . . . . . . . 6-1
7. Changes to the Detail Specification . . 7-1 SA 5
8. Federal Aviation Requirements and
Certificates and Export License . . . . 8-1 SA 5
9. Representatives, Inspection,
Flights and Test Data . . . . . . . . . 9-1
10. Assignment, Resale or Lease . . . . . . 10-1
11. Termination for Certain Events. . . . . 11-1
12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance . . . . . . . . . . . . . 12-1
13. Buyer Furnished Equipment and
Spare Parts . . . . . . . . . . . . . . 13-1
14. Contractual Notices and Requests. . . . 14-1
15. Miscellaneous . . . . . . . . . . . . . 15-1
TABLE OF CONTENTS
Page SA
Number Number
TABLES
1. Aircraft Deliveries and
Descriptions - 737-500. . . . . . . . . T-1 SA 3
Aircraft Deliveries and
Descriptions - 737-700. . . . . . . . . T-2 SA 8
Aircraft Deliveries and
Descriptions - 737-800. . . . . . . . . T-3 SA 7
Aircraft Deliveries and
Descriptions - 737-600. . . . . . . . . T-4 SA 4
Aircraft Deliveries and
Descriptions - 737-900. . . . . . . . . T-5 SA 5
EXHIBITS
A-1 Aircraft Configuration - Model 737-724. SA 2
A-2 Aircraft Configuration - Model 737-824. SA 2
A-3 Aircraft Configuration - Model 737-624. SA 1
A-4 Aircraft Configuration - Model 737-524. SA 3
A-5 Aircraft Configuration - Model 737-924. SA 5
B Product Assurance Document. . . . . . . SA 1
C Customer Support Document - Code Two -
Major Model Differences . . . . . . . . SA 1
C1 Customer Support Document - Code Three -
Minor Model Differences . . . . . . . . SA 1
D Aircraft Price Adjustments - New
Generation Aircraft (1995 Base Price) . SA 1
D1 Airframe and Engine Price Adjustments - Current
Generation Aircraft . . . . . . . . . . SA 1
D2 Aircraft Price Adjustments - New
Generation Aircraft (1997 Base Price) . SA 5
E Buyer Furnished Equipment
Provisions Document . . . . . . . . . . SA 5
F Defined Terms Document. . . . . . . . . SA 5
TABLE OF CONTENTS
SA
Number
LETTER AGREEMENTS
1951-1 Not Used. . . . . . . . . . . . . . . . . .
1951-2R3 Seller Purchased Equipment. . . . . . . . . SA 5
1951-3R5 Option Aircraft-Model 737-824 Aircraft. . . SA 8
1951-4R1 Waiver of Aircraft Demonstration. . . . . . SA 1
1951-5R2 Promotional Support - New Generation. . . . SA 5
Aircraft
1951-6 Configuration Matters . . . . . . . . . . .
1951-7R1 Spares Initial Provisioning . . . . . . . . SA 1
1951-8R2 Escalation Sharing - New Generation
Aircraft. . . . . . . . . . . . . . . . . . SA 4
1951-9R3 Option Aircraft-Model 737-724 Aircraft. . . SA 7
1951-11R1 Escalation Sharing-Current Generation
Aircraft. . . . . . . . . . . . . . . . . . SA 4
1951-12 Option Aircraft - Model 737-924 Aircraft. . SA 5
1951-13 Configuration Matters - Model 737-924 . . . SA 5
TABLE OF CONTENTS
SA
Number
RESTRICTED LETTER AGREEMENTS
6-1162-MMF-295 Performance Guarantees - Model
737-724 Aircraft. . . . . . . . . .
6-1162-MMF-296 Performance Guarantees - Model
737-824 Aircraft. . . . . . . . . .
6-1162-MMF-308R3 Disclosure of Confidential . . . . . SA 5
Information
6-1162-MMF-309R1 [CONFIDENTIAL MATERIAL OMITTED AND. . SA 1
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-MMF-311R3 [CONFIDENTIAL MATERIAL OMITTED AND. . SA 5
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-MMF-312R1 Special Purchase Agreement
Provisions. . . . . . . . . . . . . SA 1
6-1162-MMF-319 Special Provisions Relating to
the Rescheduled Aircraft. . . . . .
6-1162-MMF-378R1 Performance Guarantees - Model
737-524 Aircraft. . . . . . . . . . SA 3
6-1162-GOC-015 [CONFIDENTIAL MATERIAL OMITTED AND. . SA 2
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
6-1162-GOC-131R2 Special Matters . . . . . . . . . . . SA 5
6-1162-DMH-365 Performance Guarantees - Model
737-924 Aircraft. . . . . . . . . . SA 5
6-1162-DMH-624 [CONFIDENTIAL MATERIAL OMITTED AND. . SA 8
FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
TABLE OF CONTENTS
SUPPLEMENTAL AGREEMENTS DATED AS OF:
Supplemental Agreement No. 1 . . . . . . . October 10,1996
Supplemental Agreement No. 2 . . . . . . . March 5, 1997
Supplemental Agreement No. 3 . . . . . . . July 17, 1997
Supplemental Agreement No. 4 . . . . . . . October 10,1997
Supplemental Agreement No. 5 . . . . . . . May 21,1998
Supplemental Agreement No. 6 . . . . . . . July 30,1998
Supplemental Agreement No. 7 . . . . . . . November 12,1998
Supplemental Agreement No. 8 . . . . . . . December 7,1998
Table 1 to
Purchase Agreement 1951
Aircraft Deliveries and Descriptions
Model 737-700 Aircraft
CFM56-7B24 Engines
Detail Specification No. D6-38808-42 dated January 6, 1997
Exhibit A-1
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
1951-3R5
December 7, 1998
Continental Airlines, Inc.
1600 Smith Street
Houston, Texas 77002
Subject: Letter Agreement No. 1951-3R5 to
Purchase Agreement No. 1951 -
Option Aircraft - Model 737-824 Aircraft
Ladies and Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1951 dated July
23, 1996(the Agreement) between The Boeing Company (Boeing) and
Continental Airlines, Inc. (Buyer) relating to Model 737-824
aircraft (the Aircraft). This Letter Agreement supersedes and
replaces in its entirety Letter Agreement 1951-3R4 dated November
12, 1998.
All terms used and not defined herein shall have the same meaning
as in the Agreement.
In consideration of Buyer's purchase of the Aircraft, Boeing hereby
agrees to manufacture and sell up to [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] additional Model
737-824 Aircraft (the Option Aircraft) to Buyer, on the same terms
and conditions set forth in the Agreement, except as otherwise
described in Attachment A hereto, and subject to the terms and
conditions set forth below.
1. Delivery.
The Option Aircraft will be delivered to Buyer during or
before the months set forth in the following schedule:
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2. Price. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT]
3. Option Aircraft Deposit.
In consideration of Boeing's grant to Buyer of options to
purchase the Option Aircraft as set forth herein, Buyer will pay a
deposit to Boeing of $200,000 for each Option Aircraft (the Option
Deposit) on the date of this Letter Agreement. In the event Buyer
exercises an option herein for an Option Aircraft, the amount of
the Option Deposit for such Option Aircraft will be credited
against the first advance payment due for such Option Aircraft
pursuant to the advance payment schedule set forth in Article 5 of
the Agreement.
In the event that Buyer does not exercise its option to purchase a
particular Option Aircraft pursuant to the terms and conditions set
forth herein, Boeing shall be entitled to retain the Option Deposit
for such Option Aircraft.
4. Option Exercise.
To exercise its option to purchase the Option Aircraft, Buyer
shall give written notice thereof to Boeing on or before the first
business day of the month in each Option Exercise Date shown below:
Option Aircraft Option Exercise Date
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. Contract Terms.
Within thirty (30) days after Buyer exercises an option to
purchase Option Aircraft pursuant to paragraph 4 above, Boeing and
Buyer will use their best reasonable efforts to enter into a
supplemental agreement amending the Agreement to add the applicable
Option Aircraft to the Agreement as a firm Aircraft (the Option
Aircraft Supplemental Agreement).
In the event the parties have not entered into such an Option
Aircraft Supplemental Agreement within the time period contemplated
herein, either party shall have the right, exercisable by written
or telegraphic notice given to the other within ten (10) days after
such period, to cancel the purchase of such Option Aircraft.
6. Cancellation of Option to Purchase.
Either Boeing or Buyer may cancel the option to purchase an
Option Aircraft if any of the following events are not accomplished
by the respective dates contemplated in this Letter Agreement, or
in the Agreement, as the case may be:
(i) purchase of the Aircraft under the Agreement for any
reason not attributable to the cancelling party;
(ii) payment by Buyer of the Option Deposit with respect
to such Option Aircraft pursuant to paragraph 3 herein; or
(iii) exercise of the option to purchase such Option
Aircraft pursuant to the terms hereof.
Any cancellation of an option to purchase by Boeing which is based
on the termination of the purchase of an Aircraft under the
Agreement shall be on a one-for-one basis, for each Aircraft so
terminated.
Cancellation of an option to purchase provided by this letter
agreement shall be caused by either party giving written notice to
the other within ten (10) days after the respective date in
question. Upon receipt of such notice, all rights and obligations
of the parties with respect to an Option Aircraft for which the
option to purchase has been cancelled shall thereupon terminate.
Boeing shall promptly refund to Buyer, without interest, any
payments received from Buyer with respect to the affected Option
Aircraft. Boeing shall be entitled to retain the Option Deposit
unless cancellation is attributable to Boeing's fault, in which
case the Option Deposit shall also be returned to Buyer without
interest.
7. Applicability.
Except as otherwise specifically provided, limited or excluded
herein, all Option Aircraft that are added to the Agreement by an
Option Aircraft Supplemental Agreement as firm Aircraft shall
benefit from all the applicable terms, conditions and provisions of
the Agreement.
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By /s/ D. M. Hurt
Its Attorney In Fact
ACCEPTED AND AGREED TO this
Date: December 7, 1998
CONTINENTAL AIRLINES, INC.,
By /s/ Brian Davis
Its Vice President
Attachment
Model 737-824 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft are
described by Boeing Detail Specification D6-38808, Revision E,
dated September 15, 1995, as amended and revised pursuant to the
Agreement.
1.2 Changes. The Option Aircraft Detail Specification
shall be revised to include:
(1) Changes applicable to the basic Model 737-800
aircraft which are developed by Boeing between the date of the
Detail Specification and the signing of an Option Aircraft
Supplemental Agreement.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard
Certificate of Airworthiness.
1.3 Effect of Changes. Changes to the Detail
Specification pursuant to the provisions of the clauses above shall
include the effects of such changes upon Option Aircraft weight,
balance, design and performance.
2. Price Description.
2.1 Price Adjustments.
2.1.1 Base Price Adjustments. The base aircraft
price (pursuant to Article 3 of the Agreement) of the Option
Aircraft will be adjusted to Boeing's and the engine manufacturer's
then-current prices as of the date of execution of the Option
Aircraft Supplemental Agreement.
2.1.2 Special Features. The price for special
features incorporated in the Option Aircraft Detail Specification
will be adjusted to Boeing's then-current prices for such features
as of the date of execution of the Option Aircraft Supplemental
Agreement [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2.1.3 Escalation Adjustments. The base airframe and
special features price will be escalated according to the
applicable airframe and engine manufacturer escalation provisions
contained in Exhibit D of the Agreement.
Buyer agrees that the engine escalation provisions will be adjusted
if they are changed by the engine manufacturer prior to signing the
Option Aircraft Supplemental Agreement. In such case, the then-
current engine escalation provisions in effect at the time of
execution of the Option Aircraft Supplemental Agreement will be
incorporated into such agreement.
2.1.4 Price Adjustments for Changes. Boeing may
adjust the basic price and the advance payment base prices for any
changes mutually agreed upon by Buyer and Boeing subsequent to the
date that Buyer and Boeing enter into the Option Aircraft
Supplemental Agreement.
2.1.5 BFE to SPE. An estimate of the total price
for items of Buyer Furnished Equipment (BFE) changed to Seller
Purchased Equipment (SPE) pursuant to the Detail Specification is
included in the Option Aircraft price build-up. The purchase price
of the Option Aircraft will be adjusted by the price charged to
Boeing for such items plus 10% of such price.
3. Advance Payments.
3.1 Buyer shall pay to Boeing advance payments for the
Option Aircraft pursuant to the schedule for payment of advance
payments provided in the Purchase Agreement.
6-1162-DMH-624
December 7, 1998
Continental Airlines, Inc.
1600 Smith Street
Houston, Texas 77002
Subject: Letter Agreement No. 6-1162-DMH-624 to
Purchase Agreement No. 1951 - [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
Ladies and Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1951 dated July
23, 1996 (the Agreement) between The Boeing Company (Boeing) and
Continental Airlines, Inc. (Buyer) relating to Model 737 aircraft
(the Aircraft).
All terms used and not defined herein shall have the same meaning
as in the Agreement.
Buyer has requested that Boeing [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
If the foregoing accurately reflects your understanding of the
matters treated herein, please so indicate by signature below.
Very truly yours,
THE BOEING COMPANY
By /s/ D. M. Hurt
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: December 7, 1998
CONTINENTAL AIRLINES, INC.,
By /s/ Brian Davis
Its Vice President
EXHIBIT 10.27(b)
Supplemental Agreement No. 2
to
Purchase Agreement No. 2061
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 777 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of July 30, 1998,
by and between THE BOEING COMPANY, a Delaware corporation with its
principal office in Seattle, Washington, (Boeing) and CONTINENTAL
AIRLINES, INC., a Delaware corporation with its principal office in
Houston, Texas (Customer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 2061 dated October 10, 1997, (the Purchase Agreement) relating
to Boeing Model 777-200IGW aircraft, (the Aircraft); and
WHEREAS, Boeing and Customer have mutually agreed to
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] and
WHEREAS, Customer has accepted a proposal for [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] and
WHEREAS, Boeing and Customer have mutually agreed to amend the
Purchase Agreement to incorporate the effect of these and certain
other changes;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Purchase Agreement as
follows:
1. Table of Contents:
Remove and replace, in its entirety, the "Table of Contents",
with the "Table of Contents" attached hereto, to reflect the
changes made by this Supplemental Agreement No. 2.
2. Table 1
Remove and replace, in its entirety, "Table 1", with the
"Table 1" attached hereto, to reflect the [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
3. Letter Agreements:
Remove and replace, in its entirety, Letter Agreement 2061-1,
"777-200IGW Option Aircraft" with Letter Agreement 2061-1R1, "777-
200IGW Option Aircraft" attached hereto, to reflect [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT]
The Purchase Agreement will be deemed to be supplemented to the
extent herein provided as of the date hereof and as so supplemented
will continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first above written.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ John A. McGarvey By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
TABLE OF CONTENTS
ARTICLES Revised
By
1. Quantity, Model and Description
2. Delivery Schedule
3. Price
4. Payment
5. Miscellaneous
TABLE
1. Aircraft Information Table SA No. 2
EXHIBIT
A. Aircraft Configuration
B. Aircraft Delivery Requirements
and Responsibilities
SUPPLEMENTAL EXHIBITS
BFE1. BFE Variables
CS1. Customer Support Variables
EE1. Engine Escalation/Engine Warranty
and Patent Indemnity
SLP1. Service Life Policy Components
LETTER AGREEMENTS
2061-1 Option Aircraft SA No. 2
2061-2 Demonstration Flights
2061-3 Installation of Cabin Systems Equipment
2061-4 Spares Initial Provisioning
2061-5 Flight Crew Training Spares
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
TABLE OF CONTENTS
CONFIDENTIAL LETTER AGREEMENTS: Revised By:
6-1161-GOC-087 Aircraft Performance Guarantees
6-1162-GOC-088 Promotion Support
6-1162-GOC-089 Special Matters
6-1162-GOC-172 Additional Matters SA No. 1
SUPPLEMENTAL AGREEMENTS
Supplemental Agreement No. 1 December 18, 1997
Supplemental Agreement No. 2 July 30, 1998
Table 1
to Purchase Agreement 2061
Aircraft Delivery, Description, Price and Advance Payments
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
July , 1998
2061-1R1
Continental Airlines, Inc.
2929 Allen Parkway
Houston, Texas 77019
Subject: Option Aircraft
Reference: Purchase Agreement No. 2061 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 777-200IGW
aircraft (the Aircraft)
Ladies and Gentlemen:
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement
have the same meaning as in the Purchase Agreement. This Letter
Agreement supersedes and replaces in its entirety Letter Agreement
2061-1 dated October 10, 1997.
Boeing agrees to manufacture and sell to Customer additional Model
777-200IGW aircraft as Option Aircraft. The delivery months,
number of aircraft, Advance Payment Base Price per aircraft and
advance payment schedule are listed in the Attachment to this
Letter Agreement (the Attachment).
1. Aircraft Description and Changes
1.1 Aircraft Description: The Option Aircraft are
described by the Detail Specification listed in the Attachment.
1.2 Changes: The Detail Specification will be revised to
include:
(i) Changes applicable to the basic Model 777
aircraft which are developed by Boeing
between the date of the Detail Specification
and the signing of the definitive agreement
to purchase the Option Aircraft;
(ii) Changes required to obtain required
regulatory certificates; and
(iii) Changes mutually agreed upon.
2. Price
2.1 The pricing elements of the Option Aircraft are listed
in the Attachment.
2.2 Price Adjustments.
2.2.1 Optional Features. The Optional Feature Prices for
the Option Aircraft will be adjusted to Boeing's current prices as
of the date of execution of the definitive agreement for the Option
Aircraft.
2.2.2 Escalation Adjustments. The Airframe Price and the
Optional Features Prices for Option Aircraft delivering before
January 2003, will be escalated on the same basis as the Aircraft.
The engine manufacturer's current escalation provisions, listed in
Exhibit Supplement EE1 to the Purchase Agreement, have been
estimated to the months of scheduled delivery using commercial
forecasts to calculate the Advance Payment Base Price listed in the
Attachment to this Letter Agreement. The engine escalation
provisions will be revised if they are changed by the engine
manufacturer prior to the signing of a definitive agreement for the
Option Aircraft.
2.2.3 Base Price Adjustments. The Airframe Price and the
Engine Price of the Option Aircraft delivering before January,
2003, will be adjusted to Boeing's and the engine manufacturer's
then current prices as of the date of execution of the definitive
agreement for the Option Aircraft.
2.2.4 Prices for Long Lead Time Aircraft. Boeing and the
engine manufacturer have not established prices and escalation
provisions for Model 777-200IGW aircraft and engines for delivery
in the year 2003 and after. When prices and the pricing bases are
established for the Model 777-200IGW aircraft delivering in the
year 2003 and after, the information listed in the Attachment will
be appropriately amended.
3. Payment.
3.1 Customer will pay a deposit to Boeing in the amount
shown in the Attachment for each Option Aircraft (Deposit), on the
date of this Letter Agreement. If Customer exercises an option,
the Deposit will be credited against the first advance payment due.
If Customer does not exercise an option, Boeing will retain the
Deposit for that Option Aircraft.
3.2 Following option exercise, advance payments in the
amounts and at the times listed in the Attachment will be payable
for the Option Aircraft.
The remainder of the Aircraft Price for the Option Aircraft will be
paid at the time of delivery.
4. Option Exercise.
Customer may exercise an option by giving written notice to Boeing
on or before the date [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT] prior to the first business
day of the applicable delivery month listed in the Attachment
(Option Exercise Date).
5. Contract Terms.
Boeing and Customer will use their best efforts to reach a
definitive agreement for the purchase of an Option Aircraft,
including the terms and conditions contained in this Letter
Agreement, in the Purchase Agreement, and other terms and
conditions as may be agreed upon to add the Option Aircraft to the
Purchase Agreement as an Aircraft. In the event the parties have
not entered into a definitive agreement within 30 days following
option exercise, either party may terminate the purchase of such
Option Aircraft by giving written notice to the other within 5
days. If Customer and Boeing fail to enter into such definitive
agreement, Boeing will retain the Deposit for that Option Aircraft
unless failure is attributable to Boeing's fault, in which case the
Deposit shall be promptly returned to Customer without interest.
Very truly yours,
THE BOEING COMPANY
THE BOEING COMPANY
By /s/ D. M. Hurt
Its Attorney-in-Fact
ACCEPTED AND AGREED TO this
Date: July 30, 1998
CONTINENTAL AIRLINES, INC.,
By /s/ Brian Davis
Its Vice President
Attachment
Attachment to
Letter Agreement 2061-1R1
Option Aircraft Delivery, Description, Price and Advance Payments
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
EXHIBIT 10.27(c)
Supplemental Agreement No. 3
to
Purchase Agreement No. 2061
between
The Boeing Company
and
Continental Airlines, Inc.
Relating to Boeing Model 777 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of September
25th, 1998, by and between THE BOEING COMPANY, a Delaware
corporation with its principal office in Seattle, Washington,
(Boeing) and CONTINENTAL AIRLINES, INC., a Delaware corporation
with its principal office in Houston, Texas (Customer);
WHEREAS, the parties hereto entered into Purchase Agreement
No. 2061 dated October 10, 1997, (the Purchase Agreement) relating
to Boeing Model 777-200IGW aircraft, (Aircraft); and
WHEREAS, Boeing and Customer have mutually agreed to revise
the terms of Letter Agreement 6-1162-GOC-089; and
WHEREAS, Boeing and Customer have mutually agreed to amend the
Purchase Agreement to incorporate the effect of these and certain
other changes;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Purchase Agreement as
follows:
1. Table of Contents:
Remove and replace, in its entirety, the "Table of Contents",
with the Table of Contents attached hereto, to reflect the changes
made by this Supplemental Agreement No. 3.
2. Letter Agreements:
Remove and replace, in its entirety, Letter Agreement
6-1162-GOC-089 "Special Matter" with the revised Letter Agreement
6-1162-GOC-089R1, attached hereto, to reflect the revised terms of
sale of the Aircraft.
The Purchase Agreement will be deemed to be supplemented to the
extent herein provided as of the date hereof and as so supplemented
will continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first written above.
THE BOEING COMPANY CONTINENTAL AIRLINES, INC.
By: /s/ D. M. Hurt By: /s/ Brian Davis
Its: Attorney-In-Fact Its: Vice President
TABLE OF CONTENTS
ARTICLES Revised By:
1. Quantity, Model and Description
2. Delivery Schedule
3. Price
4. Payment
5. Miscellaneous
TABLE
1. Aircraft Information Table SA No. 2
EXHIBIT
A. Aircraft Configuration
B. Aircraft Delivery Requirements
and Responsibilities
SUPPLEMENTAL EXHIBITS
BFE1. BFE Variables
CS1. Customer Support Variables
EE1. Engine Escalation/Engine Warranty
and Patent Indemnity
SLP1. Service Life Policy Components
TABLE OF CONTENTS
LETTER AGREEMENTS Revised By:
2061-1 Option Aircraft SA No. 2
2061-2 Demonstration Flights
2061-3 Installation of Cabin Systems Equipment
2061-4 Spares Initial Provisioning
2061-5 Flight Crew Training Spares
2061-6 [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
TABLE OF CONTENTS
CONFIDENTIAL LETTER AGREEMENTS Revised By:
6-1161-GOC-087 Aircraft Performance Guarantees
6-1162-GOC-088 Promotion Support
6-1162-GOC-089R1 Special Matters SA No. 3
6-1162-GOC-172 Additional Matters SA No. 1
SUPPLEMENTAL AGREEMENTS Dated as of:
Supplemental Agreement No. 1 December 18, 1997
Supplemental Agreement No. 2 July 30, 1998
Supplemental Agreement No. 3 September 25, 1998
September 25, 1998
6-1162-GOC-089R1
Continental Airlines, Inc.
2929 Allen Parkway
Houston, Texas 77019
Subject: Special Matters
Reference: Purchase Agreement No. 2061 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 777-
200IGW aircraft (the Aircraft)
Ladies and Gentlemen:
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used and not defined in this Letter Agreement
shall have the same meaning as in the Purchase Agreement.
1. Credit Memoranda.
In consideration of Customer's purchase of Model 777-224
Aircraft, Boeing shall issue at the time of delivery of each
Aircraft and Option Aircraft, two credit memoranda in an aggregate
amount equal to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT] (the 777-224 Credit Memoranda Amount),
expressed in July 1995 dollars. The 777-224 Credit Memoranda Amount
is subject to the same escalation as is used to calculate the
Aircraft Price at time of delivery. [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
2. Option Aircraft Pricing.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
3. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
3.2 Option Aircraft. [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]
4. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
6. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
7. Aircraft Invoices.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
8. Assignment of Credits.
Customer may not assign the credit memoranda described in
this Letter Agreement without Boeing's prior written consent
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
9. Confidential Treatment.
Boeing and Customer understand that certain information
contained in this Letter Agreement, including any attachments
hereto, are considered by both parties to be confidential. Boeing
and Customer agree that each party will treat this Letter Agreement
and the information contained herein as confidential and will not,
without the other party's prior written consent, disclose this
Letter Agreement or any information contained herein to any other
person or entity except as may be required by applicable law or
governmental regulations.
Very truly yours,
THE BOEING COMPANY
By /s/ D. M. Hurt
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: September 25, 1998
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its: Vice President
EXHIBIT 10.28
PURCHASE AGREEMENT NUMBER 2211
between
THE BOEING COMPANY
and
CONTINENTAL AIRLINES, INC.
Relating to Boeing Model 767-224ER Aircraft
TABLE OF CONTENTS
ARTICLES Revised By:
1. Quantity, Model and Description
2. Delivery Schedule
3. Price
4. Payment
5. Miscellaneous
TABLE
1. Aircraft Information Table
EXHIBIT
A. Aircraft Configuration
B. Aircraft Delivery Requirements and Responsibilities
SUPPLEMENTAL EXHIBITS
BFE1. BFE Variables
CS1. Customer Support Variables
EE1. Engine Escalation/Engine Warranty
and Patent Indemnity
SLP1. Service Life Policy Components
TABLE OF CONTENTS
LETTER AGREEMENTS Revised By:
2211-01 Option Aircraft
2211-02 Demonstration Flights
2211-03 Spares Initial Provisioning
2211-04 Flight Crew Training Spares
Parts Support
2211-05 Escalation Sharing
TABLE OF CONTENTS
CONFIDENTIAL LETTER AGREEMENTS Revised By:
6-1162-JMG-0089 Performance Guarantees
6-1162-JMG-0090 Promotion Support
6-1162-JMG-0092 Special Matters
Purchase Agreement No. 2211
between
The Boeing Company
and
Continental Airlines, Inc.
______________________________
This Purchase Agreement No. 2211 dated as of
November 16, 1998 between The Boeing Company (Boeing) and
Continental Airlines, Inc. (Customer) relating to the purchase and
sale of Model 767-224ER aircraft. The terms and conditions of the
Aircraft General Terms Agreement dated as of October 10, 1997
between the parties, identified as AGTA-CAL (AGTA), are hereby
incorporated by reference into this Purchase Agreement.
Article 1. Quantity, Model and Description.
The aircraft to be delivered to Customer will be
designated as Model 767-224ER aircraft (the Aircraft). Boeing will
manufacture and sell to Customer Aircraft conforming to the
configuration described in Exhibit A, which is part of this
Purchase Agreement, in the quantities listed in Table 1 to the
Purchase Agreement.
Article 2. Delivery Schedule.
The Aircraft will be delivered to Customer in
accordance with the scheduled months of delivery listed in the
attached Table 1, which is part of this Purchase Agreement.
Exhibit B, which is part of this Purchase Agreement, describes
certain responsibilities for both Customer and Boeing in order to
accomplish the delivery of the Aircraft.
Article 3. Price.
3.1 Aircraft Basic Price. The Aircraft Basic Price
is listed in Table 1 and is subject to mutually agreed upon price
adjustments and the Escalation Adjustment.
3.2 Advance Payment Base Prices. The Advance
Payment Base Prices for the Aircraft are listed in Table 1 and were
calculated utilizing the latest escalation factors available to
Boeing on the date of this Purchase Agreement projected to the
month of scheduled delivery.
3.3 Boeing has not yet established the Aircraft
Basic Price for Aircraft scheduled to be delivered after December
31, 2004. The prices listed in Table 1 for such Aircraft are only
to provide Customer with an estimate of the applicable Advance
Payment Base Prices. Accordingly, the Aircraft Basic Price for
such Aircraft will be the sum of the Airframe Price, Optional
Features Prices and the Engine Price first published by Boeing for
the same model of aircraft and engines to be delivered after
December 31, 2004.
Article 4. Payment.
4.1 Boeing acknowledges receipt of a deposit in the
amount shown in Table 1 for each Aircraft (Deposit).
4.2 The amounts and payment dates for advance
payments to be made by Customer are set forth in the attached Table
1. Advance payments for each aircraft are due on the first
business day of the months listed in the attached Table 1.
4.3 For any Aircraft whose scheduled month of
delivery is less than 24 months from the date of this Purchase
Agreement, the total amount of advance payments due for payment
upon signing of this Purchase Agreement will include all advance
payments which are past due in accordance with the standard advance
payment schedule set forth in Table 1.
4.4 The Aircraft Price is the total amount Customer
will pay to Boeing at the time of delivery of each Aircraft. Such
Aircraft Price will be calculated at time of delivery using then
available escalation factors to calculate the Escalation
Adjustment. The invoice amount for an Aircraft will show the
Aircraft Price appropriately adjusted to account for previously
received applicable advance payments.
Article 5. Miscellaneous.
5.1 Buyer Furnished Equipment Variables.
Supplemental Exhibit BFE1, which is part of this Purchase
Agreement, contains vendor selection dates, on dock dates and other
variables applicable to the Aircraft.
5.2 Customer Support Variables. Supplemental
Exhibit CS1, which is part of this Purchase Agreement, contains
the variable information applicable to information, training
services and other things furnished by Boeing in support of the
Aircraft.
5.3 Engine Escalation Variables. Supplemental
Exhibit EE1 contains the applicable engine escalation formula, the
engine warranty and the engine patent indemnity for the Aircraft.
5.4 Service Life Policy Component Variables.
Supplemental Exhibit SLP1, which is part of this Purchase
Agreement, lists the airframe and landing gear components covered
by the Service Life Policy for the Aircraft.
5.5 Negotiated Agreement; Entire Agreement. This
Purchase Agreement, including the provisions of Article 8.2 of the
AGTA relating to insurance, and Article 11 of Part 2 of Exhibit C
of the AGTA relating to DISCLAIMER AND RELEASE and EXCLUSION OF
CONSEQUENTIAL AND OTHER DAMAGES, has been the subject of discussion
and negotiation and is understood by the parties; the Aircraft
Price and other agreements of the parties stated in this Purchase
Agreement were arrived at in consideration of such provisions.
This Purchase Agreement, including the AGTA, contains the entire
agreement between the parties and supersedes all previous
proposals, understandings, commitments or representations
whatsoever, oral or written, with respect to the subject matter
hereof, and may be changed only in writing signed by authorized
representatives of the parties.
CONTINENTAL AIRLINES, INC. THE BOEING COMPANY
By /s/ Brian Davis By /s/ J.A. McGarvey
Its Vice President Its Attorney-in-Fact
Table 1 to
Purchase Agreement No. 2211
Aircraft Delivery, Description, Price and Advance Payments
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
AIRCRAFT CONFIGURATION
between
THE BOEING COMPANY
and
CONTINENTAL AIRLINES, INC.
Exhibit A to Purchase Agreement Number 2211
AIRCRAFT CONFIGURATION
Dated 11/16/98
relating to
BOEING MODEL 767-224ER AIRCRAFT
The Detail Specification is Boeing Detail Specification
D019T001CAL62E1 dated as of even date herewith. Such Detail
Specification will be comprised of Boeing Configuration
Specification D019T001, revision A, dated June 6, 1997 as amended
to incorporate the Options listed below, including the effects on
Manufacturer's Empty Weight (MEW) and Operating Empty Weight (OEW).
Such Options are set forth in Boeing Document D019TCR1CAL62E-1. As
soon as practicable, Boeing will furnish to Buyer copies of the
Detail Specification, which copies will reflect such Options. The
Aircraft Basic Price reflects and includes all effects of such
Options, except such Aircraft Basic Price does not include the
price effects of any Buyer Furnished Equipment or Seller Purchased
Equipment.
Exhibit A to
Purchase Agreement No. 2211
Page 2
The configuration for Customer's 767-224ER will be developed by
July 1, 1999. For purposes of calculating the Advance Payment Base
Prices listed in Table 1, an estimated amount of [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] has been assumed for Optional Features. The
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] includes [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] as the price to
install the [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT] and [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] as the price to
increase the Maximum Takeoff Gross Weight from 345,000 to 395,000
pounds.
AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES
between
THE BOEING COMPANY
and
CONTINENTAL AIRLINES, INC.
Exhibit B to Purchase Agreement Number 2211
AIRCRAFT DELIVERY REQUIREMENTS AND RESPONSIBILITIES
relating to
BOEING MODEL 767-224ER AIRCRAFT
Both Boeing and Customer have certain documentation and approval
responsibilities at various times during the construction cycle of
Customer's Aircraft that are critical to making the delivery of
each Aircraft a positive experience for both parties. This Exhibit
B documents those responsibilities and indicates recommended
completion deadlines for the actions to be accomplished. Failure
to obtain such completion deadlines shall not be deemed a breach of
this Purchase Agreement or reduce or amend the parties' obligations
hereunder.
1. GOVERNMENT DOCUMENTATION REQUIREMENTS.
Certain actions are required to be taken by Customer in advance of
the scheduled delivery month of each Aircraft with respect to
obtaining certain government issued documentation.
1.1 Airworthiness and Registration Documents.
Not later than 6 months prior to delivery
of each Aircraft, Customer will notify Boeing of the registration
number to be painted on the side of the Aircraft. In addition, and
not later than 3 months prior to delivery of each Aircraft,
Customer will, by letter to the regulatory authority having
jurisdiction, authorize the temporary use of such registration
numbers by Boeing during the pre-delivery testing of the Aircraft.
Customer is responsible for furnishing any temporary or permanent
registration certificates required by any governmental authority
having jurisdiction to be displayed aboard the Aircraft after
delivery.
1.2 Certificate of Sanitary Construction.
1.2.1 U.S. Registered Aircraft.
Boeing will obtain from the United States Public Health Service, a
United States Certificate of Sanitary Construction to be displayed
aboard each Aircraft after delivery to Customer.
1.2.2 Non-U.S. Registered Aircraft.
If Customer requires a United States Certificate of Sanitary
Construction at the time of delivery of the Aircraft, Customer will
give written notice thereof to Boeing at least 3 months prior to
delivery. Boeing will then use its reasonable best efforts to
obtain the Certificate from the United States Public Health Service
and present it to Customer at the time of Aircraft delivery.
1.3 Customs Documentation.
1.3.1 Import Documentation. If the
Aircraft is intended to be exported from the United States,
Customer must notify Boeing not later than 3 months prior to
delivery of each Aircraft of any documentation required by the
customs authorities or by any other agency of the country of
import.
1.3.2 General Declaration - U.S. If
the Aircraft is intended to be exported from the United States,
Boeing will prepare Customs Form 7507, General Declaration, for
execution by U.S. Customs immediately prior to the ferry flight of
the Aircraft. For this purpose, Customer will furnish to Boeing not
later than 20 days prior to delivery a complete crew and passenger
list and a complete ferry flight itinerary, including point of exit
from the United States for the Aircraft.
If Customer intends, during the ferry flight of an Aircraft, to
land at a U.S. airport after clearing Customs at delivery, Customer
must notify Boeing not later than 20 days prior to delivery of such
intention. If Boeing receives such notification, Boeing will
provide to Customer the documents constituting a Customs permit to
proceed, allowing such Aircraft to depart after any such landing.
Sufficient copies of completed Form 7507, along with passenger
manifest, will be furnished Customer to cover U.S. stops scheduled
for the ferry flight.
1.3.3 Export Declaration - U.S. If
the Aircraft is intended to be exported from the United States,
Boeing will prepare Form 7525V and, immediately prior to the ferry
flight, will submit such Form to U.S. Customs in Seattle in order
to obtain clearance for the departure of the Aircraft, including
any cargo, from the United States. U.S. Customs will deliver the
Export Declaration to the U.S. Department of Commerce after export.
2. INSURANCE CERTIFICATES.
Unless provided earlier, Customer will provide
to Boeing not later than 30 days prior to delivery of the first
Aircraft, a copy of the requisite annual insurance certificate in
accordance with the requirements of Article 8 of the AGTA.
3. NOTICE OF FLYAWAY CONFIGURATION.
Not later than 20 days prior to delivery of the
Aircraft, Customer will provide to Boeing a configuration letter
stating the requested "flyaway configuration" of the Aircraft for
its ferry flight. This configuration letter should include:
(i) the name of the company which is to
furnish fuel for the ferry flight and any scheduled
post-delivery flight training, the method of payment
for such fuel, and fuel load for the ferry flight;
(ii) the cargo to be loaded and where it is to
be stowed on board the Aircraft and address where cargo
is to be shipped after flyaway;
(iii) any BFE equipment to be removed prior to
flyaway and returned to Boeing BFE stores for
installation on Customer's subsequent Aircraft;
(iv) a complete list of names and citizenship
of each crew member and non-revenue passenger who will
be aboard the ferry flight; and
(v) a complete ferry flight itinerary.
4. DELIVERY ACTIONS BY BOEING.
4.1 Schedule of Inspections. All FAA,
Boeing, Customer and, if required, U.S. Customs Bureau inspections
will be scheduled by Boeing for completion prior to delivery or
departure of the Aircraft. Customer will be informed of such
schedules.
4.2 Schedule of Demonstration Flights. All
FAA and Customer demonstration flights will be scheduled by Boeing
for completion prior to delivery of the Aircraft.
4.3 Schedule for Customer's Flight Crew.
Boeing will inform Customer of the date that a flight crew is
required for acceptance routines associated with delivery of the
Aircraft.
4.4 Fuel Provided by Boeing. Boeing will
provide to Customer, without charge, the amount of fuel shown in
U.S. gallons in the table below for the model of Aircraft being
delivered and full capacity of engine oil at the time of delivery
or prior to the ferry flight of the Aircraft.
Aircraft Model Fuel Provided
767 [CONFIDENTIAL MATERIAL OMITTED
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COM-
MISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT]
4.5 Flight Crew and Passenger Consumables.
Boeing will provide food, coat hangers, towels, toilet tissue,
drinking cups and soap for the first segment of the ferry flight
for the Aircraft.
4.6 Delivery Papers, Documents and Data.
Boeing will have available at the time of delivery of the Aircraft
certain delivery papers, documents and data for execution and
delivery. Boeing will pre-position in Oklahoma City, Oklahoma, for
filing with the FAA at the time of delivery of the Aircraft an
executed original Form 8050-2, Aircraft Bill of Sale, indicating
transfer of title to the Aircraft from Boeing or Boeing's sales
subsidiary, to Customer.
4.7 Delegation of Authority. If specifically
requested in advance by Customer, Boeing will present a certified
copy of a Resolution of Boeing's Board of Directors, designating
and authorizing certain persons to act on its behalf in connection
with delivery of the Aircraft.
5. DELIVERY ACTIONS BY CUSTOMER.
5.1 Aircraft Radio Station License. At
delivery Customer will provide its Aircraft Radio Station License
to be placed on board the Aircraft following delivery.
5.2. Aircraft Flight Log. At delivery
Customer will provide the Aircraft Flight Log for the Aircraft.
5.3 Delegation of Authority. If necessary,
Customer will present to Boeing at delivery of the Aircraft an
original or certified copy of Customer's Delegation of Authority
designating and authorizing certain persons to act on its behalf in
connection with delivery of the specified Aircraft.
BUYER FURNISHED EQUIPMENT VARIABLES
between
THE BOEING COMPANY
and
CONTINENTAL AIRLINES, INC.
Supplemental Exhibit BFE1 to Purchase Agreement Number 2211
BUYER FURNISHED EQUIPMENT VARIABLES
relating to
BOEING MODEL 767-224ER AIRCRAFT
This Supplemental Exhibit BFE1 contains vendor selection dates, on-
dock dates and other variables applicable to the Aircraft.
1. Supplier Selection.
Customer will select and notify Boeing of the suppliers of
the galley system and inserts, the passenger seats, and the
overhead and audio systems by a date to be mutually agreed to by
the parties during the 767-224 configuration discussions to be held
in the first half of 1999.
2. On-dock Dates
On or before a date to be mutually agreed to by the parties
Boeing will provide to Customer a BFE Requirements On-
Dock/Inventory Document (BFE Document) or an electronically
transmitted BFE Report which may be periodically revised, setting
forth the items, quantities, on-dock dates and shipping
instructions relating to the in-sequence installation of BFE.
CUSTOMER SUPPORT VARIABLES
between
THE BOEING COMPANY
and
CONTINENTAL AIRLINES, INC.
Supplemental Exhibit CS1 to Purchase Agreement Number 2211
CUSTOMER SUPPORT VARIABLES
relating to
BOEING MODEL 767-224ER AIRCRAFT
By the time the first Aircraft delivers, Customer will operate a
767-400ER aircraft. Upon Customer's request, Boeing will develop
and schedule a customized Customer Support Program to be furnished
in support of the Aircraft. The customized program will be based
upon and equivalent to the entitlements summarized below.
1. Maintenance Training.
1.1 Maintenance Training Minor Model Differences Course,
if requested, covering operational, structural or
systems differences between Customer's newly-purchased
Aircraft and an aircraft of the same model then
operated by Customer; 1 class of 15 students;
1.2 Training materials, if applicable, will be provided to
each student. In addition, one set of training
materials as used in Boeing's training program,
including visual aids, text and graphics will be
provided for use in Customer's own training program.
2. Flight Training.
Boeing will provide, if requested, one classroom course to
acquaint up to 15 students with operational, systems and
performance differences between Customer's newly-purchased
Aircraft and an aircraft of the same model then operated by
Customer.
Any training materials used in Flight Training, if required,
will be provided for use in Customer's own training program.
3. Planning Assistance.
3.1 Maintenance and Ground Operations.
Upon request, Boeing will provide planning assistance
regarding Minor Model Differences requirements for
facilities, tools and equipment.
3.2 Spares.
Boeing will revise, as applicable, the customized
Recommended Spares Parts List (RSPL) and Illustrated
Parts Catalog (IPC).
4. Technical Data and Documents.
Boeing will revise, as applicable, technical data and
documents provided with previously delivered aircraft.
ENGINE ESCALATION,
ENGINE WARRANTY AND PATENT INDEMNITY
between
THE BOEING COMPANY
and
CONTINENTAL AIRLINES, INC.
Supplemental Exhibit EE1 to Purchase Agreement Number 2211
ENGINE ESCALATION,
ENGINE WARRANTY AND PATENT INDEMNITY
relating to
BOEING MODEL 767-224ER AIRCRAFT
1. ENGINE ESCALATION.
(a) The Aircraft Basic Price of each Aircraft set forth in Table
1 of the Purchase Agreement includes an aggregate price for CF6-
80C2 engines and all accessories, equipment and parts provided by
the engine manufacturer. The adjustment in Engine price applicable
to each Aircraft (Engine Price Adjustment) will be determined at
the time of Aircraft delivery in accordance with the following
formula:
Pe = (Pb x CPI ) - Pb
CPIb where CPIb is the Base Year Index
as set forth in Table 1 of the
Purchase Agreement
(b) The following definitions will apply herein:
Pe = Engine Price Adjustment
Pb = Engine Base Price (per Aircraft), as set forth in
Table 1 of the Purchase Agreement.
CPI is the Composite Price Index, a value determined using
the Bureau of Labor Statistics, U.S. Department of Labor
actual data in accordance with the formula below. The Index
values utilized in the formula will be the numbers shown in
the actual data for the ninth month prior to the month of
scheduled Aircraft delivery or the ninth month prior to the
Base Year Dollars month set forth in Table 1.
CPI = L +C + M + E
L = The Labor Index will be equal to the quotient
of the value associated with the Aircraft
Delivery Month divided by the value associated
with the Base Year Dollar month in "Hourly
Earnings of Aircraft Engines and Engine Parts
Production Workers" SIC 3724, multiplied by
100 and then by 55%.
C = The Industrial Commodities Index will be equal
to 10% of the Producer Price Index for "all
commodities other than Farm and Foods," Code
3-15 associated with the scheduled Aircraft
delivery month.
M = The Metals and Metal Products Index will be
equal to 25% of the Producer Price Index for
"Metals and Metal Products," Code 10
associated with the scheduled Aircraft
delivery month.
E = The Fuel Index will be equal to 10% of the
Producer Price Index for "Fuel and Related
Products and Power," Code 5 associated with
the scheduled Aircraft delivery month.
The Engine Price Adjustment will not be made if it would result in
a decrease in the Engine Base Price.
(c) The values of the Average Hourly Earnings and Producer Price
Indices used will be those published as of a date 30 days prior to
the scheduled Aircraft delivery to Customer. Such values will be
considered final and no Engine Price Adjustment will be made after
Aircraft delivery for any subsequent changes in published Index
values.
(d) In the event the Engine price escalation provisions are made
non-enforceable or otherwise rendered null and void by any agency
of the United States Government, or if the U.S. Department of
Labor, Bureau of Labor Statistics (i) substantially revises the
methodology (in contrast to benchmark adjustments or other
corrections of previously published data) or (ii) discontinues
publication of any of the data referred to above, General Electric
Company (GE) agrees to meet jointly with Boeing and Customer, (to
the extent such parties may lawfully do so,) to jointly select a
substitute for the revised or discontinued data; such substitute
data to lead in application to the same adjustment result, insofar
as possible, as would have been achieved by continuing the use of
the original data as it may have fluctuated had it not been revised
or discontinued. If such Engine price escalation provisions,
methodology or data publication are subsequently reinstated, Boeing
will make adjustments consistent with the agreements defined in
this Supplemental Exhibit EE1.
NOTE: The factor (CPI divided by the base year index) by which the
Engine Base Price is to be multiplied will be expressed as a
decimal and rounded to the nearest thousandth. Any rounding
of a number, as required under this Supplemental Exhibit EE1
with respect to escalation of the Engine price, will be
accomplished as follows: if the first digit of the portion
to be dropped from the number to be rounded is five or
greater, the preceding digit will be raised to the next
higher number.
2. ENGINE WARRANTY AND PRODUCT SUPPORT PLAN.
Boeing has obtained from GE the right to extend to Customer the
provisions of GE's Warranty and Product Support Plan; subject,
however, to Customer's acceptance of the conditions set forth
herein. Accordingly, Boeing hereby extends to Customer and Customer
hereby accepts the provisions of GE's Warranty and Product Support
Plan hereinafter set forth, and such Warranty and Product Support
Plan shall apply to all CF6 turbofan engines including all Modules
and Parts thereof (Engines) installed in the Aircraft at the time
of delivery or purchased from Boeing by Customer for support of the
Aircraft except that, if Customer and GE have executed a General
Terms Agreement covering the Engines, then the terms of that
Agreement shall be substituted for and supersede the below-stated
provisions and such provisions shall be of no force or effect and
neither Boeing nor GE shall have any obligation arising therefrom.
In consideration for Boeing's extension of the GE Warranty and
Product Support Plan to Customer, Customer hereby releases and
discharges Boeing from any and all claims, obligations and
liabilities whatsoever arising out of the purchase or use of such
CF6 turbofan engines and Customer hereby waives, releases and
renounces all its rights in all such claims, obligations and
liabilities except for the provisions in paragraphs 2.1 (i) and 2.1
(iv) of Part 2 to Exhibit C to the AGTA.
2.1. Title. GE warrants that at the date of delivery, GE
has legal title to and good and lawful right to sell its CF6
engine products and furthermore warrants that such title is
free and clear of all claims, liens and encumbrances of any
nature whatsoever.
2.2. Patents.
2.2.1. GE will handle all claims and defend any suit
or proceeding brought against Customer insofar as
based on a claim that any product or part furnished
under this Purchase Agreement constitutes an
infringement of any patent of the United States, and
will pay all damages and costs awarded therein against
Customer. This paragraph will not apply to any
product or any part manufactured to Customer's design
or to the aircraft manufacturer's design. As to such
product or part, GE assumes no liability for patent
infringement.
2.2.2. GE's liability hereunder is conditioned upon
Customer promptly notifying GE in writing and giving
GE authority, information and assistance (at GE's
expense) for the defense of any suit. In case said
equipment or part is held in such suit to constitute
infringement and the use of said equipment or part is
enjoined, GE shall expeditiously, at its own expense
and at its option, either (1) procure for Customer the
rights to continue using said product or part; (2)
replace the same with satisfactory and noninfringing
product or part; or (3) modify the same so it becomes
satisfactory and noninfringing. The foregoing shall
constitute the sole remedy of Customer and the sole
liability of GE for patent infringement.
2.2.3. The above provisions also apply to products
which are the same as those covered by this Purchase
Agreement and are delivered to Customer as part of the
installed equipment on CF6 powered Aircraft.
2.3. Initial Warranty. GE warrants that CF6 engine
products will conform to GE's applicable specifications and
will be free from defects in material and workmanship prior
to Customer's initial use of such products. The provisions
of the GE CF6 Product Support Plan shall apply.
2.4. Product Support Plan. GE warrants and extends to
Customer the provisions of GE's CF6 Product Support Plan in
effect on the date of the execution of this Purchase
Agreement.
2.5. Warranty Pass On. GE will, upon the written request
of Customer, extend Warranty coverage to Engines, Modules and
Parts sold by Customer to another operator to the extent
only, however, that such coverage exists at the time of such
sale and subject to the provisions of the Warranty.
2.6. Limitations. THE PROVISIONS SET FORTH HEREIN ARE
EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES WHETHER
WRITTEN, ORAL OR IMPLIED. THERE ARE NO IMPLIED WARRANTIES OF
FITNESS OR MERCHANTABILITY. SAID PROVISIONS SET FORTH THE
MAXIMUM LIABILITY OF GE WITH RESPECT TO CLAIMS OF ANY KIND,
INCLUDING NEGLIGENCE, ARISING OUT OF MANUFACTURE, SALE,
POSSESSION, USE OR HANDLING OF THE PRODUCTS OR PARTS THEREOF
OR THEREFOR, AND IN NO EVENT SHALL GE'S LIABILITY TO CUSTOMER
EXCEED THE PURCHASE PRICE OF THE PRODUCT GIVING RISE TO
CUSTOMER'S CLAIM OR INCLUDE INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
SERVICE LIFE POLICY COMPONENTS
between
THE BOEING COMPANY
and
CONTINENTAL AIRLINES, INC.
Supplemental Exhibit SLP1 to Purchase Agreement Number 2211
COVERED SERVICE LIFE COMPONENTS
relating to
BOEING MODEL 767 AIRCRAFT
This is the listing of Covered Components for the Aircraft which
relate to Part 3, Boeing Service Life Policy of Exhibit C, Product
Assurance Document to the AGTA and is a part of Purchase Agreement
No. 2211.
1. Wing.
(a) Upper and lower wing skins and stiffeners between the
forward and rear wing spars.
(b) Wing spar webs, chords and stiffeners.
(c) Inspar wing ribs.
(d) Inspar splice plates and fittings.
(e) Main landing gear support structure.
(f) Wing center section lower beams, spanwise beams and
floor beams, but not the seat tracks attached to the
beams.
(g) Wing-to-body structural attachments.
(h) Engine strut support fittings attached directly to
wing primary structure.
(i) Support structure in the wing for spoilers and spoiler
actuators; for aileron hinges and reaction links; and
for leading edge devices and trailing edge flaps.
(j) Leading edge device and trailing edge flap support
system.
(k) Aileron leading edge device and trailing edge flap
internal, fixed attachment and actuator support
structure.
2. Body.
(a) External surface skins and doublers, longitudinal
stiffeners, longerons and circumferential rings and
frames between the forward pressure bulkhead and the
vertical stabilizer rear spar bulkhead, and structural
support and enclosure for the APU but excluding all
system components and related installation and
connecting devices, insulation, lining, and decorative
panels and related installation and connecting
devices.
(b) Window and windshield structure but excluding the
windows and windshields.
(c) Fixed attachment structure of the passenger doors,
cargo doors and emergency exits excluding door
mechanisms and movable hinge components. Sills and
frames around the body openings for the passenger
doors, cargo doors and emergency exits, excluding
scuff plates and pressure seals.
(d) Nose wheel well structure, including the wheel well
walls, pressure deck, forward and aft bulkheads, and
the gear support structure.
(e) Main gear wheel well structure including pressure
deck, bulkheads and landing gear beam support
structure.
(f) Floor beams and support posts in the control cab and
passenger cabin area, but excluding seat tracks.
(g) Forward and aft pressure bulkheads.
(h) Keel structure between the wing front spar bulkhead
and the main gear wheel well aft bulkhead, including
splices.
(i) Wing front and rear spar support bulkheads, and
vertical and horizontal stabilizer front and rear spar
support bulkheads including terminal fittings but
excluding all system components and related
installation and connecting devices, insulation,
lining, and decorative panels and related installation
and connecting devices.
(j) Support structure in the body for the stabilizer pivot
and stabilizer screw.
3. Vertical Stabilizer.
(a) External skins between front and rear spars including
splices.
(b) Front, rear and auxiliary spar chords, webs and
stiffeners, and attachment fittings between vertical
stabilizer and body.
(c) Inspar ribs.
(d) Support structure in the vertical stabilizer for
rudder hinges, reaction links and actuators.
(e) Rudder internal, fixed attachment and actuator support
structure.
(f) Rudder hinges and supporting ribs, excluding bearings.
4. Horizontal Stabilizer.
(a) External skins between front and rear spars.
(b) Front, rear and auxiliary spar chords, webs and
stiffeners.
(c) Inspar ribs.
(d) Stabilizer center section and fittings splicing to
outboard stabilizer including pivot and screw support
structure.
(e) Support structure in the horizontal stabilizer for the
elevator hinges, reaction links and actuators.
(f) Elevator internal, fixed attachment and actuator
support structure.
5. Engine Strut.
(a) Strut external surface skin and doublers and
stiffeners.
(b) Internal strut chords, frames and bulkheads.
(c) Strut to wing fittings and diagonal brace.
(d) Engine mount support fittings attached directly to
strut structure.
(e) For Aircraft equipped with General Electric or Pratt
& Whitney engines only, the engine mounted support
fittings.
6. Main Landing Gear.
(a) Outer cylinder.
(b) Inner cylinder.
(c) Upper and lower side strut, including spindles and
universals.
(d) Upper and lower drag strut, including spindles and
universals.
(e) Orifice support tube.
(f) Downlock links, including spindles and universals
(g) Torsion links.
(h) Bogie beam.
(i) Axles.
(j) Retraction Links.
7. Nose Landing Gear.
(a) Outer cylinder.
(b) Inner cylinder, including axles.
(c) Orifice support tube.
(d) Upper and lower drag strut, including lock links.
(e) Steering plates and steering collar.
(f) Torsion links.
(g) Actuator support beam and hanger.
(h) Retraction Links.
NOTE: The Service Life Policy does not cover any bearings, bolts,
bushings, clamps, brackets, actuating mechanisms or latching
mechanisms used in or on the SLP Components.
November 16, 1998
2211-01
Continental Airlines, Inc.
1600 Smith
Houston, TX 77002
Subject: Option Aircraft
Reference: Purchase Agreement 2211 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 767-224ER
aircraft (the Aircraft)
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement
have the same meaning as in the Purchase Agreement.
Boeing agrees to manufacture and sell to Customer additional Model
767-224ER aircraft as Option Aircraft. The delivery months, number
of aircraft, Advance Payment Base Price per aircraft and advance
payment schedule are listed in the Attachment to this Letter
Agreement (the Attachment).
1. Aircraft Description and Changes
1.1 Aircraft Description: The Option Aircraft are
described by the Detail Specification listed in the Attachment.
1.2 Changes: The Detail Specification will be revised to
include:
(i) Changes applicable to the basic Model 767
aircraft which are developed by Boeing between
the date of the Detail Specification and the
signing of the definitive agreement to
purchase the Option Aircraft;
(ii) Changes required to obtain required regulatory
certificates; and
(iii) Changes mutually agreed upon.
2. Price
2.1 The pricing elements of the Option Aircraft are listed
in the Attachment.
2.2 Price Adjustments.
2.2.1 Optional Features. The Optional Features
Prices selected for the Option Aircraft will be adjusted to
Boeing's current prices as of the date of execution of the
definitive agreement for the Option Aircraft.
2.2.2 Escalation Adjustments. The Airframe Price and
the Optional Features Prices for Option Aircraft delivering before
January, 2005, will be escalated on the same basis as the Aircraft,
and will be adjusted to Boeing's then-current escalation provisions
as of the date of execution of the definitive agreement for the
Option Aircraft.
The engine manufacturer's current escalation provisions, listed in
Exhibit Supplement EE1 to the Purchase Agreement have been
estimated to the months of scheduled delivery using commercial
forecasts to calculate the Advance Payment Base Price listed in the
Attachment to this Letter Agreement. The engine escalation
provisions will be revised if they are changed by the engine
manufacturer prior to the signing of a definitive agreement for the
Option Aircraft.
2.2.3 Base Price Adjustments. The Airframe Price and
the Engine Price of the Option Aircraft delivering before January,
2005, will be adjusted to Boeing's and the engine manufacturer's
then current prices as of the date of execution of the definitive
agreement for the Option Aircraft.
2.2.4 Prices for Long Lead Time Aircraft. Boeing and
the engine manufacturer have not established prices and escalation
provisions for Model 767-224ER aircraft and engines for delivery in
the year 2005 and after. When prices and the pricing bases are
established for the Model 767-224ER aircraft delivering in the year
2005 and after, the information listed in the Attachment will be
appropriately amended.
3. Payment.
3.1 Customer will pay a deposit to Boeing in the amount
shown in the Attachment for each Option Aircraft (Deposit), on the
date of this Letter Agreement. If Customer exercises an option,
the Deposit will be credited against the first advance payment due.
If Customer does not exercise an option, Boeing will retain the
Deposit for that Option Aircraft.
3.2 Following option exercise, advance payments in the
amounts and at the times listed in the Attachment will be payable
for the Option Aircraft. The remainder of the Aircraft Price for
the Option Aircraft will be paid at the time of delivery.
4. Option Exercise.
Customer may exercise an option by giving written notice to Boeing
on or before the date [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT] months prior to the first
business day of the applicable delivery month listed in the
Attachment (Option Exercise Date).
5. Contract Terms.
Boeing and Customer will use their best efforts to reach a
definitive agreement for the purchase of an Option Aircraft,
including the terms and conditions contained in this Letter
Agreement, in the Purchase Agreement, and other terms and
conditions as may be agreed upon to add the Option Aircraft to the
Purchase Agreement as an Aircraft. In the event the parties have
not entered into a definitive agreement within 30 days following
option exercise, either party may terminate the purchase of such
Option Aircraft by giving written notice to the other within 5
days. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
Very truly yours,
THE BOEING COMPANY
By /s/ J. A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: November 16, 1998
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
Attachment
Attachment to
Letter Agreement No. 2211-01
Option Aircraft Delivery, Description, Price and Advance Payments
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
November 16, 1998
2211-02
Continental Airlines, Inc.
1600 Smith
Houston, TX 77002
Subject: Demonstration Flights
Reference: Purchase Agreement No. 2211 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 767-224ER
aircraft (the Aircraft)
Ladies and Gentlemen:
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement
shall have the same meaning as in the Purchase Agreement.
Definition of Terms:
Correction Costs: Customer's or a third party's direct labor costs
and the cost of any material required to correct a Flight
Discrepancy where direct labor costs are equal to the warranty
labor rate in effect between the parties at the time such labor is
expended.
Flight Discrepancy: A failure or malfunction of an Aircraft, or
the accessories, equipment or parts installed on the Aircraft which
results from a defect in the Aircraft, Boeing Product, engine or
Supplier Product or a nonconformance to the Detail Specification
for the Aircraft.
The AGTA provides that each aircraft will be test flown prior to
delivery for the purpose of demonstrating the functioning of such
Aircraft and its equipment to Customer; however, Customer may elect
to waive this test flight. For each test flight waived, Boeing
agrees to provide Customer an amount of jet fuel at delivery that,
together with the standard fuel entitlement, totals [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] U.S. gallons.
Further, Boeing agrees to reimburse Customer for any Correction
Costs incurred as a result of the discovery of a Flight Discrepancy
during the first flight of the aircraft by Customer following
delivery to the extent such Correction Costs are not covered under
a warranty provided by Boeing, the engine manufacturer or any of
Boeing's suppliers.
Should a Flight Discrepancy be detected by Customer which requires
the return of the Aircraft to Boeing's facilities at Seattle,
Washington, so that Boeing may correct such Flight Discrepancy,
Boeing and Customer agree that title to and risk of loss of such
Aircraft will remain with Customer. Any such correction by Boeing
shall be at no cost to Customer. In addition, it is agreed that
Boeing will have responsibility for the Aircraft while it is on the
ground at Boeing's facilities in Seattle, Washington, as is
chargeable by law to a bailee for mutual benefit, but Boeing shall
not be chargeable for loss of use.
To be reimbursed for Correction Costs, Customer shall submit a
written itemized statement describing any flight discrepancies and
indicating the Correction Cost incurred by Customer for each
discrepancy. This request must be submitted to Boeing's Contracts
Regional Director at Renton, Washington, within ninety (90) days
after the first flight by Customer.
Very truly yours,
THE BOEING COMPANY
By /s/ J. A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: November 16, 1998
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
November 16, 1998
2211-03
Continental Airlines, Inc.
1600 Smith
Houston, TX 77002
Subject: Spares Initial Provisioning
Reference: Purchase Agreement No. 2211 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 767-224ER
aircraft (the Aircraft)
Ladies and Gentlemen:
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement
shall have the same meaning as in the Purchase Agreement.
1. Applicability.
This Letter Agreement will apply to initial provisioning for
the Model 767-224ER Aircraft purchased by Customer under the
Purchase Agreement.
2. Initial Provisioning Meeting.
Boeing will conduct an initial provisioning meeting (Initial
Provisioning Meeting) with Customer to establish mutually agreeable
procedures to accomplish Customer's initial provisioning of spare
parts for the Aircraft. The parties will agree, during the Initial
Provisioning Meeting on the operational data to be provided by
Customer for Boeing's use in preparing its quantity recommendations
for initial provisioning of spare parts for the Aircraft, exclusive
of special tools, ground support equipment, engines and engine
parts (Provisioning Items). Such operational data to be provided
by Customer will be the data described in Chapter 6 of Boeing
Manual D6-81834, entitled "Spares Provisioning Products Guide"
(Boeing Spares Provisioning Products Guide) which will be furnished
to Customer prior to the Initial Provisioning Meeting. The parties
will also agree on the provisioning documentation to be provided by
Boeing as described in Boeing Spares Provisioning Products Guide
(such data will be hereinafter referred to collectively as the
"Provisioning Data"). Boeing will provide instruction in the use
of the initial provisioning documentation. This instruction will
be provided in conjunction with the Initial Provisioning Meeting.
In addition, the parties will discuss spares ordering procedures
and other matters related to the provisioning for the Aircraft.
The time and location for such Initial Provisioning Meeting will be
mutually agreed upon between the parties.
3. Initial Provisioning Documentation.
3.1 Provisioning Data. Boeing will furnish Provisioning
Data to Customer on or about [CONFIDENTIAL MATERIAL OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT]. The
Provisioning Data will be as complete as possible and will cover
Provisioning Items selected by Boeing for review by Customer for
initial provisioning for the Aircraft. The Provisioning Data will
set forth the prices for Provisioning Items which are Boeing Spare
Parts and such prices will be firm and remain in effect until the
date or dates set forth below in Paragraph 4.1, Boeing Spare Parts,
by which orders must be placed with Boeing. Boeing will, from time
to time, until a date approximately 90 days following delivery of
the last Aircraft or until the delivery configuration of each of
the Aircraft is reflected in the Provisioning Data, whichever is
later, furnish to Customer revisions to the Provisioning Data.
3.2 Provisioning IPC. Boeing will, on or about
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] furnish to Customer a Boeing Illustrated
Parts Catalog (IPC), hereinafter referred to as the "Provisioning
IPC." The Provisioning IPC will be as complete as possible and
will cover Provisioning Items selected by Boeing for review by
Customer for initial provisioning for the Aircraft. Boeing will,
from time to time, until a date approximately 90 days following
delivery of the last Aircraft, or until the delivery configuration
of each of the Aircraft is reflected in the Provisioning IPC,
whichever is later, furnish to Customer revisions to the
Provisioning IPC.
3.3 Buyer Furnished Equipment (BFE) Provisioning Data.
3.3.1 Boeing's Responsibility. Boeing will include
BFE end items in the Provisioning Data and Provisioning IPC for BFE
installed on Customer's Aircraft provided such equipment has been
installed on other Aircraft by Boeing and Boeing has data on the
BFE.
3.3.2 Customer's Responsibility. Customer will be
responsible for ensuring BFE data is provided to Boeing by the BFE
supplier in a format reasonably acceptable to Boeing for BFE not
covered by 3.3.1 above. If the data is not provided to Boeing in
a timely manner and in a format reasonably acceptable to Boeing,
such BFE equipment will not be included in Boeing's Provisioning
Data or IPC.
3.4 Other Data. Boeing will submit to Customer listings
of raw materials, standard parts and bulk materials to be used by
Customer in the maintenance and repair of the Aircraft.
4. Purchase from Boeing of Spare Parts as Initial Provisioning
for the Aircraft.
4.1 Boeing Spare Parts. Customer will place orders for
Provisioning Items by [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]; provided, however, that in
those instances where Boeing submits any revision to the
Provisioning Data, Customer will place orders for Boeing Spare
Parts covered by such revision within 90 days following the date of
such submittal. At Customer's request, Boeing will process
"controlled shipments" by shipping full or partial quantities of an
order on a schedule specified by Customer, provided the final
shipment is made no later than 24 months after receipt of the
order.
4.2 Vendor Provisioning Items. Customer may place orders
with Boeing for Provisioning Items which are manufactured by
vendors or to their detailed design and are covered by the
Provisioning Data as initial provisioning for the Aircraft. The
price to Customer for any such vendor Provisioning Item will be
112% of the vendor's quoted price to Boeing therefor. If Customer
elects to purchase such vendor Provisioning Items from Boeing,
Customer will place its orders therefor in accordance with the
provisions of Paragraph 4.1, Boeing Spare Parts.
4.3 Ground Support Equipment and Special Tools. Customer
may place orders with Boeing for ground support equipment (GSE) and
special tools manufactured by vendors which Customer determines it
will initially require for maintenance, overhaul and servicing of
the Aircraft and/or engines. The price to Customer for such GSE or
special tools will be 112% of the vendor's quoted price to Boeing
therefor. If Customer elects to purchase such GSE and special
tools from Boeing, Customer will place its orders therefor by the
date set forth in Paragraph 4.1, Boeing Spare Parts or such later
date as the parties may mutually agree.
4.4 Spare Engines and Engine Spare Parts. Customer may
place orders with Boeing for spare engines and/or engine spare
parts which Customer determines it will initially require for
support of the Aircraft or for maintenance and overhaul of the
engines. The price to Customer for such spare engines or such
engine spare parts, will be 105% of the engine manufacturer's
quoted price to Boeing for the engine, and 112% of the engine
manufacturer's quoted price to Boeing for the engine spare parts.
If Customer elects to purchase such spare engines or engine spare
parts through Boeing, Customer will place its orders on a date to
be mutually agreed upon during the Initial Provisioning Meeting.
4.5 QEC Kits. Boeing will, on or about [CONFIDENTIAL
MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT] furnish to Customer a listing of all components which
could be included in the Quick Engine Change (QEC) kits which may
be purchased by Customer from Boeing. Customer agrees to review
such listing and indicate by marking on one copy of such listing
those components that Customer desires included in its QEC kits.
Customer will return such marked copy to Boeing within 30 days
after Customer's receipt of such listing. Within 30 days after
Boeing's receipt of such marked copy, Boeing will republish such
listing to reflect only those components selected by Customer and
will provide copies of such republished listing to Customer.
Boeing will from time to time furnish revisions to such republished
listing until a date approximately 90 days after delivery of the
last QEC kit ordered by Customer for the Aircraft. Boeing will
furnish to Customer as soon as practicable a statement setting
forth a firm price for the QEC kit configuration selected by
Customer. Customer agrees to place orders with Boeing for the QEC
kits for the Aircraft by [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
4.6 Payment for Provisioning Items. The payment
provisions of the Customer Services General Terms Agreement (CSGTA)
between Boeing and Customer will be applicable to Provisioning
Items ordered by Customer from Boeing for the Aircraft.
5. Delivery.
Boeing will, insofar as reasonably possible, deliver to
Customer the Spare Parts ordered by Customer in accordance with the
provisions of this letter on dates reasonably calculated to conform
to Customer's anticipated needs in view of the scheduled deliveries
of the Aircraft. Customer and Boeing will agree upon the date to
begin delivery of the Provisioning Spare Parts ordered in
accordance with this letter. Where appropriate, Boeing will
arrange for shipment of such Spare Parts, which are manufactured by
vendors, directly to Customer from the applicable vendor's
facility. The routing and method of shipment for initial
deliveries and all subsequent deliveries of such Spare Parts will
be as mutually agreed between Boeing and Customer.
6. Substitution for Obsolete Spare Parts.
6.1 Obligation to Substitute. In the event that, prior to
delivery of the first Aircraft pursuant to the Purchase Agreement,
any Spare Part purchased by Customer from Boeing in accordance with
this letter is rendered obsolete or unusable due to the redesign of
the Aircraft or of any accessory, equipment or part thereof (other
than a redesign at Customer's request), Boeing will deliver to
Customer new and usable Spare Parts in substitution for such
obsolete or unusable Spare Parts and Customer will return the
obsolete or unusable Spare Parts to Boeing. Boeing will credit
Customer's account with Boeing with the price paid by Customer for
any such obsolete or unusable Spare Part and will invoice Customer
for the purchase price of any such substitute Spare Part delivered
to Customer.
6.2 Delivery of Obsolete Spare Parts and Substitutes
Therefor. Obsolete or unusable Spare Parts returned by Customer
pursuant to this Item will be delivered to Boeing at its Seattle
Distribution Center, or such other destination as Boeing may
reasonably designate. Spare Parts substituted for such returned
obsolete or unusable Spare Parts will be delivered to Customer at
Boeing's Seattle Distribution Center, or such other Boeing shipping
point as Boeing may reasonably designate. Boeing will pay the
freight charges for the shipment from Customer to Boeing of any
such obsolete or unusable Spare Part and for the shipment from
Boeing to Customer of any such substitute Spare Part.
7. Repurchase of Provisioning Items.
7.1 Obligation to Repurchase Peculiar Provisioning Items.
During a period commencing 1 year after delivery of the first
Aircraft under the Purchase Agreement, and ending 5 years after
such delivery, Boeing will, upon receipt of Customer's written
request and subject to the exceptions in Paragraph 7.2, Exceptions,
repurchase unused and undamaged Provisioning Items which (i) were
recommended by Boeing in the Provisioning Data as initial
provisioning for the Aircraft, (ii) were purchased by Customer from
Boeing, and (iii) are surplus to Customer's needs.
7.2 Exceptions. Boeing will not be obligated under
Paragraph 7.1, Obligation to Repurchase, to repurchase any of the
following: (i) quantities of Provisioning Items in excess of those
quantities recommended by Boeing in the Provisioning Data for the
Aircraft, (ii) QEC Kits, bulk material bits, raw material kits,
service bulletin kits, standards kits and components thereof
(except those components listed separately in the Provisioning
Data), (iii) Provisioning Items for which an Order was received by
Boeing more than 8 months after delivery of the last Aircraft, (iv)
Provisioning Items which have become obsolete or have been replaced
by other Provisioning Items as a result of (a) Customer's
modification of the Aircraft or (b) design improvements by Boeing
or the vendor (other than Provisioning Items which have become
obsolete because of a defect in design if such defect has not been
remedied by an offer by Boeing or the vendor to provide no charge
retrofit kits or replacement parts which correct such defect), and
(v) Provisioning Items which become excess as a result of a change
in Customer's operating parameters, provided to Boeing pursuant to
the Initial Provisioning meeting in Paragraph 2, which were the
basis of Boeing's initial provisioning recommendations for the
Aircraft.
7.3 Notification and Format. Customer will notify Boeing,
in writing, when Customer desires to return Provisioning Items
which Customer's review indicates are eligible for repurchase by
Boeing under the provisions of this Repurchase of Provisioning
Items paragraph. Customer's notification will include a detailed
summary, in part number sequence, of the Provisioning Items
Customer desires to return. Such summary will be in the form of
listings, tapes, diskettes or other media as may be mutually agreed
between Boeing and Customer, and will include part number,
nomenclature, purchase order number, purchase order date and
quantity to be returned. Within 5 business days after receipt of
Customer's notification, Boeing will advise Customer, in writing,
when Boeing's review of such summary will be completed, but in no
case will the Boeing review be completed more than 30 days after
receipt of Customer's notification.
7.4 Review and Acceptance by Boeing. Upon completion of
Boeing's review of any detailed summary submitted by Customer
pursuant to Paragraph 7.3, Boeing will issue to Customer a Material
Return Authorization (MRA) for those Provisioning Items Boeing
agrees are eligible for repurchase in accordance with this
Repurchase of Provisioning Items paragraph. Boeing will advise
Customer of the reason that any spare part included in Customer's
detailed summary is not eligible for return. Boeing's MRA will
state the date by which Provisioning Items listed in the MRA must
be redelivered to Boeing and Customer will arrange for shipment of
such Provisioning Items accordingly.
7.5 Price and Payment. The price of each Provisioning
Item repurchased by Boeing pursuant to this Repurchase of
Provisioning Items paragraph will be an amount equal to 100% of the
original invoice price thereof. In the case of Provisioning Items
manufactured by a vendor which were purchased pursuant to
Paragraph 4, Purchase from Boeing of Spare Parts as Initial
Provisioning for the Aircraft, hereof the repurchase price will not
include Boeing's 12% handling charge. Boeing will pay the
repurchase price by issuing a credit memorandum in favor of
Customer which may be applied against amounts due Boeing for the
purchase of aircraft, Spare Parts, services or data.
7.6 Delivery of Provisioning Items. Provisioning Items
repurchased by Boeing pursuant to this Repurchase of Provisioning
Items paragraph will be delivered to Boeing F.O.B. at its Seattle
Distribution Center, or such other destination as Boeing may
reasonably designate. Boeing will pay the freight charges for the
shipment from Customer to Boeing of any such Provisioning Items.
8. Obsolete Spare Parts and Surplus Provisioning Items - Title
and Risk of Loss.
Title to and risk of loss of any obsolete or unusable Spare
Parts returned to Boeing pursuant to Paragraph 6, Substitution for
Obsolete Spare Parts, will pass to Boeing upon delivery thereof to
Boeing. Title to and risk of loss of any Spare Part substituted
for an obsolete or unusable Spare Part pursuant to Paragraph 6,
Substitution for Obsolete Spare Parts, will pass to Customer upon
delivery thereof to Customer. Title to and risk of loss of any
Provisioning Item repurchased by Boeing pursuant to Paragraph 7,
Repurchase of Provisioning Items, will pass to Boeing upon
delivery thereof to Boeing. With respect to the obsolete or
unusable Spare Parts which may be returned to Boeing and the Spare
Parts substituted therefor, pursuant to Paragraph 6, and the
Provisioning Items which may be repurchased by Boeing, pursuant to
Paragraph 7, the party which has risk of loss of any such Spare
Part or Provisioning Item will have the responsibility of providing
any insurance coverage for it desired by such party.
9. Supplier Support.
Boeing has entered, or anticipates entering, into product
support agreements with suppliers (Boeing Suppliers) of major
system components manufactured by such Suppliers to be installed on
the Aircraft (Supplier Components). Such product support
agreements commit, or are expected to commit, the Boeing Suppliers
to provide to Boeing's customers and/or such customer's designees
support services with respect to the Supplier Components which can
be reasonably expected to be required during the course of normal
operation. This support includes but is not limited to shelf-stock
of certain spare parts, emergency spare parts, timely delivery of
spare parts, and technical data related to the Supplier Components.
Copies of such product support agreements will be provided to
Customer on or about January 1, 1999, in Boeing Document D6-56115,
Volumes 1 and 2. In the event Customer has used due diligence in
attempting to resolve any difficulty arising in normal business
transactions between Customer and a Boeing Supplier with respect to
product support for a Supplier Component manufactured by such
Supplier and if such difficulty remains unresolved, Boeing will, if
requested by Customer, assist Customer in resolving such
difficulty. Assistance will be provided by the Customer Supplier
Services organization.
10. Termination for Excusable Delay.
In the event of termination of the Purchase Agreement with
respect to any Aircraft pursuant to Article 7 of the AGTA, such
termination will, if Customer so requests by written notice
received by Boeing within 15 days after such termination, also
discharge and terminate all obligations and liabilities of the
parties as to any Spare Parts which Customer had ordered pursuant
to the provisions of this letter as initial provisioning for such
Aircraft and which are undelivered on the date Boeing receives such
written notice.
Very truly yours,
THE BOEING COMPANY
By /s/ J. A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: November 16, 1998
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
November 16, 1998
2211-04
Continental Airlines, Inc.
1600 Smith
Houston, TX 77002
Subject: Flight Crew Training Spare Parts Support
Reference: Purchase Agreement No. 2211 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 767-224ER
aircraft (the Aircraft)
Ladies and Gentlemen:
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement
shall have the same meaning as in the Purchase Agreement.
Definition of Terms:
Flight Crew Training: Flight training occurring immediately
following delivery using Boeing facilities.
Removed Parts: Parts removed from an Aircraft during Flight Crew
Training.
Replacement Parts: Parts taken from Boeing inventory and installed
in an Aircraft because no Standby Parts are available.
Standby Parts: Parts which are owned by Customer and located at
Customer's designated storage area at Boeing to support Flight Crew
Training. The Standby Parts list, including part numbers, exact
quantities and on-dock dates, will be established during the spares
provisioning meeting.
Training Aircraft: The Aircraft delivered to Customer used for
Flight Crew Training.
1. Provisioning of Spare Parts
To support Flight Crew Training, Boeing agrees to provide
normal line maintenance and expendable spare parts at no charge on
the Training Aircraft; and, Customer agrees to provide Standby
Parts for the Training Aircraft.
If parts other than those discussed above fail, Boeing will
attempt to provide Replacement Parts for those failed parts in
order to prevent extended down time on the Training Aircraft. If
Boeing is unable to provide Replacement Parts, Customer will be
responsible for providing those parts.
2. Disposition of Removed Parts
Boeing may with Customer consent either:
(i) repair such Removed Parts, at no charge to Customer,
and either retain such parts as Standby Parts or return the Removed
Parts to Customer, at Customer expense; or
(ii) return the Removed Parts to Customer at Customer's
expense; or
(iii) return the Removed Parts to the manufacturer for
repair or replacement under such manufacturer's warranty. Upon
Boeing's receipt of the repaired Removed Parts or their
replacements, Boeing may retain such Removed Parts or their
replacements as Standby Parts or return such Removed Parts or their
replacements to Customer, at Customer's expense. Any Removed Parts
returned to Customer, or replacements, will be accomplished in
accordance with any written instructions from Customer received by
Boeing prior to such return.
3. Payment for of Replacement Parts
Boeing will invoice Customer for Replacement Parts at
Boeing's standard price for such part.
4. Redelivery of Standby Parts
Standby Parts not installed in the Training Aircraft will be
redelivered to Customer on board the last aircraft used for Flight
Crew Training.
5. Non-performance by Customer
If Customer's non-performance of obligations in this Letter
Agreement causes a delay in the Flight Crew Training, Customer will
be deemed to have agreed to any such delay in Flight Crew Training.
In addition, Boeing will have the right to:
(i) purchase Standby Parts and invoice Customer for the
price of such Parts and for any necessary adjustment and
calibration of such Parts;
(ii) cancel or reschedule the Flight Crew Training, or
(iii) invoice Customer for any out-of-pocket expenses,
including but not limited to ground handling expenses,
maintenance costs and storage costs, that are directly
attributable to the delay in the Flight Crew Training.
6. Customer Warranty
Customer warrants that the Standby Parts will meet the
requirements of the Detail Specification and be in a condition to
pass Boeing's receiving inspection and functional test, and if not
in a new condition, will have an attached FAA Serviceable Parts
Tag.
7. Title and Risk of Loss
Title to and risk of loss of any Standby Parts or Removed
Parts will remain with Customer. Boeing will have only such
liability for Standby Parts and Removed Parts as a bailee for
mutual benefit would have, but will not be liable for loss of use.
For Replacement Parts, title will transfer to Customer at the time
such part is installed on the Training Aircraft.
Very truly yours,
THE BOEING COMPANY
By /s/ J. A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: November 16, 1998
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
November 16, 1998
2211-05
Continental Airlines, Inc.
1600 Smith
Houston, TX 77002
Subject: Escalation Sharing
Reference: Purchase Agreement No. 2211 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 767-224ER
aircraft (the Aircraft)
Ladies and Gentlemen:
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement
have the same meaning as in the Purchase Agreement.
1. Commitment.
Boeing agrees to share one-half of the escalation, up to a
maximum of [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] percent, in the last half of the year 1998
according to the terms in paragraph 2 below. This applies to any
of Customer's aircraft which are scheduled to deliver after July 1,
1998. For the purpose of this Letter Agreement such aircraft are
referred to as "Eligible Aircraft."
All escalation calculations under this Letter Agreement will be
made in accordance with Exhibit D to the AGTA between Boeing and
Customer, using actual escalation indices published for the
applicable period.
2. Escalation Credit Memo.
2.1 Calculation - Eligible Aircraft Delivering in July
1998 or later.
At the time of delivery of each Eligible Aircraft
delivering in July 1998 or later, Boeing will issue to Customer a
credit memorandum (the 1998 Credit Memorandum) which will be
applied to the Aircraft Price of such Eligible Aircraft. The 1998
Credit Memorandum is calculated as follows:
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2.2 Eligible Aircraft Delivering 1999 or later.
For Eligible Aircraft delivering during or after the
calendar year 1998, the amount of the Credit Memorandum will be the
amount calculated pursuant to paragraph 2.1 above. This credit
memorandum amount will be escalated from December 1998 to the month
of delivery for Eligible Aircraft delivering after 1998.
3. Advance Payment Base Price.
It is agreed that the Advance Payment Base Prices for the
Eligible Aircraft set forth in the Purchase Agreement include an
estimate for the escalation sharing Credit Memorandum pursuant to
this Letter Agreement.
Very truly yours,
THE BOEING COMPANY
By /s/ J. A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: November 16, 1998
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
November 16, 1998
6-1162-JMG-0089
Continental Airlines, Inc.
1600 Smith
Houston, TX 77002
Subject: Aircraft Performance Guarantees
Reference: Purchase Agreement No. 2211 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 767-
224ER aircraft (the Aircraft)
Ladies and Gentlemen:
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement
have the same meaning as in the Purchase Agreement.
Boeing agrees to provide Customer with the performance guarantees
in the Attachment hereto. These guarantees are exclusive and
expire upon delivery of the Aircraft to Customer.
Boeing and Customer understand that certain information
contained in this Letter Agreement, including any attachments
hereto, are considered by both parties to be confidential. Boeing
and Customer agree that each party will treat this Letter Agreement
and the information contained herein as confidential and will not,
without the other party's prior written consent, disclose this
Letter Agreement or any information contained herein to any other
person or entity except as may be required by applicable law or
governmental regulations.
Very truly yours,
THE BOEING COMPANY
By /s/ J. A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: November 16, 1998
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
Attachment to Letter Agreement
No. 6-1162-JMG-0089
CF6-80C2B4F Engines
Page 1
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
November 16, 1998
6-1162-JMG-0090
Continental Airlines, Inc.
1600 Smith
Houston, TX 77002
Subject: Promotion Support
Reference: Purchase Agreement No. 2211 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 767-
224ER aircraft (the Aircraft)
Ladies and Gentlemen:
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used but not defined in this Letter Agreement
have the same meaning as in the Purchase Agreement.
Boeing agrees to make available to Customer [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT] U.S.
Dollars) for Customer's marketing and promotion programs associated
with the introduction of the first Aircraft into service, and
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT] U.S. Dollars) for each subsequent Aircraft
delivered within two years after the delivery of the first
Aircraft. These programs may include marketing research; tourism
development; corporate identity; direct marketing; video tape, or
still photography; planning, design and production of collateral
materials; management of promotion program and advertising
campaigns.
Boeing's obligation to provide the support will commence at the
time the purchase of the Aircraft becomes firm (not subject to
cancellation by either party) and will [CONFIDENTIAL MATERIAL
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT].
There will be no cash payments or other support in lieu thereof.
Following the execution of this Letter Agreement, a Boeing Airline
Promotion representative will meet with Customer's designated
representative to discuss the extent, selection, scheduling, and
funds disbursement process for the program.
Very truly yours,
THE BOEING COMPANY
By /s/ J. A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: November 16, 1998
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
November 16, 1998
6-1162-JMG-0092
Continental Airlines, Inc.
1600 Smith
Houston, Texas 77002
Subject: Special Matters
Reference: Purchase Agreement No. 2211 (the Purchase Agreement)
between The Boeing Company (Boeing) and Continental
Airlines, Inc. (Customer) relating to Model 767-
224ER aircraft (the Aircraft)
Ladies and Gentlemen:
This Letter Agreement amends and supplements the Purchase
Agreement. All terms used and not defined in this Letter Agreement
shall have the same meaning as in the Purchase Agreement.
1. Credit Memoranda.
In consideration of Customer's purchase of Model 767-224ER
Aircraft, Boeing shall issue at the time of delivery of each
Aircraft and Option Aircraft, a credit memorandum in an amount
equal to [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]. The credit memorandum is subject to the
same airframe escalation as is used to calculate the Aircraft Price
at the time of delivery. The credit memorandum may be used by
Customer for the purchase of Boeing goods and services or applied
to the balance due at the time of Aircraft delivery.
2. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
2.2 Option Aircraft. [CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT]
3. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
4. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
5. [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
6. Option Aircraft.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
7. Aircraft Invoices.
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
8. Assignment of Credits.
Customer may not assign the credit memoranda described in
this Letter Agreement without Boeing's prior written consent
[CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT]
9. Confidential Treatment.
Boeing and Customer understand that certain information
contained in this Letter Agreement, including any attachments
hereto, are considered by both parties to be confidential. Boeing
and Customer agree that each party will treat this Letter Agreement
and the information contained herein as confidential and will not,
without the other party's prior written consent, disclose this
Letter Agreement or any information contained herein to any other
person or entity except as may be required by applicable law or
governmental regulations.
Very truly yours,
THE BOEING COMPANY
By /s/ J. A. McGarvey
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date: November 16, 1998
CONTINENTAL AIRLINES, INC.
By /s/ Brian Davis
Its Vice President
EXHIBIT 10.30
AIRPORT USE AND LEASE AGREEMENT
by and between
CITY OF HOUSTON
and
CONTINENTAL AIRLINES, INC.
Effective January 1, 1998
TABLE OF CONTENTS
Page
Article I
DEFINITIONS
Article II
RIGHTS AND PRIVILEGES
Section 2.01. Use of Airport . . . . . . . . . . . . . . 7
Section 2.02. Rights Reserved by City. . . . . . . . . . 8
Section 2.03. Limitations of Use of Airport. . . . . . . 9
Section 2.04. Parking. . . . . . . . . . . . . . . . . . 10
Section 2.05. Ingress and Egress . . . . . . . . . . . . 10
Section 2.06. Sales or Distribution of Food / Beverages. 11
Section 2.07. Use of IAB Facilities for International
Arriving Passengers. . . . . . . . . . . . 12
Article III
TERM
Section 3.01. Term . . . . . . . . . . . . . . . . . . . 13
Section 3.02. Option to Extend Term of Terminal B Lease. 13
Section 3.03. Airline's Rights Upon Expiration or
Early Termination of Agreement . . . . . . 13
Article IV
LEASED PREMISES
Section 4.01. Terminal B Leased Premises . . . . . . . . 14
Section 4.02. Terminal C Leased Premises . . . . . . . . 18
Section 4.03. Airline's Use of Terminal Improvements
and Ground Lease Premises Conveyed By B
Special Facilities Lease . . . . . . . . . 19
Section 4.04. Surrender of Leased Premises . . . . . . . 19
Section 4.05. Covenant Against Liens . . . . . . . . . . 20
Section 4.06. Quiet Enjoyment. . . . . . . . . . . . . . 20
Article V
RENTALS AND FEES
Section 5.01. General. . . . . . . . . . . . . . . . . . 21
Section 5.02. Statistical Report . . . . . . . . . . . . 21
Section 5.03. Terminal Building Rentals. . . . . . . . . 22
Section 5.04. Security Fees. . . . . . . . . . . . . . . 22
Section 5.05. Apron Fees / Ground Area Rental. . . . . . 22
Section 5.06. Landing Fees . . . . . . . . . . . . . . . 22
Section 5.07. Other Fees and Charges . . . . . . . . . . 22
Section 5.08. Security Deposit . . . . . . . . . . . . . 23
Section 5.09. Payment Provisions . . . . . . . . . . . . 23
Section 5.10 No Other Fees and Charges. . . . . . . . . 24
Article VI
RECALCULATION OF RENTALS AND FEES
Section 6.01. General. . . . . . . . . . . . . . . . . . 25
Section 6.02. Terminal Rental Rates. . . . . . . . . . . 25
Section 6.03. Apron Fee Rates. . . . . . . . . . . . . . 26
Section 6.04. Landing Fee Rate . . . . . . . . . . . . . 28
Section 6.05. Automated People Mover System Costs. . . . 28
Section 6.06. Mid-Year Rate Adjustments. . . . . . . . . 29
Section 6.07. Year-End Adjustment to Actual
and Settlement . . . . . . . . . . . . . . 30
Article VII
CONSTRUCTION OF IMPROVEMENTS
Section 7.01. Construction By City . . . . . . . . . . . 31
Section 7.02. Construction By Airline. . . . . . . . . . 32
Section 7.03. Future Capital Improvements. . . . . . . . 33
Article VIII
OPERATION AND MAINTENANCE
Section 8.01. Obligations of City. . . . . . . . . . . . 34
Section 8.02. Obligations of Airline . . . . . . . . . . 35
Article IX
INDEMNIFICATION
Section 9.01. Release and Indemnification of City. . . . 37
Article X
INSURANCE
Section 10.01. General. . . . . . . . . . . . . . . . . . 39
Section 10.02. Risks and Minimum Limits of Coverage . . . 39
Section 10.03. Other Provisions . . . . . . . . . . . . . 40
Article XI
DAMAGE OR DESTRUCTION OF LEASED PREMISES
Section 11.01. Leased Premises Inhabitable. . . . . . . . 43
Section 11.02. Leased Premises Uninhabitable. . . . . . . 43
Section 11.03. Automatic Termination. . . . . . . . . . . 43
Section 11.04. Airline Improvements . . . . . . . . . . . 43
Section 11.05 Insurance. . . . . . . . . . . . . . . . . 44
Article XII
TERMINATION
Section 12.01. Termination by City. . . . . . . . . . . . 45
Section 12.02. Termination by Airline . . . . . . . . . . 46
Article XIII
ASSIGNMENT AND SUBLETTING
Section 13.01. Assignment and Subletting. . . . . . . . . 48
Article XIV
MISCELLANEOUS PROVISIONS
Section 14.01. Rules and Regulations. . . . . . . . . . . 49
Section 14.02. Compliance with Law. . . . . . . . . . . . 49
Section 14.03. Nondiscrimination. . . . . . . . . . . . . 53
Section 14.04. Payment of Taxes . . . . . . . . . . . . . 54
Section 14.05. Right to Lease to United States Government 54
Section 14.06. Notice or Consent. . . . . . . . . . . . . 55
Section 14.07. Rights Reserved to City. . . . . . . . . . 55
Section 14.08. Favored Nations. . . . . . . . . . . . . . 55
Section 14.09. Right of Entry . . . . . . . . . . . . . . 55
Section 14.10. Notices. . . . . . . . . . . . . . . . . . 56
Section 14.11. City's Right to Audit Books and Records. . 57
Section 14.12. Force Majeure. . . . . . . . . . . . . . . 57
Section 14.13. Non-Waiver . . . . . . . . . . . . . . . . 57
Section 14.14. Place of Payments. . . . . . . . . . . . . 57
Section 14.15. Nonliability of Individuals. . . . . . . . 57
Section 14.16. Remedies to be Nonexclusive. . . . . . . . 58
Section 14.17. Exclusiveness of Airline's Rights. . . . . 58
Section 14.18. Other Land and Buildings Excluded. . . . . 58
Section 14.19. Titles . . . . . . . . . . . . . . . . . . 58
Section 14.20. Invalid Provisions . . . . . . . . . . . . 58
Section 14.21. Enforcement. . . . . . . . . . . . . . . . 58
Section 14.22. Operation of Airport . . . . . . . . . . . 59
Section 14.23. Entire Agreement . . . . . . . . . . . . . 59
Section 14.24. Successors and Assigns . . . . . . . . . . 59
Section 14.25. Subordination. . . . . . . . . . . . . . . 59
EXHIBITS
Airport Layout and Cost Center Plan
Terminal B
Terminal C
Illustrative Calculation of Gate Use Fee
Statistical Report Format
Illustrative Calculation of Rates and Charges
Terminal B Improvements
Terminal C Improvements. . . . . . . . . . . . . . . . . .
AIRPORT USE AND LEASE AGREEMENT
THE STATE OF TEXAS )(
KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF HARRIS )(
THAT, this Airport Use and Lease Agreement ("Agreement") is
made and entered into on the date of countersignature by the City
Controller ("Effective Date") by and between the City of Houston,
Texas, a municipal corporation and home-rule city principally
situated in Harris County (hereinafter defined and referred to as
"City") and Continental Airlines, Inc., a corporation doing
business in the State of Texas (hereinafter defined and referred to
as "Airline").
WITNESSETH:
WHEREAS, City is the owner of the George Bush Intercontinental
Airport/Houston (hereinafter defined and referred to as "Airport"
and more completely identified on Exhibit A attached hereto and
made a part hereof), which is located in the City of Houston,
Harris County, Texas; and
WHEREAS, Airline is engaged in the business of commercial air
transportation of persons, property, cargo, and mail as a scheduled
air carrier and is certificated or otherwise authorized by the
United States Government to engage in such business; and
WHEREAS, Airline has requested City grant it certain rights,
privileges and services in connection with the use of said Airport
and its facilities in the conduct of Airline's business as a
scheduled air carrier; and
WHEREAS, City is willing to grant Airline such rights,
privileges and services upon the terms and conditions and for the
consideration hereinafter stated; and
WHEREAS, City and Airline deem it desirable to enter into a
written agreement setting forth the respective rights, privileges,
obligations and duties of the parties hereto and defining the
rights, services and privileges granted and the terms, conditions
and consideration on which they are granted;
NOW, THEREFORE, for and in consideration of the Leased
Premises and the mutual covenants herein contained and the rentals,
charges and fees to be paid by Airline, it is agreed and understood
by and between the City and Airline as follows:
Article I
DEFINITIONS
The following words and phrases, wherever used in this
Agreement, shall, for the purpose of this Agreement, have the
following meanings:
1. "Airline" means the entity that has executed this
Agreement and that is identified in the first paragraph of this
Agreement. However, for purposes of the enjoyment of the rights
conferred on Airline hereunder, it is agreed that any subsidiary of
Airline that is wholly owned as of the date hereof (a "subsidiary")
shall have the rights afforded Airline hereunder without payment of
any additional charges or premiums; provided, however, that Airline
shall be responsible for the actions of (including the payment of
any activity fees incurred by) any such subsidiary while such
subsidiary operates at the Airport until Airline notifies the City
in a writing delivered to the City, that Airline will no longer be
responsible for the actions (or activity fees) of such subsidiary,
which notice Airline shall have the right to give only if such
subsidiary ceases to be a wholly-owned subsidiary of Airline, and
if such notice is given, then from and after (but not until) the
date that the City approves (if at all) a partial assignment by
Airline to such subsidiary of the space at the Airport occupied by
such subsidiary (along with a partial assignment of the rights
utilized by such subsidiary in connection with its operations at
the Airport) in accordance with the provisions of Section 13.01
hereof, Airline shall no longer be responsible for the actions (or
activity fees) of such subsidiary.
2. "Airport" means George Bush Intercontinental Airport/
Houston, Texas, as generally depicted in Exhibit A, Airport Layout
and Cost Center Plan, attached hereto and made a part hereof, as it
now exists or may be modified or expanded from time to time in the
future.
3. "Airport System" means all airport, heliport and
aviation facilities, or any interest therein, now or from time to
time hereafter owned, operated or controlled in whole or in part by
the City, together with all properties, facilities and services
thereof, and all additions, extensions, replacements and
improvements thereto, and all services provided or to be provided
by the City in connection therewith, but expressly excluding
Special Facilities. The Airport System currently includes "George
Bush Intercontinental Airport/Houston," "William P. Hobby Airport",
"Ellington Field" and the "CBD Heliport."
4. "Airport Cost Centers" means the direct cost areas to be
used in accounting for Airport costs for the purposes of
calculating compensatory rates and charges hereunder, as depicted
in Exhibit A, Airport Layout and Cost Center Plan, as such areas
now exist or may hereafter be modified or expanded and as more
particularly described below:
A. "Terminal A Airline Area" means the space in
Terminal A leased to or available for lease to airlines.
B. "Terminal A Public Area" means the space in
Terminal A available for public circulation and waiting, rest
rooms, and concessions.
C. "Terminal A Apron Area" means the apron area at
Terminal A.
D. "Terminal B Airline Area" means the space in
Terminal B leased to or available for lease to airlines, as
depicted in Exhibit B.
E. "Terminal B Public Area" means the space in
Terminal B available for public circulation and waiting, rest
rooms, and concessions, as depicted in Exhibit B.
F. "Terminal B Apron Area" means the apron area at
Terminal B, as depicted in Exhibit B.
G. "Terminal C Airline Area" means the space in
Terminal C leased to or available for lease to airlines, as
depicted in Exhibit C.
H. "Terminal C Public Area" means the space in
Terminal C available for public circulation and waiting, rest
rooms, and concessions, as depicted in Exhibit C.
I. "Terminal C Apron Area" means the apron area at
Terminal C, as depicted in Exhibit C.
J. "IAB Airline Area" means the space in Terminal IAB
leased to or available for lease to airlines.
K. "IAB Public Area" means the space in Terminal IAB
available for public circulation and waiting, rest rooms, and
concessions.
L. "IAB Apron Area" means the apron area designated at
Terminal IAB.
M. "Airfield" means the runways, taxiways, and apron
areas (other than the Terminal A Apron Area, the Terminal B
Apron Area, and the Terminal C Apron Area, IAB Apron Area, and
common use cargo aprons), navigational aids, hazard
designation and warning devices, airfield security roads and
fencing, blast fencing, lighting, clear zones and safety areas
for landing, taking off and taxiing of aircraft, aviation
easements, land utilized in connection therewith or acquired
for such purpose, and facilities, the acquisition,
construction or installation cost of which is wholly or
partially paid by the City, as depicted in Exhibit A.
N. "International Airlines Building" or "IAB" means
the Mickey C. Leland International Airlines Building as may be
modified or expanded and all appurtenances thereto, as
depicted in Exhibit A.
5. "Amortization" means the level annual charge required to
recover the net cost of a Capital Improvement over the Useful Life
of such Capital Improvement at the City's Cost of Capital.
6. "Automated People Mover" or "APM" means the automated
people mover system the first phase of which, connecting Terminals
B and C, is to be designed and constructed by Airline as part of
the Continental Special Facilities and financed with the Series
1997A SFRBs, as further described in Section 7.02 hereof and which
may be expanded from time to time.
7. "Base Capital Charge" means the fixed annual charge per
square foot to be charged for certain Leased Premises as herein
provided, the original cost of which has been fully amortized.
8. "Capital Improvement" means any improvement or asset, or
series of related improvements or assets, acquired or constructed
by City at the Airport, including without limitation any security
facilities or equipment under Section 5.04, which has a net cost of
$150,000 or more (adjusted annually for changes in the Consumer
Price Index from July 1, 1998 to a maximum of $300,000) and a
Useful Life of more than one year (but excluding facilities
acquired or constructed with the proceeds of special facility
revenue bonds which are secured solely by the net rent payable
under the special facility lease for such facility and which debt
service is in fact retired in such manner, unless such facilities
are subsequently acquired by City). For the purposes of this
Agreement, the net cost of each Capital Improvement shall be the
total cost (including actual construction costs; architectural and
engineering fees, program management fees, testing and inspection
fees, construction management fees, permit fees, and other direct
or allocable fees; interest during construction; and allocable out-
of-pocket financing costs) less any grants-in-aid or similar
amounts used in financing the Capital Improvement.
9. "City" means the City of Houston, Texas, or such other
agency, board, authority, or private entity which may succeed to
the jurisdiction of City over the Airport.
10. "Cost of Capital" means (a) for Capital Improvements
financed with Airport System Revenue Bonds, the effective interest
rate on the Bonds used to finance the particular Capital
Improvement and (b) for Capital Improvements financed with other
Airport funds, the current Revenue Bond Index (of 22-year+, "A"
rated bonds) published daily in the Wall Street Journal (or
successor publication thereto), on June 30 of the year the Capital
Improvement is placed in service.
11. "Director" means the Director of City's Department of
Aviation or his or her designee, or such other officer to whom the
duties and authority of the Director may be assigned by the City
Council of City or by any agency, board or authority which may
subsequently succeed to the jurisdiction of City over the Airport.
12. "Fiscal Year" refers to City's fiscal year and means the
twelve-month period commencing July 1 and extending through June 30
of the following calendar year, or such other fiscal year as City
Council may establish by ordinance.
13. "Ground Handling Agreement" means an agreement between
Airline and a third party (including another airline) governing the
provision of Ground Handling Services by Airline to another airline
or to Airline by a third party.
14. "Ground Handling Services" means any of the following:
on and off loading of passengers, baggage, mail or cargo; into-
plane fueling; servicing aircraft lavatories; providing ground
power, potable water and preconditioned air; cleaning the interior
or exterior of aircraft; and emergency maintenance of aircraft
engines and systems, and any other similar ground services.
15. "Hazardous Materials shall be interpreted in the
broadest sense to include any and all substances, materials,
wastes, pollutants, oils, or governmental regulated substances or
contaminants as defined or designated as hazardous, toxic,
radioactive, dangerous, or any other similar term in or under any
of the Environmental Laws, including but not limited to, asbestos
and asbestos containing materials, petroleum products including
crude oil or any fraction thereof, gasoline, aviation fuel, jet
fuel, diesel fuel, lubricating oils and solvents, urea
formaldehyde, flammable explosives, PCBs, radioactive materials or
waste, or any other substance that, because of its quantity,
concentration, physical, chemical, or infectious characteristics
may cause or threaten a present or potential hazard to human health
or the environment or which may impair the beneficial use of
property for Airport purposes. Hazardous Materials shall also mean
any and all hazardous materials, hazardous wastes, toxic or
hazardous substances, or substances regulated under any
Environmental Laws set forth in Section 14.02.C.1. hereof.
16. "Leased Premises" means the Exclusive Use Space and the
Preferential Use Apron Area leased to Airline pursuant to Sections
4.01 and 4.02 hereof.
17. "Mayor" means the Mayor of the City of Houston or such
other officer to whom the duties and authority of the Mayor may be
assigned by the Charter of the City of Houston or by an act of the
Legislature of the State of Texas or by any agency, board, or
authority which may succeed to the jurisdiction of City over the
Airport.
18. "Operation and Maintenance Expenses" means all
reasonable and necessary current expenses of City, paid or accrued,
of operating, maintaining, repairing, and administering the
Airport; including, without necessarily limiting thereto, salaries
and wages, fringe benefits, contractual services, utilities,
professional services, police protection services, fire protection
services, administrative expenses, the cost of materials and
supplies used for current operations, equipment, insurance
premiums, the reasonable charges of any paying agents and any other
depository bank pertaining to the Airport, as well as overhead
expenses of (a) the Department of Aviation (which shall be fairly
allocated among City's airport facilities in accordance with
generally accepted accounting practices) and (b) other City
departments whose services are directly related or reasonably
allocable to the administration of the Airport (which shall be
determined in accordance with a City-wide administrative cost
allocation plan then in effect); provided, however, Operation and
Maintenance Expenses shall not include any allowance for
depreciation, payments in lieu of taxes, Capital Improvements, any
charges for the accumulation of reserves for capital replacements
or charges resulting from the negligence or breach of existing
agreements by the City, its employees or contractors.
19. "Renewal and Replacement Fund" means the Airport System
Renewal and Replacement Fund established by the City's Airport
System Revenue Bond ordinances.
20. "Special Facilities" means the Special Facilities
defined and described in the Special Facilities Leases which have
been financed with the Special Facilities Revenue Bonds, including
the Automated People Mover Project, the Terminal Improvements
Project, and the Airport Improvements Project, and any additional
special facilities which may be undertaken from time to time
hereafter pursuant to the Special Facilities Leases and financed
with additional Special Facilities Revenue Bonds.
21. "Special Facilities Leases" means the Special Facilities
Lease Agreements for the Automated People Mover Project (the "A
Special Facilities Lease"), the Terminal Improvements Project (the
"B Special Facilities Lease"), and the Airport Improvements Project
(the "C Special Facilities Lease") between City and Airline with
respect to the Special Facilities, all of which are dated March 1,
1997.
22. "Special Facilities Revenue Bonds" or "SFRBs" means the
City of Houston, Texas, Airport System Special Facilities Revenue
Bonds, Series 1997A (Automated People Mover Project), Series 1997B
(Continental Airlines, Inc. Terminal Improvement Projects), and
Series 1997C (Continental Airlines, Inc. Airport Improvement
Projects) issued by the City on behalf of Airline to finance the
Special Facilities, and any additional bonds or refunding bonds
which may be issued from time to time hereafter under the trust
indentures for the SFRBs and any supplements thereto.
23. "Systems" means the systems, facilities and improvements
located on and serving the Airport, including but not limited to:
(a) the access roads and other roadways serving the terminal
complex; (b) the interterminal passenger transportation system; (c)
the heating, ventilation, and air conditioning (HVAC) plant and
related distribution systems; (d) terminal building mechanical
areas and systems; and (e) the incinerators / compactors.
24. "Systems Costs" means the total of annual Operation and
Maintenance Expenses and annual Amortization charges associated
with each of the Systems.
25. "Useful Life" means the estimated period of time that a
Capital Investment is to be recovered through the Amortization
process. In general, Useful Lives will be assigned to Capital
Improvements by the Director based on generally accepted airport
accounting practices. For purposes of calculating rates and fees
under this Agreement, improvements to Terminals B and C financed by
City will be assigned Useful Lives of 20 years.
Article II
RIGHTS AND PRIVILEGES
Section 2.01. Use of Airport
As long as it does so in accordance with the terms and
provisions hereof, Airline, in common with all other scheduled
airlines using the Airport, may utilize the Airport (other than the
exclusive space of other tenants) and its facilities for the
purpose of conducting Airline's business of a scheduled air carrier
certificated or otherwise authorized by the United States
Government to engage in the business of commercial air
transportation of persons, property, cargo, and mail (hereinafter
sometimes referred to as "air transportation business"). The
privileges granted hereby include the following:
A. The use of landing field areas, aprons, roadways,
runways, taxiways, runway and taxiway lights, beacons, facilities,
equipment, improvements, services and other conveniences for
flying, landing, taxiing and takeoffs of aircraft.
B. The landing, taking-off, flying, taxiing, towing,
loading and unloading of aircraft and other equipment used by
Airline in its operation of its air transportation business.
C. The repairing, maintaining, conditioning, servicing,
testing, including engine "runups" subject to Section 2.03.E.
hereof, loading, unloading, parking and storing of aircraft or
other equipment of Airline in areas on the Airport designated by
the City for such purposes.
D. The training of personnel in the employ of or to be
employed by Airline including employees of Airline's contract
service providers.
E. The installation, maintenance and operation, at
Airline's expense, by Airline alone, or in conjunction with any
other airline or airlines who are lessees at the Airport or through
a nominee, of radio, telephone, and data communications equipment
and meteorological and aerial navigation equipment and facilities
in or on the Leased Premises leased exclusively to Airline for use
by Airline in the conduct of its air transportation business;
provided, however, that any exterior installations shall be subject
to the prior written approval of the Director.
F. The selling, exchanging or disposing of gasoline, oil,
grease, lubricants, fuels, or propellants for use by Airline in
connection with the conduct of its air transportation business (in
compliance with existing laws and any applicable agreement
therefor).
G. The purchasing or otherwise obtaining of services or
personal property of any nature including aircraft, engines,
accessories, gasoline, oil, greases, lubricants, fuels,
propellants, food, beverages, and other equipment or supplies
necessary to Airline in the conduct of its air transportation
business and in the exercise of its rights and privileges herein
granted and in the discharge of the obligations herein imposed upon
Airline.
H. The installing, maintaining, and operation, without cost
to City, by Airline alone or in conjunction with any other airline
lessee or lessees on the Airport, of communication systems between
suitable locations in the terminal area, subject to the approval of
the Director as to location of the installation of said system.
I. The transporting, directly or through a nominee of
Airline's choice, of Airline's employees, passengers, cargo,
property (including baggage) and mail to, from and at the Airport.
J. Subject to the prior written approval of the Director,
the installation and maintenance at Airline's expense, on Leased
Premises leased to it or under its control, of advertising or
identifying signs representing its business. Such signs shall be
uniform in size, type and location as approved by the Director and
shall be consistent with published Department of Aviation signage
criteria.
K. The conduct of any other operation or activity that is
necessary for or related to Airline's air transportation business,
subject to the provisions of Section 2.02. hereof.
L. Ground Handling of Airline by Others. Airline may
contract with, or receive from other airlines serving the Airport
or other companies, Ground Handling Services for Airline's
aircraft, provided that Airline provides advance written notice to
the Director (or his designated representative) of such
arrangements and uses reasonable efforts to ensure that such other
airline or other company shall have entered into an operating
permit or agreement or other similar contract with City prior to
commencing Ground Handling Services with Airline.
M. Ground Handling of Others by Airline. Airline may
provide Ground Handling Services to aircraft of other airlines
using the Airport provided that Airline provides advance written
notice to the Director (or his designated representative) of such
arrangements and uses its best efforts to ensure that such other
airline has entered into an operating permit or agreement or
similar contract with City prior to conducting its operations at
the Airport. Airline's insurance, as required in this Agreement,
shall provide insurance coverage for such Ground Handling Services.
Section 2.02. Rights Reserved by City
A. City reserves the exclusive right to itself, its
agents and its franchisees, to operate all concession services
(including but not limited to food/beverage and news/gift
concessions, specialty retail shops and carts, vending machines,
pay telephones, fax machines and other voice and data
telecommunications systems, advertising displays, baggage lockers
and baggage carts) in the public use areas of Terminals A, B, and
C and the IAB (including public use Leased Premises such as
holdrooms and baggage claim areas with prior notice to Airline and
providing Airline the ability to comment) and to retain the revenue
therefrom; provided however, that City agrees that no concession
services shall be located or operated by City or its nominees in
any non-public use Exclusive Use Space without Airline's prior
consent and providing that City shall not exercise such right in a
manner that will materially impede passenger ingress or egress or
Airline's business operations.
B. City shall operate all concessions and provide such
other services (with reasonable due consideration to requests made
by Airline) for scheduled airline passenger operations at the
Airport as it deems necessary or appropriate. Nothing herein shall
limit or preclude City from operating whatever concessions or
providing whatever services it may desire at any and all airports
and other facilities owned by City.
Section 2.03. Limitations of Use of Airport
A. Use of Facilities. Airline shall not knowingly
permit any act or omission at or about the Airport that may
interfere with the effectiveness or accessibility of the drainage
and sewage system, electrical system, heating and air conditioning
system, fire protection system, sprinkler system, alarm system,
fire hydrants and hoses, and security systems, if any, installed or
located on or within the Leased Premises or the Airport.
B. Insurance Requirements Compliance. Airline shall
not knowingly permit any act upon the Airport that will invalidate
or conflict with any fire or other casualty insurance policies
(copies of which, together with premium schedules, shall be
furnished to Airline on request) covering the Airport or any part
thereof.
C. Waste Disposal. Airline shall not dispose of or
knowingly permit disposal of any waste material taken from or
products used (whether liquid or solid) with respect to its
aircraft into the sanitary or storm sewers at the Airport unless
such waste material or products shall first be properly treated by
equipment installed for that purpose or otherwise disposed of
pursuant to law. In addition to obtaining approval from the
governmental agencies regulating equipment and disposal described
in this paragraph, Airline shall also obtain the approval of the
Director. All such disposal shall comply with regulations of the
United States Department of Agriculture and shall be in compliance
with Section 14.02 of this Agreement.
D. Flammable Liquids. Airline shall not keep or
store, during any 24-hour period, flammable liquids within the
enclosed portion of the Leased Premises in excess of Airline's
working requirements during said 24-hour period, except in storage
facilities especially constructed for such purposes in accordance
with standards established by the National Board of Fire
Underwriters and approved by a governmental agency with authority
to inspect such facilities for safety compliance. Any such liquids
having a flash point of less than 100 degrees fahrenheit shall be
kept and stored in safety containers of a type approved by the
Underwriters Laboratories.
E. Engine Runups. Airline shall perform aircraft
engine runups only at locations and during time periods approved in
writing in advance by the Director.
F. Other. Airline's use of the Airport shall be
limited to activities directly connected to the transportation of
passengers, persons, property, cargo and mail by air, and Airline
shall not enter into activities which compete with City in City's
development of any revenue from Airport passengers, tenants, and
other users. However, it is the intent of the foregoing that
Airline shall be permitted to continue to conduct any activity that
Airline was currently conducting as of July 1, 1996.
Section 2.04. Parking
A. In the event City develops or causes to be
developed an area or areas at the Airport as common parking
facilities for the employees of Airline and other Airport tenants,
the Director, in consultation with the Airline, will determine a
reasonable charge for the use of such facilities to cover return on
capital investment and costs associated with their development,
operation, supervision and maintenance. Public vehicular parking
facilities will be provided by City at reasonable charges to be
determined by City.
B. Only employees of Airline may park on such employee
parking facilities.
Section 2.05. Ingress and Egress
Subject to the other provisions hereof and to the rules and
regulations adopted by City under the provisions of Article XIV
hereof, the following privileges of ingress and egress with respect
to the Airport are hereby granted:
A. For Airline, its agents, employees, contractors,
subcontractors and permitted sublessees and assigns: To the public
areas of the Airport and to those areas and facilities designated
herein for exclusive use by Airline or by Airline in common with
other airlines. This right shall extend to Airline's aircraft,
vehicles, machinery and equipment used in its air transportation
business.
B. For Airline's passengers, guests and invitees: To
areas leased exclusively to Airline and to areas provided for use
of Airline's passengers, guests and invitees in common with those
of other airlines and to public areas and public facilities. This
privilege shall extend to vehicles of such passengers, guests and
invitees.
C. For Airline's suppliers of materials and furnishers
of service: To the public areas of the Airport and to areas and
facilities leased exclusively to Airline and to areas and
facilities provided for the common use by Airline or its suppliers
of materials and furnishers of services. This privilege shall
extend to vehicles, machinery or equipment of such suppliers and
furnishers used in their business of furnishing such supplies and
services to Airline.
The ingress and egress provided for above shall not be
used, enjoyed or extended to any person, airline or vehicle
engaging in any activity or performing any act or furnishing any
service for or on behalf of Airline that Airline is not authorized
to engage in or perform under the provisions hereof unless
expressly authorized by the Director.
Section 2.06. Sales or Distribution of Food / Beverages
A. Distribution of In-Flight Food/Beverages. The
distribution, serving or sale of food and/or beverages (including
alcoholic beverages) meant to be consumed aboard Airline's aircraft
by Airline or its in-flight catering provider shall be limited to
Airline's passengers who are in the passenger loading bridge or
entrance to the passenger loading bridge and in the process of
boarding Airline's aircraft. The provisions of this section
notwithstanding, all distribution of alcoholic beverages shall
comply with applicable laws.
Distribution of food and/or beverages (at no cost to the
public) by Airline shall be permitted in passenger holdrooms with
twenty-four hours advance written notice to the Director for up to
eight (8) days (inclusive of partial days of distribution) per year
in connection with holidays and promotional events. All food
and/or beverages so distributed shall be purchased from the City's
food and beverage concessionaires operating at the Airport (if such
food and beverage products are available from such concessionaires
after reasonable inquiry of such concessionaires by Airline),
except for soft drinks, bottled water, canned juice, coffee and
packaged Airline snacks which shall be supplied by Airline's in-
flight catering provider. Airline shall have the right to request
in writing to the Director additional days to distribute packaged
Airline snacks and/or beverages in passenger holdrooms. The
Director, in his sole discretion, shall give Airline written notice
of his decision regarding any such request.
B . Club Rooms. Airline shall have the right to
utilize space in Terminal B and Terminal C for the purpose of
maintaining and operating club rooms for its guests, invitees, and
passengers and may serve beverages, including alcoholic beverages,
and appetizers therein with or without charge and subject to all
applicable laws, regulations and ordinances; provided, however,
that the City reserves the right to charge Airline applicable
percentages of its gross revenues from the sale of food and
beverages consistent with the percentages charged to its food and
beverage concessionaires at the Airport, not to exceed 10% on the
sale of food and nonalcoholic beverages and 15% on the sale of
alcoholic beverages; provided that no such payment shall be
required with respect to items obtained from concessionaires
already obligated to make such payments to City with respect to
such obtained items.
C. Cafeteria / Vending Machines. Airline or its
nominee may install, maintain and operate a cafeteria for use only
by Airline's employees and vending machines for Airline employees
and contractors in Airline's Exclusive Use Space not accessible to
the public.
D. Other Distribution of Food/Beverages Prohibited.
Except as allowed in this Section 2.06, all other serving,
distribution or sale of food or beverages by Airline at the Airport
is prohibited.
Section 2.07. Use of IAB Facilities for International Arriving
Passengers
During the first ten (10) years of this Agreement
(January 1, 1998 through December 31, 2007), all arriving
international passengers who have not been pre-cleared shall be
processed through the Federal Inspection Services facilities in the
IAB.
(THIS SPACE INTENTIONALLY LEFT BLANK)
Article III
TERM
Section 3.01. Term
A. The term of this Agreement with respect to
Airline's use of the Airport and its Leased Premises in Terminal C,
shall begin on January 1, 1998 and end on December 31, 2017.
B. The term of this Agreement with respect to
Airline's use of its Leased Premises in Terminal B, shall begin on
January 1, 1998 and end on December 31, 2007, with a ten (10) year
option as provided in Section 3.02 below.
Section 3.02. Option to Extend Term of Terminal B Lease
Airline is hereby granted the option to extend the term
of its use of its Leased Premises in Terminal B for an additional
ten (10) years through December 31, 2017, by giving written notice
to City on or before June 30, 2007, unless the City (A) elects in
writing, prior to June 1, 2007, to (1) exercise certain rights as
provided in Section 7.01.F hereof and Section 7.03 (a) and (d) of
the A Special Facilities Lease to purchase, acquire, and/or assume
Airline's leasehold obligations for the B-C Link of the APM and (2)
purchase all of Airline's rights to the Special Facilities located
in Terminal B (other than the ground support equipment and, if
built, the baggage transfer facility) as provided in Section 7.04
of the B Special Facilities Lease and (B) exercises such rights
before December 31, 2007.
Section 3.03. Airline's Rights Upon Expiration or Early
Termination of Agreement
Upon expiration or early termination of this Agreement,
all of Airline's rights, authority, and privileges to use the
Leased Premises, services and facilities of the Airport as herein
granted shall cease.
Article IV
LEASED PREMISES
Section 4.01. Terminal B Leased Premises
A. Exclusive Use Space. Airline hereby leases from
City and City hereby leases to Airline for its exclusive use the
areas in Terminal B shown in Exhibit B, attached hereto and by
reference made a part hereof for all purposes, which areas are to
be used for the general purposes shown, as summarized below:
Area (sq. ft.) Estimated
as of Area (sq. ft.)*
Type of Space July 1, 1998 as of Feb. 1, 1999
Ticket counter 1,641 1,641
Ticket counter queuing 2,038 2,038
Ticket office 3,881 3,645
Baggage claim 3,967 7,934
Baggage make-up 13,314 29,395
Curb check-in 242 484
Operations 27,362 37,078
Baggage service office 409 844
Security 954 1,942
Other offices 1,627 1,721
Holdrooms 32,891 41,573
Club rooms 4,219 4,430
Baggage cart circulation 8,890 17,780
Special Facilities space -
Series B
Mezzanine Level 5,174 5,174
*Square footage subject to final verfication based on
as-built drawings.
The space indicated on Exhibit B as Special Facilities
space - Series A is included as part of the Ground Lease Properties
under the A Special Facilities Lease and is expressly excluded from
Airline's Leased Premises under this Agreement.
B. Preferential Use Apron Area.
1. Designation of Preferential Use Apron Area.
Airline hereby leases from City and City hereby leases to Airline
for its preferential use, but not for its exclusive use, the apron
area at Terminal B including 6,532 sq. ft. of Special Facilities
space - Series B located on the apron level as shown in Exhibit B,
attached hereto and by reference made a part hereof for all
purposes.
2. Nonpreferential Use of Airline's Apron Area by
Other Airlines. Airline is being granted preferential use of said
apron area, but not exclusive use. At those times that Airline has
no scheduled use for an aircraft parking position on Airline's
apron area and there are no other aircraft parking positions at the
Airport available for use, Airline shall allow other scheduled or
nonscheduled airlines authorized by City to use Airport facilities
to use such aircraft parking position as circumstances and the
public interest may require for loading and unloading only, but in
no event shall said use by others take precedence over Airline's
use. Airline shall have the right to limit the duration of such
usage to the actual time required for unloading, loading, and
flight service operations and may require that such user tow off
and back on to accommodate Airline's use. When such use is to be
made of Airline's apron area, Airline shall be properly compensated
for such use by the user of the facilities based on and in
accordance with the attached Illustrative Calculation of Gate Use
Fee in Exhibit D hereof.
3. Parking of Airline's Aircraft. Airline shall
have the right to locate any number of aircraft within the Terminal
B Apron Area for the purpose of loading and unloading passengers,
baggage, cargo and mail; provided, that Airline shall not park
aircraft in such a manner as would prohibit access, ingress, and
egress to and from all aircraft parking positions by aircraft, ramp
equipment, and traffic of other airlines or would prohibit the
movement of aircraft and ramp equipment to and from the most
convenient taxiway and terminal building.
C. City's Right to Review Space Utilization and Take
Back Space.
1. In July, 2003, City will evaluate Airline's
utilization of Terminal B in terms of average number of daily
flights per gate for the immediately preceding six-month period
(January through June 2003, referred to hereafter as the "Test
Period"). If Airline's average gate utilization is less than four
flights per day during the Test Period (determined by taking the
total number of scheduled flights during the Test Period by
Airline, its code-share airlines, Continental Express, Inc. and
other scheduled airlines for which Airline has a ground handling
agreement, and dividing by the product of total number of available
gates in Terminal B times 181 days) the Director may within 180
days of the conclusion of the Test Period, at his option and in
order to accommodate the needs of other airline users of the
Airport, require in writing Airline to relinquish (as hereinbelow
provided) (1) a proportionate number of its gates at Terminal B
such that, on a pro-forma basis, excluding such relinquished gates,
the remaining gates would have demonstrated an average utilization
of at least 4 flights per day during the Test Period and (2) a
substantially identical proportionate amount of holdroom,
operations, ticket counter, ticket office, baggage make-up, and
baggage claim space.
2. In the event Director requires Airline to
relinquish such space and gates, Director and Airline will confer
to determine which gates and space will be relinquished. Airline
will be required to relinquish contiguous gates, holdrooms and
other exclusive leased space. City and Airline shall conduct good
faith negotiations in accordance with the foregoing to select the
location of the space and gates to be relinquished. If after sixty
(60) days of good faith negotiations no agreement has been reached,
City shall select the gates and space to be relinquished. Airline
will continue to have the nonexclusive right to use the holdrooms
and gates it relinquishes as a result of this provision at rates
established by City for such nonpreferential use.
3. In evaluating gate utilization in Terminal B
during the Test Period, City will adjust the data for Terminal B
flights to compensate for any unusual reductions in the number of
flights operated in Terminal C during the Test Period insofar as
such flights might have been relocated to operate through
Terminal B.
4. In order to accomplish the relinquishment of
gates and support space in Terminal B as hereinabove provided,
Airline agrees that it shall sublease to City such Special
Facilities as may be located in or as may be necessary to support
such relinquished gates and space (or an appropriate undivided
interest or right of use therein) for the remaining term of the B
Special Facilities Lease (or such shorter term as may be applicable
if Airline is permitted to reinstate its lease of such relinquished
gates and space under this Agreement) for a rental equal to the sum
of (i) the allocable expenses of operation and maintenance of such
Special Facilities or interest therein, including City charges, if
any, for allocable indirect Airport System costs, plus (ii) an
amount per annum (or any portion thereof) equal to the annual debt
service or any portion thereof that would have been payable on the
amount of the Series 1997B Bonds and any additional capital
expenditures by Airline not funded with Series 1997B Bonds
(documented to the reasonable satisfaction of the Director)
required to finance such allocable share of Special Facilities
determined as if the bonds (i) were issued in an original principal
amount increased by the amount of any unreimbursed capital
expenditure by Airline, (ii) had a final maturity of December 31,
2017 and (iii) had an amortization schedule such that they had
equal debt service from the date of beneficial occupancy of the
Special Facilities until the final maturity of the bonds (but not
less than 18.0 years). The foregoing sublease provisions shall not
relieve Airline from any responsibility with respect to its
obligations as lessee under the B Special Facilities Lease,
including particularly its obligation to pay the full amount of Net
Rent thereunder and all of its other obligations with respect to
the Series 1997B Bonds; provided, however, that such sublease to
City shall provide that City shall use its best efforts to
continually require on Airline's behalf that any occupant receiving
such occupancy rights from City be obligated to provide insurance
and indemnification with respect to such Special Facilities for the
benefit of City and Airline to the same extent that Airline is
obligated to do so herein, and provided further that Airline shall
not be required to indemnify City for acts of subtenants or their
passengers in and about such Special Facilities.
D. City's Right to Reconstruct Terminal B Flight
Stations.
1. In the event City, on or after January 1,
2008, determines that the Terminal B flight stations should be
demolished and replaced as recommended in the approved Airport
master plan, City may, upon giving Airline six-months written
notice, take back (as hereinbelow provided) portions of Airline's
Terminal B Leased Premises in order to carry out such
reconstruction; provided, however, that in no event will more than
25% of such gates and holdroom space to be reconstructed be taken
out of service at any one time for such reconstruction; and
provided further that City provides Airline with reasonably
comparable substitute interim space during such reconstruction.
Airline shall have the right of first refusal to lease the
reconstructed space at full compensatory rates.
2. In order to accomplish the foregoing reconstruction
of certain Terminal B flight stations, City shall (A) if Airline
wishes to lease such reconstructed space (which Airline shall have
the first right of refusal to lease), (i) at City expense relocate
at the new flight stations those salvageable or reusable Special
Facilities (e.g. passenger loading bridges and Ground Support
Equipment) and (ii) replace any demolished or non-reusable Special
Facilities with replacement facilities of equivalent value and
utility to Airline determined as of the date of such replacement in
the reconstructed flight stations leased to Airline and (B) acquire
such demolished or removed Special Facilities for a purchase price
equal to the original principal amount of Bonds and any additional
capital expenditures by Airline not funded with Bonds (documented
to the reasonable satisfaction of the Director) allocable to such
Special Facilities multiplied by a fraction, the numerator of which
is the number of days from the date of acquisition to December 31,
2017 and the denominator of which is the number of days (but not
less than 18.0 years) from the average weighted date of beneficial
occupancy of such Special Facilities to December 31, 2017. Any
such acquisition, but not relocation, costs shall be treated by
City as costs of the replacement flight stations, subject to rents
and charges as provided in Article V hereof. Under no
circumstances will the foregoing described demolition and
replacement of flight stations in Terminal B, nor the relocation,
substitution or acquisition of Special Facilities as aforesaid
relieve Airline of its obligations under the B Special Facilities
Lease, particularly with respect to the payment of Net Rent or any
of its other obligations with respect to the Series 1997B Bonds.
Section 4.02. Terminal C Leased Premises
A. Exclusive Use Space. Airline hereby leases from City
and City hereby leases to Airline for its exclusive use the areas
in Terminal C shown in Exhibit C, attached hereto and by reference
made a part hereof for all purposes, which areas are to be used for
the general purposes shown, as summarized below:
Type of Space Area
(square feet)
Ticket counter 3,784
Ticket counter queuing 5,063
Ticket office 10,948
Baggage claim including bag service office 42,775
Baggage make-up 177,790
Curbside / remote check-in 264
Operations 127,688
Security 3,862
Other offices 12,778
Holdrooms 131,766
Club rooms 9,786
Baggage cart circulation 62,960
B. Preferential Use Apron Area.
1. Designation of Preferential Use Apron Area. Airline
hereby leases from City and City hereby leases to Airline for its
preferential use, but not for its exclusive use, the apron area at
Terminal C including 9,830 sq. ft. of Special Facilities space -
Series B on south concourse apron level as shown in Exhibit C,
attached hereto and by reference made a part hereof for all
purposes.
2. Nonpreferential Use of Airline's Apron Area by
Other Airlines. Airline is being granted preferential use of said
apron area, but not exclusive use. At those times that Airline has
no planned use for an aircraft parking position on Airline's apron
area, and there are no other aircraft parking positions at the
Airport available for use, Airline shall allow other scheduled or
nonscheduled airlines authorized by the City to use Airport
facilities to use such aircraft parking position as circumstances
and the public interest may require for loading and unloading only,
but in no event shall said use by others take precedence over
Airline's use. Airline shall have the right to limit the duration
of such usage to the actual time required for unloading, loading,
and flight service operations and may require that such user tow
off and back on to accommodate Airline's use. When such use is to
be made of Airline's apron area, Airline shall be properly
compensated for such use by the user of the facilities based on and
in accordance with the attached Illustrative Calculation of Gate
Use Fee in Exhibit D hereof.
3. Parking of Airline's Aircraft. Airline shall have
the right to locate any number of aircraft within the Terminal C
Apron Area for the purpose of loading and unloading passengers,
baggage, cargo and mail; provided, however, that Airline shall not
park aircraft in such a manner as would prohibit access, ingress,
and egress to and from all aircraft parking positions by aircraft,
ramp equipment, and other traffic or would prohibit the movement of
aircraft and ramp equipment to and from the most convenient taxiway
and terminal building.
Ground Area. Airline hereby leases from City and City hereby
leases to Airline for its exclusive use 5,740 sq. ft. of Special
Facilities space - Series B at Terminal C as shown in Exhibit C,
attached hereto and by reference made a part hereof for all
purposes.
Section 4.03. Airline's Use of Terminal Improvements and Ground
Lease Premises Conveyed By B Special Facilities
Lease
Airline's rights under the B Special Facilities Lease to
design, construct, equip, furnish, repair, maintain, occupy, use
and enjoy Terminal B Improvements and Terminal C Improvements (as
defined in the B Special Facilities Lease) and any other Special
Facilities located in or attached to Terminals B or C shall not
exist independent of Airline's right to use Terminals B and C
pursuant to this Agreement. Additionally, to the extent that such
Special Facilities overlie, adjoin or abut space designated as
public space in this Agreement, then such Special Facilities shall
not be used or occupied by Airline in any way that would impede or
prevent public access to or enjoyment of such overlaid, adjoining
or abutting public space as provided in this Agreement.
Section 4.04. Surrender of Leased Premises
A. Upon expiration or early termination of this Agreement,
Airline shall surrender the Leased Premises to City in as good
condition as such Leased Premises were in at the time of the
original occupancy by Airline, excepting, however, (1) reasonable
wear and tear that could not be prevented through routine
maintenance required to be done by Airline, (2) damage by fire and
other casualty, and (3) acts of God or the public enemy.
B. Except as otherwise provided in this Section, all
equipment, trade fixtures, and other personal property installed or
placed by Airline in the Leased Premises or on or about the Airport
and which can be removed without structural damage to the Leased
Premises or any other City-owned property, shall remain the
property of Airline unless otherwise provided in subsequent
agreements between Airline and City, and Airline shall have the
right at any time during the term of this Agreement and prior to
its expiration or early termination to remove any and all of said
property from the Airport provided Airline is not in default in its
payments hereunder (beyond all applicable notice and opportunity to
cure periods). Airline agrees to repair or pay for all damages, if
any, resulting from such removal. All City property damaged by or
as a result of the removal of Airline's property shall be restored
at Airline's expense to the same or better condition that it was
prior to such damage. Any and all property not removed by Airline
prior to the expiration of this Agreement, or, if this Agreement
ends by early termination, within sixty (60) days after receipt by
Airline of a written notice by the Director to remove such
property, shall thereupon become a part of the land upon which it
is located and title thereto shall thereupon vest in City; and City
reserves the right to remove such property not so removed by
Airline, and if such removal is accomplished within the 30-day
period after the expiration of this Agreement or the 60-day period
referred to above (after the early termination of the Agreement),
such removal by the City shall be at Airline's expense.
Section 4.05. Covenant Against Liens
Airline shall not cause nor permit any lien against the Leased
Premises or any improvements thereto to arise out of or accrue from
any action or use thereof by Airline; provided, however, that
Airline may in good faith contest the validity of any alleged lien.
Section 4.06. Quiet Enjoyment
Upon payment by Airline of the rentals, fees and charges as
herein required and subject to performance and compliance by
Airline of the covenants, conditions, and agreements on the part of
Airline to be performed and complied with hereunder, Airline shall
peaceably have and enjoy the rights, uses and privileges of the
Airport, its appurtenances and facilities as granted herein.
Article V
RENTALS AND FEES
Section 5.01. General
In consideration for the use of the Leased Premises,
facilities, rights, and privileges granted hereunder and for the
undertakings of City, Airline agrees to pay City, without set-off,
as follows:
A. During the initial six-month period of this Agreement
(January 1 - June 30, 1998), the rentals, fees, and other charges
calculated for Fiscal Year 1997-98 will remain under the provisions
of the existing use and lease agreements which expired December 31,
1997.
B. During the remaining term of this Agreement, the rentals
and fees as set forth in this Article V and as recalculated
according to the procedures of Article VI. hereof.
Section 5.02. Statistical Report
Airline shall submit in writing to the Director on or before
the 15th day of each month the following statistical information
relative to its scheduled, nonscheduled and charter operations at
the Airport for the immediately preceding calendar month, in a
format consistent with that provided in Exhibit E, attached hereto
and by reference made a part hereof for all purposes:
Total number of domestic enplaned and deplaned passengers, by
terminal
Total number of originating and connecting passengers, by
terminal
Total number of international enplaned and deplaned passengers
Total number of landings by type of aircraft and maximum gross
certificated landed weight by type of aircraft
Total pounds of air cargo enplaned and deplaned
Total pounds of air mail enplaned and deplaned
The above statistical information shall be in addition to any
other information elsewhere herein required to be submitted by the
Airline each month for City's use in calculating landing fees and
other charges pertinent to Airline's operations on the Airport.
Section 5.03. Terminal Building Rentals
Airline shall pay City for its Exclusive Use Space in Terminal
B and Terminal C monthly rent based on the annual compensatory
rental rates for Terminal B and Terminal C calculated each Fiscal
Year in accordance with Section 6.02 hereof.
Section 5.04. Security Fees
Airline shall pay City monthly amounts sufficient to reimburse
City for Airline's appropriate share of City's actual costs of
providing (1) armed law enforcement support for the security
screening operation as required by FAR Parts 107 and 108 and (2) if
required by Federal law, security screening, explosives detection,
and other security measures at the Airport. Any fines or penalties
assessed against City because of Airline's noncompliance with 14
CFR Part 107 shall promptly be reimbursed to City by Airline within
thirty (30) days of receipt of written notice from the Director
setting forth the amount of such fine or penalty; provided,
however, that such payment shall not be construed as waiving
Airline's right to contest such fine or penalty.
Section 5.05. Apron Fees / Ground Area Rental
A. Apron Fees. Airline shall pay City for its apron area
at Terminals B and C monthly rent based on the annual compensatory
apron fee rates for Terminals B and C calculated each Fiscal Year
in accordance with Section 6.03 hereof.
B. Ground Area Rental. Airline shall pay City for its
Ground Area at Terminal C monthly rent based on $0.28 per sq. ft.
per annum and escalating 15% on January 1, 2003, and 15% on each
succeeding fifth year during the term of this Agreement.
Section 5.06. Landing Fees
Airline shall pay City for its use of the Airfield monthly
landing fees based on the annual landing fee rate calculated each
Fiscal Year in accordance with Section 6.04 hereof. City will use
its best efforts to charge and collect landing fees from all
commercial air transportation users of the Airfield as Director may
reasonably determine. As determined by City, the fees payable by
noncommercial air transportation users for the use of the Airfield
may be based on some method other than aircraft landed weight.
Section 5.07. Other Fees and Charges
A. Utilities. With respect to its Leased Premises and
Airline-installed equipment, machinery and facilities, Airline
agrees to pay all water, sewage, electricity, gas and other utility
charges which may be charged to Airline for the use thereof, if
such charges are separately assessed or metered as appropriate to
Airline. Utility bills for metered utilities furnished by the City
will be paid monthly or less frequently depending on billing
schedule established by the City. For those areas not separately
metered, both exclusive and common, charges for utility services
(other than illumination which is to be provided by City and
included in the base rental rate) will be assessed by City on a
proportionate basis related to area leased or number of fixtures
served. Meters will be installed where it is economically and
mechanically feasible.
B. Other. City reserves the right to assess, and Airline
agrees to pay reasonable charges for the use of City-provided
facilities including but not limited to: employee parking
facilities; flight information display systems; public address
systems; and issuance of security identification badges.
Section 5.08. Security Deposit
In the event Airline, at any time during the term of this
Agreement, fails to make any of the payments required under this
Article V when due (beyond all applicable notice and opportunity to
cure periods), City reserves the continuing right to require a
security deposit in an amount equal to six times Airline's average
monthly amount of rentals and fees payable under this Agreement,
during the immediately succeeding six-month period. Such security
deposit shall be provided to City by Airline, as a letter of credit
or in such other form specified by the Director, within thirty (30)
days of written demand therefor by City and shall be held by City
until Airline has made timely payment of all rentals and fees
payable under this Agreement for a period of twelve (12)
consecutive months at which time such security deposit shall be
returned to Airline.
Section 5.09. Payment Provisions
A. Terminal Building Rentals and Apron Fees. Terminal
building rentals and apron fees shall be due and payable on the
first day of each month in advance without invoice from the City.
B. Landing Fees. Landing fees for each month shall be due
and payable without invoice from the City on or before the
fifteenth (15th) day following the last day of the preceding month
and shall be transmitted to City together with Airline's monthly
statistical report for the month as required in Section 5.02
hereof.
C. Other Fees. All other rentals, fees, and charges
required hereunder shall be due and payable within thirty (30) days
of the date of the invoice therefor.
D. Right of City to Verify Airline's Payment. The
acceptance of any payment made by Airline shall not preclude City
from verifying the accuracy of Airline's report and computations or
from recovering any additional payment actually due from Airline or
preclude Airline from later demonstrating that Airline's report was
inaccurate and that a lesser amount was properly owed (and to
recover any such overpayment).
E. Interest on Overdue Amounts. Any payment not received
within five business days of the due date may accrue interest at
the rate of 1.5% per month from the due date until the date when
full payment is made.
F. Form of Payment. Payments shall be made to the order of
"City of Houston Department of Aviation" and shall be sent to the
Director's office or such other place as may be designated by the
Director from time to time. City and Airline shall cooperate in
the development of a procedure for the electronic transfer of funds
as the preferred method of payment.
Section 5.10 No Other Fees and Charges
City agrees that it will not impose any rental, fee or charge,
direct or indirect, on Airline for the exercise and enjoyment of
the rights and privileges granted herein except those rentals, fees
and charges provided for in this Agreement, and such other rentals,
fees and charges as are mutually agreed upon by City and Airline;
provided, however, there is excepted from this provision any and
all fees and charges imposed or required by any rule, regulation or
law of any governmental authority other than City. This provision
is not intended to prevent City from making agreements concerning
rentals, fees and charges with individuals or firms providing goods
or services on the Airport who are tenants of City.
Article VI
RECALCULATION OF RENTALS AND FEES
Section 6.01. General
Effective July 1, 1998 (for the Fiscal Year ending June 30,
1999), and for each Fiscal Year thereafter, rentals and fees will
be reviewed and recalculated based on the principles and procedures
set forth in this Article. The methodology for the calculation of
airline rentals and fees described in this Article VI is
illustrated in Exhibit F. For rate setting purposes, the
calculations will be made on the basis of Department of Aviation
estimates of costs and expenses and airline estimates of total
landed weight and shall be provided to Airline at least thirty (30)
days prior to the beginning of the Fiscal Year. For final
settlement purposes all calculations will be made on the basis of
actual costs and expenses incurred and will be provided to Airline
as soon as possible following the completion of the annual audit of
the Department of Aviation's financial statements.
Section 6.02. Terminal Rental Rates
A. Terminal B. The Total Costs of the Terminal B Airline
Area will be calculated by adding together the following amounts:
1. Direct and indirect Operation and Maintenance
Expenses allocable to the Terminal B Airline Area
2. A Base Capital Charge of $6.50 per square foot
times the Terminal B Airline Area which area shall be reduced for
any space demolished or replaced as contemplated in Section 4.01.D.
The Exclusive Use Space identified in Section 4.01.A. as ticket
counter queuing and security areas shall receive a credit of $1.50
per square foot. The Exclusive Use Space identified in Section
4.01.A. as Special Facilities space - Series B Mezzanine Level
shall receive a credit of $6.50 per square foot.
3. Amortization of the net cost of each Capital
Improvement placed in service in the Terminal B Airline Area on or
after July 1, 1998, together with amortization of the net costs of
any of the planned Capital Improvements in Terminal B set forth in
Exhibit H which may be placed in service prior to July 1, 1998
4. Interest on the cost of land allocable to the
Terminal B Airline Area computed at City's historical average Cost
of Capital
5. Annual Systems Costs allocable to the Terminal B
Airline Area
6. Annual replenishment of the Renewal and Replacement
Fund allocable to the Terminal B Airline Area, if necessary as
required by City's master airport revenue bond ordinance
The annual Terminal B Rental Rate will then be calculated by
dividing the Total Costs allocable to the Terminal B Airline Area
by the total square footage of airline space in the Terminal B
Airline Area and multiplying by Airline's Exclusive Use Space.
B. Terminal C. The Total Costs of the Terminal C Airline
Area will be calculated by adding together the following amounts:
1. Direct and indirect Operation and Maintenance
Expenses allocable to the Terminal C Airline Area
2. Amortization of the unamortized net cost of each
Capital Improvement in the Terminal C Airline Area as of June 30,
1998 over the remaining useful life of the Capital Improvement at
the City's weighted Cost of Capital for all Airport Capital
Improvements as of that date
3. Amortization of the net cost of each Capital
Improvement placed in service in the Terminal C Airline Area on or
after July 1, 1998
4. Interest on the cost of land allocable to the
Terminal C Airline Area computed at City's historical average Cost
of Capital
5. Annual Systems Costs allocable to the Terminal C
Airline Area
6. Annual replenishment of the Renewal and Replacement
Fund allocable to the Terminal C Airline Area, if necessary as
required by City's master airport revenue bond ordinance
The annual Terminal C Rental Rate will then be calculated by
dividing the Total Costs allocable to the Terminal C Airline Area
by the total square footage of airline space in the Terminal C
Airline Area.
Section 6.02.B.2 shall be subject to negotiation by City and
Airline with respect to the value of the fully amortized Airline
area in Terminal C, effective January 1, 2010.
Section 6.03. Apron Fee Rates
A. Terminal B. The Total Costs of the Terminal B Apron
Area will be calculated by adding together the following amounts:
1. Direct and indirect Operation and Maintenance
Expenses allocable to the Terminal B Apron Area.
2. A Base Capital Charge of $0.50 per square foot
times the Terminal B Apron Area which area shall be reduced for any
space demolished or replaced as contemplated in Section 4.01.D.
3. Amortization of the unamortized net cost of each
Capital Improvement in the Terminal B Apron Area (including
improvements associated with the fuel system) as of June 30, 1998
over the remaining useful life of the Capital Improvement at the
City's weighted Cost of Capital for all Airport Capital
Improvements as of that date
4. Amortization of the net cost of each Capital
Improvement placed in service in the Terminal B Apron Area on or
after July 1, 1998
5. Interest on the cost of land allocable to the
Terminal B Apron Area computed at City's historical average Cost of
Capital
6. Annual Systems Costs allocable to the Terminal B
Apron Area
7. Annual replenishment of the Renewal and Replacement
Fund allocable to the Terminal B Apron Area, if necessary as
required by City's master airport revenue bond ordinance
The annual Terminal B Apron Fee Rate will then be calculated
by dividing the Total Costs allocable to the Terminal B Apron Area
by the total square footage of pavement designated as apron area at
Terminal B and multiplied by the Airline's Preferential Use Apron
Area.
B. Terminal C. The Total Costs of the Terminal C Apron
Area will be calculated by adding together the following amounts:
1. Direct and indirect Operation and Maintenance
Expenses allocable to the Terminal C Apron Area
2. Amortization of the unamortized cost of each
Capital Improvement in the Terminal C Apron Area (including
improvements associated with the fuel system) as of June 30, 1998
over the remaining useful life of the Capital Improvement at the
City's weighted Cost of Capital for all Airport Capital
Improvements as of that date
3. Amortization of the cost of each Capital
Improvement placed in service in the Terminal C Apron Area on or
after July 1, 1998
4. Interest on the cost of land allocable to the
Terminal C Apron Area computed at City's historical average Cost of
Capital
5. Annual Systems Costs allocable to the Terminal C
Apron Area
6. Annual replenishment of the Renewal and Replacement
Fund allocable to the Terminal C Apron Area, if necessary as
required by City's master airport revenue bond ordinance.
The annual Terminal C Apron Fee Rate will then be calculated
by dividing the Total Costs allocable to the Terminal C Apron Area
by the total square footage of pavement designated as apron area at
Terminal C.
Section 6.03.B.2 shall be subject to negotiation by City and
Airline with respect to the value of the fully amortized Terminal
C Apron Area, effective January 1, 2010.
Section 6.04. Landing Fee Rate
The Total Costs of the Airfield Area will be calculated by
adding together the following amounts:
1. Direct and indirect Operation and Maintenance
Expenses allocable to the Airfield Area
2. Amortization of the unamortized net cost of each
Capital Improvement in the Airfield Area as of June 30, 1998, over
the remaining useful life of the Capital Improvement at the City's
weighted Cost of Capital for all Airport Capital Improvements as of
that date
3. Amortization of the net cost of each Capital
Improvement placed in service in the Airfield Area on or after July
1, 1998
4. Interest on the cost of land allocable to the
Airfield Area computed at City's historical average Cost of Capital
5. Annual Systems Costs allocable to the Airfield Area
6. Annual replenishment of the Renewal and Replacement
Fund allocable to the Airfield Area, if necessary as required by
City's master airport revenue bond ordinance.
The Net Costs of the Airfield Area will then be calculated by
subtracting revenues from general aviation fuel flowage fees. The
Landing Fee Rate will then be calculated by dividing the Net Costs
of the Airfield Area by the total aircraft landed weight of all
airlines using the Airport.
Section 6.05. Automated People Mover System Costs
In the event the City purchases, acquires and/or assumes
Airline's leasehold obligations for the B-C Link of the APM and
extends the APM, as contemplated by Section 7.01.F.3 below and the
City assumes the responsibility for the costs of the expanded APM,
those costs shall be allocated as follows:
A. Capital Costs. If the City assumes the Series 1997A
Bonds, the annual capital cost of the expanded APM shall be the sum
of (1) the actual debt service on the Series 1997A Bonds, (2) the
amortization of any consideration paid Airline by City related to
Airline's investment in the APM from sources other than the
proceeds of the Series 1997A Bonds, as contemplated by Section
7.03(g) of the A Special Facilities Lease, and (3) the amortization
of the City's investment in the expansion of the APM. If the City
retires the Series 1997A Bonds from other sources, the annual
capital cost of the expanded APM shall be the annual amortization
of the City's total investment in the acquisition and expansion of
the APM. The annual capital cost shall be allocated to each "link"
of the system (B-C, C-IAB, and, if applicable, A-B) based on the
actual costs of each link. The annual capital cost of each link
shall then be further allocated to each of the terminals served by
that link on an equal (50% / 50%) basis. The total annual capital
cost allocable to each terminal shall then be charged to the
airline user groups in the respective terminals (i.e., the Terminal
A airlines for the Terminal A share, Airline for the Terminal B and
Terminal C shares, and Airline and the IAB airlines for the IAB
share).
B. Operating Costs. The costs of operating and maintaining
the expanded APM system shall be allocated among the airlines based
on an equitable allocation methodology to be determined through
consultation with Airline and the other airlines affected by the
allocation.
C. Other City Funds. If the City provides any funds in
respect to the costs of the APM system that are not reimbursable
through airline rates and charges, then Airline shall share
proportionately in the recovery of such funds.
Section 6.06. Mid-Year Rate Adjustments
In the event that, at any time during a Fiscal Year, the Total
Costs of the Terminal B Airline Area, Terminal C Airline Area,
Terminal B Apron Area, Terminal C Apron Area, or Airfield Area, or
the aggregate Total Landed Weight of all airlines, is projected by
City to vary ten percent (10%) or more from the estimates used in
setting terminal rental rates, apron fee rates, or the landing fee
rate, such rates may be adjusted either up or down for the balance
of such Fiscal Year, provided that such adjustment is deemed
necessary by City. An upward adjustment shall only be used to
ensure that adequate revenues will be available from such fees to
recover the estimated Total Costs of the airline-supported cost
centers. For each such adjustment, City shall provide Airline with
a written explanation of the basis for the rate adjustment(s) and
will provide thirty (30) days advance written notice before putting
such adjustment(s) into effect. Unless extraordinary circumstances
warrant additional adjustments, City will seek to limit such rate
adjustments to no more than once each Fiscal Year.
Section 6.07. Year-End Adjustment to Actual and Settlement
On or about September 1 of each year, City shall furnish
Airline with a preliminary estimate of the year-end adjustment (as
described below) to assist Airline in budgeting for any deficiency
to be paid by Airline in the settlement process.
City shall furnish Airline by December 1 with an accounting of
the costs and expenses actually incurred, revenues and other
credits actually realized (reconciled to the audited financial
statements of the Airport System), and actual enplaned passengers
and landed weights during such Fiscal Year with respect to each of
the components of the calculation of terminal building rental
rates, apron fee rates, and the landing fee rate in this Article VI
and shall recalculate the rates, fees, and charges required for the
Fiscal Year based on those actual costs and revenues. If requested
by an airline, City shall convene a meeting of the airlines to
discuss the calculation of the year-end settlement.
In the event that Airline's rentals, fees, and charges billed
during the Fiscal Year were more than the amount of Airline's
rentals, fees, and charges required (as recalculated based on
actual costs and revenues), such excess amount shall be paid in
lump sum or issued as a credit to Airline within sixty (60) days of
the calculation of such final settlement.
In the event that Airline's rentals, fees, and charges billed
during the Fiscal Year were less than the amount of Airline's
rentals, fees, and charges required (as recalculated based on
actual costs and revenues), such deficiency shall be billed to
Airline and payable by Airline within sixty (60) days of the date
of invoice. However, in the event that the amount of the Airline
deficiency exceeds $350,000, Airline may pay the deficiency to City
in equal monthly installments without interest over the remaining
months of the current Fiscal Year.
Article VII
CONSTRUCTION OF IMPROVEMENTS
Section 7.01. Construction By City
A. Terminal A Improvements. In conjunction with the
planned relocation of certain airlines from Terminal B to Terminal
A, City will design and construct improvements and renovations to
Terminal A as it deems necessary to meet the anticipated future
needs of the airlines and public using that Terminal, including
rebuilding, expansion and/or renovation of holdroom areas, baggage
claim and make-up areas, and other areas of the land-side building.
No costs of the Terminal A improvements will be included in the
rate base for any of Airline's terminal facilities. City and
Airline will coordinate regarding the overall phasing plan for the
improvements to Terminal A and the relocation of American Airlines
from Terminal B to Terminal A to facilitate Airline's occupancy of
Terminal B.
B. Terminal B Improvements. City will renovate Flight
Station 6 and portions of the Terminal B land-side building (public
and concession area improvements, utility systems, exterior
refurbishment, etc.) to accommodate Airline's expanded domestic
operations in Terminal B, as summarized in Exhibit G. Every
reasonable effort will be made by City to ensure that construction
of public area improvements in Terminal B will not adversely affect
Airline's use and occupancy of Terminal B. However, Airline
acknowledges that construction of the public area improvements may
cause some disruption of Airline's operations in Terminal B after
the effective date of this Agreement. Further, it is recognized
that (1) American Airlines was not relocated to Terminal A prior to
the expiration of its use and lease agreement on December 31, 1997,
(2) the renovation of such airline's space for Airline's use will
commence promptly after that airline has relocated, and, therefore,
(3) Airline will not have the beneficial use of such improvements
until after such renovation is completed (currently estimated for
January 19, 1999, and which renovation shall be prosecuted with all
due diligence by City as circumstances warrant).
C. Terminal C Improvements. City will renovate and
expand Terminal C as summarized in Exhibit H.
D. Future Investments in Terminals B and C. Subject
to an appropriation being made therefor, City agrees to spend from
the Airport Improvement Fund on improvements to Terminals B and/or
C at least $2.4 million during the initial ten (10) year term of
Airline's use of its Terminal B Leased Premises and at least $6.8
million during the subsequent ten (10) year term of Airline's use
of its Terminal B Leased Premises (provided the term of Airline's
use of its Terminal B Leased Premises is extended as provided in
Section 3.02).
E. Concession Area Improvements. City will use its
best efforts to provide comparable quality of finishes and
comparable availability and quality of concessions in the public
areas of Terminal A, Terminal B, and Terminal C.
F. Automated People Mover System.
1. Future Extension of the APM. City intends, at
its expense, to extend the APM to the IAB (the C-IAB Link) soon
after the initial link between Terminals B and C (the B-C Link) is
constructed and may further extend the APM to Terminal A at a later
date. Airline will coordinate in any reasonable manner with City
to facilitate the extension of the APM, and City will use its best
efforts to ensure that construction of such extension(s) does not
interfere with Airline's operations.
2. City Option to Purchase, Acquire and/or Assume
Airline's Leasehold Obligations for the B-C Link of the APM. City
shall have the option to purchase, acquire, and/or assume Airline's
leasehold obligations for the B-C Link of the APM, as provided in
Section 7.03(d) of the A Special Facilities Lease, and take over
responsibility for, and operating control of, the APM at any time
after the B-C Link of the APM is operational; provided, however,
that City shall take no action that jeopardizes the tax exempt
status of the SFRBs.
3. Assumption of Airline's Obligations Upon
Extension of APM. In the A Special Facilities Lease, City
covenants that it will not operate any extensions of the APM
separately from B-C Link, but will take appropriate steps so that
the entire APM, as extended to the IAB and/or Terminal A, is
operated as a single system. Therefore, in the event City extends
the APM to the IAB and/or Terminal A, as contemplated in Section
7.01.F.1 above, then City shall exercise its option to purchase,
acquire, and/or assume Airline's leasehold obligations for the B-C
Link of the APM, as provided in Section 7.01.F.2 above, and shall,
unless otherwise mutually agreed, undertake to maintain and operate
the entire APM, as provided in Section 8.01.E below. In such
event, City shall, at its option, either (i) assume Airline's
obligations for the Series 1997A Bonds or (ii) defease or retire
the Series 1997A Bonds from the proceeds of Airport System Revenue
Bonds or other Airport System funds, as provided in Section 7.03(d)
of the A Special Facilities Lease.
Section 7.02. Construction By Airline
A. Continental Special Facilities--General. Airline
has undertaken to design, construct, install, and operate the
Continental Special Facilities set forth in Article V of each such
Special Facilities Lease.
City has authorized and issued the SFRBs, in the total
principal amount of $190 million to pay the costs of the Special
Facilities, together with associated costs of issuance, debt
service reserve fund requirement and capitalization. The SFRBs
are payable solely from the net rent required by Section 6.01 of
the Special Facilities Leases. As provided in Section 6.02 of the
Special Facility Leases, the payment of net rent by Airline is
unconditional.
B. Automated People Mover. The A Special Facilities
Lease provides for Airline to design, construct, acquire, install,
test, and operate, at its sole cost and expense, the initial link
of the Automated People Mover between Terminals B and C. The
capital costs of the initial B-C Link shall be paid from the
proceeds of the Series 1997A Special Facilities Revenue Bonds to
the extent available. The initial B-C Link is to be designed as
the first phase of an Airport-wide APM system that may eventually
connect the IAB and Terminal A with the Terminal B-C Link. The APM
will be operated without direct charge to the passengers using the
system.
C. General / Approval of Plans. Airline may construct
or install at its own expense any improvements, facilities or
equipment, and any additions thereto, in the Leased Premises;
provided, however plans and specifications of any such proposed
construction or installation, including any alteration or addition
thereto, shall be submitted to and receive the written approval of
the Director prior to the commencement of construction, alteration
or installation. All such construction, alteration, or
installation may be made only after obtaining requisite building or
construction licenses and permits and, in addition to usual City
inspection, shall be subject to inspection and approval by said
Director to see that said approved plans and specifications are
being followed. All such construction, alteration, and
installation shall be designed and carried out in accordance with
the Department of Aviation's Tenant Improvement Manual as may be
amended in any reasonable manner from time to time which is
incorporated herewith by reference. Upon completion of
construction, Airline shall provide City with as-built drawings of
the improvements on CADD diskette.
D. Airline Right to Select Architects and Contractors.
No restrictions shall be placed on Airline as to architects,
builders or contractors which it may employ in connection with any
construction, installation, alteration, repair or maintenance by
Airline in the Leased Premises.
E. Title to Airline-Constructed Improvements. Title
to all Airline-constructed improvements in the Leased Premises,
other than the equipment, trade fixtures and personal property that
Airline is permitted to remove under the provisions of Section
4.04.B hereof, shall vest in City immediately upon completion
thereof.
F. Contractor Indemnity and Warranty. Airline will
use its best efforts to provide an indemnity from its construction
contractors to City to the same extent as Airline obtains an
indemnity from such contractor. Additionally, Airline will use its
best efforts to cause all construction contractor warranties to
inure to the benefit of City.
Section 7.03. Future Capital Improvements
City may expand and improve the Airport as the City, in
its sole judgment, may deem necessary to provide required
facilities in the interest of the public and City. City will
confer and coordinate with Airline and the other airlines serving
the Airport regarding planned Capital Improvements at the Airport
and at other airports in the Airport System, and, at least
annually, provide the airlines with a detailed schedule of such
planned Capital Improvements. However, City will retain the
discretion to make capital investment decisions and issue bonds, as
needed, to ensure that adequate facilities are provided on a timely
basis to meet public and airline needs.
Article VIII
OPERATION AND MAINTENANCE
Section 8.01. Obligations of City
A. Exclusive Use Space. In the Exclusive Use Space,
City will furnish only structural maintenance of City-constructed
facilities. City shall provide maintenance and operation of City-
installed systems, which will include outside window and building
cleaning. City shall use reasonable efforts to furnish sufficient
heat and air conditioning through its installed systems in those
areas so equipped for such services and will install area lighting;
however, City will furnish electrical power for interior area
lighting only.
B. Apron Area. City shall provide structural
maintenance for the apron area.
C. Common Use Airport Facilities. City agrees to
operate, maintain and keep in good repair the areas and facilities
provided by City for the common use of the airlines and the public
in accordance with the practices of a reasonably prudent airport
operator. City agrees to use its best efforts to keep the Airport
free from obstructions and to do all things reasonably necessary
for the safe, convenient and proper use of the Airport by those who
are authorized to use the same.
D. Public Areas of Terminal Buildings. City will
operate, maintain and keep in good, sanitary and neat condition and
repair the public areas of the terminal buildings (except for those
areas therein leased to others for their exclusive use) and all
additions, improvements and facilities now or hereafter provided by
City at or in connection with the terminal buildings and for common
use by all airlines and the public, excepting any improvements or
facilities constructed or installed by Airline, either individually
or jointly with others, and those that Airline has agreed under the
provisions hereof to operate or maintain as aforesaid. City will
keep the roof, structure and utility systems of the terminal
buildings in good repair. City will keep the public areas in and
around the terminal buildings adequately supplied, equipped and
furnished to accommodate the public using same and will operate and
maintain directional signs in said public areas, including by way
of example, but not by way of limitation, signs indicating the
location in the terminal buildings of public facilities provided by
City on the Airport (but excluding permanent new Terminal B signage
to be installed as part of the Continental Special Facilities).
City will use reasonable efforts to provide (1) sufficient heat and
air conditioning to those areas on the Airport equipped for such
service; (2) illumination and drinking water in the public areas in
the terminal buildings; (3) adequate lighting for the public
vehicular parking facilities and aircraft apron; and (4) such
janitorial and cleaning services as necessary to keep the public
areas of the terminal buildings and areas adjacent thereto in a
reasonably presentable and usable condition at all times.
E. Automated People Mover System.
1. Option to Contract with City for APM
Maintenance. Airline may elect to contract with City for City to
operate the APM as provided in the A Special Facilities Lease. In
such event, City will enter into a contract with Airline with
respect thereto, and pursuant to such contract, the operating and
maintenance costs of the B-C Link shall be billed to and paid by
Airline; provided, however, that in the event other tenant airlines
use the B-C Link, such airlines shall pay a pro rata share of such
costs in accordance with Section 6.05 hereof.
2. City Obligation to Maintain and Operate the
APM Upon Purchase, Acquisition, and/or Assumption of Airline's APM
Leasehold Obligations or Extension of the APM. In the event that
City (1) exercises its option to purchase, acquire, and/or assume
Airline's leasehold obligations for the B-C Link of the APM as
provided in Section 7.01.F.2 above or (2) extends the APM to the
IAB and/or Terminal A and, thereby becomes obligated to purchase,
acquire, and/or assume Airline's leasehold obligations for the B-C
Link of the APM as provided in Section 7.01.F.3 above, then City
shall take over operating control of the APM and, unless otherwise
mutually agreed, assume such responsibility for operating and
maintaining the APM and use its best efforts to cause the APM to be
operated so as to provide the same or substantially similar levels
of service (based on frequency and capacity) to Terminals B and C
as were provided prior to such date.
Section 8.02. Obligations of Airline
A. Exclusive Use Space. Airline shall provide all
maintenance in the Exclusive Use Space not otherwise provided by
City under Section 8.01 hereof. In addition, Airline shall furnish
all janitorial services within the Exclusive Use Space. Airline
shall also provide electrical relamping, all decorating and
redecorating when required, and all maintenance and operation of
tenant-installed improvements and systems in its Exclusive Use
Space. Airline shall maintain the Exclusive Use Space in a neat,
clean, sanitary, sightly and operable condition.
B. Apron Area. Airline shall perform or cause to be
performed such cleaning of the apron area leased to Airline as
shall be necessary to keep said area in a clean, neat and orderly
condition free of foreign objects and shall periodically on an as-
needed basis remove grease, oil, and fuel spills caused by Airline
with ramp scrubbing equipment and repair any foreign object damage.
C. Automated People Mover System. Subject to
Section 8.01.E.1, Airline shall be solely responsible for all
operating and maintaining costs and all taxes, charges, utilities,
and liens associated with the B-C Link of the APM (as provided in
Sections 6.04, 8.01, and 8.02 of the A Special Facilities Lease)
unless City exercises its option to purchase, acquire, and/or
assume Airline's leasehold obligations for the B-C Link of the APM
(as provided in Section 7.01.F.2 or 7.01.F.3 hereof and Section
7.02(d) of the A Special Facilities Lease), in which event, unless
otherwise mutually agreed, the City will assume such
responsibilities.
D. Other Continental Special Facilities. Airline
shall be responsible for paying all operation and maintenance costs
and all taxes, charges, utilities, and liens associated with all
Special Facilities other than the APM, as provided in Sections
6.04, 8.01, and 8.02 of the Special Facility Leases.
E. Airline-Constructed Improvements. Airline shall
cause all improvements and facilities, and additions thereto,
constructed or installed by Airline, either alone or in conjunction
with other airline tenants, and all vehicles and equipment operated
by Airline on the Airport to be kept and maintained in a safe
condition and in good repair (except those repairs and maintenance
undertaken by City in Section 8.01 hereof) in accordance with
uniform standards applicable to all Airport tenants as established
from time to time by the Director. Airline shall keep the
Exclusive Use Space and improvements thereon in a sanitary and neat
condition and, during construction, shall cause compliance with all
health, safety and other laws and requirements applicable thereto;
provided, however, that notwithstanding anything herein to the
contrary, Airline shall not be obligated to make any capital
repairs or structural alterations to so comply, unless necessitated
as a result of Airline's construction activities or required under
the Special Facility Leases.
F. Performance by City Upon Failure of Airline to
Maintain. In the event Airline fails within thirty (30) days after
receipt of written notice from City to perform any obligation
required under this Section to be performed by Airline, City may
enter the Leased Premises involved, without such entering causing
or constituting a termination of this Agreement or an interference
with the possession of said Leased Premises by Airline, and do all
things reasonably necessary to perform such obligation. City may
charge Airline the reasonable cost and expense of performing such
obligation and Airline agrees to pay to City upon demand such
charge in addition to any other amounts payable by Airline
hereunder; provided, however, if Airline's failure to perform any
such obligation endangers the safety of the public, the employees
or property of City, or other tenants of the Airport and City so
states in its written notice to Airline, City may perform such
obligation of Airline at any time after the giving of such notice
and charge to Airline the reasonable cost and expense of such
performance which Airline shall pay as aforesaid.
Article IX
INDEMNIFICATION
Section 9.01. Release and Indemnification of City.
A. Airline, for itself, its successors and assigns
hereby releases and discharges city, its predecessors, successors,
assigns, legal representatives and its agents, employees and
officers (collectively in this section "city") from any liability
of city for (i) any damage to property of airline or (ii) for
consequential damages suffered by airline, where any such damage is
sustained in connection with or arising out of the performance of
this agreement.
B. With no intent to affect airline's environmental
indemnification set forth in section 14.02(d), airline expressly
agrees to protect, defend, indemnify and hold city completely
harmless from and against (but subject to sections d and e hereof):
(i) any and all liabilities, lawsuits, causes of action, losses,
claims, judgments, damages, fines or demands arising by reason of
or in connection with the actual or alleged errors, omissions, or
negligent acts of airline or of city in connection with or arising
out of the performance of this agreement, including, but not
limited to, bodily injury, illness, physical or mental impairment,
death of any person, or the damage to or destruction of any real or
personal property; and (ii) all reasonable, out-of-pocket costs
incurred to establish city's right to indemnification hereunder;
and (iii) all costs for the investigation and defense of any and
all liabilities, lawsuits, causes of action, losses, claims,
judgments, damages, fines or demands including, but not limited to,
reasonable attorney fees, court costs, discovery costs and expert
fees. Subject to subsections d and e hereof, airline's agreement
to protect, defend, indemnify and hold harmless city expressly
extends to the actual or alleged joint or concurrent negligence of
city and airline.
C. Upon the filing by anyone of any type of claim,
cause of action or lawsuit against city for any type of damages
arising out of incidents for which city is to be indemnified by
airline pursuant to this section 9.01, city shall, as soon as
practical, and, in any event, within 10 days of city becoming aware
thereof, notify airline of such claim, cause of action or lawsuit.
In the event that airline does not settle or compromise such claim,
cause of action, or lawsuit at its own cost, to the extent airline
is required to indemnify city pursuant to this section 9.01, then
airline shall undertake the legal defense of such claim, cause of
action, or lawsuit at its own cost (subject to section 9.01e)
through counsel of recognized capacity or otherwise not reasonably
disapproved by city both on behalf of itself and on behalf of city
(assuming no substantial conflicts of interest exist) until final
disposition, including all appeals. city may, at its sole risk,
cost and expense, participate in the legal defense of any such
claim, cause of action or lawsuit by airline to defend against such
claim, cause of action or lawsuit without such participation
affecting airline's obligation herein. Any final judgment rendered
against city for any cause for which city is to be indemnified
against pursuant to this section 9.01 shall be conclusive against
airline as to liability and amount upon the expiration of the time
for all appeals.
D. The provisions of section 9.01b and c hereof shall
not apply to any claim or demand (i) to the extent arising from the
negligence of city when city is more than 50% liable, under this
agreement, or from the breach of city's express obligations
hereunder; or (ii) if such claim or demand relates to any act or
omission occurring outside the premises leased exclusively or
preferentially to airline under this agreement, unless airline is
more liable for (i.e., is more at fault for) such claim or demand
than each other party to such claim or demand; (iii) to the extent
the claim or demand is covered under the insurance available to
city as an additional insured under article x herein; (iv) to the
extent the claim or demand is covered under a third party insurance
policy owned or carried by city and/or any of its agencies or
instrumentalities; or (v) unless the claim or demand is covered by,
or city has asserted a defense based on governmental or sovereign
immunity. City shall be responsible for asserting any defense of
governmental immunity as it may exist from time to time, and it
shall do so upon the timely written request of airline or its
insurance carrier(s); provided, that, if (a) a claim or demand is
made against airline by a third party for which airline has
insurance coverage pursuant to sections 10.02 and 10.03 hereof, and
(b) there is a deductible carried by airline applicable to such
claim or demand (or airline, through self-insurance or other self-
funded insurance program, bears the financial risk of any portion
of such claim or demand as to the deductible only), then the
provisions of section 9.01B and C shall apply to such portion of
the claim or demand that is subject to such deductible or self-
insurance of the deductible or other self-funded insurance program
as to the deductible (and to any other portion of the claim or
demand as to city that is not satisfied with insurance proceeds).
For purposes of this section, airline covenants and agrees that as
to each claim or demand that may be subject to the provisions
hereof, the deductible amount shall never be deemed to be greater
than $1,000,000.
E. Notwithstanding anything in this section to the
contrary, the liability of the airline for city's negligence,
inclusive of all defense costs expended solely for city's defense,
under section 9.01B and C shall not exceed $1,000,000 per
occurrence.
Article X
INSURANCE
Section 10.01. General
With no intent to limit or increase Airline's liability
or the indemnification provisions herein, Airline shall provide and
maintain certain insurance (except as to Environmental/Impairment
Pollution coverage as set forth below) in full force and effect at
all times during the term of this Agreement and all extensions
thereto, as set forth Section 10.02 below. If any of the insurance
is written as "claims made" coverage, then Airline agrees to keep
such "claims made" insurance in full force and effect by purchasing
policy period extensions for at least five years after the
expiration or termination of this Agreement.
Section 10.02. Risks and Minimum Limits of Coverage
Workers Compensation: Statutory
Employer's Liability:
Bodily injury by accident $1,000,000 (each accident)
Bodily injury by Disease $1,000,000 (policy limit)
Bodily injury by Disease $1,000,000 (each employee)
Commercial General Liability:
(Including broad form coverage, contractual liability, bodily
and personal injury, and products and completed operations)
Combined single limit of:
$10,000,000 per occurrence / aggregate
Products and Completed operations:
$10,000,000 aggregate
Aircraft Liability:
(covering owned, hired, and nonowned aircraft including
passenger liability)
$200,000,000 combined single limit
Environmental Impairment / Pollution:
(including coverage for receiving, dispensing, transporting,
removal and handling of aviation fuels or any other
pollutants, as well as any other operations involving
pollutants)
$1,000,000 combined single limit per occurrence
Coverage required contingent upon Airline's election, in its sole
discretion, to purchase this coverage
All Risk:
(Covering Airline improvements, trade fixtures and equipment,
including fire, lighting, vandalism, and extended coverage
perils)
Replacement value
Automobile Liability Insurance:
(For automobiles used by Airline in the course of its
performance under this Agreement, including Airline's non-
owned and hired autos)
$5,000,000 combined single limit per occurrence
(Aggregate limits are per 12-month period unless otherwise
indicated.)
Section 10.03. Other Provisions
A. Form of Policies. The insurance may be in one or
more policies of insurance. Nothing the Director does or fails to
do shall relieve Airline from its duties to provide the required
coverage hereunder, and the Director's actions or inactions shall
not be construed as waiving City's rights hereunder.
B. Issuers of Policies. The issuer of any policy
shall have a Certificate of Authority to transact insurance
business in the State of Texas or have a Best's rating of at least
B+ and a Best's Financial Size Category of Class VI or better,
according to the most current edition of Best's Key Rating Guide,
Property-Casualty United States.
C. Insured Parties. Each policy, except those for
Workers Compensation, Professional Liability and Employer's
Liability, shall name City (and its officers, agents, and
employees) as Additional Insured as its interest may appear on the
issued certificate of insurance and all renewal certificates (such
certificates to accurately reflect City's Additional Insured status
on Airline's original policies and any renewals or replacements
thereof during the term of this Agreement). City shall be named
Loss Payee on All Risk and Builders Risk coverages (except to the
extent coverage relates to Airline's equipment and personal
property).
D. Deductibles. Without increasing, decreasing or
expanding its duties under Section 10.01. hereof, Airline shall
assume and bear any claims or losses to the extent of any
deductible amounts and waives any claim it may ever have for the
same against City, its officers, agents, or employees; provided,
however, that nothing herein stated shall diminish Airline's rights
or increase Airline's obligations in respect to its undertakings or
hold harmless, defense and indemnification set forth in Article IX
hereof.
E. Cancellation. Each policy shall expressly state
that it may not be cancelled, materially modified or nonrenewed
unless thirty (30) days advance written notice is given in writing
to the Director by the insurance company.
F. Aggregates. Airline shall give written notice to
the Director within twenty (20) days of the date upon which total
claims by any party against Airline reduce the aggregate amount of
coverage below the amounts required by this Agreement. In the
alternative, the policy may contain an endorsement establishing a
policy aggregate for the particular project or location subject to
this Agreement.
G. Subrogation. Each policy shall contain an
endorsement to the effect that the issuer waives any claim or right
in the nature of subrogation to recover against City, its officers,
agents, or employees.
H. Endorsement of Primary Insurance. Each policy
hereunder except Workers Compensation and Professional Liability
shall be primary insurance to any other insurance available to the
Additional Insured and Loss Payee with respect to claims arising
hereunder.
I. Liability for Premium. Airline shall be solely
responsible for payment of all insurance premiums required
hereunder, and City shall not be obligated to pay any premiums.
J. Contractors and Subcontractors.
1. With the exception set forth in Section
10.03.J.2 below, Airline shall contractually require all
contractors and subcontractors involved in the provision of any
labor, materials or services on, at or within the Leased Premises,
to carry insurance naming City as an additional insured and meeting
all of the requirements in Sections 10.01, 10.02, and 10.03 hereof,
except coverage amount. The coverage amount shall be commensurate
with the amount of the particular contract and shall be subject to
the approval of the Director. Airline shall provide in its
contracts with its contractors and subcontractors that they submit
to the Director copies of insurance certificates for the coverages
required herein.
2. Airline shall be under no obligation to
require its contractors or subcontractors to provide aircraft
liability coverage.
3. In connection with the design and construction
of any Airline improvements to the Leased Premises, Airline shall
require:
a. The architect/engineer to secure Professional
Liability coverage with a minimum of $1,000,000 per
occurrence/aggregate if the project construction cost is
estimated to exceed $10,000,000;
b. The construction contractor and/or its
subcontractors to secure Builder's Risk coverage equal to the
replacement value of the improvements; and
c. The construction contractor and/or its
subcontractors to secure Asbestos Abatement liability coverage
if the project includes work with asbestos.
Such Asbestos Abatement liability insurance shall include
coverage for liability arising from the encapsulation, removal,
handling, storage, transportation, and disposal of asbestos-
containing materials and shall be in a minimum amount of $1,000,000
combined single limit per occurrence.
K. Proof of Insurance. Within ten (10) days of the
Effective Date of this Agreement and at any time during the term of
this Agreement, Airline shall furnish the Director with
certificates of insurance, along with an affidavit from Airline
confirming that the certificates accurately reflect the insurance
coverage that will be available during the term. If requested in
writing by the Director, Airline shall furnish City with copies of
Airline's insurance policies.
Notwithstanding the proof of insurance requirements set
forth above, it is the intention of the parties hereto that
Airline, continuously and without interruption, maintain in force
the required insurance coverages to be carried by Airline set forth
above. Airline agrees that City shall never be argued to have
waived or be estopped to assert its right to terminate this
Agreement hereunder because of any acts or omissions by City
regarding its review of insurance documents provided by Airline,
its agents, employees, or assigns.
L. City Right to Review and Adjust Coverage Limits.
City reserves the right at reasonable intervals during the Term of
this Agreement to cause the insurance requirements of this Article
X to be reviewed by an independent insurance consultant experienced
in insurance for public airports in Texas, taking into
consideration changes in statutory law, court decisions, or the
claims history of the airline industry as well as that of Airline,
and, based on the written recommendations of such consultant, and
in consultation with Airline, to reasonably adjust the insurance
coverages and limits required herein but not more often than every
twelve (12) months.
Article XI
DAMAGE OR DESTRUCTION OF LEASED PREMISES
Section 11.01. Leased Premises Inhabitable
If any of the Leased Premises shall be partially damaged
by fire or other casualty, but such Leased Premises remain
inhabitable, same will be repaired with due diligence by the City
to the condition existing just prior to such casualty, but City's
responsibility in this regard shall be limited to the extent of the
proceeds of insurance received with respect to such premises and to
the extent funds are appropriated for such repair by the City's
governing body.
Section 11.02. Leased Premises Uninhabitable
If any of the Leased Premises shall be completely
destroyed or partially damaged by fire or other casualty rendering
all or a substantial portion of the Leased Premises uninhabitable
and it is reasonably estimated by the Director that it will take
more than 180 days to repair, Director shall notify Airline in
writing within ninety (90) days of such casualty whether the
damaged or destroyed Leased Premises will be repaired. If any or
all of the Leased Premises is to be repaired, it shall be repaired
with due diligence by the City, and the rental allocable to the
damaged or destroyed Leased Premises shall be abated for the period
from the occurrence of the damage to the substantial completion of
the repairs. If the repair period is estimated to exceed 180 days,
City shall make good faith efforts to provide Airline with
temporary substitute space, if available, during such period of
repair, at a rental rate for comparable space based on the rates
and charges principles set forth in this Agreement.
Section 11.03. Automatic Termination
If the City shall fail to notify Airline of its decision
as set forth in Section 11.02 above (or gives written notice of its
intent not to repair), City shall be deemed to have elected to
terminate this Agreement only as to the Leased Premises damaged or
destroyed, and the Agreement shall automatically terminate as to
such Leased Premises as of the date of the damage or destruction,
with no further liability therefor by either City or Airline except
those liabilities that accrued, including rent, prior to such
damage or destruction.
Section 11.04. Airline Improvements
Airline shall reconstruct all its improvements in the
damaged or destroyed Leased Premises necessary for the conduct of
Airline's business operations in the manner existing just prior to
the casualty, consistent with the City's obligations set forth in
Sections 11.01, 11.02 and 11.03.
Section 11.05. Insurance
The terminal buildings in which Airline's Exclusive Use
Space is located, exclusive of Airline's property, will be insured
by City under a policy of fire and extended coverage insurance to
the extent of not less than eighty percent (80%) of the insurable
value of such property if such percentage of coverage is available.
Insurance moneys and funds received on account of the damage to or
destruction of such property will be applied by the City to the
repair, construction, or replacement of such damaged or destroyed
property. Premiums paid by the City for insurance provided in
compliance herewith shall be included by the City as a part of
Airport operation and maintenance expenses.
Article XII
TERMINATION
Section 12.01. Termination by City
City, in addition to any other right of cancellation
herein given to it or any other rights to which it may be entitled
by law or equity or otherwise, may cancel this Agreement by giving
Airline sixty (60) days advance written notice, to be served as
hereinafter provided, upon or after the happening of any one or
more of the following events, except default in timely payment of
any money due City including Passenger Facility Charges (PFCs), if
applicable, for which fifteen (15) days written notice shall be
given and except default in providing copies of insurance policies
or maintaining required insurance coverages described in Section
10.03K, for which ten (10) days written notice shall be given:
A. The filing by Airline of a voluntary petition in
bankruptcy or any assignment for benefit of creditors of all or any
part of Airline's assets; or
B. Any institution of proceedings in bankruptcy
against Airline and the adjudication of Airline as a bankrupt
pursuant to such proceedings; or
C. The taking of jurisdiction by a court of competent
jurisdiction of Airline or its assets pursuant to proceedings
brought under the provisions of any Federal reorganization act; or
D. The appointment of a receiver or trustee of
Airline's assets by a court of competent jurisdiction or by a
voluntary agreement with Airline's creditors; or
E. The abandonment by Airline of its conduct of its
air transportation business at the Airport and in this connection,
suspension of operations for a period of ninety (90) days will be
considered abandonment in the absence of an explanation
satisfactory to and accepted in writing by the Director; or
F. If Airline shall be prevented for a period of
ninety (90) days, after exhausting or abandoning all appeals, by
any action of any governmental authority, board, agency or officer
having jurisdiction thereof from conducting its air transportation
business at the Airport, or it is so prevented from conducting its
air transportation business, either by (a) reason of the United
States or any agency thereof, acting directly or indirectly, taking
possession of, in whole or substantial part, the Leased Premises or
premises required for the actual operation of Airline's aircraft to
and from the Airport; or (b) if all or a substantial part of the
Leased Premises shall be acquired through the process of eminent
domain; or
G. The default by Airline in the performance of any
covenant, obligation or condition herein required to be performed
by Airline and the failure of Airline to remedy such default for a
period of thirty (30) days after receipt from City of written
notice to remedy the same, except default in timely payment of any
money due City under this Agreement, for which a total of fifteen
(15) days written notice will be given and except default in
providing copies of insurance policies or maintaining required
insurance coverages described in Section 10.03K, for which ten (10)
days written notice shall be given; provided, however, that no
notice of cancellation as above provided shall be of any force or
effect if Airline shall have remedied the default prior to receipt
of City's notice of cancellation or within the said 30-day period
Airline commences the process of remedying the default and
diligently prosecutes the same to completion. Failure by City to
take any authorized action upon default by Airline of any of the
terms, covenants or conditions required to be performed, kept and
observed by Airline shall not be construed to be or act as a waiver
of said default or of any subsequent default of any of the terms,
covenants and conditions herein contained to be performed, kept and
observed by Airline. The acceptance of rentals by City from
Airline for any period or periods after a default by Airline of any
of the terms, covenants and conditions herein required to be
performed, kept and observed by Airline shall not be deemed a
waiver or estoppel of any right on the part of City to cancel this
Agreement for failure by Airline to so perform, keep or observe any
of said terms, covenants or conditions.
Section 12.02. Termination by Airline
In addition to any other right of cancellation herein
given to Airline or any other rights to which it may be entitled by
law, equity, or otherwise, as long as Airline is not in default in
payment to City of any amounts due City under this Agreement or
otherwise, Airline may cancel this Agreement and thereby terminate
all of its rights and unaccrued obligations hereunder by giving
City sixty (60) days advance written notice, to be served as
hereinafter provided, upon or after the happening of any of the
following events:
A. Termination, suspension, revocation or
cancellation, by any federal agency with competent jurisdiction of
Airline's right or authority to operate as a scheduled air carrier
serving the Airport;
B. Issuance by a court of competent jurisdiction of an
injunction which in any way substantially prevents or restrains the
use of the Airport or any part thereof necessary for Airline's
scheduled flight operations and which injunction remains in force
for a period of at least thirty (30) days after City has exhausted
or abandoned all appeals, if such injunction is not necessitated by
or issued as the result of an act or omission of Airline;
C. If, at any time during the term of this Agreement,
because of City's failure to provide within a reasonable time safe
aircraft operating facilities, the Federal Aviation Administration
or its successor fails or refuses to certify the Airport as
adequate to accommodate aircraft which Airline is licensed to
operate and is operating into and from all other airports of like
size and character and with similar facilities and which aircraft
are in general use on Airline's scheduled transportation route
system; and which Airline may reasonably desire to operate into or
from the Airport; provided such refusal or failure is not due to
any fault of Airline;
D. The inability of Airline for a continuing period in
excess of ninety (90) days to use the Airport or to exercise any
rights or privileges granted to Airline hereunder and necessary to
its scheduled flight operations because of any law or ordinance by
any governmental authority having jurisdiction over the operations
of the Airport or Airline, or because of any order, rule,
regulation or other action or any nonaction of the Federal Aviation
Administration, its successor or any other authorized governmental
agency; prohibiting such use, or because of earthquake or other
casualty (excepting fire), acts of God or the public enemy, and
beyond the control of Airline.
E. The default by City in the performance of any
covenant or condition within the control of City and herein
required to be performed by City and failure of City to use its
best efforts to remedy such default for a period of thirty (30)
days after receipt from Airline of written notice to remedy the
same; provided, however, that no notice of cancellation as above
provided shall be of any force or effect if City shall have
remedied the default prior to receipt of Airline's notice of
cancellation or within the aforesaid thirty (30) day period or
during said period commences the process of remedying the same and
diligently prosecutes the same to completion.
F. The assumption by the United States Government or
any authorized agency thereof of the operation, control or use of
the Airport and facilities, or any substantial part thereof, in
such a manner as substantially to restrict Airline, for a
continuous period of at least ninety (90) days, from operating its
air transportation business.
G. Termination, suspension or discontinuation of
Airline's services to the Airport by a governmental agency
authorized to do so because of a war or national emergency declared
by the government. Airline's performance of all or any part of
this Agreement for or during any period or periods after a default
of the terms, covenants and conditions herein contained to be
performed, kept and observed by City shall not be deemed a waiver
of any right on the part of Airline to cancel this Agreement for
failure by City so to perform, keep or otherwise observe any if the
terms, covenants or conditions hereof to be performed, kept and
observed by City, or be construed to be or act as a waiver by
Airline of said default or of any subsequent default of any of said
terms, covenants and conditions herein contained and to be
performed, kept and observed by City.
H. In any event where the usage of the Airport by
Airline is materially affected as provided in this Section 12.02,
and whether or not Airline is entitled to cancel this Agreement as
herein provided, while such event is continuing, an equitable
adjustment to the rentals herein required to be paid by Airline
shall be made by City, as are determined to be reasonable by City
in its sole judgment.
Article XIII
ASSIGNMENT AND SUBLETTING
Section 13.01. Assignment and Subletting
A. Airline shall not at any time assign this Agreement
in whole or in part without the prior written consent of the
Director; provided, however, that the foregoing shall not prevent
the assignment of this Agreement to any corporation with which
Airline may merge or consolidate or which may succeed to the
business of Airline and provided further that, in connection with
any such requested assignment, Airline may request City to release
the assigned portion of said Leased Premises from this Agreement
and to relieve Airline of rental obligation therefor. In the event
City fails or refuses to approve such request and relief, Airline
may then assign all or a portion of the Leased Premises to another
air transportation company or companies that have executed an
airport use and lease agreement with City.
B. Airline may sublet all or any part of the Leased
Premises only after obtaining the prior written consent of the
Director, but if an event of default shall occur and be continuing
under this Agreement, City may collect rent from such sublessee or
occupant and apply the amount collected to the extent possible to
satisfy the obligations of Airline hereunder, but no such
collection shall be deemed a waiver by the City of the covenants
contained herein or the acceptance by the City of such sublessee or
occupant as a successor to Airline or a release of Airline by City
from its obligations hereunder.
C. All of the terms, provisions, covenants,
stipulations, conditions and consideration in this Agreement shall
extend to and bind the legal representatives, successors,
sublessees, and assigns of the respective parties hereto.
Article XIV
MISCELLANEOUS PROVISIONS
Section 14.01. Rules and Regulations
From time to time the Director may adopt and enforce
rules and regulations with respect to the occupancy and use of the
Airport, its services and facilities, by persons, vehicles,
aircraft and equipment that in his opinion will reasonably insure
the safe, efficient, and economically practicable operation thereof
and provide for the safety and convenience of those using the
Airport, and to protect the Airport and its facilities and the
public from damage or injury resulting from operations on, into and
from the Airport. Airline agrees to observe and obey any and all
rules and regulations as are currently in place and as may be
reasonably established from time to time, and to require its
officers, agents, employees, contractors, and suppliers, to observe
and obey the same. City reserves the right to deny access to the
Airport or its facilities to any person, firm or corporation that
fails or refuses to obey and comply with such rules and
regulations. Such rules and regulations of City will not be
inconsistent with the terms of this Agreement nor with valid rules,
regulations, orders and procedures of the Federal Aviation
Administration or any other government agency duly authorized to
make or enforce rules and regulations for the operation of the
Airport and the operation of aircraft using the Airport. Airline
at all times shall be furnished (at the notice address provided
herein and to Airline's on-Airport manager) a current copy of any
such City rules or regulations and any amendments thereto, and
Airline reserves the right to contest any such rules and
regulations which it believes to be unreasonable.
Section 14.02. Compliance with Law
A. General. Airline shall not use the Airport or any
part thereof, or knowingly permit the same to be used by any of its
employees, officers, agents, subtenants, contractors, invitees, or
licensees for any illegal purposes and shall, at all times during
the term of this Agreement, comply with all applicable regulations,
ordinances, and laws of the City, the State of Texas, or the
Federal Government, and of any governmental bodies which may have
jurisdiction over the Airport. Nothing in this Section 14.02 shall
modify the provisions of Section 14.01 or limit Airline's rights
thereunder.
B. Compliance with Statutes, Ordinances and
Regulations. At all times during the term of this Agreement,
Airline shall, in connection with its activities and operations at
the Airport:
1. Comply with and conform to all applicable
present and future statutes and ordinances, and regulations
promulgated thereunder, of all Federal, State, and other government
bodies of competent jurisdiction that apply to or affect, either
directly or indirectly, Airline or Airline's operations and
activities under this Agreement. Airline shall comply with all
applicable provisions of the Americans with Disabilities Act of
1990 (42 U.S.C. Section 12101), as may be amended from time to
time, and federal regulations promulgated thereunder that may be
made applicable as a result of construction activities conducted by
Airline.
2. Subject to prior written approval of the
Director, make, at its own expense, all non-structural
improvements, repairs, and alterations to its Exclusive Use Space,
equipment, and personal property that are required to comply with
or conform to any of such statutes, ordinances, or regulations
(subject to Section 14.01).
3. As respects the City, be and remain an
independent contractor with respect to all installations,
construction, and services performed by or on behalf of Airline
hereunder.
C. Compliance with Environmental Laws.
1. Airline shall comply with all federal, state,
local statutes, ordinances, regulations, rules, policies, codes or
guidelines now or hereafter in effect, as same may be amended from
time to time, which govern Hazardous Materials or relate to the
protection of human health, safety or the environment,
applicability of which are invoked by the conduct of Airline's
business operations at the Airport and shall include but not be
limited to: the Federal Insecticide, Fumicide, and Rodenticide Act,
7 U.S.C. Section 136 et seq.; the Safe Drinking Water Act, 42
U.S.C. Section 300(f) et seq.; the Oil Pollution Control Act of
1990, 33 U.S.C. Section 270 et seq.; the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C., Section 9601 et seq.; and as amended by the
Superfund Amendments and Reauthorization Act of 1986, Pub. Law No.
99-499, 100 Stat. 1613; the Toxic Substances Control Act, 15
U.S.C., Section 2601 et seq.; the Clean Air Act, 42 U.S.C. 7401 et
seq.; the Clean Water Act, 33 U.S.C., Section 1251, et seq.; the
Hazardous Materials Transportation Act, 49 U.S.C., Section 1801 et.
seq.; the Resource Conservation and Recovery Act, 42 U.S.C.,
Section 6901 et seq.; or their State counterparts; and all
substances defined as hazardous waste or as hazardous substances
under the laws of Texas and/or the United States or in regulations
promulgated pursuant to such laws (collectively, "Environmental
Laws").
2. Any fines, penalties, or remediation costs
that may be levied against the City by the Environmental Protection
Agency or the Texas Natural Resource Conservation Commission or any
other governmental agency for Airline's failure to comply with the
Environmental Laws as required herein shall be reimbursed to the
City by Airline within twenty-one (21) days of receipt of an
invoice from City for such fines or penalties.
3. Airline shall prevent the presence, use,
generation, release, omission, discharge, storage, disposal or
transportation of any Hazardous Materials by Airline on, under, in,
above, to or from the Airport or any other areas or facilities
subject to this Agreement, other than in strict compliance with all
Environmental Laws.
4. Airline acknowledges that the Airport is
subject to the National Pollution Discharge Elimination System
Program ("NPDES") and its regulations relating to stormwater
discharges, 40 CFR Part 122, for operations that occur at the
Airport. Airline further acknowledges that it is familiar with
these NPDES stormwater regulations, that it will conduct operations
at the Airport in compliance with 40 CFR Part 122 or any applicable
NPDES permit, as either may be amended from time to time.
5. City and Airline both acknowledge that close
cooperation is necessary to ensure compliance with any NPDES
stormwater discharge permit, as well as to ensure safety and to
minimize costs. Airline acknowledges that it may be necessary to
undertake to minimize the exposure of stormwater to materials
generated, stored, handled or otherwise used by Airline as defined
in the federal stormwater regulations, by implementing and
maintaining "Best Management Practices" as defined in 40 CFR,
Part 122.2 and as implemented in any applicable NPDES permit, as
either may be amended from time to time.
6. Airline acknowledges that City's NPDES
stormwater discharge permit and any subsequent amendments,
extensions or renewals thereto, to the extent affecting Airline's
operations at the Airport, is incorporated by reference into this
Agreement. Airline agrees to be bound by all applicable portions
of said permit. City shall promptly notify Airline of any changes
to any portions of said permit applicable to, or that affect,
Airline's operations.
7. City shall provide Airline with written notice
of those NPDES stormwater discharge permit requirements (including
any modifications thereto) that Airline shall be obligated to
perform from time to time at the Airport, including, but not
limited to: certification of non-stormwater discharges; collection
of stormwater samples; preparation of stormwater pollution
prevention or similar plans; implementation of "good housekeeping"
measures or Best Management Practices; and maintenance of necessary
records. Such written notice shall include applicable deadlines.
Airline, within fifteen (15) days of receipt of such written
notice, shall notify City in writing if it disputes any of the
NPDES stormwater discharge permit requirements it is being directed
to undertake. If Airline does not provide such timely notice, it
is deemed to assent to undertake such requirements. If Airline
provides City with written notice, as required above, that it
disputes such NPDES stormwater discharge permit requirements, City
and Airline agree to negotiate a prompt resolution of their
differences. Airline warrants that it will not object to City
notices required pursuant to this paragraph unless Airline has a
good faith basis to do so.
8. City and Airline agree to provide each other
upon request, with any non-privileged information collected and
submitted to any governmental entity(ies) pursuant to applicable
NPDES stormwater regulations.
9. Airline agrees to participate in any
reasonable manner requested by the City in any City organized task
force or other work group established to coordinate stormwater
activities at the Airport.
10. Upon reasonable notice based on the
circumstances and without materially disrupting Airline's
operations (except in case of emergencies when notice shall not be
required), City shall have the right at any time and from time to
time to enter upon Airline's Leased Premises for purposes of
inspection to ensure that Airline is complying with this
Section 14.02.C. without such inspection constituting a trespass.
11. All such remedies of City with regard to
environmental requirements as set forth herein shall be deemed
cumulative in nature and shall survive termination of this
Agreement.
D. INDEMNIFICATION. Airline shall protect, defend,
indemnify, and hold harmless City and its officers, agents, and
employees from and against any loss, cost, claim (including claims
for remediation costs or in kind remediation), demand, penalty,
fine, liability and expense (including but not limited to
attorneys' and consultants' fees, court costs and litigation
expenses) and hereafter referred to as "liability" from whomever
received, whether a private person or governmental entity related
to:
1. Airline's use or the presence caused by
airline of hazardous materials of whatever kind or nature, known or
unknown, contingent or otherwise on the Airport, which liability
may arise out of any investigation, monitoring, cleanup,
containment, removal, storage or restoration work required or
incurred hereunder by City or any other entity or person in a
reasonable belief that such work is required by any applicable
environmental law;
2. Any actual, threatened, or alleged
contamination by hazardous materials on the Airport premises by
airline or its agents;
3. The disposal, release or threatened release of
hazardous materials by airline or its agents at the Airport that is
on, from, or affects soil, air, water, vegetation, buildings,
personal property, or persons;
4. Any personal injury, death or property damage
(real or personal) arising out of or related to Hazardous Materials
used (including storage or disposal) by Airline at the Airport; or
5. Any violation by Airline of Environmental
Laws;
provided, however, that the foregoing indemnity shall not be
applicable to losses, costs, expenses, claims, demands, penalties,
fines, settlements, liabilities and expenses resulting from
conditions existing as of the effective date of this Agreement and
which such conditions are not the result of any operations,
activities, actions or inactions of airline or its agents, or which
are caused solely by city or its agents.
E. Airline shall not be responsible in any way for any
Hazardous Materials that exist on the Airport, the presence of
which was not caused by Airline. In the event that any such
presence of Hazardous Materials not caused by Airline results in
Airline being substantially deprived of the use or benefit of any
material portion of the Leased Premises, City agrees to use its
best efforts to provide replacement space for Airline during the
period of such depravation or to abate the rent due hereunder in an
equitable manner.
Section 14.03. Nondiscrimination
A. General. In the use and occupation of the Airport,
Airline shall not unlawfully discriminate against any person or
class of persons by reason of race, color, religion, sex, national
origin or ancestry, age, or physical or mental handicap.
B. Civil/Human Rights Laws. In its operations at the
Airport and in its use of the Airport, Airline shall not, on the
grounds of race, color, religion, sex, national origin or ancestry,
or age, discriminate or permit discrimination against any person or
group of persons in any manner prohibited by Part 21 of the Federal
Aviation Regulations, the Civil Rights Act of 1964, as amended, the
Equal Pay Act of 1963, the Rehabilitation Act of 1973, and Section
15-17 of the City's Code of Ordinances. Without limiting the
generality of the foregoing, Airline agrees to not discriminate
against any employee or applicant for employment because of race,
color, religion, sex, national origin or ancestry, or age. Airline
agrees to take affirmative action to ensure that applicants are
employed, and that employees are treated during employment without
regard to their race, color, religion, sex, national origin or
ancestry, age, or physical or mental handicap. Such action shall
include, but not be limited to: employment, upgrading, demotion, or
transfer; recruitment or recruitment advertising; layoff or
termination; rates of pay or other forms of compensation; selection
for training; and disciplinary actions and grievances. Airline
agrees to post, in conspicuous places available to employees and
applicants for employment, notices to be provided setting forth the
provisions of this nondiscrimination clause.
C. USDOT Requirements. Airline, for itself, its
successors in interest, and assigns, as a part of the consideration
of this Agreement, does hereby covenant and agree that, in the
event improvements are constructed, maintained, or otherwise
operated on the Airport for a purpose for which a United States
Department of Transportation program or activity is extended or for
another purpose involving the provision of similar services or
benefits, Airline shall maintain and operate such improvements and
services in compliance with all other requirements imposed pursuant
to 49 CFR, Part 21 (Non-discrimination in Federally Assisted
Programs of the Department of Transportation), as said regulations
may be amended.
Airline, for itself, its heirs, personal
representatives, successors in interest, and assigns, as a part of
the consideration of this Agreement, does hereby covenant and agree
that: (1) no person on the grounds of race, color, religion, sex,
national origin or ancestry, or age, shall be excluded from
participation in, denied the benefits of, or otherwise be subjected
to discrimination in the use of said improvements; (2) that in the
construction of any improvements on, over, or under such land and
the furnishing of services thereon, no person on the grounds of
race, color, religion, sex, national origin or ancestry, or age,
shall be excluded from participation in, denied the benefits of, or
otherwise be subjected to unlawful discrimination; (3) that Airline
shall use the Airport facilities in compliance with all other
requirements imposed by, or pursuant to, 49 C.F.R., Part 21 (Non-
discrimination in Federally Assisted Programs of the Department of
Transportation), as said regulations may be amended; and
(4) Airline assures that it will undertake an affirmative action
program as required by 14 C.F.R., Part 152, Subpart E, Non-
discrimination Airport in Aid Program, to ensure that no person
shall on the grounds of race, color, religion, national origin or
ancestry, sex, age, or physical or mental handicap be excluded from
participating in any employment activities covered in 14 CFR, Part
152, Subpart E, or such employment activities covered in Section
15-17 of the City's Code of Ordinances. Airline assures that no
person shall be excluded on these grounds from participating in or
receiving the services or benefits of any program or activity
covered by this Section 14.03. Airline assures that it will require
that any covered suborganization similarly will undertake
affirmative action programs and that the suborganization will
require assurance from the suborganization's suborganization, as
required by 14 CFR., Part 152, Subpart E, to the same affect.
Section 14.04. Payment of Taxes
Airline shall pay all taxes that may be levied, assessed
or charged upon Airline or its property located on the Airport by
the State of Texas or any of its political subdivisions or
municipal corporations, and shall obtain and pay for all licenses
and permits required by law. However, Airline shall have the right
to contest, in good faith, the validity or application of any such
tax, license or permit and shall not be considered in default
hereunder as long as such contest is in progress. Further, Airline
agrees to diligently prosecute such contest.
Section 14.05. Right to Lease to United States Government
During time of war or national emergency City shall have
the right to lease the Airport landing area or any part thereof to
the United States Government for use by the Armed Forces and, if
any such lease is executed, the provisions of this Agreement
insofar as they are inconsistent with the provisions of the lease
to the Government shall be suspended; however, such suspension
shall not extend the term of this Agreement. If, as a result of
any such lease, the rights or duties of Airline hereunder are
materially affected, then Airline shall receive an equitable rental
adjustment.
Section 14.06. Notice or Consent
Any notice or consent required herein to be obtained
from or given by City (or Director) may be given by Director unless
otherwise provided. Consent of City or Airline when required
herein shall not be unreasonably withheld, delayed or conditioned.
Section 14.07. Rights Reserved to City
Nothing contained herein shall unlawfully impair the
right of City to exercise its governmental or legislative
functions. This Agreement is made subject to the Constitution and
laws of the State of Texas and to the Charter of the City of
Houston, Texas, and to the provisions of the Airport Improvement
Program Grant Agreements applicable to the Airport and its
operation, and the provisions of such agreements, insofar as they
are applicable to the terms and provisions of this Agreement, shall
be considered a part hereof to the same extent as though copied
herein at length to the extent, but only to the extent, that the
provisions of any such agreements are required generally by the
United States at other civil airports receiving federal funds. To
the best of the City's knowledge, nothing contained in such laws or
agreements conflicts with the express provisions of this Agreement.
Section 14.08. Favored Nations
Airline shall have the same rights and privileges and
pay the same City-established fees and charges, not to exceed those
established under the provisions of this Agreement as periodically
revised under the terms hereof, with respect to the use of the
Airport as are granted to or charged any other airline executing a
use and lease agreement with City for use of the Airport. It is
understood that ground rentals and lease rentals are set by City
Council, as provided by City Charter, and to the extent permitted
under applicable Federal law therefore may vary between lessees on
account of the different premises to be leased at the time thereof.
It is further understood that lease rentals and charges in terminal
buildings, flight stations and associated aircraft apron areas
constructed in the future and not described in this Agreement may
vary from the lease rentals and charges established herein for the
facilities, depending upon the capital cost and financing
arrangements involved and, therefore may be more or less than the
lease rentals established herein for similar facilities.
Section 14.09. Right of Entry
Upon reasonable notice based on the circumstances and
without materially disrupting Airline's operations (except in case
of emergencies when notice shall not be required), City may enter
upon the Leased Premises to which Airline is given rights and
privileges under the provisions hereof and which is leased
exclusively to Airline hereunder at any time for any purpose
necessary, incidental to or connected with the performance of
Airline's obligations hereunder, or in the exercise of City's
governmental functions, and upon the termination or cancellation of
this Agreement, and such entry or reentry shall not constitute a
trespass nor give Airline a cause of action for damages against
City.
Section 14.10. Notices
Except notices required under Sections 14.02.C.10 and
14.01 herein where notice shall be acceptable if given either in
writing or verbally to Airline's Vice President of hub operations,
or his/her designee, notices to City and/or Airline provided for
herein shall be deemed sufficiently given when delivered or when
mailed by certified or registered mail, postage prepaid, or when
given by telephone immediately confirmed in writing by telecopier
(or other communications device acceptable to the party) as follows
or to such other address, telephone or telecopier number as a party
may from time to time designate in writing to the other party
hereto:
To City:
Director of Aviation
City of Houston
16930 J.F. Kennedy Boulevard
Houston Intercontinental Airport
Houston, Texas 77032
Telephone: (281) 233-1877
Telecopier: (281) 233-1864
To Airline:
(When Delivered) (When Mailed)
Continental Airlines, Inc. Continental Airlines, Inc.
1600 Smith Street Dept. HQS-PF P. O. Box 4607 Dept. HQS-PF
Houston, Texas 77002 Houston, Texas 77210
Attention: Vice President Attention: Vice President
Corporate Real Estate Corporate Real Estate
Telephone: (713) 324-2245
Telecopier: (713) 324-6954
With a copy to: With a copy to:
Continental Airlines, Inc. Continental Airlines, Inc.
1600 Smith Street Dept. HQS - LG P. O. Box 4607 Dept. HQS-LG
Houston, Texas 77002 Houston, Texas 77002
Attention: General Counsel Attention: General Counsel
Telephone: (713) 324-2950
Telecopier: (713) 520-6329
Section 14.11. City's Right to Audit Books and Records
Airline agrees to keep books and records on its
operations at the Airport and the Director or any other authorized
City representative upon reasonable advance written notice to
Airline shall have the right to inspect and audit such books and
records to ensure compliance with the prevailing municipal bond
disclosure requirements and to determine that City has received
from Airline all moneys due the City under the terms hereof
including, but not limited to, the rentals and fees and PFCs (if
applicable) payable to Airport by Airline.
Section 14.12. Force Majeure
Neither City nor Airline shall be deemed in violation of
this Agreement if it is prevented from performing any of its
obligations hereunder by reason of strikes, boycotts, labor
disputes, embargoes, shortage of material, acts of God, acts of the
public enemy, acts of superior governmental authority, weather
conditions, tides, riots, rebellion, sabotage, or any other
circumstances for which it is not responsible or which is not in
its control; provided, however, that these provisions shall not
excuse Airline from paying the rentals and fees hereinbefore
specified in Article V.
Section 14.13. Non-Waiver
The acceptance of fees by City for any period or periods
after a default of any of the terms, covenants and conditions
herein contained to be performed, kept and observed by Airline,
shall not be deemed a waiver of any right on the part of City to
terminate this Agreement for failure by Airline to perform, keep or
observe any of the terms, covenants or conditions of this
Agreement, and shall not be deemed a waiver of the right of City to
terminate this Agreement pursuant to Article XII of this Agreement.
Section 14.14. Place of Payments
All payments required of the Airline by this Agreement
shall be made payable to the City of Houston and shall be mailed to
the office of the Director of Aviation, City of Houston, P.O. Box
60106, George Bush Intercontinental Airport, Houston, Texas 77205-
0106, or to such other officer or address as may be substituted
therefor in writing to Airline by the Director.
Section 14.15. Nonliability of Individuals
No director, officer, agent or employee of either party
shall be charged personally or held contractually liable by or to
the other party under any term or provision of this Agreement or
because of any breach thereof or because of its or their execution
or attempted execution.
Section 14.16. Remedies to be Nonexclusive
All remedies provided in this Agreement shall be deemed
cumulative and additional and not in lieu of or exclusive of each
other or of any other remedy available to City or Airline at law or
in equity (to the extent not inconsistent with the express
provisions hereof) and the exercise of any remedy or the existence
herein of other remedies or indemnities shall not prevent the
exercise of any other remedy.
Section 14.17. Exclusiveness of Airline's Rights
Nothing herein contained shall be deemed to grant to
Airline any exclusive right or privilege within the meaning of
Section 308 of the Federal Aviation Act for the conduct of any
activity on the Airport, except that, subject to the terms and
provisions hereof, Airline shall have the right to exclusive
possession of the exclusive areas leased to Airline under the
provisions of this Agreement.
Section 14.18. Other Land and Buildings Excluded
It is agreed and understood that it is not intended by
this Agreement or any Exhibit hereto to lease any building, space
or area, or set any rental rates for any building, space or area,
other than what is specifically described herein.
Section 14.19. Titles
The titles of the several articles of this Agreement are
inserted herein for convenience only and are not intended and shall
not be construed to affect in any manner the terms and provisions
hereof or the interpretation or construction thereof.
Section 14.20. Invalid Provisions
In the event any covenant, condition or provision herein
contained is held to be invalid by a court of competent
jurisdiction, the invalidity of any such covenant, condition or
provision shall in no way affect any other covenant, condition, or
provision herein contained, provided the invalidity of any such
covenant, condition or provision does not materially prejudice
either City or Airline in its respective rights and obligations
contained in the valid covenants, conditions and provisions of this
agreement.
Section 14.21. Enforcement
The City Attorney or his or her designee shall have the
right to enforce all legal rights and obligations under this
Agreement without further authorization. Airline covenants to
provide to the City Attorney all documents and records that the
City Attorney reasonably requests to assist in determining
Airline's compliance with this Agreement when a good faith basis
exists for the belief that Airline is not in compliance with this
Agreement, with the exception of those documents made confidential
by federal or state law or regulations and provided that the
provision of such documents and records by Airline shall be further
limited in any respect that the provision of any documents or
records of City pertaining to this Agreement would be limited
pursuant to Chapter 552, Texas Gov't. Code, as amended or
otherwise.
Section 14.22. Operation of Airport
City agrees to maintain and operate the Airport in
accordance with all applicable standards, rules and regulations of
the Federal Aviation Administration or its successor. City shall
exercise its rights hereunder and otherwise operate the Airport
with due regard for the operational requirements and long-term
interests of the airlines and the interests of traveling public, in
a manner that is consistent with applicable law, federal aviation
regulation, federal grant assurances, and City airport revenue bond
ordinances.
Section 14.23. Entire Agreement
This Agreement constitutes the entire Agreement of the
parties on the subject matter hereof and may not be changed,
modified, discharged or extended except by written instrument duly
executed by City and Airline. Airline agrees that no
representations or grant of rights or privileges shall be binding
upon City unless expressed in writing in this Agreement.
Section 14.24. Successors and Assigns
The provisions of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the
parties hereto; provided, however, this provision shall in no way
whatsoever alter the restriction herein regarding assignment and
subletting by Airline.
Section 14.25. Subordination
City agrees that the Director, in his discretion, and
subject to approval of the City Attorney, shall be permitted to,
from time to time, execute any agreement providing for the
subordination of any statutory or constitutional landlord's lien
over any of Airline's property acquired in connection with any bona
fide, third party purchase money equipment (or other personal
property) financing (whether through a sale leaseback financing or
other equipment lease financing transaction), it being further
agreed that the financing of costs expended by Airline for the
purchase of equipment or personal property within twelve (12)
months prior to such financing transaction shall be considered
purchase money financing hereunder; provided, however, that such
subordination shall be limited to Airline's property that is
financed or refinanced in such transaction.
EXECUTED this ______ day of ____________________, A.D. 19__.
ATTEST: CITY OF HOUSTON:
_____________________________ By:___________________________
City Secretary Mayor
ATTEST: CONTINENTAL AIRLINES, INC.
_____________________________ By: ____________________________
Secretary
APPROVED: COUNTERSIGNED:
_____________________________ By: ___________________________
Director, Department of Aviation City Controller
APPROVED AS TO FORM: DATE COUNTERSIGNED:
_____________________________ By: ____________________________
Senior Assistant City Attorney
THE STATE OF TEXAS )(
COUNTY OF HARRIS )(
BEFORE ME, the undersigned authority, a notary public in and
for Harris County, Texas, on this day personally appeared LEE P.
BROWN, MAYOR of the CITY OF HOUSTON, known to me to be the person
and officer whose name is subscribed to the foregoing instrument,
and acknowledged to me that he executed the same for the purposes
and considerations therein expressed as the act and in the capacity
therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the _________ day
of _______________________, A.D. 19___.
_____________________________________
Notary Public in and
for Harris County, Texas
THE STATE OF TEXAS )(
COUNTY OF HARRIS )(
BEFORE ME, the undersigned authority, on this day personally
appeared ________________________________________________, Vice-
President of the corporation above named,
__________________________________________________, known to me to
be the person whose name is subscribed to the foregoing instrument,
and acknowledges to me that he executed the same for the purpose
and consideration therein expressed, in the capacity therein
stated, and as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the _________ day
of _______________________, A.D. 19___.
____________________________________
Notary Public in and
for Harris County, Texas
EXHIBIT 10.30(a)
"A" LEASE
SPECIAL FACILITIES
LEASE AGREEMENT
(AUTOMATED PEOPLE MOVER PROJECT)
______________________________________
by and between
CITY OF HOUSTON, TEXAS
as Lessor
and
CONTINENTAL AIRLINES, INC.
as Lessee
______________________________________
Dated as of March 1, 1997
SPECIAL FACILITIES
LEASE AGREEMENT
(AUTOMATED PEOPLE MOVER PROJECT)
I N D E X
Page No.
ARTICLE I
DEFINITIONS AND INTERPRETATIONS
Section 1.01: Definitions . . . . . . . . . . . . . . . . . . .2
Section 1.02: Interpretations . . . . . . . . . . . . . . . . .6
ARTICLE II
REPRESENTATIONS
Section 2.01: Representations by the City . . . . . . . . . . .7
Section 2.02: Representations by Lessee . . . . . . . . . . . .7
ARTICLE III
LEASE AND TERM; GRANT OF EASEMENTS AND GROUND LEASES
Section 3.01: Lease of Special Facilities . . . . . . . . . . .8
Section 3.02: Term of Lease of Special Facilities . . . . . . .8
Section 3.03: Easements and Ground Leases . . . . . . . . . . .8
Section 3.04: Condition of Special Facilities . . . . . . . . .8
Section 3.05: City Right of Entry . . . . . . . . . . . . . . .9
ARTICLE IV
ISSUANCE OF BONDS; PAYMENT OF COSTS OF THE PROJECT
Section 4.01: Issuance of Series 1997A Bonds. . . . . . . . . .9
Section 4.02: Issuance of Additional Bonds. . . . . . . . . . .9
Section 4.03: Application of Proceeds; Insufficiencies. . . . 10
Section 4.04: Refunding Bonds . . . . . . . . . . . . . . . . 10
Section 4.05: Optional Redemption of Bonds. . . . . . . . . . 11
ARTICLE V
DESIGN, CONSTRUCTION AND ACQUISITION OF THE SPECIAL FACILITIES
Section 5.01: General . . . . . . . . . . . . . . . . . . . . 11
Section 5.02: Special Provisions for Project. . . . . . . . . 12
Section 5:03: Inventory of Special Facilities; Replacements . 14
Section 5.04: Title to Project, Plans and Contracts . . . . . 14
Section 5.05: Design, Construction and Acquisition of
Additional Special Facilities . . . . . . . . . 15
Section 5.06: Personal Property Not Constituting Special
Facilities. . . . . . . . . . . . . . . . . . . 15
ARTICLE V
INET RENT AND GROUND RENT
Section 6.01: Net Rent While Bonds Outstanding. . . . . . . . 16
Section 6.02: Obligation to Pay Net Rent Unconditional. . . . 17
Section 6.03: Pledge of Net Rent. . . . . . . . . . . . . . . 18
Section 6.04: Operation and Maintenance Expenses; Other Costs 18
Section 6.05: Ground Rentals. . . . . . . . . . . . . . . . . 19
ARTICLE VII
USE OF SPECIAL FACILITIES;
REPRESENTATIONS AND UNDERTAKINGS BY LESSEE AND CITY
Section 7.01: General . . . . . . . . . . . . . . . . . . . . 19
Section 7.02: Use of Project. . . . . . . . . . . . . . . . . 19
Section 7.03: Representations by City with Respect to the
Project . . . . . . . . . . . . . . . . . . . . 20
Section 7.04: Reaffirmation of Options to City with Respect
to the Project. . . . . . . . . . . . . . . . . 23
ARTICLE VIII
LESSEE'S OBLIGATIONS AND CONDITIONS TOLESSEE'S
USE OF SPECIAL FACILITIES
Section 8.01: Maintenance of Special Facilities at
Lessee's Expense. . . . . . . . . . . . . . . . 24
Section 8.02: Taxes, Charges, Utilities, Liens. . . . . . . . 24
Section 8.03: Compliance with Airport Rules and Regulations
and Law; Nondiscrimination. . . . . . . . . . . 24
Section 8.04: Compliance with Tax Law . . . . . . . . . . . . 25
Section 8.05: Environmental Matters . . . . . . . . . . . . . 25
Section 8.06: City's Right To Maintain or Repair Special
Facilities. . . . . . . . . . . . . . . . . . . 28
Section 8.07: Termination Procedures. . . . . . . . . . . . . 28
ARTICLE IX
LIABILITY, INSURANCE AND CONDEMNATION
Section 9.01: Release and Indemnification of City . . . . . . 28
Section 9.02: General Insurance Requirements. . . . . . . . . 30
Section 9.03: Risks and Minimum Limits of Coverage. . . . . . 31
Section 9.04. Other Provisions. . . . . . . . . . . . . . . . 32
Section 9.05: Disposition of Insurance Proceeds . . . . . . . 33
Section 9.06: Condemnation. . . . . . . . . . . . . . . . . . 34
Section 9.07: Reconstruction or Repair. . . . . . . . . . . . 36
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.01: Events of Default. . . . . . . . . . . . . . . 36
Section 10.02: Remedies on Default. . . . . . . . . . . . . . 37
Section 10.03: Additional Remedy. . . . . . . . . . . . . . . 39
Section 10.04: No Remedy Exclusive. . . . . . . . . . . . . . 39
Section 10.05: Agreement to Pay Attorneys' Fees and Expenses. 39
Section 10.06: No Additional Waiver Implied by One Waiver . . 39
Section 10.07: Enforcement by City Attorney . . . . . . . . . 39
Section 10.08: Special Rights of Bond Insurer . . . . . . . . 40
ARTICLE XI
ASSIGNMENTS, SUBLETTING AND TERMINATION BY LESSEE
Section 11.01: Assignments and Subletting by Lessee . . . . . 40
Section 11.02: Termination of Agreement by Lessee . . . . . . 41
Section 11.03: Special Provisions Regarding Leasehold
Mortgage . . . . . . . . . . . . . . . . . . . 41
ARTICLE XII
MISCELLANEOUS
Section 12.01: Lessee to Maintain Its Corporate Existence . . 42
Section 12.02: Exempt Facilities. . . . . . . . . . . . . . . 42
Section 12.03: Notices. . . . . . . . . . . . . . . . . . . . 42
Section 12.04: Consents and Approvals . . . . . . . . . . . . 44
Section 12.05: Rights Reserved to City. . . . . . . . . . . . 45
Section 12.06: Force Majeure. . . . . . . . . . . . . . . . . 45
Section 12.07: Severability Clause. . . . . . . . . . . . . . 45
Section 12.08: Place of Performance; Laws Governing . . . . . 45
Section 12.09: Brokerage. . . . . . . . . . . . . . . . . . . 46
Section 12.10: Individuals Not Liable . . . . . . . . . . . . 46
Section 12.11: Binding Nature of Agreement; Benefits of
Agreement. . . . . . . . . . . . . . . . . . . 46
Section 12.12: Ambiguities. . . . . . . . . . . . . . . . . . 46
Section 12.13: Survival . . . . . . . . . . . . . . . . . . . 46
Section 12.14: No Merger of Title . . . . . . . . . . . . . . 46
Section 12.15: Entire Agreement . . . . . . . . . . . . . . . 47
Description of Project Exhibit "A"
Description of Easements Exhibit "B"
Description of Ground Lease Properties Exhibit "C"
Deed and Bill of Sale for Project Exhibit "D"
SPECIAL FACILITIES
LEASE AGREEMENT
(Automated People Mover Project)
THE STATE OF TEXAS
COUNTY OF HARRIS
THIS SPECIAL FACILITIES LEASE AGREEMENT (hereinafter called
"Agreement") dated as of the 1st day of March, 1997, is made and
entered into between the CITY OF HOUSTON, TEXAS, a municipal
corporation and Home Rule City, situated principally in Harris
County, Texas (hereinafter called "City"), and CONTINENTAL
AIRLINES, INC., a corporation organized and existing under the laws
of the State of Delaware, duly authorized to do business in the
State of Texas (hereinafter called "Lessee").
W I T N E S S E T H :
WHEREAS, City is the owner of land and certain improvements
known as the Houston Intercontinental Airport, located in the City
of Houston, Harris County, Texas (hereinafter called "Airport"),
which is operated as a public airport, as a part of the City's
Airport System (as hereinafter defined), and City has the power and
authority to lease premises and facilities thereon and to grant
rights and privileges with respect thereto, including those set
forth herein; and
WHEREAS, Lessee is engaged in the business of commercial air
transportation as a scheduled air carrier and is certificated or
otherwise authorized by the United States Government and the
hereinafter described Use and Lease Agreement to engage in such
business at the Airport (hereinafter referred to as "authorized
business"); and
WHEREAS, City and Lessee have heretofore entered into the Term
Sheet (as hereinafter defined) pursuant to which the City has
agreed to lease to Lessee certain space and facilities in Terminals
B and C at the Airport and to issue certain special facilities
revenue bonds to finance certain special facilities projects, which
bonds are to be secured by the pledge of certain net rentals of the
special facilities projects payable by the Lessee; and
WHEREAS, Lessee has heretofore requested the City to undertake
the financing of the Project (as hereinafter defined); and
WHEREAS, the City has found and determined that it is in the
public interest and a public purpose for the City to finance the
costs of the Project through the issuance of certain special
facilities revenue bonds payable from certain net rentals of the
Project; and
WHEREAS, all ordinances heretofore adopted by the City
authorizing the issuance of its Airport System Revenue Bonds
payable from any or all gross revenues, tolls, rents, lease moneys,
returns, and charges derived by the City from the operation of its
Airport System, which includes the Airport, provide for the
exclusion from the pledge of such revenues "any rentals (except
ground rentals) from net rent leases which may be executed in the
future wherein the lease consideration is pledged or otherwise
utilized to finance the construction of buildings or facilities for
lessee-tenants of the City, but only for such time and to such
extent in each case as the rentals reserved in the lease or any
extension or renewal thereof (other than ground rent) are required
to be deposited in a separate interest and redemption fund in order
to meet the City's obligation for interest payments and principal
repayment on the bonds or other instruments of indebtedness issued
or sold to finance the improvement which is the subject matter of
the lease"; and
WHEREAS, the City and Lessee desire to enter into this
Agreement (i) to constitute a "net rent lease", to provide for the
construction and acquisition of certain Special Facilities
initially consisting of the Project, to provide for the issuance of
revenue bonds to finance certain costs of such Special Facilities,
and to provide for the payment by Lessee of certain Net Rent at
times and in amounts sufficient to meet the City's obligation for
interest payments and principal repayment on all revenue bonds sold
to finance the costs of such Special Facilities and (ii) to set
forth certain other agreements of the parties with respect to the
Special Facilities and Ground Lease Properties; and
WHEREAS, the City has heretofore determined that the Project
is essential to the development and operation of the Airport and,
but for the timing requirements stipulated by Lessee, would have
been financed, constructed and operated by the City for the benefit
of the same members of the traveling public who are intended to be
served by the APM (as hereinafter defined);
NOW, THEREFORE, for and in consideration of the premises and
of the mutual covenants and agreements herein contained and in
consideration of the rentals and other amounts to be paid as herein
provided, the City and Lessee do hereby covenant and agree as
follows:
ARTICLE I
DEFINITIONS AND INTERPRETATIONS
Section 1.01: Definitions. In this Agreement, the following
terms shall have the following meanings, respectively, unless the
context clearly indicates otherwise:
"Additional Bonds" shall mean all additional bonds which may
be issued by the City payable from the same source as the Series
1997A Bonds (including Net Rent payable under this Agreement) for
the purposes and in the general manner specified in Section 4.02
hereof.
"Airport" shall mean Houston Intercontinental Airport,
Houston, Texas, as it now exists or may be modified or expanded
from time to time in the future.
"Airport System" shall mean all airport, heliport and aviation
facilities, or any interest therein, now or from time to time
hereafter owned, operated or controlled in whole or in part by the
City, together with all properties, facilities and services
thereof, and all additions, extensions, replacements and
improvements thereto, and all services provided or to be provided
by the City in connection therewith, but expressly excluding
Special Facilities. The Airport System currently includes the
present airports of the City, known as "Houston Intercontinental
Airport," "William P. Hobby Airport" and "Ellington Field" and the
"CBD Heliport."
"Airport System Senior and Subordinate Lien Revenue Bonds"
shall mean any or all of the City's outstanding bonds and notes of
such designation secured by and payable from senior or subordinate
liens on Airport System net revenues, including any bonds and notes
hereafter issued on a parity therewith.
"APM" or "Automated People Mover" shall mean the automated
people mover system to run between Terminals B and C at the Airport
as more fully described in Exhibit "A" attached to this Agreement.
"APM Easement" shall mean the Easement(s) so designated in
Exhibit "B" attached to this Agreement, for the purpose of the APM,
including APM stations.
"Available Moneys" shall mean (i) moneys received by the
Trustee and held in the Interest and Redemption Fund for a period
of at least 124 days (or, if any such moneys are paid to or for the
benefit of any person who is an "insider" within the meaning of the
United States Bankruptcy Code with respect to the City or the
Lessee or is paid by any such person who is an "insider," 367 days)
and not commingled with any moneys so held for less than said
period and during and prior to which period no petition in
bankruptcy was filed by or against the City or the Lessee under the
United States Bankruptcy Code, (ii) moneys with respect to which
the Trustee shall have received an opinion of counsel experienced
in matters pertaining to the United States Bankruptcy Code that the
contemplated use of such moneys would not constitute a transfer of
property voidable under Sections 544 or 547 of the United States
Bankruptcy Code should the City or the Lessee become a debtor under
such Code, or (iii) investment income derived from the investment
of moneys described in clauses (i) or (ii).
"Bond Insurer", with respect to the Series 1997A Bonds, shall
mean Financial Security Assurance Inc., a New York stock insurance
company, or any successor thereto.
"Bonds" shall mean collectively the Series 1997A Bonds and any
Additional Bonds and Refunding Bonds from time to time hereafter
issued.
"Business Day" shall mean any day other than a Saturday,
Sunday, or legal holiday or the equivalent (other than a
moratorium) on which banking institutions generally in Houston,
Texas or New York, New York are authorized or required by law or
executive order to close.
"City" shall mean the City of Houston, Texas, or such other
agency, board, authority, or private entity which may succeed to
the jurisdiction of the City over the Airport.
"Costs of the Project" or "Costs of the Special Facilities"
shall mean all costs of financing the construction and acquisition
of the Project or Special Facilities, as the case may be, and the
issuance of Bonds for such purpose, including without limitation
the following:
(i) all amounts paid by the Lessee, or authorized by the
Lessee and paid by or on behalf of Lessee, to design, construct,
acquire, fabricate, equip and install the Project or Special
Facilities, including without limitation, all costs of utility
extensions and connections and all amounts paid under all contracts
for goods, services and facilities related thereto;
(ii) all amounts necessary to provide for work performed,
material purchased or expenditures incurred, pertaining to or in
connection with the Project or any other Special Facilities
approved by City and Lessee including, without limitation, the
charges of any architects or engineers for plans, specifications,
drawings, supervision and inspection for the Project or Special
Facilities;
(iii) all expenses incurred by the Lessee and the City for
the review of plans, specifications and contracts for the Project
or the Special Facilities and for the inspection in connection with
the construction and acquisition thereof;
(iv) the cost of any and all permits, licenses, fees,
performance and payment bonds, appraisals and insurance policies
procured in connection with the acquisition and construction of the
Project or Special Facilities;
(v) legal, accounting and bond advisory, underwriting and
consultant fees and expenses, including any fees and expenses of
any bond insurer and the provider of any reserve fund surety, and
all costs and expenses incident to the authorization, issuance,
delivery and sale of the Bonds, including without limitation the
preparation, execution, delivery and recording of this Agreement,
the Trust Indenture, any preliminary and the final offering
documents pertaining to the Bonds, and any printing fees for such
documents, any purchase agreements pursuant to which the Bonds will
be sold, all credit agreements and other documents providing
security for the Bonds or the Lessee's obligations and all other
agreements and documents involved and contemplated hereby, the
costs and fees, including legal fees, incident to the qualification
of the Bonds for offer and sale under securities laws and the
preparation of any memorandum as to the eligibility of the Bonds
for offer and sale and for investment under state laws if required
or if applicable;
(vi) interest accruing on the Bonds during the period of
construction of the Project or Special Facilities financed with the
proceeds thereof, the term of which period shall be determined in
the Trust Indenture; and
(vii) such other and additional fees, costs, expenses and
expenditures of whatever nature incidental or pertaining to the
design, acquisition, construction, fabrication, equipping and
installation of the Project or the Special Facilities, including
funding of the Reserve Account, and all other costs and expenses
that may properly be capitalized as costs of the Project or the
Special Facilities.
"Director" shall mean the Director of the Department of
Aviation of the City or his designee.
"Easements" shall mean all of the easement or easements
described in Exhibit "B" attached hereto, including without
limitation the APM Easement.
"Event of Default" shall mean those events so defined in
Section 10.01 hereof.
"Ground Lease" shall mean (i) the lease of the Ground Lease
Properties by the City to Lessee pursuant to Section 3.03(b) hereof
and (ii) with respect to those Ground Lease Properties located
within Terminal B, the Use and Lease Agreement.
"Ground Lease Properties" shall mean the properties described
in Exhibit "C" attached hereto.
"Ground Rentals" shall mean the rentals to be paid by Lessee
directly to the City pursuant to Section 6.05 as consideration for
the lease of those Ground Lease Properties described in
Exhibit "C."
"Guaranty" shall mean the guaranty agreement dated as of
March 1, 1997, from the Lessee to the Trustee with respect to the
Series 1997A Bonds.
"Interest and Redemption Fund" shall mean the fund so defined
in the Trust Indenture for the collection of Net Rent and payment
of the Bonds.
"Leased Premises under the Use and Lease Agreement" shall mean
that certain space and improvements in and around at the Airport
which were leased by the City to Lessee pursuant to the Use and
Lease Agreement.
"Leasehold Mortgage" shall mean any deed of trust or mortgage
of Lessee's leasehold estate created hereunder which is authorized
to be granted pursuant to Section 11.03 of this Agreement.
"Leasehold Mortgagee" shall mean the beneficiary or mortgagee
under a Leasehold Mortgage.
"Lessee" shall mean Continental Airlines, Inc., a Delaware
corporation, and its successors and assigns as lessee hereunder.
"Net Rent" shall mean the net rentals payable by Lessee to the
Trustee on behalf of the City pursuant to Section 6.01(a)(i) and
(ii) hereof for the purpose of being applied to the payment of the
Bonds and making required deposits to the Interest and Redemption
Fund and payment of all other amounts due the Bond Insurer under
the Trust Indenture.
"Outstanding" shall have the meaning assigned in the Trust
Indenture.
"Project" shall mean the APM, together with all replacements
thereof and substitutes therefor as required to be made herein,
together with any modifications or additions thereto approved by
the Director and Lessee. The Project shall constitute the initial
Special Facilities.
"Refunding Bonds" shall mean all refunding bonds which may be
issued by the City for the purposes set forth in Sections 4.04
hereof, and which shall be payable from the same sources as the
Series 1997A Bonds (including Net Rent payable under this
Agreement).
"Reserve Account" shall mean the account to be created within
the Interest and Redemption Fund so defined in the Trust Indenture
for the purpose of constituting a reserve for the payment of Bonds.
"Series 1997A Bonds" shall mean the first series of Bonds to
be issued pursuant to this Agreement, which shall be entitled the
"City of Houston, Texas, Airport System Special Facilities Revenue
Bonds (Automated People Mover Project), Series 1997A."
"Special Facilities" shall mean the Project, all extensions,
additions, modifications and improvements thereto and all other
improvements, fixtures, equipment and facilities that, pursuant to
this Agreement or any supplement hereto or amendment hereof, are
financed with any proceeds of the Series 1997A Bonds or any
Additional Bonds.
"Term Sheet" shall mean that certain Term Sheet entitled
"Continental Expansion at Houston Intercontinental Airport" entered
into between the City and Continental on July 5, 1996.
"Trust Indenture" shall mean the Trust Indenture, dated as of
March 1, 1997, together with all supplements and amendments
thereto, entered into by and between the City and the Trustee to
provide for the issuance of and security for the Series 1997A
Bonds.
"Trustee" shall mean the bank designated as Trustee under the
Trust Indenture, or any successor trustee thereunder.
"Use and Lease Agreement" shall mean that certain use and
lease agreement or agreements with respect to Terminals B and C at
Houston Intercontinental Airport to be entered into between the
City and Lessee as provided in the Term Sheet and, pending the
execution thereof, the Term Sheet and the City's and Lessee's
existing use and lease agreement for Terminal C at the Airport and
Lessee's rights under any existing use and lease agreement for
Terminal B at the Airport, and, in the event a definitive use and
lease agreement is not entered into on or prior to the expiration
of existing use and lease agreement(s) (scheduled to be
December 31, 1997), any ordinance or ordinances of the City
establishing rates and charges and the terms of occupancy for
Terminals B and C (consistent with the Term Sheet) or other
mutually agreed upon interim agreement with respect thereto between
the City and Lessee.
Section 1.02: Interpretations. All terms defined herein and
all pronouns used in this Agreement shall be deemed to apply
equally to singular and plural and to all genders. The table of
contents, titles and headings of the articles and sections of this
Agreement have been inserted for convenience of reference only and
are not to be considered a part hereof and shall not in any way
modify or restrict any of the terms or provisions hereof. This
Agreement and all the terms and provisions hereof shall be
liberally construed to effectuate the purposes set forth herein
and, to provide for the full and timely payment of all Bonds from
time to time hereafter issued by the City, which Bonds shall be
secured by a pledge of the Net Rent payable under this Agreement.
In the event of any ambiguity contained herein, it shall not be
construed for or against any party hereto on the basis that such
party did or did not author same.
ARTICLE II
REPRESENTATIONS
Section 2.01: Representations by the City. The City makes
the following representations as the basis for its undertakings in
this Agreement:
(a) The City, as the owner of the Airport, is authorized
to enter into this Agreement;
(b) The City has the power and authority to grant the
Easements and the Ground Leases to the Lessee for the purposes of
constructing, installing, equipping, maintaining and operating the
Project;
(c) The City has the power and authority to acquire the
Project constructed, installed and equipped by Lessee on the Ground
Lease Properties and the Easements, to acquire the other Special
Facilities, and to lease same to Lessee pursuant to the terms and
conditions contained herein;
(d) The City has the power and authority to issue the
Bonds for the purpose of paying the Costs of the Special Facilities
and to pledge to the payment of the Bonds the Net Rent payable
under this Agreement and by proper municipal action it has been
authorized to execute and deliver this Agreement; and
(e) All representations relating to the City contained in
the recitals to this Agreement are true and correct in all material
respects.
Section 2.02: Representations by Lessee. The Lessee makes
the following representations as the basis for its undertakings in
this Agreement:
(a) Lessee is a corporation validly existing under the
laws of the State of Delaware; it is in good standing under its
certificate of incorporation and the laws of the State of Delaware;
it is duly authorized to do business in the State of Texas; it has
the power to enter into this Agreement without violating the terms
of any other agreement to which it is a party; and by proper cor-
porate action it has been duly authorized to execute and deliver
this Agreement;
(b) Lessee will occupy and possess the Easements and
Ground Lease Properties for the purposes and upon the terms and
conditions set forth herein; it will, subject to the City's
issuance and sale of the Series 1997A Bonds, construct, install and
equip the Project substantially in the manner herein provided; it
will convey the Project to, or cause title to the Project to vest
in, the City in the manner herein provided; and it will occupy,
possess, operate and maintain the Project and any other Special
Facilities for the purposes and in the manner provided herein, all
subject to the terms and conditions of this Agreement; and
(c) All representations relating to Lessee contained in
the recitals to this Agreement are true and correct in all material
respects.
ARTICLE III
LEASE AND TERM; GRANT OF EASEMENTS AND GROUND LEASES
Section 3.01: Lease of Special Facilities. Subject to the
terms and conditions of this Agreement, the City hereby leases,
lets and demises unto Lessee, and Lessee hereby leases and rents
from the City, the Special Facilities, which shall consist
initially of the Project.
Section 3.02: Term of Lease of Special Facilities. The term
of this Agreement and the leasehold estate hereby created in the
Special Facilities shall commence on April 17, 1997, being the date
of delivery hereof by both the City and Lessee and shall continue,
unless sooner terminated in accordance with this Agreement, until
the 31st day of December, 2017.
Section 3.03: Easements and Ground Leases. (a) Subject to
the terms and conditions of this Agreement, the City hereby grants
and conveys to Lessee the Easements for a term corresponding to the
term of Lessee's leasehold estate in the Special Facilities
including any extensions or renewals thereof. The Easements shall
be used solely for the purpose of constructing, equipping,
acquiring, operating and maintaining the APM.
(b) Subject to the terms and conditions of this Agreement,
the City hereby leases and demises to Lessee the Ground Lease
Properties described in Exhibit "C," for a term corresponding to
the term of Lessee's leasehold estate in the Special Facilities,
including any extensions or renewals thereof. Except as may
otherwise be expressly provided herein or in the Use and Lease
Agreement, the Ground Lease Properties shall be used solely for the
purpose of constructing, equipping, acquiring, operating and
maintaining the APM.
(c) Subject to the terms hereof, Lessee shall have the
right of reasonable ingress to and egress from the Special
Facilities over the portions of the Airport necessary for the
construction, operation and maintenance of the Special Facilities
in accordance with the terms hereof but subject to reasonable
regulations promulgated by the Director.
(d) In the event the City and Lessee determine it is
necessary or desirable to amend, correct, further define or
delineate, delete from or add to any descriptions of the Easements
or the Ground Lease Properties, they may do so by a supplement or
addendum hereto duly executed by the respective parties and
consented to by the Bond Insurer.
Section 3.04: Condition of Special Facilities. The Lessee
has full and exclusive responsibility for ascertaining the
suitability of the Special Facilities, Easements and Ground Lease
Properties for their intended use. The City makes no
representations or warranties, either express or implied, as to the
condition of the Special Facilities, Easements and Ground Lease
Properties for the use intended by the Lessee. The Lessee takes
the Special Facilities, Easements and Ground Lease Properties in
their "as-is" condition. The City acknowledges that Lessee does
not assume any responsibility for any Hazardous Materials (as
defined in Section 8.05C below) that existed on the Easements or
the Ground Lease Properties as of the date hereof.
Section 3.05: City Right of Entry The City may enter upon
the Easements, Ground Lease Properties and Special Facilities
(i) at any reasonable time for any purpose necessary, incidental to
or connected with the performance of Lessee's obligations
hereunder, or in the exercise of the City's governmental functions,
and (ii) upon the termination or cancellation of this Agreement in
accordance with the provisions of Article X hereof, and such entry
or reentry shall not constitute a trespass nor give Lessee a cause
of action for damages against the City; provided, however, the City
shall use all reasonable efforts to minimize any interference or
interruption with Lessee's business operations.
ARTICLE IV
ISSUANCE OF BONDS; PAYMENT OF COSTS OF THE PROJECT
Section 4.01: Issuance of Series 1997A Bonds. Subject to the
terms and conditions of this Agreement, the City shall diligently
use its best efforts to issue, sell and deliver the Series 1997A
Bonds in an amount sufficient to pay the Costs of the Project,
which amount shall be established in the Trust Indenture. The City
shall have no obligations to issue, sell, or deliver the Series
1997A Bonds if (i) there exists an Event of Default under this
Agreement by Lessee, or (ii) Lessee has not given written approval
of the Trust Indenture. The City shall not authorize the sale of
the Series 1997A Bonds or enter into the Trust Indenture until the
terms of such Bonds and the form of such Trust Indenture have been
approved in writing by Lessee in the manner provided in
Section 12.04 hereof, which written approval shall be conclusively
binding upon Lessee.
Section 4.02: Issuance of Additional Bonds. The City, at the
direction of Lessee with the prior written approval of the Bond
Insurer, may issue Additional Bonds in amounts sufficient to pay
(i) any part of the Costs of the Project not fully funded or
provided for out of the proceeds of the Series 1997A Bonds, or (ii)
the Costs of the Special Facilities for any additional Special
Facilities approved pursuant to Section 5.05 hereof. The City
agrees to use its best efforts to issue any Additional Bonds
required under Clause (i) above, and the Director shall cooperate
in a reasonable manner with Lessee to request the City to issue
Additional Bonds under Clause (ii) above; however, no
representation is made or assurance given or implied by the City
that it will be able to issue, sell and deliver Additional Bonds on
terms and conditions satisfactory to Lessee or the Bond Insurer or
that it will agree to issue Additional Bonds for any other purpose
than as set forth above. Moreover, the issuance of Additional
Bonds is made subject to the same conditions enumerated in
Section 4.01 and the additional condition that there shall have
been executed a supplement to this Agreement to provide for the
manner of construction, acquisition and payment for any additional
Special Facilities to be financed with such Additional Bonds and to
provide for any other matters reasonably deemed necessary by the
City in connection with such financing. All Additional Bonds shall
be secured and payable as provided in the Trust Indenture. Upon
the issuance of any Additional Bonds, the Net Rent and other
amounts payable hereunder shall automatically be increased in the
amounts required to provide for the full and timely payment of all
principal, interest, redemption premiums, Trustee charges, fees or
charges to or of credit enhancers and other related costs and
expenses in respect of all Bonds then outstanding, including the
Additional Bonds to be issued and amounts due as provided in clause
(y) of Section 6.01 hereof. However, the City shall not authorize
the issuance of Additional Bonds until the terms thereof and of the
supplement to the Trust Indenture relating thereto have been
approved in writing by Lessee, which written approval shall be
conclusively binding upon Lessee.
Section 4.03: Application of Proceeds; Insufficiencies. (a)
Subject to the other terms and provisions hereof, the City hereby
agrees to apply the proceeds of the Series 1997A Bonds (by
depositing the proceeds into the "Acquisition Fund" and other Funds
as established, defined and provided in the Trust Indenture) and
any Additional Bonds to pay (but only to the extent of such
proceeds) the Costs of the Special Facilities financed therewith.
In the event that the proceeds of the Series 1997A Bonds or any
Additional Bonds shall be insufficient to pay all Costs of the
Special Facilities for which such Bonds were issued, then Lessee
shall deposit into the Acquisition Fund amounts which, together
with other amounts therein, shall be sufficient to pay all Costs of
the Project or Special Facilities as the case may be. Proceeds of
such Bonds and deposits, if any, shall be applied first to make any
deposits required by the Trust Indenture authorizing the issuance
of such Bonds, second to pay all Costs of the Special Facilities
incurred on behalf of the City by the Lessee (and which are
reasonably approved by Lessee), including the cost of issuance of
such Bonds, and last to pay any Costs of the Special Facilities
incurred by or on behalf of Lessee. Any proceeds of the Bonds
remaining after paying all Costs of the Special Facilities shall be
deposited into the Interest and Redemption Fund as provided under
the Trust Indenture.
(b) Although the Trust Indenture provides that a reserve
fund surety policy may be substituted for funds initially credited
to the Reserve Account, Lessee shall not cause such a reserve fund
surety policy to be delivered nor shall Lessee request the
withdrawal or application of amounts in the Reserve Account for any
purpose other than as a reserve for the payment of debt service on
the Bonds as provided in the Trust Indenture (or for redeeming
Bonds or purchasing Bonds in the open market for cancellation as
may be permitted by the Trust Indenture) without the prior written
consent of the Director.
Section 4.04: Refunding Bonds. Lessee reserves the right to
request the City from time to time to issue Refunding Bonds in any
manner permitted by law for the purpose of refunding any of the
Bonds from time to time outstanding. Although, no representation
is made or assurance given or implied by the City that it will be
able to issue, sell and deliver such Refunding Bonds on terms and
conditions satisfactory to the Lessee, the City agrees to use its
best efforts to issue Refunding Bonds at Lessee's request provided
they have a similar maturity pattern, similar redemption features
and similar security. All Refunding Bonds, if any, shall be
secured and payable as provided in the Trust Indenture, and the Net
Rent and other amounts payable hereunder shall automatically be
adjusted to provide for the full and timely payment of all
principal, interest, redemption premiums, Trustee charges, fees or
charges to or of credit enhancers and other related costs and
expenses in respect of all Bonds to be outstanding following the
issuance of the Refunding Bonds and amounts due as provided in
clause (y) of Section 6.01 hereof. Notwithstanding the foregoing,
the City shall not authorize the sale of any Refunding Bonds or
authorize any supplement to the Trust Indenture for such purpose
until the terms of such Refunding Bonds and the supplement to the
Trust Indenture are approved in writing by Lessee in the manner
provided in Section 12.04 hereof, and it is provided further that
the City's receipt of such approval shall be conclusively binding
upon Lessee.
Section 4.05: Optional Redemption of Bonds. The City agrees
that at the written request of Lessee, the City will exercise any
reserved right of optional redemption for any of the Bonds,
provided that Lessee makes such request in sufficient time as
specifically set forth in the Trust Indenture to permit the City to
give any notice required by the Trust Indenture and provided
further that Lessee gives the City adequate assurances that it will
pay all additional Net Rent required to provide for the payment of
the applicable redemption price for such Bonds, together with any
related costs and expenses in connection with such redemption. No
such Lessee request or approval is required for the City to
exercise rights of optional redemption of the Bonds as provided in
Section 7.03(d) hereof.
ARTICLE V
DESIGN, CONSTRUCTION AND ACQUISITION OF THE SPECIAL FACILITIES
Section 5.01: General. Lessee shall cause the Special
Facilities to be designed, procured, constructed, installed and
completed in accordance with the following provisions.
(a) All plans and specifications for the design,
procurement, construction and installation of any discrete element
of the Special Facilities, including any alteration or addition
thereto, shall be submitted to and receive the written approval of
the Director prior to the commencement of any such discrete element
of procurement, construction, alteration or installation. The City
acknowledges that time is of the essence in reviewing such plans
and specifications and shall use diligence to review and respond to
all submissions of plans and specifications in a prompt and timely
manner; provided that the City will continue its review to the
extent practical, as determined by the City, while awaiting
additional information from the Lessee. The City's review and
response shall be conducted to avoid material, adverse impacts to
the most recently published construction schedule approved by the
City and the Lessee. The Lessee acknowledges that the City cannot
review and respond in such a timely manner unless the Lessee
assures that complete and thorough submissions are made to the City
for review. Further, the Lessee acknowledges timely review and
response by the City requires reasonable response by the Lessee to
requests of the City for additional information necessary to
complete the City's review.
(b) All such procurement, construction, alteration or
installation may be made only after obtaining any required building
or construction licenses and permits, which the City agrees to use
reasonable efforts to expedite or to assist in obtaining, and, in
addition to usual City inspection, shall be subject to inspection
by the Director to see that the approved plans and specifications
are being followed; provided, however, that the City shall use
reasonable efforts to eliminate or avoid any interference or
interruption with the construction of the Project.
(c) All such procurement, construction, alteration and
installation shall be designed and carried out in accordance with
the Department of Aviation's Tenant Improvement Manual, except to
the extent inconsistent herewith, which is incorporated herein by
reference and a copy of which has been provided to Lessee or as
otherwise agreed by the City and Lessee. All such procurement,
construction, alteration or installation shall be carried out and
completed substantially in accordance with the most recently
published construction schedule approved by Director and Lessee.
Upon completion of construction, Lessee shall provide the Director
with as-built drawings of improvements all on CADD diskette.
(d) Lessee shall make good faith efforts to ensure that
its Special Facilities contractors meet the City's overall MWBE
participation goals of 24% for design, 17% for construction and 11%
for procurement. Lessee shall provide periodic reports as may be
reasonably required by the Director or the City's Director of
Affirmative Action. The City shall have the right to audit
Lessee's efforts under this subsection throughout the term of this
Agreement in the same manner as it audits other City contractors.
(e) Lessee shall make good faith efforts to ensure that
its Special Facilities contractors that supply services and/or
labor comply with the City's drug free work place policy as set
forth in City of Houston Executive Order 1-31, as amended.
(f) Upon completion of the Project, Lessee shall
(i) submit to the City an affidavit executed by any officer
authorized to bind Lessee of Lessee certifying that the Project has
been constructed in substantial accordance with the plans and
specifications approved by the Director as provided in Section
5.01; all contractors, subcontractors, laborers, materialmen,
architects, engineers, and all other parties who have performed
work on or furnished materials for the construction, landscaping,
fixturing and equipping the Project have been paid in full together
with, when appropriate, executed and delivered releases of lien;
the Project is fully equipped, furnished, and supplied and is ready
for operation; and Lessee has obtained all necessary licenses,
permits, and other authorization required as of such date from all
governmental authorities having jurisdiction, and (ii) cause the
architect of the Project to execute and deliver to the City an
affidavit stating that the Project has been constructed and
equipped substantially in accordance with the plans and
specifications referred to in Section 5.01.
(g) In the event of default of any contractor or
subcontractor under any contract made by it in connection with the
Project or in the event of breach of warranty with respect to any
materials, workmanship, or performance guarantee, the Lessee will
promptly proceed, either separately or in conjunction with the
City, to exhaust the remedies of the Lessee against the contractor,
subcontractor or supplier so in default and against the surety for
the performance of such contract. The Lessee agrees to advise the
City of the steps it intends to take in connection with any such
default.
Section 5.02: Special Provisions for Project. The following
special conditions relate to the design and construction of the
Project:
(a) The Project shall be designed as the first phase of an
Airport-wide automated people mover system that may eventually be
expanded to connect with the International Airlines Building and
Terminal A.
(b) Lessee shall make available to the City's construction
manager, on a timely basis, copies of all final contract documents
and reports regarding progress payments and budget status for the
Project.
(c) The City shall designate a construction manager to
work diligently in a cooperative manner with Lessee in monitoring
the design, construction, installation and testing of the Project,
and Lessee shall give due consideration to the input and reasonable
requests of the City's construction manager in matters affecting
the design, construction, installation and testing of the Project.
(d) The sizing of the Project vehicles shall be made by
Lessee in consultation with the City, taking into consideration the
anticipated peak demands of an integrated Airport-wide automated
people mover system to be developed over the long term.
(e) Lessee's bid documents for the Project shall provide
for payment and performance bonds for the construction of the
guideway and acquisition and installation of the Project systems
and vehicles, which shall name the City as a dual obligee and shall
be subject to the timely review and approval of the City's Legal
Department.
(f) In connection with the design, construction,
procurement and installation of the Project and, for so long as
Lessee does not elect to contract with the City for its operation,
then:
(i) Lessee will obtain or cause to be obtained
insurance policies in conformity with Sections 9.02-9.04
hereof;
(ii) Lessee will cause the City and the
Leasehold Mortgagee to be named as an additional insured
under such policies of insurance and will use its best
efforts to cause all contractor warranties and guarantees
to inure to the benefit of the City as well as to Lessee;
and
(iii) Lessee will use its best efforts to provide
indemnities from its contractors to the City to the same
extent as Lessee obtains indemnities from such
contractors.
(g) The bid documents issued by Lessee for the Project
will provide that the contractors/ suppliers contractually commit
to providing unit prices (subject to consumer price index or some
other reasonably determined escalation) for acquisition of the
systems and vehicles required for future expansions to the Project
by the City and that such unit prices remain in effect and
available to the City for up to 24 months from the date Lessee and
its primary construction contractor enter into a contract for the
construction of the technology phase of the Project.
(h) The Project shall also be designed and used to support
a baggage transfer facility for the sole use of Lessee; provided,
however, that:
(i) such baggage transfer facility shall not
constitute a part of the Project and the Project shall not
include the baggage transfer facility but the baggage transfer
facility, if constructed, shall be entitled to rights of
support by or suspension from the Project structure;
(ii) such baggage transfer facility shall be designed
to be compatible with the Project and shall be operated and
maintained at all times so as not to interfere in any material
way with the operation, maintenance, security or use of the
Project;
(iii) the City may inspect such baggage transfer
facility at any time on reasonable notice; provided that the
City shall use all reasonable efforts to minimize any
interference or interruption with Lessee's business
operations.
(i) Lessee shall contractually provide that all parties
contracting directly with Lessee for the preparation of Project
Plans and Contracts (as defined in Section 5.04(b) below) to
expressly recognize the City's and the Leasehold Mortgagee's rights
to use, enjoy and exercise all rights as owner of the Project,
subject to the limitations contained in Section 5.04(b).
Section 5:03: Inventory of Special Facilities; Replacements.
Upon completion of the Project, and upon the construction and
acquisition of any additional Special Facilities, Lessee shall
provide the Director with a detailed written inventory of all
furnishings, fixtures and equipment constituting a material part of
such Special Facilities, certified by any officer authorized to
bind Lessee, which inventory shall include a complete description
of each such item or class of items of such furnishings, fixtures
and equipment including make, model and serial numbers, if any.
Lessee shall from time to time, upon the reasonable request by
Director, amend and revise such inventory to reflect all
replacements and substitutes of any such items; provided, however,
that Lessee may substitute for or replace commercially fungible
items in such inventory with substantially comparable items and
take the other actions permitted in Sections 8.01 and 8.04 hereof
without notice. All such Special Facilities, and all replacements
and substitutions therefor, shall be the absolute property of the
City and shall not be disposed of by Lessee except as permitted
herein.
Section 5.04: Title to Project, Plans and Contracts. (a) In
consideration for the City's issuance of Bonds to finance the Costs
of the Project as provided herein, the City shall acquire title to
the Project at the time of construction, acquisition or
installation and from time to time during construction, subject to
the terms and provisions of this Agreement, the leasehold estate of
Lessee herein created and the rights of the Leasehold Mortgagee,
and such title shall automatically vest in the City immediately
upon such construction, acquisition or installation without further
notice or action. In this regard, Lessee hereby agrees to execute
and deliver to the City the Deed and Bill of Sale for Project,
after completion thereof, as set forth in Exhibit "D" and such
further documentation as shall be reasonably requested by the City
to evidence the City's acquisition of title to the Project in
accordance with the terms of this Agreement.
(b) As further consideration for the City's issuance of
Bonds to finance the Costs of the Project, the City shall acquire
an interest (on a par with Lessee's interest therein and the rights
of the Trustee and the Bond Insurer under the Leasehold Mortgage)
in all plans, specifications, drawings, contracts, warranties,
bonds and other documents and contractual rights relating to the
Special Facilities, the cost of which constitutes a Cost of the
Project (collectively, the "Project Plans and Contracts").
Moreover, Lessee shall cause the City to be authorized, as owner of
an interest in the Project Plans and Contracts, to have the
authority, right and power to use, enjoy and exercise all rights
under the Project Plans and Contracts available to Lessee in order
to be able to cause the design, construction, acquisition,
completion and operation of the Project. The City agrees that it
will not exercise any such authority, rights or powers under this
subsection so long as it has not acquired or assumed Lessee's
leasehold in the Project as contemplated in Section 7.03 hereof or
no Event of Default by Lessee has occurred and is continuing
hereunder.
Section 5.05: Design, Construction and Acquisition of
Additional Special Facilities.
(a) From time to time hereafter, Lessee may request the
City to undertake to issue Additional Bonds to finance additional
Special Facilities. The Director shall cooperate in a reasonable
manner with Lessee to request the City to provide such financing,
and if consummated, then this Agreement shall be supplemented to
provide for the design, construction and acquisition of such
Special Facilities, for payment of the Costs of the Special
Facilities and any other matters deemed appropriate by the City and
Lessee. The Net Rent and other amounts payable hereunder shall
automatically be increased to provide for the payment of the
Additional Bonds, in the amount and manner set forth in
Section 4.02 hereof.
(b) It is expressly acknowledged and understood by Lessee
that this Agreement shall impose no obligation of any kind upon the
City to issue or undertake to issue any Additional Bonds to finance
additional Special Facilities except for the best efforts
obligations set forth in Section 4.02. If the City elects not to
issue Additional Bonds for such purpose, Lessee may construct such
improvements at its sole cost.
Section 5.06: Personal Property Not Constituting Special
Facilities. Lessee's equipment, trade fixtures and personal
property not constituting Special Facilities (i.e. not financed
with Bonds and not constituting a replacement, repair or
substitution for Special Facilities) may be located on the
Easements or Ground Lease Property without becoming Special
Facilities and, so long as no Event of Default by Lessee has
occurred and is continuing hereunder, may be removed by Lessee
provided that such removal will not damage or impair the Special
Facilities or that Lessee at its expense restores the Special
Facilities to the same or better condition than existed prior to
such removal. Any and all such equipment, trade fixtures and
personal property not removed by Lessee prior to the expiration of
this Agreement, or if this Agreement ends by early termination,
within 60 days after receipt by Lessee of a written notice issued
by the Director to remove such property, shall thereupon become a
part of the land upon which it is located and title thereto shall
thereupon vest in the City, and City reserves the right to remove
such property not so removed by Lessee, and if such removal is
accomplished within the 30 day period after the expiration of this
Agreement or the 60 day period referred to above (after the early
termination of the Agreement), such removal by the City shall be at
Lessee's expense.
ARTICLE VI
NET RENT AND GROUND RENT
Section 6.01: Net Rent While Bonds Outstanding. (a) Lessee
shall pay to the City, by depositing directly with the Trustee for
the account of the Interest and Redemption Fund, Net Rent for so
long as any Bonds remain Outstanding or amounts are due and owing
to the Bond Insurer under the Trust Indenture at such times and in
such amounts as follows:
(i) on or before the fourth Business Day prior
to each interest and/or principal payment date on the
Bonds,
(A) all interest payable on all
Bonds on such date; plus
(B) all principal (if any)
payable on all Bonds on such date,
whether payable at maturity (whether
scheduled or accelerated) or earlier
redemption (regardless of whether such
redemption is optional, extraordinary or
mandatory); plus
(C) all redemption premiums (if
any) payable on all Bonds on such date.
(ii) immediately upon receipt of written notice
from the Trustee for the Bonds advising it that such
amounts are due and payable:
(A) all unpaid principal,
accrued interest and redemption premiums
and/or indemnifications on all Bonds
which are declared due and payable under
any extraordinary redemption or
acceleration provision in the Trust
Indenture; plus
(B) any deficiency in the
Reserve Account of the Interest and
Redemption Fund resulting from any
withdrawal from such Account required by
the Trust Indenture or from a decrease
in valuation of investments in such
Reserve Account;
(C) all fees, charges,
reimbursements, expenses and interest
charges due to any bond insurer or
provider of a reserve fund surety in
connection therewith;
provided, however, that if the Trust Indenture allows payments
of such amounts as are described in (ii) above on a later date
or in installments, they shall be payable as required by the
Trust Indenture without further notice by the Trustee.
In addition to the above described Net Rent, Lessee shall pay (x)
directly to the Trustee, all Trustee charges and any other related
costs and expenses in connection with the payment of principal,
interest or redemption premiums on the Bonds in accordance with the
Trust Indenture, and (y) directly to the Trustee at such times and
in such amounts, together with amounts available therefor under the
Trust Indenture so as to ensure compliance with the provisions of
Section 148 of the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder and Section 4.9 of the Trust
Indenture.
(b) So long as the Reserve Account is fully funded in the
amount and manner required by the Trust Indenture, the Net Rent
payable under subsection 6.01(a) of this Agreement shall be reduced
by the total of any amounts then on deposit in the Interest and
Redemption Fund (exclusive of the Reserve Account therein) in
excess of the amount then needed for the purpose of paying, or
reimbursing the Bond Insurer for the payment of, previously matured
interest, principal, matured or redeemed Bonds, and redemption
premiums, if any, whether such excess amounts become available by
reason of (i) amounts deposited in the Interest and Redemption Fund
from the proceeds of the Bonds, (ii) previous overpayments of Net
Rent, (iii) surplus funds from proceeds of the Bonds deposited to
the credit of such Interest and Redemption Fund at the end of the
construction and acquisition of the Project, (iv) interest earnings
from the investment or deposit of any amounts from time to time
credited to the Interest and Redemption Fund (including interest
earnings from the Reserve Account therein that are not required to
be retained in the Reserve Account and are permitted to be used for
such purpose by the Trust Indenture), or (v) any other circumstance
which results in excess funds, other than amounts provided by the
Bond Insurer, being properly deposited in the Interest and
Redemption Fund that are available for such purpose. The
reductions in the Net Rent payments contemplated by this
subsection 6.01(b) shall be made by applying such excess amounts as
a credit(s) against the next Net Rent payment(s) due after such
excess amounts have actually become available in the Interest and
Redemption Fund, until such excess amounts are exhausted. The City
shall request the Trustee to calculate such reductions and furnish
them to the Lessee in a timely manner prior to the date on which
Net Rent is payable. In the event the Trustee fails to furnish
Lessee with the amount of any such reduction, it shall be the
Lessee's obligation to ascertain the correct amount of such
reductions or pay as Net Rent the full amount provided in
subsection 6.01(a) hereof. After all Net Rent has been paid and no
Bonds remain Outstanding within the meaning of the Trust Indenture
and no amounts remain due and owing to the Bond Insurer or
otherwise under the Trust Indenture, then, any amounts remaining in
the Interest and Redemption Fund or Reserve Account therein which
are paid over to the City by the Trustee shall be deemed
overpayments of Net Rent and paid over by the City to Lessee within
30 days of their receipt by the City.
Section 6.02: Obligation to Pay Net Rent Unconditional. It
is understood and acknowledged by the Lessee that the Bonds will be
insured by the Bond Insurer and sold to the purchasers thereof in
reliance upon the commitment of Lessee to make the payments of Net
Rent and other amounts payable pursuant to Section 6.01(a)
hereunder provided in Section 6.01 above, subject only to the
reductions provided in subsection (b) thereof. Accordingly, the
obligations of the Lessee to make the payments of Net Rent and
other amounts payable pursuant to Section 6.01(a) hereunder thus
required shall be absolute and unconditional and so long as the
Bonds remain outstanding within the meaning of the Trust Indenture
or any amount is due and owing the Bond Insurer under the Trust
Indenture, the Lessee (i) will not suspend or discontinue any
payments of Net Rent and other amounts payable pursuant to Section
6.01(a) hereunder provided herein or seek any offset against its
obligations to pay such amounts or recoupment of any amounts so
paid, and (ii) will not terminate this Agreement or otherwise seek
to avoid or to reduce the payment of Net Rent and other amounts
payable pursuant to Section 6.01(a) hereunder for any reason,
including without limiting the generality of the foregoing,
termination of the Use and Lease Agreement, failure of the Lessee
to complete the Project, failure of the City to acquire the
Project, failure of the Lessee or the City to complete the
construction or acquisition of any other Special Facilities,
failure of the City to pay or cause to be paid any Costs of the
Special Facilities (but without limiting the City's obligations
under Section 4.03 hereof) or any acts or circumstances that may
constitute failure of consideration, destruction or damage to or
condemnation of such facilities, or frustration of purpose, any
change in the tax or other laws of the United States of America or
the State of Texas, or any political subdivision of either thereof
or any failure of the City to perform or observe any agreement,
whether expressed or implied, or any duty, liability or obligation
arising out of or connected with this Agreement. It is provided,
however, that nothing contained in this Section shall be construed
to release the City from the performance of any of the agreements
on its part herein contained, and in the event the City should fail
to perform such agreement, the Lessee may, without limitation of
any other rights that the Lessee may then have, institute such
actions against the City as it may deem necessary to compel the
performance thereon, to seek damages or other relief or to restrain
or enjoin forbidden acts provided that such institution of such
actions shall not result in a reduction of the payment of Net Rent
or other amounts payable pursuant to Section 6.01(a) hereunder.
Section 6.03: Pledge of Net Rent. It is expressly understood
and agreed that the Net Rent and other amounts payable pursuant to
Section 6.01(a) payable hereunder shall be pledged to the payment
of the Bonds and amounts due under the Trust Indenture in
accordance with the Trust Indenture, and that, so long as any Bonds
remain Outstanding or any amount is due and owing the Bond Insurer
under the Trust Indenture, such Net Rent and other amounts payable
pursuant to Section 6.01(a) shall be paid in the amounts and manner
herein specified. In the Trust Indenture the City shall covenant
not to permit any modification of or amendment to Section 6.01 of
this Agreement or to any other provision hereof that would have the
effect of reducing, altering or modifying the commitments of Lessee
contained in Sections 6.01 or 6.02 hereof or would materially
minimize, reduce or lessen the rights of the City after an Event of
Default in the payment of Net Rent and other amounts payable
pursuant to Section 6.01(a) by Lessee or would materially and
adversely affect the security provided for the payment of the Bonds
and other amounts due under the Indenture, and no such modification
or amendment hereto shall be permitted while the Bonds remain
Outstanding or any amount is due and owing the Bond Insurer under
the Trust Indenture.
Section 6.04: Operation and Maintenance Expenses; Other
Costs. The Net Rent and other amounts payable pursuant to Section
6.01(a), which is to be pledged to the payment of the Bonds and
amounts due under the Trust Indenture, is intended to be a net
return to the City. Accordingly, in addition to the payment of all
Net Rent and other amounts payable pursuant to Section 6.01(a)
hereunder, the Lessee hereby agrees to pay all Ground Rentals
directly to the City and to pay (or cause to be paid pursuant to
the Use and Lease Agreement or other agreement with the City or
others) all operation and maintenance expenses applicable to the
Special Facilities, including, without limitation, utility costs,
costs of vehicle, guideway and system maintenance service
contracts, any insurance premiums applicable thereto, any and all
ad valorem or other property taxes lawfully levied or assessed
against the Special Facilities or Lessee's leasehold estate
therein, any and all lawful excise and other types of taxes imposed
on or in respect of such properties, the expenses of upkeep thereof
of every kind and character, including the repair or ordinary
restoration thereof, and every other item of expense imposed on
Lessee pursuant to this Agreement and, if the Special Facilities
are operated by the City, all direct and allocable indirect Airport
System costs of operating and maintaining the Special Facilities in
a manner consistent with other such allocations equitably applied
on an Airport-wide basis.
Section 6.05: Ground Rentals. (a) Lessee shall pay to the
City, as Ground Rentals for the Ground Lease Properties described
in Exhibit "C" the following: (i) For item (1) $0.22 per square
foot for the footings per year beginning January 1, 1999 and
escalating 15% on January 1, 2004 and 15% on each succeeding fifth
year during the term of this Agreement, payable annually in advance
on January 1, 1999 and each January 1 thereafter, and (ii) for
item (2), an amount equal on a per square foot basis to the charge
for comparable space under the Use and Lease Agreement, payable on
the same basis as rates and charges under the Use and Lease
Agreement.
(b) Except as set forth in subsection (a) above, all
charges for Ground Lease Properties and Easements are or will be
included in rents and charges under the Use and Lease Agreement.
(c) The Lessee's undertaking of the Project as herein
provided shall constitute additional consideration to the City for
the demise, as herein provided, of the Ground Lease Properties and
Easements.
(d) The City and Lessee agree that any future Use and
Lease Agreement with respect to Terminal B shall, during the term
of this Agreement, exclude (or be expressly subordinate to) the
leasehold estate herein created in the Ground Lease Properties in
Terminal B.
ARTICLE VII
USE OF SPECIAL FACILITIES;
REPRESENTATIONS AND UNDERTAKINGS BY LESSEE AND CITY
Section 7.01: General. Lessee shall have the rights to use
and enjoy the Special Facilities, including the rights of
possession and quiet enjoyment of the Special Facilities, for the
purpose of (i) constructing, maintaining and operating the Project
in accordance with the terms hereof and (ii) subject to the terms
of the Use and Lease Agreement, conducting other authorized
activities of Lessee not inconsistent with the terms hereof.
Section 7.02: Use of Project. The Lessee hereby covenants
with the City as follows:
(a) The Project shall be used as a transportation
facility, open to the public, without direct charge to the
passengers using it.
(b) While operating the Project, Lessee shall at its sole
expense cause the Project to be operated in a manner consistent
with the applicable sections of 14 CFR Parts 107 and 108 such that
passengers using the Project will continue to be deemed to be
properly screened within the meaning of such regulation, as it may
be amended from time to time. If the City extends the Project,
then the City shall continue to cause the Project to be operated in
such manner.
(c) Lessee understands and acknowledges that fines and/or
penalties may be assessed by the Federal Aviation Administration
for the Lessee's non-compliance with the provisions of 14 CFR
Paragraphs 107 and 108 (1988) entitled "Airport Security." Any
such fines or penalties assessed against the City because of the
Lessee's non-compliance with 14 CFR Paragraphs 107 or 108, as
amended from time to time, shall be promptly reimbursed to the City
by the Lessee.
Section 7.03: Representations by City with Respect to the
Project. In consideration of (i) Lessee's agreement herein to
lease, design, construct, acquire and operate the Project in the
manner herein provided, and to pay Net Rent sufficient to repay the
Bonds, and (ii) Bond Insurer's issuance of a policy of bond
insurance with respect to the Series 1997A Bonds, the City
represents and agrees as follows:
(a) The City reaffirms and incorporates by reference the
commitments contained in the Term Sheet in Section
I(D)(10)-(12) and III(B)(5) thereof with respect to
the exercise of its option to purchase Lessee's
interest in the Project (and all Special Facilities,
Easements and Ground Lease Properties) when the
Project is extended to the International Airlines
Building or Terminal A and is to be operated with the
Project as a single system.
(b) The City covenants and agrees that it will not operate
any extensions of the automated people mover
separately from the Project, but will take appropriate
steps so that the entire Project, as extended to the
International Airlines Building and/or Terminal A, is
operated as a single system.
(c) The City represents that it intends to extend the
Project in the future at its expense to serve one or
more additional terminals at the Airport. The
Department of Aviation of the City has initiated
action to amend its master plan and capital
improvement plan to include an extension of the
Project from Terminal C to the International Airlines
Building, and the City has issued a request for
qualifications to design such extension of the
Project.
(d) The City covenants that in connection with the
purchase, acquisition and/or assumption of Lessee's
leasehold obligations for the Project referred to in
(a) above, it will defease or retire the Bonds at the
earliest date financially beneficial to the City that
such Bonds can be defeased or retired through a
refinancing based on the credit of revenues of the
Airport System or at such earlier date as the City
determines in its sole discretion that it is
financially viable to use other available funds for
the retirement and/or defeasance of such Bonds (such
date hereinafter referred to as the "Bond Discharge
Date"); provided that without Lessee's consent the
City may exercise the right of optional redemption of
the Bonds on or after July 15, 2007 to accomplish such
refinancing or defeasance if it certifies in writing
to Lessee (i) that it has or will when needed have
funds available to redeem such Bonds and (ii) that
such refinancing or defeasance will not, by itself,
cause an increase in the capital component of Lessee's
rates and charges for the Project unless entirely
offset by reductions in Lessee's other rates and
charges at the Airport as a result of such refinancing
or defeasance. From and after the Bond Discharge
Date, all amounts deposited in or credited to all
funds and accounts held under the Trust Indenture
(other than the Policy Payment Account) shall become
property of the City (subject to the rights of the
owners of the Bonds), but must be applied to pay or
reimburse the payment of debt service on the Bonds
and/or pay other expenses under the Trust Indenture
or, after no further amounts are due under the Trust
Indenture, pay for capital expenditures for Special
Facilities. Prior to the Bond Discharge Date, the
City shall fulfill its commitments to acquire and/or
assume Lessee's interest in the Project by entering
into a sublease of the Special Facilities, Ground
Lease Properties and Easements from Lessee pursuant to
which the City Airport System shall become responsible
for all covenants of Lessee arising hereunder after
such acquisition and/or assumption, including payment
of Net Rent, costs of operation, maintenance and
insurance of the Project and the payment of any other
rentals required hereunder and shall irrevocably and
unconditionally make sublease payments equal to
Lessee's Net Rent and other amounts due under Section
6.01 of this Agreement directly to the Trustee for the
Bonds, provided that no such sublease shall relieve
Lessee of its obligations to pay the full amount of
Net Rent and other amounts due under this Agreement.
During any sublease of the Project to the City prior
to the Bond Discharge Date, the City (i) shall use its
best efforts to cause the Project to be operated so as
to provide the same or substantially similar levels of
service (based on frequency and capacity) to Terminals
B and C as were provided prior to such date and (ii)
shall include the costs of subleasing the Project
(including all operation and maintenance expenses for
which Lessee is liable hereunder) in rates and charges
imposed on airlines benefitting from the availability
and service of the Project to the terminals from which
such airlines operate (but no failure by benefitting
airlines to pay such rates and charges shall relieve
the City of its obligations as set forth above).
(e) In order to prevent the acquisition or control of the
leasehold interest herein created in the Special
Facilities, Easements and Ground Lease Properties by
the Trustee or other third party and to assure that
the Project can be utilized and operated as an
integral part of the Airport to provide service to the
traveling public connecting between Terminals B and C
and to be available for expansion by the City as
contemplated herein and in the Term Sheet, the City
further agrees as follows. In the event of (i) a
Lessee bankruptcy or abandonment which allows the City
to exercise the option granted by Lessee in the Term
Sheet and reaffirmed herein to assume both the rights
and obligations of Lessee under this Agreement and the
construction and supplier contracts for the Project,
or (ii) a foreclosure or threatened foreclosure by the
Trustee on Lessee's leasehold estate in the Project
(or any of the Special Facilities, Easements or Ground
Lease Properties), then, without limiting the City's
obligations under Sections 10.02, 10.03 and 10.04, the
Director shall in a timely manner use best efforts to
take all necessary action including seeking such City
Council approval as may be required either (x) to
relet the Project to a lessee or sublessee approved in
writing by the Bond Insurer (whose approval may not
unreasonably be withheld) and exercise such other
remedies as shall be available to it and shall be
permitted by the Trust Indenture and shall apply
proceeds from the exercise of such remedies to debt
service on or redemption of the Bonds and all amounts
due the Bond Insurer as provided in Section 10.02
hereof and all other amounts due under the Trust
Indenture; or (y) to acquire rights to the Lessee's
leasehold estate in the Project (together with its
interest in all Special Facilities, Easements and
Ground Lease Properties) by purchase for a purchase
price equal to the cost of redeeming or defeasing all
outstanding Bonds and payment of all amounts due the
Bond Insurer or by unconditional and irrevocable
sublease for a net rental (after payment of Project
operating and maintenance expenses and Ground Rentals)
equal to the scheduled, unaccelerated debt service on
the Bonds and all amounts due the Bond Insurer and
other amounts due under the Trust Indenture or (z) to
assume the scheduled, unaccelerated obligations of
Lessee hereunder, with the City's obligations under
(y) and (z) secured by and payable from net revenues
of the Airport System after payment of debt service
and all debt service reserve requirements on the
Airport System's Senior and Subordinate Lien Revenue
Bonds only.
(f) So long as the Bonds are Outstanding or any amounts
remain due to the Bond Insurer, in order to further
secure the its obligations and undertakings contained
in this Section 7.03, the City hereby covenants as
follows:
(i) the City will at all times fix, charge, impose
and collect rentals, rates, fees and charges
for the use of the Airport System in order that
revenues will be at least sufficient, after
providing for the payment, funding or
appropriation for all prior and senior
obligations of the Airport System, to provide
for the payment of all scheduled, unaccelerated
obligations undertaken, assumed or otherwise
incurred by the City pursuant to this Section
7.03;
(ii) the City will not permit the sale or
disposition of the Airport System or any
substantial part thereof except as may be
permitted in its ordinances authorizing the
issuance of the City's Airport System Senior
and Subordinate Lien Revenue Bonds (the "Sale
or Encumbrance of Airport System Covenants"),
whether or not such bonds remain outstanding;
provided, however, that, notwithstanding the
Sale and Encumbrance of Airport System
Covenants, (i) the City will not authorize any
transfer of less than all of the Airport that
includes the Special Facilities or any
Terminals at the Airport until the occurrence
of the City's prior purchase, acquisition
and/or assumption of Lessee's leasehold
obligations as provided in subsection (d) above
(without regard to whether the Project has been
extended as contemplated in subsection (a)
above), (ii) any transferee of the Airport
System or any substantial part thereof that
includes the City's interest in the Special
Facilities shall be required to assume all
obligations of the City under or pursuant to
this Agreement and the Trust Indenture, and
(iii) any written opinion of an Airport
Management Consultant required by the Sale or
Encumbrance of Airport System Covenants shall
also conclude that the ability to meet the rate
covenant and other covenants of the City in
this Agreement and the Trust Indenture shall
not be materially and adversely affected to the
same extent as if such covenants were included
in the ordinances authorizing the City's
Airport System Senior and Subordinate Lien
Bonds; and
(iii) the City will not issue any bonds, notes or
other obligations secured on a parity with any
obligations incurred by the City pursuant to
clauses (y) or (z) of subsection (e) above
unless, prior to the issuance of such parity
obligations, the Director of Aviation certifies
the availability of Net Revenues of the Airport
System, after providing for all Debt Service
Requirements on Airport System Senior and
Subordinate Lien Revenue Bonds (as such terms
are defined in the ordinances authorizing the
City's Airport System Senior and Subordinate
Lien Revenue Bonds) at least equal to the
scheduled, unaccelerated debt service on such
obligations to be issued as well as the
obligations incurred by the City pursuant to
such clauses (y) and (z) above.
(g) In the event Lessee has funded any portion of the
capital cost of the Project with funds not reimbursed
with proceeds of Bonds and such expenditure can be
documented to the reasonable satisfaction of the
Director, the purchase price and rental rates for the
City's acquisition or sublease of Lessee's interest in
the Project pursuant to Section 7.03(d) shall be
increased by an amount or amounts derived by assuming
that the original principal amount of the Bonds had
been increased by an amount equal to such unreimbursed
capital contribution and that such assumed additional
amount of Bonds amortized proportionately with the
Series 1997A Bonds, and any resulting increased
amounts in such purchase price or rental rate (over
and above the amounts required to be paid pursuant to
Section 7.03(d)) shall be paid directly to Lessee by
the City.
Section 7.04: Reaffirmation of Options to City with Respect
to the Project. In consideration of the City's agreements herein,
the Lessee hereby reaffirms its grants of options to the City (as
contained in the Term Sheet) to allow the City to purchase Lessee's
interest in the Project as described in Section 7.03(a) above (or
at any time after the Project is operational as provided in the
Term Sheet) in consideration of the City's defeasance, retirement
or assumption of the obligations of Lessee with respect to the
Special Facilities, Easements and Ground Lease Properties as
described in Section 7.03(d) and (e) above, which options may be
exercised immediately by the City at any time upon occurrence of
the conditions referred to in Sections 7.03(a), (d) and (e) or
after the Project is operational upon written notice to Lessee by
the City, and Lessee consents to the City's payment in such events
of all amounts intended for debt service on or defeasance or
redemption of the Bonds directly to the Trustee.
ARTICLE VIII
LESSEE'S OBLIGATIONS AND CONDITIONS TO
LESSEE'S USE OF SPECIAL FACILITIES
Section 8.01: Maintenance of Special Facilities at Lessee's
Expense. Subject to the other terms of this Agreement, Lessee
shall throughout the term of this Agreement assume the entire
responsibility, cost and expense, for all repair and maintenance
whatsoever of the Special Facilities, whether such repair or
maintenance be ordinary or extraordinary, structural or otherwise.
Additionally, without limiting the generality of the foregoing,
Lessee shall:
(a) Maintain at all times the Special Facilities in a good
state of repair and preservation, excepting ordinary wear and tear
and obsolescence in spite of repair.
(b) [omitted]
(c) Keep at all times, in a clean and orderly condition
and appearance, the Special Facilities which are open to or visible
by the general public.
Section 8.02: Taxes, Charges, Utilities, Liens. (a) Lessee
shall pay all taxes that may be levied, assessed or charged upon
the Special Facilities or Lessee's leasehold estate therein by the
State of Texas or any of its political subdivisions or municipal
corporations, and shall obtain and pay for all licenses and permits
required by law. However, Lessee shall have the right to contest,
in good faith, the validity or application of any such tax, license
or permit and shall not be considered in default hereunder as long
as such contest is in progress and diligently prosecuted. City
agrees to cooperate with Lessee in all reasonable ways in
connection with any such contest other than a contest of any tax,
permit or license of the City.
(b) Lessee shall pay for all water, heat, electricity, air
conditioning, sewer rents and other utilities to the extent that
such utilities are furnished to the Special Facilities other than
pursuant to the Use and Lease Agreement.
(c) Lessee shall neither cause or permit any laborers,
mechanics, builders, carpenters, materialmen, contractors, or other
liens or encumbrances (including judgment and tax liens) against
the Special Facilities or any City property by virtue of the
construction, repair or replacement of the Special Facilities;
provided, however, that Lessee may at its own expense in good faith
contest the validity of any alleged or asserted lien and may permit
any contested lien to remain unsatisfied and undischarged during
the period of such contest and any appeal therefrom unless by such
action any part of the Special Facilities may be subject to a
material risk of loss or forfeiture, in any of which events such
lien shall be promptly satisfied or bonded around in accordance
with Texas law.
Section 8.03: Compliance with Airport Rules and Regulations
and Law; Nondiscrimination. With respect to the Special
Facilities, Lessee shall observe and obey Airport rules and
regulations promulgated pursuant to the Use and Lease Agreement,
shall comply with applicable law as provided in the Use and Lease
Agreement, and shall not discriminate against any person or class
of persons by reason of race, color, religion, sex, national origin
or ancestry, age or physical or mental handicaps as provided in the
Use and Lease Agreement.
Section 8.04: Compliance with Tax Law. With respect to the
Special Facilities, Lessee hereby covenants and agrees as follows:
(a) Lessee shall comply or cause to be complied with all
tax covenants with respect to the Special Facilities and the Bonds
contained in Section 5.4 of the Trust Indenture;
(b) Lessee shall continuously repair, preserve, replace or
substitute, as needed, all Special Facilities, at its expense, to
the extent necessary to maintain and/or extend the reasonably
expected economic life of the Special Facilities to satisfy the tax
covenant contained in Section 5.4(c) of the Trust Indenture. All
property for which replacements or substitutions are made by Lessee
as provided herein shall become Lessee's property (and such
replacement or substituted property shall become the City's
property);
(c) Lessee hereby elects not to claim depreciation or an
investment credit for federal income tax purposes with respect to
any portion of the Special Facilities; Lessee will take all actions
necessary to make this election binding on all its successors in
interest under this Agreement; and this election shall be
irrevocable.
Section 8.05: Environmental Matters.
A. Lessee shall comply with all federal, state, local
statutes, ordinances, regulations, rules, policies, codes or
guidelines now or hereafter in effect, as same may be amended from
time to time, which govern Hazardous Materials (as hereinbelow
defined) or relate to the protection of human health, safety or the
environment and which are applicable to the conduct of Lessee's
business operations from the Special Facilities, and shall include
but not be limited to: the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. Section 136 et seq.; the Safe Drinking
Water Act, 42 U.S.C. Section 300(f) et seq.; the Oil Pollution
Control Act of 1990, 33 U.S.C. Section 270 et seq.; the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601 et seq.; and as
amended by the Superfund Amendments and Reauthorization Act of
1986, Pub. Law No. 99-499, 100 Stat. 1613; the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Air Act as
amended, 42 U.S.C. Section 7401 et seq.; the Clean Water Act, 33
U.S.C. Section 1251, et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq.; the Resource
Conservation and Recovery Act, 42 U.S.C., Section 6901 et seq.; and
those substances defined as hazardous waste or as hazardous
substances under the laws of Texas and/or the United States or in
regulations promulgated pursuant to such laws (collectively,
"Environmental Laws").
B. Any fines or penalties that may be levied against the
City by the Environmental Protection Agency or the Texas Natural
Resource Conservation Commission or any other governmental agency
for Lessee's failure to comply with the Environmental Laws as
required by Section 8.05(A) hereof shall be reimbursed to the City
by Lessee within ten (10) days of receipt of an invoice from City
for such fines or penalties.
C. Lessee shall prevent the presence, use, generation,
release, omission, discharge, storage, disposal or transportation
of any Hazardous Materials on, under, in, above, to or from
facilities subject to this Agreement by Lessee, other than in
strict compliance with all Environmental Laws. For purposes of
this Section, "Hazardous Materials" shall be interpreted in the
broadest sense to include any and all substances, materials,
wastes, pollutants, oils, or governmental regulated substances or
contaminants as defined or designated as hazardous, toxic,
radioactive, dangerous, or any other similar term in or under any
of the Environmental Laws, including but not limited to, asbestos
and asbestos containing materials, petroleum products including
crude oil or any fraction thereof, gasoline, aviation fuel, jet
fuel, diesel fuel, lubricating oils and solvents, urea
formaldehyde, flammable explosives, PCBs, radioactive materials or
waste, or any other substance that, because of its quantity,
concentration, physical, chemical, or infectious characteristics
may cause or threaten a present or potential hazard to human health
or the environment when improperly generated, used, stored,
handled, treated, discharged, distributed, disposed or released.
Hazardous Materials shall also mean any and all hazardous
materials, hazardous wastes, toxic substances, or regulated
substances under any Environmental Laws.
D. Lessee acknowledges that the Airport is subject to the
National Pollution Discharge Elimination System Program ("NPDES")
and its regulations relating to stormwater discharges, 40 CFR Part
122, for operations that occur at the Airport. Lessee further
acknowledges that it is familiar with these NPDES stormwater
regulations, that it will conduct operations at the Special
Facilities subject to 40 CFR Part 122 as it may be amended from
time to time.
E. City and Lessee both acknowledge that close
cooperation is necessary to ensure compliance with any NPDES
stormwater discharge permit, as well as to ensure safety and to
minimize costs. Lessee acknowledges that it may be necessary to
undertake to minimize the exposure of stormwater to significant
materials generated, stored, handled or otherwise used by Lessee at
the Special Facilities as defined in the federal stormwater
regulations, by implementing and maintaining "Best Management
Practices" as defined in 40 CFR, Part 122.2, as it may be amended
from time to time.
F. Lessee acknowledges that City's NPDES stormwater
discharge permit, to the extent affecting the Special Facilities,
is incorporated by reference into this Agreement and any subsequent
amendments, extensions or renewals. Lessee agrees to be bound by
all applicable portions of said permit. City shall promptly notify
Lessee of any changes to any portions of said permit applicable to,
or that affect, Lessee's operations.
G. City shall provide Lessee with written notice of those
NPDES stormwater discharge permit requirements that Lessee shall be
obligated to perform from time to time at the Special Facilities,
including, but not limited to: certification of non-stormwater
discharges; collection of stormwater samples; preparation of
stormwater pollution prevention or similar plans; implementation of
"good housekeeping" measures or Best Management Practices; and
maintenance of necessary records. Such written notice shall
include applicable deadlines. Lessee, within 15 days of receipt of
such written notice, shall notify City in writing if it disputes
any of the NPDES stormwater discharge permit requirements it is
being directed to undertake. If Lessee does not provide such
timely notice, it is deemed to assent to undertake such
requirements. If Lessee provides City with written notice, as
required above, that it disputes such NPDES stormwater discharge
permit requirements, City and Lessee agree to negotiate a prompt
resolution of their differences. Lessee warrants that it will not
object to City notices required pursuant to this paragraph unless
Lessee has a good faith basis to do so.
H. City and Lessee agree to provide each other upon
request, with any non-privileged information collected and
submitted to any governmental entity(ies) pursuant to applicable
NPDES stormwater regulations applicable to the Special Facilities.
I. Lessee agrees to participate in any reasonable manner
requested by the City in any City organized task force or other
work group established to coordinate stormwater activities at the
Airport.
J. All such remedies of City with regard to environmental
requirements as set forth herein shall be deemed cumulative in
nature and shall survive termination of this Agreement.
K. LESSEE SHALL PROTECT, DEFEND, INDEMNIFY AND HOLD
HARMLESS THE CITY AND ITS OFFICERS, AGENTS AND EMPLOYEES FROM AND
AGAINST ANY LOSS, COST, CLAIM, DEMAND, PENALTY, FINE, SETTLEMENT,
LIABILITY AND EXPENSE (INCLUDING BUT NOT LIMITED TO REASONABLE
ATTORNEYS' AND CONSULTANTS' FEES, COURT COSTS AND LITIGATION
EXPENSES) RELATED TO
(1) LESSEE'S USE OF HAZARDOUS MATERIALS OF WHATEVER KIND
OR NATURE, KNOWN OR UNKNOWN, ON THE SPECIAL FACILITIES;
(2) ANY ACTUAL, THREATENED OR ALLEGED CONTAMINATION BY
HAZARDOUS MATERIALS ON THE GROUND LEASE PROPERTIES, EASEMENTS OR
SPECIAL FACILITIES BY LESSEE OR ITS AGENTS;
(3) THE DISPOSAL, RELEASE OR THREATENED RELEASE OF
HAZARDOUS MATERIALS BY LESSEE OR ITS AGENTS AT THE GROUND LEASE
PROPERTIES, EASEMENTS OR SPECIAL FACILITIES THAT IS ON, FROM OR
AFFECTS THE SOIL, AIR, WATER, VEGETATION, BUILDINGS, PERSONAL
PROPERTY, PERSONS;
(4) ANY PERSONAL INJURY, DEATH OR PROPERTY DAMAGE (REAL OR
PERSONAL) ARISING OUT OF OR RELATED TO HAZARDOUS MATERIALS USED BY
LESSEE AT THE GROUND LEASE PROPERTIES, EASEMENTS OR SPECIAL
FACILITIES; OR
(5) ANY VIOLATION BY LESSEE OF ANY ENVIRONMENTAL LAWS AT
GROUND LEASE PROPERTIES, EASEMENTS OR THE SPECIAL FACILITIES.
PROVIDED HOWEVER, THAT NONE OF THE FOREGOING INDEMNITY SHALL
BE APPLICABLE TO LOSSES, COSTS, EXPENSES, CLAIMS, DEMANDS,
PENALTIES, FINES, SETTLEMENTS, LIABILITIES AND EXPENSES WHICH
RESULT FROM CONDITIONS EXISTING AS OF THE EFFECTIVE DATE OF THIS
AGREEMENT OR WHICH RESULT FROM THE ACTION OF THE CITY OR ITS
AGENTS.
Section 8.06: City's Right To Maintain or Repair Special
Facilities. In the event Lessee fails (i) to commence within
thirty (30) days after written notice from the Director to do any
maintenance or repair work to the Special Facilities required to be
done under the provisions of this Agreement, other than preventive
maintenance; (ii) to commence such work within a period of ninety
(90) days if such notice specifies that the work to be accomplished
by the Lessee involves preventive maintenance only; or (iii) to
diligently continue to completion any such work as required under
this Agreement; then, the Director or the City may, at its option,
and in addition to any other remedies which may be available to it,
enter the Special Facilities, without such entering causing or
constituting a cancellation of this Agreement or an interference
with the possession of the Special Facilities, and repair,
maintain, replace, rebuild or paint all or any part of the Special
Facilities and do all things reasonably necessary to accomplish the
work required, and the reasonable cost and expense thereof shall be
payable to the City by Lessee on written demand; provided, however,
if in the reasonable opinion of the Director or the City, the
Lessee's failure to perform any such repair or maintenance
endangers the safety of the public, the employees or other tenants
at the Airport, and the Director or the City so states same in its
notice to Lessee, the Director or the City may perform such
maintenance at any time after the giving of such notice, and Lessee
agrees to pay to City the reasonable cost and expense of such
performance on demand. In the event of the exercise by City of any
repair work on the Special Facilities, City shall use all
reasonable efforts to minimize any interference or interruption
with Lessee's business operations.
Section 8.07: Termination Procedures. Upon the expiration or
termination of this Agreement pursuant to any terms hereof, Lessee
shall surrender the Special Facilities to the City in a good state
of repair and preservation, excepting ordinary wear and tear and
obsolescence in spite of repair, unless otherwise permitted in
Article IX hereof.
ARTICLE IX
LIABILITY, INSURANCE AND CONDEMNATION
Section 9.01: Release and Indemnification of City.
A. THE LESSEE, ITS SUCCESSORS AND ASSIGNS OF THIS
AGREEMENT (IN THIS SECTION, THE "AIRLINE") HEREBY RELEASE,
RELINQUISH AND DISCHARGE THE CITY, ITS PREDECESSORS, SUCCESSORS,
ASSIGNS, LEGAL REPRESENTATIVES AND ITS COLLECTIVE FORMER, PRESENT
AND FUTURE AGENTS, EMPLOYEES AND OFFICERS (COLLECTIVELY IN THIS
SECTION "CITY") FROM ANY LIABILITY OF THE CITY FOR (i) ANY DAMAGE
TO PROPERTY OF AIRLINE OR (ii) FOR CONSEQUENTIAL DAMAGES SUFFERED
BY AIRLINE, WHERE ANY SUCH DAMAGE IS SUSTAINED IN CONNECTION WITH
OR ARISING OUT OF THE PERFORMANCE OF THIS AGREEMENT.
B. WITH NO INTENT TO AFFECT AIRLINE'S ENVIRONMENTAL
INDEMNIFICATION SET FORTH IN SECTION 8.05(L), AIRLINE, EXPRESSLY
AGREES TO PROTECT, DEFEND, INDEMNIFY AND HOLD THE CITY COMPLETELY
HARMLESS FROM AND AGAINST (BUT SUBJECT TO SECTIONS D, E AND F
HEREOF): (I) ANY AND ALL LIABILITIES, LAWSUITS, CAUSES OF ACTION,
LOSSES, CLAIMS, JUDGMENTS, DAMAGES, FINES OR DEMANDS ARISING BY
REASON OF OR IN CONNECTION WITH THE ACTUAL OR ALLEGED ERRORS,
OMISSIONS, OR NEGLIGENT ACTS OF AIRLINE OR OF THE CITY IN
CONNECTION WITH OR ARISING OUT OF THE PERFORMANCE OF THIS
AGREEMENT, INCLUDING, BUT NOT LIMITED TO, BODILY INJURY, ILLNESS,
PHYSICAL OR MENTAL IMPAIRMENT, DEATH OF ANY PERSON, OR THE DAMAGE
TO OR DESTRUCTION OF ANY REAL OR PERSONAL PROPERTY; AND (II) ALL
COSTS FOR THE INVESTIGATION AND DEFENSE OF ANY AND ALL LIABILITIES,
LAWSUITS, CAUSES OF ACTION, LOSSES, CLAIMS, JUDGMENTS, DAMAGES,
FINES OR DEMANDS REFERRED TO IN THE PRECEDING CLAUSE (I) INCLUDING,
BUT NOT LIMITED TO, REASONABLE ATTORNEY FEES, COURT COSTS,
DISCOVERY COSTS, AND EXPERT FEES). SUBJECT TO SUBSECTIONS D, E AND
F HEREOF, AIRLINE'S AGREEMENT TO PROTECT, DEFEND, INDEMNIFY AND
HOLD HARMLESS THE CITY EXPRESSLY EXTENDS TO THE ACTUAL OR ALLEGED
JOINT OR CONCURRENT NEGLIGENCE OF CITY AND AIRLINE.
C. UPON THE FILING BY ANYONE OF ANY TYPE OF CLAIM, CAUSE
OF ACTION, OR LAWSUIT AGAINST THE CITY FOR ANY TYPE OF DAMAGES
ARISING OUT OF INCIDENTS FOR WHICH CITY IS TO BE INDEMNIFIED BY
AIRLINE PURSUANT TO THIS SECTION 9.01, THE CITY SHALL, WITHIN 45
DAYS OF CITY BECOMING AWARE THEREOF, NOTIFY AIRLINE OF SUCH CLAIM,
CAUSE OF ACTION OR LAWSUIT. IN THE EVENT THAT AIRLINE DOES NOT
SETTLE OR COMPROMISE SUCH CLAIM, CAUSE OF ACTION, OR LAWSUIT AT ITS
OWN COST, TO THE EXTENT AIRLINE IS REQUIRED TO INDEMNIFY CITY
PURSUANT TO THIS SECTION 9.01, THEN AIRLINE SHALL UNDERTAKE THE
LEGAL DEFENSE OF SUCH CLAIM, CAUSE OF ACTION, OR LAWSUIT AT ITS OWN
COST THROUGH COUNSEL OF RECOGNIZED CAPACITY OR OTHERWISE NOT
REASONABLY DISAPPROVED BY THE CITY BOTH ON BEHALF OF ITSELF AND ON
BEHALF OF CITY UNTIL FINAL DISPOSITION, INCLUDING ALL APPEALS. THE
CITY MAY, AT ITS SOLE COST AND EXPENSE, PARTICIPATE IN THE LEGAL
DEFENSE OF ANY SUCH CLAIM, CAUSE OF ACTION, OR LAWSUIT BY AIRLINE
TO DEFEND AGAINST SUCH CLAIM, CAUSE OF ACTION OR LAWSUIT. ANY
FINAL JUDGMENT RENDERED AGAINST CITY FOR ANY CAUSE FOR WHICH CITY
IS TO BE INDEMNIFIED AGAINST PURSUANT TO THIS SECTION 9.01 SHALL BE
CONCLUSIVE AGAINST AIRLINE AS TO LIABILITY AND AMOUNT UPON THE
EXPIRATION OF THE TIME FOR ALL APPEALS.
D. THE PROVISIONS OF SECTION 9.01B AND C HEREOF SHALL NOT
APPLY TO ANY CLAIM OR DEMAND (I) ARISING AT ANY TIME WHEN THE CITY
IS OPERATING THE PROJECT (OR IS RESPONSIBLE FOR THE OPERATION
THEREOF PURSUANT TO ANY SUBLEASE OR OTHER AGREEMENT), (II) ARISING
SOLELY FROM THE NEGLIGENCE OF THE CITY OR SOLELY FROM THE BREACH OF
THE CITY'S EXPRESS OBLIGATIONS HEREUNDER, OR WHEN THE CITY IS MORE
THAN 50% LIABLE OR, (III) IF SUCH CLAIM OR DEMAND RELATES TO ANY
ACT OR OMISSION OCCURRING OUTSIDE THE PREMISES LEASED EXCLUSIVELY
OR PREFERENTIALLY TO AIRLINE UNDER THIS AGREEMENT, UNLESS AIRLINE
IS MORE LIABLE FOR (I.E., IS MORE AT FAULT FOR) SUCH CLAIM OR
DEMAND THAN EACH OTHER PARTY TO SUCH CLAIM OR DEMAND, OR (IV) TO
THE EXTENT THE CLAIM OR DEMAND IS COVERED UNDER THE INSURANCE
CARRIED PURSUANT TO SECTIONS 9.02 AND 9.03 HEREOF; PROVIDED, THAT,
IF (a) A CLAIM OR DEMAND IS MADE AGAINST AIRLINE BY A THIRD PARTY
FOR WHICH AIRLINE HAS INSURANCE COVERAGE PURSUANT TO SECTIONS 9.02
AND 9.03 HEREOF, AND (b) THERE IS A DEDUCTIBLE CARRIED BY AIRLINE
APPLICABLE TO SUCH CLAIM OR DEMAND (OR AIRLINE, THROUGH SELF-
INSURANCE OR OTHER SELF-FUNDED INSURANCE PROGRAM, BEARS THE
FINANCIAL RISK OF ANY PORTION OF SUCH CLAIM OR DEMAND AS TO THE
DEDUCTIBLE ONLY), THEN THE PROVISIONS OF SECTION 9.01B AND C (AND
BY REFERENCE, SUBSECTIONS D AND E HEREOF) SHALL APPLY TO SUCH
PORTION OF THE CLAIM OR DEMAND THAT IS SUBJECT TO SUCH DEDUCTIBLE
OR SELF-INSURANCE OF THE DEDUCTIBLE OR OTHER SELF-FUNDED INSURANCE
PROGRAM AS TO THE DEDUCTIBLE (AND TO ANY OTHER PORTION OF THE CLAIM
OR DEMAND AS TO THE CITY THAT IS NOT SATISFIED WITH INSURANCE
PROCEEDS). FOR PURPOSES OF THIS SECTION, LESSEE STIPULATES THAT AS
TO EACH CLAIM OR DEMAND THAT MAY BE SUBJECT TO THE PROVISIONS
HEREOF, THE DEDUCTIBLE AMOUNT SHALL NEVER BE DEEMED TO BE GREATER
THAN $1,000,000.
E. NOTWITHSTANDING ANYTHING IN THIS SECTION TO THE
CONTRARY, THE LIABILITY OF THE AIRLINE UNDER SECTION 9.01.B AND C
SHALL NOT EXCEED $1,000,000 PER OCCURRENCE.
F. THE PROVISIONS OF THIS SECTION 9.01.B, C, D AND E
SHALL BE INDEPENDENT OF ANY INDEMNITIES TO WHICH THE CITY MAY BE
ENTITLED UNDER THE PROVISIONS OF THE USE AND LEASE AGREEMENT OR ANY
OTHER AGREEMENT BETWEEN THE CITY AND LESSEE; PROVIDED, THAT CITY
AGREES THAT IT SHALL NOT REQUIRE THAT AIRLINE ENTER INTO ANY
INDEMNIFICATION UNDER THE USE AND LEASE AGREEMENT EXPANDING
AIRLINE'S DUTIES UNDER THIS SECTION 9.01 SOLELY AS IT RELATES TO
THE SPECIAL FACILITIES OR OTHERWISE ARISING OUT OF THE PERFORMANCE
OF THIS AGREEMENT.
Section 9.02: General Insurance Requirements. With no intent
to limit Lessee's liability or the indemnification provisions
herein, Lessee shall provide and maintain certain insurance in full
force and effect at all times during the term of this Agreement and
all extensions thereto, as set forth in Section 9.03 below. If any
of the insurance is written as "claims made" coverage, then Lessee
agrees to keep such claims made insurance in full force and effect
by purchasing policy period extensions for at least three years
after the expiration or termination of this Agreement.
Section 9.03: Risks and Minimum Limits of Coverage.
Worker's Compensation: Statutory
Employer's Liability: Bodily injury by accident-
$1,000,000 (each accident)
Bodily injury by disease-
$1,000,000 (policy limit)
Bodily injury by disease-
$1,000,000 (each employee)
Commercial General Liability:
(including broad form coverage, Combined single limit of:
contractual liability, bodily and $100,000,000 per
personal injury, and products occurrence/aggregate
and completed operations) Products and Completed
operations
$10,000,000 aggregate
All Risk:
(Covering Special Facilities Replacement value of the
including fire, lightning, Special Facilities, but
vandalism, and extended not less than the prin-
coverage perils) cipal amount of Bonds
Outstanding
Automobile Liability Insurance:
(For automobiles used by Lessee $5,000,000 combined single
in the course of its performance limit per occurrence
under this Agreement, including
Lessee's non-owned and hired autos)
In connection with the design, construction, procurement and
installation of the Special Facilities, Lessee shall
contractually require its principal construction contractors
and architects/engineers contracting with Lessee (as the case
may be) to carry the following additional coverages and limits
of liability, unless Lessee carries policies of insurance
covering such risk; provided, however, if reasonable under the
circumstances, Lessee may, with the concurrence of the
Director, require lower limits of liability:
Professional Liability $10,000,000 per occurrence/
(in the case of architects aggregate
and engineers)
Builders Risk: Replacement value of the
(in the case of contractors) Special Facilities, but
not less than the principal
amount of Bonds Outstanding
(Aggregate limits are per 12-month period unless otherwise
indicated.)
Section 9.04. Other Provisions.
A. Form of Policies. The insurance carried by Lessee may
be in one or more policies of insurance, the form of which shall be
reasonably satisfactory to the Director. Nothing the Director does
or fails to do shall relieve Lessee from its duties to provide the
required coverage hereunder (unless specifically provided otherwise
in such action), and the Director's actions or inactions shall not
be construed as waiving the City's rights hereunder.
B. Issuers of Policies. The issuer of any policy carried
by Lessee shall have a Certificate of Authority to transact
insurance business in the State of Texas and have a Best's rating
of at least B+ and a Best's Financial Size Category of Class VI or
better, according to the most current edition of Best's Key Rating
Guide, Property-Casualty United States. Each issuer must be
responsible and reputable, must have financial capability
consistent with the risks covered, and shall be subject to approval
by the Director.
C. Insured Parties. Each policy carried by Lessee,
except those for Workers Compensation, Professional Liability and
Employer's Liability, shall name the City (and its officers,
agents, and employees) and the Trustee as Additional Insured
parties on the original policy and all renewals or replacements
during the term of this Agreement. The City, the Trustee and
Lessee shall be named joint Loss Payees on All Risk and Builders
Risk coverages, subject to distribution of proceeds as provided
elsewhere herein; provided, that, unless otherwise agreed by the
Lessee, or unless the particular insurance is "claims made"
coverage as set forth in Section 9.02, the City shall not be
entitled to assert any rights by virtue of being an additional
insured in respect of any claim or demand arising out of the
operation or maintenance of the APM if, at the time of the claim or
demand, the City is operating or maintaining the APM or is
responsible for the operation or maintenance thereof pursuant to a
sublease or other agreement.
D. Deductibles. Subject to Section 9.01(D) herein,
Lessee shall assume and bear any claims or losses to the extent of
any deductible amounts (or deductible amounts that are self-insured
by Lessee or covered under any self-funded insurance program of
Lessee) and waives any claim it may ever have for the same against
the City, its officers, agent, or employees.
E. Cancellation. Each policy carried by Lessee shall
expressly state that it may not be canceled, materially modified or
not renewed unless the insurance company gives thirty (30) days'
advance written notice in writing to the Director.
F. Aggregates. Lessee shall give written notice to the
Director within five (5) days of the date upon which total claims
by any party against Lessee reduce the aggregate amount of coverage
below the amounts required by this Agreement. In the alternative,
the policy may contain an endorsement establishing a policy
aggregate for the particular project or location subject to this
Agreement.
G. Subrogation. Each policy carried by Lessee shall
contain an endorsement to the effect that the issuer waives any
claim or right in the nature of subrogation to recover against the
City, its officers, agents, or employees.
H. Endorsement of Primary Insurance. Each policy
hereunder except Worker's Compensation and Professional Liability
shall be primary insurance to any other insurance available to the
Additional Insured and Loss Payee with respect to claims arising
hereunder.
I. Liability for Premium. Lessee shall be solely
responsible for payment of all insurance premiums on Lessee's
policies required hereunder, and the City shall not be obligated to
pay any premiums.
J. Contractors and Subcontractors. Lessee shall
contractually require all its contractors, and all its contractors
to require its subcontractors, to carry insurance naming the City
and the Trustee as an additional insured; however, contractual
liability shall be limited to the extent of such contractor's or
subcontractor's indemnification obligations under the applicable
contract. Such insurance shall meet all of the above requirements
as Lessee can successfully require such contractors or
subcontractors to meet, except amount. The amount shall be
commensurate with the amount of the contract. Lessee shall provide
copies of such insurance certificates to the Director.
K. Proof of Insurance. Within five (5) days of the
effective date of this Agreement and at any time during the term of
this Agreement, Lessee shall furnish the Director, the Trustee and
the Bond Insurer with certificates of insurance, along with an
affidavit from Lessee confirming that the certificates accurately
reflect the insurance coverage that will be available during the
term. If requested in writing by the Director, the Trustee or the
Bond Insurer, Lessee shall furnish the City with certified copies
of Lessee's insurance policies.
Notwithstanding the proof of insurance required to be carried by
Lessee as set forth above, it is the intention of the parties
hereto that Lessee, continuously and without interruption, maintain
in force the required insurance as set forth above. Lessee agrees
that the City shall never be argued to have waived or be estopped
from asserting its right to terminate this Agreement hereunder
because of any acts or omissions by the City regarding its review
of insurance documents provided by Lessee, its agents, employees,
or assigns.
Section 9.05: Disposition of Insurance Proceeds. In the
event all of the Special Facilities or any part thereof is damaged
or destroyed by an insured casualty and any Bonds remain
Outstanding or any amount remains due and owing to the Bond
Insurer, then, notwithstanding any provision to the contrary in the
Use and Lease Agreement, the following provisions shall be
applicable to the expenditure of any insurance proceeds relating to
such Special Facilities:
(i) If either (A) the insurance proceeds (less
the cost of removing the debris resulting from such
casualty) together with any moneys in the Interest and
Redemption Fund (including the Reserve Account) are
sufficient to pay all of the interest, principal and
other obligations accrued and to accrue on said Bonds
until they are fully and finally paid and all other
amounts due under the Trust Indenture and the Lessee
requests that the Special Facilities not be repaired or
rebuilt, or (B) the insurance proceeds (less the cost of
removing the debris resulting from such casualty)
together with any moneys available in the Interest and
Redemption Fund (including the Reserve Account) are
insufficient and the Lessee agrees to pay the deficiency
in Available Moneys and requests that the Special
Facilities not be repaired or rebuilt, then in either
case the Lessee may elect to terminate this Agreement and
be released from all unaccrued obligations hereunder;
provided that the insurance proceeds (less the cost of
removing the debris resulting from such casualty) and the
deficiency payments, if any, paid in Available Moneys by
the Lessee shall be simultaneously deposited into the
Interest and Redemption Fund for the Bonds and the moneys
therein shall be applied to pay the obligations with
respect to the Outstanding Bonds and other amounts due to
the Bond Insurer and under the Trust Indenture. If the
said proceeds and funds are in excess of the amount then
necessary to pay the obligations with respect to the
Outstanding Bonds and other amounts due to the Bond
Insurer and under the Trust Indenture, any such excess
after payment or provision for the payment of the Bonds
within the meaning of the Trust Indenture and other
amounts due to the Bond Insurer and under the Trust
Indenture has been made shall be divided between the City
and the Lessee as their respective interests appear at
the time of such damage or destruction; or
(ii) If all Bonds and all amounts due to the
Bond Insurer and due under the Indenture are not repaid
as provided in clause (i) above, Lessee agrees to cause
such insurance proceeds to be deposited in the
Acquisition Fund under the Trust Indenture and to
promptly repair and rebuild the Special Facilities with
the insurance proceeds, and if such proceeds are
insufficient for such purposes, the Lessee shall pay the
deficiency. If such proceeds are in excess of the amount
necessary for such purposes, any such excess shall be
transferred by the Trustee to the Interest and Redemption
Fund as a credit to the next due payments of Net Rent,
with such credit to continue until the amount thereof is
exhausted and if the Net Rent is paid in full,
thereafter, any excess proceeds shall pay other amounts
due under the Indenture, and if no such amounts are due
and owing, the excess shall be paid to Lessee. The
repair or restoration of the Special Facilities shall
either be in accordance with the original plans and
specifications, together with alterations or
modifications made or agreed upon prior to the casualty,
or in accordance with new or modified plans and
specifications, the alternative to be determined by the
mutual agreement of the City and Lessee. Before any
reconstruction or repair under this paragraph, Lessee
shall submit plans and specifications to the Director for
approval and such reconstruction or repair shall be
substantially in accordance therewith subject to such
changes as may be reasonably requested by Lessee and
approved by the City.
Section 9.06: Condemnation. In the event that the Special
Facilities or any part thereof shall be taken or condemned in any
eminent domain, condemnation, compulsory acquisition or like
proceeding by any competent authority or conveyed under threat
thereof for any public or quasipublic use or purpose and at such
time Bonds remain Outstanding within the meaning of the Trust
Indenture or any other amounts remain due under the Trust
Indenture, then, notwithstanding any provision to the contrary in
the Use and Lease Agreement, the condemnation proceeds shall be
applied as follows:
(i) If all or a substantial part of the Special
Facilities is taken and either (A) the condemnation
proceeds attributable to the Special Facilities together
with any moneys in the Interest and Redemption Fund are
sufficient to pay all of the interest, principal and
other obligations accrued and to accrue on the Bonds
until they are fully and finally paid and all other
amounts due under the Trust Indenture and the Lessee
requests that the Special Facilities not be rebuilt else-
where, or (B) the condemnation proceeds attributable to
the Special Facilities and moneys available in the
Interest and Redemption Fund are insufficient to pay all
of the interest, principal and other obligations accrued
and to accrue on the Bonds until they are fully and
finally paid and all other amounts due under the Trust
Indenture and the Lessee agrees to pay in Available
Moneys the deficiency and requests that the Special
Facilities not be rebuilt elsewhere or terminal
facilities suitable for such purpose are not available
elsewhere, the City will terminate this Agreement and
release the Lessee from all unaccrued obligations
hereunder, provided that the condemnation proceeds
attributable to the Special Facilities and deficiency, if
any, paid by Lessee in Available Moneys shall be
deposited into the Interest and Redemption Fund for the
Bonds and moneys therein shall be applied to pay the
obligations with respect to the outstanding Bonds and all
other amounts due under the Trust Indenture. If the said
proceeds and funds are in excess of the amount then
necessary to pay the obligations with respect to the
Outstanding Bonds and all other amounts due under the
Trust Indenture, any such excess after payment or
provision for the payment of the Bonds and all other
amounts due under the Trust Indenture within the meaning
of the Trust Indenture has been made shall be divided
between the City and the Lessee as their respective
interests appear at the time of the taking.
(ii) If all or a substantial part of the Special
Facilities is taken and the Lessee requests that the
Special Facilities be rebuilt elsewhere, the Special
Facilities shall be rebuilt elsewhere and paid for with
the condemnation proceeds attributable to the Special
Facilities, and if such proceeds are insufficient for
such purposes the Lessee shall pay the deficiency. If
such proceeds attributable to the Special Facilities are
in excess of the amount necessary for such purpose, any
such excess shall be paid to the City and deposited by it
to the Interest and Redemption Fund for said Bonds as a
credit to the next due payments of Net Rent, with such
credit to continue until the amount thereof is exhausted
and, thereafter, any excess proceeds shall pay other
amounts due under the Indenture, and if no such amounts
are due and owing, the excess shall be paid to Lessee.
(iii) In the event that title to or use of less
than a substantial part of the Special Facilities is
taken by the power of eminent domain (that is, if the
primary use of the Special Facilities is not
substantially impaired by deletion of the part taken) the
Lessee shall determine whether any rebuilding is
necessary. Any condemnation proceeds attributable to the
Special Facilities that are not used for the purposes of
rebuilding shall be assigned to the City and deposited
into the Interest and Redemption Fund and applied to
redeem as many Bonds as may be redeemed at the next
available redemption date.
The City covenants that it will not exercise its rights of eminent
domain with respect to the Special Facilities in any manner that
will result in insufficient condemnation proceeds or other funds to
redeem or defease the Bonds and pay all amounts due under the Trust
Indenture except with the prior consent of the Bond Insurer.
Section 9.07: Reconstruction or Repair. The rebuilding of
the Special Facilities under Sections 9.05 or 9.06 shall be either
in accordance with the original plans and specifications, together
with alterations or modifications made or agreed upon prior to the
taking, or in accordance with new or modified plans and
specifications, the alternative to be determined by the mutual
agreement of the Lessee and the Director.
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.01: Events of Default. The following shall be
Events of Default as to the Lessee under this Agreement:
(a) Failure by the Lessee to pay the Net Rent required to
be paid under Article VI hereof and, for amounts to be paid
pursuant to Section 6.01(a)(i), the continuation of such failure
for more than one Business Day.
(b) Failure by the Lessee to pay any Ground Rentals due
under Section 6.05(a) hereof within fifteen (15) Business Days
after being notified in writing by the City of such failure.
(c) Failure by the Lessee to observe and perform any
covenant, condition or agreement on its part to be observed or
performed under this Agreement other than as referred to in
subsection (a) or (b) next above, for a period of thirty (30) days
after written notice, specifying such failure and requesting that
it be remedied, is given to the Lessee and the Bond Insurer by the
City (except (i) if any insurance required to be maintained by
Lessee is to be canceled or not renewed, such notice and the period
for remedy by Lessee shall be limited to the period ending on the
date on which such cancellation or nonrenewal is scheduled to occur
and (ii) where fulfillment of another obligation requires activity
over a period of time, and the Lessee shall commence to perform
whatever may be required for fulfillment within thirty (30) days
after the receipt of notice and shall diligently continue such
performance without interruption, except for causes beyond its
control, to completion within sixty (60) days or such longer period
as may be approved by the Bond Insurer).
(d) Any material lien shall be filed against the Special
Facilities or Ground Lease Properties or Lessee's interest therein
or any part thereof in violation of this Agreement by a party other
than the City and shall remain unreleased for a period of sixty
(60) days from the date of such filing unless within said period
the Lessee is contesting in good faith the validity of such lien in
accordance with Section 8.02(c) hereof.
(e) Whenever an involuntary petition shall be filed
against Lessee under any bankruptcy or insolvency law or under the
reorganization provisions of any law of like import or a receiver
of Lessee for all or substantially all of the property of Lessee
shall be appointed without acquiescence and such petition or
appointment is not discharged within ninety (90) days after its
filing.
(f) The dissolution or liquidation of the Lessee or the
filing by the Lessee of a voluntary petition in bankruptcy, or
failure by the Lessee within ninety (90) days to lift any
execution, garnishment or attachment of such consequence as will
impair its ability to carry on its operations at the Special
Facilities, or general assignment by the Lessee for the benefit of
its creditors, or the entry by the Lessee into an agreement of
composition with its creditors, or the approval by a court of
competent jurisdiction of a petition applicable to the Lessee in
any proceeding for its reorganization or liquidation instituted
under the provisions of the federal bankruptcy laws, or under any
similar laws which may hereafter be enacted. The term "dissolution
or liquidation of the Lessee," as used in this subsection, shall
not be construed to include the cessation of the corporate
existence of the Lessee resulting either from a merger or
consolidation of the Lessee into or with another corporation or a
dissolution or liquidation of the Lessee following a transfer of
all or substantially all of its assets as an entirety, under the
conditions permitting such actions contained in Section 12.01
hereof.
(g) Whenever Lessee shall fail to provide adequate
assurance (i) that Lessee will promptly cure all defaults
hereunder, if any; (ii) that Lessee will compensate, or provide
adequate assurance that Lessee will promptly compensate, the City,
the Trustee and the Bond Insurer for any actual pecuniary loss to
such party resulting from any Event of Default hereunder; and (iii)
of future performance by Lessee of the terms and conditions of this
Agreement, each within thirty (30) days after (1) the granting of
an Order for Relief with respect to Lessee pursuant to Title XI of
the United States Code; (2) the initiation of a proceeding under
any bankruptcy or insolvency law or the reorganization provisions
of any law of like import; or (3) the granting of the relief sought
in an involuntary proceeding against the Lessee under any bank-
ruptcy or insolvency law. As used in this Agreement, adequate
assurance of future performance of this Agreement shall include,
but shall not be limited to, adequate assurance (1) of the source
of Net Rent and other consideration due hereunder and (2) that the
assumption or assignment of this Agreement will not breach any
provision, such as a use, management, or ownership provision, in
this Agreement, any other material lease, any financing agreement,
or master agreement relating to the Leased Premises under the Use
and Lease Agreement and/or Special Facilities.
Section 10.02: Remedies on Default. Whenever any Event of
Default referred to in Section 10.01 hereof shall have happened and
continue to exist, then, subject to Sections 10.07 and 10.08 below,
the City may take any one or more of the following remedial steps
as against the Lessee:
(a) The City may, and upon a payment default shall,
re-enter and take possession of the Special Facilities and Ground
Lease Properties without terminating this Agreement and in a timely
manner use its best efforts to (i) complete construction and
equipping of the Special Facilities (and apply proceeds of the
Bonds for such purpose) and (ii) either (x) operate the Special
Facilities and Ground Lease Properties and impose rates and charges
on airline tenants in Terminals B and C for their availability,
operation and maintenance in accordance with the Use and Lease
Agreement or (y) sublease the Special Facilities and Ground Lease
Properties on a net rent lease basis to sublessees which (other
than the City) shall have been approved in writing by the Bond
Insurer (whose approval may not unreasonably be withheld), provided
further that in either event the City shall use its best efforts to
impose and collect rates and charges or rental rates sufficient to
provide for operating and maintenance expenses and Ground Rentals
to the same extent as Lessee is obligated to do so and to provide
additional amounts equal to the Net Rent and other amounts set
forth in Section 6.01, all for the account of the Lessee, holding
the Lessee liable for the difference between the rents and other
amounts payable by the Lessee hereunder and the charges received
from airline tenants and/or the rents and other amounts received
from any sublessee with respect to the Special Facilities and
Ground Lease Properties. All proceeds derived by the City from any
charges and/or rents (net of operating and maintenance expenses and
any allocable Ground Rentals payable or remaining unpaid hereunder,
and up to the amount of all Net Rent payable hereunder) shall be
remitted to the Trustee for deposit in the Interest and Redemption
Fund to support repayment of the Bonds.
(b) The City may terminate this Agreement, exclude the
Lessee from possession of the Special Facilities and Ground Lease
Properties and use its best efforts to (i) complete construction
and equipping of the Special Facilities (and apply proceeds of the
Bonds for such purpose) and (ii) either (x) operate the Special
Facilities and Ground Lease Properties and impose rates and charges
on airline tenants in Terminals B and C for their availability,
operation and maintenance in accordance with the Use and Lease
Agreement or (y) lease the same on a net rent lease basis to
lessees which (other than the City) shall have been approved in
writing by the Bond Insurer (whose approval may not unreasonably be
withheld), provided further that in either event the City shall use
its best efforts to impose and collect rates and charges or rental
rates sufficient to provide for operating and maintenance expenses
and Ground Rentals to the same extent as Lessee is obligated to do
so and to pay the Net Rent and other amounts set forth in Section
6.01, all for the account of the Lessee, holding the Lessee liable
for all rents and other amounts due under this Agreement and not
received by the City from charges or rents with respect to the
Special Facilities and Ground Lease Properties. All gross proceeds
derived by the City from any charges and/or rents (net of operating
and maintenance expenses and any allocable Ground Rentals payable
or remaining unpaid hereunder, and up to the amount of all Net Rent
payable hereunder) shall be remitted to the Trustee for deposit in
the Interest and Redemption Fund to support repayment of the Bonds.
(c) The City may take whatever other action at law or in
equity as may appear necessary or desirable to collect the rent
then due and thereafter to become due, or to enforce performance
and observance of any obligation, agreement or covenant of the
Lessee under this Agreement. The City shall use its best efforts
to cause the Special Facilities to be constructed and installed and
to either (i) cause the Special Facilities and Ground Lease
Properties to be operated in consideration of charges imposed on
airline tenants in accordance with the Use and Lease Agreement or
(ii) sublease (or lease as applicable) the Special Facilities and
Ground Lease Properties on a net rent lease basis for the account
of Lessee as provided in clauses (a) and (b) above after an Event
of Default by Lessee, whether or not City retakes possession of the
Special Facilities and Ground Lease Properties or terminates this
Agreement.
(d) In connection with any reletting of the Special
Facilities and Ground Lease Properties, the City agrees not to
charge tenant(s) Ground Rentals in excess of those charged (or that
would be charged) to Lessee.
Section 10.03: Additional Remedy. In addition to the other
remedies herein provided, the City may, in the case of an Event of
Default under Section 10.01(c), enter the Special Facilities and
Ground Lease Properties (without such entering causing or
constituting a termination of this Agreement or an interference
with the possession of the Special Facilities and Ground Lease
Properties by Lessee) and do all things reasonably necessary to
cure such Event of Default, charging to Lessee the reasonable cost
and expense thereof and Lessee agrees to pay to City upon demand
such charge in addition to all other amounts payable by Lessee
hereunder.
Section 10.04: No Remedy Exclusive. No remedy herein
conferred upon or reserved to the City is intended to be exclusive
of any other available remedy or remedies, but each and every such
remedy shall be cumulative and shall be in addition to every other
remedy given under this Agreement or hereafter existing under law
or in equity (to the extent not inconsistent with the terms
hereof). No delay or omission to exercise any right or power
accruing upon any Event of Default shall impair any such right or
power or shall be construed to be a waiver thereof, but any such
right and power may be exercised from time to time and as often as
may be deemed expedient. In order to entitle the City to exercise
any remedy reserved to it in this Article, it shall not be
necessary to give any notice, unless such notice is herein
expressly required or is required by law.
Section 10.05: Agreement to Pay Attorneys' Fees and Expenses.
In the event there should be an Event of Default under any of the
provisions of this Agreement and the City should determine that the
services of an attorney are required or the City incurs other
expenses for the collection of rent or the enforcement of
performance or observance of any obligation or agreement on the
part of Lessee, the Lessee agrees that it will on demand therefor
pay to the City the reasonable, just and necessary fee of such
attorneys and other reasonable expenses so incurred.
Section 10.06: No Additional Waiver Implied by One Waiver.
In the event any covenant contained in this Agreement should be
breached by either party and thereafter waived by the other party,
such waiver shall be limited to the particular breach so waived and
shall not be deemed to waive any other breach hereunder. Failure
of either party hereto to insist on the strict performance of any
of the agreements herein or to exercise any rights or remedies
accruing hereunder upon an Event of Default or failure of
performance shall not be considered a waiver of the right to insist
on, and to enforce by any appropriate remedy, strict compliance
with any other obligation hereunder or to exercise any right or
remedy occurring as a result of any future default or failure of
performance.
Section 10.07: Enforcement by City Attorney. The City
Attorney or his or her designee shall have the right to enforce all
legal rights and obligations under this Agreement without further
authorization. Lessee covenants to provide to the City Attorney
all documents and records within Lessee's possession that the City
Attorney reasonably deems necessary to assist in determining
Lessee's compliance with this Agreement, with the exception of
those documents made confidential by federal or state law or
regulation and provided that the provision of such documents and
records by Lessee shall further be limited in any respect that the
provision of any documents or records by the City pertaining to
this Agreement would be limited pursuant to Chapter 552, Texas
Government Code, as amended, or otherwise.
Section 10.08: Special Rights of Bond Insurer.
Notwithstanding any provision herein to the contrary, in order to
obtain a commitment of insurance for the Series 1997A Bonds from
the Bond Insurer, the City agrees that, so long as the Bond Insurer
is not in default in its payment obligations under its municipal
bond insurance policy for the Series 1997A Bonds (the "Bond
Policy"), the exercise of its remedies as set forth in this Article
shall be subject to the consent of (as further provided below) and
direction by the Bond Insurer except as limited in the Trust
Indenture and that, in addition, the Bond Insurer may, as provided
in the Trust Indenture, exercise any and all rights of the holders
of the Series 1997A Bonds to direct the exercise of such remedies.
The consent of the Bond Insurer to the exercise of remedies (i)
shall only be required for the termination of this Agreement or the
exercise of remedies enumerated in the first sentence of Section
10.02(c), (ii) shall not be unreasonably withheld and (iii) shall,
to the greatest extent practicable, when granted, carry with it the
consent to the implementation of such remedy by the City without
requiring further consent; provided that clause (iii) shall not be
deemed to abrogate the City's obligation to obtain the Bond
Insurer's consent to a new Lessee or sublessee (other than the
City) as provided elsewhere herein and in the Trust Indenture and
provided further that, in order to protect Bond Insurer's interests
in the Leasehold Mortgage and the security for the Bonds and
repayments of claims made under the Bond Policy and other amounts
due to the Bond Insurer, during any period that the Bond Insurer or
Trustee is the Lessee hereunder, the City may not terminate this
Agreement without the Bond Insurer's prior consent, to be given in
the sole discretion of the Bond Insurer, so long as any Bonds
remain Outstanding or any amounts remain due and payable under the
Trust Indenture.
ARTICLE XI
ASSIGNMENTS, SUBLETTING AND TERMINATION BY LESSEE
Section 11.01: Assignments and Subletting by Lessee. (a)
This Agreement may not be assigned or otherwise transferred in
whole or in part by Lessee (except pursuant to Sections 11.03 and
12.01 hereof) without the prior written consent of the Director and
the Bond Insurer; provided, however, that, unless permitted by
Section 7.6(b) of the Trust Indenture or Sections 11.03 or 12.01
hereof, the City will not consent to any assignment by Lessee of
its rights hereunder without first obtaining a written agreement
from the Lessee that Lessee shall remain primarily liable for Net
Rent hereunder. Lessee may sublet the Special Facilities and
Ground Lease Properties or any part thereof to any party, subject
to the condition that in either instance Lessee first obtains the
written consent of the Director and the Bond Insurer to such
subletting and all the terms thereof, unless such subletting is
expressly authorized herein.
(b) If Lessee sublets all or any part of the Special
Facilities and Ground Lease Properties or if all or any part of the
Special Facilities and Ground Lease Properties are occupied
(pursuant to a written consent from the Director and the Bond
Insurer) by anyone other than Lessee (including any subsidiary of
Lessee or a code-share affiliate of Lessee), the City may, if an
Event of Default shall have occurred hereunder and be continuing,
collect rent from such sublessee or occupant and the City shall
apply the amount collected to the extent possible to satisfy the
obligations of Lessee hereunder, but no such collection shall be
deemed a waiver by the City of the covenants contained herein or an
acceptance by the City of any such sublessee, claimant or occupant
as a successor Lessee, nor a release of Lessee by the City from the
further performance by the Lessee of the covenants imposed upon
Lessee herein.
(c) NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE
CONTRARY, SO LONG AS ANY BONDS REMAIN OUTSTANDING OR ANY AMOUNT IS
DUE UNDER THE INDENTURE NO SUCH SUBLEASE OR ASSIGNMENT SHALL BE
AUTHORIZED IF IN ANY WAY IT RELEASES LESSEE FROM ITS PRIMARY
OBLIGATIONS HEREUNDER, INCLUDING ITS OBLIGATION TO PAY NET RENT.
Section 11.02: Termination of Agreement by Lessee. Lessee
shall not terminate this Agreement for any reason whatsoever as
long as any of the Bonds remain Outstanding within the meaning of
the Trust Indenture or any other amounts are due and owing under
the Trust Indenture.
Section 11.03: Special Provisions Regarding Leasehold
Mortgage. In order to further secure the Series 1997A Bonds, the
City expressly consents to Lessee's assignment of its rights
hereunder pursuant to a Leasehold Mortgage and, subject to the
following conditions:
(i) The City shall be given at least 30 days
written notice of any event of default under the
Leasehold Mortgage giving rise to a right of foreclosure
and the City shall have an opportunity to cure the
default (with the consent of the Bond Insurer) or
exercise the rights contained in Section 7.03 hereof or
to take other actions acceptable to the Trustee and the
Bond Insurer to avert such foreclosure;
(ii) Any assignment or sale of the Lessee's
leasehold estate hereunder, unless made to the City or an
entity approved by the Director, shall be made only to an
entity that expressly assumes the insurance and other
obligations of Lessee contained herein with respect to
the operation of the Special Facilities, subject to the
provisions of the Contingent Lease Agreement.
(iii) The City shall give notice to the Leasehold
Mortgagee and the Trustee and the Bond Insurer of any
Event of Default under this Agreement and allow a 30 day
cure period after receipt of such notice prior to
exercising any right to terminate this Agreement or relet
or sublet the leasehold estate hereunder.
(iv) In connection with any such Leasehold
Mortgage, the Director may enter into such reasonable or
customary agreement or agreements with the Leasehold
Mortgagee with respect to notices of default, the cure
periods and forbearance provisions, or consents to future
assignments, with respect to the exercise of remedies,
and the Director shall, upon reasonable request of the
Leasehold Mortgagee or any successor to the rights of
Lessee hereunder by reason of a foreclosure or deed in
lieu of foreclosure under the Leasehold Mortgage, execute
estoppel certificates with respect to this Agreement.
(v) So long as any Bonds remain Outstanding,
the City shall not, without the prior written consent of
the Leasehold Mortgagee, either (i) consent to or accept
any abatement or prepayment of Net Rent hereunder or (ii)
accept any surrender of Lessee's leasehold estate
hereunder..
ARTICLE XII
MISCELLANEOUS
Section 12.01: Lessee to Maintain Its Corporate Existence.
The Lessee shall throughout the term hereof maintain its corporate
existence, will not dissolve or otherwise dispose of all or
substantially all of its assets and will not consolidate with or
merge into another entity or permit one or more other entities to
consolidate with or merge into it; provided, that the Lessee may,
without violating the agreement contained in this Section,
consolidate with or merge into another entity, or permit one or
more other entities to consolidate with or merge into it, or sell
or otherwise dispose of all or substantially all of its assets as
an entirety and thereafter dissolve, provided, if Lessee is not the
surviving corporation, the surviving, resulting or transferee
corporation, as the case may be, (i) assumes in writing all of the
obligations of the Lessee herein and (ii) qualifies or is qualified
to do business in Texas.
Section 12.02: Exempt Facilities. In order to assure that
interest on the Bonds shall be exempt from federal income taxation,
the Lessee covenants and agrees that it shall not, and it shall not
permit or allow any other person to, construct, acquire, use,
employ, modify, rebuild or repair the Project or any Special
Facilities in any manner that would cause or allow it or them to be
or become facilities which are not included within those set forth
and described in Sections 142(a)(1) and (c) of the Internal Revenue
Code of 1986, as amended, and the regulations prescribed
thereunder, and the City covenants and agrees that it will not
permit or allow any of the foregoing to occur. The Lessee hereby
makes an irrevocable election, which it shall cause to be binding
on all successors in interest under this Agreement, not to claim
for federal income tax purposes depreciation or investment credit
with respect to the Special Facilities or any component thereof.
It is further agreed and acknowledged by Lessee that the City shall
never be required or requested hereunder to issue any Bonds or
expend any proceeds thereof to pay any Costs of the Special
Facilities that would have the effect of causing interest on any of
the Bonds not to be exempt from federal income taxation.
Section 12.03: Notices. (a) Any and all notices required or
permitted to be given hereunder shall be deemed sufficiently given
when delivered or when mailed by registered or certified mail,
return receipt requested, postage prepaid, or when given by
telephone immediately confirmed in writing by telecopier (or other
communication device acceptable to the party) to any party hereto
as follows or at such other address, telephone number or telecopier
number as any party may from time to time designate in writing to
the other parties hereto:
City:
Director, Department of Aviation
City of Houston
P. O. Box 60106
Houston, Texas 77205
Attention: Director
Telephone: (281) 233-3000
Telecopier: (281) 230-2864
and
City Legal Department
P. O. Box 1582
Houston, Texas 77001
Attention: City Attorney
Telephone: (713) 247-2000
Telecopier: (713) 247-1017
Lessee:
Continental Airlines, Inc.
2929 Allen Parkway, Suite 2010
Houston, Texas 77019
Attention: General Counsel
Telephone: (713) 834-2948
Telecopier: (713) 834-2687
and
Continental Airlines, Inc.
2929 Allen Parkway, Suite 1401
Houston, Texas 77019
Attention: Staff Vice President,
Corporate Real Estate and
Environmental Affairs
Telephone: (713) 834-2245
Telecopier: (713) 834-6954
and
Continental Airlines, Inc.
2929 Allen Parkway, Suite 1588
Houston, Texas 77019
Attention: Vice President, Corporate Finance
Telephone: (713) 834-2544
Telecopier: (713) 834-2448
Trustee:
Texas Commerce Bank National Association
Attention: Global Trust Service
600 Travis Street, Suite 1150
Houston, Texas 77002
Attention: Corporate Trust Department
Telephone: (713) 216-4808
Telecopier: (713) 216-5476
Bond Insurer:
Financial Security Assurance Inc.
350 Park Avenue
New York, New York 10022
Attention: Managing Director -
Surveillance and General
Counsel Re: Policy No. ______
Telephone: (212) 826-0100
Telecopier: (212) 339-3529
(b) All computations for the expiration of time periods
required by this Agreement shall be computed from the date such
notice is deposited in the United States mail, as set forth above;
provided, however, that should the last day of the period fall on
a Saturday, Sunday or legal holiday, the period shall run until the
end of the next day which is neither a Saturday, Sunday nor legal
holiday.
Section 12.04: Consents and Approvals. (a) With respect to
the approvals herein required of the Lessee, Lessee shall from time
to time furnish to the City a certificate signed by its Secretary
or an Assistant Secretary, and such certificate shall set forth the
officers or representatives of Lessee who are authorized to grant
such approvals and to bind the Lessee thereto; and the City and all
third parties affected by any such approvals, including the holders
of Bonds, may rely upon any writing purporting to grant such
approvals signed by any officer or representative thus certified as
being conclusively binding upon Lessee, and any such writing shall
itself constitute conclusive evidence that any and all corporate
actions necessary to be taken with respect to the matter thus
approved by such officer or representative to have been so taken by
the corporation, and that the approval therein given has been
authorized by the corporation.
(b) Any consent or approval herein required of the City
may be given by the Director unless otherwise provided.
(c) All consents or approvals of the City, or any
department thereof, the Bond Insurer, or Lessee when required
herein shall not be unreasonably withheld or delayed.
(d) All consents and approvals required or permitted
herein by either party shall be given in writing.
(e) An approval by the Director, or by any other
instrumentality of the City, of any part of Lessee's performance
shall not be construed to waive compliance with this Agreement
except as expressly set forth in such approval or to establish a
standard of performance other than required by this Agreement or by
law.
Section 12.05: Rights Reserved to City. Nothing contained
herein shall unlawfully impair the right of City to exercise its
governmental or legislative functions. This Agreement is made
subject to the Constitution and laws of the State of Texas and to
the provisions of the Airport Improvement Program Grant Agreements
applicable to the Airport and its operation, and the provisions of
such agreements, insofar as they are applicable to the terms and
provisions of this Agreement, shall be considered a part hereof to
the same extent as though copied herein at length to the extent,
but only to the extent, that the provisions of any such agreements
are required generally by the United States at other civil airports
receiving federal funds. To the best of City's knowledge, nothing
contained in such laws or agreements conflicts with the express
provisions of this Agreement.
Section 12.06: Force Majeure. Neither the City nor Lessee
shall be deemed in violation of this Agreement if it is prevented
from performing any of the obligations hereunder by reason of
strikes, boycotts, labor disputes, embargoes, shortage of material,
acts of God, acts of the public enemy, acts of superior
governmental authority, weather conditions, floods, riots,
rebellion, sabotage, war, or any other circumstances for which it
is not responsible or which is not in its control, and the time for
performance shall be automatically extended by the period the party
is prevented from performing its obligations hereunder; provided,
however, that these provisions shall not apply to any failure by
the Lessee to pay the rentals and other charges pursuant to Article
VI hereof, expressly including the Net Rent and other amounts
payable pursuant to Section 6.01(a) payable thereunder.
Section 12.07: Severability Clause. If any word, phrase,
clause, paragraph, section or other part of this Agreement shall
ever be held to be invalid or unconstitutional by any court of
competent jurisdiction, the remainder of this Agreement and the
application of such word, phrase, clause, sentence, paragraph,
section or other part of this Agreement to any other person or
circumstance shall not be affected thereby and it is expressly
agreed and understood that the obligation of Lessee to make the
rental payments to City required under the provisions of Article VI
hereof shall continue to remain in full force and effect.
Section 12.08: Place of Performance; Laws Governing. This
Agreement shall be performable and enforceable in Harris County,
Texas, and shall be construed in accordance with the laws of the
State of Texas, the City Charter and Ordinances of the City of
Houston, Federal law and all applicable State and Federal
regulations. Lessee acknowledges that, to the extent the City's
Charter or Texas law requires any expenditure of funds that may be
contemplated to be made by the City herein to be prefunded to be
valid, then such expenditure shall be subject to City Council
approval; provided, that, the City agrees to use its best efforts
to obtain such approval.
Section 12.09: Brokerage. The Lessee and the City each to
the other represents and warrants that no brokers have been
concerned on their behalf in the negotiation of this Agreement and
that there are no such brokers who are or may be entitled to be
paid commissions in connection therewith. The Lessee and the City
shall indemnify and save harmless each other of and from any claim
for commission or brokerage made by any such brokers when such
claims are based in whole or in part upon any acts or omissions of
the Lessee or the City as applicable.
Section 12.10: Individuals Not Liable. No director, officer,
agent or employee of the City or Lessee shall be charged personally
or held contractually liable by or to the other party under any
term or provision of this Agreement or of any supplement or
amendment hereto because of any breach thereof or because of his or
their execution of same.
Section 12.11: Binding Nature of Agreement; Benefits of
Agreement. This Agreement shall inure to the benefit of, and be
binding upon, the City and Lessee, and their respective legal
representatives, successors and assigns. This Agreement is not
made for the benefit of, nor may it be relied upon by, any third
party other than the holders of the Bonds and the Bond Insurer,
unless expressly herein provided.
Section 12.12: Ambiguities. In the event of any ambiguity in
any of the terms of this Agreement, it shall not be construed for
or against any party hereto on the basis that such party did or did
not author the same.
Section 12.13: Survival. Lessee and the City shall remain
obligated to the other party hereto under all clauses of this
Agreement that expressly or by their nature extend beyond the
expiration or termination of this Agreement, including but not
limited to the obligation to pay Net Rent and other amounts payable
pursuant to Section 6.01(a) and the indemnity provisions hereof.
Without limiting the foregoing, Lessee expressly acknowledges that
its obligation to pay Net Rent shall not terminate until all Bonds,
all obligations under the Trust Indenture and all obligations to
the Bond Insurer are fully and finally paid.
Section 12.14: No Merger of Title. There shall be no merger
of this Agreement (or of the leasehold estate created by this
Agreement) with the ownership of any portion of or interest in the
Special Facilities or Ground Lease Properties by reason of the fact
that the same person or entity may acquire, own or hold, directly
or indirectly, this Agreement (or the rights and interests created
by this Agreement) together with an ownership, leasehold or other
right or interest in the Special Facilities or Ground Lease
Properties; and no such merger shall occur unless and until the
City and all persons and entities holding (a) the rights and
interest created by this Agreement and (b) the ownership, leasehold
or other rights or interest in the Special Facilities and Ground
Lease Properties or any part thereof shall join in a written
instrument expressly effecting such merger. Without limiting the
generality of the foregoing, it is agreed that no merger of title
shall arise if the City becomes a sublessee hereunder.
Section 12.15: Entire Agreement. This Agreement, together
with the Trust Indenture, constitutes the entire agreement between
the City and Lessee pertaining to the subject matter hereof.
IN WITNESS WHEREOF, this Agreement has been entered into and
effective as of the date first above written, and executed in
multiple counterparts by the respective officers of the parties
hereto.
ATTEST: CITY OF HOUSTON
______________________________ By___________________________
City Secretary Mayor
APPROVED AS TO FORM COUNTERSIGNED BY:
______________________________ ___________________________
Senior Assistant City Attorney City Controller
APPROVED
______________________________
Director, Department of Aviation
CONTINENTAL AIRLINES, INC.
ATTEST: By:__________________________
Title:_______________________
______________________________
Title: _______________________
THE STATE OF TEXAS
COUNTY OF HARRIS
BEFORE ME, the undersigned authority, a Notary Public in and
for Harris County, Texas, on this day personally appeared BOB
LANIER, Mayor of the CITY OF HOUSTON, known to me to be the person
and officer whose name is subscribed to the foregoing instrument,
and acknowledged to me that he executed the same for the purposes
and consideration therein expressed, as the act and deed of the
CITY OF HOUSTON, the said municipal corporation, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the ______ day of
_______________, 1997.
________________________
Notary Public in and for
Harris County, Texas
THE STATE OF TEXAS
COUNTY OF HARRIS
BEFORE ME, the undersigned authority, on this day personally
appeared _______________, ___________________ of Continental
Airlines, Inc., a corporation, known to me to be the person and
officer whose name is to the foregoing instrument, and acknowledged
to me that he executed the same for the purposes and consideration
therein expressed, in the capacity therein stated, and as the act
and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the _______ day
of ___________________, 1997.
_________________________
Notary Public in and for
Harris County, Texas
EXHIBITS TO BE ATTACHED
Exhibit "A" Description of Project
Exhibit "B" Description of Easements
Exhibit "C" Description of Ground Lease Properties
Exhibit "D" Deed and Bill of Sale for Project
EXHIBIT "A"
DESCRIPTION OF PROJECT
All properties, facilities, structures, equipment, fixtures,
furnishings, finishes and appurtenances to be acquired,
constructed, fabricated and/or installed in, on, as a part of or
around the Ground Lease Properties and the Easements that are
financed with proceeds of the Series 1997A Bonds and leased to the
Lessee pursuant to the Special Facilities Lease Agreement, includ-
ing without limitation the following:
The Series 1997A Special Facilities (APM) include an
aboveground dual-lane people mover track connecting
Terminals B and C; passenger boarding stations at both
terminals comprised of approximately 9,000 square feet
each; a maintenance facility at Terminal B comprised of
approximately 9,000 square feet; a control facility in
Terminal B comprised of approximately 2,000 square feet;
two APM transportation vehicles (capable of accommodating
80 passengers each and traveling at a speed of
approximately 30 miles per hour); power distribution and
appurtenances as required by HL&P; any required APM
propulsion substation; APM technical and administrative
support area in flight station 6 comprised of
approximately 4,200 square feet; and certain necessary
switches and power distribution, control communications
and station equipment. When completed, the new APM
system between Terminals B and C is expected to be
capable of transporting approximately 2,100 passengers
per hour.
However, there is expressly excluded from the APM any and all
properties, facilities, structures, equipment, fixtures,
furnishings, finishes and appurtenances provided to the Lessee by
the City pursuant to the Use and Lease Agreement.
EXHIBIT "B"
DESCRIPTION OF EASEMENTS
The Easements shall consist of the following:
(1) An aerial easement running between Terminals B and C at
the Airport in the corridor depicted in the diagrams
attached as Exhibit B-1 (the "APM Corridor") for the
purpose of an aboveground APM, together with space for
APM Stations adjacent to Terminals B and C, depicted as
the "Terminal B APM Station" and "Terminal C APM
Station" in the diagram attached as Exhibit B-1, and an
APM propulsion substation. The minimum clearance below
the APM (and any suspended baggage transfer facility)
must be at least 20 feet 0 inches above the roadway
below. The height of the APM guideway surface is 42
feet above the roadway below and the highest point of
the APM stations shall not extend above the parapet of
Terminal B, parking level four, or such other clearance
and/or height as approved by the Director.
EXHIBIT "C"
DESCRIPTION OF GROUND LEASE PROPERTIES
The Ground Lease Properties shall consist of the following:
(1) Footprints for up to 60 support columns located at sites
within the APM Corridor (as described in Exhibit "B")
approved by the Director pursuant to the Agreement with
cross-sections not to exceed 30 square feet each and
footings not to exceed 580 square feet each, or such
other dimensions as shall be approved by the Director.
(2) Such portions of the space located in the Mezzanine
Level of Terminal B in the shaded area depicted in the
diagram attached as Exhibit C-1 and such portions of the
space located in the ramp level of Flight Station 6 of
Terminal B in the shaded area depicted in the diagram
attached as Exhibit C-1 as are necessary for the
administration and operation of the APM.
EXHIBIT "D"
DEED AND BILL OF SALE
THE STATE OF TEXAS
KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF HARRIS
THAT CONTINENTAL AIRLINES, INC., a corporation (hereinafter
called "Grantor"), for and in consideration of the sum of Ten and
No/100 Dollars ($10.00) cash and other good and valuable
considerations to it in hand paid by the CITY OF HOUSTON, TEXAS, a
municipal corporation and home-rule city situated principally in
Harris County, Texas (hereinafter called "Grantee"), the receipt
and sufficiency of which are here acknowledged and confessed, has
GRANTED, BARGAINED, SOLD AND CONVEYED and by these presents does
GRANT, BARGAIN, SELL AND CONVEY unto the Grantee that certain
airport Special Facilities more fully described in Exhibit "A"
attached hereto located in and at Houston Intercontinental Airport
in leased space and/or in the easements leased or granted to
Grantee by Grantor which leased space and/or easements are more
fully described in Exhibit "B" attached hereto.
TO HAVE AND TO HOLD the aforesaid Special Facilities, together
with all and singular the rights and appurtenances thereto in any
way belonging unto Grantee, its successors and assigns forever; and
it is hereby agreed that Grantor, its successors and legal
representatives are hereby bound to WARRANT AND FOREVER DEFEND, all
and singular, said property unto Grantee, its successors and
assigns against every person whosoever lawfully claiming or to
claim the same, or any part thereof, by, through or under Grantor,
but not otherwise.
THE EXECUTION, delivery and acceptance of this conveyance is
made pursuant to the terms of that certain Special Facilities Lease
Agreement dated as of _______, 1997, by and between Grantor and
Grantee.
EXECUTED as of the _______ day of ________, 199_.
CONTINENTAL AIRLINES, INC.
By _____________________
Title:__________________
ATTEST:
_____________________________
Assistant Secretary
THE STATE OF TEXAS
COUNTY OF HARRIS
BEFORE ME, the undersigned authority, on this day personally
appeared ____________________, ______________________________ of
the CONTINENTAL AIRLINES, INC., a corporation, known to me to be
the person and officer whose name is subscribed to the foregoing
instrument, and acknowledged to me that he executed the same for
the purposes and consideration therein expressed, in the capacity
therein stated, and as the act of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this _______ day of
_______, 199_.
________________________
Notary Public in and for
Harris County, Texas
(SEAL)
EXHIBIT 10.30(b)
"TERMINAL LEASE"
OR
"B" LEASE
FIRST AMENDED AND RESTATED
SPECIAL FACILITIES
LEASE AGREEMENT
(CONTINENTAL AIRLINES, INC. TERMINAL IMPROVEMENT PROJECTS)
_________________________________________
by and between
CITY OF HOUSTON, TEXAS
as Lessor
and
CONTINENTAL AIRLINES, INC.
as Lessee
_________________________________________
Dated as of March 1, 1997
Amended and Restated as of December 1, 1998
SPECIAL FACILITIES
LEASE AGREEMENT
(CONTINENTAL AIRLINES, INC. TERMINAL IMPROVEMENT PROJECTS)
I N D E X
Page No.
ARTICLE I
DEFINITIONS AND INTERPRETATIONS
Section 1.01: Definitions . . . . . . . . . . . . . . . . . . .2
Section 1.02: Interpretations . . . . . . . . . . . . . . . . .7
ARTICLE II
REPRESENTATIONS
Section 2.01: Representations by the City . . . . . . . . . . .7
Section 2.02: Representations by Lessee . . . . . . . . . . . .7
ARTICLE III
LEASE AND TERM; GRANT OF EASEMENTS AND GROUND LEASES
Section 3.01: Lease of Special Facilities . . . . . . . . . . .8
Section 3.02: Term of Lease of Special Facilities . . . . . . .8
Section 3.03: Easements and Ground Leases . . . . . . . . . . .8
Section 3.04: Condition of Special Facilities . . . . . . . . .9
Section 3.05: City Right of Entry . . . . . . . . . . . . . . .9
ARTICLE IV
ISSUANCE OF BONDS; PAYMENT OF COSTS OF THE PROJECTS
Section 4.01: Issuance of Series 1997B Bonds and
Series 1998B Bonds. . . . . . . . . . . . . . . 10
Section 4.02: Issuance of Additional Bonds. . . . . . . . . . 10
Section 4.03: Application of Proceeds; Insufficiencies. . . . 10
Section 4.04: Refunding Bonds . . . . . . . . . . . . . . . . 11
Section 4.05: Optional Redemption of Bonds. . . . . . . . . . 11
ARTICLE V
DESIGN, CONSTRUCTION AND ACQUISITION OF THE SPECIAL FACILITIES
Section 5.01: General . . . . . . . . . . . . . . . . . . . . 11
Section 5.02: Special Provisions for the 1997B Project. . . . 13
Section 5.03: Inventory of Special Facilities; Replacements . 13
Section 5.04: Title to Projects . . . . . . . . . . . . . . . 13
Section 5.05: Design, Construction and Acquisition of Additional
Special Facilities. . . . . . . . . . . . . . . 13
Section 5.06: Personal Property Not Constituting Special
Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI
NET RENT AND GROUND RENT
Section 6.01: Net Rent While Bonds Outstanding. . . . . . . . 14
Section 6.02: Obligation to Pay Net Rent Unconditional. . . . 16
Section 6.03: Pledge of Net Rent. . . . . . . . . . . . . . . 16
Section 6.04: Operation and Maintenance Expenses; Other Costs 16
Section 6.05: Charges for Ground Lease Properties and Easements17
ARTICLE VII
USE OF SPECIAL FACILITIES; REPRESENTATIONS AND UNDERTAKINGS BY
LESSEE AND CITY
Section 7.01: General . . . . . . . . . . . . . . . . . . . . 17
Section 7.02: Rights to Use Lessee's Terminal Improvements
Subject to Use and Lease Agreement. . . . . . . 17
Section 7.03: Reservation to City of Special Rights with
Respect to Special Facilities in Terminal B . . 18
Section 7.04: Non-Extension of Terminal B Lease . . . . . . . 20
Section 7.05: Non-Extension of Terminal C Lease . . . . . . . 20
Section 7.06: Non-Extension of IAB License Agreement. . . . . 20
ARTICLE VIII
LESSEE'S OBLIGATIONS AND CONDITIONS TOLESSEE'S USE OF SPECIAL
FACILITIES
Section 8.01: Maintenance of Special Facilities at
Lessee's Expense. . . . . . . . . . . . . . . . 21
Section 8.02: Taxes, Charges, Utilities, Liens. . . . . . . . 21
Section 8.03: Compliance with Airport Rules and Regulations
and Law; Nondiscrimination. . . . . . . . . . . 22
Section 8.04: Compliance with Tax Law . . . . . . . . . . . . 22
Section 8.05: Environmental Matters . . . . . . . . . . . . . 22
Section 8.06: City's Right To Maintain or Repair Special
Facilities. . . . . . . . . . . . . . . . . . . 25
Section 8.07: Termination Procedures. . . . . . . . . . . . . 25
ARTICLE IX
LIABILITY, INSURANCE AND CONDEMNATION
Section 9.01: Release and Indemnification of City . . . . . . 26
Section 9.02: General Insurance Requirements. . . . . . . . . 28
Section 9.03: Risks and Minimum Limits of Coverage. . . . . . 28
Section 9.04. Other Provisions. . . . . . . . . . . . . . . . 29
Section 9.05: Disposition of Insurance Proceeds . . . . . . . 30
Section 9.06: Condemnation. . . . . . . . . . . . . . . . . . 31
Section 9.07: Reconstruction or Repair. . . . . . . . . . . . 32
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.01: Events of Default. . . . . . . . . . . . . . . 32
Section 10.02: Remedies on Default. . . . . . . . . . . . . . 34
Section 10.03: Additional Remedy. . . . . . . . . . . . . . . 35
Section 10.04: No Remedy Exclusive. . . . . . . . . . . . . . 35
Section 10.05: Agreement to Pay Attorneys' Fees and Expenses. 35
Section 10.06: No Additional Waiver Implied by One Waiver . . 36
Section 10.07: Enforcement by City Attorney . . . . . . . . . 36
ARTICLE XI
ASSIGNMENTS, SUBLETTING AND TERMINATION BY LESSEE
Section 11.01: Assignments and Subletting by Lessee . . . . . 36
Section 11.02: Termination of Agreement by Lessee . . . . . . 37
ARTICLE XII
MISCELLANEOUS
Section 12.01: Lessee to Maintain Its Corporate Existence . . 37
Section 12.02: Exempt Facilities. . . . . . . . . . . . . . . 37
Section 12.03: Notices. . . . . . . . . . . . . . . . . . . . 37
Section 12.04: Consents and Approvals . . . . . . . . . . . . 39
Section 12.05: Rights Reserved to City . . . . . . . . . . . 40
Section 12.06: Force Majeure. . . . . . . . . . . . . . . . . 40
Section 12.07: Severability Clause. . . . . . . . . . . . . . 40
Section 12.08: Place of Performance; Laws Governing . . . . . 40
Section 12.09: Brokerage. . . . . . . . . . . . . . . . . . . 40
Section 12.10: Individuals Not Liable . . . . . . . . . . . . 41
Section 12.11: Binding Nature of Agreement; Benefits of
Agreement. . . . . . . . . . . . . . . . . . . 41
Section 12.12: Ambiguities. . . . . . . . . . . . . . . . . . 41
Section 12.13: Survival . . . . . . . . . . . . . . . . . . . 41
Section 12.14: No Merger of Title . . . . . . . . . . . . . . 41
Section 12.15: Entire Agreement . . . . . . . . . . . . . . . 41
Description of Project Exhibit "A"
Description of Easements Exhibit "B"
Description of Ground Lease Properties Exhibits "C" and "D"
Deed and Bill of Sale for Project Exhibit "E"
FIRST AMENDED AND RESTATED
SPECIAL FACILITIES
LEASE AGREEMENT
(Continental Airlines, Inc. Terminal Improvement Projects)
THE STATE OF TEXAS
COUNTY OF HARRIS
THIS SPECIAL FACILITIES LEASE AGREEMENT (hereinafter called
"Agreement") dated as of the 1st day of March, 1997 (Amended and
Restated as of December 1, 1998), is made and entered into between
the CITY OF HOUSTON, TEXAS, a municipal corporation and Home Rule
City, situated principally in Harris County, Texas (hereinafter
called "City"), and CONTINENTAL AIRLINES, INC., a corporation
organized and existing under the laws of the State of Delaware,
duly authorized to do business in the State of Texas (hereinafter
called "Lessee").
W I T N E S S E T H :
WHEREAS, City is the owner of land and certain improvements
known as the George Bush Intercontinental Airport/Houston, located
in the City of Houston, Harris County, Texas (hereinafter called
"Airport"), which is operated as a public airport, as a part of the
City's Airport System (as hereinafter defined), and City has the
power and authority to lease premises and facilities thereon and to
grant rights and privileges with respect thereto, including those
set forth herein; and
WHEREAS, Lessee is engaged in the business of commercial air
transportation as a scheduled air carrier and is certificated or
otherwise authorized by the United States Government and the
hereinafter described Use and Lease Agreement to engage in such
business at the Airport (hereinafter referred to as "authorized
business"); and
WHEREAS, City and Lessee have heretofore entered into the Use
and Lease Agreement and IAB License Agreement (both as hereinafter
defined) pursuant to which the City has leased to Lessee certain
space and facilities in Terminals B and C at the Airport and
granted certain occupancy rights to Lessee in the IAB at the
Airport; and
WHEREAS, Lessee has heretofore requested the City to undertake
the financing of the 1997B Project (as hereinafter defined), and
the City has done so through the issuance of its Series 1997B Bonds
(as hereinafter defined); and
WHEREAS, Lessee has heretofore requested the City to undertake
the financing of the 1998B Project (as hereinafter defined); and
WHEREAS, the City has found and determined that it is in the
public interest and a public purpose for the City to finance the
costs of the Projects (as hereinafter defined) through the issuance
of certain special facilities revenue bonds payable from certain
net rentals of the Projects; and
WHEREAS, all ordinances heretofore adopted by the City
authorizing the issuance of its Airport System Revenue Bonds
payable from any or all gross revenues, tolls, rents, lease moneys,
returns, and charges derived by the City from the operation of its
Airport System, which includes the Airport, provide for the
exclusion from the pledge of such revenues "any rentals (except
ground rentals) from net rent leases which may be executed in the
future wherein the lease consideration is pledged or otherwise
utilized to finance the construction of buildings or facilities for
lessee-tenants of the City, but only for such time and to such
extent in each case as the rentals reserved in the lease or any
extension or renewal thereof (other than ground rent) are required
to be deposited in a separate interest and redemption fund in order
to meet the City's obligation for interest payments and principal
repayment on the bonds or other instruments of indebtedness issued
or sold to finance the improvement which is the subject matter of
the lease"; and
WHEREAS, the City and Lessee desire to enter into this
Agreement (i) to constitute a "net rent lease", to provide for the
construction and acquisition of certain Special Facilities
initially consisting of the Projects, to provide for the issuance
of revenue bonds to finance certain costs of such Special
Facilities, and to provide for the payment by Lessee of certain Net
Rent at times and in amounts sufficient to meet the City's
obligation for interest payments and principal repayment on all
revenue bonds sold to finance the costs of such Special Facilities
and (ii) to set forth certain other agreements of the parties with
respect to the Special Facilities;
NOW, THEREFORE, for and in consideration of the premises and
of the mutual covenants and agreements herein contained and in
consideration of the rentals and other amounts to be paid as herein
provided, the City and Lessee do hereby covenant and agree as
follows:
ARTICLE I
DEFINITIONS AND INTERPRETATIONS
Section 1.01: Definitions. In this Agreement, the following
terms shall have the following meanings, respectively, unless the
context clearly indicates otherwise:
"Additional Bonds" shall mean all additional bonds which may
be issued by the City payable from the same source as the Series
1997B Bonds and the Series 1998B Bonds (including Net Rent payable
under this Agreement) for the purposes and in the general manner
specified in Section 4.02 hereof.
"Airport" shall mean George Bush Intercontinental
Airport/Houston, Houston, Texas, as it now exists or may be
modified or expanded from time to time in the future.
"Airport System" shall mean all airport, heliport and aviation
facilities, or any interest therein, now or from time to time
hereafter owned, operated or controlled in whole or in part by the
City, together with all properties, facilities and services
thereof, and all additions, extensions, replacements and
improvements thereto, and all services provided or to be provided
by the City in connection therewith, but expressly excluding
Special Facilities. The Airport System currently includes the
present airports of the City, known as "George Bush Interconti-
nental Airport/Houston," "William P. Hobby Airport" and "Ellington
Field" and the "CBD Heliport."
"Baggage Transfer Facility" shall mean that facility more
fully described in Exhibit "A" to this Agreement.
"Bonds" shall mean collectively the Series 1997B Bonds, the
Series 1998B Bonds and any Additional Bonds and Refunding Bonds
from time to time hereafter issued.
"Bus Stations" shall mean the bus stations to be located at
Terminals B and C as more fully described in Exhibit "A" to this
Agreement.
"Business Day" shall mean any day other than a Saturday,
Sunday, or legal holiday or the equivalent (other than a
moratorium) on which banking institutions generally in Houston,
Texas or New York, New York are authorized or required by law or
executive order to close.
"City" shall mean the City of Houston, Texas, or such other
agency, board, authority, or private entity which may succeed to
the jurisdiction of the City over the Airport.
"Costs of the Project" or "Costs of the Special Facilities"
shall mean all costs of financing the construction and acquisition
of the Projects or Special Facilities, as the case may be, and the
issuance of Bonds for such purpose, including without limitation
the following:
(i) all amounts paid by the Lessee, or authorized
by the Lessee and paid by or on behalf of Lessee, to
design, construct, acquire, fabricate, equip and install
the Projects or Special Facilities, including without
limitation, all costs of utility extensions and
connections and all amounts paid under all contracts for
goods, services and facilities related thereto;
(ii) all amounts necessary to provide for work
performed, material purchased or expenditures incurred,
pertaining to or in connection with the Projects or any
other Special Facilities approved by City and Lessee
including, without limitation, the charges of any
architects or engineers for plans, specifications,
drawings, supervision and inspection for the Projects or
Special Facilities;
(iii) all expenses incurred by the Lessee and
the City for the review of plans, specifications and
contracts for the Projects or the Special Facilities and
for the inspection in connection with the construction
and acquisition thereof;
(iv) the cost of any and all permits, licenses,
fees, performance and payment bonds, appraisals and
insurance policies procured in connection with the
acquisition and construction of the Projects or Special
Facilities;
(v) legal, accounting and bond advisory,
underwriting and consultant fees and expenses, including
any fees and expenses of any bond insurer and the
provider of any reserve fund surety, and all costs and
expenses incident to the authorization, issuance,
delivery and sale of the Bonds, including without
limitation the preparation, execution, delivery and
recording of this Agreement, the Trust Indenture, any
preliminary and the final offering documents pertaining
to the Bonds, and any printing fees for such documents,
any purchase agreements pursuant to which the Bonds will
be sold, all credit agreements and other documents
providing security for the Bonds or the Lessee's
obligations and all other agreements and documents
involved and contemplated hereby, the costs and fees,
including legal fees, incident to the qualification of
the Bonds for offer and sale under securities laws and
the preparation of any memorandum as to the eligibility
of the Bonds for offer and sale and for investment under
state laws if required or if applicable;
(vi) interest accruing on the Bonds during the
period of construction of the Projects or Special
Facilities financed with the proceeds thereof, the term
of which period shall be determined in the Trust
Indenture;
(vii) such other and additional fees, costs,
expenses and expenditures of whatever nature incidental
or pertaining to the design, acquisition, construction,
fabrication, equipping and installation of the Projects
or the Special Facilities, including funding of the
Reserve Account, and all other costs and expenses that
may properly be capitalized as costs of the Projects or
the Special Facilities; and
(viii) any costs of a prior Project for which
insufficient funds are available from the proceeds of the
Series of Bonds issued for such prior Project.
"Director" shall mean the Director of the Department of
Aviation of the City or his designee.
"Easements" shall mean all of the easement or easements
described in Exhibit "B" attached hereto.
"Event of Default" shall mean those events so defined in
Section 10.01 hereof.
"Ground Lease Properties" shall mean those portions of the
Leased Premises under the Use and Lease Agreement in Terminal B as
are reasonably necessary to make the Special Facilities leasable
and in Terminal C as are located underneath the Special Facilities
located therein and those portions of the Leased Premises under the
IAB License Agreement as are reasonably necessary to make the
Special Facilities in the IAB leasable.
"Ground Rentals" shall mean the rentals to be paid by Lessee
directly to the City pursuant to Section 6.05 as consideration for
those portions of the Leased Premises under the Use and Lease
Agreement and IAB License Agreement that constitute Ground Lease
Properties and Easements.
"Ground Support Equipment" shall mean that equipment
appurtenant to the space and gates in Terminal B as more fully
described in Exhibit "A" to this Agreement.
"Guaranty" shall mean the guaranty agreement dated as of
March 1, 1997, from the Lessee to the Trustee with respect to the
Series 1997B Bonds and the guaranty agreement dated as of December
1, 1998, from the Lessee to the Trustee with respect to the 1998B
Bonds.
"IAB" shall mean the Mickey Leland International Airlines
Building at the Airport.
"IAB License Agreement" shall mean collectively or
individually those certain license and lease agreements from time
to time in effect with respect to the Lessee's occupancy of the IAB
at the Airport.
"Interest and Redemption Fund" shall mean the fund so defined
in the Trust Indenture for the collection of Net Rent and payment
of the Bonds.
"Leased Premises" under the Use and Lease Agreement and/or
under the IAB License Agreement shall mean that certain space and
improvements in and around at the Airport which were or will be
leased by the City to Lessee pursuant to the Use and Lease
Agreement and/or licensed by the City to Lessee pursuant to the IAB
License Agreement.
"Lessee" shall mean Continental Airlines, Inc., a Delaware
corporation, and its successors and assigns as lessee hereunder.
"Lessee's IAB Improvements" shall mean those tenant
improvements, fixtures, equipment and related facilities in the
International Airlines Building as more fully described in
Exhibit "A-1" to this Agreement.
"Lessee's Terminal B Improvements" shall mean those tenant
improvements, fixtures, equipment and related facilities in
Terminal B as more fully described in Exhibits "A" and "A-1" to
this Agreement.
"Lessee's Terminal C Improvements" shall mean those tenant
improvements, fixtures, equipment and related facilities in
Terminal C as more fully described in Exhibits "A" and "A-1" to
this Agreement.
"Net Rent" shall mean the net rentals payable by Lessee to the
Trustee on behalf of the City pursuant to Section 6.01(a)(i) and
(ii) hereof for the purpose of being applied to the payment of the
Bonds and making required deposits to the Interest and Redemption
Fund.
"1997B Project" shall mean the Lessee's Terminal B
Improvements, Lessee's Terminal C Improvements, the Prior Tenant
Improvements, the Bus Stations and the Ground Support Equipment,
and, at Lessee's option, to be exercised no later than December 31,
1999, may include the Baggage Transfer Facility, all as more fully
described in Exhibit "A" attached hereto and by this reference made
a part hereof, together with any modifications, additions or
reductions thereto approved by the Director and the Lessee. The
1997B Project shall constitute the initial Special Facilities.
"1998B Project" shall mean the Lessee's Terminal B
Improvements, Lessee's Terminal C Improvements, and Lessee's IAB
Improvements, all as more fully described in Exhibit "A-1" attached
hereto and by this reference made a part hereof, together with any
modifications, additions or reductions thereto approved by the
Director and the Lessee.
"Outstanding" shall have the meaning assigned in the Trust
Indenture.
"Prior Tenant Improvements" shall mean the remaining leasehold
estate and tenant improvements of the tenant or tenants located in
Terminal B occupying such space prior to Lessee's occupancy of
Terminal B, as more fully described in Exhibit "A" to this
Agreement.
"Project" or "Projects" means, either individually or
collectively, the 1997B Project and the 1998B Project.
"Qualified Terminal C Occupancy Agreement" shall mean, for the
period beginning January 1, 2018 (i) an extension or renewal of the
Use and Lease Agreement with respect to all or a material portion
of Terminal C airline space, (ii) an interim extension or renewal
agreement for all or a material portion of Terminal C airline space
pending negotiation of a definitive extension or renewal of the Use
and Lease Agreement, or (iii) a written document evidencing
Lessee's commitment to occupy all or a material portion of
Terminal C airline space for a specified period of time pursuant to
the terms of a City ordinance; provided, however, if any of the
foregoing relate to a material portion but not all of Terminal C
airline space, then it shall be accompanied by a written
certification of the Director of the Department of Aviation of the
City as containing provisions reasonably satisfactory to the
Director of the Department of Aviation of the City that will
reasonably allow (i) Lessee to make use of the Special Facilities,
and (ii) other airline tenants, if any, in Terminal C to use those
Special Facilities as may, in the reasonable opinion of the
Director, be required to support the tenancy of such other airline
tenants.
"Refunding Bonds" shall mean all refunding bonds which may be
issued by the City for the purposes set forth in Sections 4.04
hereof, and which shall be payable from the same sources as the
Series 1997B Bonds and Series 1998B Bonds (including Net Rent
payable under this Agreement).
"Series 1997B Bonds" shall mean the first series of Bonds to
be issued pursuant to this Agreement, which shall be entitled the
"City of Houston, Texas, Airport System Special Facilities Revenue
Bonds (Continental Airlines, Inc. Terminal Improvement Projects),
Series 1997B."
"Series 1998B Bonds" shall mean the second series of Bonds to
be issued pursuant to this Agreement, which shall be entitled the
"City of Houston, Texas, Airport System Special Facilities Revenue
Bonds (Continental Airlines, Inc. Terminal Improvement Projects),
Series 1998B."
"Special Facilities" shall mean the Projects, all extensions,
additions, modifications and improvements thereto and all other
improvements, fixtures, equipment and facilities that, pursuant to
this Agreement or any supplement hereto or amendment hereof, are
financed with any proceeds of the Series 1997B Bonds, the Series
1998B Bonds or any Additional Bonds.
"Trust Indenture" shall mean the Trust Indenture, dated as of
March 1, 1997, as supplemented by the First Supplemental Trust
Indenture dated as of December 1, 1998, together with all
supplements and amendments thereto, entered into by and between the
City and the Trustee to provide for the issuance of and security
for the Series 1997B Bonds and the Series 1998B Bonds.
"Trustee" shall mean the bank designated as Trustee under the
Trust Indenture, or any successor trustee thereunder.
"Use and Lease Agreement" shall mean that certain Use and
Lease Agreement with respect to Terminals B and C at the Airport
effective as of January 1, 1998, entered into between the City and
Lessee.
Section 1.02: Interpretations. All terms defined herein and
all pronouns used in this Agreement shall be deemed to apply
equally to singular and plural and to all genders. The table of
contents, titles and headings of the articles and sections of this
Agreement have been inserted for convenience of reference only and
are not to be considered a part hereof and shall not in any way
modify or restrict any of the terms or provisions hereof. This
Agreement and all the terms and provisions hereof shall be
liberally construed to effectuate the purposes set forth herein
and, to provide for the full and timely payment of all Bonds from
time to time hereafter issued by the City, which Bonds shall be
secured by a pledge of the Net Rent payable under this Agreement.
In the event of any ambiguity contained herein, it shall not be
construed for or against any party hereto on the basis that such
party did or did not author same.
ARTICLE II
REPRESENTATIONS
Section 2.01: Representations by the City. The City makes
the following representations as the basis for its undertakings in
this Agreement:
(a) The City, as the owner of the Airport, is authorized to
enter into this Agreement;
(b) The City has the power and authority to grant the
Easements and the Ground Lease Properties to the Lessee for the
purposes of constructing, installing, equipping, maintaining and
operating the Projects;
(c) The City has the power and authority to acquire the
Projects constructed, installed and equipped by Lessee on the
Ground Lease Properties and the Easements, to acquire the other
Special Facilities, and to lease same to Lessee pursuant to the
terms and conditions contained herein;
(d) The City has the power and authority to issue the Bonds
for the purpose of paying the Costs of the Special Facilities and
to pledge to the payment of the Bonds the Net Rent payable under
this Agreement and by proper municipal action it has been
authorized to execute and deliver this Agreement; and
(e) All representations relating to the City contained in the
recitals to this Agreement are true and correct in all material
respects.
Section 2.02: Representations by Lessee. The Lessee makes
the following representations as the basis for its undertakings in
this Agreement:
(a) Lessee is a corporation validly existing under the laws
of the State of Delaware; it is in good standing under its
certificate of incorporation and the laws of the State of Delaware;
it is duly authorized to do business in the State of Texas; it has
the power to enter into this Agreement without violating the terms
of any other agreement to which it is a party; and by proper cor-
porate action it has been duly authorized to execute and deliver
this Agreement;
(b) Lessee will occupy and possess the Easements and Ground
Lease Properties for the purposes and upon the terms and conditions
set forth herein; it will, subject to the City's issuance and sale
of the Series 1997B Bonds and the Series 1998B Bonds, construct,
install and equip the Projects substantially in the manner herein
provided; it will convey the Projects to, or cause title to the
Projects to vest in, the City in the manner herein provided; and it
will occupy, possess, operate and maintain the Projects and any
other Special Facilities for the purposes and in the manner
provided herein, all subject to the terms and conditions of this
Agreement; and
(c) All representations relating to Lessee contained in the
recitals to this Agreement are true and correct in all material
respects.
ARTICLE III
LEASE AND TERM; GRANT OF EASEMENTS AND GROUND LEASES
Section 3.01: Lease of Special Facilities. Subject to the
terms and conditions of this Agreement, the City hereby leases,
lets and demises unto Lessee, and Lessee hereby leases and rents
from the City, the Special Facilities, which shall consist
initially of the Projects.
Section 3.02: Term of Lease of Special Facilities. The term
of this Agreement and the leasehold estate hereby created in the
Special Facilities shall commence on April 17, 1997, for the 1997B
Project, and January 20, 1999, for the 1998B Project (being the
respective dates of delivery by both the City and Lessee of the
original form of this Agreement and the first amended and restated
form of this Agreement) and shall continue, unless sooner
terminated in accordance with this Agreement, until the 31st day of
December, 2017; provided, however, that with respect to Lessee's
Terminal C Improvements, such term shall continue, so long as the
Use and Lease Agreement with Lessee for Terminal C remains in
effect through extension or renewal (including interim extensions
or renewals) or so long as Lessee continues to occupy Terminal C
pursuant to a Qualified Terminal C Occupancy Agreement, until the
31st day of December, 2027 and provided, further, that with respect
to Lessee's IAB Improvements, such term shall continue, so long as
the IAB License Agreement remains in effect through extension or
renewal until the 15th day of July, 2029; provided, further,
however, that at such time, if ever, as Lessee shall have no right
to occupy Terminal B or C or IAB, then Lessee's rights of occupancy
under this Agreement shall end with respect to that portion of the
Special Facilities as follows: (i) if its right to occupy Terminal
C ceases, then all rights to occupy Special Facilities shall also
terminate; if Lessee's rights to occupy the IAB shall terminate,
then only Lessee's rights to occupy the Special Facilities in the
IAB shall terminate; and if Lessee's rights to occupy Terminal B
shall cease, then only Lessee's rights to occupy the Special
Facilities in Terminal B shall also terminate, except to the extent
necessary to support Lessee's obligation to sublease such Special
Facilities in Terminal B to the City pursuant to Section 7.03.
Section 3.03: Easements and Ground Leases. (a) Subject to
the terms and conditions of this Agreement, the City hereby grants
and conveys to Lessee the Easements for a term corresponding to the
term of Lessee's leasehold estate in the Special Facilities located
in or appurtenant to such Easement including any extensions or
renewals thereof. The Easements shall be used solely for the
purpose of constructing, equipping, acquiring, operating and
maintaining the Special Facilities.
(b) Subject to the terms and conditions contained in the Use
and Lease Agreement and the IAB License Agreement, the City has
leased to Lessee the Leased Premises under the Use and Lease
Agreement and the IAB License Agreement. Those portions of the
Leased Premises under the Use and Lease Agreement and the IAB
License Agreement designated in Exhibits "C" and "D" (or other
portions approved by the Director) may be used for the purpose of
constructing, equipping, acquiring, operating and maintaining the
Special Facilities.
(c) Subject to the terms hereof, Lessee shall have the right
of reasonable ingress to and egress from the Special Facilities
over the portions of the Airport necessary for the construction,
operation and maintenance of the Special Facilities in accordance
with the terms hereof, including the operation of buses between the
bus stations constituting part of the Special Facilities, but
subject to reasonable regulations promulgated by the Director.
(d) In the event the City and Lessee determine it is
necessary or desirable to amend, correct, further define or
delineate, delete from or add to any descriptions of the Ground
Lease Properties, the Easements or the portions of the Leased
Premises under the Use and Lease Agreement and the IAB License
Agreement shown on Exhibits "C" and "D," they may do so by a
supplement or addendum hereto duly executed by the respective
parties.
Section 3.04: Condition of Special Facilities. The Lessee
has full and exclusive responsibility for ascertaining the
suitability of the Special Facilities, Easements, and Ground Lease
Properties for their intended use. The City makes no
representations or warranties, either express or implied, as to the
condition of the Special Facilities, Easements, and Ground Lease
Properties for the use intended by the Lessee. The Lessee takes
the Special Facilities, Easements, and Ground Lease Properties in
their "as-is" condition. The City acknowledges that Lessee does
not assume any responsibility, except to the extent caused by
Lessee, for any Hazardous Materials (as defined in Section 8.05C
below) that existed on the Easements or Ground Lease Properties as
of the respective dates of commencement of the term.
Section 3.05: City Right of Entry The City may enter upon
the Easements, Ground Lease Properties and Special Facilities
(i) at any reasonable time for any purpose necessary, incidental to
or connected with the performance of Lessee's obligations
hereunder, or in the exercise of the City's governmental functions,
and (ii) upon the termination or cancellation of this Agreement in
accordance with the provisions of Article X hereof, and such entry
or reentry shall not constitute a trespass nor give Lessee a cause
of action for damages against the City; provided, however, the City
shall use all reasonable efforts to minimize any interference or
interruption with Lessee's business operations.
ARTICLE IV
ISSUANCE OF BONDS; PAYMENT OF COSTS OF THE PROJECTS
Section 4.01: Issuance of Series 1997B Bonds and Series 1998B
Bonds. Subject to the terms and conditions of this Agreement, the
City has heretofore issued the Series 1997B Bonds to pay costs of
the 1997B Project, and the City shall diligently use its best
efforts to issue, sell and deliver the Series 1998B Bonds in
amounts sufficient to pay the Costs of the 1998B Project and
unfunded 1997B Project Costs, which amounts shall be established in
the Trust Indenture. The City shall have no obligations to issue,
sell, or deliver the Series 1998B Bonds if (i) there exists an
Event of Default under this Agreement by Lessee, or (ii) Lessee has
not given written approval of the Trust Indenture. The City shall
not authorize the sale of the Series 1998B Bonds or enter into any
related supplement to the Trust Indenture until the terms of such
Bonds and the form of such Trust Indenture have been approved in
writing by Lessee in the manner provided in Section 12.04 hereof,
which written approval shall be conclusively binding upon Lessee.
Section 4.02: Issuance of Additional Bonds. The City, at the
direction of Lessee, may issue Additional Bonds in amounts
sufficient to pay (i) any part of the Costs of the Projects not
fully funded or provided for out of the proceeds of the Series
1997B Bonds or Series 1998B Bonds, or (ii) the Costs of the Special
Facilities for any additional Special Facilities approved pursuant
to Section 5.05 hereof. The City agrees to use its best efforts to
issue any Additional Bonds required under Clause (i) above, and the
Director shall cooperate in a reasonable manner with Lessee to
request the City to issue Additional Bonds under Clause (ii) above;
however, no representation is made or assurance given or implied by
the City that it will be able to issue, sell and deliver Additional
Bonds on terms and conditions satisfactory to Lessee or that it
will agree to issue Additional Bonds for any other purpose than as
set forth above. Moreover, the issuance of Additional Bonds is
made subject to the same conditions enumerated in Section 4.01 and
the additional condition that there shall have been executed a
supplement to this Agreement to provide for the manner of
construction, acquisition and payment for any additional Special
Facilities to be financed with such Additional Bonds and to provide
for any other matters reasonably deemed necessary by the City in
connection with such financing. All Additional Bonds shall be
secured and payable as provided in the Trust Indenture. Upon the
issuance of any Additional Bonds, the Net Rent payable hereunder
shall automatically be increased in the amounts required to provide
for the full and timely payment of all principal, interest,
redemption premiums, Trustee charges and other related costs and
expenses on all Bonds then outstanding, including the Additional
Bonds to be issued. However, the City shall not authorize the
issuance of Additional Bonds until the terms thereof and of the
supplement to the Trust Indenture relating thereto have been
approved in writing by Lessee, which written approval shall be
conclusively binding upon Lessee.
Section 4.03: Application of Proceeds; Insufficiencies.
Subject to the other terms and provisions hereof, the City hereby
agrees to apply the proceeds of the Series 1997B Bonds and Series
1998B Bonds (by depositing the proceeds into the "Acquisition Fund"
and other Funds as established, defined and provided in the Trust
Indenture) and any Additional Bonds to pay (but only to the extent
of such proceeds) the Costs of the Special Facilities financed
therewith. In the event that the proceeds of the Series 1997B
Bonds, Series 1998B Bonds or any Additional Bonds shall be
insufficient to pay all Costs of the Special Facilities for which
such Bonds were issued, then Lessee shall deposit into the
Acquisition Fund amounts which, together with other amounts
therein, shall be sufficient to pay all Costs of the Projects or
Special Facilities as the case may be. Proceeds of such Bonds and
deposits, if any, shall be applied first to make any deposits
required by the Trust Indenture authorizing the issuance of such
Bonds, second to pay all Costs of the Special Facilities incurred
on behalf of the City by the Lessee (and which are reasonably
approved by Lessee), including the cost of issuance of such Bonds,
and last to pay any Costs of the Special Facilities incurred by or
on behalf of Lessee. Any proceeds of the Bonds remaining after
paying all Costs of the Special Facilities shall be deposited into
the Interest and Redemption Fund as provided under the Trust
Indenture.
Section 4.04: Refunding Bonds. Lessee reserves the right to
request the City from time to time to issue Refunding Bonds in any
manner permitted by law for the purpose of refunding any of the
Bonds from time to time outstanding. Although no representation is
made or assurance given or implied by the City that it will agree
to issue such Refunding Bonds or that it will be able to issue,
sell and deliver such Refunding Bonds on terms and conditions
satisfactory to the Lessee, the City agrees to use its best efforts
to issue Refunding Bonds at Lessee's request provided they have a
similar maturity pattern, similar redemption features and similar
security. All Refunding Bonds, if any, shall be secured and
payable as provided in the Trust Indenture, and the Net Rent
payable hereunder shall automatically be adjusted to provide for
the full and timely payment of all principal, interest, redemption
premiums, Trustee charges and other related costs and expenses on
all Bonds to be outstanding following the issuance of the Refunding
Bonds. Notwithstanding the foregoing, the City shall not authorize
the sale of any Refunding Bonds or authorize any supplement to the
Trust Indenture for such purpose until the terms of such Refunding
Bonds and the supplement to the Trust Indenture are approved in
writing by Lessee in the manner provided in Section 12.04 hereof,
and it is provided further that the City's receipt of such approval
shall be conclusively binding upon Lessee.
Section 4.05: Optional Redemption of Bonds. The City agrees
that at the written request of Lessee, the City will exercise any
reserved right of optional redemption for any of the Bonds,
provided that Lessee makes such request in sufficient time as
specifically set forth in the Trust Indenture to permit the City to
give any notice required by the Trust Indenture and provided
further that Lessee gives the City adequate assurances that it will
pay all additional Net Rent required to provide for the payment of
the applicable redemption price for such Bonds, together with any
related costs and expenses in connection with such redemption.
ARTICLE V
DESIGN, CONSTRUCTION AND ACQUISITION OF THE SPECIAL FACILITIES
Section 5.01: General. Lessee shall cause the Special
Facilities to be designed, procured, constructed and installed in
accordance with the following provisions.
(a) All plans and specifications for the design, procurement,
construction and installation of any discrete element of the
Special Facilities, including any alteration or addition thereto,
shall be submitted to and receive the written approval of the
Director prior to the commencement of any such discrete element of
procurement, construction, alteration or installation. The City
acknowledges that time is of the essence in reviewing such plans
and specifications and shall use diligence to review and respond to
all submissions of plans and specifications in a prompt and timely
manner; provided that the City will continue its review to the
extent practical, as determined by the City, while awaiting
additional information from the Lessee. The City's review and
response shall be conducted to avoid material, adverse impacts to
the most recently published construction schedule approved by the
City and the Lessee. The Lessee acknowledges that the City cannot
review and respond in such a timely manner unless the Lessee
assures that complete and thorough submissions are made to the City
for review. Further, the Lessee acknowledges timely review and
response by the City requires reasonable response by the Lessee to
requests of the City for additional information necessary to
complete the City's review.
(b) All such procurement, construction, alteration or
installation may be made only after obtaining any required building
or construction licenses and permits, which the City agrees to use
reasonable efforts to expedite or to assist in obtaining, and, in
addition to usual City inspection, shall be subject to inspection
by the Director to see that the approved plans and specifications
are being followed; provided, however, that the City shall use
reasonable efforts to eliminate or avoid any interference or
interruption with the construction of the Project.
(c) All such procurement, construction, alteration and
installation shall be designed and carried out in accordance with
the Department of Aviation's Tenant Improvement Manual, except to
the extent inconsistent herewith, which is incorporated herein by
reference and a copy of which has been provided to Lessee or as
otherwise agreed by the Director and Lessee. All such pr 