1
The facing sheet is amended and restated in its entirety as follows:
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A2
(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, 1995
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 incorporation or organization) (IRS Employer Identification No.)
2929 Allen Parkway, Suite 2010, Houston, Texas 77019
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 713-834-2950
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, Inc.
par value $.01 per share
Class B Common Stock, New York Stock Exchange, Inc.
par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether 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 stock held by non-affiliates of the
registrant was $784 million as of February 16, 1996.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No
_______________
As of February 16, 1996, 6,301,056 shares of Class A common stock and
21,484,074 shares of Class B common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
2
Part III of the Report is amended and restated in its entirety as follows:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
Directors are elected at the annual meeting of stockholders and hold
office until the next annual meeting and until their respective successors have
been duly elected and have qualified.
Pursuant to a stockholders' agreement, Air Canada and Air Partners
have agreed to vote their shares for the election of six directors designated
by Air Canada, six directors designated by Air Partners and six directors who
are "Independent Directors" (as defined in the stockholders' agreement)
satisfactory to Air Partners. The Creditors Committee (as defined in the
stockholders' agreement) has the right to designate three of the six
Independent Directors, and one of the three other Independent Directors must be
the Chief Executive Officer. Air Canada has elected to designate only four
directors pursuant to the stockholders' agreement.
Air Canada has the right, subject to foreign ownership restrictions
("Foreign Ownership Restrictions"), which currently limit to 25% the voting
interest of non-U.S. citizens in U.S. airlines, to convert shares of Class B
common stock into shares of Class A common stock. Also, Air Canada has the
right, in certain limited circumstances, to convert its Class A common stock
into Class C common stock, and Air Partners has the right, in certain limited
circumstances, to convert its Class A common stock into Class D common stock.
No person may hold or own Class C common stock or Class D common stock,
respectively, other than Air Canada and certain of its affiliates or Air
Partners and certain of its affiliates. The Class C common stock and Class D
common stock, if issued, would preserve the rights of Air Canada and Air
Partners, respectively, to elect six directors to the Company's Board in
certain circumstances, including a sale by the other party of its stock.
The following table shows, with respect to each of the current
non-employee directors of Continental, (i) such person's name and age, (ii) the
period for which such person has served as a director of the Company, (iii) all
positions and offices with the Company currently held by such person and his or
her principal occupation during the last five years (including other
directorships and business experience) and (iv) the standing committees of the
Board of Directors of which such person is a member. There is no family
relationship between any of the directors or between any director and any
executive officer.
NAME, AGE
AND COMMITTEE MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
------------------------- --------------------------------------
THOMAS J. BARRACK, JR., age 48 Director since August 1994. Chief Executive Officer of Colony
(Human Resources Committee)(1) Capital, Inc. and Colony Advisors, Inc. (real estate
investments) since 1991; Officer of Keystone, Inc. (a private
investment firm) (1987-1991); Director of: The Santa Ana Companies;
Virgin/MGM Cinemas (U.K.); Sonnenblick Goldman Company; Hilton
Waikoloa Village Corporation.
DAVID BONDERMAN, age 53 Director since April 1993 and Chairman of the Board since May
(Executive Committee, Finance and 1993. Managing Director of Air Partners, L.P. since November
Strategy Committee)(1) 1992; Principal of Texas Pacific Group (a private
investment firm) since September 1992; Chief Operating Officer
of Keystone, Inc. (a private investment firm) (1983-August 1992);
Director of: Bell & Howell Holdings Company; National Re
Corporation; National Education Corporation; Carr Realty Company;
American Savings Bank, F.A.
[Table continued on following page]
1
3
NAME, AGE
AND COMMITTEE MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
------------------------- --------------------------------------
JOEL H. COWAN, age 59 Director since April 1993. President of Cowan & Associates (real
(Audit Committee)(1) estate holding company) since 1976; Chairman, The Habersham
Group (international trade & investment) since 1984; Director,
Interstate General Company, L.P.
PATRICK FOLEY, age 64 Director since April 1993. Chairman of the Board, President and
(Finance and Strategy Committee, Chief Executive Officer of DHL Airways, Inc. since 1988;
Human Resources Committee)(1) Director of: Foundation Health Corporation; Glenborough Realty
Trust, Inc.
ROWLAND C. FRAZEE, C.C., age 74 Director since April 1993. Various positions with The Royal Bank
(Audit Committee)(2)(4) of Canada since 1939, retiring as Chairman and Chief Executive
Officer; Director and Chairman of Ganong Bros. Limited; Director
of: International Minerals and Chemical Corporation of Canada,
Limited; Newfoundland Capital Corporation Limited.
HOLLIS L. HARRIS, age 64 Director since April 1993. Chairman of the Board, President and
(Executive Committee, Finance and Chief Executive Officer of Air Canada since January 1993; Vice
Strategy Committee)(2) Chairman, President and Chief Executive Officer (February 1992-
January 1993) of Air Canada; Chairman of the Board, President
and Chief Executive Officer of Continental and President and
Chief Executive Officer of Holdings (September 1990-August
1991); prior to that, 36 years with Delta with final position
being Director, President and Chief Operating Officer; Director,
American Business Products Inc.
DEAN C. KEHLER, age 39 Director since June 1995. Managing Director of CIBC Wood Gundy
(Audit Committee)(3) Securities Corp. since August 1995; Managing Director and a
founding partner of The Argosy Group L.P. (investment banking)
(1990-August 1995); Trustee of the Care Foundation.
ROBERT L. LUMPKINS, age 52 Director since April 1993. Vice Chairman of the Board (since
(Audit Committee)(3) 1985), Director (since 1991) and Chief Financial Officer (since
1989) of Cargill, Inc.
DOUGLAS McCORKINDALE, age 56 Director since April 1993. Vice Chairman and Chief Financial and
(Audit Committee) Administrative Officer of Gannett Co., Inc. (a nationwide
diversified communications company) since 1984; Director of
seven funds which are part of the Prudential Group of Mutual
Funds; Director, Frontier Corporation.
DAVID E. MITCHELL, O.C., age 69 Director since April 1993. President and Chief Executive Officer
(Human Resources Committee)(2)(4) (1975-1993) and Chairman (1994 to present) of Alberta Energy
Company, Ltd.; Chairman of the Board: Chieftain International,
Inc.; Chieftain International Funding Corp.; Director of: Air
Canada; The Bank of Nova Scotia; Hudson's Bay Company; Lafarge
Corporation; Founder and President, the Ernest C. Manning Awards
Foundation.
RICHARD W. POGUE, age 67 Director since April 1993. Senior Advisor of Dix & Eaton (a
(Audit Committee, Human Resources public relations firm) since July 1994; Senior Partner (January
Committee)(3) 1993 - June 1994) and Managing Partner (1984-1992) of
Jones, Day, Reavis & Pogue (law firm); Director of: Derlan
Industries, Ltd.; M.A. Hanna Co.; KeyCorp; OHM Corporation;
Redland PLC; Rotek Incorporated; TRW Inc.
[Table continued on following page]
2
4
NAME, AGE
AND COMMITTEE MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
------------------------- --------------------------------------
WILLIAM S. PRICE III, age 39 Director since April 1993. Managing Director of Air Partners,
(Finance and Strategy Committee, L.P. since November 1992; Principal of Texas Pacific
Human Resources Committee)(1) Group (a private investment firm) since November 1992; Vice
President-Strategic Planning and Business Development of GE
Capital Corporation (1991-1992); Vice President of Bain &
Company, Inc. (consulting firm) (1985-1991); Chairman of the
Board of Directors of Favorite Brands, Inc.; Beringer Wine
Estates; Director of: Preferred Provider Organization of
Michigan; VIVRA Heart Services; Banco Allianza; Denbury
Resources, Inc.
DONALD L. STURM, age 64 Director since April 1993. Chairman of the Board and Chief
(Finance and Strategy Committee, Executive Officer of: Community First Bankshares, Inc. (which
Human Resources Committee)(1) owns four banks in Colorado) since 1993; Community First
Bancorp, Inc. (which owns four banks in Wyoming) since 1993;
Sturm Investment, Inc. (which owns one bank in Illinois) since
1984; Premier Bank since 1994; Continental Can Company, Inc.,
and various subsidiaries and affiliated corporations (1984-
1991); Various positions culminating in Vice Chairman of Peter
Kiewit Sons, Inc. (1963-1991); Limited Partner of Air Partners,
L.P.
CLAUDE I. TAYLOR, O.C., age 70 Director since April 1993. Chairman Emeritus of Air Canada since
(Audit Committee, Finance and January 1993; Chairman of the Board of Air Canada (February
Strategy Committee)(2)(4) 1992-December 1993); Chairman of the Board, President and Chief
Executive Officer of Air Canada (1990-1992); Chairman of the
Board (1984-1990), President and Chief Executive Officer (1976-
1984) of Air Canada; Chairman of the Board of Medina Inc.; Vice
Chairman of the Board of Governors of Concordia University; Vice
Chairman of the Board of Directors of Friday's Child
International; Director of: Air Canada; CGI Group Inc.; Blenheim
Aviation Limited; Montreal Neurological Hospital; National
Quality Institute of Canada; Canadian Aviation Hall of Fame.
KAREN HASTIE WILLIAMS, age 51 Director since April 1993. Partner of Crowell & Moring (law
(Human Resources Committee) firm), Washington, D.C. since December 1982; Director of:
Federal National Mortgage Association; Crestar Financial
Corporation; Washington Gas Light Company; SunAmerica, Inc.
CHARLES A. YAMARONE, age 37 Director since January 1995. Executive Vice President and
(Finance and Strategy Committee) Research Director of Libra Investments, Inc. since July 1994;
Senior Vice President and General Counsel of Libra Investments,
Inc. (October 1991-June 1994); Senior Vice President-Legal and
Secretary of Columbia Savings (January 1990-October 1991);
Director, El Paso Electric Company.
(1) Air Partners Board Designee
(2) Air Canada Board Designee
(3) Creditors' Committee Board Designee
(4) Citizen of Canada
3
5
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's current executive officers:
NAME, AGE AND POSITION TERM OF OFFICE AND BUSINESS EXPERIENCE
---------------------- --------------------------------------
GORDON M. BETHUNE, age 54 Director since August 1994. President and Chief Executive
President, Chief Executive Officer Officer since November 1994. President and Chief Operating
and Director (Executive Committee, Officer (February 1994-November 1994); various positions with
Finance and Strategy Committee) The Boeing Company commencing in 1988, including Vice President
and General Manager of the Commercial Airplane Group Renton
Division, Vice President and General Manager of the Customer
Services Division, and Vice President of Airline Logistics
Support.
GREGORY D. BRENNEMAN, age 34 Chief Operating Officer since May 1995. Director since June
Chief Operating Officer and Director 1995. Consultant to the Company (February-April 1995); Various
(Finance and Strategy Committee) positions, including Vice President, with Bain & Company, Inc.
(consulting firm) for more than five years.
B. BEN BALDANZA, age 34 Vice President-Revenue Management and Scheduling since November
Vice President - Revenue Management 1995. Vice President-Pricing and Profit Management since
and Scheduling September 1994; Revenue Manager at United Parcel Service of
America, Inc. (July 1993 to September 1994); various positions
with Northwest Airlines Corporation, including Managing Director
Yield Management (January 1991 to July 1993); various positions
with American Airlines, Inc., including Manager-Domestic Yield
Management (July 1986 to January 1991).
MARK A. ERWIN, age 40 Senior Vice President-Airport Services since April 1995.
Senior Vice President - Airport Various positions with the Company commencing in 1987,
Services including, most recently, Vice President-Newark Hub.
LAWRENCE W. KELLNER, age 37 Senior Vice President and Chief Financial Officer since June
Senior Vice President and 1995. Executive Vice President and Chief Financial Officer of
Chief Financial Officer American Savings Bank, F.A. (November 1992-May 1995); Executive
Vice President and Director of Loan Management of American Real
Estate Group, an affiliate of American Savings Bank, F.A.
(February 1992-October 1992); Executive Vice President and Chief
Financial Officer of The Koll Co. (a Newport Beach-based real
estate developer and manager) (1987-1992).
C.D. McLEAN, age 54 Senior Vice President-Operations since April 1994. Executive
Senior Vice President - Operations Vice President-Operations (January 1992- March 1994) of
LeisureAir, Inc.; self-employed (March 1990-December 1991);
Senior Vice President-Flight Operations (May 1989-February
1990) of Braniff Airlines, Inc.
BARRY P. SIMON, age 53 Senior Vice President-Europe since June 1995. Senior Vice
Senior Vice President - Europe President-Strategic Business Units (April 1995-June 1995);
Senior Vice President-Widebody Division (August 1994-April
1995); Senior Vice President and General Counsel (June 1990-
August 1994), except Senior Vice President, General Counsel and
Director, GAF Corporation (January-March 1993).
[Table continued on following page]
4
6
NAME, AGE AND POSITION TERM OF OFFICE AND BUSINESS EXPERIENCE
---------------------- --------------------------------------
JEFFERY A. SMISEK, age 41 Senior Vice President and Secretary since April 1995. General
Senior Vice President, Counsel since March 1995. Partner, Vinson & Elkins L.L.P. (law
General Counsel and Secretary firm) for more than five years.
Each director, executive officer (and, for a specified period, certain
former directors and executive officers), certain trusts and other entities with
which such individuals are affiliated, and each holder of greater than ten
percent of a class of the Company's equity securities is required to report to
the Securities and Exchange Commission (the "Commission") his or her pertinent
position or relationship, as well as transactions in such securities, by certain
specified dates. A trust for which Mr. Pogue serves as trustee, and two trusts
for which Mr. Sturm serves as trustee, failed to timely file initial statements
of beneficial ownership of certain of the Company's equity securities, although
each of such individuals timely filed reports reflecting the interest he is
deemed to have in the shares of common stock of the Company held by the
respective trusts. Michael Bonds, Staff Vice President and Controller of the
Company, failed to timely file his initial statement of beneficial ownership
upon his election to such position. David Siegel, then Vice President-Route
Scheduling of the Company, failed to timely file a statement of changes in
beneficial ownership with respect to a purchase of common stock in 1994, which
he reported instead on his annual statement of changes in beneficial ownership,
which was not filed with the Commission by the specified date. John Luth, a
former Senior Vice President of the Company, failed to timely file a report with
respect to two purchases of common stock that occurred after his resignation.
Finally, Air Canada's reports with respect to one transaction in 1994 and one
transaction in 1995 were not timely filed. In each of the foregoing cases,
appropriate forms were subsequently filed.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Members of the Company's Board of Directors who are not full-time
employees of the Company are paid $15,000 per year, plus $1,000 (or $1,500 for
the chairperson) for each Board and committee meeting attended. Stock options,
relating to 1,500 shares of Class B common stock, are automatically granted to
non-employee directors on the day following each annual meeting of stockholders
and bear exercise prices equal to the fair market value of such stock on such
date. In addition, each non-employee director receives certain lifetime flight
benefits, including space-available personal and family flight passes, a travel
card permitting positive space travel by the director, the director's family
and certain other individuals (which is taxable to the director, subject to the
payment of certain of such taxes by the Company during Board service), a
frequent flyer card and an airport lounge card.
Full-time employees of the Company who serve as directors receive
reimbursement of expenses incurred in attending meetings, in addition to flight
and other benefits provided in their employment agreements or shared generally
by other employees of the Company.
5
7
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------------------------------------
---------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY($) BONUS($) COMPENSATION($) AWARDS($)(2) OPTIONS(#) COMPENSATION($)
- --------------------------- ------- --------- -------- --------------- -------------- ------------ ---------------
Gordon M. Bethune 1995 $561,012 $ 550,000 $278,638 (3) 0 25,000 (4) $522,978 (5)
President and Chief 1994 434,185 1,500,000 (6) 85,018 (7) $1,240,625 250,000 (4) 286,969 (8)
Executive Officer 1993 --- --- --- --- --- ---
Gregory D. Brenneman 1995 $338,726 $ 354,039 $ 56,459 (9) $1,200,000 275,000 $ 79,016 (10)
Chief Operating Officer 1994 --- --- --- --- --- ---
1993 --- --- --- --- --- ---
Lawrence W. Kellner 1995 $193,369 $ 438,500 (11) $ 17,928 (12) $ 862,50 75,000 $ 32,718 (10)
Senior Vice President and 1994 --- --- --- --- --- ---
Chief Financial Officer 1993 --- --- --- --- --- ---
C.D. McLean 1995 $305,604 $ 300,000 $ 514 (12) $ 115,000 0 (13) 0
Senior Vice President- 1994 182,557 0 8,807 (12) --- 75,000 (13) 13,531 (10)
Operations 1993 --- --- --- --- --- ---
Barry P. Simon 1995 $306,000 $ 300,000 $ 714 (12) $ 0 0 (13) 0
Senior Vice President- 1994 293,480 0 0 213,750 75,000 (13) 0
Europe 1993 202,785 0 0 0 0 0
(1) Messrs. Bethune, Brenneman, Kellner and McLean commenced employment with
the Company in February 1994, April 1995, June 1995 and April 1994,
respectively.
(2) The value of restricted stock shown was calculated by multiplying the
closing price of the Class B common stock on the date the restricted
shares were granted by the number of restricted shares as follows: Mr.
Bethune - 50,000 shares at $14.125 and 25,000 shares at $21.375; Mr.
Brenneman - 75,000 shares at $16.00; Mr. Kellner - 50,000 shares at
$17.25; Mr. McLean - 10,000 shares at $11.50 and Mr. Simon - 10,000
shares at $21.375. At the end of 1995, the aggregate number of
restricted shares held by Messrs. Bethune, Brenneman, Kellner, McLean and
Simon was 67,400, 75,000, 50,000, 10,000 and 10,000, respectively, and
the year-end values of such shares were $2,931,900, $3,262,500,
$2,175,000, $435,000 and $435,000, respectively, based on the December
29, 1995 closing price of the Class B common stock of $43.50. The shares
held by Messrs. Bethune and Simon vested in 50% increments on March 15,
1995 and 1996. The shares held by Mr. Brenneman vest in 25% increments
on October 27, 1995 and April 27, 1996, 1997 and 1998. The shares held
by Mr. Kellner vest in 25% increments on December 6, 1995 and June 5,
1996, 1997 and 1998. The shares held by Mr. McLean vest in 50%
increments on April 4, 1996 and 1997. Although the Company has paid no
dividends on its common stock, any dividends would be payable upon both
vested and non-vested shares.
(3) Represents a tax adjustment relating to termination of certain
supplemental retirement plan benefits ($277,159) and certain travel
benefits provided by the Company ($1,479). See footnote (5) below.
(4) In addition, of the options granted to Mr. Bethune in 1994, the exercise
price of 125,000 options was adjusted in 1995 from $14.125 per share to
$11.00 per share (which exceeded the market value of the Class B common
stock on the date of such adjustment) to comply with the terms of Mr.
Bethune's agreements with the Company.
(5) Represents payment in lieu of certain supplemental executive retirement
plan benefits previously provided under Mr. Bethune's employment
agreement.
[Footnotes continued on following page]
6
8
(6) Represents a bonus in connection with certain amendments to Mr. Bethune's
employment agreement which were made as the result of an offer of
employment to Mr. Bethune by one of the Company's competitors.
(7) Represents a tax adjustment relating to (i) certain moving expenses paid
by the Company and (ii) reimbursement for a loss on the sale of Mr.
Bethune's previous residence in connection with his hiring and relocation
to Houston, Texas.
(8) Represents (i) $144,463 paid to compensate Mr. Bethune for the
forfeiture of certain benefits under his prior employer's
compensation program when he joined the Company, (ii) $107,957 for
the loss on sale of residence (see note 7) and (iii) $34,549 for
moving expenses (see note 7).
(9) Represents a tax adjustment relating to (i) certain moving expenses paid
by the Company, (ii) reimbursement for loss on the sale of Mr.
Brenneman's previous residence in connection with his hiring and
relocation to Houston, Texas and (iii) certain travel benefits provided
by the Company.
(10) Represents certain moving expenses paid by the Company in connection with
the named executives' relocation to Houston, Texas. The amount for Mr.
Brenneman also includes $54,380 for the loss on sale of residence (see
note 9).
(11) Includes $176,000 sign-on bonus.
(12) Represents a tax adjustment relating to (i) certain moving expenses paid
by the Company and/or (ii) certain travel benefits provided by the
Company.
(13) All of the options granted to Messrs. McLean and Simon were repriced in
1995 from $21.375 to $16.00 per share.
OPTION/SAR GRANTS DURING LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS/SARS POTENTIAL REALIZABLE
SECURITIES GRANTED TO VALUE AT ASSUMED ANNUAL
UNDERLYING EMPLOYEES EXERCISE RATES OF STOCK PRICE
OPTIONS/SARS IN FISCAL PRICE EXPIRATION APPRECIATION FOR OPTION TERM
----------------------------
NAME GRANTED(1) YEAR ($/SHARE) DATE 5% 10%
---- ---------------- ------------ --------- ----------- ----------- ----------
Gordon M. Bethune 25,000 1.2% $9.25 01/02/05 $ 145,500 $ 368,500
125,000 (2) 5.8% $11.00 03/04/04 418,750 1,351,250
Gregory D. Brenneman 275,000 12.7% $16.00 04/27/00 1,215,500 2,686,750
Lawrence W. Kellner 75,000 3.5% $17.25 06/05/00 357,750 789,750
C.D. McLean 75,000 (3) 3.5% $16.00 04/27/00 331,500 732,750
Barry P. Simon 75,000 (3) 3.5% $16.00 04/27/00 331,500 732,750
- -----------
(1) Mr. Bethune's options vest in annual 25% increments commencing January
2, 1995. Messrs. Brenneman's, Kellner's, McLean's and Simon's options
vest in 25% increments on the dates that are six months, one year, two
years and three years after the date of grant, April 27, 1995; June 5,
1995; April 27, 1995 and April 27, 1995 respectively. See footnote 3.
(2) Represents options granted to Mr. Bethune in 1994 for which the
exercise price was adjusted in 1995 from $14.125 per share to $11.00
per share (which exceeded the market value of the Class B common stock
on the date of such adjustment) to comply with the terms of Mr.
Bethune's agreements with the Company.
(3) Represents options granted to Messrs. McLean and Simon, respectively,
in 1994 for which the exercise price was adjusted in 1995 from $21.375
per share to $16.00 per share as described in the Company's proxy
statement relating to its 1995 annual meeting of stockholders.
7
9
FISCAL YEAR-END OPTION/SAR VALUES
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL YEAR END(#) OPTIONS/SARS AT FISCAL YEAR END ($)
---------------------------------- -----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Gordon M. Bethune . . . . . . . . . . 68,750 206,250 $2,147,656 $6,442,969
Gregory D. Brenneman . . . . . . . . 68,750 206,250 1,890,625 5,671,875
Lawrence W. Kellner . . . . . . . . . 18,750 56,250 492,188 1,476,563
C.D. McLean . . . . . . . . . . . . . 18,750 56,250 515,625 1,546,875
Barry P. Simon . . . . . . . . . . . 18,750 56,250 515,625 1,546,875
None of the above named executive officers exercised any options
during 1995.
EMPLOYMENT AGREEMENTS
Continental has entered into an amended and restated employment agreement
with Mr. Bethune relating to his service as an officer of the Company. The
agreement provides for an annual base salary of not less than $550,000,
participation in any Company cash bonus program at the maximum level available
to any executive, a supplemental executive retirement plan, flight benefits,
and certain other matters. Pursuant to the supplemental executive retirement
plan, Mr. Bethune receives a base retirement benefit in the form of an annual
straight life annuity in an amount equal to the product of (1) 1.6% times (2)
the number of his credited years of service times (3) his final average
compensation. The agreement may be terminated at any time by either party,
with or without cause. The agreement is for a three-year term of employment
beginning in June 1995 and is automatically extended for an additional
three-year period on each successive third anniversary of such date. If Mr.
Bethune's employment is terminated because the Company elects to permit his
employment agreement to expire or by the Company for reasons other than death,
incapacity, cause or material breach of the agreement, then the Company shall
(i) cause all options and shares of restricted stock awarded to Mr. Bethune to
vest immediately upon such termination, (ii) make a lump-sum cash severance
payment to Mr. Bethune (calculated as described below), and (iii) provide Mr.
Bethune with out-placement services. In addition, following any such
termination, benefits under the supplemental executive retirement plan continue
to be payable, and Mr. Bethune is provided flight benefits for the remainder of
his lifetime. Such termination benefits are also awarded to Mr. Bethune if he
terminates the employment agreement for certain specified causes. The
severance payment referred to above is equal to three times the sum of (a) Mr.
Bethune's then current base salary (of not less than $550,000) and (b) a deemed
annual bonus equal to 25% of such salary. Additionally, the Company is required
to continue providing certain employee benefits to Mr. Bethune for certain
specified time periods following a termination of employment and to maintain
life insurance on his behalf in an amount equal to the severance payment
described above. Mr. Bethune is indemnified by the Company for his tax
obligations with respect to payments under the agreement to the extent that
such payments are subject to an excise or other special additional tax that
would not have been imposed absent such payment.
Continental has entered into an amended and restated employment
agreement with Mr. Brenneman relating to his service as an officer of the
Company. The agreement provides for an annual base salary of not less than
$525,000, stock options to purchase 275,000 shares of Class B common stock, a
restricted stock grant for 75,000 shares of Class B common stock, participation
in any Company cash bonus program at the maximum level available to any
executive, flight benefits, and certain other matters. The agreement may be
terminated at any time by either party, with or without cause. The agreement
is for a three-year term of employment beginning in June 1995 and is
automatically extended for an additional three-year period on each successive
third anniversary of such date. If Mr. Brenneman's employment is terminated
because the Company elects to permit his employment agreement to expire or by
the Company for reasons other than death, incapacity, cause or material breach
of the agreement, then the Company shall (i) cause all options and shares of
restricted stock awarded to Mr. Brenneman to vest immediately upon such
termination, (ii) make a lump-sum cash severance payment to Mr. Brenneman
(calculated as described below), and (iii) provide Mr. Brenneman with
out-placement services. In addition, following any such termination, Mr.
Brenneman is provided with flight benefits for the remainder of his lifetime.
Mr. Brenneman is also entitled
8
10
to such termination benefits if he terminates the employment agreement for
certain specified causes. The severance payment is equal to three times the sum
of (1) Mr. Brenneman's then current base salary (of not less than $525,000) and
(2) a deemed annual bonus equal to 25% of such salary. Additionally, the Company
is required to continue providing certain employee benefits to Mr. Brenneman for
certain specified time periods following a termination of employment and to
maintain life insurance on his behalf in an amount equal to the severance
payment described above. Mr. Brenneman is indemnified by the Company for his tax
obligations with respect to payments under the agreement to the extent that such
payments are subject to an excise or other special additional tax that would not
have been imposed absent such payment.
Continental has entered into an amended and restated employment
agreement with each of Messrs. Kellner, McLean, and Simon, which agreements
contain substantially identical terms and provide for an annual base salary of
not less than $350,000, $300,000 and $300,000, respectively, participation in
any Company cash bonus program at the maximum level available to any executive,
flight benefits, and certain other matters. Each of the agreements may be
terminated at any time by either party, with or without cause. Each agreement
is for a three-year term of employment beginning in June 1995. If the
applicable executive's employment is terminated by the Company for reasons
other than death, incapacity, cause or material breach of the agreement, then
the Company shall (i) make a lump-sum cash severance payment to the executive
(calculated as described below), and (ii) provide the executive with
out-placement services. In addition, following any such termination, each
agreement provides the executive with flight benefits for the remainder of his
lifetime under certain circumstances. Each of the executives is also entitled
to such benefits if he terminates the employment agreement for certain
specified causes. The severance payment referenced above is equal to the
product of (A) the sum of (1) the executive's then current base salary and (2)
a deemed annual bonus equal to 25% of such salary, multiplied by (B) a
fraction, the numerator of which is the number of months in the severance
period (defined below) and the denominator of which is 12. If the executive's
employment is terminated within two years after a change in control, the
severance period means the period commencing on the date of termination and
continuing for 36 months. If the executive's employment is terminated prior to
a change in control or after the date which is two years after a change in
control, the severance period means the period commencing on the date of
termination and continuing for 24 months. The Company is also required to
continue providing certain employee benefits to the executives for certain
specified time periods following a termination of employment. Each of the
executives is indemnified by the Company for his tax obligations with respect
to payments under his agreement to the extent that such payments are subject to
an excise or other special additional tax that would not have been imposed
absent such payment.
RETIREMENT PLAN
The Continental Airlines, Inc. Retirement Plan (the "Retirement Plan"),
adopted in 1988, is a noncontributory, defined benefit pension plan.
Substantially all employees of Continental and certain designated affiliates
are eligible to participate in the Retirement Plan.
The following table represents the estimated annual benefits payable in
the form of a single life annuity to participants in specified service and
compensation categories under the Retirement Plan. The values reflected in the
table represent the application of the Retirement Plan formula to the specified
amounts of final average compensation and years of service. Under the
Retirement Plan, final average compensation means the average of the
participant's highest five consecutive years of compensation during the last
ten calendar years with Continental. Final average compensation includes
regular pay and shift differential, but excludes bonuses, overtime, severance
pay, incentive and other special forms of pay. Regulations under the Code
previously limited compensation covered by the Retirement Plan to $235,840 and
since December 1994 have limited such compensation to $150,000.
9
11
PENSION PLAN TABLE
YEARS OF SERVICE
--------------------------------------------------------------------------
- --------------------------
FINAL AVERAGE COMPENSATION 5 10 15 20 25 30
-------------------------- - -- -- -- -- --
$100,000 . . . . . . . . . . . . . $7,656 $15,312 $22,968 $30,624 $38,280 $45,936
$125,000 . . . . . . . . . . . . . 9,707 19,414 29,121 38,828 48,535 58,242
$150,000 . . . . . . . . . . . . . 11,758 23,516 35,274 47,032 58,790 70,548
$175,000 . . . . . . . . . . . . . 13,434 27,206 40,697 53,690 66,200 78,615
$200,000 . . . . . . . . . . . . . 15,075 30,897 46,438 61,480 76,041 90,506
$225,000 . . . . . . . . . . . . . 16,716 34,588 52,178 69,270 85,882 102,397
The estimated credited years of service for Messrs. Bethune, McLean and
Simon are two years, two years and nine years, respectively. Messrs. Brenneman
and Kellner will be eligible to participate in the Retirement Plan after
completing one year of service with the Company. In addition, Mr. Bethune's
employment agreement provides for certain supplemental retirement benefits,
which benefits will be offset by amounts received under the Retirement Plan.
See "Employment Agreements," above. Under the Retirement Plan, a retired
participant's annual benefit commencing at or after the normal retirement age
of 65 (60 for pilots) is equal to 1.19% of the participant's final average
compensation plus 0.45% of the participant's final average compensation in
excess of the average Social Security wage base, multiplied by the
participant's years of participation up to a maximum of 30 years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's executive compensation programs are administered by the
Human Resources Committee of the Board of Directors. The committee is composed
of six independent, non-employee directors, and no member of the committee has
been an officer or employee of the Company or any of its subsidiaries. Karen
Hastie Williams who chairs the Human Resources Committee is a Partner of
Crowell & Moring, a law firm that has provided services to the Company and its
subsidiaries for many years.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
VOTING RIGHTS AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 1, 1996 (except as
otherwise set forth below), certain information with respect to persons owning
beneficially (to the knowledge of the Company) more than five percent of any
class of the Company's voting securities. The table also sets forth the
respective general voting power of such persons. In accordance with regulations
promulgated by the Commission, the table shows the effect of the exercise of
warrants owned by the person in question, and, in the case of Air Canada, the
exchange of certain shares of Class B common stock for Class A common stock,
but, in determining the denominator used to show percentage ownership of such
person, does not assume the exercise of warrants or the exchange of shares
owned by any other person.
10
12
The table does not show under "General Voting Power" the effect of Air
Canada's potential exchange of certain shares of Class B common stock for an
equal number of shares of Class A common stock, because the voting of most of
the Class A common stock acquirable as a result of such exchange would
currently be prohibited by applicable Foreign Ownership Restrictions. Such
information is, however, shown in the footnotes to the table.
AMOUNT AND
NATURE GENERAL
NAME AND ADDRESS OF BENEFICIAL PERCENT VOTING
OF BENEFICIAL HOLDER TITLE OF CLASS OWNERSHIP OF CLASS POWER (1)
- -------------------- -------------- --------- -------- ---------
Air Canada Class A common stock 2,740,000(2) 37.1% 23.6% (3)
Air Canada Center Class B common stock 3,338,944(4) 15.5%
Montreal Int'l Airport (Dorval)
P.O. Box 14000
Postal Station, St. Laurent
Canada H4Y 1H4
Air Partners, L.P.(5) Class A common stock 4,259,734(6) 54.5% 44.6%
2420 Texas Commerce Tower Class B common stock 3,382,632(7) 13.6%
201 Main Street
Fort Worth, TX 75102
American General Corporation Class A common stock 774,496(8) 11.8% 10.0%
2929 Allen Parkway Class B common stock 1,055,002(9) 4.8%
Houston, TX 77019
FMR Corp. Class B common stock 3,182,837(10) 14.7% 3.8%
82 Devonshire Street
Boston, MA 02109
(1) Each share of Class A common stock is entitled to ten votes, and each
share of Class B common stock is entitled to one vote. General Voting
Power includes the combined total of the votes attributable to Class A
common stock and Class B common stock.
(2) Amount includes 1,078,944 shares of Class A common stock issuable upon
exchange of a like number of shares of Class B common stock held by
Air Canada.
(3) Does not include the exchange of 1,078,944 shares of Class B common
stock for Class A common stock as described in Note 2 above, which
would be subject to Foreign Ownership Restrictions. If Air Canada were
permitted to exchange the 1,078,944 shares of Class B common stock for
an equal number of shares of Class A common stock, its General Voting
Power would be 31.5%.
(4) Amount includes 1,078,944 shares of Class B common stock held by Air
Canada which are exchangeable, under certain circumstances, for a like
number of shares of Class A common stock. Such shares are also
included in the number of shares of Class A common stock reported
herein pursuant to SEC Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(5) Based on reports filed with the Commission pursuant to the Exchange
Act, the general partners of Air Partners are 1992 Air GP, managing
general partner, and Air II General, Inc. The general partners of
1992 Air GP are 1992 Air, Inc., majority general partner, and Air
Saipan, Inc. David Bonderman is the controlling shareholder of Air II
General, Inc. and 1992 Air, Inc. and accordingly may be deemed the
beneficial owner of shares held by Air Partners. In addition, Mr.
Bonderman holds, directly and indirectly, limited partnership
interests in Air Partners. Mr. Bonderman also holds director stock
options to purchase 3,000 shares of Class B common stock and may be
deemed to own 379,194 shares of Class B common stock owned by 1992 Air
GP and 2,403 shares of Class B common stock owned by Air II General,
Inc. that
[Footnotes continued on following page]
11
13
are not included in the amounts shown. Bonderman Family Limited
Partnership, of which David Bonderman is the general partner, holds
8,200 shares of Class A common stock and 441,225 shares of Class B
common stock that are not included in the amounts shown. In addition,
Bonderman Family Limited Partnership holds limited partnership
interests in Air Partners. On the basis of certain provisions of the
limited partnership agreement of Air Partners, Bonderman Family Limited
Partnership may be deemed to beneficially own the shares of Class A
common stock and any Class B common stock beneficially owned by Air
Partners that are attributable to such limited partnership interests.
However, Bonderman Family Limited Partnership, pursuant to Rule 13d-4
under the Exchange Act, disclaims beneficial ownership of all such
shares. The estate of Larry L. Hillblom, solely in its capacity as the
sole shareholder of Air Saipan, Inc., may be deemed the beneficial
owner of shares of Class A common stock and any Class B common stock
held by Air Partners. In addition, the estate of Mr. Hillblom also
holds limited partnership interests in Air Partners. On the basis of
certain provisions of the limited partnership agreement of Air
Partners, the estate of Mr. Hillblom may be deemed to beneficially own
the shares of Class A common stock and any Class B common stock
beneficially owned by Air Partners that are attributable to such
limited partnership interests. Bondo Air Limited Partnership ("Bondo
Air"), solely in its capacity as a limited partner of Air Partners, may
be deemed to beneficially own the shares of Class A common stock and
any Class B common stock held by Air Partners that are attributable to
such limited partnership interest. However, Bondo Air, pursuant to
Rule 13d-4 under the Exchange Act, disclaims beneficial ownership of
all such shares. Mr. Alfredo Brener, through a limited partnership
whose corporate general partner he controls, owns warrants to purchase
a 98.5% limited partnership interest in Bondo Air, and on the basis of
certain provisions of the limited partnership agreement of Bondo Air,
Mr. Brener may be deemed to beneficially own such limited partnership
interests and, in turn, the shares attributable to Bondo Air's limited
partnership interest in Air Partners. However, Mr. Brener, pursuant to
Rule 13d-4 under the Exchange Act, disclaims beneficial ownership of
all such shares. Donald Sturm, a director of the Company, holds a
limited partnership interest in Air Partners. On the basis of certain
provisions of the limited partnership agreement of Air Partners, Mr.
Sturm may be deemed to beneficially own the shares of Class A common
stock and any Class B common stock beneficially owned by Air Partners
that are attributable to such limited partnership interest. However,
Mr. Sturm, pursuant to Rule 13d-4 under the Exchange Act, disclaims
beneficial ownership of all such shares.
(6) Includes 1,519,734 shares issuable upon exercise of warrants held by Air
Partners to purchase Class A common stock.
(7) Represents shares subject to warrants held by Air Partners to purchase
Class B common stock.
(8) Based on reports filed with the Commission, the shares reported
represent the proportionate interest in shares beneficially owned by
Air Partners, of which American General Corporation ("American
General") is a limited partner, including shares issuable upon
exercise of warrants held by Air Partners to purchase 276,315 shares
of Class A common stock. On the basis of certain provisions of the
limited partnership agreement of Air Partners, American General may be
deemed to beneficially own the shares of Class A common stock and any
Class B common stock beneficially owned by Air Partners that are
attributable to such limited partnership interest. However, American
General, pursuant to Rule 13d-4 under the Exchange Act, disclaims
beneficial ownership of all such shares. American General may be
deemed to share voting and dispositive power with respect to all such
shares.
(9) The reported shares include 283 shares held by an indirect wholly
owned subsidiary of American General and 615,024 shares issuable upon
exercise of warrants held by Air Partners to purchase Class B common
stock. American General may be deemed to share voting and
dispositive power with respect to such 615,307 shares.
(10) Based on information furnished to the Company, the shares reported
include 151,514 shares of Class B common stock issuable upon conversion of
the Company's 6 3/4% Convertible Subordinated Notes due April 15, 2006.
FMR, together with its wholly owned subsidiaries, Fidelity Management &
Research Company and Fidelity Management Trust Company, has sole
dispositive power with respect to 3,159,337 of the shares beneficially
owned by it and sole voting power with respect to 2,436,423 of such
shares. FMR has no shared voting or dispositive power. Members of the
Edward D. Johnson 3d family own approximately 49% of the outstanding
voting stock of FMR Corp.
12
14
BENEFICIAL OWNERSHIP OF COMMON STOCK OF DIRECTORS AND EXECUTIVE OFFICERS
The following table shows, as of April 1, 1996, the number of shares of
Class B common stock beneficially owned by each of the directors, the executive
officers named in the Summary Compensation Table, and all executive officers
and directors as a group. The beneficial ownership of Class A common stock by
certain of such persons is described in the footnotes to the table. See also
"Voting Rights and Principal Stockholders".
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNERS BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
- --------------------------- ------------------------ ----------------
Thomas J. Barrack, Jr. . . . . . . . . . . . . . . . 5,800 (2) *
Gordon M. Bethune . . . . . . . . . . . . . . . . . 215,319 (3) 1.0%
David Bonderman . . . . . . . . . . . . . . . . . . 4,351,138 (4) 17.5%
Gregory D. Brenneman . . . . . . . . . . . . . . . . 221,955 (5) 1.0%
Joel H. Cowan . . . . . . . . . . . . . . . . . . . 3,000 (6) *
Patrick Foley . . . . . . . . . . . . . . . . . . . 831,455 (7) 3.8%
Rowland C. Frazee, C.C. . . . . . . . . . . . . . . 3,000 (6) *
Hollis L. Harris . . . . . . . . . . . . . . . . . . 3,341,944 (8) 15.6%
Dean C. Kehler . . . . . . . . . . . . . . . . . . . 1,500 (9) *
Lawrence W. Kellner . . . . . . . . . . . . . . . . . 71,795 (10) *
Robert L. Lumpkins . . . . . . . . . . . . . . . . . 3,000 (6) *
Douglas H. McCorkindale . . . . . . . . . . . . . . . 3,000 (6) *
C.D. McLean . . . . . . . . . . . . . . . . . . . . 49,500 (11) *
David E. Mitchell, O.C. . . . . . . . . . . . . . . . 3,341,944 (8) 15.6%
Richard W. Pogue . . . . . . . . . . . . . . . . . . 3,000 (6)(12) *
William S. Price III . . . . . . . . . . . . . . . . 3,387,132 (13) 13.6%
Barry P. Simon . . . . . . . . . . . . . . . . . . . 48,736 (14) *
Donald L. Sturm . . . . . . . . . . . . . . . . . . 677,195 (15) 3.1%
Claude I. Taylor, O.C. . . . . . . . . . . . . . . . 3,342,944 (8) 15.6%
Karen Hastie Williams . . . . . . . . . . . . . . . . 3,000 (6) *
Charles A. Yamarone . . . . . . . . . . . . . . . . 5,500 (16) *
All executive officers and directors as a group . . 9,632,072 (17) 43.8%
* Less than 1%
(1) The persons listed have the sole power to vote and dispose of the shares
beneficially owned by them except as otherwise indicated.
(2) Includes 1,500 shares subject to a vested director stock option, and
1,500 shares held in trust for the benefit of Mr. Barrack's children, as
to which shares Mr. Barrack disclaims beneficial ownership.
(3) Includes 137,500 shares subject to vested options to purchase shares.
(4) Includes 3,000 shares subject to vested director stock options, 441,225
shares beneficially owned by Bonderman Family Limited Partnership,
379,194 shares owned by 1992 Air GP and 2,403 shares owned by Air II
General, Inc. (see note 5 to the previous table). Also includes
3,382,632 shares subject to warrants owned by Air Partners, which Mr.
Bonderman may be deemed to own beneficially (see note 5 to the previous
table) and which Mr. Price may be deemed to own beneficially through
shared voting and dispositive power as a Managing Director of Air
Partners. Does not include 8,200 shares of Class A common stock
beneficially owned by Bonderman Family Limited Partnership. Also does
not include 2,740,000 shares of Class A common stock beneficially owned
by Air Partners or 1,519,734 such shares subject to warrants
(collectively, 54.5% of the class) owned by Air Partners, which Messrs.
Bonderman and Price also may be deemed to own
[Footnotes continued on following page]
13
15
beneficially (see note 5 to the previous table).
(5) Includes 137,500 shares subject to a vested option, or vesting within 60
days, and 56,250 restricted shares scheduled to vest in 33 1/3%
increments on April 27, 1996, 1997 and 1998.
(6) Represents shares subject to vested director stock options.
(7) Includes 3,000 shares subject to vested director stock options. Also
includes 370,957 shares held by DHL Management Services, Inc. ("DHL
Management") and 457,498 shares representing the proportionate interest
of DHL Management in shares issuable upon exercise of warrants held by
Air Partners to purchase shares of Class B common stock. Does not include
DHL Management's interest in 370,582 shares of Class A common stock
beneficially owned by Air Partners or 205,543 shares of such stock
issuable upon exercise of warrants held by Air Partners. DHL Management,
and Mr. Foley as President of DHL Management, may be deemed to have
voting and shared dispositive power with respect to all such shares.
(8) Includes 3,000 shares subject to vested director stock options. Also
includes 3,338,944 shares beneficially owned by Air Canada. Does not
include 1,661,056 shares of Class A common stock beneficially owned by
Air Canada or 1,078,944 such shares issuable upon exchange of a like
number of shares of Class B common stock held by Air Canada. Mr. Harris,
as the "shareholder representative" of Air Canada, may be deemed to have
sole voting power with respect to all such shares. Messrs. Harris,
Mitchell and Taylor, as directors of Air Canada, may be deemed to have
shared dispositive power with respect to all such shares.
(9) Represents shares subject to a vested director stock option.
(10) Includes 18,750 shares subject to a vested option and 37,500 restricted
shares scheduled to vest in 33 1/3% increments on June 5, 1996, 1997 and
1998.
(11) Includes 37,500 shares subject to a vested option, or vesting within 60
days, and 10,000 restricted shares scheduled to vest in 50% increments on
April 4, 1996 and 1997.
(12) Mr. Pogue also owns 3,000 shares of Class A common stock.
(13) Includes 3,000 shares subject to vested director stock options. Also
includes 1,500 shares held by Mr. Price's spouse, as to which shares Mr.
Price disclaims beneficial ownership, and shares held by Air Partners as
described in note 4, above.
(14) Includes 37,500 shares subject to a vested option, or vesting within 60
days.
(15) Includes 3,000 shares subject to vested director stock options. Also
includes 30,200 shares held in trusts for the benefit of Mr. Sturm's
children, 15,100 shares held in a charitable trust for which Mr. Sturm
acts as Trustee, 4,300 shares held by a corporation of which Mr. Sturm is
the principal stockholder, and 285,937 shares representing the
proportionate interest of Mr. Sturm in shares issuable upon exercise of
warrants held by Air Partners to purchase shares of Class B common
stock. Does not include Mr. Sturm's proportionate interest in 231,615
shares of Class A common stock beneficially owned by Air Partners or
128,465 such shares subject to warrants owned by Air Partners. Mr. Sturm
is a limited partner of Air Partners and, as such, may be deemed to share
voting and dispositive power with respect to all shares held by Air
Partners.
(16) Includes 1,500 shares subject to a vested director stock option.
(17) Includes 506,000 shares subject to vested options held by officers and
non-employee directors of the Company and 3,382,632 shares subject to
warrants owned by Air Partners. See notes 4, 7 and 15. Does not include
2,740,000 shares of Class A common stock beneficially owned by Air
Partners or 1,519,734 such shares subject to warrants owned by Air
Partners. Also includes 3,338,944 shares beneficially owned by Air Canada.
14
16
See note 8. Does not include 1,661,056 shares of Class A common stock
beneficially owned by Air Canada, 1,078,944 such shares issuable upon
exchange of a like number of shares of Class B common stock held by Air
Canada, or 4,000 shares of Class A common stock held by certain executive
officers and directors. See, e.g., note 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN TRANSACTIONS
Continental Micronesia, Inc. ("CMI") and United Micronesia Development
Association, Inc. ("UMDA"), which is controlled by the estate of Larry L.
Hillblom and is the minority stockholder of CMI, have a services agreement
whereby UMDA is paid a fee of 1.0% of CMI's gross revenue, as defined, which
will continue until January 1, 2012. During 1995, these fees totaled $6
million. As of December 31, 1995, the Company had a payable of $7 million
maturing in 2011 to UMDA. Annual payments of such payable aggregating $1
million per year are applied to reduce the 1.0% fee.
In connection with Air Canada's investment in the Company, Air Canada,
Air Partners and the Company agreed to identify and pursue opportunities to
achieve cost savings, revenue enhancement or other synergies from areas of
joint operation between the Company and Air Canada. The Company and Air Canada
have entered into a series of synergies agreements, primarily in the areas of
aircraft maintenance and commercial and marketing alliances (including
agreements regarding coordination of connecting flights). The Company believes
that the synergies agreements allocate potential benefits to the Company and
Air Canada in a manner that is equitable and commercially reasonable, and
contain terms at least as favorable to the Company as could be obtained from
unrelated parties. As a result of these agreements, Continental paid Air
Canada $38 million in 1995, and Air Canada paid Continental $16 million,
primarily relating to aircraft maintenance.
In connection with America West's emergence from bankruptcy in August
1994, Continental acquired approximately 4.1% of the equity interest and 17.1%
of the voting power (exclusive of warrants to purchase an additional 802,860
shares of common stock) of the reorganized America West. In February 1996,
Continental sold approximately 1.4 million shares of America West's common
stock for net proceeds of approximately $25 million in an underwritten public
offering. Continental now owns approximately 1.0% of the equity interest and
7.9% of the voting power of America West (exclusive of warrants to purchase an
additional 802,860 shares of common stock). Through partnerships that he
controls, Mr. Bonderman has a significant interest in America West.
The Company and America West entered into a series of agreements
during 1994 related to code sharing and ground handling that have created
substantial benefits for both airlines. The services provided are considered
normal to the daily operations of both airlines. As a result of these
agreements, Continental paid America West $11 million and America West paid
Continental $14 million in 1995.
Prior to joining the Company in May 1995, Mr. Brenneman was a Vice
President with Bain & Company, Inc., a consulting firm that has provided
consulting services to the Company from time to time. In addition, Mr.
Brenneman is the Chairman, Chief Executive Officer and majority shareholder of
Turnworks, Inc. ("Turnworks"), which acted as a consultant to the Company prior
to May 1995. Pursuant to, and in connection with the termination of, the
Turnworks consulting agreement, the Company paid Turnworks an aggregate of
$1,772,457 in 1995.
On July 27, 1995 and August 10, 1995, Air Partners purchased from the
Company an aggregate of 154,113 and 328,660 shares of Class B common stock,
respectively, at purchase prices of $15.86 per share (with respect to a total
of 355,330 shares) and $13.40 per share (with respect to a total of 127,443
shares). Of the total, 158,320 shares were purchased pursuant to the exercise
of antidilution rights granted to Air Partners under the Certificate of
Incorporation and the remaining 324,453 shares were purchased pursuant to the
exercise of antidilution rights granted to Air Canada under the Certificate of
Incorporation (which rights were purchased by Air Partners immediately prior to
their exercise on August 10, 1995).
On September 29, 1995, Continental purchased from Air Canada warrants
to purchase an aggregate of 1,367,880 shares of Continental's Class A common
stock and 4,849,755 shares of Class B common stock for an aggregate purchase
price of approximately $56 million (including a waiver fee of $5 million paid to
a major creditor of the Company), of which Continental paid approximately $14
million in cash and a $42 million one-year note (which note was subsequently
repaid). The 6,217,635 warrants purchased had exercise prices of $15.00 per
share (as to 3,706,667 shares) and $30.00 per share (as to 2,510,968 shares).
15
17
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.
---------------------------
(Registrant)
Date: April 10, 1996 By: /s/ JEFFERY A. SMISEK
-------------- ---------------------------
Jeffery A. Smisek
Senior Vice President,
General Counsel and Secretary
16
