View:
As filed with the Securities and Exchange Commission
on January 24, 1997
Registration No. 333-19627
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Continental Airlines, Inc.
(Exact name of registrant as specified in its charter)
Delaware 4512 74-2099724
(State or other (Primary standard (I.R.S. employer
jurisdiction of industrial identification
incorporation or classification code number)
organization) number)
2929 Allen Parkway, Suite 2010
Houston, Texas 77019
(713) 834-2950
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Jeffery A. Smisek, Esq.
Executive Vice President, General Counsel and Secretary
Continental Airlines, Inc.
2929 Allen Parkway, Suite 2010
Houston, Texas 77019
(713) 834-2950
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of correspondence to:
Stephen H. Shalen, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes
effective.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company and
there is compliance with General Instruction G, check the
following box: |_|
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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CONTINENTAL AIRLINES, INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K showing location in the
Prospectus of Information Required by Items in Form S-4
Item Location in Prospectus
1. Forepart of the Facing Page of the Registration
Registration Statement; Cross Reference Sheet;
Statement and Outside Outside Front Cover Page of
Front Cover Page of Prospectus
Prospectus............
2. Inside Front and Available Information; Outside Back
Outside Back Cover Cover Page of Prospectus
Pages of Prospectus...
3. Risk Factors, Ratio of Prospectus Summary; Risk Factors;
Earnings to Fixed The Company; Selected Financial
Charges and Other Data
Information...........
4. Terms of the Prospectus Summary; Risk Factors;
Transaction........... The Exchange Offer; Description of
New Notes; Plan of Distribution;
Certain Federal Income Tax
Considerations
5. Pro Forma Financial Not Applicable
Information...........
6. Material Contracts Not Applicable
With the Company
Being Acquired........
7. Additional Information Not Applicable
Required for
Reoffering by Persons
and Parties Deemed to
be Underwriters.......
8. Interests of Named Not Applicable
Experts and Counsel...
9. Disclosure of Not Applicable
Commission Position
on Indemnification
for Securities Act
Liabilities...........
10. Information with Prospectus Summary; The Company;
Respect to S-3 Recent Developments
Registrants...........
11. Incorporation of Available Information; Incorporation
Certain Information of Certain Documents by Reference
by Reference..........
12. Information with Not Applicable
Respect to S-2 or S-3
Registrants...........
13. Incorporation of Not Applicable
Certain Information
by Reference..........
14. Information with Not Applicable
Respect to
Registrants Other
Than S-3 or S-2
Registrants...........
15. Information with Not Applicable
Respect to S-3
Companies.............
16. Information with Not Applicable
Respect to S-2 or S-3
Companies.............
17. Information with Not Applicable
Respect to Companies
Other Than S-3 or S-2
Companies.............
18. Information if Not Applicable
Proxies, Consents or
Authorizations Are To
Be Solicited..........
19. Information if Prospectus Summary; The Exchange
Proxies, Consents or Offer; Description of the Notes
Authorizations Are
Not To Be Solicited
or in an Exchange
Offer.................
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been
filed with the Securities and Exchange Commission. These securities
may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall
not constitute an offer to sell or the solicitation of any offer to
buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
State.
SUBJECT TO COMPLETION--DATED JANUARY 24, 1997
PROSPECTUS
Continental Airlines, Inc.
Offer to Exchange 9 1/2% Senior Notes due 2001, which
have been registered under the Securities Act of 1933, as
amended,
for any and all outstanding 9 1/2% Senior Notes due 2001
The Exchange Offer will expire at 5:00 p.m., New York City time,
on February 26, 1997, unless extended.
The 9 1/2% Senior Notes due 2001 (the "New Notes") of
Continental Airlines, Inc. ("Continental" or the "Company"),
which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration
Statement of which this Prospectus is a part, are hereby offered,
upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the
"Letter of Transmittal" and, together with this Prospectus, the
"Exchange Offer"), in exchange for an equal principal amount of
outstanding 9 1/2% Senior Notes due 2001 (the "Old Notes"), of
which $250,000,000 aggregate principal amount is outstanding as
of the date hereof. The New Notes and the Old Notes are
collectively referred to herein as the "Notes".
Any and all Old Notes that are validly tendered
and not withdrawn on or prior to 5:00 P.M., New York City
time, on the date the Exchange Offer expires, which will
be February 26, 1997 (30 calendar days following the commence-
ment of the Exchange Offer) unless the Exchange Offer is
extended (such date, including as extended, the "Expiration
Date") will be accepted for exchange. Tenders of Old Notes may be
withdrawn at any time prior to 5:00 P.M., New York City time on
the Expiration Date. The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain
customary conditions, which may be waived by the Company, and to
the terms of the Registration Rights Agreement, dated as of
December 10, 1996, between the Company and Lehman Brothers Inc.
(the "Initial Purchaser")(the "Registration Rights Agreement").
Old Notes may be tendered only in integral multiples of $1,000.
See "The Exchange Offer".
The New Notes will be entitled to the benefits of the
same Indenture (as defined herein) that governs the Old Notes and
will govern the New Notes. The form and terms of the New Notes
are the same in all material respects as the form and terms of
the Old Notes, except that the New Notes do not contain terms
with respect to the interest rate step-up provisions and the New
Notes have been registered under the Securities Act and therefore
will not bear legends restricting the transfer thereof. See "The
Exchange Offer" and "Description of the New Notes".
The New Notes will be represented by permanent global
notes in fully registered form and will be deposited with the
Trustee as custodian for and registered in the name of a nominee
of DTC. Beneficial interests in the permanent global notes will
be shown on, and transfers thereof will be effected through,
records maintained by DTC and its participants.
Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission"), as set
forth in no-action letters issued to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter
(available April 13, 1989), Morgan Stanley & Co. Incorporated,
SEC No-Action Letter (available June 5, 1991) and Shearman &
Sterling, SEC No-Action Letter (available July 2, 1993)
(collectively, the "Exchange Offer No-Action Letters"),
the Company believes that the New Notes issued pursuant
to the Exchange Offer may be offered for resale, resold
or otherwise transferred by holders thereof (other than a
broker-dealer who acquires such New Notes directly from the
Trustee for resale pursuant to Rule 144A under the Securities Act
or any other available exemption under the Securities Act or any
holder that is an "affiliate" of the Company as defined in
Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders are not engaged
in, and do not intend to engage in, a distribution of such New
Notes and have no arrangement with any person to participate in a
distribution of such New Notes. By tendering the Old Notes in
exchange for New Notes, each holder, other than a broker-dealer,
will represent to the Company that: (i) it is not an affiliate of
the Company (as defined in Rule 405 under the Securities Act) or
a broker-dealer tendering Old Notes acquired directly from the
Company for its own account; (ii) any New Notes to be received by
it will be acquired in the ordinary course of its business; and
(iii) it is not engaged in, and does not intend to engage in, a
distribution of such New Notes and has no arrangement or
understanding to participate in a distribution of the New Notes.
If a holder of Old Notes is engaged in or intends to engage in a
distribution of the New Notes or has any arrangement or
understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such holder may
not rely on the applicable interpretations of the staff of the
Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with
any secondary resale transaction. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange
Offer (a "Participating Broker-Dealer") must acknowledge that it
will deliver a prospectus in connection with any resale of such
New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection
with resales of New Notes received in exchange for Old Notes
where such Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other
trading activities. Pursuant to the Registration Rights
Agreement, the Company has agreed that starting on the Expiration
Date it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution".
(continued on next page)
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FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER, SEE "RISK
FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------------------
The date of this Prospectus is January 27, 1997
(continued from cover page)
The Company will not receive any proceeds from this
offering. The Company has agreed to pay the expenses of the
Exchange Offer. No underwriter is being utilized in connection
with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE
COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES
IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE
THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES AND BLUE
SKY LAWS OF SUCH JURISDICTION.
The Old Notes have been designated as eligible for
trading in the Private Offerings, Resale and Trading through
Automated Linkages market. Prior to this Exchange Offer, there
has been no public market for the New Notes. If such a market were
to develop, the New Notes could trade at prices that may be higher
or lower than their principal amount. Continental does not intend
to apply for listing of the New Notes on any securities exchange
or for quotation of the New Notes through The Nasdaq Stock Market's
National Market or otherwise. The Initial Purchaser has previously
made a market in the Old Notes and Continental has been advised
that the Initial Purchaser currently intends to make a market in
the New Notes, as permitted by applicable laws and regulations,
after consummation of the Exchange Offer. The Initial Purchaser
is not obligated, however, to make a market in the Old Notes or
the New Notes and any such market making activity may be
discontinued at any time without notice at the sole discretion of
the Initial Purchaser. There can be no assurance as to the
liquidity of the public market for the New Notes or that any
active public market for the New Notes will develop or continue.
If an active public market does not develop or continue, the
market price and liquidity of the New Notes may be adversely
affected. See "Risk Factors--Absence of a Public Market for the
New Notes".
2
AVAILABLE INFORMATION
Continental is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports,
proxy statements and other information with the Commission. Such
reports, proxy statements and other information may be inspected
and copied at the following public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade
Center, 13th Floor, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of prescribed rates. The Commission maintains a Web
site at http://www.sec.gov containing reports, proxy statements
and other information regarding registrants that file
electronically with the Commission, including Continental. In
addition, reports, proxy statements and other information
concerning Continental may be inspected and copied at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.
Continental is the successor to Continental Airlines
Holdings, Inc. ("Holdings"), which merged with and into
Continental on April 27, 1993. Holdings had also been subject to
the informational requirements of the Exchange Act.
This Prospectus constitutes a part of a registration statement
on Form S-4 (together with all amendments and exhibits, the
"Registration Statement") filed by Continental with the
Commission, through the Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR"), under the Securities Act, with
respect to the New Notes offered hereby. This Prospectus omits
certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration
Statement for further information with respect to Continental and
Holdings and the securities offered hereby. Although statements
concerning and summaries of certain documents are included
herein, reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with
the Commission. These documents may be inspected without charge
at the office of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies may be obtained
at fees and charges prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No.
0-9781) are hereby incorporated by reference in this Prospectus:
(i) Continental's Annual Report on Form 10-K for the year ended
December 31, 1995 (as amended by Forms 10-K/A1 and 10-K/A2 filed
on March 8 and April 10, 1996, respectively), (ii) Continental's
Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30, and September 30, 1996, and (iii) Continental's Current
Reports on Form 8-K, filed on January 31, March 26, May 7, June
27, July 22, September 16, October 2, October 10, November 21,
December 5 and December 10, 1996, and January 6, 1997.
All reports and any definitive proxy or information statements
filed by Continental pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the
New Notes offered hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated herein by
reference, or contained in this Prospectus, shall be deemed to be
modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
This Prospectus incorporates documents by reference that are
not presented herein or delivered herewith. These documents are
available without charge to any person to whom a Prospectus is
delivered, upon written or oral request of such person, from
Continental Airlines, Inc., 2929 Allen Parkway, Suite 2010,
Houston, Texas 77019, Attention: Secretary, telephone (713)
834-2950. In order to ensure timely delivery of the documents,
any request should be made by February 19, 1997.
3
PROSPECTUS SUMMARY
The following summary information is qualified in its
entirety by the detailed information and financial statements
(including the notes thereto) appearing elsewhere or incorporated
by reference in this Prospectus. Prospective investors should
consider carefully the matters discussed under the caption "Risk
Factors". Unless otherwise stated or unless the context otherwise
requires, references to "Continental" or the "Company" include
Continental Airlines, Inc. and its predecessors and subsidiaries.
All route, fleet, traffic and similar information appearing in
this Prospectus is as of or for the year ended December 31, 1996,
unless otherwise stated herein.
The Company
Continental Airlines, Inc. is a major United States air
carrier engaged in the business of transporting passengers, cargo
and mail. Continental is the fifth largest United States airline
(as measured by revenue passenger miles in the year ended
December 31, 1996) and, together with its wholly owned subsidiary,
Continental Express, Inc. ("Express"), and its 91%-owned
subsidiary, Continental Micronesia, Inc. ("CMI"), serves 189
airports worldwide.
The Company operates its route system primarily through
domestic hubs at Newark, Houston Intercontinental and Cleveland,
and a Pacific hub on the neighboring islands of Guam and Saipan.
Each of Continental's three domestic hubs is located in a large
business and population center, contributing to a high volume of
"origin and destination" traffic. The Guam/Saipan hub is
strategically located to provide service from Japanese and other
Asian cities to popular resort destinations in the western
Pacific. Continental is the primary carrier at each of these
hubs, accounting for 56%, 79%, 56% and 68% of average daily jet
departures, respectively.
Continental directly serves 132 U.S. cities, with
additional cities (principally in the western and southwestern
United States) connected to Continental's route system under
agreements with America West Airlines, Inc. ("America West").
Internationally, Continental flies to 57 destinations and offers
additional connecting service through alliances with foreign
carriers. Continental operates 58 weekly departures to five
European cities and markets service to eight other cities through
code-sharing agreements. Continental recently announced new
service from Newark to Dusseldorf, Germany, which is scheduled to
commence March 19, 1997, and to Lisbon, Portugal, scheduled to
commence May 1, 1997, and an agreement with Air France for a
joint marketing arrangement that will involve service from Newark
and Houston to Paris. Continental is one of the leading airlines
providing service to Mexico and Central America, serving more
destinations in Mexico than any other United States airline. In
addition, Continental flies to four cities in South America.
Through its Guam/Saipan hub, Continental provides extensive
service in the western Pacific, including service to more
Japanese cities than any other United States carrier.
The Company is a Delaware corporation. Its executive
offices are located at 2929 Allen Parkway, Suite 2010, Houston,
Texas 77019, and its telephone number is (713) 834-2950.
The Exchange Offer
Registration Rights The Old Notes were issued on December
Agreement................ 10, 1996 to the Initial Purchaser.
The Initial Purchaser placed the Old
Notes with institutional investors.
In connection therewith, the Company
and the Initial Purchaser entered
into the Registration Rights
Agreement, providing, among other
things, for the Exchange Offer. See
"The Exchange Offer".
The Exchange Offer....... New Notes are being offered in
exchange for an equal principal amount
of Old Notes. As of the date hereof,
$250,000,000 aggregate principal
amount of Old Notes is outstanding.
Old Notes may be tendered only in
integral multiples of $1,000.
4
Resale of New Notes...... Based on interpretations by the staff
of the Commission, as set forth in
no-action letters issued to third
parties, including the Exchange Offer
No-Action Letters, the Company
believes that the New Notes issued
pursuant to the Exchange Offer may be
offered for resale, resold or
otherwise transferred by holders
thereof (other than a broker-dealer
who acquires such New Notes directly
from the Company for resale pursuant
to Rule 144A under the Securities Act
or any other available exemption under
the Securities Act or any holder that
is an "affiliate" of the Company as
defined in Rule 405 under the
Securities Act), without compliance
with the registration and prospectus
delivery provisions of the Securities
Act, provided that such New Notes are
acquired in the ordinary course of
such holders' business and such
holders are not engaged in, and do not
intend to engage in, a distribution of
such New Notes and have no arrangement
with any person to participate in a
distribution of such New Notes. By
tendering the Old Notes in exchange
for New Notes, each holder, other than
a broker-dealer, will represent to the
Company that: (i) it is not an
affiliate of the Company (as defined
under Rule 405 of the Securities Act)
or a broker-dealer tendering Old Notes
acquired directly from the Company for
its own account; (ii) any New Notes to
be received by it were acquired in the
ordinary course of its business; and
(iii) it is not engaged in, and does
not intend to engage in, a
distribution of such New Notes and has
no arrangement or understanding to
participate in a distribution of the
New Notes. If a holder of Old Notes
is engaged in or intends to engage in
a distribution of the New Notes or has
any arrangement or understanding with
respect to the distribution of the New
Notes to be acquired pursuant to the
Exchange Offer, such holder may not
rely on the applicable interpretations
of the staff of the Commission and
must comply with the registration and
prospectus delivery requirements of
the Securities Act in connection with
any secondary resale transaction.
Each Participating Broker-Dealer that
receives New Notes for its own account
pursuant to the Exchange Offer must
acknowledge that it will deliver a
prospectus in connection with any
resale of such New Notes. The Letter
of Transmittal states that by so
acknowledging and by delivering a
prospectus, a Participating
Broker-Dealer will not be deemed to
admit that it is an "underwriter"
within the meaning of the Securities
Act. This Prospectus, as it may be
amended or supplemented from time to
time, may be used by a Participating
Broker-Dealer in connection with
resales of New Notes received in
exchange for Old Notes where such Old
Notes were acquired by such
Participating Broker-Dealer as a
result of market-making activities or
other trading activities. The Company
has agreed that, starting on the
Expiration Date and ending on the
close of business 180 days after the
Expiration Date, it will make this
Prospectus available to any
Participating Broker-Dealer for use in
connection with any such resale. See
"Plan of Distribution". To comply
with the securities laws of certain
jurisdictions, it may be necessary to
qualify for sale or register the New
Notes prior to offering or selling
such New Notes. The Company has
agreed, pursuant to the Registration
Rights Agreement and subject to
certain specified limitations therein,
to register or qualify the New Notes
5
for offer or sale under the securities
or "blue sky" laws of such
jurisdictions as may be necessary to
permit the holders of New Notes to
trade the New Notes without any
restrictions or limitations under the
securities laws of the several states
of the United States.
Consequences of Failure
to Exchange Old Notes.... Upon consummation of the Exchange
Offer, subject to certain exceptions,
holders of Old Notes who do not
exchange their Old Notes for New Notes
in the Exchange Offer will no longer
be entitled to registration rights and
will not be able to offer or sell
their Old Notes, unless such Old Notes
are subsequently registered under the
Securities Act (which, subject to
certain limited exceptions, the
Company will have no obligation to
do), except pursuant to an exemption
from, or in a transaction not subject
to, the Securities Act and applicable
state securities laws. See "Risk
Factors--Risk Factors Relating to the
Notes and the Offering--Consequences of
Failure to Exchange" and "The Exchange
Offer--Terms of the Exchange Offer".
Expiration Date.......... 5:00 p.m., New York City time, on
February 26, 1997 (30 calendar
days following the commencement of the
Exchange Offer), unless the Exchange
Offer is extended, in which case the
term "Expiration Date" means the
latest date and time to which the
Exchange Offer is extended.
Interest on the New Notes The New Notes will accrue interest at
the applicable per annum rate set
forth on the cover page of this
Prospectus, from the last date on
which interest was paid on the Old
Notes surrendered in exchange therefor
or, if no interest has been paid, from
the Issue Date of such Old Notes.
Interest on the New Notes is payable
on June 15 and December 15 of each
year.
Conditions to the The Exchange Offer is not conditioned
Exchange Offer........... upon any minimum principal amount of
Old Notes being tendered for
exchange. However, the Exchange
Offer is subject to certain
customary conditions, which may be
waived by the Company. See "The
Exchange Offer--Conditions". Except
for the requirements of applicable
federal and state securities laws,
there are no federal or state
regulatory requirements to be
complied with or obtained by the
Company in connection with the
Exchange Offer.
Procedures for Tendering Each holder of Old Notes wishing to
Old Notes................ accept the Exchange Offer must
complete, sign and date the Letter
of Transmittal, or a facsimile
thereof, in accordance with the
instructions contained herein and
therein, and mail or otherwise
deliver such Letter of Transmittal,
or such facsimile, together with the
Old Notes to be exchanged and any
other required documentation to the
Exchange Agent (as defined herein)
at the address set forth herein or
effect a tender of Old Notes
pursuant to the procedures for
book-entry transfer as provided for
herein. See "The Exchange
Offer--Procedures for Tendering" and
"--Book Entry Transfer".
Guaranteed Delivery Holders of Old Notes who wish to
Procedures............... tender their Old Notes and whose Old
Notes are not immediately available
or who cannot deliver their Old
Notes and a properly completed
Letter of Transmittal or any other
documents required by the Letter of
6
Transmittal to the Exchange Agent
prior to the Expiration Date may
tender their Old Notes according to
the guaranteed delivery procedures
set forth in "The Exchange
Offer--Guaranteed Delivery
Procedures".
Withdrawal Rights........ Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New
York City time, on the Expiration
Date. To withdraw a tender of Old
Notes, a written or facsimile
transmission notice of withdrawal must
be received by the Exchange Agent at
its address set forth herein under
"The Exchange Offer--Exchange Agent"
prior to 5:00 p.m., New York City
time, on the Expiration Date.
Acceptance of Old Notes
and Delivery of New Notes Subject to certain conditions, any and
all Old Notes that are properly
tendered in the Exchange Offer prior
to 5:00 p.m., New York City time, on
the Expiration Date will be accepted
for exchange. The New Notes issued
pursuant to the Exchange Offer will be
delivered promptly following the
Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer".
Certain Tax The exchange of New Notes for Old
Considerations........... Notes should not be a sale or exchange
or otherwise a taxable event for
Federal income tax purposes. See
"Certain U.S. Federal Income Tax
Consequences".
Exchange Agent........... Texas Commerce Bank National
Association is serving as exchange
agent (the "Exchange Agent") in
connection with the Exchange Offer.
Fees and Expenses........ All expenses incident to the Company's
consummation of the Exchange Offer and
compliance with the Registration
Rights Agreement will be borne by the
Company. See "The Exchange Offer--Fees
and Expenses".
Use of Proceeds.......... There will be no cash proceeds payable
to Continental from the issuance of
the New Notes pursuant to the Exchange
Offer. The proceeds from the sale of
the Old Notes were used for general
corporate purposes. See "Use of
Proceeds".
Summary of Terms of New Notes
The Exchange Offer relates to the exchange of up to
$250,000,000 aggregate principal amount of Old Notes for up to an
equal aggregate principal amount of New Notes. The New Notes will
be entitled to the benefits of the same Indenture that governs
the Old Notes and will govern the New Notes. The form and terms
of the New Notes are the same in all material respects as the
form and terms of the Old Notes, except that the New Notes do not
contain terms with respect to interest rate step-up provisions
and the New Notes have been registered under the Securities Act
and therefore will not bear legends restricting the transfer
thereof. See "Description of the Notes".
Maturity Date............. December 15, 2001.
Interest Payment Dates.... June 15 and December 15, commencing on
June 15, 1997.
Optional Redemption....... The New Notes will be redeemable at the
option of the Company, in whole or from
time to time in part, at any time, on
not less than 20 nor more than 60 days'
prior notice at a redemption price
7
equal to the sum of (i) the principal
amount thereof, plus (ii) accrued and
unpaid interest, if any, to the
redemption date (subject to the right
of holders of record on relevant record
dates to receive interest due on an
interest payment date), plus (iii) a
Make-Whole Premium, if any. See
"Description of the Notes--Redemption".
Change of Control......... Upon the occurrence of a Change of
Control Triggering Event, each holder
of New Notes will have the right to
require the Company to repurchase all
or any part of such holder's New Notes
at an offer price in cash equal to 101%
of the aggregate principal amount
thereof, plus accrued and unpaid
interest, if any, to the date of
purchase. See "Description of the
Notes--Certain Covenants--Purchase of
Notes Upon a Change of Control
Triggering Event".
Ranking................... The New Notes will be senior unsecured
unsubordinated obligations of the
Company and will rank pari passu with
all other unsecured unsubordinated
obligations of the Company. See
"Description of the Notes".
Covenants................. The Indenture under which the New Notes
will be issued will contain certain
covenants that, among other things,
will limit the ability of the Company
and its subsidiaries to pay dividends,
engage in transactions with
stockholders and affiliates, sell
assets, engage in mergers and
consolidations and make investments in
unrestricted subsidiaries. See
"Description of the Notes--Certain
Covenants".
8
RISK FACTORS
Prospective purchasers of the New Notes should carefully
review the information contained and incorporated by reference in
this Prospectus and should particularly consider the following
matters:
Risk Factors Relating to the Company
Continental's History of Operating Losses
Although Continental recorded net income of $224 million in
1995 and $272 million in the nine months ended September 30,
1996, it had experienced significant operating losses in the
previous eight years. In the long term, Continental's viability
depends on its ability to sustain profitable results of
operations.
Leverage and Liquidity
Continental has successfully negotiated a variety of
agreements to increase its liquidity. Nevertheless, Continental
remains more leveraged and has significantly less liquidity than
certain of its competitors, several of whom have available lines
of credit and/or significant unencumbered assets. Accordingly,
Continental may be less able than certain of its competitors to
withstand a prolonged recession in the airline industry.
As of September 30, 1996, Continental and its consolidated
subsidiaries had approximately $1.7 billion (including current
maturities) of long-term indebtedness and capital lease
obligations and had approximately $870 million of minority
interest, Continental-obligated mandatorily redeemable preferred
securities of subsidiary trust, redeemable warrants, redeemable
preferred stock and common stockholders' equity. On December 10,
1996, the Company consummated the offer and sale of the Old
Notes. Common stockholders' equity reflects the adjustment of the
Company's balance sheet and the recording of assets and
liabilities at fair market value as of April 27, 1993 in
accordance with fresh start reporting.
During the first and second quarters of 1995, in connection
with negotiations with various lenders and lessors, Continental
ceased or reduced contractually required payments under various
agreements, which produced a significant number of events of
default under debt, capital lease and operating lease agreements.
Through agreements reached with the various lenders and lessors,
Continental has cured all of these events of default. The last
such agreement was put in place during the fourth quarter of
1995.
As of September 30, 1996, Continental had approximately
$865 million of cash and cash equivalents, including restricted
cash and cash equivalents of $70 million. Continental does not
have general lines of credit and has significant encumbered
assets.
Prior to the third quarter of 1996, Continental had firm
commitments with The Boeing Company ("Boeing") to take delivery
of 43 new jet aircraft during the years 1997 through 2002. During
the third quarter of 1996, Continental amended the terms of its
commitments with Boeing to take delivery of a total of 61 jet
aircraft during the years 1997 through 2003 with options for an
additional 23 aircraft. These amendments changed the aircraft mix
and timing of delivery of aircraft, in order to more closely
match Continental's anticipated future aircraft needs. Subsequent
to the third quarter of 1996, Continental exercised options with
respect to six such aircraft and in connection with such
exercise, was granted new options for six additional aircraft. In
addition, in October 1996, Continental placed an order with
Boeing for 60 firm 737-500 and 737-600 aircraft that will replace
older, less efficient Stage 2 aircraft between August 1997 and
December 1999, with options for 25 additional 737-600 aircraft.
The estimated aggregate cost of the Company's firm commitment
Boeing aircraft is approximately $4.3 billion. The Company
has commitments of approximately $1.4 billion of backstop
financing for its Boeing aircraft orders. Continental currently
plans to finance these new aircraft using enhanced equipment trust
certificates or similar financing, subject to availability and
market conditions. However, further financing will be needed to
satisfy the Company's capital commitments for new Boeing
aircraft, and for other aircraft related expenditures such as
spare parts, simulators (including for the Company's new Embraer
(EMB) 145 aircraft described below) 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. The Company has also entered into
9
agreements or letters of intent with several outside parties to
lease five DC-10-30 aircraft and one Boeing 747 aircraft and to
purchase three DC-10-30 aircraft and two MD-82 aircraft. As of
December 31, 1996, five of these aircraft have been delivered,
and the remaining six aircraft are expected to be delivered
during the period from January 1, 1997 through mid-year 1997.
Also, in October 1996, the Company secured a credit facility in
the amount of $74.5 million in relation to the purchase of the
three DC10-30 and two MD-82 aircraft.
In addition, in March 1996, Express entered into an
agreement to acquire eight new ATR aircraft, all of which have
been delivered. The aircraft are being accounted for as operating
leases. In conjunction with the acquisition, the Company returned
eight older ATR aircraft accounted for as capital leases. In
September 1996, Express announced an order for 25 firm EMB-145
50-seat regional jets with options for an additional 175
aircraft. Express plans to sublease these aircraft from
Continental. Neither Express nor Continental will have any
obligation to take aircraft that are not financed by a third
party and leased to Continental. Express took delivery of the
first two of the firm aircraft in late December 1996 and will
take delivery of the remaining 23 firm aircraft during the period
from January 1, 1997 through the third quarter of 1998 and
currently anticipates deploying its new regional jet aircraft
initially in Cleveland. Continental expects to account for all of
these aircraft as operating leases.
For 1996, Continental expects to incur cash expenditures
under operating leases relating to aircraft of approximately $568
million, compared with $521 million for 1995, and approximately
$229 million relating to facilities and other rentals,
approximately the same amount as for 1995. In addition,
Continental has capital requirements relating to compliance with
regulations that are discussed below. See "Regulatory Matters".
In July 1996, CMI consummated a $320 million secured term
loan financing with a group of banks and other financial
institutions. The loan was made in two tranches--a $180 million
five-year amortizing term loan with a floating interest rate of
LIBOR plus 175 basis points and a $140 million seven-year
amortization extended loan. The loan is secured by the stock of
CMI and substantially all its unencumbered assets, consisting
primarily of CMI's route authorities, and is guaranteed by
Continental and Air Micronesia, Inc. ("AMI"), the parent company
of CMI which is 91% owned by Continental.
CMI used the net proceeds of the financing to prepay $160
million in principal amount of indebtedness to General Electric
and its subsidiaries (together, "GE") and to pay transaction
costs, and Continental used the $136 million in proceeds received
by it as an indirect dividend from CMI, together with
approximately $28 million in cash on hand, to prepay
approximately $164 million in principal amount of indebtedness to
GE. The bank financing does not contain any restrictive covenants
at the Continental parent level, and none of the assets of
Continental Airlines, Inc. (other than its stock in AMI) is
pledged in connection with the new financing.
The bank financing contains significant financial covenants
relating to CMI, including maintenance of a minimum fixed charge
coverage ratio, a minimum consolidated net worth and minimum
liquidity, and covenants restricting CMI's leverage, its
incurrence of certain indebtedness and its pledge of assets. The
financial covenants also limit the ability of CMI to pay
dividends to Continental.
Also in July 1996, the Company announced its plan to expand
its gates and related facilities in Terminal B as well as planned
improvements at Terminal C, at Continental's Houston
Intercontinental Airport hub. The expansion is expected to cost
approximately $150 million, which the Company expects will be
funded principally by the issuance of tax-exempt debt by the
applicable municipal authority. In connection therewith, the
Company expects to enter into long-term leases (or amendments to
existing leases) with the applicable municipal authority
containing rental payments sufficient to service the related
tax-exempt debt.
Aircraft Fuel
Since fuel costs constitute a significant portion of
Continental's operating costs (approximately 12.5% for the year
ended December 31, 1995 and 12.8% for the nine months ended
September 30, 1996), significant changes in fuel costs would
materially affect the Company's operating results. Jet fuel
prices have recently increased significantly. Fuel prices
continue to be susceptible to international events, and the
Company cannot predict near or longer-term fuel prices. The
Company has entered into petroleum option contracts to provide
10
some short-term protection (currently approximately two months)
against a sharp increase in jet fuel prices. In the event of a
fuel supply shortage resulting from a disruption of oil imports
or otherwise, higher fuel prices or curtailment of scheduled
service could result.
Certain Tax Matters
The Company's United States federal income tax return
for the year ended December 31, 1995 reflects net operating
loss carryforwards ("NOLs") of $2.6 billion, subject to audit
by the Internal Revenue Service, of which $1.3 billion are
not subject to the limitations of Section 382 of the Internal
Revenue Code ("Section 382"). As a result, the Company will
not pay United States federal income taxes (other than
alternative minimum tax) until it has recorded approximately
an additional $1.3 billion of taxable income following
December 31, 1995. For financial reporting purposes,
Continental began accruing tax expense on its income statement
during the second quarter of 1996.
Section 382 imposes limitations on a corporation's ability
to utilize NOLs if it experiences an "ownership change". In
general terms, an ownership change may result from transactions
increasing the ownership of certain stockholders in the stock of
a corporation by more than 50 percentage points over a three-year
period. 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 (including both common and preferred
stock) at the time of the ownership change by the applicable
long-term tax exempt rate (which was 5.75% for December 1996).
Unused annual limitations 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 NOL utilization
would be limited to approximately $110 million per year.
In connection with the Company's reorganization under
Chapter 11 of the U.S. bankruptcy code effective April 27, 1993,
(the "Reorganization") and the recording of assets and liabilities
at fair market value under the American Institute of Certified
Public Accountants' Statement of Position 90-7 "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"), the Company recorded a deferred tax liability at
April 27, 1993, net of the amount of the Company's estimated
realizable NOLs as required by Statement of Financial Accounting
Standards No. 109--"Accounting for Income Taxes". Realization of
a substantial portion of the Company's NOLs will require the
completion during the five-year period following the Reorganization
of transactions resulting in recognition of built-in gains for
federal income tax purposes. The Company has consummated one such
transaction, which had the effect of realizing approximately 40%
of the built-in gains required to be realized over the five-year
period, and currently intends to consummate one or more additional
transactions. If the Company were to determine in the future that
not all such transactions will be completed, an adjustment to the
net deferred tax liability of up to $116 million would be charged
to income in the period such determination was made.
CMI
CMI's operating profit margins have consistently been
greater than the Company's margins overall. In addition to its
non-stop service between Honolulu and Tokyo, CMI's operations
focus on the neighboring islands of Guam and Saipan, resort
destinations that cater primarily to Japanese travelers. Because
the majority of CMI's traffic originates in Japan, its results of
operations are substantially affected by the Japanese economy and
changes in the value of the yen as compared to the dollar.
Appreciation of the yen against the dollar during 1993 and 1994
increased CMI's profitability and a decline of the yen against
the dollar may be expected to decrease it. The yen has declined
against the dollar during 1996 as compared to 1995. To reduce the
potential negative impact on CMI's dollar earnings, CMI, from
time to time, purchases average rate options as a hedge against a
portion of its expected net yen cash flow position. Any
significant and sustained decrease in traffic or yields to and
from Japan could materially adversely affect Continental's
consolidated profitability.
11
No Limitation on Incurrence of Debt or Limitation on Liens
The Indenture that governs the New Notes does not contain
any provisions that would limit the ability of the Company or its
subsidiaries to incur indebtedness or to encumber assets. As a
result, claims of secured creditors of the Company and its
subsidiaries will have priority over claims of holders of the New
Notes with respect to such secured assets. In addition, claims of
holders of the New Notes will be effectively subordinate to the
claims of creditors of the Company's subsidiaries, including
trade creditors.
Risk Factors Relating to the Airline Industry
Industry Conditions and Competition
The airline industry is highly competitive and susceptible
to price discounting. The Company has in the past both responded
to discounting actions taken by other carriers and initiated
significant discounting actions itself. Continental's competitors
include carriers with substantially greater financial resources,
as well as smaller carriers with lower cost structures. Airline
profit levels are highly sensitive to, and during recent years
have been severely impacted by, changes in fuel costs, fare
levels (or "average yield") and passenger demand. Passenger
demand and yields have been adversely affected by, among other
things, the general state of the economy, international events
and actions taken by carriers with respect to fares. From 1990 to
1993, these factors contributed to the domestic airline
industry's incurring unprecedented losses. Although fare levels
have increased recently, fuel costs have also increased
significantly. In addition, significant industry-wide discounts
could be reimplemented at any time, and the introduction of
broadly available, deeply discounted fares by a major United
States airline would likely result in lower yields for the entire
industry and could have a material adverse effect on the
Company's operating results.
The airline industry has consolidated in past years as a
result of mergers and liquidations and may further consolidate in
the future. Among other effects, such consolidation has allowed
certain of Continental's major competitors to expand (in
particular) their international operations and increase their
market strength. Furthermore, the emergence in recent years of
several new carriers, typically with low cost structures, has
further increased the competitive pressures on the major United
States airlines. In many cases, the new entrants have initiated
or triggered price discounting. Aircraft, skilled labor and gates
at most airports continue to be readily available to start-up
carriers. Although management believes that Continental is better
able than some of its major competitors to compete with fares
offered by start-up carriers because of its lower cost structure,
competition with new carriers or other low cost competitors on
Continental's routes could negatively impact Continental's
operating results.
Regulatory Matters
In the last several years, the United States Federal
Aviation Administration (the "FAA") has issued a number of
maintenance directives and other regulations relating to, among
other things, retirement of older aircraft, collision avoidance
systems, airborne windshear avoidance systems, noise abatement,
commuter aircraft safety and increased inspections and
maintenance procedures to be conducted on older aircraft. The
Company expects to continue incurring expenses for the purpose of
complying with the FAA's noise and aging aircraft regulations. In
addition, several airports have recently sought to increase
substantially the rates charged to airlines, and the ability of
airlines to contest such increases has been restricted by federal
legislation, U.S. Department of Transportation regulations and
judicial decisions.
Management believes that the Company benefited
significantly from the expiration of the aviation trust fund tax
(the "ticket tax") on December 31, 1995, although the amount of
any such benefit directly resulting from the expiration of the
ticket tax cannot precisely be determined. The ticket tax was
reinstated on August 27, 1996, and expired again on December 31,
1996. Management believes that the ticket tax will be reimposed
again in 1997 and that such reimposition will have a negative
impact on the Company. Nevertheless, the amount of the negative
impact directly resulting from the reimposition of the ticket tax
cannot be precisely determined.
12
Additional laws and regulations have been proposed from
time to time that could significantly increase the cost of
airline operations by imposing additional requirements or
restrictions on operations. Laws and regulations have also been
considered that would prohibit or restrict the ownership and/or
transfer of airline routes or takeoff and landing slots. Also,
the availability of international routes to United States
carriers is regulated by treaties and related agreements between
the United States and foreign governments that are amendable.
Continental cannot predict what laws and regulations may be
adopted or their impact, but there can be no assurance that laws
or regulations currently proposed or enacted in the future will
not adversely affect the Company.
Risk Factors Relating to the Notes and the Offering
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes
for New Notes pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Old Notes as set
forth in the legend thereon as a consequence of the issuance of
the Old Notes pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate
that it will register the Old Notes under the Securities Act. To
the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes could be adversely affected.
Absence of a Public Market for the New Notes
Prior to the Exchange Offer, there has been no public
market for the New Notes. If such a market were to develop,
the New Notes could trade at prices that may be higher or
lower than their principal amount. Continental does not
intend to apply for listing of the New Notes on any securities
exchange or for quotation of the New Notes on The Nasdaq Stock
Market's National Market or otherwise. Continental has been
advised by the Initial Purchaser that it currently intends to
make a market in the New Notes, as permitted by applicable laws
and regulations, after consummation of the Offering. The Initial
Purchaser is not obligated, however, to make a market in the Old
Notes or the New Notes, and any such market making activity may
be discontinued at any time without notice at the sole discretion
of the Initial Purchaser. There can be no assurance as to the
liquidity of the public market for the New Notes or that any
active public market for the New Notes will develop or continue.
If an active public market does not develop or continue, the
market price and liquidity of the New Notes may be adversely
affected.
13
RECENT DEVELOPMENTS
Stock Split
On June 26, 1996, the Board of Directors of the Company
declared a two-for-one stock split (the "Stock Split") pursuant
to which (a) one share of the Company's Class A common stock, par
value $.01 per share ("Class A common stock"), was issued for
each share of Class A common stock outstanding on July 2, 1996
and (b) one share of the Company's Class B common stock, par
value $.01 per share ("Class B common stock"), was issued for
each share of Class B common stock outstanding on such date.
Shares issuable pursuant to the Stock Split were distributed on
or about July 16, 1996.
Corporate Governance
On June 26, 1996, at the Company's annual meeting of
stockholders, the Company's stockholders approved changes
proposed by the Company to its Certificate of Incorporation,
which, together with amendments to the Company's Bylaws
previously approved by the Company's Board of Directors
(collectively, the "Amendments"), generally eliminated special
classes of directors (except for the right of Air Partners, L.P.
("Air Partners") to elect one-third of the directors in certain
circumstances as described below) and supermajority provisions,
and made a variety of other modifications aimed at streamlining
the Company's corporate governance structure. The Amendments, as
a whole, reflect the reduction of the equity interest of Air
Canada in the Company, as described below, and the decision of
the former directors designated by Air Canada not to stand for
reelection, along with the expiration of various provisions of
the Company's Certificate of Incorporation and Bylaws
specifically included at the time of the Company's reorganization
in 1993.
The Amendments also provide that, at any time after January
1, 1997, shares of Class A common stock may be freely converted
into an equal number of shares of Class B common stock. Under
agreements put in place at the time of the Company's
reorganization in 1993, and designed in part to ensure compliance
with the foreign ownership limitations applicable to United
States air carriers, in light of the substantial stake in the
Company then held by Air Canada, holders of Class A common stock
were not permitted under the Company's Certificate of
Incorporation to convert their shares to Class B common stock. In
recent periods, the market price of Class A common stock has
generally been below the market price of Class B common stock,
which the Company believes is attributable in part to the reduced
liquidity present in the trading market for Class A common stock.
A number of Class A common stockholders requested that the
Company provide for free convertibility of Class A common stock
into Class B common stock, and in light of the reduction of Air
Canada's equity stake, the Company determined that the
restriction was no longer necessary. Any such conversion would
effectively increase the relative voting power of those Class A
common stockholders who do not convert.
On April 19, 1996, the Company's Board of Directors
approved certain agreements (the "Agreements") with its two major
stockholders, Air Canada and Air Partners. The Agreements contain
a variety of arrangements intended generally to reflect the
intention that Air Canada expressed to the Company of divesting
its investment in Continental during December 1996 or early 1997,
subject to market conditions. Air Canada indicated to the Company
that its original investment in Continental had become less
central to Air Canada in light of other initiatives it has
undertaken--particularly expansion within Canada and exploitation
of the 1995 Open Skies agreement to expand Air Canada's own
flights into the U.S. Because of these initiatives, Air Canada
determined it appropriate to redeploy the funds invested in the
Company into other uses in Air Canada's business. Air Canada sold
its remaining shares of the Company's common stock on January 9,
1997. The Agreements also reflect the distribution by Air Partners,
effective March 29, 1996, to its investors (the "AP Investors") of
all of the shares of the Class B common stock held by Air Partners
and the desire of some of the AP Investors to realize the increase
in value of their investment in the Company by selling all or a
portion of their shares of Class B common stock.
Among other things, the Agreements required the Company to
file a registration statement under the Securities Act to permit
the sale by Air Canada of 4,400,000 shares of Class B common
stock held by it and the sale by certain of the AP Investors of
an aggregate of 3,460,480 such shares pursuant to an underwritten
public offering arranged by the Company (the "Secondary
Offering"). The Secondary Offering was completed on May 14, 1996.
14
The Agreements provided for the following additional steps to be
taken in connection with the completion of the Secondary
Offering:
o in light of its reduced equity stake in the Company, Air
Canada was no longer entitled to designate nominees to the
Board of Directors of the Company, caused the four
then-present or former members of the Air Canada board who
served as directors of Continental to decline nomination
for reelection as directors and converted all of its Class
A common stock to Class B common stock;
o Air Canada and Air Partners entered into a number of
agreements restricting, prior to December 16, 1996, further
disposition of the common stock of the Company held by
either of them; and
o each of the existing agreements among the parties was
modified in a number of respects to reflect, among other
matters, the changing composition of the respective equity
interests of the parties.
The Company and Air Canada also entered into a memorandum
of understanding, subject to the fulfillment of certain
conditions, regarding modifications to certain of the Company's
existing "synergy" agreements with Air Canada, which covered
items such as maintenance and ground facilities, and resolved
certain outstanding commercial issues under the agreements. In
May 1996, the Company entered into an agreement with Air Partners
for the cash sale by Air Partners to the Company from time to
time at Air Partners' election for the one-year period beginning
August 15, 1996, of up to an aggregate of $50 million in
intrinsic value (then-current Class B common stock price minus
exercise price) of Air Partners' warrants to purchase Class B
common stock ("Class B Warrants"). In connection with this
agreement, the Company reclassified $50 million from common
equity to redeemable warrants. On November 21, 1996, Air Partners
exercised its right, and the Company subsequently purchased, for
$50 million, warrants to purchase 2,614,379 shares of Class B
common stock.
Air Partners currently holds approximately 9.6% of the
common equity interests and 39.0% of the general voting power of
the Company. If all of the warrants held by Air Partners were
exercised, approximately 19.7% of the common equity and 51.0% of
the general voting power would be held by Air Partners.
Because certain aspects of the Agreements raised issues
under the change in control provisions of certain of the
Company's employment agreements and employee benefit plans, these
agreements and plans were modified to provide a revised change of
control definition that the Company believes is appropriate in
light of the prospective changes to its equity ownership
structure. In connection with the modifications, payments were
made to certain employees, benefits were granted to certain
employees and options equal to 10% of the amount of the options
previously granted to each optionee were granted (subject to
certain conditions) to substantially all employees holding
outstanding options.
In December 1996, Ben Baldanza, Executive Vice President-
Marketing of the Company, resigned.
USE OF PROCEEDS
There will be no cash proceeds payable to Continental from
the issuance of the New Notes pursuant to the Exchange Offer. The
proceeds from the sale of the Old Notes were used for general
corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The following information for the years ended December 31,
1991 and 1992 and for the period January 1, 1993 through April
27, 1993 relates to Continental's predecessor, Holdings.
Information for the period April 28, 1993 through December 31,
1993, for the years ended December 31, 1994 and 1995 and for the
nine months ended September 30, 1995 and 1996 relates to
Continental. The information as to Continental has not been
prepared on a consistent basis of accounting with the information
as to Holdings due to Continental's adoption, effective April 27,
1993, of fresh start reporting in accordance with SOP 90-7.
15
For the years ended December 31, 1991 and 1992, for the
periods January 1, 1993 through April 27, 1993 and April 28, 1993
through December 31, 1993, and for the year ended December 31, 1994,
earnings were not sufficient to cover fixed charges. Additional
earnings of $316 million, $131 million, $979 million, $60 million
and $667 million, respectively, would have been required to
achieve ratios of earnings to fixed charges of 1.0. The ratio of
earnings to fixed charges for the year ended December 31, 1995
was 1.53. The ratio of earning to fixed charges for the nine
months ended September 30, 1995 and September 30, 1996 was
1.61 and 1.88, respectively, and for the three months ended
September 30, 1995 and September 30, 1996 was 1.81 and 1.36,
respectively. For purposes of calculating this ratio, earnings
consist of earnings before taxes and minority interest plus
interest expense (net of capitalized interest), the portion
of rental expense representative of interest expense and
amortization of previously capitalized interest. Fixed charges
consist of interest expense and the portion of rental expense
representative of interest expense.
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of
(i) the Company for the three and nine months ended September 30,
1996 and 1995, the years ended December 31, 1995 and 1994 and the
period from April 28, 1993 through December 31, 1993 and (ii)
Holdings for the period from January 1, 1993 through April 27,
1993. The consolidated financial data of both the Company, for
the years ended December 31, 1995 and 1994 and for the period
from April 28, 1993 through December 31, 1993, and Holdings, for
the period from January 1, 1993 through April 27, 1993, are
derived from their respective audited consolidated financial
statements. On April 27, 1993, in connection with the
Reorganization, the Company adopted fresh start reporting in
accordance with SOP 90-7. A vertical black line is shown in the
table below to separate Continental's post-reorganized
consolidated financial data from the pre-reorganized consolidated
financial data of Holdings since they have not been prepared on a
consistent basis of accounting. The consolidated financial data
of the Company for the three and nine months ended September 30,
1996 and 1995 are derived from its unaudited consolidated
financial statements, which include all adjustments (consisting
solely of normal recurring accruals) that the Company considers
necessary for the presentation of the financial position and
results of operations for these periods. Operating results for
the three and nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for
the year ending December 31, 1996. See the Company's consolidated
financial statements, including the notes thereto, incorporated
by reference herein.
16
Three Months Ended
September 30,
--------------------
1996 1995
------ -----
(unaudited)
Statement of Operations
Data:
Operating Revenue:
Passenger............ $1,546 $1,402
Cargo, mail and other 125 113
------ ------
1,671 1,515
------ ------
Operating Expenses:
Wages, salaries and
related costs...... 397 356
Aircraft fuel........ 201 171
Commissions.......... 135 126
Aircraft rentals..... 128 122
Maintenance,
materials and
repairs............ 118 119
Other rentals and 89 87
landing fees.........
Depreciation and 63 63
amortization.........
Nonrecurring
charge(1)............ 128 --
Other................ 335 318
------ ------
1,594 1,362
------ ------
Operating Income (Loss).. 77 153
------ ------
Nonoperating Income
(Expense):
Interest expense..... (40) (52)
Interest capitalized. 1 1
Interest income...... 11 9
Reorganization -- --
items, net...........
Other, net........... (2) 2
------ ------
(30) (40)
------ ------
Income (Loss) before
Income Taxes,
Minority Interest
and Extraordinary
Gain or Loss......... 47 113
Net Income (Loss)........ $ 18 $ 111
Earnings (Loss) per
Common and Common
Equivalent Share(6).. $ 0.25 $ 1.54
======= =======
Earnings (Loss) per
Common Share
Assuming Full $ 0.25 $ 1.34
Dilution(6).......... ======= =======
Nine Months Ended Year Ended
September 30, December 31,
-------------------- --------------------
1996 1995 1995 1994
------ ----- ------ -----
(In millions of dollars, except per share data)
(unaudited)
Statement of Operations
Data:
Operating Revenue:
Passenger............ $4,440 $3,997 $5,302 $5,036
Cargo, mail and other 359 405 523 634
------ ------ ------ ------
4,799 4,402 5,825 5,670
------ ------ ------ ------
Operating Expenses:
Wages, salaries and
related costs...... 1,139 1,079 1,432(2) 1,532
Aircraft fuel........ 558 508 681 741
Commissions.......... 398 376 489 439
Aircraft rentals..... 379 370 497 433
Maintenance,
materials and
repairs............ 349 317 429 495
Other rentals and 258 271 356 392
landing fees.........
Depreciation and 195 192 253 258
amortization.........
Nonrecurring 128 -- -- --
charge(1)............
Other................ 969 998 1,303 1,391
------ ------ ------ ------
4,373 4,111 5,440 5,681
------ ------ ------ ------
Operating Income (Loss).. 426 291 385 (11)
------ ------ ------ -------
Nonoperating Income
(Expense):
Interest expense..... (129) (162) (213) (241)
Interest capitalized. 2 5 6 17
Interest income...... 30 22 31 23
Reorganization
items, net........... -- -- -- --
Other, net........... 19 110(3) 101(3) (439)(4)
------ -------- -------- --------
(78) (25) (75) (640)
------ ------ ------ ------
Income (Loss) before
Income Taxes,
Minority Interest
and Extraordinary
Gain or Loss......... 348 266 310 (651)
Net Income (Loss)........ $ 272 $ 183 $ 224 $ (613)
Earnings (Loss) per
Common and Common
Equivalent Share(6).. $ 4.16 $ 2.93 $ 3.60 $(11.88)
======= ======= ======= =======
Earnings (Loss) per
Common Share
Assuming Full $ 3.50 $ 2.68 $ 3.15 $(11.88)
Dilution(6).......... ======= ======= ======= ========
Period from
Reorganization Period from
(April 28, 1993) January 1, 1993
through December through
31, 1993 April 27, 1993
---------------- ---------------
Statement of Operations
Data:
Operating Revenue:
Passenger............ $3,493 $1,622
Cargo, mail and other 417 235
------ ------
3,910 1,857
------ ------
Operating Expenses:
Wages, salaries and
related costs...... 1,000 502
Aircraft fuel........ 540 272
Commissions.......... 378 175
Aircraft rentals..... 261 154
Maintenance,
materials and
repairs............ 363 184
Other rentals and
landing fees......... 258 120
Depreciation and 162 77
amortization.........
Nonrecurring
charge(1)............ -- --
Other................ 853 487
------ ------
3,815 1,971
------ ------
Operating Income (Loss).. 95 (114)
------ ------
Nonoperating Income
(Expense):
Interest expense..... (165) (52)
Interest capitalized. 8 2
Interest income...... 14 --
Reorganization -- (818)
items, net...........
Other, net........... (4) 5
------ ------
(147) (863)
------ ------
Income (Loss) before
Income Taxes,
Minority Interest (52) (977)
and Extraordinary
Gain or Loss.........
Net Income (Loss)........ $ (39) $2,640(5)
Earnings (Loss) per
Common and Common
Equivalent Share(6).. $ (1.17) N.M.(7)
======= =======
Earnings (Loss) per
Common Share
Assuming Full $ (1.17) N.M.(7)
Dilution(6).......... ======== =======
As of As of
September December
30, 31,
1996 1995
--------- --------
(In millions of dollars)
(unaudited)
Balance Sheet Data:
Assets:
Cash and Cash Equivalents, including restricted
Cash and Cash Equivalents of $70 and $144,
respectively(8)................................. $ 865 $ 747
Other Current Assets.............................. 638 568
Total Property and Equipment, Net................. 1,510 1,461
Routes, Gates and Slots, Net...................... 1,488 1,531
Other Assets, Net................................. 482 514
--------- ---------
Total Assets.................................. $ 4,983 4,821
========= =========
Liabilities and Stockholders' Equity:
Current Liabilities............................... $ 2,129 $ 1,984
Long-term Debt and Capital Leases................. 1,391 1,658
Deferred Credits and Other Long-term Liabilities.. 593 564
Minority Interest................................. 16 27
Continental-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust holding
solely Convertible Subordinated Debentures(9)... 242 242
Redeemable Warrants(10)........................... 50 --
Redeemable Preferred Stock........................ 45 41
Common Stockholders' Equity....................... 517 305
--------- ---------
Total Liabilities and Stockholders' Equity..... $ 4,983 $ 4,821
========= =========
(1) Includes a $128 million nonrecurring charge recorded in the
third quarter of 1996 associated primarily with the decision
to accelerate the replacement of its DC-9-30, DC-10-10,
727-200, 737-100, and 737-200 aircraft. In connection with its
decision to accelerate the replacement of such aircraft, the
Company wrote down its Stage 2 aircraft inventory that is not
expected to be consumed through operations to its estimated
fair value, and recorded a provision for costs associated with
the return of leased aircraft at the end of their respective
lease terms.
(2) Includes a $20 million cash payment in 1995 by the Company in
connection with a 24-month collective bargaining agreement
entered into by the Company and the Independent Association of
Continental Pilots.
(3) Includes gain on a series of transactions whereby the Company
and its subsidiary, Continental CRS Interests, Inc.
("Continental CRS"), formerly known as System One Information
Management, Inc. ("System One") and AMADEUS, a European
computerized reservation system transferred a substantial
portion of System One's assets, as well as certain
liabilities, to System One Management, L.L.C. ("LLC"), a newly
formed limited liability company.
(4) Includes a provision of $447 million recorded in the fourth
quarter of 1994 associated with the planned early retirement
of certain aircraft and closed or underutilized airport and
maintenance facilities and other assets.
(5) Reflects a $3.6 billion extraordinary gain from
extinguishment of debt.
(6) On June 26, 1996, the Company announced the Stock Split with
respect to the Company's Class A common stock and Class B
common stock. Accordingly, the earnings per share information
has been restated to give effect to the Stock Split.
(7) Historical per share data for Holdings is not meaningful
since the Company has been recapitalized and has adopted fresh
start reporting as of April 27, 1993.
(8) Restricted cash and cash equivalents agreements relate
primarily to workers' compensation claims and the terms of
certain other agreements. In addition, CMI is required by loan
agreements to maintain certain minimum consolidated net worth
and liquidity levels, which effectively restrict the amount of
cash available to Continental from CMI.
(9) The sole assets of the Trust are Convertible Subordinated
Debentures, with an aggregate principal amount of $250
million, which bear interest at the rate of 8 1/2% per annum
and mature on December 1, 2020. Upon repayment, the
Continental-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust will be mandatorily redeemed.
(10) The Company agreed to repurchase up to $50 million of
intrinsic value (the then-current Class B common stock price
minus exercise price) of Class B Warrants at the election of
Air Partners during the one-year period commencing August 15,
1996. On November 21, 1996, Air Partners exercised its right,
and the Company subsequently purchased, for $50 million,
warrants to purchase 2,614,379 shares of Class B common stock.
17
THE EXCHANGE OFFER
The summary herein of certain provisions of the
Registration Rights Agreement does not purport to be complete and
reference is made to the provisions of the Registration Rights
Agreement, which has been filed as an exhibit to the Registration
Statement and a copy of which is available as set forth under the
heading "Available Information".
Terms of the Exchange Offer
General
In connection with the issuance of the Old Notes pursuant
to a Purchase Agreement dated as of December 4, 1996, between the
Company and the Initial Purchaser, the Initial Purchaser and its
respective assignees became entitled to the benefits of the
Registration Rights Agreement.
Under the Registration Rights Agreement, the Company is
obligated to use its best efforts to (i) file the Registration
Statement of which this Prospectus is a part for a registered
exchange offer with respect to an issue of new Notes identical in
all material respects to the Old Notes within 45 calendar days
after December 10, 1996, the date the Old Notes were issued (the
"Issue Date"), (ii) cause the Registration Statement to become
effective within 60 days after filing of the Registration
Statement, (iii) cause the Registration Statement to remain
effective until the closing of the Exchange Offer and (iv) to
consummate the Exchange Offer within 30 calendar days after the
date the Registration Statement is declared effective by the
Commission. The Company will keep the Exchange Offer open for a
period of not less than 30 calendar days. The Exchange Offer
being made hereby, if commenced and consummated within the time
periods described in this paragraph, will satisfy those
requirements under the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in
this Prospectus and in the Letter of Transmittal (which together
constitute the Exchange Offer), all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date will be accepted for exchange. New Notes of the
same class will be issued in exchange for an equal principal
amount of outstanding Old Notes accepted in the Exchange Offer.
Old Notes may be tendered only in integral multiples of $1,000.
This Prospectus, together with the Letter of Transmittal, is
being sent to all registered holders as of January 27,
1997. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange.
However, the obligation to accept Old Notes for exchange pursuant
to the Exchange Offer is subject to certain conditions as set
forth herein under "--Conditions".
Old Notes shall be deemed to have been accepted as validly
tendered when, as and if the Trustee has given oral or written
notice thereof to the Exchange Agent. The Exchange Agent will act
as agent for the tendering holders of Old Notes for the purposes
of receiving the New Notes and delivering New Notes to such
holders.
Based on interpretations by the staff of the Commission, as
set forth in no-action letters issued to third parties, including
the Exchange Offer No-Action Letters, the Company believes that
the New Notes issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by holders
thereof (other than a broker-dealer who acquires such New Notes
directly from the Company for resale pursuant to Rule 144A under
the Securities Act or any other available exemption under the
Securities Act or any holder that is an "affiliate" of the
Company as defined in Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes
are acquired in the ordinary course of such holders' business and
such holders are not engaged in, and do not intend to engage in,
18
a distribution of such New Notes and have no arrangement with any
person to participate in a distribution of such New Notes. By
tendering the Old Notes in exchange for New Notes, each holder,
other than a broker-dealer, will represent to the Company that:
(i) it is not an affiliate of the Company (as defined in Rule
405 under the Securities Act) or a broker-dealer tendering Old Notes
acquired directly from the Company for its own account; (ii) any
New Notes to be received by it will be acquired in the ordinary
course of its business; and (iii) it is not engaged in, and does
not intend to engage in, a distribution of such New Notes and has
no arrangement or understanding to participate in a distribution
of the New Notes. If a holder of Old Notes is engaged in or
intends to engage in a distribution of the New Notes or has any
arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such
holder may not rely on the applicable interpretations of the
staff of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Each
Participating Broker-Dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection
with resales of New Notes received in exchange for Old Notes
where such Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, starting on the
Expiration Date and ending on the close of business 180 days
after the Expiration Date, it will make this Prospectus available
to any Participating Broker-Dealer for use in connection with any
such resale. See "Plan of Distribution".
In the event that any changes in law or the applicable
interpretations of the staff of the Commission do not permit
Continental to effect the Exchange Offer, if the Registration
Statement is not declared effective within 60 calendar days after
the filing thereof with the Commission under certain
circumstances or the Exchange Offer is not consummated within 30
days after the effectiveness of the Registration Statement under
certain other circumstances, at the request of a holder not
eligible to participate in the Exchange Offer or under certain
other circumstances described in the Registration Rights
Agreement, Continental will, in lieu of effecting the
registration of the New Notes pursuant to the Registration
Statement and at no cost to the holders of Old Notes, (a) as
promptly as practicable, file with the Commission a shelf
registration statement (the "Shelf Registration Statement")
covering resales of the Old Notes, (b) use its best efforts to
cause the Shelf Registration Statement to be declared effective
under the Securities Act by the 105th calendar day after the
Issue Date and (c) use its best efforts to keep effective the
Shelf Registration Statement for a period of three years after
its effective date (or for such shorter period as shall end when
all of the Old Notes covered by the Shelf Registration Statement
have been sold pursuant thereto or may be freely sold pursuant to
Rule 144 under the Securities Act).
In the event that neither the consummation of the Exchange
Offer nor the declaration by the Commission of the Shelf
Registration Statement to be effective (each a "Registration
Event") occurs on or prior to the 105th calendar day following
the Issue Date, the interest rate per annum borne by the Old Notes
will be increased by 0.50% effective from and including such
105th day to, but excluding, the date on which a Registration
Event occurs. In the event that the Shelf Registration Statement
ceases to be effective at any time, during the period the Company
is required to keep such Shelf Registration Statement effective,
for more than 60 days, whether or not consecutive, during any
12-month period, the interest rate per annum borne by the Old
Notes will be increased by 0.50% from the 61st day of the
applicable 12-month period such Shelf Registration Statement
ceases to be effective until such time as the Shelf Registration
Statement again becomes effective.
Upon consummation of the Exchange Offer, subject to certain
exceptions, holders of Old Notes who do not exchange their Old
Notes for New Notes in the Exchange Offer will no longer be
entitled to registration rights and will not be able to offer or
sell their Old Notes, unless such Old Notes are subsequently
registered under the Securities Act (which, subject to certain
limited exceptions, the Company will have no obligation to do),
except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities
laws. See "Risk Factors--Risk Factors Relating to the
Notes--Consequences of Failure to Exchange".
Expiration Date; Extensions; Amendments; Termination
The term "Expiration Date" shall mean February 26, 1997
(30 calendar days following the commencement of the Exchange
Offer), unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall
mean the latest date to which the Exchange Offer is extended.
Notwithstanding any extension of the Exchange Offer, if the
Exchange Offer is not consummated by February 26, 1997, the
interest rate borne by the Notes is subject to increase. See
"--General".
19
In order to extend the Expiration Date, the Company will
notify the Exchange Agent of any extension by oral or written
notice and will notify the holders of the Old Notes by means of
a press release or other public announcement prior to 9:00 A.M.,
New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the
Company is extending the Exchange Offer for a specified period of
time.
The Company reserves the right (i) to delay acceptance of
any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer and not permit acceptance of Old Notes not
previously accepted if any of the conditions set forth herein
under "-- Conditions" shall have occurred and shall not have been
waived by the Company, by giving oral or written notice of such
delay, extension or termination to the Exchange Agent, or (ii) to
amend the terms of the Exchange Offer in any manner deemed by it
to be advantageous to the holders of the Old Notes. Any such
delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice
thereof to the Exchange Agent. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment in a
manner reasonably calculated to inform the holders of the Old
Notes of such amendment.
Without limiting the manner in which the Company may choose
to make public announcement of any delay, extension, amendment or
termination of the Exchange Offer, the Company shall have no
obligation to publish, advertise, or otherwise communicate any
such public announcement, other than by making a timely release
to an appropriate news agency.
Interest on the New Notes
The New Notes will accrue interest at the applicable per
annum rate from the last date on which interest was paid on the
Old Notes surrendered in exchange therefor or, if no interest has
been paid, from the Issue Date of such Old Notes. Interest on the
New Notes is payable on June 15 and December 15 of each year
commencing June 15, 1997.
Procedures for Tendering
To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter
of Transmittal, and mail or otherwise deliver such Letter of
Transmittal or such facsimile, together with any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder
must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION
AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL
OR OLD NOTES SHOULD BE SENT TO THE COMPANY. Delivery of all
documents must be made to the Exchange Agent at its address set
forth below. Holders may also request their respective brokers,
dealers, commercial banks, trust companies or nominees to effect
such tender for such holders.
The tender by a holder of Old Notes will constitute an
agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
Only a holder of Old Notes may tender such Old Notes in the
Exchange Offer. The term "holder" with respect to the Exchange
Offer means any person in whose name Old Notes are registered on
the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder.
20
Any beneficial owner whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender should contact such registered
holder promptly and instruct such registered holder to tender on
his behalf. If such beneficial owner wishes to tender on his own
behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes,
either make appropriate arrangements to register ownership of the
Old Notes in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered
ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed by any member
firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial
bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the
meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible
Institution") unless the Old Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other
than the registered holder of any Old Notes listed therein, such
Old Notes must be endorsed or accompanied by bond powers and a
proxy which authorizes such person to tender the Old Notes on
behalf of the registered holder, in each case as the name of the
registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond
powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons
should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority
to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility
(including time of receipt) and withdrawal of the tendered Old
Notes will be determined by the Company in its sole discretion,
which determination will be final and binding. The Company
reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes which, if accepted, would, in
the opinion of counsel for the Company, be unlawful. The Company
also reserves the absolute right to waive any irregularities or
conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be
final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Neither
the Company, the Exchange Agent nor any other person shall be
under any duty to give notification of defects or irregularities
with respect to tenders of Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived
will be returned without cost to such holder by the Exchange
Agent to the tendering holders of Old Notes, unless otherwise
provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole
discretion, subject to the provisions of the Indenture, to (i)
purchase or make offers for any Old Notes that remain outstanding
subsequent to the Expiration Date or, as set forth under "--
Conditions", to terminate the Exchange Offer in accordance with
the terms of the Registration Rights Agreement and (ii) to the
extent permitted by applicable law, purchase Old Notes in the
open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, all Old Notes properly tendered will be accepted,
promptly after the Expiration Date, and the New Notes will be
issued promptly after acceptance of the Old Notes. See "--
Conditions" below. For purposes of the Exchange Offer, Old Notes
shall be deemed to have been accepted as validly tendered for
21
exchange when, as and if the Company has given oral or written
notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of certificates
for such Old Notes or a timely Book-Entry Confirmation of such
Old Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility, a properly completed and duly executed Letter
of Transmittal and all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Old Notes are
submitted for a greater principal amount than the holder desires
to exchange, such unaccepted or nonexchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in
the case of Old Notes tendered by book-entry transfer procedures
described below, such nonexchanged Old Notes will be credited to
an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of
the Exchange Offer.
Book-Entry Transfer
The Exchange Agent will make a request to establish an
account with respect to the Old Notes at the Book-Entry Transfer
Facility for purposes of the Exchange Offer within two business
days after the date of this Prospectus. Any financial institution
that is a participant in the Book-Entry Transfer Facility's
systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures
for transfer. However, although delivery of Old Notes may be
effected through book-entry transfer at the Book-Entry Transfer
Facility, the Letter of Transmittal or facsimile thereof with any
required signature guarantees and any other required documents
must, in any case, be transmitted to and received by the Exchange
Agent at one of the addresses set forth below under "-- Exchange
Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
Guaranteed Delivery Procedures
If a registered holder of the Old Notes desires to tender
such Old Notes, and the Old Notes are not immediately available,
or time will not permit such holder's Old Notes or other required
documents to reach the Exchange Agent before the Expiration Date,
or the procedures for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the
name and address of the holder of Old Notes and the amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered
Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent and (iii) the
certificates for all physically tendered Old Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may
be, and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
Withdrawal of Tenders
Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent prior to 5:00
p.m., New York City time on the Expiration Date at one of the
addresses set forth below under "--Exchange Agent". Any such
notice of withdrawal must specify the name of the person having
tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes)
22
and (where certificates for Old Notes have been transmitted)
specify the name in which such Old Notes are registered, if
different from that of the withdrawing holder. If certificates
for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates,
the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution
unless such holder is an Eligible Institution. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer
described above, any notice of withdrawal must specify the name
and number of the account at the Book-Entry Transfer Facility to
be credited with the withdrawn Old Notes and otherwise comply
with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of
such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old
Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof
without cost to such holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer
Facility for the Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by
following one of the procedures described under "-- Procedures
for Tendering" and "--Book-Entry Transfer" above at any time on
or prior to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, Old
Notes will not be required to be accepted for exchange, nor will
New Notes be issued in exchange for any Old Notes, and the
Company may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Old Notes, if because of any
change in law, or applicable interpretations thereof by the
Commission, the Company determines that it is not permitted to
effect the Exchange Offer. The Company has no obligation to, and
will not knowingly, permit acceptance of tenders of Old Notes
from affiliates of the Company (within the meaning of Rule 405
under the Securities Act) or from any other holder or holders who
are not eligible to participate in the Exchange Offer under
applicable law or interpretations thereof by the Commission, or
if the New Notes to be received by such holder or holders of Old
Notes in the Exchange Offer, upon receipt, will not be tradable
by such holder without restriction under the Securities Act and
the Exchange Act and without material restrictions under the
"blue sky" or securities laws of substantially all of the states
of the United States.
Exchange Agent
Texas Commerce Bank National Association has been
appointed as Exchange Agent for the Exchange Offer. Questions and
requests for assistance and requests for additional copies of
this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Mail: By Hand:
Texas Commerce Bank National Texas Commerce Bank National
Association Association
P.O. Box 2320 One Main Place
Dallas, Texas 75221-2320 1201 Main Street, 18th Floor
Attention: Frank Ivins, Registered Dallas, Texas 75202
Bond Events Attention: Frank Ivins, Registered
Bond Events
Telephone: (214) 672-5678
Facsimile: (214) 672-5746
23
Fees and Expenses
The expenses of soliciting tenders pursuant to the
Exchange Offer will be borne by the Company. The principal
solicitation for tenders pursuant to the Exchange Offer is being
made by mail; however, additional solicitations may be made by
telegraph, telephone, telecopy or in person by officers and
regular employees of the Company.
The Company will not make any payments to brokers,
dealers or other persons soliciting acceptances of the Exchange
Offer. The Company, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of
the Prospectus and related documents to the beneficial owners of
the Old Notes, and in handling or forwarding tenders for
exchange.
The expenses to be incurred in connection with the
Exchange Offer will be paid by the Company, including fees and
expenses of the Exchange Agent and Trustee and accounting, legal,
printing and related fees and expenses.
The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange
Offer. If, however, certificates representing New Notes or Old
Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the
name of, any person other than the registered holder of the Old
Notes tendered, or if tendered Old Notes are registered in the
name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by
the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
24
DESCRIPTION OF THE NOTES
The Old Notes were issued, and the New Notes offered hereby
will be issued under an indenture dated as of December 10, 1996
(the "Indenture") between the Company, as issuer, and Texas
Commerce Bank National Association, as trustee (the "Trustee"), a
copy of the form of which is available from the Trustee. The
following summary of the material provisions of the Indenture
does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the provisions of the Indenture,
including the definitions of certain terms contained therein. For
definitions of certain capitalized terms used in the following
summary, see "Certain Definitions".
General
The Notes will mature on December 15, 2001, will be limited
to $250 million aggregate principal amount and will be unsecured
senior obligations of the Company. Each Note will bear interest
at the rate set forth on the cover page hereof from its date of
issue or from the most recent interest payment date to which
interest has been paid or duly provided for, payable on June 15,
1997 and semiannually thereafter on June 15 and December 15 in
each year until the principal thereof is paid or duly provided
for to the Person in whose name the Note (or any predecessor
Note) is registered at the close of business on the June 1 or
December 1 next preceding such interest payment date. Interest
will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Principal of, premium, if any, and interest on the Notes
will be payable, and the Notes will be exchangeable and
transferable, at the office or agency of the Company in The City
of New York maintained for such purposes (which initially will be
the Trustee); provided, however, that, at the option of the
Company, interest may be paid by check mailed to the address of
the Person entitled thereto as such address shall appear on the
security register. The Notes will be issued only in registered
form without coupons and only in denominations of $1,000 and any
integral multiple thereof. No service charge will be made for any
registration of transfer or exchange or redemption of Notes, but
the Company may require payment in certain circumstances of a sum
sufficient to cover any tax or other governmental charge that may
be imposed in connection therewith.
Ranking
The Notes will be unsecured senior obligations of the
Company, and the indebtedness evidenced by the Notes will rank
pari passu in right of payment with all other existing and future
unsubordinated obligations of the Company and senior in right of
payment to all existing and future obligations of the Company
expressly subordinated in right of payment to the Notes. The
Notes will be effectively subordinated to secured senior
obligations of the Company with respect to the assets of the
Company securing such obligations. The Notes also will be
effectively subordinated to all existing and future liabilities
of the Company's subsidiaries. As of September 30, 1996 on a pro
forma basis after giving effect to the issuance of the Old Notes
and the use of the proceeds therefrom, consolidated indebtedness
of the Company would have been approximately $1.9 billion,
(including approximately $481 million of indebtedness of the
Company's subsidiaries), of which approximately $1.3 billion
would have been secured senior indebtedness, approximately $346
million would have been unsecured senior indebtedness (including
$250 million of the Notes) and $230 million would have been
subordinated indebtedness. The Company also has outstanding
4,997,000 8 1/2% Convertible Trust Originated Preferred
Securities (liquidation amount $50 per Preferred Security). The
Indenture contains no limitations on the ability of the Company
and its Restricted Subsidiaries to incur additional indebtedness
in the future or to mortgage or pledge any of its assets. As of
the date hereof, all of the Company's subsidiaries are Restricted
Subsidiaries.
Sinking Fund
The Notes will not be entitled to the benefit of any
sinking fund.
Redemption
The Notes will be redeemable at the option of the Company,
in whole or from time to time in part, at any time, on not less
than 20 nor more than 60 days' prior notice at a redemption price
equal to the sum of (i) the principal amount thereof, plus (ii)
25
accrued and unpaid interest, if any, to the redemption date
(subject to the right of holders of record on relevant record
dates to receive interest due on an interest payment date), plus
(iii) a Make-Whole Premium, if any.
"Make-Whole Premium" will be defined, with respect to a
Note, as the excess, if any, of (A) the present value of the
required interest and principal payments due on such Note on or
after the redemption date, computed using a discount rate equal
to the Treasury Rate plus 100 basis points, over (B) the sum of
the then outstanding principal amount of such Note plus the
accrued and unpaid interest paid on the redemption date.
"Treasury Rate" will be defined as the yield to maturity at
the time of computation of United States Treasury securities with
a constant maturity (as compiled and published in the most recent
Federal Reserve Statistical Release H.15 (519) which has become
publicly available at least two Business Days prior to the date
fixed for prepayment (or, if such Statistical Release is no
longer published, any publicly available source of similar market
data)) most nearly equal to the then remaining Average Life of
the Notes; provided, however, that if the Average Life of the
Notes is not equal to the constant maturity of a United States
Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which
such yields are given, except that if the Average Life of the
Notes is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
If less than all the Notes are to be redeemed, the
particular Notes to be redeemed will be selected not more than 60
days prior to the redemption date by the Trustee by such method
as the Trustee will deem fair and appropriate; provided, however,
that no such partial redemption will reduce the principal amount
of a Note not redeemed to less than $1,000. Notice of redemption
will be mailed, first-class postage prepaid, at least 20 but not
more than 60 days before the redemption date to each holder of
Notes to be redeemed at its registered address. On and after the
redemption date, interest will cease to accrue on Notes or
portions thereof called for redemption and accepted for payment.
Certain Covenants
The Indenture will contain, among others, the following
covenants:
Limitation on Restricted Payments. (a) The Company will not,
and will not permit any Restricted Subsidiary to, directly or
indirectly, take any of the following actions:
(i) declare or pay any dividend on, or make any
distribution to holders of, any shares of the Capital Stock
of the Company (other than dividends or distributions payable
solely in shares of its Qualified Capital Stock or in
options, warrants or other rights to acquire such shares of
Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for
value, directly or indirectly, any shares of Capital Stock of
the Company or any Subsidiary, or any options, warrants or
other rights to acquire such shares of Capital Stock, held by
Persons other than the Company or a Restricted Subsidiary;
(iii) make any Investment in any Unrestricted Subsidiary or
any Affiliate (other than a Restricted Subsidiary); or
(iv) declare or pay any dividend or distribution on any
Capital Stock of any Restricted Subsidiary to any Person
(other than (a) to the Company or any of its wholly owned
Restricted Subsidiaries or (b) to all holders of Capital
Stock of any Restricted Subsidiary on a pro rata basis)
(such payments or other actions described in (but not excluded
from) clauses (i) through (iv) being collectively referred to as
"Restricted Payments"), unless (1) at the time of, and
immediately after giving effect to, the proposed Restricted
Payment (the amount of any such Restricted Payment, if other than
cash, as determined by the Board of Directors of the Company as
of the date thereof, whose determination shall be conclusive and
26
evidenced by a Board Resolution), no Default or Event of Default
shall have occurred and be continuing, (2) after giving effect to
the proposed Restricted Payment, the Company would have not less
than $500 million of Specified Cash and Cash Equivalents which
are not required to be shown as restricted on a balance sheet of
the Company and its Subsidiaries prepared in accordance with
GAAP, and (3) the aggregate amount of all Restricted Payments
declared or made after the date of the Indenture shall not exceed
the sum of:
(A) 50% (or, if the Notes at the time of the proposed
Restricted Payment are rated investment grade by both Moody's
and S&P, 75%) of the Consolidated Adjusted Net Income of the
Company accrued on a cumulative basis during the period
beginning on the first day of the Company's first fiscal
quarter commencing prior to the date of the Indenture and
ending on the last day of the Company's last fiscal quarter
ending prior to the date of such proposed Restricted Payment
(or, if such aggregate cumulative Consolidated Adjusted Net
Income shall be a loss, minus 100% of such loss), plus
(B) the aggregate net proceeds (including the fair value
of non-cash proceeds, as determined by the Board of
Directors) received after the date of the Indenture by the
Company as capital contributions or from the issuance or sale
of shares of Qualified Capital Stock of the Company
(including upon the exercise of options, warrants or rights)
or warrants, options or rights to purchase shares of
Qualified Capital Stock of the Company, plus
(C) the aggregate principal amount of debt securities
(including, without limitation, the debt securities issued in
connection with the 8 1/2% Convertible Trust Originated
Preferred Securities) or liquidation value of Redeemable
Capital Stock, whenever issued, that have been converted into
or exchanged for Qualified Capital Stock of the Company after
the date of the Indenture, to the extent of the net proceeds
received upon the sale or other issuance of such securities
(including the fair value of non-cash proceeds, as determined
by the Board of Directors), together with the aggregate net
cash proceeds received by the Company at the time of such
conversion or exchange, plus
(D) $250 million.
(b) Notwithstanding paragraph (a) above, the Company and
any Restricted Subsidiary may take the following actions so long
as (with respect to clauses (ii) through (v) below) no Default or
Event of Default shall have occurred and be continuing and so
long as after giving effect to the actions referred to in clause
(iii) or (iv) below, the Company would have not less than $500
million of Specified Cash and Cash Equivalents which are not
required to be shown as restricted on a balance sheet of the
Company and its Subsidiaries prepared in accordance with GAAP:
(i) the payment of any dividend within 60 days after the
date of declaration thereof, if at such date of declaration
the payment of such dividend would have complied with the
provisions of paragraph (a) above and such payment will be
deemed to have been paid on such date of declaration for
purposes of the calculation required by paragraph (a) above;
(ii) the purchase, redemption or other acquisition or
retirement for value of any shares of Capital Stock of the
Company in exchange for, or out of the net cash proceeds of a
substantially concurrent issuance and sale of, shares of
Qualified Capital Stock of the Company;
(iii) the declaration and payment of any dividend or
distribution to holders of the Capital Stock of the Company
consisting of cash or property relating to, or securities
deriving their value from the Company's interest in, AMADEUS,
assets relating to the Company's reservation services
business or assets relating to the Company's catering service
business;
(iv) the purchase, redemption or other acquisition or
retirement for value of any shares of Capital Stock of the
Company owned by Air Canada or any Affiliate thereof as of
the date of the Indenture; and
27
(v) the purchase, redemption or other acquisition or
retirement for value of shares of Capital Stock of the
Company issued, or any payments, awards or grants, pursuant
to employee benefits plans or agreements in the ordinary
course of business and consistent with past practice.
The actions described in this paragraph (b) shall be
Restricted Payments that shall be permitted to be taken in
accordance with this paragraph (b) but the actions described in
clause (i) and (ii) of this paragraph (b) shall reduce the amount
that would otherwise be available for Restricted Payments under
clause (3) of paragraph (a) above.
Limitation on Transactions with Affiliates. The Company
will not, and will not permit any Restricted Subsidiary to, enter
into or suffer to exist, directly or indirectly, any transaction
or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or
services) with, or for the benefit of, any Affiliate of the
Company or of any Restricted Subsidiary (other than the Company,
a wholly owned Restricted Subsidiary or Air Micronesia, Inc. or
Continental Micronesia Inc., so long as they are Restricted
Subsidiaries) unless (i) such transaction or series of
transactions are on terms that are no less favorable to the
Company or such Restricted Subsidiary, as the case may be, than
those that could have been obtained in an arm's-length
transaction with third parties that are not Affiliates, and (ii)
with respect to any transaction or series of related transactions
involving aggregate consideration equal to or greater than $25
million, the Company delivers an Officers' Certificate to the
Trustee certifying that such transaction or series of
transactions complies with clause (i) above and that either such
transaction or series of related transactions has been approved
by a majority of the Disinterested Directors of the Company or
the Company has obtained a written opinion from a nationally
recognized investment banking firm to the effect that such
transaction or series of related transactions is fair to the
Company or its Restricted Subsidiary, as the case may be, from a
financial point of view; provided, however, that this covenant
will not restrict (1) the Company from paying reasonable and
customary compensation and fees (including securities of the
Company) to directors of the Company or any Restricted Subsidiary
who are not employees of the Company or any Restricted Subsidiary
or from paying amounts or making awards or grants of cash,
securities or otherwise pursuant to employee benefit plans or
agreements in the ordinary course of business and consistent with
past practice, (2) transactions pursuant to tax sharing
agreements between the Company and any other Person with which
the Company is part of a consolidated group for tax purposes, and
(3) any Restricted Payment not prohibited by the "Limitation on
Restricted Payments" covenant.
Under Delaware law, the Disinterested Directors' fiduciary
obligations require that they act in good faith in a manner which
they reasonably believe to be in the best interests of the
Company and its stockholders, which may not necessarily be the
same as those of holders of the Notes.
Purchase of Notes upon a Change of Control Triggering
Event. If a Change of Control Triggering Event shall occur at any
time, then each holder of Notes will have the right to require
that the Company purchase such holder's Notes, in whole or in
part in integral multiples of $1,000, at a purchase price (the
"Change of Control Purchase Price") in cash in an amount equal to
101% of the principal amount thereof, plus accrued interest, if
any, to the date of purchase (the "Change of Control Purchase
Date"), pursuant to the offer described below (the "Change of
Control Offer") and the other procedures set forth in the
Indenture.
Within 15 days following any Change of Control Triggering
Event, the Company shall notify the Trustee thereof and give
written notice of such Change of Control Triggering Event to each
holder of Notes by first-class mail, postage prepaid, at the
address of such holder appearing in the security register,
stating, among other things, (i) the purchase price and the
purchase date, which shall be a Business Day no earlier than 30
days nor later than 60 days from the date such notice is mailed,
or such later date as is necessary to comply with requirements
under the Exchange Act or any applicable securities laws or
regulations; (ii) that any Note not tendered will continue to
accrue interest; (iii) that, unless the Company defaults in the
payment of the purchase price, any Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue
interest after the Change of Control Purchase Date; and (iv)
certain other procedures that a holder of Notes must follow to
accept a Change of Control Offer or to withdraw such acceptance.
28
If a Change of Control Offer is made, there can be no
assurance that the Company will have available funds sufficient
to pay the Change of Control Purchase Price for all of the Notes
that might be delivered by holders of the Notes seeking to accept
the Change of Control Offer. The failure of the Company to make
or consummate the Change of Control Offer or pay the Change of
Control Purchase Price when due, as more particularly described
under "Events of Default", would result in an Event of Default
and would give the Trustee and the holders of the Notes the
rights described under "Events of Default".
One of the events that constitutes a Change of Control
under the Indenture is the disposition of "all or substantially
all" of the Company's assets. This term has not been interpreted
under New York law (which is the governing law of the Indenture)
to represent a specific quantitative test. As a consequence, in
the event holders of the Notes elect to require the Company to
purchase the Notes and the Company contests such election, there
can be no assurance as to how a court interpreting New York law
would interpret the phrase.
The existence of a holder's right to require the Company to
purchase such holder's Notes upon a Change of Control Triggering
Event may deter a third party from acquiring the Company in a
transaction that constitutes a Change of Control.
The definition of "Change of Control Triggering Event" in
the Indenture is limited in scope. The provisions of the
Indenture may not afford holders of Notes the right to require
the Company to purchase such Notes in the event of a highly
leveraged transaction or certain transactions with the Company's
management or its affiliates, including a reorganization,
restructuring, merger or similar transaction involving the
Company (including, in certain circumstances, an acquisition of
the Company by management or its affiliates) that may adversely
affect holders of the Notes, if such transaction is not a
transaction defined as a Change of Control Triggering Event.
The Company will comply with the applicable tender offer
rules, including Rule l4e-l under the Exchange Act, and any other
applicable securities laws and regulations in connection with a
Change of Control Offer.
The Company will not, and will not permit any Restricted
Subsidiary to, create or permit to exist or become effective any
restriction (other than restrictions existing under Indebtedness
as in effect on the date of the Indenture) that would materially
impair the ability of the Company to make a Change of Control
Offer to purchase the Notes or, if such Change of Control Offer
is made, to pay for the Notes tendered for purchase.
Limitation on Disposition of Proceeds of Asset Sales. To
the extent that the Net Cash Proceeds of Asset Sales in any
12-month period exceed 15% of Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such
12-month period for which a consolidated balance sheet of the
Company and its Restricted Subsidiaries has been prepared in
conformity with GAAP), the Company will, within 12 months after
the date such Net Cash Proceeds so exceeded 15% of Consolidated
Net Tangible Assets (such amount being defined as "Excess
Proceeds"), apply all of such Excess Proceeds to one or any
combination of the following: (i) the permanent repayment of
unsubordinated Indebtedness of the Company or any Indebtedness of
any Restricted Subsidiary, (ii) the investment (or the commitment
to invest followed by the actual investment within 12 months from
such commitment date) in property or assets used in a business
related to that of the Company or any Restricted Subsidiary on
the date of the Indenture (or in a Person engaged in such a
business), or (iii) the offer to purchase Notes (an "Excess
Proceeds Offer") in an aggregate principal amount not less than
$25 million under procedures similar to those described under
"Purchase of Notes upon a Change of Control Triggering Event", at
a price equal to the principal amount thereof plus accrued
interest to the date of purchase.
Reports. The Company will file on a timely basis with the
Commission, to the extent such filings are accepted by the
Commission and whether or not the Company has a class of
securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the
Exchange Act. The Company will also be required (a) to file with
the Trustee copies of such reports and documents within 15 days
after the date on which the Company files such reports and
documents with the Commission or the date on which the Company
would be required to file such reports and documents if the
Company were so required, and (b) if filing such reports and
29
documents with the Commission is not accepted by the Commission
or is prohibited under the Exchange Act, to supply at the
Company's cost copies of such reports and documents to any holder
of Notes promptly upon written request.
Consolidation, Merger and Sale of Assets
The Company will not, in a single transaction or through a
series of transactions, consolidate with or merge with or into
any other Person, or permit any Person to consolidate with or
merge into the Company, or sell, assign, convey, transfer, lease
or otherwise dispose of all or substantially all of its
properties and assets to any other Person or Persons if such
transaction or series of transactions, in the aggregate, would
result in the sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of the properties
and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any other Person or group of affiliated
Persons, unless at the time and immediately after giving effect
thereto (i) either (a) the Company will be the continuing
corporation or (b) the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or the
Person that acquires by sale, assignment, conveyance, transfer,
lease or disposition all or substantially all the properties and
assets of the Company and its Restricted Subsidiaries on a
consolidated basis (the "Surviving Entity") (1) will be a
corporation duly organized and validly existing under the laws of
the United States of America, any state thereof or the District
of Columbia and (2) will expressly assume, by a supplemental
indenture in form satisfactory to the Trustee, the Company's
obligation for the due and punctual payment of the principal of,
premium, if any, and interest on all the Notes and the
performance and observance of every covenant of the Indenture on
the part of the Company to be performed or observed; (ii)
immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and
treating any obligation of the Company or any Restricted
Subsidiary incurred in connection with or as a result of such
transaction or series of transactions as having been incurred at
the time of such transaction), no Default or Event of Default
will have occurred and be continuing; and (iii) immediately after
giving effect to such transaction or series of transactions on a
pro forma basis (and treating any obligation of the Company or
any Restricted Subsidiary incurred in connection with or as a
result of such transaction or series of transactions as having
been incurred at the time of such transaction), the Consolidated
Net Worth of the Company (or of the Surviving Entity if the
Company is not the continuing obligor under the Indenture) is
equal to or greater than the Consolidated Net Worth of the
Company immediately prior to such transaction or series of
transactions.
In connection with any such consolidation, merger, sale,
assignment, conveyance, transfer, lease or other disposition, the
Company or the Surviving Entity shall have delivered to the
Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate demonstrating compliance with
clause (iii) above and an Opinion of Counsel, each stating that
such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposition, and if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture, comply with the requirements of the
Indenture and that all conditions precedent therein provided for
relating to such transaction have been complied with.
Events of Default
The following will be "Events of Default" under the
Indenture:
(i) default in the payment of any interest on any Note
when it becomes due and payable and continuance of such
default for a period of 30 days;
(ii) default in the payment of the principal of or
premium, if any, on any Note at its Maturity (upon
acceleration, optional redemption, required purchase or
otherwise);
(iii) default in the performance, or breach, of the
"Consolidation, Merger and Sale of Assets" covenant;
(iv) default in the performance, or breach, of any
covenant of the Company contained in the Indenture (other
than a default in the performance, or breach, of a covenant
which is specifically dealt with in clauses (i), (ii) or
(iii) above) and continuance of such default or breach for a
period of 60 days after written notice shall have been given
30
to the Company by the Trustee or to the Company and the
Trustee by the holders of at least 25% in aggregate principal
amount of the Notes then outstanding;
(v) Indebtedness of the Company or any Restricted
Subsidiary together aggregating $75 million or more shall
have been accelerated or otherwise declared due and payable,
or required to be prepaid or repurchased (other than by
regularly scheduled required prepayment prior to the stated
maturity thereof), and such Indebtedness has not been
discharged, and such acceleration has not been annulled,
within 30 days;
(vi) one or more final judgments or orders shall be
rendered against the Company or any Restricted Subsidiary for
the payment of money, the portion thereof not covered by
insurance either individually or in the aggregate shall be in
excess of $75 million, such judgments or orders shall not be
discharged and there shall have been a period of 30
consecutive days during which a stay of enforcement of such
judgments or orders, by reason of a pending appeal or
otherwise, was not in effect; and
(vii) the occurrence of certain events of bankruptcy,
insolvency or reorganization with respect to the Company or
any Significant Restricted Subsidiary.
If an Event of Default (other than as specified in clause
(vii) above) shall occur and be continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the
Notes then outstanding, by written notice to the Company (and to
the Trustee if such notice is given by the holders), may, and the
Trustee upon the written request of such holders shall, declare
the principal of, premium, if any, and accrued interest on all of
the outstanding Notes immediately due and payable, and upon any
such declaration all such amounts payable in respect of the Notes
shall become immediately due and payable. If an Event of Default
specified in clause (vii) above occurs and is continuing, then
the principal of, premium, if any, and accrued interest on all of
the outstanding Notes shall ipso facto become and be immediately
due and payable without any declaration or other act on the part
of the Trustee or any holder of Notes.
At any time after a declaration of acceleration under the
Indenture, but before a judgment or decree for payment of the
money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of the outstanding Notes,
by written notice to the Company and the Trustee, may rescind
such declaration and its consequences if (a) the Company has paid
or deposited with the Trustee a sum sufficient to pay (i) all
overdue interest on all Notes, (ii) all unpaid principal of and
premium, if any, on any outstanding Notes that has become due
otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Notes, (iii) to the extent that
payment of such interest is lawful, interest upon overdue
interest and overdue principal at the rate borne by the Notes,
(iv) all sums paid or advanced by the Trustee under the Indenture
and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel; and (b) all
Events of Default, other than the non-payment of amounts of
principal of, premium, if any, or interest on the Notes that has
become due solely by such declaration of acceleration, have been
cured or waived. No such rescission shall affect any subsequent
default or impair any right consequent thereon.
The holders of not less than a majority in aggregate
principal amount of the outstanding Notes may, on behalf of the
holders of all the Notes, waive any past defaults under the
Indenture, except a default in the payment of the principal of,
premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be
modified or amended without the consent of the holder of each
Note outstanding.
If a Default or an Event of Default occurs and is
continuing and is known to the Trustee, the Trustee will mail to
each holder of the Notes notice of the Default or Event of
Default within 30 days after the occurrence thereof. Except in
the case of a Default or an Event of Default in payment of
principal of, premium, if any, or interest on any Notes, the
Trustee may withhold the notice to the holders of such Notes if a
committee of its trust officers in good faith determines that
withholding the notice is in the interests of the holders of the
Notes.
The Company is required to furnish to the Trustee
annual and quarterly statements as to the performance by
the Company of its obligations under the Indenture and
as to any default in such performance. The Company is
31
also required to notify the Trustee within five Business
Days of actual knowledge by a Responsible Officer of the
Company of an Event of Default.
Defeasance or Covenant Defeasance of Indenture
The Company may, at its option and at any time, elect to
have the obligations of the Company upon the Notes discharged
with respect to the outstanding Notes ("defeasance"). Such
defeasance means that the Company will be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding
Notes and to have satisfied all of its other obligations under
such Notes and the Indenture insofar as such Notes are concerned
except for (i) the rights of holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any,
and interest on such Notes when such payments are due, (ii) the
Company's obligations to issue temporary Notes, register the
transfer or exchange of any Notes, replace mutilated, destroyed,
lost or stolen Notes, maintain an office or agency for payments
in respect of the Notes and segregate and hold such payments in
trust, (iii) the rights, powers, trusts, duties and immunities of
the Trustee and (iv) the defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with
respect to certain covenants set forth in the Indenture, and any
omission to comply with such obligations will not constitute a
Default or an Event of Default with respect to the Notes
("covenant defeasance").
In order to exercise either defeasance or covenant
defeasance, (i) the Company must irrevocably deposit or cause to
be deposited with the Trustee, as trust funds in trust,
specifically pledged as security for, and dedicated solely to,
the benefit of the holders of the Notes, cash in United States
dollars, U.S. Government Obligations (as defined in the
Indenture), or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge the
principal of, premium, if any, and interest on the outstanding
Notes on the Stated Maturity (or upon redemption, if applicable)
of such principal, premium, if any, or installment of interest;
(ii) no Default or Event of Default with respect to the Notes
will have occurred and be continuing on the date of such deposit
or, insofar as an event of bankruptcy under clause (vii) of
"Events of Default" above is concerned, at any time during the
period ending on the 91st day after the date of such deposit;
(iii) such defeasance or covenant defeasance will not result in a
breach or violation of, or constitute a default under, the
Indenture or any material agreement or instrument to which the
Company is a party or by which it is bound; (iv) in the case of
defeasance, the Company shall have delivered to the Trustee an
Opinion of Counsel stating that the Company has received from, or
there has been published by, the Internal Revenue Service a
ruling, or since December 4, 1996, there has been a change in
applicable federal income tax law, in either case to the effect
that, and based thereon such opinion shall confirm that, the
holders of the outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred; (v) in the
case of covenant defeasance, the Company shall have delivered to
the Trustee an Opinion of Counsel to the effect that the holders
of the Notes outstanding will not recognize income, gain or loss
for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if such covenant defeasance had not occurred; and
(vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the
defeasance or the covenant defeasance, as the case may be, have
been complied with.
Satisfaction and Discharge
The Indenture will cease to be of further effect (except as
to surviving rights of registration of transfer or exchange of
the Notes as expressly provided for in the Indenture) and the
Trustee, at the expense of the Company, will execute proper
instruments acknowledging satisfaction and discharge of the
Indenture when (a) either (i) all the Notes theretofore
authenticated and delivered (other than destroyed, lost or stolen
Notes which have been replaced or paid and Notes for whose
payment money has been deposited in trust with the Trustee or any
Paying Agent or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust as
provided for in the Indenture) have been delivered to the Trustee
for cancellation or (b) all Notes not theretofore delivered to
the Trustee for cancellation (x) have become due and payable, (y)
will become due and payable at Stated Maturity within one year or
(z) are to be called for redemption within one year under
32
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company, and the Company has irrevocably deposited or caused
to be deposited with the Trustee as trust funds in trust for such
purpose an amount sufficient to pay and discharge the entire
Indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation, for principal of, premium, if any, and
interest on the Notes to the date of such deposit (in the case of
Notes which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be; (ii) the Company
has paid or caused to be paid all sums payable under the
Indenture by the Company; and (iii) the Company has delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that all conditions precedent provided in the
Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
Modifications and Amendments
Modifications and amendments of the Indenture may be made
by a supplemental indenture entered into by the Company and the
Trustee with the consent of the holders of a majority in
aggregate outstanding principal amount of the Notes then
outstanding; provided, however, that no such modification or
amendment may, without the consent of the holder of each
outstanding Note affected thereby: (i) change the Stated Maturity
of the principal of, or any installment of interest on, any Note,
or reduce the principal amount thereof (or premium, if any) or
the rate of interest thereon or change the coin or currency in
which the principal of any Note or any premium or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date);
(ii) amend, change or modify the obligation of the Company to
make and consummate an Excess Proceeds Offer with respect to any
Asset Sale in accordance with the "Limitation on Disposition of
Proceeds of Asset Sales" covenant or the obligation of the
Company to make and consummate a Change of Control Offer in the
event of a Change of Control Triggering Event in accordance with
the "Purchase of Notes upon a Change of Control Triggering Event"
covenant, including, in each case, amending, changing or
modifying any definition relating thereto; (iii) reduce the
percentage in principal amount of outstanding Notes, the consent
of whose holders is required for any such supplemental indenture
or the consent of whose holders is required for any waiver of
compliance with certain provisions of the Indenture; (iv) modify
any of the provisions relating to supplemental indentures
requiring the consent of holders or relating to the waiver of
past defaults or relating to the waiver of certain covenants,
except to increase the percentage of outstanding Notes required
for such actions or to provide that certain other provisions of
the Indenture cannot be modified or waived without the consent of
the holder of each Note affected thereby; or (v) except as
otherwise permitted under the "Consolidation, Merger and Sale of
Assets" covenant, consent to the assignment or transfer by the
Company of any of its rights or obligations under the Indenture.
Notwithstanding the foregoing, without the consent of any
holder of the Notes, the Company and the Trustee may modify or
amend the Indenture: (a) to evidence the succession of another
Person to the Company or any other obligor on the Notes, and the
assumption by any such successor of the covenants of the Company
or such obligor in the Indenture and in the Notes in accordance
with the "Consolidation, Merger and Sale of Assets" covenant; (b)
to add to the covenants of the Company or any other obligor upon
the Notes for the benefit of the holders of the Notes or to
surrender any right or power conferred upon the Company or any
other obligor upon the Notes, as applicable, in the Indenture or
in the Notes; (c) to cure any ambiguity, or to correct or
supplement any provision in the Indenture or the Notes which may
be defective or inconsistent with any other provision in the
Indenture or the Notes or make any other provisions with respect
to matters or questions arising under the Indenture or the Notes;
provided that, in each case, such provisions shall not adversely
affect the interest of the holders of the Notes; (d) to comply
with the requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust
Indenture Act; (e) to add a guarantor of the Notes under the
Indenture; (f) to evidence and provide the acceptance of the
appointment of a successor Trustee under the Indenture; or (g) to
mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee for the benefit of the holders of the Notes
as additional security for the payment and performance of the
Company's and any guarantor's obligations under the Indenture, in
any property, or assets, including any of which are required to
be mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted to the Trustee pursuant to the
Indenture or otherwise.
The holders of a majority in aggregate principal amount of
the Notes outstanding may waive compliance with certain
restrictive covenants and provisions of the Indenture.
33
The Trustee
The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties
as are specifically set forth in the Indenture. If an Event of
Default has occurred and is continuing, the Trustee will exercise
such rights and powers vested in it under the Indenture and use
the same degree of care and skill in its exercise as a prudent
Person would exercise under the circumstances in the conduct of
such Person's own affairs.
The Indenture and, upon consummation of the Exchange Offer,
the provisions of the Trust Indenture Act of 1939, as amended,
incorporated by reference therein contain limitations on the
rights of the Trustee thereunder, should it become a creditor of
the Company, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to
engage in other transactions; provided, however, that if it
acquires any conflicting interest (as defined) it must eliminate
such conflict or resign.
Governing Law
The Indenture and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York.
Upon consummation of the Exchange Offer, the Indenture will be
subject to the provisions of the Trust Indenture Act of 1939, as
amended, that are required to be part of the Indenture and will,
to the extent applicable, be governed by such provisions.
Certain Definitions
"Affiliate" means, with respect to any specified Person,
any other Person directly or indirectly controlling or controlled
by or under direct or indirect common control with such specified
Person. For the purposes of this definition, "control", when used
with respect to any specified Person, means the power to direct
the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities,
by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance,
transfer, lease or other disposition (collectively, a "transfer")
by the Company or any Restricted Subsidiary, directly or
indirectly, in one or a series of related transactions, of (a)
all or any Capital Stock of any Restricted Subsidiary; (b) all or
substantially all of the properties and assets of any operating
unit or business of the Company or its Restricted Subsidiaries;
or (c) any other properties or assets of the Company or any
Restricted Subsidiary, other than in the ordinary course of
business. For the purposes of this definition, the term "Asset
Sale" shall not include (i) any transfer of properties or assets
that is governed by the provisions of the Indenture described
under "Consolidation, Merger and Sale of Assets", (ii) sales or
other dispositions of inventory, receivables and other current
assets, (iii) sales or other dispositions of surplus equipment,
furniture or fixtures of the Company and Restricted Subsidiaries
in an aggregate amount not to exceed $20 million in any fiscal
year, (iv) sales/leasebacks of aircraft, engines and related
equipment, and (v) transactions referred to in clause (iii) of
paragraph (b) of the "Limitation on Restricted Payments"
covenant.
"Average Life" means, as of the date of determination with
respect to any Indebtedness, the quotient obtained by dividing
(a) the sum of the products of (i) the number of years from the
date of determination to the date or dates of each successive
scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by
(ii) the amount of each such principal payment by (b) the sum of
all such principal payments.
"Capital Stock" means, with respect to any Person, any and
all shares, interests, partnership interests, participations,
rights in or other equivalents (however designated) of such
Person's capital stock, and any rights (other than debt
securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock, whether
now outstanding or issued after the date of the Indenture.
34
"Capitalized Lease Obligation" means any obligation of the
Company or a Restricted Subsidiary under a lease of (or other
agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP, and, for
the purpose of the Indenture, the amount of such obligation at
any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Change of Control" means the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act), other than
Air Partners, L.P. or any Person which is in control (as defined
in the definition of "Affiliate") of Air Partners, L.P. as of the
date of the Indenture, is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and l3d-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of
all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total
outstanding Voting Stock of the Company; (b) the Company
consolidates with, or merges with or into, another Person or
conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any
such event pursuant to a transaction in which the outstanding
Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company
is converted into or exchanged for at least in part Voting Stock
(other than Redeemable Capital Stock) of the surviving or
transferee corporation, and (ii) the holders of the Voting Stock
of the Company immediately prior to such transaction own not less
than a majority of the Voting Stock of the surviving or
transferee corporation immediately after such transaction; or (c)
the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution other than in a transaction which
complies with the provisions described under "Consolidation,
Merger and Sale of Assets".
"Change of Control Triggering Event" means both the
occurrence of a Change of Control and a Rating Decline.
"Consolidated Adjusted Net Income" means, for any period,
the consolidated net income (or loss) of the Company and all
Restricted Subsidiaries for such period as determined in
accordance with GAAP, adjusted by excluding, without duplication,
(a) any net after-tax extraordinary gains or losses (less all
fees and expenses relating thereto), (b) any net after-tax gains
or losses (less all fees and expenses relating thereto)
attributable to asset dispositions other than in the ordinary
course of business, (c) the portion of net income (or loss) of
any Person (other than the Company or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which the Company or any
Restricted Subsidiary has an ownership interest, except to the
extent of the amount of dividends or other distributions actually
paid to the Company or any Restricted Subsidiary in cash
dividends or distributions during such period, (d) the net income
(or loss) of any Person combined with the Company or any
Restricted Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination, (e)
the net income of any Restricted Subsidiary to the extent (but
only to the extent) that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary is not at
the date of determination permitted, directly or indirectly, by
operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary
or its stockholders, (f) any net income (or loss) from any
Restricted Subsidiary that was an Unrestricted Subsidiary at any
time during such period other than any amounts actually received
from such Restricted Subsidiary, and (g) the cumulative effect of
changes in accounting principles mandated by the Financial
Accounting Standards Board or its successor subsequent to the
date of the Indenture.
"Consolidated Net Tangible Assets" means the total amount
of assets of the Company and its Restricted Subsidiaries (less
applicable depreciation, amortization and other valuation
reserves), except to the extent resulting from write-ups of
capital assets (excluding write-ups in connection with accounting
for acquisition in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its
Restricted Subsidiaries (excluding intercompany items) and (ii)
all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles (it being
understood that routes, gates and slots shall not be considered
intangibles), all as set forth on the most recently available
consolidated balance sheet of the Company and its Restricted
Subsidiaries, prepared in conformity with GAAP.
35
"Consolidated Net Worth" means, at any date, the
stockholders' equity of the Company and its Restricted
Subsidiaries less the amount of such stockholders' equity
attributable to Redeemable Capital Stock or treasury stock of the
Company and any Restricted Subsidiary and the principal amount of
any promissory notes receivable from the sale of Capital Stock of
the Company or any Restricted Subsidiary, as determined on a
consolidated basis in accordance with GAAP.
"Currency Agreements" means any spot or forward foreign
exchange agreements and currency swap, currency option or other
similar financial agreements or arrangements entered into by the
Company or any of its Restricted Subsidiaries designed to protect
against or manage exposure to fluctuations in currency exchange
rates.
"Default" means any event that is, or after notice or
passage of time or both would be, an Event of Default.
"Disinterested Director" means, with respect to any
transaction or series of transactions in respect of which the
Board of Directors is required to deliver a resolution of the
Board of Directors under the Indenture, a member of the Board of
Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or
series of transactions.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Generally Accepted Accounting Principles" or "GAAP" means
generally accepted accounting principles in the United States, as
applied from time to time by the Company in the preparation of
its consolidated financial statements.
"Guarantee" means, as applied to any obligation, (a) a
guarantee (other than by endorsement of negotiable instruments
for collection in the ordinary course of business), direct or
indirect, in any manner, of any part or all of such obligation
and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
non-performance) of all or any part of such obligation,
including, without limiting the foregoing, the payment of amounts
drawn down by letters of credit.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all liabilities of such Person for borrowed
money (including overdrafts) or for the deferred purchase price
of property or services, excluding any trade payables and other
accrued current liabilities incurred in the ordinary course of
business, but including, without limitation, all obligations,
contingent or otherwise, of such Person in connection with any
letters of credit and acceptances issued under letter of credit
facilities, acceptance facilities or other similar facilities,
(b) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, (c) all indebtedness of
such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired
by such Person (even if the rights and remedies of the seller or
lender under such agreement in the event of default are limited
to repossession or sale of such property), but excluding trade
payables arising in the ordinary course of business, (d) all
Capitalized Lease Obligations of such Person, (e) all obligations
of such Person under or in respect of Interest Rate Agreements or
Currency Agreements, (f) all Indebtedness referred to in (but not
excluded from) the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by
(or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien upon
or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of
such Indebtedness (the amount of such obligation being deemed to
be the lesser of the value of such property or asset or the
amount of the obligation so secured), (g) all guarantees by such
Person of Indebtedness referred to in this definition of any
other Person and (h) all Redeemable Capital Stock of such Person
valued at the greater of its voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends. For
purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to
be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the fair market value of such
36
Redeemable Capital Stock, such fair market value shall be
determined in good faith by the board of directors of the issuer
of such Redeemable Capital Stock.
"Interest Rate Agreements" means any interest rate
protection agreements and other types of interest rate hedging
agreements (including, without limitation, interest rate swaps,
caps, floors, collars and similar agreements).
"Investment" means, with respect to any Person, any direct
or indirect advance, loan or other extension of credit or capital
contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for
the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness
issued or owned by, any other Person and all other items that
would be classified as investments on a balance sheet prepared in
accordance with GAAP, in each case measured as of the date such
Investment is made. In addition, the fair market value of the net
assets of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary
shall be deemed to be an "Investment" made by the Company in such
Unrestricted Subsidiary at such time. "Investments" shall exclude
extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices.
"Lien" means any mortgage, charge, pledge, lien (statutory
or otherwise), privilege, security interest, hypothecation,
assignment for security, claim, or preference or priority or
other encumbrance upon or with respect to any property of any
kind, real or personal, movable or immovable, now owned or
hereafter acquired. A Person shall be deemed to own subject to a
Lien any property which such Person has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"Maturity" means, with respect to any Note, the date on
which any principal of such Note becomes due and payable as
therein or herein provided, whether at the Stated Maturity with
respect to such principal or by declaration of acceleration, call
for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means, with respect to any Asset Sale,
the proceeds thereof in the form of cash or cash equivalents
including payments in respect of deferred payment obligations
when received in the form of, or stock or other assets when
disposed for, cash or cash equivalents (except to the extent that
such obligations are financed or sold with recourse to the
Company or any Restricted Subsidiary), net of (i) brokerage
commissions and other fees and expenses (including fees and
expenses of legal counsel and investment banks) related to such
Asset Sale, (ii) taxes payable in cash as a result of such Asset
Sale, (iii) payments made to retire Indebtedness where payment of
such Indebtedness is secured by the assets or properties the
subject of such Asset Sale, (iv) amounts required to be paid to
any Person (other than the Company or any Restricted Subsidiary)
owning a beneficial interest in the assets subject to the Asset
Sale and (v) appropriate amounts to be provided by the Company or
any Restricted Subsidiary, as the case may be, as a reserve
required in accordance with GAAP against any liabilities
associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in
an Officers' Certificate delivered to the Trustee.
"Person" means any individual, corporation, limited
liability company, partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Qualified Capital Stock" of any Person means any and all
Capital Stock of such Person other than Redeemable Capital Stock.
"Rating Decline" means the occurrence of either of the
following on or within 90 days after the date (the "Base Date")
of public notice of the occurrence of a Change of Control or the
intention of a Person to effect a Change of Control (which period
shall be extended for so long as the rating of the Notes is under
37
publicly announced consideration for possible downgrade by either
Moody's or S&P): (a) in the event the Notes were rated by either
Moody's or S&P as investment grade on the Base Date, the rating
of the Notes by both such rating agencies shall be decreased to
below investment grade or the Notes shall cease to be rated; or
(b) in the event the Notes were rated by both Moody's and S&P as
below investment grade on the Base Date, the rating of the Notes
by either rating agency shall be decreased or the Notes shall
cease to be rated.
"Redeemable Capital Stock" means any class or series of
Capital Stock that, either by its terms, by the terms of any
security into which it is convertible or exchangeable or by
contract or otherwise, is, or upon the happening of an event or
passage of time would be, required to be redeemed prior to the
final Stated Maturity of the Notes or is redeemable at the option
of the holder thereof at any time prior to such final Stated
Maturity, or is convertible into or exchangeable for debt
securities at any time prior to such final Stated Maturity.
"Restricted Subsidiary" means any Subsidiary other than an
Unrestricted Subsidiary.
"S&P" means Standard and Poor's Ratings Group, a division of
McGraw-Hill, Inc. and its successors.
"Significant Restricted Subsidiary" means a Restricted
Subsidiary which is a significant subsidiary of the Company under
Section 1.02 (w) of Regulation S-X of the Commission promulgated
under the Securities Act.
"Specified Cash and Cash Equivalents" means, for purposes
of computing whether or not a proposed Restricted Payment may be
made, the sum of (a) the amount of cash and cash equivalents that
would have been shown on the balance sheet of the Company and its
Restricted Subsidiaries prepared in accordance with the GAAP as
of the tenth Business Day preceding the date of such proposed
Restricted Payment, plus (b) the amount of marketable securities
that would have been reflected on such balance sheet which had on
such Business Day a maturity of less than one year and which
would have qualified to be reflected on such balance sheet as
cash equivalents but for their maturity, minus (c) the amount of
all Restricted Payments made subsequent to such Business Day, but
not including the proposed Restricted Payment (the amount of any
Restricted Payment, if other than cash, as determined by the
Board of Directors of the Company as of the date thereof, whose
determination shall be conclusive and evidenced by a Board
Resolution).
"Stated Maturity" means, when used with respect to any Note
or any installment of interest thereon, the date specified in
such Note as the fixed date on which the principal of such Note
or such installment of interest is due and payable, and, when
used with respect to any other Indebtedness, means the date
specified in the instrument governing such Indebtedness as the
fixed date on which the principal of such Indebtedness, or any
installment of interest thereon, is due and payable.
"Subsidiary" means any Person a majority of the equity
ownership or Voting Stock of which is at the time owned, directly
or indirectly, by the Company or by one or more other
Subsidiaries or by the Company and one or more other
Subsidiaries.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
"Unrestricted Subsidiary" means (a) any Subsidiary that at
the time of determination shall be an Unrestricted Subsidiary (as
designated by the Board of Directors of the Company, as provided
below) and (b) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors of the Company may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be
an Unrestricted Subsidiary so long as (i) neither the Company nor
any Restricted Subsidiary is directly or indirectly liable for
any Indebtedness of such Subsidiary, (ii) no default with respect
to any Indebtedness of such Subsidiary would permit (upon notice,
lapse of time or otherwise) any holder of any other Indebtedness
of the Company or any Restricted Subsidiary to declare a default
on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity, (iii) any
Investment in such Subsidiary made as a result of designating
such Subsidiary an Unrestricted Subsidiary will not violate the
provisions of the "Limitation on Restricted Payments" covenant,
(iv) neither the Company nor any Restricted Subsidiary has a
contract, agreement, arrangement, understanding or obligation of
any kind, whether written or oral, with such Subsidiary other
than those that might be obtained at the time from persons who
38
are not Affiliates of the Company, and (v) neither the Company
nor any Restricted Subsidiary has any obligation (1) to subscribe
for additional shares of Capital Stock or other equity interest
in such Subsidiary, or (2) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to
achieve certain levels of operating results. Any such designation
by the Board of Directors of the Company shall be evidenced to
the Trustee by filing a board resolution with the Trustee giving
effect to such designation. The Board of Directors of the Company
may designate any Unrestricted Subsidiary as a Restricted
Subsidiary if immediately after giving effect to such
designation, there would be no Default or Event of Default under
the Indenture.
"Voting Stock" means any class or classes of Capital Stock
pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority
of the board of directors, managers or trustees of any Person
(irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by
reason of the happening of any contingency).
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
Exchange of Old Notes for New Notes
The following summary describes the principal U.S. federal
income tax consequences to Noteholders of the exchange of the Old
Notes for New Notes. This summary is intended to address the
beneficial owners of Notes that are citizens or residents of the
United States, corporations, partnerships or other entities
created or organized in or under the laws of the United States or
any State, or estates or trusts the income of which is subject to
U.S. federal income taxation regardless of its source that will
hold the New Notes as capital assets.
The exchange of Old Notes for New Notes (the "Exchange")
pursuant to the Exchange Offer will not be a taxable event for
U.S. federal income tax purposes. As a result, a holder of an Old
Note whose Old Note is accepted in an Exchange Offer will not
recognize gain on the Exchange. A tendering holder's tax basis in
the New Notes will be the same as such holder's tax basis in its
Old Notes. A tendering holder's holding period for the New Notes
received pursuant to the Exchange Offer will include its holding
period for the Old Notes surrendered therefor.
ALL HOLDERS OF OLD NOTES ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE AND LOCAL
TAX CONSEQUENCES OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND
OF THE OWNERSHIP AND DISPOSITION OF NEW NOTES RECEIVED IN THE
EXCHANGE OFFER IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
New Notes. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of
business 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In
addition, until such date, all broker-dealers effecting
transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of
New Notes by broker-dealers. New Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the
writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of
resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Notes.
Any broker-dealer that resells New Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker
39
or dealer that participates in a distribution of such New Notes
may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and
any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
Starting on the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has
agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for the Holders of the
Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the Holders of the New Notes
(including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes and certain United States
Federal income taxation matters will be passed upon for
Continental by Cleary, Gottlieb, Steen & Hamilton, New York, New
York.
EXPERTS
The consolidated financial statements (including schedules)
of Continental Airlines, Inc. appearing in Continental Airlines,
Inc.'s Annual Report (Form 10-K) as of December 31, 1995 and
1994, and for the two years ended December 31, 1995 and the
period April 28, 1993 through December 31, 1993, and the
consolidated statements of operations, redeemable and
non-redeemable preferred stock and common stockholders' equity
and cash flows of Continental Airlines Holdings, Inc. for the
period January 1, 1993 through April 27, 1993, incorporated by
reference in this Prospectus have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference, in
reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
40
================================ =================================
No person has been authorized
to give any information or to
make any representations other
than those contained or Continental Airlines, Inc.
incorporated by reference in
this Prospectus and the Offer to Exchange
accompanying Letter of 9 1/2% Senior Notes due 2001,
Transmittal and, if given or
made, such information or which have been registered
representations must not be under the
relied upon as having been Securities Act of 1933, as
authorized by the Company or amended,
the Exchange Agent. Neither
this Prospectus nor the for any and all outstanding
accompanying Letter of 9 1/2% Senior Notes due 2001
Transmittal, or both together,
constitute an offer to sell or
the solicitation of an offer
to buy securities in any
jurisdiction to any person to
whom it is unlawful to make
such offer or solicitation.
Neither the delivery of this
Prospectus, nor the
accompanying Letter of
Transmittal, or both together,
nor any sale made hereunder
shall, under any circumstances,
create an implication that
there has been no change in
the affairs of the Company
since the date hereof or
thereof or that the information
contained herein is correct
at any time subsequent to the
date hereof or thereof.
TABLE OF CONTENTS
Page
Available Information........ 3
Incorporation of Certain
Documents PROSPECTUS
by Reference............ 3
Prospectus Summary........... 4
Risk Factors................. 9
Recent Developments.......... 14
Use of Proceeds.............. 15 January 27, 1997
Ratio of Earnings to Fixed
Charges...................... 15
Selected Financial Data...... 16
The Exchange Offer........... 18
Description of the New Notes. 25
Certain U.S. Federal Income
Tax Consequences........... 39
Plan of Distribution......... 39
Legal Matters................ 40
Experts...................... 40
================================ =================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Company's Certificate of Incorporation and Bylaws
provide that the Company will indemnify each of its directors and
officers to the full extent permitted by the laws of the State of
Delaware and may indemnify certain other persons as authorized by
the Delaware General Corporation Law (the "GCL"). Section 145 of
the GCL provides as follows:
"(a) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that
he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or
agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in subsections (a) and (b) of this section, or in defense of
any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of
this section (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in subsections
(a) and (b). Such determination shall be made (1) by a majority
vote of the board of directors who are not parties to such
action, suit or proceeding, even though less than a quorum, or
(2) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (3)
by the stockholders.
II-1
(e) Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal,
administrative, or investigative action, suit or proceeding may
be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of undertaking by or
on behalf of such director or officer to repay such amount if it
shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section.
Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of
this section shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses
may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under this
section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director,
officer, employee or agent for such constituent corporation, or
is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
stand in the same position under this section with respect to the
resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted
in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to
in this section.
(j) The indemnification and advancement of expenses
provided by, or granted pursuant to, this section shall, unless
otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under
any bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses
(including attorneys' fees)."
The Certificate of Incorporation and Bylaws also limit the
personal liability of directors to the Company and its
stockholders for monetary damages resulting from certain breaches
of the directors' fiduciary duties. The bylaws of the Company
provide as follows:
"No Director of the Corporation shall be personally liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except for liability (i)
for any breach of the Director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a
II-2
knowing violation of law, (iii) under Section 174 of the. . .
GCL, or (iv) for any transaction from which the Director derived
any improper personal benefit. If the GCL is amended to authorize
corporate action further eliminating or limiting the personal
liability of Directors, then the liability of Directors of the
Corporation shall be eliminated or limited to the full extent
permitted by the GCL, as so amended."
The Company maintains directors' and officers' liability
insurance.
Item 21. Exhibits.
Exhibit
Number Exhibit Description
- ------- -------------------
Exhibit 1.1* Purchase Agreement, dated as of December 4,
1996, between Continental Airlines, Inc. and
Lehman Brothers Inc., as the Initial Purchaser
Exhibit 4.1* Form of 9 1/2% Senior Notes due 2001 (included in
Exhibit 4.2)
Exhibit 4.2* Indenture, dated as of December 10, 1996,
between Continental Airlines, Inc. and Texas
Commerce Bank National Association, as Trustee,
relating to 9 1/2% Senior Notes due 2001
Exhibit 4.3* Registration Rights Agreement, dated as of
December 10, 1996, between Continental
Airlines, Inc. and Lehman Brothers Inc., as the
Initial Purchaser
Exhibit 5.1* Opinion of Cleary, Gottlieb, Steen & Hamilton,
counsel for Continental Airlines, Inc.,
relating to the New Notes
Exhibit 12* Computation of Ratio of Earnings to Fixed
Charges
Exhibit 23.1* Consent of Ernst & Young LLP
Exhibit 23.2** Consent of Cleary, Gottlieb, Steen & Hamilton,
counsel for Continental Airlines, Inc.
Exhibit 24.1*** Powers of Attorney
Exhibit 25.1* Statement of Eligibility of Texas Commerce Bank
National Association, as Trustee, relating to
Senior Debt Securities, on Form T-1
Exhibit 99.1* Form of Letter of Transmittal
Exhibit 99.2* Form of Notice of Guaranteed Delivery
Exhibit 99.3* Form of Letter to Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees
Exhibit 99.4* Form of Letter to Clients
_________________
* Previously filed.
** Refiled herewith.
*** Supplement to the previous filing.
Item 22. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
II-3
(i) To include any prospectus required by Section
l0(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the
registration (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration
statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities
offered (if the total dollar value of securities
offered would not exceed that which was registered)
and any deviation from the low or high and of the
estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than
20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any
material change to such information in the
registration statement;
provided, however, that paragraphs (1)(i) and
(1)(ii) shall not apply if the information required
to be included in a post-effective amendment by
those paragraphs is contained in periodic reports
filed by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plans
annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant, pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by any such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether or not such indemnification is against public policy as
expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes to
respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or
13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information
II-4
contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the
request.
The undersigned registrant hereby undertakes to supply
by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration
statement when it became effective.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under
the Securities Act of 1933, the information omitted from
the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule
424(b))(1) or (4) or 497(h) under the Securities Act of
1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment
that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities
offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
S-4 and has duly caused this amendment to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on January 24, 1997.
CONTINENTAL AIRLINES, INC.
By: /s/ Jeffery A. Smisek
-------------------------------
Jeffery A. Smisek
Executive Vice President
Pursuant to the requirements of the Securities Act of
1933, this amendment has been signed by the following persons in
the capacities indicated, on January 24, 1997.
Signature Title
* Chairman of the Board and Chief
- ------------------------------- Executive Officer (Principal
Gordon M. Bethune Executive Officer) and Director
* Executive Vice President and Chief
- ------------------------------- Financial Officer
Lawrence W. Kellner (Principal Financial Officer)
* Vice President and Controller
- ------------------------------- (Principal Accounting Officer)
Michael P. Bonds
* Director
- -------------------------------
Thomas J. Barrack, Jr.
* Director
- -------------------------------
Lloyd M. Bentsen, Jr.
* Director
- -------------------------------
David Bonderman
* Director
- -------------------------------
Gregory D. Brenneman
* Director
- -------------------------------
Patrick Foley
* Director
- -------------------------------
Douglas H. McCorkindale
* Director
- -------------------------------
George G.C. Parker
* Director
- -------------------------------
Richard W. Pogue
* Director
- -------------------------------
William S. Price III
* Director
- -------------------------------
Donald L. Sturm
* Director
- -------------------------------
Karen Hastie Williams
* Director
- -------------------------------
Charles A. Yamarone
*By: /s/ Scott R. Peterson
-------------------------------
Scott R. Peterson,
Attorney-in-fact
EXHIBIT INDEX
Exhibit
Number Exhibit Description
- ------- -------------------
Exhibit 1.1* Purchase Agreement, dated as of December 4,
1996, between Continental Airlines, Inc. and
Lehman Brothers Inc., as the Initial Purchaser
Exhibit 4.1* Form of 9 1/2% Senior Notes due 2001 (included in
Exhibit 4.2)
Exhibit 4.2* Indenture, dated as of December 10, 1996,
between Continental Airlines, Inc. and Texas
Commerce Bank National Association, as Trustee,
relating to 9 1/2% Senior Notes due 2001
Exhibit 4.3* Registration Rights Agreement, dated as of
December 10, 1996, between Continental
Airlines, Inc. and Lehman Brothers Inc., as the
Initial Purchaser
Exhibit 5.1* Opinion of Cleary, Gottlieb, Steen & Hamilton,
counsel for Continental Airlines, Inc.,
relating to the New Notes
Exhibit 12* Computation of Ratio of Earnings to Fixed
Charges
Exhibit 23.1* Consent of Ernst & Young LLP
Exhibit 23.2** Consent of Cleary, Gottlieb, Steen & Hamilton,
counsel for Continental Airlines, Inc.
Exhibit 24.1*** Powers of Attorney
Exhibit 25.1* Statement of Eligibility of Texas Commerce Bank
National Association, as Trustee, relating to
Senior Debt Securities, on Form T-1
Exhibit 99.1* Form of Letter of Transmittal
Exhibit 99.2* Form of Notice of Guaranteed Delivery
Exhibit 99.3* Form of Letter to Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees
Exhibit 99.4* Form of Letter to Clients
________________
* Previously filed.
** Refiled herewith.
*** Supplement to the previous filing.
[LETTERHEAD OF CLEARY, GOTTLIEB, STEEN & HAMILTON]
Writer's Direct Dial: (212) 225-2420
January 24, 1997
Continental Airlines, Inc.
2929 Allen Parkway
Houston, Texas 77019
Re: Amendment No. 1 to the Registration Statement
on Form S-4 (File No. 333-19627)
---------------------------------------------
Ladies & Gentlemen:
We hereby consent to the reference to this firm under
the heading "Legal Matters" in the Prospectus included in the
amendment to the Registration Statement on Form S-4 (File
No. 333-19627). In giving such consent, we do not thereby admit
that we are "experts" within the meaning of the Act or the rules
and regulations of the Securities and Exchange Commission issued
thereunder with respect to any part of the Registration Statement,
as amended, including this exhibit.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By /s/ Stephen H. Shalen
--------------------------------
Stephen H. Shalen, a partner
POWER OF ATTORNEY
The undersigned director of Continental Airlines, Inc., a
Delaware corporation (the "Company"), does hereby constitute and
appoint Lawrence W. Kellner, Jeffery A. Smisek and Scott R.
Peterson, or any of them, as the undersigned's true and lawful
attorneys in-fact and agents to do any and all things in the
undersigned's name and behalf in the undersigned's capacity as a
director of the Company, and to execute any and all instruments
for the undersigned and in the undersigned's name and capacity as
a director that such person or persons may deem necessary or
advisable to enable the company to comply with the Securities Act
of 1933, as amended, and any rules, regulations or requirements
of the Securities and Exchange Commission in connection with that
certain Registration Statement on Form S-4 relating to the
Company's 9 1/2% Senior Notes due December 15, 2001 (the
"Registration Statement"), including specifically, but not
limited to, power and authority to sign for the undersigned in
the capacity as a director of the Company the Registration
Statement, and any and all amendments thereto, including post-
effective amendments, and the undersigned does hereby ratify and
confirm all that such person or persons shall do or cause to be
done by virtue hereof.
/s/ Thomas J. Barrack, Jr.
-----------------------------
Name: Thomas J. Barrack, Jr.
Dated and effective
as of January 2, 1997