Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____

As of July 12, 2002, 64,803,111 shares of Class B common stock were outstanding.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

In our opinion, the unaudited consolidated financial statements included herein contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Such adjustments, except for nonrecurring adjustments, which have been separately disclosed, are of a normal, recurring nature. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2001 (the "2001 10-K"). As used in these Notes to Consolidated Financial Statements, the terms "Continental", "we", "us", "our" and similar terms refer to Continental Airlines, Inc. and, unless the context indicates otherwise, its subsidiaries.

Certain reclassifications have been made in the prior year's financial statements to conform to the current year presentation.

The following table sets forth the computations of basic and diluted earnings (loss) per share (in millions):

We include in other comprehensive income (loss) unrealized gains and losses on available-for-sale securities, changes in minimum pension liabilities and changes in the fair value of derivative financial instruments, which are used from time to time to reduce the risk in fluctuations of fuel prices and some foreign currencies, each of which qualify for hedge accounting. During the second quarter of 2002 and 2001, total comprehensive income (loss) amounted to $(154) million and $44 million, respectively. For the six months ended June 30, 2002 and 2001, total comprehensive income (loss) amounted to $(310) million and $53 million, respectively. During the first half of 2002, the significant difference between net income (loss) and total comprehensive income (loss) was attributable to changes in the fair value of derivative financial instruments.

In April 2002, ExpressJet Holdings, Inc. ("Holdings"), our then wholly owned subsidiary and the sole stockholder of ExpressJet Airlines, Inc. ("ExpressJet") which operates as "Continental Express", sold 10 million shares of its common stock in an initial public offering and used the net proceeds of $147 million to repay a portion of ExpressJet's indebtedness to us. In addition, we sold 20 million of our shares of Holdings common stock in the offering for net proceeds of $300 million. The sale of Holdings' shares and our shares in the offering was accounted for as a capital transaction resulting in a $291 million increase in additional paid-in capital and a $175 million increase in tax liabilities. We contributed $150 million of our proceeds to our defined benefit pension plan and used the remainder of our proceeds for general corporate purposes.

In connection with the offering, our ownership of Holdings fell to 53.1 percent. We do not currently intend to remain a stockholder of Holdings over the long term. Subject to market conditions, we may sell additional shares of Holdings common stock in the future. Under our lock-up agreement with the underwriters of the initial public offering, no such sale could occur prior to October 2002 without the consent of the underwriters. When our ownership of Holdings falls below 50%, we will deconsolidate Holdings from our financial statements.

Prior to the offering and in connection with an internal reorganization by Holdings, a subsidiary of Holdings issued preferred stock which is non-voting, has a liquidation preference of $5 million, is mandatorily redeemable after the tenth anniversary of its issuance date and is callable after the third anniversary of its issuance date. The preferred stock was sold to a non-affiliated third party for a note in the original principal amount of $5 million and is included on our balance sheet as redeemable preferred stock of subsidiary.

Capacity Purchase Agreement with ExpressJet

General. Effective January 1, 2001, we implemented a capacity purchase agreement with ExpressJet. Under the capacity purchase agreement, ExpressJet currently flies all of its aircraft on our behalf, and we handle scheduling, ticket prices and seat inventories for these flights. In exchange for ExpressJet's operation of the flights and performance of other obligations under the agreement, we pay them for each scheduled block hour based on an agreed formula. ExpressJet recognizes revenue based on the compensation it earns from us for providing capacity. Under the agreement, we recognize all passenger, cargo and other revenue associated with each flight, and are responsible for all revenue-related expenses, including commissions, reservations, catering and passenger ticket processing expenses consisting primarily of revenue accounting costs.

Compensation and Operational Responsibilities. Under the agreement, we pay ExpressJet a base fee for each scheduled block hour based on a formula that will remain in place through December 31, 2004. The formula is designed to provide ExpressJet with an operating margin of approximately 10% before taking into account variations in some costs and expenses that are generally controllable by them.

The initial block hour rates are based on estimates of future costs we developed jointly with ExpressJet. These estimates may differ from ExpressJet's actual costs. If they do, our costs will be adjusted for some of ExpressJet's costs under the capacity purchase agreement. The adjusted block hour rates provide ExpressJet with revenue from us that is based on the sum of the following three components, generally differentiated by the nature of the operating costs ExpressJet incurs:

1. Fully-reconciled costs. Actual costs incurred plus a 10% margin on fuel (margin payment capped at 61.1 cents per gallon in 2002 and 66.0 cents per gallon thereafter), aircraft rent, terminal facility rent, depreciation and amortization, on-time bonuses, 401(k), taxes other than income taxes, passenger liability insurance, hull insurance, landing fees, administrative and ground handling services provided by us, and regional jet engine maintenance expenses under long-term third party contracts.
2. Costs within the margin band. Forecasted costs plus a 10% margin on those costs implicit in the block hour rates (irrespective of actual costs incurred) on maintenance, materials, and repairs not included in (i) above, passenger facilities, other rentals, and other operating expenses. However, if ExpressJet's actual expenses in this category are sufficiently different from the forecasts implicit in the block hour rates so that its total operating margin -- excluding the effects of the costs in category (iii) below as well as unanticipated changes in its depreciation expense, any performance incentive payments, controllable cancellations, litigation costs and other costs that are not included in the block hour rates and are not reasonable and customary in the industry -- is either below 8.5% or above 11.5% calculated on a quarterly basis, then the overall revenue will be adjusted upward or downward to result in an 8.5% or 11.5% total operating margin as applicable.
3. Unreconciled costs. Forecasted costs incurred plus a 10% margin on those costs implicit in the block hour rates (irrespective of actual costs incurred) on wages and salaries, and benefits not included in categories (i) and (ii).

Our payments to ExpressJet under the capacity purchase agreement totaled $980 million in 2001 and $535 million in the first six months of 2002. Our future payments under the capacity purchase agreement are dependent on numerous variables, and therefore difficult to predict. The most important of those variables is the number of scheduled block hours, which takes into account the number of ExpressJet aircraft and our utilization rates of such aircraft. However, if we changed the utilization of ExpressJet's aircraft, we would also change the number of available seat miles on ExpressJet's flights and the revenue that we generate by selling those seats. Any decision by us to change the utilization of ExpressJet's aircraft (or to remove aircraft from the capacity purchase agreement) would be made by determining the net effect of such change on our income and cash flow, taking into account not only our cash commitment to ExpressJet but also our expected revenue from ExpressJet's flights.

Set forth below are estimates of our future minimum noncancellable commitments under the capacity purchase agreement. These estimates of our future minimum noncancellable commitments under the capacity purchase agreement do not include the portion of the underlying obligations for aircraft and facility rent that are disclosed as part of our consolidated operating lease commitments. For purposes of calculating these estimates, we have assumed (i) that ExpressJet's aircraft deliveries continue as scheduled through July 2004, (ii) an annual inflation rate of 2% beginning in 2005 (contracted rates through 2004), (iii) a fuel rate of 66 cents per gallon, (iv) that we exercise our rights to terminate the capacity purchase agreement at the earliest possible date permitted under the contract, (v) that prior to termination we exercise our rights to remove as many aircraft as quickly as contractually permitted from the capacity purchase agreement, (vi) an average daily utilization rate of 8.4 hours, and (vii) controllable cancellations are at historical levels resulting in no incentive compensation payable to ExpressJet. As a result, our future minimum noncancellable commitments under the capacity purchase agreement are estimated as follows (in millions):

It is important to note that in making the assumptions used to develop these estimates, we are attempting to estimate our minimum noncancellable commitments and not the amounts that we currently expect to pay to ExpressJet (which amounts are expected to be higher as we do not currently expect to reduce capacity under the agreement to the extent assumed above or terminate the agreement at the earliest possible date). In addition, our actual minimum noncancellable commitments to ExpressJet could differ materially from the estimates discussed above, because actual events could differ materially from the assumptions described above. For example, a 10% change in scheduled block hours (whether a result of change in delivery dates of aircraft or average daily utilization) in 2003 would result in a change in cash obligations under the capacity purchase agreement of approximately 8% or $91 million.

ExpressJet's base fee includes compensation for scheduled block hours associated with some cancelled flights, based on historical cancellation rates constituting rolling five-year monthly averages. To the extent that ExpressJet's rate of controllable cancellations, such as those due to maintenance or crew shortages, is less than its historical controllable cancellation rate, ExpressJet will be entitled to additional payments. On the other hand, ExpressJet will generally not be entitled to any such additional payments if controllable cancellations are above historical rates of cancellations. ExpressJet is also entitled to receive a small per-passenger fee and incentive payments for headstarts and baggage handling performance.

If a change of control (as defined in the agreement) of ExpressJet occurs without our consent, the block hour rates that we will pay under the agreement will be substantially reduced.

Some marketing-related costs normally associated with operating an airline are borne directly by us, since we are responsible for marketing under the capacity purchase agreement. We will continue to provide operational support to ExpressJet under the capacity purchase agreement, such as ground handling, and will provide certain administrative services for a limited period of time.

ExpressJet has agreed to meet with us each year beginning in 2004 to review and set the block hour rates to be paid in the following year, in each case based on the formula used to set the original block hour rates (including a 10% targeted operating margin). If we and ExpressJet cannot come to an agreement on the annual adjustments, we have agreed to submit our disagreement to arbitration. In addition, the agreement gives each party the right to "meet and confer" with the other regarding any material change in the underlying assumptions regarding the cost of providing services under the agreement and whether the compensation provisions of the agreement should be changed as a result, but does not require any party to agree to any change in the compensation provisions.

Capacity and Fleet Matters. The agreement covers all of ExpressJet's existing fleet, as well as the 116 Embraer regional jets subject to firm orders at June 30, 2002. Under the capacity purchase agreement, beginning July 1, 2003, we have the right to reduce the number of ExpressJet's aircraft covered by the contract upon 12 months' notice, resulting in the earliest effective date for capacity reduction of July 1, 2004. Under the agreement, we are entitled to decline capacity with respect to (a) any regional jets subject to firm orders that have not been delivered before the effective date of the reduction in capacity and (b) up to 25% of ExpressJet's delivered regional jets over any rolling three-year period. If we remove aircraft from the terms of the agreement, ExpressJet will have the option to (i) fly the released aircraft for another airline (subject to its ability to obtain facilities, such as gates and slots, and subject to its exclusive arrangement with us that prohibits ExpressJet during the term of the agreement from flying under its or another carrier's code in or out of our hub airports), (ii) fly the aircraft under ExpressJet's own flight designator code subject to its ability to obtain facilities, such as gates and slots, and subject to ExpressJet's exclusive arrangement with us at our hubs or (iii) decline to fly the aircraft and cancel the related subleases with us. If ExpressJet elects not to terminate these subleases, the interest rate implicit in calculating the scheduled lease payments will automatically increase by 200 basis points to compensate us for our continued participation in ExpressJet's lease financing arrangements.

Term of Agreement. The agreement expires on December 31, 2010; however, we may terminate the agreement at any time after January 1, 2006 upon 12 months' notice, or at any time without notice for cause (as defined in the agreement). We may also terminate the agreement at any time upon a material breach by ExpressJet that does not constitute cause and continues for 90 days after notice of such breach, or without notice or opportunity to cure if we determine that there is a material safety concern with ExpressJet's flight operations. We have the option to extend the term of the agreement with 24 months' notice for up to four additional five-year terms through December 31, 2030.

Service Agreements. We provide various services to ExpressJet and charge them at rates in accordance with the capacity purchase agreement. The services provided to ExpressJet by us include certain customer services such as ground handling and centralized services and infrastructure costs, including insurance, technology, accounting, legal, treasury, human resources and risk management. For providing these services, we charged ExpressJet approximately $22 million, $18 million, $42 million and $33 million for the three months ended June 30, 2002 and 2001 and the six months ended June 30, 2002 and 2001, respectively.

Note Receivable from ExpressJet. At June 30, 2002 we had a $396 million note receivable from ExpressJet. Accrued interest on the note is payable quarterly by ExpressJet until March 31, 2003, at which time principal and interest will be payable in quarterly installments of $27.9 million through March 31, 2007. The interest rate is fixed for each quarter at a rate equal to the three-month London interbank offered rate on the second business day prior to such quarter plus 1.25% per annum, subject to an aggregate cap of 3.50% in 2002, 5.35% in 2003 and 6.72% in 2004.

Leases. As of June 30, 2002, ExpressJet leased or subleased 174 of its aircraft under long-term operating leases from us (excluding 28 aircraft removed from service as discussed in Note 4). ExpressJet's sublease agreements with us have substantially the same terms as the lease agreements between us and the third-party lessors, and expire between 2002 and 2017. ExpressJet leases or subleases, under various operating leases, ground equipment and substantially all of its ground facilities, including facilities at public airports, from us or the municipalities or agencies owning and controlling such airports. If ExpressJet defaults on its payment obligations under its aircraft subleases with us, we are entitled to reduce any payments required to be made by us to ExpressJet under the capacity purchase agreement by the amount of the defaulted payment.

ExpressJet's total rental expense for all non-aircraft operating leases with us was approximately $2 million, $2 million, $4 million and $4 million for the three months ended June 30, 2002 and 2001 and the six months ended June 30, 2002 and 2001, respectively. ExpressJet's total rental expense related to aircraft leases with us was approximately $49 million, $41 million, $96 million and $79 million for the three months ended June 30, 2002 and 2001 and the six months ended June 30, 2002 and 2001, respectively.

Deferred Taxes. In conjunction with Holdings' offering, our tax basis in the stock of Holdings and the tax basis of ExpressJet's tangible and intangible assets were increased to fair value. This increase in basis has resulted in the utilization of a substantial amount of ExpressJet's state net operating loss carryovers and our federal and state net operating losses. The increased tax basis should result in additional tax deductions available to ExpressJet over a period of 15 years. To the extent ExpressJet generates taxable income sufficient to realize the additional tax deductions, it will be required to pay us a percentage of the amount of tax savings actually realized, excluding the effect of any loss carrybacks. ExpressJet will be required to pay us 100% of the first third of the anticipated tax benefit, 90% of the second third, and 80% of the last third. However, if the anticipated benefits are not realized by the end of 2018, ExpressJet will be obligated to pay us 100% of any benefit s realized after that date. We will not recognize for accounting purposes the benefit of the tax savings associated with ExpressJet's asset step-up until paid to us by ExpressJet due to the uncertainty of realization.

Other. So long as we are ExpressJet's largest customer, if it enters into an agreement with another major airline to provide regional airline services on a capacity purchase or other similar economic basis for 10 or more aircraft on terms and conditions that are in the aggregate less favorable to ExpressJet than the terms and conditions of the capacity purchase agreement, we will be entitled to amend our capacity purchase agreement to conform the terms and conditions of the capacity purchase agreement to the terms and conditions of the agreement with the other major airline.

As shown in the following table at June 30, 2002, our aircraft fleet consisted of 374 mainline jets, 158 regional jets and 20 turboprop aircraft. Our purchase commitments (orders) and aircraft options as of June 30, 2002 are also included in the table.

1. Excludes aircraft removed from service during any time period prior to June 30, 2002, but that continue to be owned by or under lease to us. These aircraft consist of 15 DC-10-30 aircraft, 18 MD-80 aircraft, six 737-300 aircraft, two 747-200 aircraft, two 727-200 aircraft, 18 EMB-120 turboprop aircraft and ten ATR-42 turboprop aircraft (42 of which are subject to leases).

In the first half of 2002, we took delivery of 20 Boeing jet aircraft, returned nine MD-80 aircraft to service and removed seven MD-80 aircraft from service. For the remainder of the year, we currently plan to return two MD-80 aircraft and three 737-300 aircraft to service and plan to remove from service five MD-80 aircraft, four 737-300 aircraft and one 737-500 aircraft (in conjunction with the expiration of their leases).

ExpressJet took delivery of 21 Embraer regional jet aircraft in the first half of 2002 and retired 13 turboprop aircraft. During the remainder of 2002, ExpressJet plans to take delivery of 30 additional Embraer regional jet aircraft (including the first Embraer long range aircraft) and retire from service 13 turboprop aircraft (eight of which are subject to leases). ExpressJet plans to retire all of its remaining turboprop aircraft by the first quarter of 2003.

As of June 30, 2002, the estimated aggregate cost of our firm commitments for 67 Boeing aircraft was approximately $2.6 billion. No additional deliveries of Boeing aircraft are planned until the fourth quarter of 2003. We do not have financing currently in place for these 67 aircraft, which are scheduled for delivery through 2008. In addition, at June 30, 2002, we had firm commitments for approximately $120 million to purchase 19 spare engines for these aircraft. These engines are deliverable through March 2005.

As of June 30, 2002, the estimated aggregate cost of ExpressJet's firm commitments for 116 Embraer regional jets was approximately $2.3 billion. In addition, as of June 30, 2002, ExpressJet expected to purchase 23 spare engines for approximately $68 million. These spare engines are deliverable through the first quarter of 2005. Neither we nor ExpressJet have any obligation to take any of these firm Embraer aircraft that are not financed by a third party and leased to us. Neither we nor ExpressJet have any financing currently in place for the 23 spare engines.

As a result of the continued weak revenue environment, we made a decision in the second quarter to permanently ground ExpressJet's leased turboprop aircraft and certain leased MD-80 aircraft. We accrued $37 million ($59 million before taxes) primarily related to lease payments past the dates the aircraft will be removed from service, which will occur in the next 12 months, as well as return condition and storage costs. We also performed an impairment assessment of our owned aircraft during the second quarter based on our revised cash flow forecasts that are reflective of the weak revenue environment. As a result of the impairment assessment, we concluded that the carrying values of our owned turboprop and MD-80 fleets were not recoverable and recorded an impairment charge of $59 million ($93 million before taxes) to reduce the carrying value of these aircraft to their estimated fair value.

In the first quarter of 2002, we recorded a fleet charge of $52 million ($83 million before taxes) in connection with the permanent grounding and retirement of our leased DC-10-30 fleet. The majority of the charge related to future commitments under noncancelable lease agreements past the dates the aircraft were permanently removed from service. The remainder of the accrual relates to costs expected to be incurred relating to the storage and return of these aircraft. Cash payments related to the accruals established under this charge totaled approximately $15 million during the first half of 2002.

As of June 30, 2002, 48 aircraft in our possession were permanently grounded, including 29 aircraft subject to leases. We plan to sell the 19 owned aircraft, which are being carried at an aggregate fair market value of $28 million and explore sublease opportunities for certain of the leased aircraft. The timing of the disposition of these aircraft is dependent upon the stabilization of the economic environment in the airline industry as well as our ability to find purchasers for the aircraft. We cannot predict when such stabilization will occur or if purchasers can be found, and it is possible that our assets could suffer additional impairment.

In July 2001, the Financial Accounting Standards Board issued Financial Accounting Standard No. 142 - "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 includes requirements to test goodwill and indefinite-lived intangible assets for impairment rather than amortize them. Effective January 1, 2002, we adopted SFAS 142 and discontinued amortization of our goodwill recorded on equity investments and routes, which are indefinite-lived intangible assets. This change will result in reduced expense of approximately $23 million on an annualized basis. SFAS 142 requires us to test routes for impairment annually, beginning in the first quarter of 2002. We performed the first of these impairment tests as of January 1, 2002 and determined that we did not have any impairment of our routes upon adoption based on our assessment of fair values.

Pro forma results for the three and six months ended June 30, 2001, assuming the discontinuation of amortization of routes, are shown below (in millions, except per share data).

In August 2001, the Financial Accounting Standards Board issued Financial Accounting Standard No. 144 - "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 supersedes SFAS 121 and the portion of the Accounting Principle Board Opinion No. 30 that deals with disposal of a business segment. Effective January 1, 2002, we adopted SFAS 144, which had no effect on our results of operations.

In the second quarter of 2002, we filed our final application for a grant under the Air Transportation Safety and System Stabilization Act (the "Stabilization Act"). We recorded a charge of $8 million ($12 million before taxes) to write down our receivable from the U.S. government based on this final application. We received a grant of $30 million in cash in the second quarter and expect to receive the balance of the grant, $20 million, by September 30, 2002.

During the second quarter of 2002, we awarded our officers an aggregate of 444,750 shares of restricted stock to incentivize them to remain with Continental and guide it through the industry's recovery period. The restricted stock was awarded pursuant to our equity incentive plans and had a fair value on the grant date of $12.5 million ($28.10 per share). The restricted stock is scheduled to vest in 25% increments on the first four anniversaries of the grant. Compensation expense of $1.5 million related to the restricted stock was recognized in the second quarter of 2002.

In addition, in June of 2002, we granted stock options with respect to approximately six million shares of our common stock to approximately 400 management employees (including our officers) pursuant to our equity incentive plans at an exercise price of $15.78, which was the fair market value on the date of grant. The options have a weighted average remaining contractual life of five years, and approximately 3 million shares are currently exercisable. These options were granted to incentivize management to remain with Continental and guide it through the industry's recovery period. The total of all stock options outstanding after this grant is approximately 9.7% of total shares outstanding, assuming all stock options were exercised.

The closing price of our common stock on July 15, 2002 was $11.56 per share.

The following discussion contains forward-looking statements that are not limited to historical facts, but reflect our current beliefs, expectations or intentions regarding future events. In connection therewith, please see the risk factors set forth in our 2001 10-K, which identify important factors such as terrorist attacks and the resulting regulatory developments and costs, our recent operating losses and special charges, our high leverage and significant financing needs, our historical operating results, the significant cost of aircraft fuel, labor costs, certain tax matters, the Japanese economy and currency risk, competition and industry conditions, regulatory matters and the seasonal nature of the airline business (the second and third quarters are generally stronger than the first and fourth quarters), that could cause actual results to differ materially from those in the forward-looking statements.

The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three and six months ended June 30, 2002 as compared to the corresponding periods ended June 30, 2001.

Revenue passenger miles and available seat miles were down quarter over quarter due to traffic declines and our reduced flight schedule since the events of September 11, 2001. Despite improving load factors, industry fare discounting has negatively impacted both yield and breakeven load factor quarter over quarter.

We incurred a consolidated net loss of $139 million for the three months ended June 30, 2002 as compared to producing consolidated net income of $42 million for the three months ended June 30, 2001. Included in the net loss is a fleet charge of $96 million ($152 million before taxes) primarily related to the impairment (owned aircraft) and accrual of lease exist costs (leased aircraft) of our MD-80 and turboprop fleets and an $8 million charge ($12 million before taxes) related to the write down of our receivable from the U.S. government related to the finalization of the Stabilization Act grant.

Passenger revenue decreased 14.8%, $358 million, during the quarter ended June 30, 2002 as compared to the same period in 2001, which was principally due to traffic and capacity declines and fare discounting following the September 11, 2001 terrorist attacks and the continuing weak economy.

Cargo, mail and other revenue decreased 4.4%, $6 million, in the second quarter of 2002 compared to the second quarter of 2001 primarily due to lower freight volumes and yield and new security restrictions that reduced mail volumes, partially offset by higher contract revenue.

Wages, salaries and related costs decreased 6.8%, $54 million, during the quarter ended June 30, 2002 as compared to the same period in 2001 primarily due to a reduction in the number of employees as a result of reduced flying, partially offset by higher wage rates.

Aircraft fuel expense decreased 27.2%, $95 million, in the three months ended June 30, 2002 as compared to the same period in the prior year. The average jet fuel price per gallon decreased 16.2% from 81.49 cents in the second quarter of 2001 to 68.27 cents in the second quarter of 2002. Jet fuel consumption decreased 14.7% principally reflecting decreased flight operations and the fuel efficiency of our younger fleet. During the second quarter of 2002 and 2001, we also recognized gains of approximately $6 million and $4 million, respectively, relating to our fuel hedging program, which is reflected in fuel expense.

Aircraft rentals increased 3.6%, $8 million, in the second quarter of 2002 compared to the second quarter of 2001, due to the delivery of new aircraft.

Landing fees and other rentals increased 4.6%, $7 million, in the three months ended June 30, 2002 as compared to the same period in the prior year primarily due to higher landing fees resulting from rate increases.

Maintenance, materials and repairs decreased 26.5%, $43 million, during the quarter ended June 30, 2002 as compared to the same period in 2001 primarily due to the replacement of older aircraft with new aircraft.

Depreciation and amortization expense increased 0.9%, $1 million, in the second quarter of 2002 compared to the second quarter of 2001 due principally to the addition of new owned aircraft and related spare parts, partially offset by the discontinuation of amortization of routes.

Reservations and sales decreased 18.5%, $23 million, in the three months ended June 30, 2002 as compared to the same period in 2001 primarily due to lower computer reservation system booking fees and credit card discount fees as a result of lower revenue.

Passenger servicing decreased 24.0%, $23 million, in the second quarter of 2002 compared to the second quarter of 2001 primarily due to a decrease in food costs and aircraft supplies resulting from fewer passengers.

Commission expense decreased 46.2%, $49 million in the second quarter of 2002 compared to the second quarter of 2001 due to lower revenue and the elimination of domestic base commissions.

In the second quarter of 2002, we recorded a fleet charge of $96 million ($152 million before taxes) primarily related to the impairment (owned aircraft) and accrual of lease exit costs (leased aircraft) of our MD-80 and turboprop fleets. See Note 5.

We recorded an $8 million charge ($12 million before taxes) related to the write down of our receivable from the U.S. government related to the finalization of the Stabilization Act grant. See Note 6.

Other operating expense decreased 1.7%, $5 million, in the three months ended June 30, 2002 as compared to the same period in the prior year, primarily as a result of decreases in outsourced services and other miscellaneous expenses resulting from reduced capacity, which was partially offset by increased insurance and security costs.

Interest expense increased 26.4%, $19 million, in the second quarter of 2002 compared to the second quarter of 2001 due to an increase in long-term debt primarily resulting from the purchase of new aircraft.

Interest income decreased 53.8%, $7 million, in the second quarter of 2002 compared to the second quarter of 2001 due to lower interest rates.

Other nonoperating income (expense) in the three months ended June 30, 2001, included foreign currency losses of $4 million, as well as net losses of $4 million related to the interest component of premiums paid on fuel hedges.

We are required to accrue income tax expense on our share of ExpressJet's net income after the initial public offering in all periods where we either consolidate their operations or account for our investment under the equity method of accounting. The accrual of this income tax expense reduced our tax benefit by approximately $3 million for the quarter ended June 30, 2002.

Revenue passenger miles and available seat miles were down year over year due to traffic declines and our reduced flight schedule since the events of September 11, 2001. Despite improving load factors, industry fare discounting has negatively impacted both yield and breakeven load factor year over year.

We incurred a consolidated net loss of $305 million and produced consolidated net income of $51 million for the six months ended June 30, 2002 and 2001, respectively. Included in the net loss is a fleet charge of $96 million ($152 million before taxes) primarily related to the impairment (owned aircraft) and accrual of lease exit costs (leased aircraft) of our MD-80 and turboprop fleets, an $8 million charge ($12 million before taxes) related to the write down of our receivable from the U.S. government related to the finalization of the Stabilization Act grant, and a fleet charge of $52 million ($83 million before taxes) related to the permanent grounding and retirement of our leased DC-10-30 fleet.

Passenger revenue decreased 16.8%, $792 million, during the six months ended June 30, 2002 as compared to the same period in 2001. The decrease was principally due to traffic and capacity declines and fare discounting following the September 11, 2001 terrorist attacks and the continuing weak economy.

Cargo, mail and other revenue decreased 10.6%, $30 million, during the six months ended June 30, 2002 as compared to the same period in 2001 primarily due to lower freight volumes and yield and new security restrictions that reduced mail volumes, partially offset by higher contract revenue.

Wages, salaries and related costs decreased 5.1%, $80 million, during the six months ended June 30, 2002 as compared to the same period in 2001, primarily due to a reduction in the number of employees as a result of reduced flying, partially offset by higher wage rates.

Aircraft fuel expense decreased 33.4%, $232 million, in the six months ended June 30, 2002 as compared to the same period in the prior year. The average price per gallon decreased 23.0% from 83.61 cents in the first six months of 2001 to 64.37 cents in the first six months of 2002. Jet fuel consumption decreased 15.5%, principally reflecting decreased flight operations and the fuel efficiency of our younger fleet. During the first six months of 2002 and 2001, we also recognized gains of approximately $6 million and $2 million, respectively, related to our fuel hedging program, which is reflected in fuel expense.

Aircraft rentals increased 5.0%, $22 million, during the six months ended June 30, 2002 as compared to the same period in 2001, due to the delivery of new aircraft.

Landing fees and other rentals increased 9.2%, $27 million, in the six months ended June 30, 2002 as compared to the same period in the prior year primarily due to higher landing fees resulting from rate increases and higher facilities rent (partially attributable to the completion of a portion of the Global Gateway project at Newark International Airport).

Maintenance, materials and repairs decreased 28.0%, $90 million, during the six months ended June 30, 2002 as compared to the same period in the prior year primarily due to the replacement of older aircraft with new aircraft.

Depreciation and amortization expense increased 4.2%, $9 million, in the first six months of 2002 compared to the same period in 2001 primarily due to the addition of new owned aircraft and related spare parts, partially offset by the discontinuation of amortization of routes.

Reservations and sales expense decreased 19.4%, $49 million, in the first six months of 2002 compared to the same period in 2001 primarily due to lower computer reservation system booking fees and credit card discount fees as a result of lower revenue.

Passenger servicing decreased 19.8%, $37 million, during the six months ended June 30, 2002 as compared to the same period in 2001 primarily due to a decrease in food costs and aircraft supplies resulting from fewer passengers.

Commission expense decreased 41.8%, $92 million, during the six months ended June 30, 2002 as compared to the same period in 2001 due to lower revenue and the elimination of domestic base commissions.

In the second quarter of 2002, we recorded a fleet charge of $96 million ($152 million before taxes) primarily related to the impairment (owned aircraft) and accrual of lease exit costs (leased aircraft) of our MD-80 and turboprop fleets. In the first quarter of 2002, we recorded a fleet charge of $52 million ($83 million before taxes) in connection with the permanent grounding and retirement of our leased DC-10-30 fleet. See Note 5.

We recorded a $12 million charge related to the write down of our receivable from the U.S. government related to the finalization of the Stabilization Act grant. See Note 6.

Other operating expense decreased 5.4%, $33 million, in the six months ended June 30, 2002 as compared to the same period in the prior year, primarily as a result of decreases in outsourced services and other miscellaneous expenses resulting from reduced capacity, which was partially offset by increased insurance and security costs.

Interest expense increased 20.1%, $29 million, in the six months ended June 30, 2002 compared to the same period in the prior year due to an increase in long-term debt primarily resulting from the purchase of new aircraft.

Interest income decreased 60.7%, $17 million, in the first half of 2002 compared to the first half of 2001 due to lower interest rates.

Other nonoperating income (expense) in the six months ended June 30, 2001 included our equity in the net losses of certain investments of $6 million, foreign currency losses of $4 million and net losses of $9 million related to the interest component of premiums paid on fuel hedges.

An analysis of statistical information for Continental's jet operations, excluding regional jet operations except as otherwise noted, for the periods indicated is as follows:

(continued on next page)

We have entered into block-space arrangements with certain other carriers whereby one or both of us is obligated to purchase capacity on the other. The table above does not include the statistics for our capacity that has been purchased by another carrier.

__________________

As of June 30, 2002, we had $1.3 billion in cash, cash equivalents and short-term investments, including $131 million of cash at ExpressJet. Cash flows used in operations for the six months ended June 30, 2002 were $26 million. Cash flows used in investing activities, primarily capital expenditures and purchase of short-term investments, were $428 million for the six months ended June 30, 2002. Cash flows provided by financing activities, primarily from the sale of Holdings stock and the issuance of long-term debt, partially offset by the payment of debt, were $499 million for the six months ended June 30, 2002.

Based on current information and trends (including currently anticipated unit costs), we expect to incur a significant loss for the full year 2002.

Together with our subsidiaries, we received $30 million in cash in the second quarter of 2002 and expect to receive the balance of the grant under the Stabilization Act, $20 million, by September 30, 2002.

We do not currently have any lines of credit, but have unencumbered assets, consisting primarily of spare parts, with a net book value in excess of $1.0 billion at June 30, 2002 which could be pledged in connection with future financings.

We expect to fund our future capital commitments through internally generated funds together with general company financings and aircraft financing transactions. However, there can be no assurance that sufficient financing will be available for all aircraft and other capital expenditures.

General Financing. In the first quarter of 2002, we issued $200 million of 4.5% convertible notes due February 1, 2007 for net proceeds of $195 million. The notes are convertible into our common stock at an initial conversion price of $40 per share. The notes are redeemable at our option on or after February 5, 2005, at specified redemption prices. The proceeds are being used for general corporate purposes.

In April 2002, we received net proceeds of $447 million from ExpressJet's initial public offering. The sale of Holdings' shares and our shares in the offering was accounted for as a capital transaction resulting in a $291 million increase in additional paid-in capital and a $175 million increase in tax liabilities. We contributed $150 million of our proceeds to our defined benefit pension plan and used the remainder of our proceeds for general corporate purposes.

In connection with the offering, our ownership of Holdings fell to 53.1 percent. We do not currently intend to remain a stockholder of Holdings over the long term. Subject to market conditions, we may sell additional shares of Holdings common stock in the future. Under our lock-up agreement with the underwriters of the initial public offering, no such sale could occur prior to October 2002 without the consent of the underwriters. Our capacity purchase agreement with ExpressJet provides that we purchase in advance all of its available seat miles for a negotiated price, and we are at risk for reselling the available seat miles at market prices. If we sold sufficient stock of Holdings to stop consolidating the results of ExpressJet for accounting purposes, we would expect diluted cash flows due to our payments under the capacity purchase agreement and lower earnings due to the targeted operating margin under the capacity purchase agreement with ExpressJet. For example, for the six months ended June 30, 2002, our pre-tax loss of approximately $447 million included pre-tax income for ExpressJet of approximately $67 million.

Aircraft and Facilities Financing. In March 2002, we completed the public offering of $329 million of pass-through certificates along with the private placement of $146 million of pass-through certificates to be funded upon the delivery of each aircraft. The proceeds were used to finance the acquisition cost of seven new aircraft delivered in the first half of 2002.

Purchase Commitments. We have substantial commitments for capital expenditures, including for the acquisition of new aircraft. See Note 4.

Our net capital expenditures during the six months ended June 30, 2002, including purchase deposits paid and refunded, were $288 million. For the remainder of the year, we expect capital expenditures for fleet (including purchase deposit activity) and non-fleet (primarily relating to software application and automation infrastructure projects, aircraft modifications, passenger terminal facility improvements and office, maintenance, telecommunications and ground equipment) to be $137 million.

Set forth below are estimates of our future minimum noncancellable commitments under the capacity purchase agreement. These estimates of our future minimum noncancellable commitments under the capacity purchase agreement do not include the portion of the underlying obligations for aircraft and facility rent that are disclosed as part of our consolidated operating lease commitments. For purposes of calculating these estimates, we have assumed (i) that ExpressJet's aircraft deliveries continue as scheduled through July 2004, (ii) an annual inflation rate of 2% beginning in 2005 (contracted rates through 2004), (iii) a fuel rate of 66 cents per gallon, (iv) that we exercise our rights to terminate the capacity purchase agreement at the earliest possible date permitted under the contract, (v) that prior to termination we exercise our rights to remove as many aircraft as quickly as contractually permitted from the capacity purchase agreement, (vi) an average daily utilization rate of 8.4 hours, and (vii) controllable cancellations are at historical levels resulting in no incentive compensation payable to ExpressJet. As a result, our future minimum noncancellable commitments under the capacity purchase agreement are estimated as follows (in millions):

It is important to note that in making the assumptions used to develop these estimates, we are attempting to estimate our minimum noncancellable commitments and not the amounts that we currently expect to pay to ExpressJet (which amounts are expected to be higher as we do not currently expect to reduce capacity under the agreement to the extent assumed above or terminate the agreement at the earlier possible date). In addition, our actual minimum noncancellable commitments to ExpressJet could differ materially from the estimates discussed above, because actual events could differ materially from the assumptions described above. For example, a 10% change in scheduled block hours (whether a result of change in delivery dates of aircraft or average daily utilization) in 2003 would result in a change in cash obligations under the capacity purchase agreement of approximately 8% or $91 million.

Deferred Taxes. As of December 31, 2001, we had a net deferred tax liability of $518 million including gross deferred tax assets aggregating $976 million, $532 million related to net operating losses ("NOLs"), and a valuation allowance of $245 million.

Section 382 of the Internal Revenue Code ("Section 382") imposes limitations on a corporation's ability to utilize NOLs if it experiences an "ownership change." In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders by more than 50 percentage points over a three-year period. If an ownership change occurred, utilization of our NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax exempt rate (which was 5.01% for June 2002). Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased by any built-in gains in assets held at the time of the change that we recognize in the five-year period after the change. Under current conditions, if an ownership change occurred, our annual NOL utilization would be limited to approximately $49 milli on per year, excluding any future built-in gain transactions.

In conjunction with Holdings' offering, our tax basis in the stock of Holdings and the tax basis of ExpressJet's tangible and intangible assets were increased to fair value. This increase in basis has resulted in the utilization of a substantial amount of ExpressJet's state net operating loss carryovers and our federal and state net operating losses. The increased tax basis should result in additional tax deductions available to ExpressJet over a period of 15 years. To the extent ExpressJet generates taxable income sufficient to realize the additional tax deductions, it will be required to pay us a percentage of the amount of tax savings actually realized, excluding the effect of any loss carrybacks. ExpressJet will be required to pay us 100% of the first third of the anticipated tax benefit, 90% of the second third, and 80% of the last third. However, if the anticipated benefits are not realized by the end of 2018, ExpressJet will be obligated to pay us 100% of any benefits realized after that d ate. We will not recognize for accounting purposes the benefit of the tax savings associated with ExpressJet's asset step-up until paid to us by ExpressJet due to the uncertainty of realization.

Employees. A collective bargaining agreement between us and our mechanics (who are represented by the International Brotherhood of Teamsters ("Teamsters")) became amendable in January 2002, and additional agreements between each of us and ExpressJet and our respective pilots (who are represented by the Air Line Pilots Association International ("ALPA")) are amendable in October 2002. In addition, collective bargaining agreements between our wholly owned subsidiary, Continental Micronesia, Inc. ("CMI"), and its mechanics and fleet and passenger service employees (represented by the Teamsters) became amendable in March 2001. Negotiations were deferred due to the continuing economic uncertainty following the September 11, 2001 terrorist attacks. Negotiations recommenced with the Teamsters in the first quarter of 2002. The parties jointly requested mediation assistance from the National Mediation Board, and will resume negotiations with a mediator on July 19, 2002. Negotiations commenced with ALPA on July 16, 2002.

Outlook. Based on current information and trends (including currently anticipated unit costs), we expect to incur a significant loss for the full year 2002. Although load factors have improved, they have done so against significantly reduced capacity. The reduced capacity, coupled with the fact that many of our costs are fixed in the intermediate to long term, will continue to drive higher unit costs. Cost per available seat mile for 2002 is expected to increase 1%, holding fuel rate constant, as compared to 2001. We expect to reduce commission expense by approximately $100 million on an annual basis as a result of changes to our commission structure. Business traffic in most markets continues to be weak, and carriers continue to offer reduced fares to attract passengers, which lowers our passenger revenue and yields and raises our breakeven load factor. We cannot predict if or when business traffic or yields will increase.

We believe that our costs are likely to be affected in the future by (i) increased expenses as a result of the targeted operating margin under the capacity purchase agreement as well as capacity purchase payments if and when we deconsolidate (see Note 3), (ii) higher aircraft ownership costs as new aircraft are delivered, (iii) higher wages, salaries, benefits and related costs as we reach new union agreements, partially offset by savings realized through employee furloughs, company-offered leaves of absence, retirements and cancellation of open positions, (iv) changes in the costs of materials and services (in particular, the cost of fuel, which can fluctuate significantly in response to global market conditions, and insurance and security costs, which have already increased significantly since the September 11, 2001 terrorist attacks), (v) changes in distribution costs and structure, (vi) changes in governmental regulations and taxes affecting air transportation and the costs charged for airport acc ess, including landing fees and new security requirements, (vii) changes in our fleet and related capacity and (viii) our continuing efforts to reduce costs throughout our operations, including reduced maintenance costs for new aircraft, reduced distribution expense from using electronic ticketing and the internet for bookings, reduced capital spending, and continuing to remove non-value added costs from the system. However, the precise impact of these items is not known at this time.

There have been no material changes in market risk from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2001 10-K except as follows:

Our results of operations are significantly impacted by changes in the price of aircraft fuel. Aircraft fuel accounted for 11.9%, 14.4%, 10.9%, and 14.5% of our operating expenses (excluding fleet disposition/impairment losses and Stabilization Act grant adjustment) for the three months ended June 30, 2002 and 2001 and the six months ended June 30, 2002 and 2001, respectively. From time to time, we enter into petroleum call options, petroleum swap contracts and jet fuel purchase commitments to provide short-term protection (generally three to nine months) against a sharp increase in jet fuel prices. Our fuel hedging strategy may limit our ability to benefit from certain fuel price declines. As of June 30, 2002, we had hedged approximately 50% of our remaining 2002 projected fuel requirements using petroleum call options. We had no fuel hedges in place as of June 30, 2001. We estimate that a 10% increase in the price per gallon of aircraft fuel would increase the fair value of petroleum call opti ons existing at June 30, 2002 by $14.5 million.

The Company's Annual Meeting of Stockholders was held on April 17, 2002. The following individuals were elected to the Company's Board of Directors to hold office for the ensuing year:

A proposal to ratify the appointment of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending December 31, 2002 was voted on by the stockholders as follows:

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

__________________________

Capitalized terms (and the term "CO system") used in this letter agreement are used with the same meanings ascribed to them in your employment agreement.

If you agree with the foregoing, please sign the enclosed copy of this letter agreement, whereby this letter agreement shall be a binding agreement between you and the Company and shall amend your employment agreement accordingly.

Sincerely,

CONTINENTAL AIRLINES, INC.

By:________________________

Michael H. Campbell

Capitalized terms (and the term "CO system") used in this letter agreement are used with the same meanings ascribed to them in your employment agreement.

If you agree with the foregoing, please sign the enclosed copy of this letter agreement, whereby this letter agreement shall be a binding agreement between you and the Company and shall amend your employment agreement accordingly.

Sincerely,

CONTINENTAL AIRLINES, INC.

By:________________________

Michael H. Campbell

Capitalized terms (and the term "CO system") used in this letter agreement are used with the same meanings ascribed to them in your employment agreement.

If you agree with the foregoing, please sign the enclosed copy of this letter agreement, whereby this letter agreement shall be a binding agreement between you and the Company and shall amend your employment agreement accordingly.

Sincerely,

CONTINENTAL AIRLINES, INC.

By:________________________

Michael H. Campbell

Capitalized terms (and the term "CO system") used in this letter agreement are used with the same meanings ascribed to them in your employment agreement.

If you agree with the foregoing, please sign the enclosed copy of this letter agreement, whereby this letter agreement shall be a binding agreement between you and the Company and shall amend your employment agreement accordingly.

Sincerely,

CONTINENTAL AIRLINES, INC.

By:________________________

Michael H. Campbell

Capitalized terms (and the term "CO system") used in this letter agreement are used with the same meanings ascribed to them in your employment agreement.

If you agree with the foregoing, please sign the enclosed copy of this letter agreement, whereby this letter agreement shall be a binding agreement between you and the Company and shall amend your employment agreement accordingly.

Sincerely,

CONTINENTAL AIRLINES, INC.

By:________________________

Jeffery A. Smisek

EXHIBIT 10.11

AMENDED AND RESTATED

CAPACITY PURCHASE AGREEMENT

AMONG

CONTINENTAL AIRLINES, INC.,

EXPRESSJET HOLDINGS, INC.,

XJT HOLDINGS, INC.

AND

EXPRESSJET AIRLINES, INC.

DATED AS OF APRIL 17, 2002

TABLE OF CONTENTS

ARTICLE I

DEFINITIONS

ARTICLE II

CAPACITY PURCHASE, SCHEDULES AND FARES

Section 2.01 Capacity Purchase...............................................................................1

Section 2.02 Withdrawal of Regional Jet Aircraft from this Agreement.........................................2

Section 2.03 Withdrawal of Turboprop Aircraft from this Agreement............................................5

Section 2.04 Withdrawal of Engines...........................................................................6

Section 2.05 Embraer Option Aircraft.........................................................................7

Section 2.06 Flight-Related Revenues.........................................................................7

ARTICLE III

CONTRACTOR COMPENSATION

Section 3.01 Base and Incentive Compensation.................................................................7

Section 3.02 Periodic Adjustment of Base and Incentive Compensation..........................................7

Section 3.03 Contractor Expenses.............................................................................8

Section 3.04 Continental Expenses............................................................................8

Section 3.05 Accounting Provisions and Audit.................................................................8

Section 3.06 Billing and Payment; Reconciliation.............................................................9

ARTICLE IV

CONTRACTOR OPERATIONS AND AGREEMENTS WITH CONTINENTAL

Section 4.01 Crews; Resource Allocation.....................................................................10

Section 4.02 Governmental Regulations.......................................................................11

Section 4.03 Quality of Service.............................................................................11

Section 4.04 Safety Matters.................................................................................12

Section 4.05 Turboprops.....................................................................................12

Section 4.06 Master Facility and Ground Handling Agreement..................................................13

Section 4.07 Codeshare Terms................................................................................13

Section 4.08 Administrative Support and Information Services Provisioning Agreement.........................13

Section 4.09 Fuel Purchasing Agreement......................................................................13

Section 4.10 Slots and Route Authorities....................................................................13

Section 4.11 Use of Continental Marks.......................................................................13

Section 4.12 Use of Contractor Marks........................................................................14

Section 4.13 Catering Standards.............................................................................14

Section 4.14 Ticket Handling Terms..........................................................................14

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ARTICLE V

FINANCING OF AIRCRAFT

Section 5.01 Financing of Firm and Option Aircraft..........................................................14

Section 5.02 No Financing of Other Aircraft.................................................................15

Section 5.03 Refinancing or Replacement of Uncovered Aircraft...............................................15

Section 5.04 Pre-Delivery Deposits..........................................................................16

Section 5.05 Lease of Owned Aircraft........................................................................16

ARTICLE VI

EXCLUSIVITY AND CERTAIN RIGHTS OF CONTINENTAL

Section 6.01 Exclusivity; Use of Covered Aircraft...........................................................17

Section 6.02 Exclusive Arrangements at Hub Airports.........................................................17

Section 6.03 Most Favored Nations...........................................................................17

Section 6.04 Change of Control..............................................................................18

ARTICLE VII

INSURANCE

Section 7.01 Minimum Insurance Coverages....................................................................18

Section 7.02 Endorsements...................................................................................19

Section 7.03 Evidence of Insurance Coverage.................................................................19

Section 7.04 Insurance Through Combined Placement...........................................................20

ARTICLE VIII

INDEMNIFICATION

Section 8.01 Contractor Indemnification of Continental......................................................20

Section 8.02 Continental Indemnification of Contractor......................................................21

Section 8.03 Indemnification Claims.........................................................................21

Section 8.04 Employer's Liability; Independent Contractors; Waiver of Control...............................22

Section 8.05 Survival.......................................................................................23

ARTICLE IX

TERM, TERMINATION AND DISPOSITION OF AIRCRAFT

Section 9.01 Base Term......................................................................................23

Section 9.02 Extension Terms................................................................................23

Section 9.03 Early Termination..............................................................................24

Section 9.04 Disposition of Aircraft during Wind-Down Period................................................25

Section 9.05 Other Remedies for Breach......................................................................32

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ARTICLE X

REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 10.01 Representations, Warranties and Covenants of Holdings, XJT and ExpressJet......................34

Section 10.02 Representations and Warranties of Continental..................................................35

ARTICLE XI

MISCELLANEOUS

Section 11.01 Amendment of Certain Contracts.................................................................36

Section 11.02 Notices........................................................................................37

Section 11.03 Binding Effect; Assignment.....................................................................37

Section 11.04 Amendment and Modification.....................................................................37

Section 11.05 Waiver.........................................................................................37

Section 11.06 Interpretation.................................................................................38

Section 11.07 Confidentiality................................................................................38

Section 11.08 Arbitration....................................................................................39

Section 11.09 Counterparts...................................................................................41

Section 11.10 Severability...................................................................................41

Section 11.11 Equitable Remedies.............................................................................41

Section 11.12 Relationship of Parties........................................................................41

Section 11.13 Entire Agreement...............................................................................41

Section 11.14 Governing Law..................................................................................42

Section 11.15 Guarantees.....................................................................................42

Section 11.16 Right of Set-Off...............................................................................42

Section 11.17 Cooperation with Respect to Reporting..........................................................43

SCHEDULE 1: Covered Aircraft

SCHEDULE 2: Continental Increased Lease Rate

SCHEDULE 3: Compensation for Capacity Purchase

EXHIBIT A: Definitions

EXHIBIT B: Form of Aircraft Sublease

EXHIBIT C: Master Facility and Ground Handling Agreement

EXHIBIT D: Terms of Codeshare Arrangements

EXHIBIT E: Administrative Support and Information Services Provisioning Agreement

EXHIBIT F: Fuel Purchasing Agreement

EXHIBIT G: Use of Continental Marks

EXHIBIT H: Use of Contractor Marks

EXHIBIT I: Catering Standards

EXHIBIT J: Ticket Handling Terms

iii

AMENDED AND RESTATED

CAPACITY PURCHASE AGREEMENT

This Amended and Restated Capacity Purchase Agreement (this "Agreement"), dated as of April 17, 2002, is among Continental Airlines, Inc., a Delaware corporation ("Continental"), ExpressJet Holdings, Inc., a Delaware corporation ("Holdings"), XJT Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of Holdings ("XJT"), and ExpressJet Airlines, Inc., a Delaware corporation and a subsidiary of XJT ("ExpressJet" and, collectively with Holdings and XJT, "Contractor").

WHEREAS, Continental, Holdings and XJT (formerly ExpressJet Airlines, Inc.) entered into that certain Capacity Purchase Agreement, dated as of January 1, 2001 (the "Original Capacity Purchase Agreement");

WHEREAS, Continental, Holdings and XJT made certain amendments to the Original Capacity Purchase Agreement effective as of January 1, 2002;

WHEREAS, XJT assigned its interests herein to ExpressJet (formerly New ExpressJet Airlines, Inc.) effective as of the date hereof, with the consent of Holdings and Continental; and

WHEREAS, as a condition to the consent of Continental to the assignment to ExpressJet referenced above, XJT has agreed to become a party to this Agreement with such rights and obligations as are set forth more fully below, and the other parties hereto desire XJT to become a party hereto with such rights and obligations;

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and obligations hereinafter contained, the parties agree to amend the Original Capacity Agreement to reflect the assignment of XJT's interests herein to ExpressJet, the addition of XJT hereto with certain rights and obligations, and certain other amendments relating thereto, and to restate it in its entirety, as so amended and to reflect the amendments effective as of January 1, 2002, as follows:

ARTICLE I

DEFINITIONS

Capitalized terms used in this Agreement (including, unless otherwise defined therein, in the Schedules, Appendices and Exhibits to this Agreement) shall have the meanings set forth in Exhibit A hereto.

ARTICLE II

CAPACITY PURCHASE, SCHEDULES AND FARES

Section 2.01 Capacity Purchase. Continental agrees to purchase the capacity of the Covered Aircraft for the Term, under the terms and conditions set forth herein and for the consideration described in Article III. Subject to the terms and conditions of this

1

Agreement, Contractor shall provide all of the capacity of the Covered Aircraft solely to Continental and use the Covered Aircraft solely to operate the Scheduled Flights.

(a) Fares, Rules and Seat Inventory. Continental

shall establish and publish all fares and related tariff rules for all

seats on the Covered Aircraft. Contractor shall not publish any fares,

tariffs, or related information for the Covered Aircraft. In addition,

Continental shall have complete control over all seat inventory and

inventory and revenue management decisions for the Covered Aircraft,

including overbooking levels, discount seat levels and allocation of

seats among various fare buckets.

(b) Flight Schedules. Continental shall, in its sole

discretion, establish and publish all schedules for the Covered

Aircraft, including determining the city-pairs served, frequencies,

utilization and timing of scheduled arrivals and departures and charter

flights; provided that such schedules shall be subject to Reasonable

Operating Constraints. Contractor and Continental shall meet monthly

(but not later than the fourth Friday of each calendar month) to review

the planned flight schedules for the Covered Aircraft for each of the

next 12 months. At such meeting, Continental shall present a planned

flight schedule for the Covered Aircraft for each of the next 12

months, including a proposed Final Monthly Schedule for the next

calendar month. At such meeting, Continental shall review and consider

any changes to the planned flight schedule for the Covered Aircraft,

including the proposed Final Monthly Schedule, suggested by Contractor.

Following such monthly meeting, Continental shall make such adjustments

to the proposed Final Monthly Schedule as it deems appropriate (subject

to Reasonable Operating Constraints), and, not later than three

Business Days prior to the beginning of each calendar month, will

deliver to Contractor the Final Monthly Schedule.

Section 2.02 Withdrawal of Regional Jet Aircraft from this Agreement. Continental shall be entitled to withdraw jet Covered Aircraft from the capacity purchase provisions of this Agreement, in accordance with and subject to the limitations, terms and conditions contained in this Section 2.02, which limitations, terms and conditions shall be applicable only to jet aircraft. Subject to the limitations contained below, Continental shall have complete discretion to select the particular Covered Aircraft and Engines to be withdrawn pursuant to this Section 2.02.

(a) Continental Notice of and Limitations on Regional

Jet Reduction. At any time and from time to time after July 1, 2003,

Continental may give not more than 18 months and not less than 12

months notice of the withdrawal of Covered Aircraft from the capacity

purchase provisions of this Agreement, which notice shall specify an

Effective Date and the number and type of Covered Aircraft to be

withdrawn, and shall include an Early Withdrawal Schedule for the

withdrawal of such aircraft that delineates the number of each aircraft

type to be withdrawn by month. The number of Covered Aircraft to be

withdrawn pursuant to this Section 2.02 shall be subject to the

following numerical limitations:

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(i) Continental shall not be entitled to

provide in any notice delivered pursuant to Section 2.02(a)

for the withdrawal of any number of Covered Aircraft greater

than the excess of (i) 25% (rounded to the nearest whole

number) of the sum of the number of Delivered Covered Aircraft

as of the Effective Date set forth in such notice, plus the

number of Delivered Covered Aircraft that have been withdrawn

from the capacity purchase provisions of this Agreement at any

time before such Effective Date in connection with a Labor

Strike pursuant to Section 9.05(c) and the number withdrawn

for any other reason within the three-year period immediately

preceding such Effective Date, over (ii) the number of

Delivered Covered Aircraft that have been withdrawn pursuant

to this Section 2.02 within the three-year period immediately

preceding such Effective Date; provided that the foregoing

limitations shall not limit Continental's right to withdraw

any Undelivered Covered Aircraft.

(ii) Continental shall not be entitled to

withdraw a Covered Aircraft pursuant to this Section 2.02 if,

after such withdrawal, there would be fewer than 25 Covered

Aircraft remaining.

(iii) The Early Withdrawal Schedule may not

provide for the withdrawal of more than 15 Delivered Covered

Aircraft per month, and may not provide for the withdrawal of

any Delivered Covered Aircraft more than 36 months after the

Effective Date; provided that Continental may provide for the

immediate withdrawal of any aircraft that are Undelivered

Covered Aircraft on the applicable Effective Date.

(b) Contractor's Right to Retain Regional Jets.

Except to the extent otherwise provided in this Agreement, Contractor

shall have the right either to retain (as Uncovered Aircraft) any

Covered Aircraft being withdrawn from the capacity purchase provisions

of this Agreement pursuant to this Section 2.02, or to return such

aircraft to Continental (or its designee), in each case as follows:

(i) Contractor shall have nine months after

receipt of the Early Withdrawal Schedule delivered pursuant to

Section 2.02(a) to notify Continental that it elects to retain

any of the Covered Aircraft being withdrawn (whether such

Covered Aircraft constitute Delivered Covered Aircraft or

Undelivered Covered Aircraft). If Contractor elects to keep

any Delivered Covered Aircraft, then its notice must include

an indication by calendar month of the number and type of

aircraft it proposes to retain, such number of any particular

type of aircraft in any particular month to be no greater than

the number of such type of aircraft scheduled to be withdrawn

during such month pursuant to the Early Withdrawal Schedule.

In addition, regardless of whether it intends to retain any

aircraft, Contractor shall include in its notice a reasonably

detailed current summary of the maintenance and repair

condition of each aircraft and Engine and a list detailing the

location of each Engine (by aircraft or, if appropriate,

maintenance facility).

3

(ii) Within 30 days after receipt of

Contractor's notice of its election to retain Covered Aircraft

being withdrawn, Continental shall select the individual

aircraft to be withdrawn, including those aircraft to be

retained by Contractor, and shall notify Contractor of its

selection. Continental shall have complete discretion in the

selection of the particular Covered Aircraft to be withdrawn

and those to be retained by Contractor; provided that

Continental must adhere to the timing, number and type of

aircraft to be retained by Contractor as provided in

Contractor's notice to Continental delivered pursuant to

Section 2.02(b)(i).

(c) Replacement of Sublease. Upon Contractor

retaining a previously Covered Aircraft as an Uncovered Aircraft

pursuant to this Section 2.02, effective on the first day of the month

during which such aircraft becomes an Uncovered Aircraft, the Covered

Aircraft Sublease shall be terminated and replaced with an Uncovered

Aircraft Sublease, and Contractor may fly the aircraft as permitted by

Article VI.

(d) Return Conditions. Upon the withdrawal from the

capacity purchase provisions of this Agreement of a Covered Aircraft

that is being returned to Continental (or its designee) pursuant to

this Section 2.02, the Covered Aircraft Sublease with respect to such

aircraft shall be terminated upon the date of such withdrawal, and

Contractor shall not be required to meet the return conditions

applicable to such aircraft that relate to time or cycles remaining

between maintenance events or to any time- or cycle-controlled part

under clause (v) of Section 4 of the Covered Aircraft Sublease;

provided that Contractor shall remain obligated to comply with all

other provisions of the Covered Aircraft Sublease applicable at the

time, including without limitation provisions generally applicable to

the maintenance, airworthiness, repair and general operating condition

and cleanliness of the aircraft; and provided further, that the general

condition of the Covered Aircraft being returned to Continental shall

not have materially changed relative to the condition of Contractor's

fleet of the same aircraft type since the related notice of withdrawal

was delivered by Continental to Contractor pursuant to Section 2.02(a),

and the withdrawn aircraft being returned to Continental shall not have

been discriminated against or operated, maintained or otherwise treated

differently (including with respect to the removal of any part for

convenience or without cause) than any other Covered Aircraft.

(e) Financial Arrangements. In connection with the

withdrawal of any Covered Aircraft from the capacity purchase

provisions of this Agreement pursuant to this Section 2.02, (i)

Continental shall be responsible for all reasonable and necessary

direct out-of-pocket costs incurred by Contractor as a result of such

withdrawal, including without limitation the reasonable costs of

terminating facility leases and/or employees and disposing of Excess

Inventory caused by such withdrawal and any increased charges per

scheduled block hour for Covered Aircraft under Section 5.4.3 of the

Flight Hour Agreement precipitated by the return of any Covered

Aircraft to Continental, but excluding any lost profits and any other

indirect costs; provided that Contractor shall use its

4

reasonable good faith efforts to mitigate any such costs; (ii)

Continental shall meet and confer with Contractor regarding the impact

of the withdrawal on Contractor's cash flow, and shall negotiate in

good faith regarding the provision by Continental of a credit facility

for Contractor, if needed by Contractor as a result of such withdrawal,

for a term not to exceed two years, a size not to exceed $75 million in

the aggregate and at an interest rate equal to LIBOR plus 200 basis

points; provided, that Continental has no obligation to provide such

credit facility; (iii) for each such withdrawn aircraft being retained

by Contractor, Contractor shall calculate a maintenance reimbursement

equal to the product of (x) Contractor's average cost of a heavy

maintenance visit for such aircraft type during the previous six months

and (y) a fraction, the numerator of which is the number of hours

remaining until the next heavy maintenance visit for such aircraft

minus 1/2 of the total number of hours allowable between heavy

maintenance visits for such aircraft, and the denominator of which is

the total number of hours allowable between heavy maintenance visits

for such aircraft, and at the time of such withdrawal (I) Continental

shall pay Contractor an amount equal to such maintenance reimbursement,

if the numerator of such fraction is less than zero, (II) Contractor

shall pay Continental an amount equal to such maintenance

reimbursement, if the numerator of such fraction is greater than zero,

and (III) there shall be no maintenance reimbursement payable pursuant

to this clause (iii) if the numerator of such fraction is equal to

zero; and (iv) for each such withdrawn aircraft being retained by

Contractor, if Continental shall have previously reimbursed Contractor

for the cost of any engine life-limited component pursuant to Paragraph

B(3) of Schedule 3 which component is installed in such aircraft, then

Contractor shall pay to Continental an amount equal to the cost of such

life-limited component multiplied by a fraction, the numerator of which

is the number of hours remaining in the life of such life-limited part,

and the denominator of which is the total number of hours in the life

of such life-limited part. Contractor may elect, in lieu of making the

payment contemplated by clause (iv) above, to pay such amount plus

accrued interest, which interest shall accrue monthly at the interest

rate used in the Uncovered Aircraft Sublease for such aircraft to

determine the lease payments thereunder, in equal monthly installments

over the remaining term of the Uncovered Aircraft Sublease with respect

to such aircraft.

Section 2.03 Withdrawal of Turboprop Aircraft from this Agreement.

(a) Continental Notice of Turboprop Aircraft

Withdrawal. All Turboprop Aircraft shall be withdrawn from the capacity

purchase provisions of this Agreement on a schedule to be agreed upon

by Continental and Contractor, but in any event not later than December

31, 2004; provided that notwithstanding any such agreed schedule,

Continental may at any time, upon not less than 45 days' notice (or 14

days' notice in the case of a Turboprop Aircraft for which Continental

received notice of a maintenance event pursuant to Section 4.05(a)),

withdraw any Turboprop Aircraft from the capacity purchase provisions

of

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this Agreement. Without Continental's prior written consent, Contractor

may not retain any Turboprop Aircraft withdrawn from the capacity

purchase provisions of this Agreement. At Continental's request in

connection with any withdrawal of a Turboprop Aircraft, Contractor

shall promptly provide a list detailing the location of each turboprop

engine (by aircraft or, if appropriate, maintenance facility).

(b) Retirement Costs of Turboprop Aircraft.

Continental shall be responsible for any reasonable out-of-pocket

expenses associated with the retirement of each Turboprop Aircraft in

connection with its withdrawal from the capacity purchase provisions of

this Agreement pursuant to this Section 2.03; provided that Contractor

shall conduct its retirement checks for such aircraft in a manner

consistent with its past practices; provided, further, that Contractor

shall not discriminate against or operate, maintain (except as provided

above) or otherwise treat the aircraft differently in contemplation of

its return to Continental (or its designee), including with respect to

the removal of any part or parts for convenience or without cause; and

provided, further, that if the amount which Contractor is compensated

pursuant to Schedule 3 in respect of the reasonable out-of-pocket

expenses incurred by Contractor as determined pursuant to this Section

2.03(b) exceeds the actual aggregate amount of such expenses, then

Contractor shall promptly reimburse to Continental an amount equal to

the quotient of (i) such excess divided by (ii) the Cost Factor set

forth on Appendix 23 to Schedule 3. In connection with each such

retirement, Continental shall also (i) purchase (or arrange for the

purchase) from Contractor, at the time of withdrawal, each such

Turboprop Aircraft that is owned by Contractor at a price equal to the

book value of such aircraft on Contractor's most recent financial

statements, and (ii) purchase the Excess Inventory relating to such

Turboprop Aircraft (as reasonably determined by Contractor) at a price

equal to the book value of such inventory on Contractor's most recent

financial statements.

(c) Impairment Costs of Turboprop Aircraft. Subject

to the provisions of Section 3.05, if Contractor shall incur a charge

for the impairment of a Turboprop Aircraft prior to its withdrawal

pursuant to this Section 2.03, then Continental shall reimburse

Contractor in the amount of such charge; provided that Contractor shall

not discriminate against any Turboprop Aircraft in determining whether

to take such charge or the amount of such charge.

Section 2.04 Withdrawal of Engines. In connection with the withdrawal of any Covered Aircraft (including any Turboprop Aircraft) from the capacity purchase provisions of this Agreement pursuant to Section 2.02 or 2.03, whether such aircraft is being retained by Contractor as an Uncovered Aircraft or returned to Continental or its designee, Continental shall have complete discretion in the selection of the particular Engines or Turboprop engines, as the case may be, to be withdrawn in connection with any particular aircraft and shall notify Contractor of its selection not less than 10 days after Continental shall have selected aircraft to be withdrawn pursuant to Section 2.02(b)(ii) or 2.03(a), as applicable. Continental shall bear the cost of any engine swaps reasonably necessary to accommodate its engine selections, based on the engine-location list provided to Continental by Contractor; provided that Contractor use its commercially reasonable efforts to minimize the number and cost of engine sw aps reasonably necessary to accommodate Continental's engine selections and shall be

6

responsible for the cost of all such swaps, if any, required because of any inaccuracy in the engine-location list provided to Continental by Contractor.

Section 2.05 Embraer Option Aircraft. With respect to the Embraer Option Aircraft, Contractor shall give Continental written notice of the deadline for the exercise of any option for any such Embraer Option Aircraft at least 60 days (but not more than 180 days) prior to such deadline, and Continental shall, within 30 days from receipt of such notice, determine and notify Contractor (i) that such Embraer Option Aircraft shall constitute Covered Aircraft, (ii) that such Embraer Option Aircraft shall be delivered to Contractor in exchange for the delivery to Continental of an Uncovered Aircraft that is subject to an Uncovered Aircraft Sublease, (iii) that Continental desires to acquire such Embraer Option Aircraft for its own account (or that of its designee) outside of this Agreement if Contractor does not intend to exercise such option or (iv) that it does not elect to exercise any of the above rights, in which case Embraer Option Aircraft obtained by Contractor in respect of such option shall be Uncovered Aircraft. If Continental shall have elected clause (i) above, then upon receipt by Contractor of notice from Continental of its determination, Contractor shall exercise its option to acquire such aircraft from Embraer, and the provisions of Section 5.01 shall apply. If Continental shall have elected clause (ii) above, then the provisions of Section 5.03(b) shall apply. If Continental shall have elected clause (iii) above, then Contractor shall notify Continental at least 15 days prior to the deadline for exercise of such option whether Contractor intends to exercise such option on its own behalf, and Contractor shall timely exercise such option on behalf of Continental (and take all other actions reasonably appropriate to permit Continental (or its designee) to acquire such aircraft) if Contractor shall have determined not to exercise such option on its own behalf.

Section 2.06 Flight-Related Revenues. Contractor acknowledges and agrees that all revenues resulting from the sale and issuance of passenger tickets associated with the operation of the Covered Aircraft and all other sources of revenue associated with the operation of the Covered Aircraft, including without limitation revenues relating to the transportation of cargo or mail and revenues associated with food, beverage and duty-free services and guaranteed or incentive payments from airport, local or municipal authorities in connection with scheduling flights to such airport or locality, are the sole property of and shall be retained by Continental (or, if received by Contractor, shall be promptly remitted to Continental).

ARTICLE III

CONTRACTOR COMPENSATION

Section 3.01 Base and Incentive Compensation. For and in consideration of the transportation services, facilities and other services to be provided by Contractor hereunder, Continental shall pay Contractor the base and incentive compensation as provided in Paragraph A of Schedule 3 hereto, subject to the terms and conditions set forth in this Article III.

Section 3.02 Periodic Adjustment of Base and Incentive Compensation. The initial base and incentive compensation rates under this Agreement (including the initial

7

Block Hour Rates) set forth in Paragraph A of Schedule 3 hereto shall remain in effect through December 31, 2004, with certain limited adjustments as are provided in Schedule 3. The Block Hour Rates shall be subject to further adjustment on January 1, 2005 and each January 1 thereafter during the Term. Continental and Contractor hereby agree to meet promptly after July 1, 2004, September 1, 2005 and each September 1 thereafter during the Term in order to review and revise the Block Hour Rates, as appropriate, for the subsequent year based on the methodology (including the Cost Factor) for setting the initial Block Hour Rates as set forth in Schedule 3. Should the parties be unable to agree on such revised Block Hour Rates by October 1, 2004 for the year beginning January 1, 2005 or by November 1 in any subsequent year for the year beginning on the subsequent January 1, then the parties shall submit the disagreement to arbitration pursuant to Section 11.08.

Section 3.03 Contractor Expenses. Except as provided otherwise in Section 3.04, Contractor shall discharge in accordance with commercially reasonable practices all expenses incurred in connection with Contractor's provision of Regional Airline Services.

Section 3.04 Continental Expenses. In addition to the reconciliation pursuant to Section 3.06(b) of all or a portion of the actual costs of certain expenses, the anticipated costs of which are provided for in the Block Hour Rates:

(a) Certain Revenue-Related Expenses. Continental

shall be responsible for all passenger and cargo revenue-related

expenses relating to the Regional Airlines Services, as described in

Paragraph B(1) of Schedule 3.

(b) Design Changes. Continental shall be responsible

for any reasonable out-of-pocket expenses relating to interior and

exterior design changes to the Covered Aircraft and other

product-related changes required by Continental that occur outside of

Contractor's normal aircraft and facility refurbishment program,

including facility-related design changes and the cost of changes in

uniforms and other livery.

Section 3.05 Accounting Provisions and Audit.

(a) Separate Books and Records. Contractor shall

maintain separate books and records for the provision of Regional

Airlines Services, on the one hand, and Contractor's other operations

(if any) on the other, in each case in the aggregate, and shall include

a reasonable allocation of expenses, including overhead, among such

aircraft such that aircraft-specific costs are assigned among Covered

Aircraft and Uncovered Aircraft based on the specific aircraft type

that generated such cost and all other costs are allocated

proportionately based on block hours flown; provided that in the event

that engine maintenance or other costs arising under the Flight Hour

Agreement change pursuant to the terms thereof as a result of the

inclusion of Uncovered Aircraft under such agreement (including because

of the stage length or other utilization characteristics of the

Uncovered Aircraft), then the engine maintenance and other costs

arising under

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the Flight Hour Agreement shall be allocated to the Covered Aircraft as

if such Uncovered Aircraft had not been included under such agreement,

regardless of whether such allocation results in higher or lower costs

being allocated to the Covered Aircraft. Contractor's books and records

that relate to the provision of Regional Airlines Services shall be

maintained in accordance with generally accepted accounting principles

consistently applied, and such books and records and all calculations

made pursuant to this Agreement shall be kept and made in accordance

with the accounting policies and procedures used by Continental and

Contractor to develop Block Hour Rates, unless otherwise agreed in

writing by Continental. Without limiting the foregoing in any respect,

Contractor agrees that it shall not depreciate Turboprop Aircraft or

Excess Inventory from and after the date hereof more slowly than it has

historically depreciated such items, unless otherwise agreed in writing

by Continental.

(b) Audit Rights. Contractor shall make available for

inspection by Continental and its outside auditors, within a reasonable

period of time after Continental makes a written request therefor, all

of Contractor's books and records (including all financial and

accounting records and operations reports, and records of other

subsidiaries or affiliates of Contractor, if any, as necessary to audit

the allocations made pursuant to Section 3.05(a)). Continental and its

outside auditors shall be entitled to make copies and notes of such

information as they deem necessary and to discuss such records with

Contractor's Chief Financial Officer or such other employees or agents

of Contractor knowledgeable about such records. Upon the reasonable

written request of Continental or its outside auditors, Contractor will

cooperate with Continental and its outside auditors to permit

Continental and its outside auditors access to Contractor's outside

auditors for purposes of reviewing such records.

Section 3.06 Billing and Payment; Reconciliation.

(a) Billing and Payment. On the next Business Day

after Contractor receives the Final Monthly Schedule from Continental

pursuant to Section 2.01(b), Contractor shall present a reasonably

detailed written invoice for amounts due under this Agreement in

respect of the Base Compensation and per passenger fees (based on the

Forecasted Passengers) for the Scheduled Flights during the month to

which such Final Monthly Schedule pertains. Continental shall pay

Contractor the amount due under such invoice (the "Invoiced Amount"),

subject to Continental's right to dispute any calculations set forth on

such invoice that do not comply with the terms of this Agreement, and,

at Continental's option, net of amounts owed by Contractor to

Continental under the Administrative Support and Information Services

Provisioning Agreement, the Master Facility and Ground Handling

Agreement, the Fuel Purchasing Agreement and/or any Covered Aircraft

Sublease or Uncovered Aircraft Sublease, as follows:

(i) One-quarter of the Invoiced Amount shall

be payable by Continental to Contractor, by electronic

transfer of funds to a bank account designated by Contractor,

available on or before the first day

9

of the month (or if such day is not a Business Day, the next

Business Day) to which such invoice relates;

(ii) One-quarter of the Invoiced Amount

shall be payable by Continental to Contractor, by electronic

transfer of funds to a bank account designated by Contractor,

available on or before the 8th day of the month (or if such

day is not a Business Day, the next Business Day) to which the

invoice relates;

(iii) One-quarter of the Invoiced Amount

shall be payable by Continental to Contractor, by electronic

transfer of funds to a bank account designated by Contractor,

available on or before the 15th day of the month (or if such

day is not a Business Day, the next Business Day) to which the

invoice relates; and

(iv) One-quarter of the Invoiced Amount

shall be payable by Continental to Contractor, by electronic

transfer of funds to a bank account designated by Contractor,

available on or before the 22nd day of the month (or if such

day is not a Business Day, the next Business Day) to which the

invoice relates.

(b) Reconciliation. Not later than 12 days following

the end of each month, Contractor and Continental shall reconcile

actual amounts due in respect of such month with the estimated amounts

included in the Invoiced Amount for such items for such month in

accordance with the terms and conditions set forth in Schedule 3. Such

reconciled amounts for such month shall be paid by Continental to

Contractor together with the next payment to be made pursuant to

Section 3.06(a)(iii) above, or set off by Continental against any other

amounts owing to Contractor, as the case may be. If, subsequent to any

reconciliation payments or set-off, as the case may be, Contractor's

financial statements, maintained as provided in Section 3.05(a), are

restated, amended or otherwise adjusted for any month or Performance

Period, then the reconciled amounts for such period shall be

recalculated in accordance with the terms and conditions set forth in

Schedule 3, and the parties shall make further payments or set off

further amounts as appropriate in respect of such recalculations.

ARTICLE IV

CONTRACTOR OPERATIONS AND AGREEMENTS WITH CONTINENTAL

Section 4.01 Crews; Resource Allocation.

(a) Personnel Employed. Contractor shall be

responsible for providing all crews (flight and cabin) and maintenance

personnel and, at Contractor Airports, gate agents and other ground

personnel, necessary to operate the Scheduled Flights and for all

aspects (personnel and other) of dispatch control.

(b) Resource Allocation. If Contractor is flying any

Uncovered Aircraft, then for so long as either (i) the number of

Scheduled Flights in a

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calendar month represent at least 50% of the aggregate number of

Contractor's scheduled flights of Covered and Uncovered Aircraft in

such month or (ii) the number of Covered Aircraft is at least 200, then

Contractor crews, maintenance personnel and other resources shall be

allocated on a priority basis to Scheduled Flights above all other

flights and aircraft.

Section 4.02 Governmental Regulations. Contractor has and shall maintain all FAA, DOT and other certifications, permits, licenses, certificates and insurance required by governmental authorities to enable Contractor to perform the services required by this Agreement. All flight operations, dispatch operations and all other operations undertaken by Contractor pursuant to this Agreement shall be conducted and operated by Contractor in compliance in all material respects with all governmental regulations, including, without limitation, those relating to airport security, the use and transportation of hazardous materials, crew qualifications, crew training and crew hours. Without limiting Contractor's obligations under any Covered Aircraft Lease, all Covered Aircraft shall be operated and maintained by Contractor in compliance in all material respects with all governmental regulations, Contractor's own operations manuals and maintenance manuals and procedures, and all applicable equipment manufacture r's instructions.

Section 4.03 Quality of Service. At all times, Contractor shall provide Regional Airline Services with appropriate standards of care, but in no event lower than such standards utilized by Continental as of the date of this Agreement. Continental procedures, performance standards and means of measurement thereof concerning the provision of air passenger and air cargo services shall be applicable to all Regional Airline Services provided by Contractor. Contractor shall achieve at least the comparable quality of airline service as provided by Continental, subject to limitations imposed by the type of aircraft used by Contractor, its route network and the availability of equipment and facilities, as compared to those of Continental. Contractor shall comply with all airline customer service commitments or policies of Continental as of the date hereof, including without limitation the "CustomerFirst" commitments, and employee conduct, appearance and training policies in place as of the date hereof, and shall handle customer-related services in a professional, businesslike and courteous manner. In connection therewith, Contractor shall maintain aircraft cleaning cycles and policies, and shall maintain adequate staffing levels, to ensure at least a comparable level of customer service and operational efficiency that Continental achieves, including without limitation in respect of customer complaint response, ticketing and boarding timing, and baggage services. In addition, at the request of Continental, Contractor shall comply with all such airline customer service commitments, policies or standards of care of Continental as adopted, amended or supplemented after the date hereof, provided that Continental shall reimburse Contractor for the reasonable out-of-pocket costs of Contractor of complying with such policies in excess of the costs of complying with such policies as in effect as of the date of this Agreement. Contractor shall provide Continental with timely communication regarding the status of all Sc heduled Flights, and shall perform closeout procedures at service levels at least as high as those of Continental at comparably-sized airports. Contractor will use Continental's standard procedures for processing and adjudicating all claims for which Contractor is responsible in an effort to avoid such matters becoming the subject of litigation or insurance claims. Contractor and

11

Continental will periodically meet to discuss and review Contractor's customer service and handling procedures and policies and its employees' conduct, appearance and training standards and policies in an effort to ensure compliance with this Agreement, and to agree to the terms of any necessary corrective action plan and the timing of its implementation.

Section 4.04 Safety Matters.

(a) Incidents or Accidents. Contractor shall promptly

notify Continental of all irregularities involving a flight operated by

Contractor which result in any damage to persons or property or are

otherwise likely to result in a complaint or claim by passengers or an

investigation by a governmental agency or authority, shall furnish to

Continental as much detail as practicable concerning such

irregularities and shall cooperate with Continental at Contractor's own

expense in any appropriate investigation. Contractor shall adopt

Continental's Emergency Response Plan for aircraft accidents or

incidents, and shall be responsible for Continental's direct costs

resulting from Contractor's participation in such plan. In the event of

an accident or incident involving a Covered Aircraft, Continental will

have the right, but not the obligation, to manage the emergency

response efforts on behalf of Contractor and to approve settlement of

any liability claims resulting from the accident or incident.

(b) Safety Audits. Continental shall have the right,

at its own cost, to inspect, review, and observe Contractor's

operations of Scheduled Flights, and/or to conduct a full safety and/or

service audit of Contractor's operations, manuals and procedures

reasonably related to Scheduled Flights, at such intervals as

Continental reasonably requests. Any such safety review may include an

audit of Contractor's maintenance and operating procedures, crew

planning, passenger and baggage handling, customer service, personnel

records, spare parts, inventory records, training records and manuals,

and flight, flight training and operational personnel records.

Section 4.05 Turboprops.

(a) Maintenance. Contractor shall notify Continental

at least 30 days prior to performing the last scheduled maintenance

event of any type (including airframe checks, and engine, propeller and

landing gear overhauls) on any Turboprop Aircraft prior to the

withdrawal date for such aircraft as agreed pursuant to Section 2.03.

Upon notice from Continental that, prior to such maintenance event,

such Turboprop Aircraft is to be withdrawn from the capacity purchase

provisions of this Agreement pursuant to Section 2.03, then Contractor

shall cancel such maintenance event. The expected cost of such

maintenance event provided for in the Block Hour Rates and theretofore

paid to Contractor, net of any out-of-pocket costs to Contractor of

such cancellation, shall be credited to Continental in connection with

the next reconciliation payment pursuant to Paragraph B(9) of Schedule

3.

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(b) Post-Withdrawal Management. At the request of

Continental, and at Continental's cost and direction, Contractor shall

make arrangements for the storage and continued maintenance (including

the keeping of active logs) of withdrawn Turboprop Aircraft that have

not yet been returned to Continental or its designee, together with the

Excess Inventory relating thereto.

Section 4.06 Master Facility and Ground Handling Agreement. Contemporaneous with the execution and delivery of this Agreement, Contractor and Continental shall enter into a Master Facility and Ground Handling Agreement in the form attached hereto as Exhibit C.

Section 4.07 Codeshare Terms. Contractor agrees to operate all Scheduled Flights using the Continental flight code and flight numbers assigned by Continental, or such other flight codes and flight numbers as may be assigned by Continental (to accommodate, for example, a Continental alliance partner), and otherwise under the codeshare terms set forth in Exhibit D.

Section 4.08 Administrative Support and Information Services Provisioning Agreement. Contemporaneous with the execution and delivery of this Agreement, Continental and Contractor shall enter into the Administrative Support and Information Services Provisioning Agreement in the form attached hereto as Exhibit E.

Section 4.09 Fuel Purchasing Agreement. Contemporaneous with the execution and delivery of this Agreement, Continental and Contractor shall enter into the Fuel Purchasing Agreement in the form attached hereto as Exhibit F.

Section 4.10 Slots and Route Authorities. At the request of Continental made at any time and from time to time, including upon termination of this Agreement, Contractor shall use its commercially reasonable efforts to transfer to Continental or its designee, to the extent permitted by law, any airport takeoff or landing slots, route authorities or other similar regulatory authorizations held by Contractor and used for Scheduled Flights, in consideration of the payment to ExpressJet of the net book value, if any, of such slot, authority or authorization on ExpressJet's books. Contractor's obligations pursuant to the immediately preceding sentence shall survive the termination of this Agreement for so long as any transfer requested pursuant to this Section 4.10 shall not have been completed. Contractor hereby agrees that all of Contractor's contacts or communications with any applicable regulatory authority concerning any airport takeoff or landing slots, route authorities or other similar regulato ry authorizations used for Scheduled Flights will be coordinated through Continental. If any airport takeoff or landing slot, route authority or other similar regulatory authorization held by Contractor and used for Scheduled Flights is withdrawn or otherwise forfeited as a result of Controllable Cancellations or any other reason within Contractor's reasonable control, then Contractor agrees to pay to Continental promptly upon demand an amount equal to the market value of such withdrawn or forfeited slot, authority or authorization.

Section 4.11 Use of Continental Marks. Continental hereby grants to Contractor the non-exclusive and non-transferable rights to use the Continental Marks and other

13

Identification as provided in, and Contractor shall use the Continental Marks and other Identification in accordance with the terms and conditions of, Exhibit G.

Section 4.12 Use of Contractor Marks. Contractor hereby grants to Continental the non-exclusive and non-transferable rights to use the Contractor Marks as provided in, and Continental shall use the Contractor Marks in accordance with the terms and conditions of, Exhibit H.

Section 4.13 Catering Standards. Continental and Contractor shall comply with the catering requirements set forth on Exhibit I hereto. The parties agree that, in the event of a conflict between the provisions of Exhibit I and the Contractor Ground Handling Agreement, the provisions of Exhibit I shall control.

Section 4.14 Ticket Handling Terms. Continental and Contractor shall comply with the ticket handling requirements set forth in Exhibit J hereto. The parties agree that, in the event of a conflict between the provisions of Exhibit J and the Contractor Ground Handling Agreement, the provisions of Exhibit J shall control.

ARTICLE V

FINANCING OF AIRCRAFT

Section 5.01 Financing of Firm and Option Aircraft. Subject to the terms and conditions of this Agreement, Continental agrees to participate, on behalf of Contractor, in the financing for the firm-order aircraft under the Embraer Contract as further set forth on Schedule 1 attached hereto in accordance with and subject to the terms and conditions of the Embraer Contract and this Article V. For any such firm-order aircraft that constitute Covered Aircraft, Continental shall lease such aircraft from Embraer or its equity designee pursuant to the Embraer Contract and (if applicable with respect to a particular aircraft) the Funding Agreement and sublease such aircraft to Contractor under a Covered Aircraft Sublease. For any such firm-order aircraft that become Uncovered Aircraft (either in connection with the release of Covered Aircraft pursuant to Section 2.02 or in connection with certain terminations of this Agreement), Continental shall lease (or continue to lease, as the case may be) such aircr aft from Embraer or its equity designee pursuant to the Embraer Contract and (if applicable with respect to a particular aircraft) the Funding Agreement and sublease such aircraft to Contractor under an Uncovered Aircraft Sublease, subject to the provisions of Section 5.03. In addition, Continental agrees to participate in the financing for the Embraer Option Aircraft that constitute Covered Aircraft pursuant to clause (i) of Section 2.05 as if such aircraft were firm-order aircraft under the Embraer Contract. Notwithstanding the foregoing, (i) if the other parties to any financing or lease transaction involving Covered Aircraft or Uncovered Aircraft consent to the release of Continental from any obligation to participate in such financing or otherwise to terminate Continental's head lease, in each case without increasing the obligations of Contractor under such contract, then Contractor agrees to consent to such release and agrees that the foregoing provisions of this Section 5.01 shall not apply in respect of such aircraft and (ii) Continental shall have no obligation under this Article V with respect to Undelivered Covered Aircraft that are deemed Uncovered Aircraft pursuant to Section 2.02 or Article IX. Contractor further

14

agrees that Continental shall be entitled to assign or otherwise transfer its interest in any Uncovered Aircraft and/or any financing or lease agreements relating thereto, and Contractor shall not withhold its required consent, if any, to such assignment or transfer; provided, that Contractor shall not be required to agree to such transfer or assignment if such action would cause Contractor to be in default of such financing or lease agreement (in which event the Uncovered Aircraft or the financing or lease agreement shall not be assigned or transferred unless Continental shall have provided indemnification or other protection sufficient to hold Contractor harmless against any loss, damage, claim or expense arising out of such default) or if such transfer or assignment would violate any applicable law; and provided further that Contractor's expenses in connection with such transaction shall be reimbursed by Continental.

Section 5.02 No Financing of Other Aircraft. Except as provided in Section 5.01, the parties acknowledge and agree that Continental does not have any obligation hereunder to finance, arrange financing or participate in the financing of any aircraft on behalf of Contractor.

Section 5.03 Refinancing or Replacement of Uncovered Aircraft.

(a) Refinancing at Contractor's Option. If Contractor

shall have successfully negotiated a transaction at any time providing

for the refinancing of an Uncovered Aircraft and the termination by

Continental of the head lease relating to such aircraft, then

Continental shall use its reasonable efforts to cooperate with

Contractor to consummate the transaction; provided, that Continental

shall not be required to terminate such head lease if such termination

is not permitted by such head lease or such termination would violate

any applicable law or cause a breach under any other contract to which

Continental is a party, in which event the Uncovered Aircraft Sublease

shall not be terminated; and provided further that Continental's

expenses in connection with such transaction shall be reimbursed by

Contractor.

(b) Replacement at Continental's Option. Continental

shall be entitled at any time and from time to time to terminate the

Uncovered Aircraft Sublease relating to an Uncovered Aircraft, and take

possession of such Uncovered Aircraft, in a transaction providing for

the delivery to Contractor of a Replacement Aircraft.

(i) Replacement Using Embraer Option

Aircraft. If the Replacement Aircraft proposed by Continental

is an Embraer Option Aircraft, then Continental may take

possession of the replaced Uncovered Aircraft on or after the

fifth day after the earlier of the actual delivery date of the

Replacement Aircraft and the scheduled delivery date of the

Replacement Aircraft (regardless of whether such Replacement

Aircraft is actually delivered on such date, whether or not

Contractor has elected to exercise its option with respect to

such Replacement Aircraft and whether or not Contractor is

able to finance the acquisition of such Replacement Aircraft);

provided that Continental shall have given Contractor at least

30

15

days' advance written notice prior to the expiration of

Contractor's option to acquire such Embraer Option Aircraft;

and provided further that such Embraer Option Aircraft does

not constitute a Replacement Aircraft for another Uncovered

Aircraft.

(ii) Replacement Using Other Embraer

Aircraft. If Continental (A) shall obtain the right to acquire

(including by exercise of an option) any Embraer aircraft

other than the Covered Aircraft and the Embraer Option

Aircraft and (B) at least 30 days prior to the expiration of

such right, shall propose in writing delivered to Contractor

to acquire such aircraft or exercise an option for such

aircraft on behalf of Contractor as a Replacement Aircraft for

an Uncovered Aircraft, then Contractor shall be required to

use its commercially reasonable efforts to finance the

acquisition of such Replacement Aircraft prior to the

expiration of such right. If Contractor shall obtain such

financing on terms reasonably satisfactory to it prior to the

expiration of such right, then (x) Continental shall acquire

such Replacement Aircraft or cause it to be acquired, using

such financing obtained by Contractor; (y) Continental shall

be entitled to terminate the Uncovered Aircraft Sublease

relating to such Uncovered Aircraft; and (z) Continental shall

take possession of such Uncovered Aircraft on the fifth day

after the delivery of such Replacement Aircraft to Contractor.

If Contractor shall not obtain such financing on terms

reasonably satisfactory to it prior to the expiration of such

right, then Continental shall not be entitled to use such

Embraer aircraft as a Replacement Aircraft for an Uncovered

Aircraft.

Section 5.04 Pre-Delivery Deposits. Continental shall pay all pre-delivery deposits required to be paid under the Embraer Contract in respect of all firm-order aircraft and all Embraer Option Aircraft other than those for which the option is being exercised in anticipation of such aircraft becoming an Uncovered Aircraft. If any of such pre-delivery deposits are returned to Contractor, Contractor shall promptly refund such amounts to Continental. Contractor shall be responsible for the payment of all other such pre-delivery deposits under the Embraer Contract.

Section 5.05 Lease of Owned Aircraft. If Continental purchases or otherwise acquires title to any Covered Aircraft or Uncovered Aircraft, then Contractor shall cooperate reasonably with Continental to give effect to such purchase or acquisition, including by amending or otherwise re-executing each applicable Covered Aircraft Sublease and Uncovered Aircraft Sublease as a lease, in each case containing substantially the same terms and conditions as the corresponding sublease. If Continental owns any Covered Aircraft or Uncovered Aircraft as of the date hereof, then each reference in this document to a Covered Aircraft Sublease or Uncovered Aircraft Sublease shall be deemed to be a reference to a lease containing substantially the same terms and conditions as the corresponding sublease.

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ARTICLE VI

EXCLUSIVITY AND CERTAIN RIGHTS OF CONTINENTAL

Section 6.01 Exclusivity; Use of Covered Aircraft. Contractor agrees that, except as otherwise directed or approved in writing by Continental in Continental's sole discretion, (i) the Covered Aircraft may be used only to provide the Regional Airline Services contemplated by this Agreement and (ii) the Covered Aircraft may not be used by Contractor for any other purpose (other than training flights, ferrying and other non-revenue flights related to the provision of the Regional Airline Services and consistent with past practices and Reasonable Operating Constraints), including without limitation flying for any other airline or on Contractor's own behalf.

Section 6.02 Exclusive Arrangements at Hub Airports.

(a) Contractor Hub Flights. In furtherance of the

capacity purchase arrangements hereunder, Continental and Contractor

agree that Contractor shall operate only Scheduled Flights in or out of

any Hub Airport prior to the Termination Date, except as otherwise

approved in writing by Continental in its sole discretion.

(b) Continental Hub Flights. Subject to Section

9.05(c), Continental agrees that, without Contractor's prior written

consent, Continental shall not fly or contract with a third party to

fly on Continental's behalf any regional jets in or out of any Existing

Hub Airports until the earlier of any Termination Date and December 31,

2005; provided that the foregoing provisions shall not apply with

respect to up to ten flights per day operated by Continental's

codeshare partners in or out of each Existing Hub Airport, which

flights carry Continental's two-letter designator code "CO" or "CO*" as

a secondary code; and provided, further, that (i) if the Embraer

XRJ-145 aircraft does not meet design or performance specifications and

the delivery of one or more Embraer XRJ-145 aircraft is cancelled or

delayed by more than six months, and (ii) Contractor does not offer to

provide to Continental regional airline services utilizing regional jet

aircraft comparable to the Embraer XRJ-145 (assuming that such Embraer

aircraft met its design and performance specifications) at block hour

rates comparable to those provided herein for the XRJ-145 aircraft or,

if higher, at a price at or lower than the price offered to Continental

by any third party offering to provide such services, then the

exclusivity provisions of this Section 6.02(b) shall not apply with

respect to the block hours for which Continental would have utilized

the Embraer XRJ-145 (which in any event may include routes and

frequencies previously served by other Covered Aircraft).

Section 6.03 Most Favored Nations. Notwithstanding any other provision in this Agreement to the contrary, at any time during which Continental is the largest customer of Contractor (measured by the percentage of all of Contractor's available seat miles represented by Scheduled ASMs during the most recently completed Performance Period), with respect to the purchase of Regional Airline Services hereunder Continental shall in all events be entitled to the same or comparable aggregate economic terms and

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conditions (measured by the net benefit to Contractor on a cost per available seat mile basis), on a most-favored-nations basis, as are provided, directly or indirectly, to any other Major Carrier by Contractor in any agreement or series of agreements for the provision of flight services for such Major Carrier on a capacity purchase basis (or other arrangements the economics of which replicate capacity purchase arrangements) with an aggregate of more than 10 aircraft. To the extent that any such agreement or arrangement is entered into and is not available for audit by Continental pursuant to Section 3.05(b) because of contractual confidentiality restrictions in such agreement or arrangement, then in connection with Contractor's entering into such agreement or arrangement, each of Contractor and (with respect to financial provisions only) its outside auditors shall be required to certify whether the net benefit to Contractor of the economic terms and conditions of such agreement or arrangement is comparab le to or exceeds the net benefit to Contractor of the economic terms and conditions of this Agreement (in each case on a cost per available seat mile basis).

Section 6.04 Change of Control. Upon the occurrence of a Change of Control of Holdings, XJT or ExpressJet, at any time during which Continental is the largest customer of Contractor (measured by the percentage of all of Contractor's available seat miles represented by Scheduled ASMs during the most recently completed Performance Period), to which Change of Control Continental shall not have consented in writing in advance, then without any further action by any party the Block Hour Rates shall be decreased for the remaining Term by an amount equal to such Block Hour Rates multiplied by the Cost Factor, and the provisions of Paragraph B(9)(d) of Schedule 3 shall be of no further force or effect.

ARTICLE VII

INSURANCE

Section 7.01 Minimum Insurance Coverages. During the Term, in addition to any insurance required to be maintained by Contractor pursuant to the terms of any aircraft lease (including without limitation each Covered Aircraft Sublease and Uncovered Aircraft Sublease), or by any applicable governmental authority, Contractor shall maintain, or cause to be maintained, in full force and effect policies of insurance with insurers of recognized reputation and responsibility, in each case to the extent available on a commercially reasonable basis, as follows:

(a) Comprehensive aircraft hull and liability

insurance, including aircraft third party, passenger liability

(including passengers' baggage and personal effects), cargo and mail

legal liability, and all-risk ground and flight physical damage, with a

combined single limit of not less than $300 million per occurrence and

a minimum limit in respect of personal injury (per clause AVN 60 or its

equivalent) of $25 million per occurrence and in the aggregate;

(b) Workers' compensation as required by the

appropriate jurisdiction and employer's liability with a limit of not

less than $1,000,000 combined single limit; and

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(c) Other property and liability insurance coverages

of the types and in the amounts that would be considered reasonably

prudent for a business organization of Contractor's size and nature,

under the insurance market conditions in effect at the time of

placement, but in any event of the type and the amount that Continental

may reasonably require to prevent or minimize a disruption in the

provision of Regional Airline Services resulting from a casualty or

liability incident related to Contractor's operations. All coverages

described in this Section 7.01 shall be placed with deductibles

reasonably prudent for a business organization of Contractor's size and

nature, under the insurance market conditions in effect at the time of

placement.

Section 7.02 Endorsements. Unless Contractor and Continental are participating in a combined policy placement, Contractor shall cause the policies described in Section 7.01 to be duly and properly endorsed by Contractor's insurance underwriters with respect to Contractor's flights and operations as follows:

(a) To provide that the underwriters shall waive

subrogation rights against Continental, its directors, officers,

agents, employees and other authorized representatives, except for

their gross negligence or willful misconduct;

(b) To provide that Continental, its directors,

officers, agents, employees and other authorized representatives shall

be endorsed as additional insured parties, except for their gross

negligence or willful misconduct;

(c) To provide that insurance shall be primary to and

without right of contribution from any other insurance which may be

available to the additional insureds;

(d) To include a breach of warranty provision in

favor of the additional insureds;

(e) To accept and insure Contractor's hold harmless

and indemnity undertakings set forth in this Agreement, but only to the

extent of the coverage afforded by the policy or policies; and

(f) To provide that such policies shall not be

canceled, terminated or materially altered, changed or amended until 30

days (but seven days or such lesser period as may be available in

respect of hull, war and allied perils) after written notice shall have

been sent to Continental.

Section 7.03 Evidence of Insurance Coverage. At the commencement of this Agreement, and thereafter at Continental's request, Contractor shall furnish to Continental evidence reasonably satisfactory to Continental of such insurance coverage and endorsements (other than that obtained pursuant to Section 7.04 below), including certificates certifying that the such insurance and endorsements are in full force and effect. Initially, this evidence shall be a certificate of insurance. If Contractor fails to

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acquire or maintain insurance as herein provided, Continental may at its option secure such insurance on Contractor's behalf at Contractor's expense.