FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NOS. 333-71906 & 333-71906-01
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 24, 2001)
CONTINENTAL AIRLINES LOGO
$175,000,000
CONTINENTAL AIRLINES, INC.
4.50% CONVERTIBLE NOTES DUE 2007
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We will pay interest at the rate of 4.50% per year on the notes each
February 1 and August 1. The first interest payment will be made on August 1,
2002. The notes will be unsubordinated, unsecured obligations of Continental
Airlines and will rank equally to all of our other unsubordinated, unsecured
indebtedness.
Holders of the notes may convert the notes at any time, unless previously
redeemed or repurchased, into shares of our common stock at a conversion price
of $40 per share (equal to a conversion rate of 25 shares per $1,000 principal
amount of notes), subject to adjustment as set forth in this prospectus
supplement.
The notes will mature on February 1, 2007. On or after February 5, 2005, we
may redeem all or a portion of the notes which have not previously been
converted at the redemption prices set forth in this prospectus supplement. In
certain circumstances involving a change in control, holders of notes may
require us to redeem all or some of the notes.
We have granted the underwriters named in this prospectus supplement an
option to purchase up to an additional $26,250,000 principal amount of notes
under certain circumstances.
Our common stock is quoted on the New York Stock Exchange under the symbol
"CAL." The last reported sale price of our common stock on the NYSE on January
16, 2001 was $31.10 per share.
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INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
S-3 OF THIS PROSPECTUS SUPPLEMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
PER NOTE TOTAL
-------- ------------
Public Offering Price 100.0% $175,000,000
Underwriting Discount 2.75% $ 4,812,500
Proceeds to Continental Airlines (before expenses) 97.25% $170,187,500
Interest on the notes will accrue from January 23, 2002.
------------------
The underwriters expect to deliver the notes to purchasers on or about
January 23, 2002.
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SOLE BOOK-RUNNING MANAGER
SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
January 16, 2002
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
Summary..................................................... S-1
Risk Factors................................................ S-3
Use Of Proceeds............................................. S-9
Ratios of Earnings to Fixed Charges......................... S-9
Capitalization.............................................. S-10
Description of Notes........................................ S-11
Description of Capital Stock................................ S-18
Certain United States Federal Income Tax Considerations..... S-18
Underwriting................................................ S-22
Validity of the Notes....................................... S-23
PROSPECTUS
About this Prospectus....................................... 1
Where You Can Find More Information......................... 2
Forward-Looking Statements.................................. 2
Incorporation by Reference.................................. 2
Continental Airlines, Inc................................... 4
The Trust................................................... 4
Use of Proceeds............................................. 5
Ratio of Earnings to Fixed Charges.......................... 5
Description of Debt Securities.............................. 5
Description of Trust Securities............................. 15
Description of Trust Debentures............................. 26
Description of Guarantee.................................... 33
Relationship Among the Trust Preferred Securities, the Trust
Debentures and the Guarantee.............................. 36
Description of Common Stock and Preferred Stock............. 37
Description of Depositary Shares............................ 43
Description of Warrants..................................... 45
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 45
Plan of Distribution........................................ 46
Legal Matters............................................... 47
Experts..................................................... 48
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You should rely on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not, and
the underwriters have not, authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information appearing
in this prospectus supplement, the accompanying prospectus and the documents
incorporated by reference is accurate only as of the respective dates of those
documents. Our business, financial condition, results of operations and
prospects may have changed since those dates.
i
SUMMARY
The following summary contains basic information about us and the notes. It
does not contain all the information that is important to you. You should read
the summary together with the more detailed information and the financial
statements and notes to the financial statements incorporated by reference into
the accompanying prospectus.
CONTINENTAL AIRLINES, INC.
We are a major U.S. air carrier engaged in the business of transporting
passengers, cargo and mail. We are the fifth largest U.S. airline, as measured
by 2001 revenue passenger miles, and, together with our wholly owned
subsidiaries, ExpressJet Airlines, Inc., which does business as Continental
Express ("ExpressJet"), and Continental Micronesia, Inc., served 215 airports
worldwide at January 15, 2002. As of January 15, 2002, we flew to 126 domestic
and 89 international destinations and offered additional connecting service
through alliances with domestic and foreign carriers. As of January 15, 2002,
our international service included nonstop service from the U.S. to 15 European
cities, seven South American cities, Tel Aviv, Hong Kong, and Tokyo, and we are
one of the leading airlines providing service to Mexico and Central America,
serving more destinations in these areas than any other U.S. airline. Through
our Guam hub, Continental Micronesia provides extensive service in the western
Pacific, including service to more Japanese cities than any other U.S. carrier.
We operate our route system primarily through domestic hubs at Newark
International Airport, George Bush Intercontinental Airport in Houston, Hopkins
International Airport in Cleveland, and a Pacific hub on the island of Guam. We
are the primary carrier at each of these hubs, accounting for 58%, 78%, 46% and
69% of average daily jet departures from these locations, respectively, as of
January 15, 2002 (in each case excluding regional jets). Each of our domestic
hubs is located in a large business and population center, contributing to a
high volume of "origin and destination" traffic. The Guam hub is strategically
located to provide service from Japanese and other Asian cities to popular
resort destinations in the western Pacific.
We are a Delaware corporation, with executive offices located at 1600 Smith
Street, Houston, Texas 77002. Our telephone number is (713) 324-2950.
THE OFFERING
Securities offered............ $175,000,000 in aggregate principal amount of
4.50% convertible notes due 2007 ($201,250,000
in aggregate principal amount of notes if the
underwriters exercise their over-allotment
option in full).
Ranking....................... The notes represent general unsecured,
unsubordinated obligations of Continental. See
"Description of Notes -- Ranking" and "Risk
Factors -- Risk Factors Related to the Notes."
Maturity...................... February 1, 2007.
Interest payment dates........ February 1 and August 1, beginning August 1,
2002.
Interest rate................. 4.50% per year.
Optional conversion by
holders....................... Holders may convert the notes at any time prior
to February 1, 2007, unless previously redeemed
or repurchased, into shares of our common stock
initially at a conversion price of $40 per
share (equal to a conversion rate of 25 shares
per $1,000 principal amount of notes). The
conversion price is subject to adjustment under
certain circumstances. See "Description of
Notes -- Conversion Rights."
S-1
Optional redemption by
Continental................... The notes are not redeemable by us in whole or
in part at any time prior to February 5, 2005.
On or after February 5, 2005, we may redeem
some or all of the notes at the following
redemption prices (expressed as a percentage of
the principal amount), plus accrued and unpaid
interest to but excluding the redemption date.
DURING THE PERIOD COMMENCING PRICE
---------------------------- ------
February 5, 2005 through January 31,
2006.................................... 101.80
February 1, 2006 through January 31,
2007.................................... 100.90
Repurchase at option of
holders upon a change in
control....................... In certain circumstances involving a change in
control, each holder of the notes may require
us to repurchase some or all of the holder's
notes at 100% of their principal amount plus
accrued and unpaid interest to, but excluding,
the repurchase date.
Use of proceeds............... We expect to receive net proceeds (after
deducting the underwriters' discount and
estimated offering expenses) from this offering
of approximately $169.8 million (or $195.3
million if the underwriters exercise their
additional purchase option in full).
We intend to use the net proceeds from this
offering for general corporate purposes.
Listing....................... The notes will not be listed on any securities
exchange. We can provide no assurance as to the
liquidity of trading markets for the notes. Our
common stock is quoted on the New York Stock
Exchange under the symbol "CAL."
S-2
RISK FACTORS
You should read carefully this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference in the prospectus before
investing in the notes.
RECENT DEVELOPMENTS
LAST YEAR'S TERRORIST ATTACKS ADVERSELY AFFECTED, AND MAY CONTINUE TO
ADVERSELY AFFECT, OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
PROSPECTS.
As described in greater detail in our filings with the Securities and
Exchange Commission, the terrorist attacks of September 11, 2001 involving
commercial aircraft have adversely affected us and the airline industry
generally. Those effects continue, although they have been mitigated somewhat by
increased traffic, the Air Transportation Safety and System Stabilization Act
(the "Stabilization Act") and our cost-cutting measures. Moreover, additional
terrorist attacks, even if not made directly on the airline industry, or the
fear of such attacks, could further negatively impact us and the airline
industry.
Among the effects we experienced from the September 11, 2001 terrorist
attacks were significant flight disruption costs caused by the Federal Aviation
Administration ("FAA") imposed grounding of the U.S. airline industry's fleet,
significantly increased security and other costs, significantly higher ticket
refunds, significantly reduced load factors, and significantly reduced yields.
Further terrorist attacks using commercial aircraft could result in another
grounding of our fleet, and would likely result in significant reductions in
load factor and yields, along with increased ticket refunds and security and
other costs. In addition, terrorist attacks not involving commercial aircraft,
or other world events, could result in decreased load factors and yields for
airlines, including us, and could also result in increased costs. For instance,
fuel costs, which have declined since September 11, 2001, could escalate if
oil-producing countries were impacted by hostilities or reduced output, which
could also impact fuel availability. We currently have no fuel hedges in place
to protect against price increases. Premiums for aviation insurance have
increased substantially, and could escalate further, or certain aviation
insurance could become unavailable or available only for reduced amounts of
coverage that are insufficient to comply with the levels of insurance coverage
required by aircraft lenders and lessors or required by applicable government
regulations. Additionally, war-risk coverage or other insurance might cease to
be available to our vendors, or might be available only at significantly
increased premiums or for reduced amounts of coverage, which could adversely
impact our operations or costs.
Due in part to the lack of predictability of future traffic, business mix
and yields, we are currently unable to estimate the long-term impact on us of
the events of September 11, 2001 and the sufficiency of our financial resources
to absorb that impact. However, given the magnitude of these unprecedented
events and their potential subsequent effects, the adverse impact to our
financial condition, results of operations and prospects may continue to be
material.
WE MAY HAVE TO RECOGNIZE FURTHER SPECIAL CHARGES RELATED TO GROUNDED AIRCRAFT.
As of January 15, 2002, we had 56 jet aircraft and 17 turboprop aircraft
out of service from our fleet. The majority of these aircraft have been
temporarily removed from service and we will continue to evaluate whether to
return these temporarily grounded aircraft to service, which will primarily
depend on demand and yield in the coming months. It is possible that all or a
significant portion of these temporarily grounded aircraft will be permanently
removed from service at a later date, which would result in special charges for
impairment and lease exit costs. In the fourth quarter of 2001, we incurred a
special charge of $39 million ($61 million before taxes) associated primarily
with the impairment of various owned aircraft and spare engines, including all
of the DC-10-30, ATR-42, EMB-120, and Boeing 747 and 727 aircraft we owned. We
could suffer additional impairment of operating aircraft and other long-lived
assets in the future if the economic environment in which we operate does not
continue to improve or further deteriorates due to unforeseen circumstances. The
special charges for all or a significant portion of the temporarily grounded
aircraft would, and any additional special charges for impairment of operating
aircraft and other long-lived assets could, be material.
S-3
THE AVIATION AND TRANSPORTATION SECURITY ACT WILL IMPOSE ADDITIONAL COSTS AND
MAY CAUSE SERVICE DISRUPTIONS.
In November 2001, the President signed into law the Aviation and
Transportation Security Act (the "Aviation Security Act"). This law federalizes
substantially all aspects of civil aviation security, creating a new
Transportation Security Administration under the Department of Transportation.
Under the Aviation Security Act, all security screeners at airports will be
federal employees, and substantially all elements of airline and airport
security will be overseen and performed by federal employees, including federal
security managers, federal law enforcement officers, federal air marshals, and
federal security screeners. The law, among other matters, mandates improved
flight deck security, deployment of federal air marshals onboard flights,
improved airport perimeter access security, airline crew security training,
enhanced security screening of passengers, baggage, cargo, mail, employees and
vendors, enhanced training and qualifications of security screening personnel,
additional provision of passenger data to U.S. Customs, and enhanced background
checks. Funding for airline and airport security under the law is provided by a
new $2.50 per enplanement ticket tax (subject to a $5 per one-way trip cap), and
a new tax on air carriers estimated to total $700 million annually for all air
carriers. Air carriers will be required to begin collecting the new ticket tax
from passengers, and will become subject to the new tax on air carriers, on
February 1, 2002. The law requires that, within three months of the date of
enactment, the Undersecretary of Transportation for Security will assume all
civil aviation security functions and responsibilities, and provides that the
Undersecretary may assume existing contracts for the provision of passenger
screening services at U.S. airports for up to 270 days, after which all security
screeners must be federal employees. Implementation of the requirements of the
Aviation Security Act will result in increased costs for us and our passengers
and may result in service disruptions and delays.
RISK FACTORS RELATING TO THE COMPANY
WE CONTINUE TO EXPERIENCE SIGNIFICANT OPERATING LOSSES.
Since September 11, 2001, we have not generated positive cash flow from our
operations. Although improved traffic since September has significantly
decreased the average daily negative cash flow from operations, our cash flow
from operations remains negative at approximately $3 to $4 million per day, and
we expect to incur a loss in the first quarter of 2002, which loss could be
significant. Although load factors continue to improve, 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 cause higher unit costs. Cost per available seat mile for 2002 is
expected to increase 5%, holding fuel rate constant, as compared to 2001. Such
increase is partly attributable to additional security and insurance costs in
2002 of approximately $150 to $200 million. 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
break-even load factor. We cannot predict when business traffic or yields will
increase.
In addition, our capacity purchase arrangement 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. We previously announced our intention to sell or otherwise dispose of
some or all of our interests in ExpressJet. If we do so, then we would have
greater fixed costs which could result in lower or more volatile earnings or
both. For example, in the year ended December 31, 2001, our pre-tax net loss of
approximately $114 million included pre-tax net income for ExpressJet of
approximately $75 million.
OUR HIGH LEVERAGE MAY AFFECT OUR ABILITY TO SATISFY OUR SIGNIFICANT FINANCING
NEEDS OR MEET OUR OBLIGATIONS.
We have a higher proportion of debt compared to our equity capital than
some of our principal competitors. In addition, we have fewer cash resources
than some of our principal competitors. Most of our property and equipment is
subject to liens securing indebtedness. Accordingly, we may be less able
S-4
than some of our competitors to withstand a prolonged recession in the airline
industry or respond as flexibly to changing economic and competitive conditions.
As of December 31, 2001, we had approximately $4.6 billion (including
current maturities) of long-term debt and capital lease obligations, $250
million liquidation amount of Continental-obligated mandatorily redeemable
preferred securities of trust ($243 million net of unamortized discount), and
$1.2 billion of stockholders' equity. We have substantial commitments for
capital expenditures, including for the acquisition of new aircraft. As of
December 31, 2001, we had firm commitments for 87 aircraft from Boeing, with an
estimated cost of approximately $3.7 billion, after giving effect to the
rescheduling discussed below. We expect that 20 of these aircraft will be
delivered between January 2002 and May 2002. Thirteen of these 20 aircraft have
been pre-financed, and we have backstop financing available from Boeing for the
remaining seven aircraft, subject to final negotiation of certain terms. We are
in final discussions with Boeing regarding the rescheduling of the remaining 67
aircraft, and we currently expect these aircraft to be delivered between late
2003 and mid 2008. We do not have backstop financing from Boeing or any other
financing currently in place for the remaining 67 aircraft.
As of December 31, 2001, our subsidiary, ExpressJet, had firm commitments
for 137 regional jets from Empresa Brasileira de Aeronautica S.A. ("Embraer"),
with an estimated cost of approximately $2.6 billion. We will not have any
obligation to take any of these firm Embraer aircraft that are not financed by a
third party and leased to us.
In addition, we have significant operating lease obligations. For the year
ended December 31, 2001, cash expenditures under operating leases relating to
aircraft approximated $888 million and approximated $380 million relating to
facilities and other rentals. For 2000, cash expenditures under operating leases
relating to aircraft approximated $864 million and approximated $353 million
relating to facilities and other rentals.
Additional financing will be needed to satisfy our capital commitments. We
cannot predict whether sufficient financing will be available for capital
expenditures not covered by firm financing commitments. On several occasions
subsequent to September 11, 2001, each of Moody's Investors Service, Standard
and Poor's and Fitch Ibca, Duff & Phelps downgraded the credit ratings of a
number of major airlines, including our credit ratings. Reductions in our credit
ratings may increase the cost and reduce the availability of financing to us.
SIGNIFICANT CHANGES OR EXTENDED PERIODS OF HIGH FUEL COSTS WOULD MATERIALLY
AFFECT OUR OPERATING RESULTS.
Fuel costs constitute a significant portion of our operating expense. Fuel
costs represented approximately 13.5% of our operating expenses for the year
ended December 31, 2001 (excluding severance and other special charges and
Stabilization Act grant) and 15.2% of our operating expenses for the year ended
December 31, 2000. Fuel prices and supplies are influenced significantly by
international political and economic circumstances. Although we currently have
no fuel hedges in place to protect against fuel price increases, we have from
time to time entered into petroleum swap contracts, petroleum call option
contracts and/or jet fuel purchase commitments to provide some short-term
protection (generally three to six months) against a sharp increase in jet fuel
prices. Should we enter into any such arrangements in the future, our fuel
hedging strategy may limit our ability to benefit from declines in fuel prices.
If a fuel supply shortage were to arise from OPEC production curtailments, a
disruption of oil imports or otherwise, higher fuel prices or reduction of
scheduled airline service could result. Significant changes in fuel costs or
extended periods of high jet fuel prices would materially affect our operating
results.
LABOR COSTS IMPACT OUR RESULTS OF OPERATIONS.
Labor costs constitute a significant percentage of our total operating
costs. In July 2000, we completed a three-year program bringing all employees to
industry standard wages and also announced and began implementing a phased plan
to bring employee benefits to industry standard levels by 2003. The
S-5
plan provides for increases in vacation, paid holidays, increased 401(k)
matching contributions and additional past service retirement credit for most
senior employees.
Collective bargaining agreements between us and our mechanics (who are
represented by the International Brotherhood of Teamsters) and between both us
and ExpressJet and our respective pilots (who are represented by the Air Line
Pilots Association) are amendable in January 2002 and October 2002,
respectively. Negotiations were deferred due to the economic uncertainty during
the fourth quarter of 2001. Negotiations are scheduled to recommence with the
International Brotherhood of Teamsters in the first quarter of 2002 and with the
Air Line Pilots Association in the summer of 2002. We may incur increased labor
costs in connection with the negotiation of our collective bargaining
agreements. In addition, certain other U.S. air carriers have experienced work
slowdowns, strikes or other labor disruptions in connection with contract
negotiations. Although we enjoy generally good relations with our employees,
there can be no assurance that we will not experience labor disruptions in the
future.
OUR ABILITY TO UTILIZE CERTAIN NET OPERATING LOSS CARRYFORWARDS OR INVESTMENT
TAX CREDITS MAY BE LIMITED BY CERTAIN EVENTS.
At December 31, 2001, we had estimated net operating loss carryforwards
("NOLs") of $1.5 billion for federal income tax purposes that will expire
through 2022 and federal investment tax credit carryforwards of $26 million that
will expire through 2002. Due to a change in our ownership on April 27, 1993,
the ultimate utilization of our NOLs and investment tax credits may be limited,
as described below.
Section 382 of the Internal Revenue Code ("Section 382") imposes
limitations on a corporation's ability to utilize NOLs if it experiences an
"ownership change." In general terms, an ownership change may result from
transactions increasing the ownership of certain stockholders in the stock of a
corporation by more than 50 percentage points over a three-year period. In the
event that an ownership change 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 is 4.82% for January 2002 ownership changes).
Any unused annual limitation may be carried over to later years, and the amount
of the limitation may under certain circumstances be increased by the built-in
gains in assets held by us at the time of the change that are recognized in the
five-year period after the change. Under current conditions, if an ownership
change were to occur, our annual NOL utilization would be limited to
approximately $93 million per year other than through the recognition of future
built-in gain transactions.
In November 1998, Northwest completed its acquisition of certain equity
interests in us previously held by Air Partners, L.P. and its affiliates,
together with shares of our Class A common stock held by other investors,
totaling 8,661,224 shares of the Class A common stock. On January 22, 2001, we
repurchased 6,685,279 shares of our Class A common stock from Northwest and an
affiliate. In addition, each issued share of our Class A common stock was
reclassified into 1.32 shares of Class B common stock in a nontaxable
transaction. We do not believe that these transactions resulted in an ownership
change for purposes of Section 382.
CONTINENTAL MICRONESIA'S DEPENDENCE ON THE JAPANESE ECONOMY MAY RESULT IN
CURRENCY RISK.
Because the majority of our Continental Micronesia subsidiary's traffic
originates in Japan, its results of operations are substantially affected by the
Japanese economy and changes in the value of the yen as compared to the U.S.
dollar. To reduce the potential negative impact on Continental Micronesia's
earnings associated with fluctuations in currency, we have entered into forward
contracts as a hedge against a portion of our expected net yen cash flow
position. As of December 31, 2001, we had hedged approximately 80% of 2002
projected yen-denominated net cash flows at a rate of 116 yen to $1 US.
S-6
RISK FACTORS RELATING TO THE AIRLINE INDUSTRY
THE INDUSTRY IN WHICH WE COMPETE IS HIGHLY COMPETITIVE.
The airline industry is highly competitive and susceptible to price
discounting. Carriers use discount fares to stimulate traffic during periods of
slack demand, to generate cash flow and to increase market share. Some of our
competitors have substantially greater financial resources or lower cost
structures than we do.
Airline profit levels are highly sensitive to changes in fuel costs, fare
levels and passenger demand. Passenger demand and fare levels are influenced by,
among other things, the state of the global economy, domestic and international
events, airline capacity and pricing actions taken by carriers. The weak U.S.
economy, turbulent international events and extensive price discounting by
carriers contributed to unprecedented losses for U.S. airlines from 1990 to
1993. Since September 11, 2001, these same factors, together with the effects of
the terrorist attacks and the industry's reduction in capacity, have resulted in
dramatic losses for us and the airline industry generally. We cannot predict
when conditions will improve.
In recent years, the major U.S. airlines have sought to form marketing
alliances with other U.S. and foreign air carriers. Such alliances generally
provide for "code-sharing," frequent flyer reciprocity, coordinated scheduling
of flights of each alliance member to permit convenient connections and other
joint marketing activities. Such arrangements permit an airline to market
flights operated by other alliance members as its own. This increases the
destinations, connections and frequencies offered by the airline, which provide
an opportunity to increase traffic on its segment of flights connecting with its
alliance partners. Our alliance with Northwest Airlines is an example of such an
arrangement, and we have existing alliances with numerous other air carriers.
Other major U.S. airlines have alliances or planned alliances more extensive
than ours. We cannot predict the extent to which we will benefit from our
alliances or be disadvantaged by competing alliances.
Since its deregulation in 1978, the U.S. airline industry has undergone
substantial consolidation, and it may in the future experience additional
consolidation. We routinely monitor changes in the competitive landscape and
engage in analysis and discussions regarding our strategic position, including
alliances and business combination transactions. We have had, and expect to
continue to have, discussions with third parties regarding strategic
alternatives. The impact of any consolidation within the U.S. airline industry
cannot be predicted at this time.
OUR BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION.
As evidenced by the enactment of the Aviation Security Act, airlines are
subject to extensive regulatory and legal compliance requirements that result in
significant costs. The FAA from time to time issues directives and other
regulations relating to the maintenance and operation of aircraft that require
significant expenditures. Some FAA requirements cover, among other things,
retirement of older aircraft, security measures, collision avoidance systems,
airborne windshear avoidance systems, noise abatement, commuter aircraft safety
and increased inspections and maintenance procedures to be conducted on older
aircraft. We expect to continue incurring expenses to comply with the FAA's
regulations.
Additional laws, regulations, taxes and airport rates and charges have been
proposed from time to time that could significantly increase the cost of airline
operations or reduce revenues. Restrictions on the ownership and transfer of
airline routes and takeoff and landing slots have also been proposed. The
ability of U.S. carriers to operate international routes is subject to change
because the applicable arrangements between the United States and foreign
governments may be amended from time to time, or because appropriate slots or
facilities are not made available. We cannot provide assurance that laws or
regulations enacted in the future will not adversely affect us.
OUR OPERATIONS ARE AFFECTED BY THE SEASONALITY ASSOCIATED WITH THE AIRLINE
INDUSTRY.
Due to greater demand for air travel during the summer months, revenue in
the airline industry in the second and third quarters of the year is generally
stronger than revenue in the first and fourth quarters of
S-7
the year for most U.S. air carriers. Our results of operations generally reflect
this seasonality, but have also been impacted by numerous other factors that are
not necessarily seasonal, including the extent and nature of competition from
other airlines, fare wars, excise and similar taxes, changing levels of
operations, fuel prices, weather, air traffic control delays, foreign currency
exchange rates and general economic conditions.
RISK FACTORS RELATED TO THE NOTES
THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO OUR SECURED DEBT AND TO DEBT OF
OUR SUBSIDIARIES.
The notes are unsecured and therefore are effectively subordinated to any
of our secured indebtedness to the extent of the value of the assets securing
such indebtedness. Most of our property and equipment is subject to liens
securing indebtedness. If we default on the notes, become bankrupt, liquidate or
reorganize, any secured creditors could use their collateral to satisfy their
secured indebtedness before you would receive any payment on the notes. If the
value of such collateral is not sufficient to pay any indebtedness in full, our
secured creditors would share the value of our other assets, if any, with you
and the holders of other claims against us that rank equally with the notes. Our
subsidiaries conduct a significant portion of our operations and have
significant liabilities, including trade payables. The notes are also
structurally subordinated to the liabilities of our subsidiaries.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NOTES.
There is no established trading market for the notes. We have no plans to
list the notes on a securities exchange. Although the underwriters have advised
us that they currently intend to make a market in the notes after the completion
of the offering, the underwriters are not obligated to do so, and such market
making activities may be discontinued at any time without notice. We cannot
assure you that any market for the notes will develop, or that such a market
will provide liquidity for holders of the notes. The liquidity of any market for
the notes will depend upon the number of holders of the notes, our results of
operations and financial condition, the market for similar securities, the
interest of securities dealers in making a market in the notes and other
factors. An active or liquid trading market may not develop for the notes.
OUR ABILITY TO REPURCHASE NOTES WITH CASH UPON A CHANGE IN CONTROL MAY BE
LIMITED.
In certain circumstances involving a change in control, the holders of the
notes may require us to repurchase some or all of the holders' notes. We cannot
assure you that we will have sufficient financial resources at such time or will
be able to arrange financing to pay the repurchase price of the notes in cash.
Our ability to repurchase the notes in cash in such event may be limited by law,
by the senior debt indenture, by the terms of other agreements relating to our
outstanding debt and by indebtedness and agreements which may be entered into,
replaced, supplemented or amended from time to time. We may be required to
refinance our senior debt in order to make such payments.
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USE OF PROCEEDS
We expect to receive net proceeds (after deducting the underwriters'
discount and estimated offering expenses) from this offering of approximately
$169.8 million (or $195.3 million if the underwriters' exercise their additional
purchase option in full). We intend to use these net proceeds for general
corporate purposes.
RATIOS OF EARNINGS TO FIXED CHARGES
The ratios of our "earnings" to our "fixed charges" for each of the years
1997 through 2001 were:
YEAR ENDED DECEMBER 31,
- --------------------------------
2001 2000 1999 1998 1997
- ---- ---- ---- ---- ----
(1) 1.51 1.80 1.94 2.07
- ---------------
(1) For the year ended December 31, 2001, earnings were inadequate to cover
fixed charges and the coverage deficiency was $152 million.
The ratios of earnings to fixed charges are based on continuing operations.
For purposes of the ratios, "earnings" means the sum of:
- our pre-tax income; and
- our fixed charges, net of interest capitalized.
"Fixed charges" represent:
- the interest we pay on borrowed funds;
- the amount we amortize for debt discount, premium and issuance expense
and interest previously capitalized; and
- that portion of rentals considered to be representative of the interest
factor.
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CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and our capitalization (including current maturities) as of December 31, 2001
and as adjusted to give effect to the issuance of the notes being offered hereby
and the receipt by us of the net proceeds of approximately $169.8 million.
DECEMBER 31, 2001
-------------------------
ACTUAL AS ADJUSTED
--------- -------------
(IN MILLIONS OF DOLLARS)
(UNAUDITED)
Cash and Cash Equivalents................................... $ 1,132 $ 1,302
======= =======
Current Maturities:
Current Maturities of Long-Term Debt...................... 328 328
Current Maturities of Capital Leases...................... 27 27
------- -------
Total.................................................. 355 355
------- -------
Long-Term Obligations:
Long-Term Debt............................................ 3,928 4,103
Capital Leases............................................ 270 270
------- -------
Total.................................................. 4,198 4,373
------- -------
Continental-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely Convertible
Subordinated Debentures................................... 243 243
------- -------
Stockholders' Equity:
Preferred Stock, Series B................................. -- --
Common Stock.............................................. 1 1
Additional Paid-in Capital................................ 1,069 1,069
Retained Earnings......................................... 1,361 1,361
Accumulated Other Comprehensive Income.................... (130) (130)
Treasury Stock............................................ (1,140) (1,140)
------- -------
Total Stockholders' Equity............................. 1,161 1,161
------- -------
Total Capitalization (including Current Maturities).... $ 5,957 $ 6,132
------- -------
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DESCRIPTION OF NOTES
We will issue the notes under a senior debt indenture dated as of July 15,
1997, between us and Bank One, N.A., as trustee, as supplemented by a first
supplemental indenture. The terms of the notes include those stated in the
senior debt indenture, as supplemented, and those made part of the senior debt
indenture by reference to the Trust Indenture Act of 1939.
The following description of the terms of the notes supplements and
modifies the description of the general terms and provisions of the senior debt
securities set forth in the accompanying prospectus, which you should read in
conjunction with this prospectus supplement. In addition, we urge you to read
the senior debt indenture, as supplemented, because it, and not this
description, will define your rights as holders of these notes.
When we refer to Continental, or "we," "our" or "us" in this section, we
refer only to Continental Airlines, Inc., a Delaware corporation, and not its
subsidiaries.
GENERAL
The notes will be:
- limited to $175,000,000 aggregate principal amount ($201,250,000 if the
underwriters' additional purchase option is exercised in full);
- general unsecured, unsubordinated obligations of Continental, equal in
ranking with all existing and future unsubordinated, unsecured debt of
Continental;
- convertible into our common stock at any time prior to maturity, unless
previously redeemed or repurchased, at a conversion price of $40 per
share, subject to adjustment as described under "-- Conversion Rights";
- redeemable at our option on or after February 5, 2005 upon the terms and
at the redemption price set forth under "-- Optional Redemption by
Continental";
- subject to repurchase only at your option in certain circumstances
involving a change in control; and
- due on February 1, 2007, unless earlier converted, redeemed or
repurchased.
RANKING
The notes represent general unsecured, unsubordinated obligations of
Continental, equal in ranking with all existing and future unsubordinated,
unsecured debt of Continental.
The notes are effectively subordinated to all of our secured debt to the
extent of the value of the assets securing such debt. In addition, our
subsidiaries conduct a significant portion of our operations and have
significant liabilities, including trade payables. The notes will be
structurally subordinated to these subsidiary liabilities, which in certain
instances include guarantees of our secured debt.
As of December 31, 2001, giving effect to this offering:
- Continental and its subsidiaries had approximately $4.7 billion
(including current maturities) of long-term debt and capital lease
obligations and approximately $250 million liquidation amount of
Continental-obligated mandatorily redeemable preferred securities of
trust ($243 million net of unamortized discount) and $1.2 billion of
stockholders' equity;
- approximately $12 million of our outstanding debt and $250 million
liquidation amount of Continental-obligated mandatorily redeemable
preferred securities of trust ($243 million net of unamortized discount)
would have been subordinated to the notes; and
- the total of our outstanding debt that would be effectively senior to the
notes would have been approximately $4.2 billion.
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Holders of the notes will be creditors of only Continental and not our
subsidiaries. The ability of our creditors, including you, to participate in any
distribution of assets of any of our subsidiaries upon liquidation or bankruptcy
will be subject to the prior claims of that subsidiary's creditors, including
trade creditors, and any prior or equal claim of any equity holder of that
subsidiary. As a result, you may receive less, proportionately, than our secured
creditors and the creditors of our subsidiaries.
The senior debt indenture does not contain any financial covenants and does
not restrict us from paying dividends, incurring senior debt or any other
indebtedness or issuing or repurchasing our other securities. The indenture also
does not protect you in the event of a highly leveraged transaction.
INTEREST
The notes will bear interest from January 23, 2002 at the rate of 4.50% per
year. We will pay interest semiannually on February 1 and August 1 of each year,
beginning August 1, 2002, to the holders of record at the close of business on
the preceding January 15 and July 15, respectively. There are two exceptions to
the preceding sentence:
(1) In general, we will not pay interest accrued and unpaid on any
note that is converted into our common stock. See "-- Conversion Rights."
If a holder of notes converts after a record date for an interest payment
but prior to the corresponding interest payment date, it will receive on
the interest payment date interest accrued and paid on such notes,
notwithstanding the conversion of such notes prior to such interest payment
date, because such holder will have been the holder of record on the
corresponding record date. However, at the time such holder surrenders such
notes for conversion, it must pay us an amount equal to the interest that
has accrued and will be paid on the interest payment date. The preceding
sentence does not apply, however, to a holder that converts after a record
date for an interest payment but prior to the corresponding interest
payment date, notes that are called by us for redemption. Accordingly, if
we redeem notes on a date after a record date for an interest payment but
prior to the corresponding interest payment date, and prior to the
redemption date the holder of such notes chooses to convert such notes, the
holder will not be required to pay us, at the time it surrenders such notes
for conversion, the amount of interest on such notes it will receive on the
interest payment date.
(2) We will pay interest to a person other than the holder of record
on the record date if we redeem the notes on a date that is after the
record date and prior to the corresponding interest payment date. In this
instance, we will pay interest accrued and unpaid on the notes being
redeemed to but not including the redemption date to the same person to
whom we will pay the principal of such notes. If the redemption date is an
interest payment date, we will pay the interest to the holder of record on
the corresponding record date, which may or may not be the same person to
whom we will pay the redemption price.
We will pay principal and interest on the global notes to The Depository
Trust Company in immediately available funds. Interest generally will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
CONVERSION RIGHTS
You may convert any outstanding notes (or portions of outstanding notes)
into our common stock, initially at the conversion price of $40 per share (equal
to a conversion rate of 25 shares per $1,000 principal amount of notes). The
conversion price is, however, subject to adjustment as described below. We will
not issue fractional shares of common stock upon conversion of notes. Instead,
we will pay a cash adjustment based upon the closing sale price of our common
stock on the business day immediately preceding the conversion date. You may
convert notes only in denominations of $1,000 and whole multiples of $1,000.
You may exercise conversion rights at any time prior to the close of
business on the business day immediately preceding the final maturity date of
the notes. Similarly, if you are a holder of notes that have
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been called for redemption, you must exercise your conversion rights prior to
the close of business on the business day immediately preceding the redemption
date, unless we default in payment of the redemption price. In addition, if you
have exercised your right to require us to repurchase your notes because a
change in control has occurred, you may convert your notes into our common stock
only if you withdraw your notice and convert your notes prior to the close of
business on the business day immediately preceding the change in control
repurchase date.
Except as provided below, if you convert your notes into our common stock
on any day other than an interest payment date, you will not receive any
interest that has accrued on the notes. By delivering to the holder the number
of shares issuable upon conversion, determined by dividing the principal amount
of the notes being converted by the conversion price, together with a cash
payment, if any, in lieu of fractional shares, we will satisfy our obligation
with respect to the notes. Accrued but unpaid interest will be deemed to be paid
in full rather than canceled, extinguished or forfeited. If you convert after a
record date for an interest payment but prior to the corresponding interest
payment date, you will receive on the interest payment date interest accrued and
paid on such notes, notwithstanding the conversion of such notes prior to such
interest payment date, because you will have been the holder of record on the
corresponding record date. However, at the time you surrender such notes for
conversion, you must pay us an amount equal to the interest that has accrued and
will be paid on the notes being converted on the interest payment date. However,
the preceding sentence does not apply to notes that are converted after being
called by us for redemption. Accordingly, if we call your notes for redemption
on a date that is after a record date for an interest payment but prior to the
corresponding interest payment date, and prior to the redemption date you choose
to convert your notes, you will not be required to pay us at the time you
surrender such notes for conversion the amount of interest on such notes you
will receive on the date that has been fixed for redemption.
You will not be required to pay any taxes or duties relating to the
issuance or delivery of our common stock if you exercise your conversion rights,
but you will be required to pay any tax or duty that may be payable relating to
any transfer involved in the issuance or delivery of the common stock in a name
other than yours. Certificates representing shares of common stock will be
issued or delivered only after all applicable taxes and duties, if any, payable
by you have been paid.
To convert interests in a global note, you must deliver to DTC the
appropriate instruction form for conversion pursuant to DTC's conversion
program. The conversion date will be the date on which all of the foregoing
requirements have been satisfied. The notes will be deemed to have been
converted immediately prior to the close of business on the conversion date. A
certificate for the number of shares of common stock into which the notes are
converted (and cash in lieu of any fractional shares) will be delivered as soon
as practicable on or after the conversion date.
We will adjust the initial conversion price for certain events, including:
(1) the payment of dividends or distributions payable in our common
stock on our common stock;
(2) the issuance to all holders of our common stock of certain rights
or warrants to purchase our common stock (or securities convertible into
our common stock) at less than (or having a conversion price per share less
than) the current market price of our common stock; provided, however, that
if the rights or warrants are exercisable only upon the occurrence of a
triggering event, then the conversion price will not be adjusted until such
triggering event occurs;
(3) subdivisions and combinations of our common stock;
(4) the payment of dividends or distributions to all holders of our
common stock consisting of our indebtedness, securities or capital stock
(including dividends or other distributions of shares of capital stock of
any class or series, or similar equity interests, of or relating to a
subsidiary or other business unit of Continental), cash or assets,
excluding any rights, warrants, dividends or distributions referred to in
paragraphs (1) and (2) above and dividends and distributions paid
exclusively in cash;
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(5) distributions consisting exclusively of cash (excluding any cash
portion of distributions referred to in the preceding paragraph and
excluding cash distributed upon certain mergers or consolidations) to all
holders of our common stock in an aggregate amount that, combined together
with (i) other such all-cash distributions made within the preceding 12
months in respect of which no adjustment to the conversion price has been
made and (ii) any cash and the fair market value of other consideration
payable in respect of any tender offer by us or any of our subsidiaries for
common stock concluded within the preceding 12 months in respect of which
no adjustment to the conversion price has been made, exceeds 12.5% of our
market capitalization (being the product of the then-current market price
of the common stock and the number of shares of common stock then
outstanding) on the record date for such distribution; and
(6) the successful completion of a tender offer made by us or any of
our subsidiaries for our common stock which involves an aggregate
consideration that, together with (i) any cash and other consideration
payable in any other previous successfully completed tender offer made by
us or any of our subsidiaries for our common stock expiring within the 12
months preceding the expiration of the first tender offer referred to in
this paragraph in respect of which no adjustment to the conversion price
has been made and (ii) the aggregate amount of any such all-cash
distributions referred to in the preceding paragraph to all holders of
common stock within the 12 months preceding the expiration of the first
tender offer referred to in this paragraph in respect of which no
adjustments to the conversion price have been made, exceeds 12.5% of our
market capitalization on the expiration of such tender offer; provided,
that for purposes of this paragraph, purchases pursuant to a stock buyback
program shall not constitute a tender offer.
The conversion price will not be adjusted for the issuance of our common
stock (or securities convertible into or exchangeable for our common stock),
except as described above. For example, the conversion price will not be
adjusted upon the issuance of shares of our common stock:
- under any present or future plan providing for the reinvestment of
dividends or interest payable on our securities;
- in connection with the investment of additional optional amounts in
shares of our common stock under any plan described in the preceding
bullet point;
- under any present or future employee benefit plan or program of ours; or
- pursuant to any option, warrant or right or exercisable, exchangeable or
convertible security outstanding as of the date the notes are first
issued.
If a taxable distribution to holders of our common stock or other
transaction occurs that results in any adjustment of the conversion price, you
may, in certain circumstances, be deemed to have received a distribution as a
dividend subject to U.S. income tax. In certain other circumstances, the absence
of an adjustment may result in a taxable dividend to the holders of our common
stock. See "Certain United States Federal Income Tax Considerations."
We may from time to time, to the extent permitted by law, reduce the
conversion price of the notes by any amount for any period of at least 20 days.
In that case, we will give at least 15 days' notice of such decrease. We may
make such reductions in the conversion price, in addition to those set forth
above, as our board of directors deems advisable to avoid or diminish any income
tax to holders of our common stock resulting from any dividend or distribution
of stock (or rights to acquire stock) or from any event treated as such for
income tax purposes.
We will not make an adjustment in the conversion price unless such
adjustment would require a change of at least 1% in the conversion price then in
effect at such time. We will carry forward and take into account in any
subsequent adjustment any adjustment that would otherwise be required to be
made.
In case of any consolidation or merger of Continental with or into another
person or any merger of another person into Continental (other than a merger
which does not result in any reclassification, conversion, exchange or
cancelation of our common stock), or in case of any sale or transfer of all or
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substantially all of the assets of Continental, each note then outstanding will,
without the consent of the holder of any note, become convertible only into the
kind and amount of securities, cash and other property, if any, receivable upon
such consolidation, merger, sale or transfer by a holder of the number of shares
of common stock into which such note was convertible immediately prior thereto
(assuming such holder of common stock failed to exercise any rights of
election).
OPTIONAL REDEMPTION BY CONTINENTAL
We may not redeem the notes in whole or in part at any time prior to
February 5, 2005. At any time on or after February 5, 2005, we may redeem some
or all of the notes on at least 30 but not more than 60 days' notice, at the
following redemption prices (expressed in percentages of the principal amount).
DURING THE PERIOD COMMENCING PRICE
- ---------------------------- ------
February 5, 2005 through January 31, 2006................... 101.80
February 1, 2006 through January 31, 2007................... 100.90
In addition, we will pay interest on the notes being redeemed. This interest
will include interest accrued and unpaid to, but excluding, the redemption date.
See "-- Interest."
PARTIAL REDEMPTION
If we do not redeem all of the notes, the trustee will select the notes to
be redeemed in principal amounts of $1,000 or whole multiples of $1,000 in such
manner as the trustee shall deem fair and appropriate. If any notes are to be
redeemed in part only, we will issue a new note or notes in principal amount
equal to the unredeemed principal portion thereof. If a portion of your notes is
selected for partial redemption and you convert a portion of your notes, the
converted portion will be deemed to be taken from the portion selected for
redemption.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL
If a Change in Control (as defined below) occurs, each holder of notes will
have the right, at the holder's option, to require us to repurchase all of the
holder's notes, or any portion of the principal amount thereof that is equal to
$1,000 or an integral multiple of $1,000 in excess thereof. This option may be
exercised 45 days after the date on which we notify the holders of any change in
control. The repurchase price will be equal to 100% of the principal amount of
the notes to be repurchased, together with any interest accrued and unpaid to,
but excluding, the repurchase date.
Within 30 days after the occurrence of a Change in Control, we are
obligated to give to all holders of the notes notice, as provided in the senior
debt indenture, of the occurrence of a Change in Control and of the repurchase
right arising therefrom. This company notice will be sufficiently given to
holders of notes if in writing and mailed, first class postage prepaid, to each
holder of a note affected by the event, at the address of such holder. We must
also deliver a copy of the company notice to the trustee. To exercise the
repurchase right, a holder of notes must deliver on or before the 30th day after
the date of the company notice irrevocable written notice to the trustee of the
holder's exercise of such right, together with the notes with respect to which
the right is being exercised.
A Change in Control occurs in the following situations:
(i) the occurrence of a Non-Stock Fundamental Change (as defined
below); or
(ii) any person, including any syndicate or group deemed to be a
"person" under Section 13(d)(3) of the Securities Exchange Act of 1934,
acquires beneficial ownership, directly or indirectly, through a purchase,
merger or other acquisition transaction or series of transactions, of
shares of our capital stock entitling the person to exercise 90% or more of
the total voting power of all shares of our capital stock that are entitled
to vote generally in elections of directors unless such beneficial
ownership results from, or arises in connection with, a Common Stock
Fundamental Change (as defined below).
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provided, however, that a Change in Control shall not be deemed to have occurred
if either (a) the closing price per share of our common stock for any five
trading days within the period of 10 consecutive trading days ending immediately
after the later of the Change in Control or the public announcement of the
Change in Control (in the case of a Change in Control under clause (ii) above)
or ending immediately before the Change in Control (in the case of a Change in
Control under clause (i) above) shall equal or exceed 105% of the conversion
price of the notes in effect on each such trading day, or (b) all of the
consideration (excluding cash payments for fractional shares) in the transaction
or transactions constituting the Change in Control consists of common stock
traded on a national securities exchange or quoted on the Nasdaq National Market
and as a result of such transaction or transactions the notes become convertible
solely into such common stock (excluding cash payments relating to fractional
shares).
"Fundamental Change" means the occurrence of any transaction or event in
connection with a plan under which all or substantially all of our common stock
will be exchanged for, converted into, acquired for or constitute solely the
right to receive securities, cash or other property (whether by means of an
exchange offer, liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise); provided that, in the case of
a plan involving more than one of these transactions or events, the Fundamental
Change will be deemed to have occurred when substantially all of our common
stock will be exchanged for, converted into, or acquired for or constitute
solely the right to receive securities, cash, or other property. Purchases
pursuant to a stock buyback program shall not constitute a Fundamental Change.
"Common Stock Fundamental Change" means any Fundamental Change in which
more than 25% of the value, as determined in good faith by our board of
directors, of the consideration received by holders of our common stock consists
of common stock that on or prior to the Entitlement Date has been admitted for
listing or admitted for listing subject to notice of issuance on a national
securities exchange or quoted on the Nasdaq Stock Market; provided, however,
that a Fundamental Change will not be a Common Stock Fundamental Change unless
either:
- we continue to exist after the occurrence of the Fundamental Change and
the outstanding notes continue to exist as outstanding notes, or
- not later than the occurrence of such Fundamental Change, the outstanding
notes are converted into or exchanged for notes of a corporation
succeeding to our business (whether by operation of law or otherwise),
which notes have terms substantially similar to the notes.
"Entitlement Date" means the record date for determination of the holders
of our common stock entitled to receive securities, cash or other property in
connection with a Fundamental Change or, if there is no record date, the date on
which holders of our common stock will have the right to receive such
securities, cash or other property.
"Non-Stock Fundamental Change" means any Fundamental Change other than a
Common Stock Fundamental Change.
Failure by Continental to repurchase the notes when required would result
in an event of default with respect to the notes. See "-- Events of Default."
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to holders of
the notes. We will comply with this rule to the extent applicable at that time.
Our obligation to make an offer to repurchase the notes as a result of a
Change in Control may be waived or modified at any time prior to the occurrence
of such Change in Control with the written consent of the holders of a majority
in aggregate principal amount of the outstanding notes.
The foregoing provisions would not be triggered in many transactions
constituting a corporate change in control or necessarily afford holders of the
notes protection in the event of highly leveraged or other transactions
involving Continental that may adversely affect holders.
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EVENTS OF DEFAULT
In addition to the events of default set forth in the accompanying
prospectus, a default in our obligation to provide notice of a Change in Control
or to repurchase the notes when required following a Change in Control will be
an event of default under the notes.
FORM, DENOMINATION AND REGISTRATION
The notes will be issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and whole multiples of $1,000.
The notes initially will be evidenced by one or more global notes deposited
with the trustee as custodian for DTC, and registered in the name of Cede & Co.
as DTC's nominee.
Record ownership of the global notes may be transferred, in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee.
So long as Cede & Co., as nominee of DTC, is the registered owner of the
global notes, Cede & Co. for all purposes will be considered the sole holder of
the global notes. Except as described in the accompanying prospectus, owners of
beneficial interests in the global notes:
- will not be entitled to have certificates registered in their names;
- will not receive or be entitled to receive physical delivery of
certificates in definitive form; and
- will not be considered holders of the global notes.
The laws of some states require that certain persons take physical delivery
of securities in definitive form. Consequently, the ability of an owner of a
beneficial interest in a global note to transfer the beneficial interest in the
global note to such persons may be limited.
We will wire, through the facilities of the trustee, payments of principal,
premium, if any, and interest payments on the global notes to Cede & Co., the
nominee of DTC, as the registered owner of the global notes. Neither
Continental, the trustee nor any paying agent will have any responsibility or be
liable for paying amounts due on the global notes to owners of beneficial
interests in the global notes.
It is DTC's current practice, upon receipt of any payment of principal and
premium, if any, and interest on the global notes, to credit participants'
accounts on the payment date in amounts proportionate to their respective
beneficial interests in the notes represented by the global notes, as shown on
the records of DTC, unless DTC believes that it will not receive payment on the
payment date. Payments by DTC participants to owners of beneficial interests in
notes represented by the global notes held through DTC participants will be the
responsibility of DTC participants, as is now the case with securities held for
the accounts of customers registered in "street name."
If you would like to convert your notes into common stock, you must contact
your broker or other direct or indirect DTC participant to obtain information on
procedures, including proper forms and deadlines, for submitting those requests.
Because DTC can only act on behalf of DTC participants, who in turn act on
behalf of indirect DTC participants and other banks, your ability to pledge your
interest in the notes represented by global notes to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate.
Neither Continental nor the trustee (nor any registrar, paying agent or
conversion agent under the indenture) will have any responsibility for the
performance by DTC or direct or indirect DTC participants of their obligations
under the rules and procedures governing their operations. DTC has advised us
that it will take any action permitted to be taken by a holder of notes,
including, without limitation, the presentation of notes for conversion as
described below, only at the direction of one or more direct DTC participants to
whose account with DTC interests in the global notes are credited and only for
the principal amount of the notes for which directions have been given.
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DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created
to hold securities for DTC participants and to facilitate the clearance and
settlement of securities transactions between DTC participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations, such as the underwriters of the
notes. Certain DTC participants or their representatives, together with other
entities, own DTC. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a participant, either directly or indirectly.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock currently consists of 200 million shares of
Class B common stock, which we refer to as the common stock, and 10 million
shares of preferred stock. As of December 31, 2001, 63,174,472 shares of common
stock and one share of preferred stock were outstanding. For a further
description of the terms and conditions of our capital stock, see "Description
of Common Stock and Preferred Stock" in the accompanying prospectus.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of notes and
common stock as of the date hereof by an initial purchaser of the notes. Except
where noted, this summary deals only with notes and common stock held as capital
assets and does not deal with special situations. For example, this summary does
not address:
- tax consequences to holders who may be subject to special tax treatment,
such as dealers in securities or currencies, financial institutions,
tax-exempt entities, traders in securities that elect to use a
mark-to-market method of accounting for their securities holdings or
corporations that accumulate earnings to avoid federal income tax, life
insurance companies or certain expatriates;
- tax consequences to persons holding notes or common stock as part of a
hedging, integrated, constructive sale or conversion transaction or a
straddle;
- tax consequences to holders of notes or common stock whose "functional
currency" is not the U.S. dollar;
- alternative minimum tax consequences, if any; or
- any state, local or foreign tax consequences.
The discussion below is based upon the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), and regulations, rulings and judicial
decisions as of the date hereof. Those authorities may be changed, perhaps
retroactively, so as to result in United States federal income tax consequences
different from those discussed below.
If a partnership holds our notes or common stock, the tax treatment of a
partner will generally depend upon the status of the partner and the activities
of the partnership. If you are a partner of a partnership holding our notes or
common stock, you should consult your tax advisor.
IF YOU ARE CONSIDERING THE PURCHASE OF NOTES OR COMMON STOCK, YOU SHOULD
CONSULT YOUR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES TO YOU AND ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER
TAXING JURISDICTION.
S-18
CONSEQUENCES TO UNITED STATES HOLDERS
"United States holder" means a beneficial owner of a note that is:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision of the United States;
- an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust that (1) is subject to the supervision of a court within the
United States and the control of one or more United States persons or (2)
has a valid election in effect under applicable United States Treasury
regulations to be treated as a United States person.
PAYMENT OF INTEREST
We expect that the notes will not be issued with more than a de minimis
amount of original issue discount. In such case, interest on a note will
generally be taxable to you as ordinary income at the time it is paid or accrued
in accordance with your method of accounting for tax purposes.
SALE, EXCHANGE, REDEMPTION AND RETIREMENT OF NOTES
You will generally recognize gain or loss upon the sale, exchange,
redemption, retirement or other taxable disposition of a note equal to the
difference between the amount realized (less any accrued interest, which will be
taxable as such if not previously included in income) upon the sale, exchange,
redemption, retirement or other disposition and your adjusted tax basis in the
note, although the receipt of common stock in the event of a change in control
may not be taxable. Your tax basis in a note will generally be equal to the
amount you paid for the note. Any gain or loss will be capital gain or loss. If
you are an individual and have held the note for more than one year, your
capital gain may be taxable at a reduced rate. Your ability to deduct capital
losses may be limited.
CONVERSION OF NOTES INTO COMMON STOCK
You will not recognize gain or loss on the conversion of your notes into
common stock (except to the extent of cash received in lieu of a fractional
common share). The amount of gain or loss on the deemed sale of such fractional
common share will be equal to the difference between the amount of cash you
receive in respect of such fractional common share, and the portion of your tax
basis in notes that is allocable to the fractional common share. The tax basis
of the common stock received upon a conversion will equal the adjusted tax basis
of the note that was converted, reduced by the portion of the tax basis that is
allocable to any fractional common share. Your holding period for common stock
generally will include the period during which you held the notes.
You should contact your tax advisers concerning the ownership of common
stock.
CONSTRUCTIVE DIVIDEND
The conversion price of the notes will be adjusted in certain
circumstances. Under Section 305(c) of the Code, adjustments (or failures to
make adjustments) that have the effect of increasing your proportionate interest
in our assets or earnings may in some circumstances result in a deemed
distribution to you. Any deemed distributions will be taxable as a dividend,
return of capital, or capital gain in accordance with the earnings and profits
rules under the Code.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal and interest paid on the notes and dividends paid on the
common stock and to the proceeds of sale of a note or
S-19
common stock made to you unless you are an exempt recipient (such as a
corporation). Backup withholding tax (currently at a rate of 30%) will apply to
such payments if you fail to provide your taxpayer identification number or
certification of foreign or other exempt status or fail to report in full
dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against your United States federal income tax liability
provided the required information is furnished to the IRS.
CONSEQUENCES TO NON-UNITED STATES HOLDERS
The term "non-United States holder" means a beneficial owner of a
convertible note that is not a United States holder.
U.S. FEDERAL WITHHOLDING TAX
The 30% U.S. federal withholding tax will not apply to any payment to you
of principal or interest on a note under the "portfolio interest" exemption,
provided that:
- you do not actually or constructively (including by reason of ownership
of the notes) own 10% or more of the total combined voting power of all
classes of our stock that are entitled to vote within the meaning of
section 871(h)(3) of the Code;
- you are not a controlled foreign corporation that is related to us
through stock ownership; and
- you provide your name and address, and certify, under penalties of
perjury, that you are not a United States person (which certification may
be made on an IRS W-8BEN (or successor form)) or a financial institution
holding the convertible note on your behalf certifies, under penalties of
perjury, that such statement has been received by it and furnishes a
paying agent with a copy thereof.
If you cannot satisfy the requirements described above, payments of
interest will be subject to the 30% U.S. federal withholding tax, unless you
provide us with a properly executed (1) IRS Form W-8BEN (or successor form)
claiming an exemption from or reduction in withholding under the benefit of an
applicable tax treaty or (2) IRS Form W-8ECI (or successor form) stating that
interest paid on the note is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business in the United
States.
Any dividends paid to you with respect to the common stock generally will
be subject to withholding tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. In order to claim the benefit of
an applicable treaty rate for dividends, you are required to provide us with a
properly executed IRS Form W-8BEN (or successor form) claiming an exemption from
or reduction in withholding under the benefit of a tax treaty. However,
dividends that are effectively connected with the conduct of a trade or business
within the United States and, where a tax treaty applies, are attributable to a
United States permanent establishment, are not subject to the withholding tax,
but instead are subject to United States federal income tax on a net income
basis at applicable graduated individual or corporate rates. In order to be
exempt from withholding tax under this exception, you must provide us with a
properly executed IRS Form W-8ECI (or successor form) stating that dividends
paid on the common stock are not subject to withholding tax because the common
stock is effectively connected with your conduct of a trade or business in the
United States. If you are a foreign corporation, any such effectively connected
dividends may, under certain circumstances, be subject to an additional "branch
profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
In the case of common stock held by a partnership, the certification
requirements would generally be applied to the partners of the partnership
(unless the partnership agrees to become a "withholding foreign partnership")
and the partnership would be required to provide certain information, including
a United States taxpayer identification number.
S-20
The 30% U.S. federal withholding tax will not apply to any gain that you
realize on the sale, exchange, retirement or other disposition of a note or
common share.
U.S. FEDERAL ESTATE TAX
The U.S. federal estate tax will not apply to notes owned by you at the
time of your death, provided that (1) you do not own 10% or more of the total
combined voting power of all classes of our voting stock (within the meaning of
the Code and the U.S. Treasury regulations) and (2) interest on the notes would
not have been, if received at the time of your death, effectively connected with
your conduct of a trade or business in the United States. However, common stock
held by you at the time of your death will be included in your gross estate for
United States federal estate tax purposes unless an applicable estate tax treaty
provides otherwise.
U.S. FEDERAL INCOME TAX
If you are engaged in a trade or business in the United States and interest
on a note or dividends on a common share are effectively connected with the
conduct of that trade or business, you (although exempt from the 30% withholding
tax) will be subject to United States federal income tax on that interest or
dividend on a net income basis in the same manner as if you were a United States
person as defined under the Code. In addition, if you are a foreign corporation,
you may be subject to a branch profits tax equal to 30% (or lower applicable
treaty rate) of your earnings and profits for the taxable year, subject to
adjustments, that are effectively connected with your conduct of a trade or
business in the United States. For this purpose, interest and dividends on the
common stock will be included in earnings and profits.
Any gain or income realized on the disposition of a note or common share
generally will not be subject to United States federal income tax unless (1)
that gain or income is effectively connected with the conduct of a trade or
business in the United States by you and where a tax treaty applies, is
attributable to a United States permanent establishment or (2) you are an
individual who is present in the United States for 183 days or more in the
taxable year of that disposition, and certain other conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, you will not be subject to backup withholding and information
reporting with respect to payments that we make to you that qualify as portfolio
interest as described above under "U.S. Federal Withholding Tax," provided that
we do not have actual knowledge that you are a United States person and you have
given us the required certification on either Form W-8BEN or W-8ECI.
Any dividends paid to you generally will be subject to information
reporting and backup withholding (currently at a rate of 30%), unless you have
given us the required certification on either Form W-8BEN or W-8ECI, or you
otherwise establish an exemption. In addition, you may be subject to backup
withholding and information reporting with respect to the proceeds of the sale
of a note or common share within the United States or conducted through certain
U.S.-related financial intermediaries, unless the payor receives the statement
described above and does not have actual knowledge that you are a United States
person, as defined under the Code, or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against your United States federal income tax liability
provided the required information is furnished to the IRS.
S-21
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus supplement, Salomon Smith Barney Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, the underwriters, have
agreed to purchase, and we have agreed to sell to such underwriters, the
principal amount of notes set forth opposite the underwriter's name.
UNDERWRITER PRINCIPAL AMOUNT
- ----------- ----------------
Salomon Smith Barney Inc. .................................. $157,500,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 17,500,000
------------
Total..................................................... $175,000,000
The underwriting agreement provides that the obligations of the
underwriters to purchase the notes included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the notes if they purchase any of
the notes (other than those covered by the additional purchase option described
below).
The underwriters have advised us that the notes will initially be offered
at the public offering price set forth on the cover of this prospectus
supplement. Any notes sold by the underwriters to securities dealers may be sold
at a discount from the public offering price of up to 1.65% of the principal
amount of notes. If all the notes are not sold at the initial offering price,
the underwriters may change the offering price and the other selling terms.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus supplement, to purchase up to an additional
$26,250,000 principal amount of notes at the public offering price less the
underwriting discount. The underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
We have agreed that, for a period of 60 days from the date of this
prospectus supplement, we will not, without the prior written consent of Salomon
Smith Barney Inc., offer, sell, contract to sell, or announce the offering of,
or register, cause to be registered or announce the registration or intended
registration of, any debt securities that are convertible into common stock or
other securities similar to the notes or common stock, except that these
restrictions do not apply to (a) the notes being sold pursuant to this
prospectus supplement or common stock issuable upon conversion of the notes, (b)
any shares of common stock we issue upon the exercise of an option or warrant or
the conversion of a security outstanding on the date of and referred to in this
prospectus supplement, (c) any shares of common stock issued or options to
purchase common stock granted pursuant to our employee benefit plans or (d) any
shares of common stock issued pursuant to any non-employee director stock plan
or dividend reinvestment plan. Salomon Smith Barney Inc. in its sole discretion
may release any of the shares subject to the lock-up at any time without notice.
The notes are a new issue of securities with no established trading market.
We have been advised by the underwriters that they intend to make a market in
the notes but they are not obligated to do so and may discontinue market making
at any time without notice. No assurance can be given as to the liquidity of the
trading market for the notes.
In connection with the offering, the underwriters may purchase and sell
notes or our common stock in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the underwriters of a greater
number of notes than it is required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the notes while the
offering is in progress.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the notes. As a result, the price of the notes may be
higher than the price that otherwise might exist in the
S-22
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected in the
over-the-counter market or otherwise.
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $400,000.
The underwriters and certain of their affiliates have provided and may in
the future provide investment banking and other financial services to us and
certain of our affiliates for which they have received and will receive
customary fees.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of any of those liabilities.
VALIDITY OF THE NOTES
The validity of the notes will be passed upon for us by Vinson & Elkins
L.L.P., Houston, Texas, and for the underwriters by Cleary, Gottlieb, Steen &
Hamilton, New York, New York who, from time to time, have performed legal
services for us unrelated to this offering.
S-23
PROSPECTUS
$500,000,000
CONTINENTAL AIRLINES LOGO
DEBT SECURITIES, COMMON STOCK,
PREFERRED STOCK, STOCK PURCHASE CONTRACTS, STOCK PURCHASE UNITS,
DEPOSITARY SHARES, WARRANTS, JUNIOR SUBORDINATED TRUST DEBENTURES
AND GUARANTEE OF TRUST SECURITIES
CONTINENTAL AIRLINES FINANCE TRUST III
TRUST PREFERRED SECURITIES
GUARANTEED, AS DESCRIBED HEREIN, BY CONTINENTAL AIRLINES, INC.
Continental Airlines, Inc. may offer and sell the securities listed above
from time to time in one or more classes or series and in amounts, at prices and
on terms that we will determine at the time of the offering. Continental
Airlines Finance Trust III, a Delaware business trust, may offer and sell, from
time to time, trust preferred securities representing undivided beneficial
interests in the assets of Continental Airlines Finance Trust III. The aggregate
initial public offering prices of the securities offered under this prospectus
will not exceed $500,000,000.
We will provide specific terms of these securities and the manner in which
we will sell them in supplements to this prospectus. You should read this
prospectus and any prospectus supplement carefully before you invest.
Our common stock is listed for trading on the New York Stock Exchange under
the symbol "CAL."
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED ANY OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this prospectus is October 24, 2001.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS....................................... 1
WHERE YOU CAN FIND MORE INFORMATION......................... 2
FORWARD-LOOKING STATEMENTS.................................. 2
INCORPORATION BY REFERENCE.................................. 2
CONTINENTAL AIRLINES, INC. ................................. 4
THE TRUST................................................... 4
USE OF PROCEEDS............................................. 5
RATIO OF EARNINGS TO FIXED CHARGES.......................... 5
DESCRIPTION OF DEBT SECURITIES.............................. 5
DESCRIPTION OF TRUST SECURITIES............................. 15
DESCRIPTION OF TRUST DEBENTURES............................. 26
DESCRIPTION OF GUARANTEE.................................... 33
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES,
THE TRUST DEBENTURES AND THE GUARANTEE...................... 36
DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK............. 37
DESCRIPTION OF DEPOSITARY SHARES............................ 43
DESCRIPTION OF WARRANTS..................................... 45
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE
UNITS..................................................... 45
PLAN OF DISTRIBUTION........................................ 46
LEGAL MATTERS............................................... 47
EXPERTS..................................................... 48
We have not authorized any dealer, salesman or other person to give any
information or to make any representation other than those contained or
incorporated by reference in this prospectus and the accompanying prospectus
supplement. You must not rely upon any information or representation not
contained or incorporated by reference in this prospectus or the accompanying
prospectus supplement as if we had authorized it. This prospectus and the
accompanying prospectus supplement are not an offer to sell or the solicitation
of an offer to buy any securities other than the registered securities to which
they relate. This prospectus and the accompanying prospectus supplement are not
an offer to sell or the solicitation of an offer to buy securities in any
jurisdiction to any person to whom it is unlawful to make an offer or
solicitation in that jurisdiction. The information contained in this prospectus
and the accompanying prospectus supplement is accurate as of the dates on their
covers. When we deliver this prospectus or a supplement or make a sale pursuant
to this prospectus, we are not implying that the information is current as of
the date of the delivery or sale.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, which we refer to as the "SEC", utilizing a
"shelf" registration process. Under this shelf registration process, we may
offer and sell any combination of the securities described in this prospectus in
one or more offerings up to a total dollar amount of $500,000,000. This
prospectus provides you with a general description of the securities we may
offer. Each time we offer securities, we will provide a prospectus supplement
and attach it to this prospectus. The prospectus supplement will contain
specific information about the terms of the offering and the securities being
offered at that time. The prospectus supplement also may add, update or change
information contained in this prospectus. In this prospectus, "Continental,"
"we, "us," our" and the "company" each refers to Continental Airlines, Inc. and
not to Continental Airlines Finance Trust III, unless the context indicates
otherwise.
1
To the extent information in this prospectus is inconsistent with
information contained in a prospectus supplement, you should rely on the
information in the prospectus supplement. You should read both this prospectus
and any prospectus supplement, together with additional information described
under the heading "Where You Can Find More Information," and any additional
information you may need to make your investment decision.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934. You may read
and copy this information, or obtain copies (at prescribed rates) by mail from,
the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room
by calling the SEC at (800) SEC-0330. The SEC also maintains an internet world
wide web site that contains reports, proxy statements and other information
about issuers, like us, who file reports electronically with the SEC. The
address of that site is http://www.sec.gov. You may also inspect reports, proxy
statements and other information about us at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
FORWARD-LOOKING STATEMENTS
This prospectus, any prospectus supplement delivered with this prospectus
and the documents we incorporate by reference may contain statements that
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include any statements that predict, forecast,
indicate or imply future results, performance or achievements, and may contain
the words "believe," "anticipate," "expect," "estimate," "project," "will be,"
"will continue," "will result," or words or phrases of similar meaning.
Any such forward-looking statements are not assurances of future
performance and involve risks and uncertainties. Actual results may vary
materially from anticipated results for a number of reasons, including those
stated under the caption "Risk Factors" in our SEC reports incorporated in this
prospectus by reference.
All forward-looking statements attributable to us are expressly qualified
in their entirety by the cautionary statements above.
INCORPORATION BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
the SEC into this prospectus. This means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be part of
this prospectus, except for any information that is superseded by subsequent
incorporated documents or by information that is included directly in this
prospectus or any prospectus supplement.
This prospectus incorporates by reference the documents listed below that
we previously have filed with the SEC and that are not delivered with this
prospectus. They contain important information about us and our financial
condition.
- Our Annual Report on Form 10-K for the year ended December 31, 2000.
- Our Quarterly Reports on Form 10-Q for the quarter ended March 31, 2001
and for the quarter ended June 30, 2001.
- Our Current Reports on Form 8-K, filed with the SEC on January 19, 2001,
February 5, 2001, March 8, 2001, March 20, 2001, April 17, 2001, May 3,
2001, May 4, 2001, May 10, 2001, June 1, 2001, June 4, 2001, July 3,
2001, July 10, 2001, July 11, 2001, July 13, 2001 (as amended on Form
8-K/A, filed with the SEC on July 13, 2001), July 17, 2001, August 2,
2001, August 9, 2001, August 10, 2001, September 4, 2001, September 7,
2001, September 17, 2001, September 19, 2001,
2
September 21, 2001, September 21, 2001, September 24, 2001, October 1,
2001, October 2, 2001, October 15, 2001 and October 15, 2001.
- The description of our common stock contained in our Registration
Statement on Form 8-A/A#3, as filed with the SEC on February 6, 2001.
- The description and terms of the preferred share purchase rights
associated with our outstanding common stock contained in our
registration statement on Form 8A/A, as filed with the SEC on January 22,
2001.
Our SEC file number is 0-9781.
We incorporate by reference additional documents that we may file with the
SEC under Sections 13(a), 13(c), 14 or 15(a) of the Securities Exchange Act
between the date of this prospectus and the termination of the offering of
securities under this prospectus. These documents include our periodic reports,
such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as our proxy statements.
You may obtain any of these incorporated documents from us without charge,
excluding any exhibits to those documents unless the exhibit is specifically
incorporated by reference in such document. You may obtain documents
incorporated by reference in this prospectus by requesting them from us in
writing or by telephone at the following address:
Continental Airlines, Inc.
1600 Smith Street,
Dept. HQSEO
Houston, Texas 77002
Attention: Secretary
(713) 324-2950
3
CONTINENTAL AIRLINES, INC.
We are a major U.S. air carrier engaged in the business of transporting
passengers, cargo and mail. We are the fifth largest U.S. airline, as measured
by 2000 revenue passenger miles, and, together with our wholly-owned
subsidiaries, ExpressJet Airlines, Inc. (formerly Continental Express, Inc.) and
Continental Micronesia, Inc., served 211 airports worldwide at October 7, 2001.
As of October 7, 2001, we flew to 120 domestic and 91 international destinations
and offered additional connecting service through alliances with domestic and
foreign carriers. We directly served 15 European cities, eight South American
cities, Tel Aviv and Tokyo and are one of the leading airlines providing service
to Mexico and Central America, serving more destinations there than any other
U.S. airline. Through our Guam hub, Continental Micronesia provides extensive
service in the western Pacific, including service to more Japanese cities than
any other U.S. carrier.
We operate our route system primarily through domestic hubs at Newark
International Airport, George Bush Intercontinental Airport in Houston, Hopkins
International Airport in Cleveland, and a Pacific hub on the island of Guam. We
are the primary carrier at each of these hubs, accounting for 56%, 77%, 44% and
70% of average daily jet departures from these locations, respectively, as of
October 7, 2001 (in each case excluding regional jets). Each of our domestic
hubs is located in a large business and population center, contributing to a
high volume of "origin and destination" traffic. The Guam hub is strategically
located to provide service from Japanese and other Asian cities to popular
resort destinations in the western Pacific.
We are a Delaware corporation, with executive offices located at 1600 Smith
Street, Houston, Texas 77002. Our telephone number is (713) 324-2950.
THE TRUST
Continental Airlines Finance Trust III, which we refer to as the "trust,"
is a statutory business trust created under Delaware law through the filing of a
certificate of trust with the Delaware Secretary of State on October 18, 2001.
The trust's business is defined in a declaration of trust, dated as of October
18, 2001, executed by us, as sponsor, and the trustees. The declaration of trust
will be amended and restated in its entirety as of the date trust preferred
securities are initially issued. The declaration of trust, as amended and
restated, is referred to in this prospectus as the "trust agreement." The trust
agreement has been qualified under the Trust Indenture Act of 1939.
The trust exists for the exclusive purposes of:
- issuing and selling trust preferred securities and trust common
securities;
- using the proceeds from the sale of trust preferred securities and trust
common securities to acquire from us junior subordinated debentures,
referred to in this prospectus as "trust debentures;" and
- engaging in only those other activities necessary or incidental to these
purposes.
The trust's business and affairs will be conducted by its trustees, as
provided in the trust agreement. Unless otherwise indicated in the applicable
accompanying prospectus supplement, at the time of the issuance of trust
preferred securities, the initial trustees for the trust will be Bank One
Delaware, Inc., as Delaware trustee, Bank One Trust Company, N.A., as the
property trustee, and two or more individuals, who may be our employees, as
administrative trustees. The property trustee and the Delaware trustee, together
with the administrative trustees, are collectively referred to as the "trustees"
in this prospectus. We, as the holder of the common securities of the trust, or,
if an event of default under the trust agreement has occurred and is continuing,
the holders of not less than a majority in liquidation amount of the trust
preferred securities, will be entitled to appoint, remove or replace the
property trustee and the Delaware trustee. In no event will the holders of the
preferred securities have the right to vote to appoint, remove or replace the
administrative trustees. Such voting rights will be vested exclusively in us as
the holder of the common securities of the trust. The trust will have no assets
other than the trust debentures. The trust will have no revenue other than
payments under the trust debentures. We will pay all expenses of the trust.
4
We will, directly or indirectly, acquire all of the trust common securities
of the trust, which will have an aggregate liquidation amount equal to at least
3% of the total capital of the trust.
The rights of the holders of the trust preferred securities are set forth
in the trust agreement and the Delaware Business Trust Act. The term of the
trust will be set forth in the applicable prospectus supplement. The location of
the principal executive office of the trust is c/o Continental Airlines, Inc.,
1600 Smith Street, Houston, Texas 77002, and the telephone number is (713)
324-2950.
USE OF PROCEEDS
Unless otherwise indicated in an accompanying prospectus supplement, we
intend to use the proceeds from the sale of the securities for general corporate
purposes, which may include repayment of indebtedness, selective acquisitions,
additions to our working capital, repurchases of our capital stock and capital
expenditures.
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of our "earnings" to our "combined fixed charges and preferred
stock dividends" for the six months ended June 30, 2001 and for each of the
years 1996 through 2000 were:
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------------
JUNE 30, 2001 2000 1999 1998 1997 1996
- ---------------- ---- ---- ---- ---- ----
1.13 1.51 1.80 1.90 2.01 1.75
The ratios of earnings to combined fixed charges and preferred stock
dividends are based on continuing operations. For purposes of the ratios,
"earnings" means the sum of:
- our pre-tax income; and
- our fixed charges, net of interest capitalized.
"Combined fixed charges and preferred stock dividends" represent:
- the interest we pay on borrowed funds;
- the amount we amortize for debt discount, premium and issuance expense
and interest previously capitalized;
- that portion of rentals considered to be representative of the interest
factor; and
- preferred stock dividend requirements.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions
of our debt securities, consisting of notes, debentures or other evidences of
indebtedness, that we may offer by this prospectus. We will describe the
particular terms of debt securities, and provisions that vary from those
described below, in one or more prospectus supplements. Our junior subordinated
trust debentures that may be issued to Continental Airlines Finance Trust III in
connection with an offering of trust preferred securities are separately
described in this prospectus under the caption "Description of Trust
Debentures."
We may offer under this prospectus up to $500 million total principal
amount of debt securities, or its equivalent if debt securities are issued at a
discount or in a foreign currency or currency units. We may issue the debt
securities in registered or bearer form. The debt securities we offer pursuant
to this prospectus will be unsecured obligations unless otherwise specified in
the applicable prospectus supplement. We may issue the debt securities as
unsubordinated or senior debt securities, or as subordinated debt securities.
The senior debt securities will rank equally with all current and future
unsecured and unsubordinated indebtedness, and the
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subordinated debt securities will be subordinated in right of payment to all our
senior indebtedness, as described below under "-- Subordination of Subordinated
Debt Securities."
As required by U.S. law, debt securities are governed by a document called
an "indenture." The indenture is a contract between us and an entity named in a
prospectus supplement which acts as trustee. The trustee has two main roles:
- the trustee can enforce your rights, including rights you have against us
if we default; and
- the trustee performs administrative duties for us, such as sending you
interest payments, transferring your debt securities to a new buyer if
you sell and sending you notices.
Senior debt securities will be issued under a senior debt indenture entered
into between us and Bank One, N.A., as trustee, dated as of July 15, 1997.
Subordinated debt securities will be issued under a subordinated debt indenture
between us and a trustee we name when the subordinated debt securities are
issued. The senior debt indenture and the subordinated debt indenture are
sometimes collectively referred to in this prospectus as the "indentures." We
have filed the senior indenture and a form of the subordinated indenture as
exhibits to this registration statement of which this prospectus is a part.
The following description is a summary of selected provisions relating to
the debt securities and the indentures. The summary is not complete. You should
not rely on this summary, because the indentures define your rights as a holder
of the debt securities.
GENERAL
The indentures do not limit the total principal amount of debt securities
that may be issued and provide that debt securities may be issued from time to
time in one or more series. We will set forth in a prospectus supplement a
description of the series of debt securities being offered, including some or
all of the following:
- the title of such debt securities;
- any limit upon the aggregate principal amount of such debt securities;
- the date or dates on which principal will be payable or how to determine
such dates;
- the rate or rates of interest or the method of determination of interest
rate; the date from which interest will accrue or the method by which
such date may be determined; the dates on which interest will be payable
("Interest Payment Dates"); and any record dates for the interest payable
on such Interest Payment Dates;
- any obligation or option we may have to redeem, purchase or repay debt
securities, or any option of the holder to require us to redeem or
repurchase debt securities, and the terms and conditions upon which such
debt securities will be redeemed, purchased or repaid;
- any rights of the holders of the debt securities to convert the debt
securities into other securities or property and the terms and conditions
governing such conversion or exchange;
- the denominations in which such debt securities will be issuable (if
other than denominations of $1,000 and any integral multiple thereof for
registered securities or if other than denominations of $5,000 for bearer
securities);
- whether such debt securities are to be issued in whole or in part in the
form of one or more global debt securities and, if so, the identity of
the depositary for such global debt securities;
- the currency and denominations of the debt securities;
- the principal amount of the debt securities payable upon declaration of
the acceleration of the maturity of the debt securities, if other than
100% of the principal amount;
- the person to whom any interest on any debt security will be payable, if
other than the person in whose name the debt security is registered on
the applicable record date;
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- any addition to, or modification or deletion of, any event of default or
any covenant with respect to the debt securities;
- the application, if any, of defeasance or covenant defeasance discussed
below;
- any provisions relating to the registration and exchange of the debt
securities; and
- any other terms of the series of debt securities.
The holders of our debt securities (whether senior or subordinated debt
securities) will be effectively subordinated to the creditors of our
subsidiaries because such creditors will have a direct claim against any assets
of such subsidiaries upon their liquidation or reorganization. By contrast, as a
holder of our debt securities (whether senior or subordinated debt securities),
you will have only an indirect claim against the assets of our subsidiaries that
derives through our ownership of the capital stock of our subsidiaries.
Consequently, as a holder of debt securities, your right to participate in those
assets will be effectively subordinated to the claims of that subsidiary's
creditors (including trade creditors).
Except as may be set forth in a prospectus supplement, the indentures also
do not limit the aggregate amount of unsecured indebtedness that we or our
subsidiaries may incur.
Unless we indicate differently in a prospectus supplement, the debt
securities will not be listed on any securities exchange and will be issued in
fully registered form without coupons. If debt securities are issued in bearer
form, we will set forth the special restrictions and considerations applicable
to such debt securities in a prospectus supplement. Bearer debt securities will
be transferable by delivery of the security by the transferring holder to the
new holder, and the transfer will not be registered or recorded by the trustee
or us.
We may sell the debt securities for an amount less than their stated
principal amount, bearing no interest or bearing a below market rate of
interest. We will provide you with information on the federal income tax
consequences and other special considerations applicable to any of these debt
securities in a prospectus supplement.
If the purchase price of any debt securities is payable in one or more
foreign currencies or currency units or if any debt securities are denominated
in one or more foreign currencies or currency units or if the principal of,
premium and/or interest, if any, on any debt securities is payable in one or
more foreign currencies or currency units, the restrictions, elections, federal
income tax considerations, specific terms and other information with respect to
the debt securities and such foreign currency or currency units will be set
forth in a prospectus supplement.
DENOMINATIONS, PAYMENT, REGISTRATION, TRANSFER AND EXCHANGE
We will issue registered debt securities in denominations of $1,000 and
multiples of $1,000, and we will issue bearer debt securities in $5,000
denominations or, in each case, in such other denominations and currencies
established by the terms of the debt securities of any particular series. Unless
we provide otherwise in a prospectus supplement, we will make payments in
respect of the debt securities, subject to any applicable laws and regulations,
in the designated currency and at the office or agency as we may designate from
time to time. At our option, however, we may make interest payments on debt
securities in registered form:
- by checks mailed by the trustee to the holders of the debt securities
entitled to payment at their registered addresses; or
- by wire transfer to an account maintained by the person entitled to
payment as specified in the register of the debt securities maintained by
the trustee.
We will pay installments of interest on debt securities:
- in registered form to the person in whose name the debt security is
registered at the close of business on the regular record date for such
interest, unless otherwise provided in a prospectus supplement; or
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- in bearer form at such paying agencies outside the United States as we
may appoint from time to time, in the currency and in the manner
designated in a prospectus supplement, subject to any applicable laws and
regulations.
The paying agents outside the United States, if any, whom we initially
appoint for a series of debt securities will be named in a prospectus
supplement. We may at any time designate additional paying agents or rescind the
designation of any paying agents, provided that, in the case of:
- registered debt securities, we will be required to maintain at least one
paying agent in each place of payment for any series; and
- bearer debt securities, we will be required to maintain a paying agent in
a place of payment outside the United States where debt securities of any
series and any related coupons may be presented and surrendered for
payment.
We will have the right to require a holder of any debt security, in
connection with the payment of the principal of, premium and/or interest, if
any, on any debt security, to certify certain information to us for tax
purposes. In the absence of such certification, we will be entitled to rely on
any legal presumption to enable us to determine our duties and liabilities, if
any, to deduct or withhold taxes, assessments or governmental charges from such
payment.
Unless we provide otherwise in a prospectus supplement, you may transfer
debt securities in registered form at the agency we designate from time to time.
You will not be required to pay a service charge to transfer or exchange the
debt securities, but you may be required to pay for any tax or other
governmental charge imposed in connection with the transfer or exchange.
If we redeem only part of the debt securities of any series, we will not be
required to:
- issue, register the transfer of, or exchange debt securities of that
series during a period beginning at the opening of business 15 days
before any selection of debt securities of that series to be redeemed and
ending at the close of business on (A) the day of mailing of the relevant
notice of redemption, if debt securities of the series are issuable only
as registered debt securities, and (B) the day of the first publication
of the relevant notice of redemption, if debt securities of the series
are issuable as bearer debt securities, or the mailing of the relevant
notice of redemption, if debt securities of the series are also issuable
as registered debt securities and there is no publication;
- register the transfer of or exchange any registered debt securities
called for redemption or otherwise surrendered for repayment, except the
unredeemed or unrepaid portion of any registered security being redeemed
or repaid in part; or
- exchange any bearer security called for redemption, except to exchange
such bearer security for a registered security of that series and like
tenor which is immediately surrendered for redemption.
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the applicable prospectus supplement, the
following provisions will apply to the subordinated debt securities.
The payment of the principal of, premium, and/or interest, if any, on, and
the redemption or repurchase of, the subordinated debt securities and coupons
will be subordinated and junior in right of payment, as set forth in the
subordinated indenture, to the prior payment in full of all our "senior
indebtedness" (as defined below). Generally, the subordinated debt securities
will rank pari passu with all of our existing and future subordinated
indebtedness other than any future subordinated indebtedness or other
subordinated obligations which we specify will rank junior to the subordinated
debt securities. Notwithstanding the foregoing, payment from the money or the
proceeds of U.S. government obligations held in any defeasance trust described
under "-- Defeasance" below is not subordinate to any senior indebtedness or
subject to the restrictions described herein.
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Senior indebtedness consists of the following types of obligations, in each
case subject to the exceptions enumerated below:
- the principal, premium, if any, interest and other amounts in respect of
(A) our indebtedness for money borrowed and (B) our indebtedness
evidenced by securities, debentures, bonds or other similar instruments
issued by us, in each case that is not, by its terms, subordinated to
other indebtedness;
- all of our capital lease obligations;
- all of our obligations issued or assumed as the deferred purchase price
of property;
- all of our conditional sale obligations;
- all of our obligations under any title retention agreement (excluding
trade accounts payable arising in the ordinary course of business);
- all of our obligations for the reimbursement on any letter of credit,
bankers acceptance, security purchase facility or similar credit
transaction;
- all obligations (of the type referred to in the first six bullet points
above) of other persons for which we are responsible or liable as
obligor, guarantor or otherwise; and
- all obligations (of the type referred to in the first six bullet points
above) of other persons secured by any lien on any of our properties or
assets (whether or not such obligation is assumed by us).
Except as set forth in the applicable prospectus supplement, senior
indebtedness will not include the following:
- indebtedness that is subordinated to or pari passu with the subordinated
debt securities;
- indebtedness between or among us and our affiliates that ranks pari passu
with, or junior to the subordinated debt securities;
- our guarantee of certain payments under the 6% Convertible Preferred
Securities, Term Income Deferrable Equity Securities (TIDES) of
Continental Airlines Finance Trust II;
- our 6% Convertible Junior Subordinated Debentures due 2030; and
- the trust debentures and the trust preferred securities registered
hereunder.
The senior indebtedness will continue to be entitled to the benefits of the
subordination provisions irrespective of any amendment, modification or waiver
of any term of the senior indebtedness. Except as set forth in the applicable
prospectus supplement, the payment of the principal of, premium, if any, and
interest, if any on the subordinated debt securities and coupons will rank
senior in right of payment to our guarantee of certain payments under the 6%
Convertible Preferred Securities, Term Income Deferrable Equity Securities
(TIDES) of Continental Airlines Finance Trust II, our 6% Convertible Junior
Subordinated Debentures due 2030 and the trust debentures and the trust
preferred securities registered hereunder.
No payment on account of principal of, premium, if any, or interest on, or
redemption or repurchase of, the subordinated debt securities or any coupon or
any deposit pursuant to the provisions described under "-- Defeasance" below may
be made by us if there is a default in the payment of principal, premium, if
any, sinking funds or interest (including a default under any repurchase or
redemption obligation) or other amounts with respect to any senior indebtedness.
Similarly, no payment may be made if any other event of default with respect to
any senior indebtedness, permitting the holders of senior indebtedness to
accelerate the maturity thereof, shall have occurred and shall not have been
cured, waived or ceased to exist after written notice to us and the trustee by
any holder of senior indebtedness. Upon any acceleration of the principal due on
the subordinated debt securities or payment or distribution of our assets to
creditors upon any dissolution, winding up, liquidation or reorganization, all
principal, premium, if any, sinking funds and interest or other amounts due on
all senior indebtedness must be paid in full before the holders of the
subordinated debt securities are entitled to receive any payment. Because of
such subordination, if we become insolvent, our creditors who are holders of
senior indebtedness may recover more, ratably, than the holders of the
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subordinated debt securities. Furthermore, such subordination may result in a
reduction or elimination of payments to the holders of the subordinated debt
securities.
The subordinated indenture does not limit our ability to incur senior
indebtedness or any other indebtedness.
GLOBAL DEBT SECURITIES
The debt securities of a series may be issued in whole or in part in global
form that will be deposited with a depositary or with a nominee for the
depositary identified in a prospectus supplement. In such case, one or more
registered global securities will be issued in a denomination or aggregate
denominations equal to the portion of the total principal amount of outstanding
debt securities of the series to be represented by such registered global
security or securities. Unless and until it is exchanged in whole or in part for
debt securities in definitive form, a registered global security may not be
registered for transfer or exchange except as a whole by the depositary, the
depositary's nominee or their respective successors as described in the
applicable prospectus supplement.
The specific terms of the depositary arrangement with respect to any
portion of a series of debt securities to be represented by a registered global
security will be described in a prospectus supplement. We expect that the
following provisions will apply to depositary arrangements.
Upon the issuance of any registered global security, and the deposit of
such security with or on behalf of the appropriate depositary, the depositary
will credit, on its book-entry registration and transfer system, the respective
principal amounts of the debt securities represented by such registered global
security to the accounts of institutions or participants that have accounts with
the depositary or its nominee. The accounts to be credited will be designated by
the underwriters or agents engaging in the distribution of the debt securities
or by us, if we offer and sell such debt securities directly.
Ownership of beneficial interests in a registered global security will be
limited to participants of the depositary (which are usually large investment
banks, retail brokerage firms, banks and other large financial institutions) and
persons that hold interests through participants. Ownership of beneficial
interests by participants in a registered global security will be shown on, and
the transfer of that ownership interest will be effected only through, records
maintained by the depositary for that security or its nominee. Ownership of
beneficial interests in a registered global security by persons who hold through
participants will be shown on, and the transfer of that ownership interest
within that participant will be effected only through, records maintained by
that participant. The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of securities in certificated form. The
foregoing limitations and such laws may impair the ability to transfer
beneficial interests in registered global securities.
So long as the depositary for a registered global security, or its nominee,
is the registered owner of a registered global security, that depositary or
nominee, as the case may be, will be considered the sole owner or holder of the
debt securities represented by that registered global security. Unless otherwise
specified in a prospectus supplement and except as specified below, owners of
beneficial interests in a registered global security will not:
- be entitled to have the debt securities of the series represented by the
registered global security registered in their names;
- receive or be entitled to receive physical delivery of the debt
securities of such series in certificated form; or
- be considered the holders of the debt securities for any purposes under
the indentures.
Accordingly, each person owning a beneficial interest in a registered
global security must rely on the procedures of the depositary and, if such
person is not a participant, on the procedures of the participant through which
such person owns its interest, to exercise any rights of a holder under the
indentures.
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The depositary may grant proxies and otherwise authorize participants to
give or take any request, demand, authorization, direction, notice, consent,
waiver or other action which a holder is entitled to give or take under the
indentures. Unless otherwise specified in a prospectus supplement, payments with
respect to principal, premium and/or interest, if any, on debt securities
represented by a registered global security registered in the name of a
depositary or its nominee will be made to such depositary or its nominee, as the
case may be, as the registered owner of such registered global security.
We expect that the depositary for any debt securities represented by a
registered global security, upon receipt of any payment of principal, premium or
interest, will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of a registered global security as shown on the records of such
depositary. We also expect that payments by participants to owners of beneficial
interests in a registered global security held through participants will be
governed by standing instructions and customary practices in the securities
industry, as is now the case with the securities held for the accounts of
customers registered in "street names," and will be the responsibility of such
participants. Neither we nor the trustee or any agent of ours will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of a registered
global security, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Unless otherwise specified in a prospectus supplement, if the depositary
for any debt securities represented by a registered global security is at any
time unwilling or unable to continue as depositary and a successor depositary is
not appointed by us within 90 days, we will issue debt securities in
certificated form in exchange for a registered global security. In addition, we
may at any time and in our sole discretion determine not to have any of the debt
securities of a series represented by one or more registered global securities
and, in such event, will issue debt securities of such series in certificated
form in exchange for all of the registered global securities representing debt
securities. Further, if we so specify with respect to the debt securities of a
series, an owner of a beneficial interest in a registered global security
representing such series of debt securities may receive, on terms acceptable to
us and the depositary for such registered global security, debt securities of
such series in certificated form registered in the name of such beneficial owner
or its designee.
CONSOLIDATION, MERGER AND CONVEYANCE OF ASSETS AS AN ENTIRETY
Each indenture provides that we will not consolidate with or merge into any
other entity or sell, convey, transfer, lease or otherwise dispose of all or
substantially all our properties and assets unless:
- the entity formed by such consolidation or into which we are merged or
the entity which acquires or which leases our property and assets
substantially or as an entirety is a corporation organized and existing
under the laws of the United States of America or any state thereof or
the District of Columbia, and expressly assumes by supplemental
indenture, all our obligations under the debt securities, any related
coupons and our obligations under the indenture;
- immediately after giving effect to such transactions, no Event of Default
or Default shall have occurred and be continuing; and
- certain other conditions are met.
If a successor corporation assumes our obligations, the successor will
succeed to and be substituted for us under the indentures, the debt securities
and any related coupons. Consequently, all of our obligations will terminate. If
any such permitted consolidation, merger, sale, conveyance, disposition or other
change of control transaction occurs, the holders of the debt securities will
not have the right to require redemption of their securities or similar rights
unless otherwise provided in a prospectus supplement.
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EVENTS OF DEFAULT
An "Event of Default" occurs with respect to debt securities of any series
if any of the following occurs:
- we fail to pay any interest on any debt securities of the applicable
series or any related coupon or any other amount applicable to such
series as specified in the applicable prospectus supplement within 30
days of the due date;
- we fail to pay principal or premium on any debt securities of the
applicable series on its due date;
- we fail to deposit any sinking fund payment when and as due by the terms
of the debt securities of that series;
- we default for 60 days after notice to us by the trustee for such series,
or by the holders of 25% in aggregate principal amount of the debt
securities of such series then outstanding, in the performance of any
other agreement applicable to the debt securities of that series; and
- certain events in bankruptcy, insolvency or reorganization occur; or
- any other Event of Default specified in the prospectus supplement
applicable to such series occurs.
An Event of Default with respect to a particular series of debt securities
will not necessarily be an Event of Default with respect to any other series of
debt securities.
The indentures provide that, if an Event of Default occurs with respect to
the debt securities of any series and is continuing, the trustee for the series
or the holders of 25% in aggregate principal amount of all of the outstanding
debt securities of that series, by written notice to us (and to the trustee for
such series, if notice is given by the holders of debt securities), may declare
the principal (or, if the debt securities of that series are original issue
discount debt securities or indexed debt securities, such portion of the
principal amount specified in the prospectus supplement) of all the debt
securities of that series to be due and payable.
The indentures provide that the trustee for any series of debt securities
will give to the holders of the debt securities of that series notice of all
uncured Defaults (as defined below) within 90 days after the occurrence of a
Default. However, such notice will not be given until 60 days after the
occurrence of a Default with respect to the debt securities of that series
involving a failure to perform a covenant other than the obligation to pay
principal, premium, and/or interest, if any, or make a mandatory sinking fund
payment. Further, except in the case of default in payment on the debt
securities of that series, the trustee may withhold the notice if and so long as
a committee comprised of certain officers of the trustee determines in good
faith that withholding such notice is in the interest of the holders of the debt
securities of that series. "Default" means any event which is, or, after notice
or passage of time or both, would be, an Event of Default.
Under the indentures, the trustee is under no obligation to exercise any of
its rights or powers at the request of any of the holders, unless such holders
have offered to the trustee reasonable indemnity. Subject to such provision for
indemnification, the indentures provide that the holders of not less than a
majority in aggregate principal amount of the debt securities of each series
affected with each series voting as a class, may direct the time, method and
place of conducting any proceeding for any remedy available to the trustee for
such series, or exercising any trust or power conferred on such trustee. We are
required to file annually with the trustee a certificate as to our compliance
with all conditions and covenants under indentures, except an Event of Default
based on the payment of the principal of, premium, if any, or interest, if any,
on any debt security of a series and certain other defaults.
By notice to the trustee, the holders of not less than a majority in total
principal amount of any series of debt securities may waive any past Default or
Event of Default with respect to that series and its consequences. Further, such
majority holders may rescind and annul a declaration of acceleration with
respect to that series (unless a judgment or decree based on such acceleration
has been obtained and entered), except an acceleration based on an Event of
Default in the payment of the principal of, premium, if any, or interest, if
any, on any debt security (and any resulting acceleration) and certain other
defaults.
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MODIFICATION OF INDENTURE
Without Holder Consent. Without the consent of any holders of debt
securities, we and the trustee may enter into one or more supplemental
indentures for any of the following purposes:
- to evidence the succession of another entity to our company and the
assumption of our covenants by a successor; or
- to add one or more covenants or other provisions for the benefit of the
holders of all or any series or tranche of debt securities, or to
surrender any right or power conferred upon us; or
- to add any additional Events of Default for all or any series of debt
securities; or
- to add or change any provisions to such extent as necessary to permit or
facilitate the issuance of debt securities in bearer or in global form;
or
- to provide security for the debt securities of any series; or
- to establish the form or terms of debt securities of any series bearer or
in global form; or
- to provide for the issuance of bearer securities; or
- to evidence and provide for the acceptance of appointment of a separate
or successor trustee; or
- under certain circumstances to add to, change or eliminate any provision
affecting debt securities not yet issued; or
- to cure any ambiguity, defect, correct or inconsistency or to make any
other changes that do not adversely affect the interests of the holders
of debt securities of any series issued under such indenture in any
material respect.
If the Trust Indenture Act is amended after the date of the indenture so as
to require changes to the indentures or so as to permit changes to, or the
elimination of, provisions which, at the date of the indentures or at any time
thereafter, were required by the Trust Indenture Act to be contained in the
indentures, the indentures will be deemed to have been amended so as to conform
to such amendment or to effect such changes or elimination, and we and the
trustee may, without the consent of any holders, enter into one or more
supplemental indentures to effect or evidence such amendment.
With Holder Consent. Except as provided above, the consent of the holders
of at least a majority in aggregate principal amount of the debt securities of
each series affected by such supplemental indenture is generally required for
the purpose of adding to, or changing or eliminating any of the provisions of,
the debt securities pursuant to a supplemental indenture. However, no amendment
or modification may, without the consent of the holder of each outstanding debt
security directly affected thereby,
- change the stated maturity of the principal or interest on any debt
security (other than pursuant to the terms thereof), or reduce the
principal amount, interest or premium payable or change the currency in
which any debt security is payable, or impair the right to bring suit to
enforce any payment; or
- reduce the percentages of holders whose consent is required to modify or
amend the indentures of compliance with certain provisions of the
indentures or for waiver of certain defaults; or
- reduce the premium, if any, upon redemption of any debt security; or
- reduce principal payable upon acceleration of the maturity of an original
issue discount debt security; or
- change our obligation to maintain an office or agency in the places and
for the purposes specified in the indentures; or
- modify any of the foregoing provisions.
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A supplemental indenture which changes or eliminates any provision of the
indenture expressly included solely for the benefit of holders of debt
securities of one or more particular series or tranches will be deemed not to
affect the rights under the indenture of the holders of debt securities of any
other series or tranche.
DEFEASANCE
If indicated in the applicable prospectus supplement, we will have two
options to discharge our obligations under a series of debt securities before
their maturity date. We may elect either:
- to defease and be discharged from any and all obligations with respect to
the debt securities of or within any series (except as described below)
("defeasance"); or
- to be released from our obligations with respect to certain covenants
applicable to the debt securities of or within any series ("covenant
defeasance").
To elect either option, we must deposit with the trustee for such series an
amount of money and/or government obligations sufficient to pay the principal
of, premium and/or interest, if any, on such debt securities to maturity or
redemption, as the case may be, and any mandatory sinking fund or analogous
payments.
Upon the occurrence of a defeasance, we will be deemed to have paid and
discharged the entire indebtedness represented by the debt securities and any
related coupons and to have satisfied all of our obligations, except for:
- the rights of holders of the debt securities to receive, solely from the
trust funds deposited to defease such debt securities, payments in
respect of the principal of, premium, and/or interest, if any, on the
debt securities or any related coupons when such payments are due; and
- certain other obligations as provided in the indentures.
Upon the occurrence of a covenant defeasance, we will:
- be released only from our obligations to comply with certain covenants
contained in the indentures;
- continue to be obligated in all other respects under the debt securities;
and
- continue to be contingently liable with respect to the payment of
principal, premium and/or interest, if any, with respect to the debt
securities.
Unless otherwise specified in the applicable prospectus supplement and
except as described below, the conditions to both defeasance and covenant
defeasance are as follows:
- the defeasance or covenant defeasance must not result in a breach or
violation of, or constitute a default or event of default under, the
applicable indenture;
- certain bankruptcy related defaults or events of default must not have
occurred and be continuing during the period commencing on the date of
the deposit of the trust funds to defease the debt securities and ending
on the 91st day after such date;
- we must deliver to the trustee an opinion of counsel to the effect that
the holders of the debt securities will not recognize income, gain or
loss for federal income tax purposes as a result of the defeasance or
covenant defeasance and will be subject to federal income tax on the same
amounts and in the same manner and at all the same times as would have
been the case if the defeasance or covenant defeasance had not occurred;
and
- any additional conditions to the defeasance or covenant defeasance which
may be imposed on us pursuant to the applicable indenture.
A nationally recognized firm of independent public accountants must deliver
a written certification to the trustee as to the sufficiency of the trust funds
deposited for the defeasance or covenant defeasance of the debt securities. As
holders of the debt securities, you will not have any recourse against such
firm. If government
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obligations deposited with the trustee for the defeasance of the debt securities
decrease in value or default subsequent to their being deposited, we will have
no further obligation, and you will have no additional recourse against us, as a
result of such decrease in value or default.
We may exercise our defeasance option notwithstanding our prior exercise of
our covenant defeasance option. If we exercise our defeasance option, payment of
the debt securities may not be accelerated because of a Default or an Event of
Default. If we exercise our covenant defeasance option, payment of the debt
securities may not be accelerated by reason of a Default or an Event of Default
with respect to the covenants to which such covenant defeasance is applicable.
However, if such acceleration were to occur, the realizable value at the
acceleration date of the money and government obligations in the defeasance
trust could be less than the principal and interest, if any, then due on such
debt securities, because the required deposit in the defeasance trust is based
upon scheduled cash flow rather than market value, which will vary depending
upon interest rates and other factors.
A prospectus supplement may further describe the provisions, if any,
applicable to defeasance or covenant defeasance with respect to debt securities
of a particular series.
THE TRUSTEE
The initial trustee under the senior debt indenture is Bank One, N.A. The
trustee under the subordinated debt indenture will be named when the
subordinated debt securities are issued. If more than one series of debt
securities is outstanding under an indenture, a trustee may serve as trustee
with respect to the debt securities of one or more of such series. If more than
one series of debt securities is outstanding under an indenture, the holders of
a majority in total principal amount of each such series at any time outstanding
may remove the trustee with respect to such series (but not as to any other
series) by notifying the trustee and us and may appoint a successor trustee for
such series with our consent.
DESCRIPTION OF TRUST SECURITIES
The trust may issue trust preferred securities and trust common securities,
which we refer to collectively as the "trust securities," under the terms of the
trust agreement. The trust preferred securities will represent undivided
beneficial interests in the assets of the trust. We will own all of the trust
common securities. Selected provisions of the trust agreement are summarized
below. This summary is not complete and contains only a general description of
the trust preferred securities. Any of the following terms may be changed, as
set forth in a prospectus supplement. A form of trust agreement has been filed
with the SEC, and you should read the trust agreement for provisions that may be
important to you. A definitive form of trust agreement will be filed with the
SEC when we issue trust preferred securities. The trust agreement will be
qualified under the Trust Indenture Act. You should also refer to the Trust
Indenture Act for provisions that apply to the trust preferred securities.
Wherever particular defined terms of the trust agreement are referred to, such
defined terms are incorporated herein by reference.
GENERAL
The trust preferred securities and trust common securities issued by the
trust will be substantially the same except that, if there is an event of
default under the trust agreement, as described below, the rights of the holders
of the trust preferred securities will be entitled to priority in right of
payment over our rights as holders of the trust common securities.
The trust will invest the proceeds from any issuance of the trust preferred
securities, together with the consideration we pay for the trust common
securities to purchase trust debentures from us. Legal title in the trust
debentures will be held by the property trustee in trust for the benefit of
holders of the trust securities.
In accordance with the trust agreement, the trust may not, among other
things, borrow money, issue debt or any securities other than the trust
securities, execute mortgages or pledge any of its assets.
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We will guarantee distributions on the trust preferred securities on a
limited basis to the extent described under the caption "Description of
Guarantee." The guarantee will not guarantee payment of distributions or amounts
payable on redemption of the trust preferred securities or liquidation of the
trust when the trust does not have funds on hand legally available for such
payments. In such event, a remedy of a holder of trust preferred securities is
to direct the property trustee to enforce its rights under the trust debentures.
If the property trustee fails to enforce its rights with respect to the trust
debentures held by the trust, any record holder of the trust preferred
securities may, to the fullest extent permitted by law, institute legal
proceedings directly against us to enforce the property trustee's rights under
such trust debentures without first instituting any legal proceedings against
the property trustee or any other person or entity. In addition, a holder of the
trust preferred securities may institute a legal proceeding directly against us
for enforcement of payment to such holder of principal of, premium, if any, or
interest on the trust debentures having a principal amount equal to the
aggregate liquidation amount of the trust preferred securities of such holder on
or after the due date specified in the trust debentures.
Holders of the trust preferred securities will have no preemptive or
similar rights.
DISTRIBUTIONS
Distributions on the trust preferred securities will be payable on the
dates and at the rates set forth in a prospectus supplement. The distribution
rate and the relevant distribution date for the trust securities will correspond
to the payments and payment dates on the trust debentures. The revenue of the
trust available for distribution to holders of the trust preferred securities
will be limited to payments under the trust debentures in which the trust will
invest the proceeds from the issuance and sale of the trust securities. If we
fail to make interest payments on the trust debentures, the property trustee
will not have funds available to pay distributions on the trust preferred
securities.
Unless otherwise specified in the applicable prospectus supplement, we may
defer the payment of interest on the trust debentures on one or more occasions
for a period not exceeding 10 consecutive semi-annual periods (or the equivalent
thereof), unless a debenture event of default has occurred and is continuing.
However, no deferral period shall extend beyond the stated maturity date.
Distributions on the trust preferred securities will be deferred by the trust
during any such deferral period. Distributions to which holders of the trust
preferred securities are entitled during any such deferral period will
accumulate additional distributions at the rate per annum set forth in the
prospectus supplement.
Upon the termination of any deferral period and the payment of all amounts
then due on any interest payment date, we may elect to begin a new deferral
period, subject to the requirements described above. No interest shall be due
and payable during any deferral period, except at the end of the period.
We must give the property trustee, the debenture trustee and the
administrative trustees notice of our election to defer the payment of interest
on the trust debentures at least one business day prior to the earlier of:
- the date the distributions on the trust preferred securities would have
been payable except for the election to begin such deferral period; or
- the date the administrative trustees are required to give notice to any
securities exchange or to holders of trust preferred securities of the
record date or the date such distributions are payable, but in any event
not less than one business day prior to such record date.
There is no limitation on the number of times that we may elect to begin a
deferral period. Accordingly, there could be multiple deferral periods of
varying lengths throughout the term of the trust preferred securities. See
"Description of Trust Debentures -- Option to Extend Interest Payment Date."
Unless otherwise specified in the applicable prospectus supplement, during
any deferral period, we may not do any of the following:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of our
capital stock -- subject to certain exceptions described under
"Description of Trust Debentures -- Restrictions on Certain Payments";
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- make any payment of principal of or premium, if any, or interest on or
repay, repurchase or redeem any of our debt securities that rank pari
passu with or junior in right of payment to the trust debentures; or
- make any guarantee payments (other than payments under the guarantee)
with respect to any guarantee by us of the debt securities of any of our
subsidiaries if such guarantee ranks pari passu with or junior in right
of payment to the trust debentures.
CONVERSION OR EXCHANGE
If and to the extent indicated in the applicable prospectus supplement, the
trust securities of any series may be convertible or exchangeable into other
debt or equity securities or property. The specific terms on which the trust
securities may be so converted or exchanged will be set forth in the applicable
prospectus supplement. Such terms may include provisions for conversion or
exchange, either mandatory, at the option of the holder, or at our option, in
which case the number or amount of securities or property to be received by the
holders of the trust securities would be calculated as of a time and in the
manner stated in the applicable prospectus supplement.
ADDITIONAL SUMS
Except as set forth in the applicable prospectus supplement, we will pay as
additional amounts in the trust debentures such additional amounts as may be
necessary in order that the amount of distributions then due and payable by the
trust on the outstanding trust securities will not be reduced as a result of any
additional taxes, duties and other governmental charges.
REDEMPTION
Whenever the trust debentures are repaid, other than following the
distribution of the trust debentures to the holders of the trust securities,
whether at maturity or earlier redemption, the property trustee will apply the
proceeds to redeem a like amount of the trust securities at the applicable
redemption price specified in the applicable prospectus supplement.
"Like amount" means:
- with respect to a redemption of the trust securities, trust securities
having a liquidation amount equal to the principal amount of trust
debentures to be paid in accordance with their terms; and
- with respect to a distribution of trust debentures upon the dissolution
and liquidation of the trust, trust debentures having a principal amount
equal to the liquidation amount of the trust securities of the holder to
whom such trust debentures are being distributed.
REDEMPTION PROCEDURES
If applicable, trust securities will be redeemed at the applicable
redemption price with the proceeds from the contemporaneous repayment or
prepayment of the trust debentures. Any redemption of trust securities will be
made and the applicable redemption price will be payable on the redemption date
only to the extent that the trust has funds legally available for the payment of
the applicable redemption price. See also "-- Subordination of Trust Common
Securities."
If the trust gives a notice of redemption in respect of the trust preferred
securities, then, by 12:00 noon, New York City time, on the redemption date, to
the extent funds are legally available, with respect to the trust preferred
securities held by DTC or its nominees, the property trustee will deposit with
DTC funds sufficient to pay the applicable redemption price. See "-- Form,
Denomination, Book-Entry Procedures and Transfer." With respect to the trust
preferred securities held in certificated form, the property trustee, to the
extent funds are legally available, will pay the applicable redemption price to
the holders of trust preferred securities upon surrender of the security. See
"-- Payment and Paying Agency." Notwithstanding the foregoing, distributions
payable on or prior to the redemption date shall be payable to the holders of
such trust preferred securities on the relevant record dates for the related
distribution dates. If notice of redemption has been given and funds
17
are deposited as required, then on the date of such deposit, all rights of the
holders of the trust preferred securities called for redemption will cease,
except the right of the holders of the trust preferred securities to receive the
applicable redemption price, and the trust preferred securities will cease to be
outstanding.
If any redemption date of trust preferred securities is not a business day,
then the redemption price will be paid on the next day that is a business day.
If the next business day falls in the next calendar year, then the required
payment will be made on the immediately preceding business day.
Subject to applicable law, our subsidiaries or we may, from time to time
purchase outstanding trust preferred securities by tender, in the open market or
by private agreement.
The trust may not redeem fewer than all of the outstanding trust preferred
securities unless all accumulated and unpaid distributions have been paid on all
trust preferred securities for all distribution periods terminating on or prior
to the redemption date. If less than all of the issued trust preferred
securities and trust common securities are to be redeemed on a redemption date,
then the aggregate amount of such trust preferred securities and trust common
securities to be redeemed shall be allocated pro rata among the trust preferred
securities and the trust common securities. The property trustee will select on
a pro rata basis the particular outstanding trust preferred securities to be
redeemed not more than 60 days prior to the redemption date, by such method as
the property trustee shall deem fair and appropriate. The property trustee will
promptly notify the trust registrar in writing of the trust preferred securities
selected for redemption and, in the case of any trust preferred security
selected for partial redemption, the liquidation amount to be redeemed. For all
purposes of the trust agreement, unless the context otherwise requires, all
provisions relating to the redemption of trust preferred securities will relate,
in the case of any trust preferred security redeemed or to be redeemed only in
part, to the portion of the aggregate liquidation amount of trust preferred
securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of trust securities at its
registered address. Unless we default in payment of the applicable redemption
price on, or in the repayment of, the trust debentures, on and after the
redemption date distributions will cease to accrue on the trust securities
called for redemption.
CANCELLATION
If at any time we or any of our affiliates hold any trust preferred
securities, we may deliver to the property trustee all or any portion of such
trust preferred securities as we elect and receive, in exchange therefore, a
like amount of debentures. After the exchange, such trust preferred securities
will be cancelled and will no longer be deemed to be outstanding and all rights
of ours or our affiliates with respect to such trust preferred securities will
cease.
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF TRUST DEBENTURES
The trust will automatically dissolve upon the first to occur of:
- our bankruptcy, dissolution or liquidation or revocation of our charter
without reinstatement for 90 days;
- the expiration of the term of the trust;
- the entry of an order for dissolution of the trust by a court of
competent jurisdiction;
- if we direct the property trustee in writing to dissolve the trust and
distribute a like amount of the trust debentures to the holders of the
trust securities; and
- redemption, or conversion or exchange, if applicable, of all of the trust
securities.
Unless otherwise specified in the prospectus supplement, we have the right
at any time to dissolve the trust and, after satisfaction of liabilities to
creditors of the trust, cause the trust debentures to be distributed to the
holders of the trust securities in liquidation of the trust.
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If a dissolution occurs as described in bullet points one through three
above, the trust will be liquidated by the administrative trustees as
expeditiously as possible. After satisfaction of liabilities to the trust's
creditors, the administrative trustees will distribute to the holders of the
trust securities a like amount of the trust debentures, unless such distribution
is determined by the property trustee not to be practicable. In such case, the
holders will be entitled to receive pro rata out of the assets of the trust
legally available for distribution to holders an amount equal to the aggregate
of the liquidation amount plus accumulated and unpaid distributions thereon to
the date of payment. If this liquidation distribution can be paid only in part
because the trust has insufficient assets on hand legally available to pay in
full the aggregate liquidation distribution, then the amount payable directly by
the trust on the trust securities will be paid on a pro rata basis, except that
if a debenture event of default has occurred and is continuing, the trust
preferred securities shall have a priority over the trust common securities. See
"-- Subordination of Trust Common Securities."
If we elect not to redeem the trust debentures before maturity in
accordance with their terms and either elect not to or are unable to dissolve
and liquidate the trust and distribute the trust debentures to holders of the
trust securities, the trust securities will remain outstanding until the
repayment of the trust debentures on the stated maturity date.
After the liquidation date is fixed for any distribution of trust
debentures to holders of the trust securities,
- the trust securities will no longer be deemed to be outstanding;
- DTC or its nominee will receive, in respect of each registered global
certificate, if any, representing trust securities and held by it, a
registered global certificate or certificates representing the trust
debentures to be delivered upon such distribution; and
- any certificates representing trust securities not held by DTC or its
nominee will be deemed to represent trust debentures having a principal
amount equal to the liquidation amount of such trust securities until
such certificates are presented to the administrative trustees or their
agent for cancellation. We will then issue to such holder, and the
debenture trustee will authenticate, a certificate representing such
trust debentures.
SUBORDINATION OF TRUST COMMON SECURITIES
Payment of distributions on, and the redemption price of, the trust
securities will be made pro rata based on the liquidation amount of the trust
securities. However, if on any distribution date or redemption date a debenture
event of default has occurred and is continuing, no payment of any distribution
on, or applicable redemption price of, any of the trust common securities, and
no other payment on account of the redemption, liquidation or other acquisition
of the trust common securities, will be made unless payment in full in cash of
all accumulated and unpaid distributions on all of the outstanding trust
preferred securities for all distribution periods terminating on or prior
thereto, or in the case of payment of the applicable redemption price the full
amount of such redemption price, shall have been made or provided for, and all
funds available to the property trustee shall first be applied to the payment in
full in cash of all distributions on, or redemption price of, the trust
preferred securities then due and payable.
In the case of any event of default under the trust agreement, we, as
holder of the trust common securities, will be deemed to have waived any right
to act with respect to such event of default until the effect of such event of
default with respect to the trust preferred securities is cured, waived or
otherwise eliminated. Until any such event of default is so cured, waived or
otherwise eliminated, the property trustee will act solely on behalf of the
holders of the trust preferred securities and not on behalf of us, as holder of
the trust common securities, and only the holders of the trust preferred
securities will have the right to direct the property trustee to act on their
behalf.
EVENTS OF DEFAULT; NOTICE
The occurrence of a debenture event of default constitutes an event of
default under the trust agreement. See "Description of Trust
Debentures -- Debenture Events of Default."
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Within five business days after the occurrence of any trust agreement event
of default actually known to the property trustee, the property trustee will
transmit notice of such default to the holders of the trust preferred
securities, the administrative trustees and us, unless such default is cured or
waived. We and the administrative trustee are required to file annually with the
property trustee a certificate as to whether or not we are in compliance with
all the conditions and covenants under the trust agreement.
Upon the occurrence of a trust agreement event of default, the debenture
trustee or the property trustee as the holder of the trust debentures will have
the right under the junior subordinated indenture to declare the principal of
and interest on the trust debentures to be immediately due and payable.
If a trust agreement event of default has occurred and is continuing and
such event is attributable to our failure to pay interest, principal or other
required payments on the trust debentures issued to the trust on the date such
interest, principal or other payment is otherwise payable, then a record holder
of trust preferred securities may, on or after the respective due dates
specified in the trust debentures, institute a proceeding directly against us
for enforcement of payment on trust debentures having a principal amount equal
to the aggregate liquidation amount of the trust preferred securities held by
such holder. In connection with such an action, we will be subrogated to the
rights of such record holder of trust preferred securities to the extent of any
payment made by us to such record holder of trust preferred securities.
If a debenture event of default has occurred and is continuing, the trust
preferred securities shall have a preference over the trust common securities as
described under "-- Liquidation of the Trust and Distribution of Trust
Debentures" and "-- Subordination of Trust Common Securities."
REMOVAL OF TRUSTEES
Unless a debenture event of default occurs and is continuing, any
administrative trustee may be removed at any time by the holder of the trust
common securities. If a debenture event of default has occurred and is
continuing, the property trustee and the Delaware trustee may be removed at such
time by the holders of a majority in liquidation amount of the outstanding trust
preferred securities. In no event will the holders of the trust preferred
securities have the right to vote to appoint, remove or replace the
administrative trustees, which voting rights are vested exclusively in the
holder of the trust common securities. No resignation or removal of a trustee
and no appointment of a successor trustee shall be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the trust agreement.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The trust may not merge with or into, convert into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to any corporation or
other person, except as described below or as otherwise described under
"-- Liquidation of the Trust and Distribution of Trust Debentures." The trust
may, at our request and with the consent of the administrative trustees but
without the consent of the holders of the trust preferred securities, the
Delaware trustee or the property trustee, merge with or into, convert into,
consolidate, amalgamate, or be replaced by or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to a trust
organized as such under the laws of any state of the United States or the
District of Columbia; provided that:
- such successor entity either:
- expressly assumes all of the obligations of the trust with respect to
the trust securities and the trust agreement; or
- substitutes for the trust securities other securities having
substantially the same terms as the trust securities (the "Successor
Securities") so long as the Successor Securities rank the same as the
trust securities rank in priority with respect to distributions and
payments upon liquidation, redemption and otherwise;
- we expressly appoint a trustee of such successor entity possessing the
same powers and duties as the property trustee as the holder of the trust
debentures;
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- the Successor Securities are listed, or any Successor Securities will be
listed upon notification of issuance, on any national securities exchange
or other organization on which the trust securities are then listed or
quoted, if any;
- if the trust preferred securities (including any Successor Securities)
are rated by any nationally recognized statistical rating organization
prior to such transaction, such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause
the trust preferred securities (including any Successor Securities) or,
if the trust debentures are so rated, the trust debentures, to be
downgraded by any such nationally recognized statistical rating
organization;
- such merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the trust securities
(including any Successor Securities) in any material respect;
- such successor entity has a purpose substantially identical to that of
the trust;
- prior to such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease, we have received an opinion
from independent counsel to the trust experienced in such matters to the
effect that:
- such merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the trust securities
(including any Successor Securities) in any material respect (other than
by reason of dilution); and
- following such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease,
- neither the trust nor such successor entity will be required to
register as an investment company under the Investment Company Act of
1940; and
- the trust or the successor entity will continue to be classified as a
grantor trust for United States federal income tax purposes; and
- we or any permitted successor or assignee own all of the trust common
securities of such successor entity and guarantee the obligations of such
successor entity under the Successor Securities at least to the extent
provided by the guarantee and the common guarantee.
Notwithstanding the foregoing, the trust will not, except with the consent
of holders of 100% in liquidation amount of the trust securities, consolidate,
convert into, amalgamate, merge with or into, convert into, or be replaced by or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to, any other entity or permit any other entity to
consolidate, convert into, amalgamate, merge with or into, or replace it if such
consolidation, conversion, amalgamation, merger, replacement, conveyance,
transfer or lease would cause the trust or the successor entity not to be
classified as a grantor trust for United States federal income tax purposes or
would cause the holders of the trust securities not to be treated as owning an
undivided interest in the trust debentures.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "-- Mergers, Consolidations,
Amalgamations or Replacements of the Trust" and "Description of
Guarantee -- Amendments and Assignment" and as otherwise required by law and the
trust agreement, the holders of the trust preferred securities will have no
voting rights.
The trust agreement may be amended from time to time by us and the
administrative trustees, without the consent of the holders of the trust
securities:
- to cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising under
the trust agreement, which shall not be inconsistent with the other
provisions of the trust agreement;
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- to modify, eliminate or add to any provisions of the trust agreement to
such extent as shall be necessary to ensure that the trust will be
classified for United States federal income tax purposes as a grantor
trust at all times that any trust securities are outstanding or to ensure
that the trust will not be required to register as an "investment
company" under the Investment Company Act;
- to provide for a successor trustee; or
- to add to the covenants or obligations of us as sponsor;
provided, however, that in the case of the first two bullet points, the
interests of the holders of the trust securities shall not be adversely affected
in any material respect. Any amendments of the trust agreement pursuant to the
foregoing shall become effective once notice is given to the holders of the
trust securities.
We and the administrative trustees may otherwise amend the trust agreement
with the consent of holders representing a majority (based upon liquidation
amount) of the outstanding trust securities upon receipt by the trustees of an
opinion of counsel experienced in such matters to the effect that such amendment
or the exercise of any power granted to the trustees in accordance with such
amendment will not affect the trust's status as a grantor trust for United
States federal income tax purposes or the trust's exemption from status as an
investment company under the Investment Company Act; provided that, without the
consent of each holder of trust securities, the trust agreement may not be
amended to:
- change the amount or timing of any distribution on the trust securities
or otherwise adversely affect the amount of any distribution required to
be made in respect of the trust securities as of a specified date; or
- restrict the right of a holder of trust securities to institute suit for
the enforcement of any such payment on or after such date.
Subject to the requirements discussed below, holders of a majority in
liquidation amount of trust preferred securities may, and so long as any trust
debentures are held by the trust, the trustees will not, without obtaining the
prior approval of the holders of a majority in liquidation amount of all
outstanding trust preferred securities:
- direct the time, method and place of conducting any proceeding for any
remedy available to the debenture trustee, or executing any trust or
power conferred on the debenture trustee with respect to the trust
debentures;
- waive any past defaults under the indenture;
- exercise any right to rescind or annul a declaration of acceleration of
the maturity of the principal of the trust debentures; or
- consent to any amendment, modification or termination of the indenture or
the trust debentures, where such consent shall be required.
However, where a consent under the indenture would require the consent of
each holder of trust debentures affected thereby, no such consent shall be given
by the property trustee without the prior consent of each holder of the trust
preferred securities. The trustees will not revoke any action previously
authorized or approved by a vote of the holders of the trust preferred
securities except pursuant to a subsequent vote of such holders. The property
trustee shall notify each holder of trust preferred securities of any notice of
default that it receives with respect to the trust debentures. In addition to
obtaining the foregoing approvals of the holders of the trust preferred
securities, prior to taking any of the foregoing actions, the trustees shall
obtain an opinion of counsel experienced in such matters to the effect that the
trust will not fail to be classified as a grantor trust for United States
federal income tax purposes on account of such action.
Any required approval of holders of trust preferred securities may be given
at a meeting of such holders convened for such purpose or pursuant to written
consent (without prior notice). The property trustee will cause a notice of any
meeting at which holders of trust preferred securities are entitled to vote to
be given to each holder of record of trust preferred securities in the manner
set forth in the trust agreement.
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No vote or consent of the holders of trust preferred securities will be
required for the trust to redeem and cancel the trust preferred securities in
accordance with the trust agreement.
Notwithstanding that holders of the trust preferred securities are entitled
to vote or consent under any of the circumstances described above, any of the
trust preferred securities that we own or any of our affiliates shall not be
entitled to vote or consent and shall, for purposes of such vote or consent, be
treated as if they were not outstanding.
PAYMENT AND PAYING AGENCY
Payments in respect of trust preferred securities held in global form will
be made to the depositary, which shall credit the relevant accounts at the
depositary on the applicable distribution dates, or in respect of trust
preferred securities that are not held by the depositary, such payments shall be
made by check mailed to the address of the holder entitled thereto as such
address shall appear on the register. The paying agent will initially be the
property trustee or an affiliate of the property trustee and any co-paying agent
chosen by the property trustee and acceptable to the administrative trustees and
us. The paying agent will be permitted to resign as paying agent upon 30 days'
written notice to the property trustee, the administrative trustees and us. If
the property trustee or an affiliate of the property trustee is no longer the
paying agent, the administrative trustees will appoint a successor (which will
be a bank or trust company acceptable to the administrative trustees and us) to
act as paying agent.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
Unless otherwise specified in the applicable prospectus supplement, the
trust preferred securities will be in registered, global form, and the global
trust preferred securities will be deposited upon issuance with DTC, in New
York, New York, and registered in the name of DTC or its nominee, in each case
for credit to an account of a direct or indirect participant in DTC as described
below.
A global preferred security may not be transferred as a whole except by DTC
to another nominee of DTC or to a successor of DTC or its nominee. Beneficial
interests in the global trust preferred securities shall be transferred and
exchanged through the facilities of DTC. Beneficial interests in the global
trust preferred securities may not be exchanged for trust preferred securities
in certificated form except in the limited circumstances described below. See
"-- Exchange of Book-Entry Trust Preferred Securities for Certificated Trust
Preferred Securities."
DEPOSITARY PROCEDURES
DTC has advised the trust and us that DTC is a limited-purpose trust
company organized under the New York banking law, a "banking organization"
within the meaning of the New York banking law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934. DTC holds securities
deposited with it by its participants and facilitates the settlement of
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of security certificates. DTC's participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Indirect access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly. Persons who are not participants may beneficially
own securities held by or on behalf of DTC only through the participants or the
indirect participants of DTC. The ownership interest and transfer of ownership
interest of each actual purchaser of each security held by or on behalf of DTC
are recorded on the records of the participants and indirect participants.
23
DTC has also advised the trust and us that it has established procedures to
provide that:
- upon deposit of the global trust preferred securities, DTC will credit
the accounts of participants designated by the exchange agent with
portions of the liquidation amount of the global trust preferred
securities; and
- ownership of such interests in the global trust preferred securities will
be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC (with respect to the participants) or
by the participants and indirect participants (with respect to other
owners of beneficial interests in the global trust preferred securities).
Investors in the global trust preferred securities may hold their interests
therein directly through DTC if they are participants in such system, or
indirectly through organizations that are participants in such system. All
interests in a global preferred security will be subject to the procedures and
requirements of DTC. The laws of some states require that certain persons take
physical delivery in certificated form of securities that they own.
Consequently, the ability to transfer beneficial interests in a global preferred
security to such persons will be limited to that extent. Because DTC can act
only on behalf of participants, which in turn act on behalf of indirect
participants and certain banks, the ability of a person having beneficial
interests in a global preferred security to pledge such interests to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such interests, may be affected by the lack of a physical certificate
evidencing such interests. For certain other restrictions on the transferability
of the trust preferred securities, see "-- Exchange of Book-Entry Trust
Preferred Securities for Certificated Trust Preferred Securities."
Except as described below, owners of interests in the global trust
preferred securities will not have trust preferred securities registered in
their name, will not receive physical delivery of trust preferred securities in
certificated form and will not be considered the registered owners or holders
thereof under the trust agreement for any purpose.
Payments in respect of each global preferred security registered in the
name of DTC or its nominee will be payable by the property trustee to DTC in its
capacity as the registered holder under the trust agreement. Under the terms of
the trust agreement, the property trustee will treat the persons in whose names
the trust preferred securities, including the global trust preferred securities,
are registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
property trustee nor any agent thereof has or will have any responsibility or
liability for:
- any aspect of DTC's records or any participant's or indirect
participant's records relating to or payments made on account of
beneficial ownership interests in the global trust preferred securities,
or for maintaining, supervising or reviewing any of DTC's records or any
participant's or indirect participant's records relating to the
beneficial ownership interests in the global trust preferred securities;
or
- any other matter relating to the actions and practices of DTC or any of
its participants or indirect participants.
DTC has advised the trust and us that its current practice, upon receipt of
any payment in respect of securities such as the trust preferred securities, is
to credit the accounts of the relevant participants with the payment on the
payment date, in amounts proportionate to their respective holdings in
liquidation amount of beneficial interests in the relevant security as shown on
the records of DTC unless DTC has reason to believe it will not receive payment
on such payment date. Payments by the participants and the indirect participants
to the beneficial owners of trust preferred securities represented by global
trust preferred securities will be governed by standing instructions and
customary practices and will be the responsibility of the participants or the
indirect participants and will not be the responsibility of DTC, the property
trustee, the trust or us. None of us, the trust or the property trustee will be
liable for any delay by DTC or any of its participants in identifying the
beneficial owners of the trust preferred securities, and we, the trust and the
property trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
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Interests in the global trust preferred securities will trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants. Transfers between
participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the trust and us that it will take any action permitted to
be taken by a holder of trust preferred securities only at the direction of one
or more participants to whose account with DTC interests in the global trust
preferred securities are credited and only in respect of such portion of the
liquidation amount of the trust preferred securities as to which such
participant or participants has or have given such direction. However, if there
is an event of default under the trust agreement, DTC reserves the right to
exchange the global trust preferred securities for trust preferred securities in
certificated form and to distribute such trust preferred securities to its
participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the trust and we believe to be reliable, but
neither the trust nor we take responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interest in the global trust preferred securities among participants in DTC,
DTC is under no obligation to perform or to continue to perform such procedures,
and such procedures may be discontinued at any time. None of us, the trust or
the property trustee will have any responsibility for the performance by DTC or
their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY TRUST PREFERRED SECURITIES FOR CERTIFICATED TRUST
PREFERRED SECURITIES
Unless otherwise specified in the applicable prospectus supplement, a
global preferred security is exchangeable for trust preferred securities in
certificated form if:
- DTC notifies the trust that it is unwilling or unable to continue as
depositary for the global preferred security or has ceased to be a
clearing agency registered under the Exchange Act, and the trust fails to
appoint a successor depositary within 90 days; or
- we, on behalf of the trust, in our sole discretion elect to cause the
issuance of the trust preferred securities in certificated form.
In all cases, certificated trust preferred securities delivered in exchange
for any global preferred security or beneficial interests therein will be
registered in the names, and issued in any approved denominations, requested by
or on behalf of the depositary (in accordance with its customary procedures).
REGISTRAR AND TRANSFER AGENT
The property trustee will act as registrar and transfer agent for the trust
preferred securities.
Registration of transfers of the trust preferred securities will be
effected without charge by or on behalf of the trust, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The trust will not be required to register or cause to be
registered the transfer of the trust preferred securities after they have been
called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, other than during the occurrence and continuance of a
trust agreement event of default, will perform only such duties as are
specifically set forth in the trust agreement and, during the existence of a
trust agreement event of default, must exercise the same degree of care and
skill as a prudent person would exercise or use in the conduct of his or her own
affairs. The property trustee is under no obligation to exercise any of the
powers vested in it by the trust agreement at the request of any holder of trust
securities unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby. If no trust agreement event of
default has occurred and is continuing and the property trustee is required to
decide between alternative courses of action, construe ambiguous provisions in
the trust
25
agreement or is unsure of the application of any provision of the trust
agreement, and the matter is not one on which holders of the trust preferred
securities or the trust common securities are entitled under the trust agreement
to vote, then the property trustee shall take such action as is directed by us
and, if not so directed, shall take such action as it deems advisable and in the
best interests of the holders of the trust securities and will have no liability
except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the trust in such a way that the trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the trust debentures
will be treated as our indebtedness for United States federal income tax
purposes. In this connection, we and the administrative trustees are authorized
to take any action, not inconsistent with applicable law, the certificate of
trust of the trust or the trust agreement, that we and the administrative
trustees determine in our discretion is necessary or desirable for such
purposes.
The trust agreement and the trust preferred securities will be governed by
and construed in accordance with the internal laws of the State of Delaware.
DESCRIPTION OF TRUST DEBENTURES
The trust will purchase trust debentures issued by us with the proceeds
from the sale of the trust securities under an indenture, which we refer to as
the "junior subordinated indenture," between us and Bank One Trust Company,
N.A., as trustee. Selected provisions of the junior subordinated indenture are
summarized below. This summary is not complete and contains only a general
description of the trust debentures and the junior subordinated indenture. Any
of the following terms may be changed, as set forth in a prospectus supplement.
A form of the junior subordinated indenture has been filed with the SEC, and you
should read the junior subordinated indenture for provisions that may be
important to you. A definitive form of the junior subordinated indenture will be
filed with the SEC when we issue trust debentures. The junior subordinated
indenture will be qualified as an indenture under the Trust Indenture Act. You
should also refer to the Trust Indenture Act for provisions that apply to the
trust debentures. Wherever particular defined terms of the junior subordinated
indenture are referred to, such defined terms are incorporated herein by
reference.
GENERAL
The trust will invest the proceeds obtained from any issuance of trust
preferred securities, together with the consideration paid by us for the trust
common securities, in trust debentures issued by us. The trust debentures will
bear interest at the same rate as the distribution rate of the trust preferred
securities specified in the applicable prospectus supplement, and interest on
the trust debentures and in the trust preferred securities accrue from the same
date. It is anticipated that, until the liquidation, if any, of the trust, each
trust debenture will be held in the name of the property trustee in trust for
the benefit of the holders of the trust securities.
Except as otherwise stated in the applicable prospectus supplement, the
trust debentures will be issued in denominations of $1,000 and integral
multiples thereof. The trust debentures will mature on the date specified in the
applicable prospectus supplement.
The trust debentures issued by us will be unsecured, subordinate and junior
in right of payment to all Senior Indebtedness (as defined below) to the extent
and in the manner set forth in the junior subordinated indenture. See
"-- Subordination."
SUBORDINATION
The junior subordinated indenture provides that any trust debentures issued
under the junior subordinated indenture will be subordinate and junior in right
of payment to all Senior Indebtedness. Upon any payment or distribution of
assets to creditors upon any liquidation, dissolution, winding up,
reorganization, or
26
in connection with any insolvency, receivership or bankruptcy proceeding with
respect to our company, all Senior Indebtedness must be paid in full before the
holders of trust debentures will be entitled to receive or retain any payment in
respect thereof.
In the event of the acceleration of the maturity of trust debentures, the
holders of all Senior Indebtedness outstanding at the time of such acceleration
will first be entitled to receive payment in full of such Senior Indebtedness
before the holders of trust debentures will be entitled to receive or retain any
payment in respect of the trust debentures.
No payments on account of principal, or premium, or interest, if any, in
respect of the trust debentures may be made if a default in any payment with
respect to Senior Indebtedness has occurred and is continuing, or an event of
default has occurred with respect to any Senior Indebtedness resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"Indebtedness" means:
- all of our obligations for money borrowed;
- all of our obligations evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with
the acquisition of property, assets or businesses;
- all of our reimbursement obligations with respect to letters of credit,
banker's acceptances or similar facilities issued for our account;
- all of our obligations issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business);
- all of our capital lease obligations;
- all our indebtedness whether incurred on or prior to the date of the
junior subordinated indenture or thereafter incurred, for claims in
respect of derivative products, including interest rate, foreign exchange
rate and commodity forward contracts, options and swaps and similar
arrangements; and
- every obligation of the type referred to in the preceding bullet points
of another person and all dividends of another person the payment of
which, in either case, we have guaranteed or are responsible or liable,
directly or indirectly, as obligor or otherwise.
"Indebtedness Ranking on a Parity with the Trust Debentures" means:
- Indebtedness, whether outstanding on the date of execution of the junior
subordinated indenture or thereafter created, assumed or incurred, to the
extent such Indebtedness specifically by its terms ranks equally with and
not prior to the trust debentures in right of payment upon the happening
of the dissolution or winding-up or liquidation or reorganization of us;
and
- all other debt securities, and guarantees in respect of those debt
securities (including other debentures and other guarantees), issued to
any other trust, or a trustee of such trust, partnership or other entity
affiliated with us that is our financing vehicle in connection with the
issuance by such financing vehicle of equity securities that are similar
to the trust preferred securities or other securities guaranteed by us.
The securing of any Indebtedness otherwise constituting Indebtedness
Ranking on a Parity with the Trust Debentures will not be deemed to prevent such
Indebtedness from constituting Indebtedness Ranking on a Parity with the Trust
Debentures.
"Indebtedness Ranking Junior to the Trust Debentures" means any
Indebtedness, whether outstanding on the date of execution of the junior
subordinated indenture or thereafter created, assumed or incurred, to the extent
such Indebtedness specifically by its terms ranks junior to and not equally with
or prior to the trust debentures (and any other Indebtedness Ranking on a Parity
with the Trust Debentures) in right of payment upon the happening of the
dissolution or winding-up or liquidation or reorganization of us. The securing
of any Indebtedness otherwise constituting Indebtedness Ranking Junior to the
Trust Debentures will not be deemed to prevent such Indebtedness from
constituting Indebtedness Ranking Junior to the Trust Debentures.
27
"Senior Indebtedness" means all Indebtedness, whether outstanding on the
date of execution of the junior subordinated indenture or thereafter created,
assumed or incurred, except Indebtedness Ranking on a Parity with the Trust
Debentures or Indebtedness Ranking Junior to the Trust Debentures, and any
deferrals, renewals or extensions of such Senior Indebtedness.
Holders of trust debentures should look only to us for payments on the
trust debentures.
OPTION TO EXTEND INTEREST PAYMENT DATE
Except as otherwise described in an applicable prospectus supplement, so
long as no debenture event of default has occurred and is continuing, we will
have the right under the junior subordinated indenture at any time and from time
to time during the term of the trust debentures to defer the payment of interest
for a period not exceeding 10 consecutive semi-annual periods (or the equivalent
thereof). However, no deferral period shall extend beyond the stated maturity
date. At the end of such deferral period, we must pay all interest then accrued
and unpaid. During the deferral period we will be restricted from making certain
payments described below under "-- Restrictions on Certain Payments."
Prior to the termination of any deferral period, we may further extend such
deferral period, so long as such extension does not cause such deferral period
to exceed 10 consecutive semi-annual periods or extend beyond the stated
maturity date. Upon the termination of any deferral period and the payment of
all amounts then due on any interest payment date, we may elect to begin a new
deferral period, subject to the above requirements. No interest shall be due and
payable during a deferral period, except at the end thereof. We must give the
property trustee, the administrative trustees and the debenture trustee notice
of our election to defer payment of interest on the trust debentures at least
one business day prior to the earlier of:
- the date the distributions on the trust securities would have been
payable except for the election to begin or extend such deferral period;
or
- the date the administrative trustees are required to give notice to any
securities exchange or to holders of capital securities of the record
date or the date such distributions are payable, but in any event not
less than one business day prior to such record date.
The property trustee shall give notice of our election to begin or extend a
new deferral period to the holders of the trust preferred securities. There is
no limitation on the number of times that we may elect to begin a deferral
period. Accordingly, there could be multiple deferral periods of varying lengths
throughout the term of the trust debentures.
CONVERSION OR EXCHANGE
If and to the extent indicated in the applicable prospectus supplement, the
trust debentures may be convertible or exchangeable into other debt or equity
securities or property. The specific terms on which trust debentures may be so
converted or exchanged will be set forth in the applicable prospectus
supplement. Such terms may include provisions for conversion or exchange, either
mandatory, at the option of the holder, or at our option, in which case the
number or amount of securities or other property to be received by the holders
of the trust debentures would be calculated as of a time and in the manner
stated in the applicable prospectus supplement.
RESTRICTIONS ON CERTAIN PAYMENTS
Except as otherwise specified in the applicable prospectus supplement, if
(1) any event has occurred, of which we have actual knowledge, that with the
giving of notice or the lapse of time, or both, would be a debenture event of
default and in respect of which we have not taken reasonable steps to cure, (2)
a debenture event of default has occurred and is continuing, (3) if the trust
debentures are held by the property trustee, we are in default with respect to
our payment of any obligations under the guarantee or (4) we have given notice
28
of our election of a deferral period as provided in the junior subordinated
indenture, or such deferral period, or any extension thereof, has commenced and
is continuing, then we will not do any of the following:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of our
capital stock other than the following:
- dividends or distributions in shares of, or options, warrants or rights
to subscribe for or purchase shares of, common stock;
- any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan
in the future, or the redemption or repurchase of any such rights
pursuant thereto;
- as a result of a reclassification of our capital stock or the exchange
or conversion of one class or series of our capital stock for another
class or series of our capital stock;
- the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of such capital stock
or the security being converted or exchanged; and
- purchases of common stock related to the issuance of common stock or
rights under any of our benefit plans for our directors, officers or
employees or any of our dividend reinvestment plans;
- make any payment of principal, interest or premium, if any, on or repay
or repurchase or redeem any of our debt securities (including other
debentures) that rank equal to or junior in right of payment to the trust
debentures; or
- make any guarantee payments (other than payments under the guarantee of
the trust securities) with respect to any guarantee by us of the debt
securities of any of our subsidiaries, if such guarantee ranks pari passu
or junior in right of payment to the trust debentures.
REDEMPTION
To the extent set forth in an applicable prospectus supplement, we may, or
may be required to, redeem the trust debentures at the prices and on the terms
set forth in such prospectus supplement. If the trust debentures are so
redeemable only on or after a specified date or event or upon the satisfaction
of additional conditions, the applicable prospectus supplement will specify such
date or event or describe such conditions.
If set forth in the applicable prospectus supplement, a series of trust
debentures may be redeemable in the event of certain changes in tax law
affecting our ability to deduct, for federal income tax purposes, the interest
payable on the trust debentures. The applicable prospectus supplement will
describe the terms of any such right and the status of any then pending changes
in tax law relevant to such right.
For so long as the trust is the holder of the trust debentures, the
proceeds of any redemption of such debentures will be used by the trust to
redeem the related trust securities in accordance with their terms.
Except as set forth in the applicable prospectus supplement, notice of any
redemption will be mailed at least 30 days but not more than 60 days before the
redemption date to each holder of the trust debentures to be redeemed at its
registered address. Unless we default in payment of the redemption price, on and
after the redemption date interest will cease to accrue on the trust debentures
or portions thereof called for redemption.
CERTAIN COVENANTS
Except as otherwise specified in the applicable prospectus supplement, if
and so long as the trust is the holder of all trust debentures, we, as borrower,
will pay to the trust all fees and expenses related to the trust and the
offering of the trust securities and will pay, directly or indirectly, all
ongoing costs, expenses and liabilities of the trust (including any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States or any domestic taxing authority
upon the trust but excluding obligations under the trust securities).
29
Except as otherwise specified in an applicable prospectus supplement, so
long as the trust securities remain outstanding, we also covenant:
- to maintain 100% direct or indirect ownership of the trust common
securities; provided, however, that any successor of our company
permitted under the indenture may succeed to our ownership of such trust
common securities; and
- to use reasonable efforts to cause the trust:
- to remain a business trust, except in connection with the distribution
of trust debentures to the holders of trust securities in liquidation of
the trust, the redemption of all of the trust securities, or certain
mergers, consolidations or amalgamations, each as permitted by the trust
agreement; and
- to otherwise continue to be treated as a grantor trust for United States
federal income tax purposes; and
- to use our reasonable efforts to cause each holder of trust securities to
be treated as owning an undivided beneficial interest in the trust
debentures.
ADDITIONAL SUMS
Except as set forth in the applicable prospectus supplement, we will be
obligated to pay as additional amounts on the trust debentures such additional
amounts as may be necessary in order that the amount of distributions then due
and payable by the trust on the outstanding trust securities shall not be
reduced as a result of any such additional taxes, duties and other governmental
charges.
MODIFICATION OF INDENTURE
From time to time and without the consent of the holders of trust
debentures, we and the debenture trustee may amend the junior subordinated
indenture for specified purposes, including, among other things, to cure any
ambiguity or to correct or supplement any provision contained in the junior
subordinated indenture or any supplemental indenture which is defective or
inconsistent with any other provision contained therein (provided that any such
action does not materially adversely affect the interests of the holders of
trust debentures) and qualifying, or maintaining the qualification of, the
junior subordinated indenture under the Trust Indenture Act.
The junior subordinated indenture contains provisions permitting us and the
debenture trustee, with the consent of the holders of a majority in aggregate
principal amount of trust debentures, to amend the junior subordinated indenture
in a manner affecting the rights of the holders of trust debentures. However,
except as set forth in the applicable prospectus supplement, no such
modification may, without the consent of the holders of each outstanding trust
debenture so affected:
- change the stated maturity, or reduce the rate of interest or extend the
time of payment of interest thereon except pursuant to our right under
the junior subordinated indenture to defer the payment of interest as
provided therein (see "-- Option to Extend Interest Payment Date") or
reduce the amount of any premium payable on the trust debentures or
reduce the amount payable on redemption thereof or make the principal of,
or interest or premium on, the trust debentures payable in any coin or
currency other than that provided in the trust debentures, or impair or
affect the right of any holder of trust debentures to institute suit for
the payment thereof or, if applicable, to convert or exchange such
holder's trust debenture as set forth in the junior subordinated
indenture;
- modify the provisions of the junior subordinated indenture with respect
to the subordination of the trust debentures in a manner adverse to the
holders;
30
- reduce the percentage of principal amount of trust debentures, the
holders of which are required to consent to any such modification of the
junior subordinated indenture, or are required to consent to any waiver
provided for in the junior subordinated indenture; or
- modify certain other provisions of the junior subordinated indenture
relating to amendments and waivers of holders.
Notwithstanding the foregoing, if the trust holds the trust debentures, an
amendment requiring consent of holders of a majority in principal amount of the
trust debentures will not be effective until the holders of a majority in
liquidation amount of the trust securities have consented to the amendment.
Further, if the consent of the holders of each trust debenture is required, an
amendment will not be effective until each holder of the trust securities has
consented to such amendment.
DEBENTURE EVENTS OF DEFAULT
Except as set forth in the applicable prospectus supplement, the junior
subordinated indenture provides that any one or more of the following described
events with respect to the trust debentures constitute a debenture event of
default:
- failure to pay any interest on the trust debentures when due for 30 days
(subject to the deferral of any due date in the case of an Extension
Period); or
- failure to pay any principal or premium, if any, on the trust debentures
when due whether at maturity, upon redemption, by declaration of
acceleration of maturity or otherwise; or
- failure to perform, or breach of, any other covenant or warranty of our
company contained in the junior subordinated indenture for 90 days after
written notice to our company from the debenture trustee or the holders
of at least 25% in aggregate outstanding principal amount of trust
debentures; or
- certain events of bankruptcy, insolvency or reorganization of our
company.
Within five business days after the occurrence of a debenture event of
default actually known to the indenture trustee, the indenture trustee must
transmit notice of such debenture event of default to the debenture holders,
unless such debenture event of default has been cured or waived. The junior
subordinated indenture requires that we file annually with the debenture trustee
of a certificate as to the absence of certain defaults under the indenture.
The holders of a majority in aggregate outstanding principal amount of the
trust debentures generally have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the debenture trustee
or to exercise any trust or power conferred upon the debenture trustee under the
junior subordinated indenture, with certain exceptions set forth in the junior
subordinated indenture. If a debenture event of default has occurred and is
continuing, the debenture trustee or the holders of not less than 25% in
aggregate outstanding principal amount of the trust debentures may declare the
principal amount on all trust debentures due and payable immediately upon such
debenture event of default. The holders of a majority in aggregate outstanding
principal amount of the trust debentures may annul such declaration and waive
the default if the default (other than the non-payment of the principal of the
trust debentures which has become due solely by such acceleration) has been
cured and a sum sufficient to pay all matured installments of interest and
principal of, and premium, if any, due otherwise than by acceleration (with any
compounded interest due thereon) has been deposited with the debenture trustee.
Prior to the declaration accelerating the maturity of the trust debentures,
the holders of a majority in aggregate outstanding principal amount of the trust
debentures may, on behalf of the holders of all the trust debentures, waive any
past default or debenture event of default and its consequences, except a
continuing default in the payment of principal (or premium, if any) or interest
or a default in respect of a covenant or provision which under the junior
subordinated indenture cannot be modified or amended without the consent of the
holder of each outstanding trust debenture affected.
31
In case a payment related debenture event of default shall occur and be
continuing, the property trustee will have the right to declare the principal of
and the interest on such trust debentures and any other amounts payable under
the junior subordinated indenture, to be forthwith due and payable and to
enforce its other rights as a creditor with respect to such trust debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If a debenture event of default has occurred and is continuing and is
attributable to our failure to pay the principal of (or premium, if any), or
interest on the trust debentures on the date such payment is otherwise required,
a holder of trust preferred securities may institute a direct action against us
for such failure to pay. We may not amend the junior subordinated indenture to
remove the foregoing right to bring a direct action without the prior written
consent of the holders of all of the trust preferred securities. Notwithstanding
any payments made to a holder of trust preferred securities by us in connection
with a direct action, we will be subrogated to the rights of the holder of such
trust preferred securities with respect to payments on the trust preferred
securities to the extent of any payments made by us to such holder in any direct
action.
The holders of the trust preferred securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the trust debentures unless there shall have been an
event of default under the trust agreement. See "Description of Trust
Securities -- Events of Default; Notice."
SATISFACTION AND DISCHARGE
The junior subordinated indenture provides that when, among other things,
all trust debentures not previously cancelled or delivered to the debenture
trustee for cancellation (i) have become due and payable or (ii) will become due
and payable at maturity or called for redemption within one year, and we deposit
or cause to be deposited with the debenture trustee funds, in trust, for the
purpose and in an amount sufficient to pay on the stated maturity date or upon
redemption of all the trust debentures not previously delivered to the debenture
trustee for cancellation, the principal (and premium, if any) and interest due
or to become due on the stated maturity date, or the redemption date, as the
case may be, then the junior subordinated indenture will cease to be of further
effect (with limited exceptions), and we will be deemed to have satisfied and
discharged the junior subordinated indenture.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The junior subordinated indenture does not prevent us from consolidating
with or merging into any other person or conveying, transferring or leasing our
properties as an entirety or substantially as an entirety to any person, as long
as:
- either we are the surviving person or the successor person is organized
and existing under the laws of the United States or any state or the
District of Columbia, and such successor person expressly assumes our
obligations on the trust debentures and the junior subordinated
indenture, including with respect to conversion matters, if applicable;
- immediately after giving effect thereto, no debenture event of default,
and no event which, after notice or lapse of time or both, would become a
debenture event of default, has occurred and is continuing; and
- certain other procedural conditions prescribed in the junior subordinated
indenture are met.
FORM, REGISTRATION AND TRANSFER
If the trust debentures are distributed to the holders of the trust
securities, the trust debentures may be represented by one or more global
certificates registered in the name of the DTC or its nominee. Under such
circumstances, the depositary arrangements for the trust debentures would be
expected to be substantially similar to those in effect for the preferred
securities. For a description of DTC and the terms of the depositary
arrangements relating to payments, transfers, voting rights, redemptions and
other notices and other matters,
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see "Description of Preferred Securities -- Form, Denomination, Book-Entry
Procedures and Transfer" and "-- Depositary Procedures."
PAYMENT AND PAYING AGENTS
Payment of principal of (and premium, if any) and interest on trust
debentures will be made at the office of the debenture trustee or at the office
of such paying agent or paying agents as we may designate from time to time,
except that at our option payment of any interest may be made, except in the
case of trust debentures in global form, (i) by check mailed to the address of
the holder thereof as such address shall appear in the register for trust
debentures or (ii) by transfer to an account maintained by the holder thereof,
provided that proper transfer instructions have been received by the relevant
record date. Payment of any interest on any trust debenture will be made to the
person in whose name such trust debenture is registered at the close of business
on the record date for such interest. We may at any time designate additional
paying agents or rescind the designation of any paying agent; however we will at
all times be required to maintain a paying agent in each place of payment for
the trust debentures.
GOVERNING LAW
The junior subordinated indenture and the trust debentures will be governed
by and construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The debenture trustee will be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act of 1939. Subject to such provisions, the debenture trustee is
under no obligation to exercise any of the powers vested in it by the indenture
at the request of any holder of trust debentures, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. The debenture trustee is not required to expend or risk its
own funds or otherwise incur personal financial liability in the performance of
its duties if the debenture trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it. Bank One Trust Company, N.A.
is the trustee under the junior subordinated indenture. Bank One, N.A. is the
trustee under our senior debt indenture, which is described under the section
entitled "Description of Debt Securities."
DESCRIPTION OF GUARANTEE
Set forth below is a summary of information concerning the guarantee, which
will be executed and delivered by us for the benefit of the holders from time to
time of trust preferred securities. The guarantee will be qualified under the
Trust Indenture Act of 1939. The guarantee trustee, Bank One Trust Company,
N.A., will hold the guarantee for the benefit of the holders of the trust
preferred securities. The following summary is not necessarily complete, and
reference is hereby made to the copy of the form of the guarantee (including the
definitions therein of certain terms), which is filed as an exhibit to the
registration statement of which this prospectus forms a part, and to the Trust
Indenture Act of 1939. We will describe the particular terms of the guarantee,
and any provisions that vary from those described below, in one or more
prospectus supplements. We will also file the definitive guarantee with the SEC
when we issue trust preferred securities.
GENERAL
We will irrevocably and unconditionally agree to pay in full on a
subordinated basis the payments described below to the holders of the trust
preferred securities, as and when due, regardless of any defense, right of
setoff or counterclaim that the trust may have or assert other than the defense
of payment. The following payments with respect to the trust preferred
securities, to the extent not paid by or on behalf of the trust, will be subject
to the guarantee:
- any accumulated and unpaid distributions required to be paid on the trust
preferred securities, to the extent that the trust has funds on hand
legally available therefor at such time;
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- the applicable redemption price with respect to the trust preferred
securities called for redemption, to the extent that the trust has funds
on hand legally available therefor at such time; and
- upon a voluntary or involuntary dissolution, winding-up or liquidation of
the trust (other than in connection with the distribution of the trust
debentures to holders of the trust preferred securities), the lesser of:
- the liquidation distribution, to the extent the trust has funds legally
available therefor at the time; or
- the amount of assets of the trust remaining available for distribution
to holders of trust preferred securities after satisfaction of
liabilities to creditors of the trust as required by applicable law.
Our obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by us to the holders of the trust preferred
securities or by causing the trust to pay such amounts to such holders.
The guarantee will be a guarantee of the guarantee payments with respect to
the trust preferred securities from the time of issuance of the trust preferred
securities, but will not apply to distributions and other payments on the trust
preferred securities when the trust does not have sufficient funds legally and
immediately available to make such distributions or other payments. Therefore,
if we do not make interest payments on the trust debentures held by the property
trustee, the trust will not make distributions on the trust preferred securities
and we will not make payments under the guarantee.
Through the guarantee, the trust agreement, the trust debentures and the
junior subordinated indenture, taken together, we will fully, irrevocably and
unconditionally guarantee all of the trust's obligations under the trust
preferred securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
trust's obligations under the trust preferred securities. See "Relationship
Among the Preferred Securities, the Trust Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The guarantee will constitute our unsecured obligation and will rank
subordinate and junior in right of payment to all Senior Indebtedness in the
same manner as the trust debentures. See "Description of Trust
Debentures -- Subordination."
The guarantee will rank equally with our guarantee of the 6% Convertible
Preferred Securities, Term Income Deferrable Equity Securities (TIDES) of
Continental Airlines Finance Trust II and all other guarantees issued by us
after the issue date with respect to trust preferred securities, if any, issued
by other trusts. The guarantee will constitute a guarantee of payment and not of
collection. The guarantee will be held by the guarantee trustee for the benefit
of the holders of the trust preferred securities. The guarantee will not be
discharged except by payment of the guarantee payments in full to the extent not
paid by the trust or upon distribution to the holders of the trust preferred
securities of the trust debentures.
The guarantee does not limit the incurrence or issuance of other secured or
unsecured debt by us or any of our subsidiaries, including Senior Indebtedness,
whether under the junior subordinated indenture, any other indenture that we may
enter into in the future or otherwise.
EVENTS OF DEFAULT
An event of default under the guarantee will occur upon our failure to
perform any of our payment or other obligations thereunder; provided, however,
that with respect to a default other than a default in payment of any guarantee
payment, we have received notice of such default and shall not have cured such
default within 60 days after receipt of such notice. The holders of not less
than a majority in liquidation amount of the trust preferred securities will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the guarantee trustee in respect of the guarantee or
to direct the exercise of any trust or power conferred upon the guarantee
trustee under the guarantee.
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Any holder of the trust preferred securities may institute a legal
proceeding directly against us to enforce its rights under the guarantee without
first instituting a legal proceeding against the trust, the guarantee trustee or
any other person or entity.
As guarantor, we will be required to file annually with the guarantee
trustee a certificate as to whether or not we are in compliance with all the
conditions and covenants applicable to us under the guarantee.
Upon the occurrence of a default under the guarantee, we will not be
allowed to make certain payments as described under "Description of Trust
Debentures -- Restrictions on Certain Payments."
AMENDMENTS AND ASSIGNMENTS
Except with respect to any changes that do not materially adversely affect
the rights of holders of the trust preferred securities (in which case no vote
will be required), the guarantee may be amended only with the prior approval of
the holders of a majority of the liquidation amount of such outstanding trust
preferred securities. The manner of obtaining any such approval will be as set
forth under "Description of Trust Securities -- Voting Rights; Amendment of the
Trust Agreement." All guarantees and agreements contained in the guarantee shall
bind our successors, assigns, receivers, trustees and representatives and shall
inure to the benefit of the holders of the trust preferred securities then
outstanding.
TERMINATION OF THE GUARANTEE
The guarantee will terminate and be of no further force and effect upon:
- full payment of the applicable redemption price of the trust preferred
securities; or
- upon liquidation of the trust, the full payment of the liquidation
distribution or the distribution of the trust debentures to the holders
of the trust preferred securities or, if applicable, the conversion or
exchange of all trust preferred securities in accordance with their
terms.
The guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of the trust preferred securities must
restore payment of any sums paid under the trust preferred securities or the
guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
Other than during the occurrence and continuance of a default by us in
performance of the guarantee, the guarantee trustee will undertake to perform
only such duties as are specifically set forth in the guarantee and, in case a
default with respect to the guarantee has occurred, must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the guarantee
trustee will be under no obligation to exercise any of the powers vested in it
by the guarantee at the request of any holder of the trust preferred securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
GOVERNING LAW
The guarantee will be governed by and construed in accordance with the laws
of the State of New York.
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RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES,
THE TRUST DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of distributions and other amounts due on the trust preferred
securities, to the extent the trust has funds on hand legally available for the
payment of such distributions, are irrevocably guaranteed by us as and to the
extent set forth under "Description of Guarantee." Taken together, our
obligations under the trust debentures, the junior subordinated indenture, the
trust agreement and the guarantee provide, in the aggregate, a full, irrevocable
and unconditional guarantee of payments of distributions and other amounts due
on the trust preferred securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
trust's obligations under the trust preferred securities. If and to the extent
that we do not make the required payments on the trust debentures, the trust
will not have sufficient funds to make the related payments, including
distributions, on the trust preferred securities. The guarantee will not cover
any such payment when the trust does not have sufficient funds on hand legally
available therefor. In such event, the remedy of a holder of trust preferred
securities is to institute a direct action against us to enforce such holders'
rights under the trust debentures. Our obligations under the guarantee are
subordinate and junior in right of payment to all Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
trust debentures, such payments will be sufficient to cover distributions and
other payments due on the trust securities, primarily because:
- the aggregate principal amount or prepayment price of the trust
debentures will be equal to the sum of the liquidation amount or
redemption price, as applicable, of the trust securities;
- the interest rate and interest and other payment dates on the trust
debentures will match the distribution rate and distribution and other
payment dates for the trust securities;
- we will pay for all and any costs, expenses and liabilities of the trust
except the trust's obligations to holders of trust securities under such
trust securities; and
- the trust agreement will provide that the trust is not authorized to
engage in any activity that is not consistent with the limited purposes
thereof.
Notwithstanding anything to the contrary in the junior subordinated
indenture, we have the right to set-off any payment we are otherwise required to
make with and to the extent we have theretofore made, or are concurrently on the
date of such payment making, a payment under the guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF TRUST PREFERRED SECURITIES
A holder of any preferred trust security may institute a legal proceeding
directly against us to enforce its rights under the guarantee without first
instituting a legal proceeding against the guarantee trustee, the trust or any
other person or entity. A holder of trust preferred securities will also have a
direct right to proceed against us to enforce such holder's rights under the
trust debentures in the event of a payment default on the trust debentures.
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LIMITED PURPOSE OF THE TRUST
The trust preferred securities represent preferred undivided beneficial
interests in the assets of the trust, and the trust exists for the sole purpose
of:
- issuing and selling the trust securities;
- using the proceeds from the sale of the trust securities to acquire the
trust debentures; and
- engaging in only those other activities necessary, advisable or
incidental thereto.
A principal difference between the rights of a holder of a preferred
security and a holder of a trust debenture is that a holder of a trust debenture
will be entitled to receive from us the principal amount of, and premium, if
any, and interest on trust debentures held, while a holder of trust preferred
securities is entitled to receive distributions from the trust (or, in certain
circumstances, from us under the guarantee) if and to the extent the trust has
funds on hand legally available for the payment of such distributions.
RIGHTS UPON DISSOLUTION
Unless the trust debentures are distributed to holders of the trust
securities, upon any voluntary or involuntary dissolution and liquidation of the
trust, after satisfaction of liabilities to creditors of the trust as required
by applicable law, the holders of the trust securities will be entitled to
receive, out of assets held by the trust, the liquidation distribution in cash.
See "Description of Trust Securities -- Liquidation of the Trust and
Distribution of Trust Debentures." Upon any voluntary or involuntary liquidation
or bankruptcy of our company, the property trustee, as holder of the trust
debentures, would be a subordinated creditor of our company, subordinated in
right of payment to all Senior Indebtedness as set forth in the junior
subordinated indenture, but entitled to receive payment in full of principal,
and premium, if any, and interest, before any of our stockholders receive
payments or distributions. Since we will be the guarantor under the guarantee
and will agree to pay for all costs, expenses and liabilities of the trust
(other than the trust's obligations to the holders of its trust securities), the
positions of a holder of trust preferred securities and a holder of trust
debentures relative to other creditors and to our stockholders in the event of
our liquidation or bankruptcy are expected to be substantially the same.
DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK
Our authorized capital stock currently consists of 200 million shares of
Class B common stock, which we refer to as the common stock, and 10 million
shares of preferred stock. As of October 5, 2001, we had outstanding 55,420,915
shares of Class B common stock and one share of Series B preferred stock.
This section contains a description of our common stock and preferred stock
that we may offer by this prospectus as well as the terms of our Series B
preferred stock which may affect our common stock and preferred stock that we
may offer by this prospectus. The following discussion is not meant to be
complete and is qualified by reference to our certificate of incorporation,
bylaws and the rights agreement that we describe in this section. For more
information, you should read "Where You Can Find More Information."
DESCRIPTION OF COMMON STOCK
Rights to Dividends and on Liquidation, Dissolution or Winding Up. Common
stockholders participate ratably in any dividends or distributions on the common
stock. In the event of any liquidation, dissolution or winding up of our
company, common stockholders are entitled to share ratably in our assets
available for distribution to the stockholders, subject to the prior rights of
holders of any outstanding preferred stock.
Preemptive and Other Subscription Rights. Common stockholders do not have
preemptive, subscription, conversion or redemption rights (other than the
anti-dilution rights described under "-- Corporate Governance and Control"), and
are not subject to further capital calls or assessments.
No Cumulative Voting Rights. Common stockholders do not have the right to
cumulate their votes in the election of directors.
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Voting. Holders of common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders, except that voting rights of
non-U.S. citizens are limited as described under "-- Limitation on Voting by
Foreign Owners."
DESCRIPTION OF PREFERRED STOCK
The following summary describes certain general terms of our authorized
preferred stock.
We may issue preferred stock from time to time in one or more series.
Subject to the provisions of our certificate of incorporation and limitations
prescribed by law, our board of directors may adopt resolutions to issue the
shares of preferred stock in one or more series, to fix the number of shares of
the series and to establish the designations, powers, preferences and relative,
participating, optional or other special rights of the preferred stock. Our
board of directors may also fix the qualifications, limitations or restrictions,
if any, of the preferred stock, including dividend rights (including whether
dividends are cumulative), dividend rates, terms of redemption (including
sinking fund provisions), redemption rights and prices, conversion or exchange
rights and liquidation preferences of the shares of the series, in each case
without any further action or vote by our stockholders.
If we offer preferred stock, a description will be filed with the SEC and
the specific terms of the preferred stock will be described in the prospectus
supplement, including the following terms:
- the series, the number of shares offered and the liquidation value of the
preferred stock;
- the price at which the preferred stock will be issued;
- the dividend rate, the dates on which the dividends will be payable and
other terms relating to the payment of dividends on the preferred stock;
- the voting rights of the preferred stock;
- the liquidation preference of the preferred stock;
- whether the preferred stock is redeemable or subject to a sinking fund,
and the terms of any such redemption or sinking fund;
- whether the preferred stock is convertible into or exchangeable for any
other securities, and the terms of any such conversion or exchange; and
- any additional rights, preferences, qualifications and limitations of the
preferred stock.
LIMITATION ON VOTING BY FOREIGN OWNERS
Our certificate of incorporation provides that shares of capital stock may
not be voted by or at the direction of persons who are not citizens of the
United States unless the shares are registered on a separate stock record.
Applicable restrictions currently require that no more than 25% of our voting
stock be owned or controlled, directly or indirectly, by persons who are not
U.S. citizens, and that our president and at least two-thirds of our directors
or other managing officers be U.S. citizens. For purposes of the certificate of
incorporation, "U.S. citizen" means:
- an individual who is a citizen of the United States; or
- a partnership each of whose partners is an individual who is a citizen of
the United States, or a corporation or association organized under the
laws of the United States or a state, the District of Columbia, or a
territory or possession of the United States, of which the president and
at least two-thirds of the board of directors and other managing officers
are citizens of the United States, and in which at least 75% of the
voting interest is owned or controlled by persons that are citizens of
the United States.
Our bylaws provide that no shares will be registered on the foreign stock
record if the amount so registered would exceed the restrictions described above
or adversely affect our operating certificates or
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authorities. Registration on the foreign stock record is made in chronological
order based on the date we receive a written request for registration.
An affiliate of AXA Financial, Inc. has requested that all shares
beneficially owned by AXA Financial, Inc. and its affiliates be included on our
foreign stock record. Although we have not to date limited the registration of
any shares on this record, subject to certain factors, the registration of the
shares beneficially owned by AXA Financial, Inc. will preclude the registration,
and thus the voting of, any shares owned by any other stockholders that are not
U.S. citizens.
PREFERRED STOCK PURCHASE RIGHTS
General. One preferred stock purchase right is currently associated with
each outstanding share of our common stock. Each of these preferred stock
purchase rights entitles the registered holder to purchase from us one
one-thousandth of a share of our Series A junior participating preferred stock
at a purchase price of $200 per one one-thousandth of a share, subject to
adjustment.
The preferred stock purchase rights will have anti-takeover effects. The
preferred stock purchase rights could cause substantial dilution to a person or
group that attempts to acquire us and effect a change in the composition of our
board of directors on terms not approved by our board of directors, including by
means of a tender offer at a premium to the market price. Subject to
restrictions and limitations contained in our charter, the preferred stock
purchase rights should not interfere with any merger or business combination
approved by our board of directors, because we may redeem the preferred stock
purchase rights at the redemption price prior to the time that a person has
become an acquiring person or amend the preferred stock purchase rights to make
them inapplicable to the approved transaction.
The following summary of the material terms of the preferred stock purchase
rights is not meant to be complete and is qualified by reference to the rights
agreement that governs the issuance of the rights. See "Where You Can Find More
Information."
Evidence and Transferability of Preferred Stock Purchase Rights. The
preferred stock purchase rights will be evidenced by the certificates
representing shares of common stock until the earlier to occur of:
- 10 days following a public announcement or public disclosure of facts
made by us or an acquiring person that a person or group of affiliated or
associated persons has become an acquiring person, which occurs,
generally, when that person or group has acquired beneficial ownership of
common stock representing 15% or more of the total number of votes
entitled to be cast by the holders of common stock then outstanding; and
- 10 business days, or a later date established by our board of directors
before the time any person or group becomes an acquiring person,
following the commencement of, or the first public announcement of an
intention of any person or group to make, a tender offer or exchange
offer that, if completed, would result in the beneficial ownership by a
person or group of shares of common stock representing 15% or more of
such number of votes.
Until the rights distribution date or the earlier redemption or expiration
of the preferred stock purchase rights:
- the preferred stock purchase rights will be transferred only with the
transfer of shares of common stock;
- certificates representing shares of common stock which become outstanding
after the record date for the initial distribution of the rights, will
contain a notation incorporating the terms of the preferred stock
purchase rights by reference; and
- the surrender for transfer of any certificate representing shares of
common stock will also constitute the transfer of the preferred stock
purchase rights associated with the shares of common stock represented by
that certificate.
As soon as practicable following the rights distribution date, separate
certificates evidencing the preferred stock purchase rights will be mailed to
holders of record of the shares of common stock as of the close of
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business on the rights distribution date and those separate preferred stock
purchase rights certificates alone will evidence the rights.
Exempt Persons. We and certain persons affiliated with us are exempt from
the definition of acquiring person. An exception to the definition of acquiring
person in the rights agreement permits an institutional investor to be or become
the beneficial owner of our common stock representing 15% or more of the voting
power of the common stock then outstanding, subject to certain limitations
described below, without becoming an acquiring person, as long as the
institutional investor continues to be an institutional investor. Generally, an
institutional investor is a person who, as of January 31, 2000:
- beneficially owned more than 14% of the voting power of our common stock
then outstanding;
- had a Schedule 13G on file with the SEC with respect to its holdings;
- is principally engaged in the business of managing investment funds for
unaffiliated securities investors;
- acquires the common stock pursuant to trading activities undertaken in
the ordinary course of such person's business not with the purpose or
effect of exercising or influencing control over us; and
- is not obligated to and does not file a Schedule 13D with respect to our
securities.
If our board of directors determines that a person is no longer an
institutional investor, then this person will be required to divest itself as
promptly as practicable of a sufficient number of shares of common stock so that
this person beneficially owns less than 15% of the voting power of our common
stock then outstanding.
If our board of directors determines that this person does not divest
itself of common shares as required, then this person will be or become an
acquiring person under the rights agreement.
AXA Financial, Inc., as an institutional investor under the rights
agreement, is permitted to beneficially own, without triggering the rights under
the rights agreement, so long as it retains its status as a passive
institutional investor, up to 47% of the outstanding shares of common stock
through December 31, 2001, and, after December 31, 2001, the lesser of 47% of
the outstanding shares of common stock and the percentage of common stock
reported as beneficially owned by it in any Schedule 13G filed with the SEC
after December 31, 2001 (such that the percentage permitted to be beneficially
owned by it will be reduced (down to 25% of the outstanding shares of common
stock) to reflect reductions in its beneficial ownership percentage resulting
from subsequent sales of common stock or increases in the total number of shares
of common stock outstanding).
Exercisability of Rights. The preferred stock purchase rights are not
exercisable until the preferred stock purchase rights distribution date. The
preferred stock purchase rights will expire on November 20, 2008, unless the
expiration date is extended or unless the preferred stock purchase rights are
earlier redeemed or exchanged by us, in each case, as described below.
If any person becomes an acquiring person, each holder of a preferred stock
purchase right (other than preferred stock purchase rights beneficially owned by
the acquiring person, which will be void) will, after the date that any person
became an acquiring person, have the right to receive, upon exercise of those
preferred stock purchase rights at the then current exercise price, that number
of shares of common stock, or cash or other securities or assets in certain
circumstances, having a market value of two times the exercise price of the
preferred stock purchase right. If, at any time on or after the date that any
person has become an acquiring person, we are acquired in a merger or other
business combination transaction or 50% or more of our consolidated assets or
earning power are sold, each holder of a preferred stock purchase right will,
after the date of that transaction, have the right to receive, upon the exercise
of those preferred stock purchase rights at the then current exercise price of
the preferred stock purchase right, that number of shares of common stock of the
acquiring company which at the time of that transaction will have a market value
of two times the exercise price of the preferred stock purchase right.
The purchase price payable, and the number of shares of junior preferred
stock or other securities or property issuable, upon exercise of the preferred
stock purchase rights are subject to adjustment from time to time to prevent
dilution in some circumstances.
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Until a preferred stock purchase right is exercised, the holder of a
preferred stock purchase right will have no rights as a stockholder of our
company, including the right to vote or to receive dividends.
From and after the occurrence of an event described in Section 11(a)(ii) of
the rights agreement, if rights are or were, at any time on or after the earlier
of (1) the date of such event and (2) the distribution date, acquired or
beneficially owned by an acquiring person or an associate or affiliate of an
acquiring person, such rights shall become void, and any holder of such rights
shall thereafter have no right to exercise such rights.
Terms of Junior Preferred Stock. Shares of junior preferred stock, which
may be purchased upon exercise of the preferred stock purchase rights, will not
be redeemable. Each share of junior preferred stock will be entitled to receive
when, as and if declared by the board of directors, out of funds legally
available for the purpose, an amount per share equal to 1,000 times the cash or
non-cash dividend declared per share of common stock. In the event of
liquidation, the holders of the junior preferred stock will be entitled to
receive an aggregate payment equal to 1,000 times the payment made per share of
common stock. Each share of junior preferred stock will have 1,000 votes,
together with the common stock. Finally, in the event of any merger,
consolidation or other transaction in which the common stock is exchanged, each
share of junior preferred stock will be entitled to receive an amount equal to
1,000 times the amount received per share of common stock. The rights are
protected by customary antidilution provisions.
Exchange or Redemption. At any time after any person becomes an acquiring
person, and prior to the acquisition by any person or group of a majority of the
voting power, our board of directors may exchange the rights (other than rights
owned by such acquiring person which have become void), in whole or in part, at
an exchange ratio of one share of common stock per right (subject to
adjustment). We may, at our option, substitute preferred shares or common stock
equivalents for common stock, at the rate of one one-thousandth of a preferred
share for each share of common stock (subject to adjustment). No fractional
share of common stock will be issued and in lieu thereof, an adjustment in cash
will be made based on the market price of the share of common stock on the last
trading day prior to the date of exchange.
At any time prior to any person becoming an acquiring person, our board of
directors, by the required board vote, may redeem the rights in whole, but not
in part, at a redemption price of $.001 per right. The redemption of the rights
may be made effective at the time, on any basis and subject to the conditions
which our board of directors may establish. Immediately upon any redemption of
the rights (or upon a later date specified by our board of directors in the
resolution approving a redemption), the right to exercise the rights will
terminate and the only right of the holders of rights will be to receive the
redemption price. The redemption of the rights may be subject to certain
restrictions and limitations contained in our charter.
Our board of directors, by the required board vote, may amend the terms of
the rights without the consent of the holders of the rights, except that from
the time any person becomes an acquiring person, no amendment may adversely
affect the interests of the holders of the rights (other than the acquiring
person and its affiliates and associates). The right of our board of directors
to amend the rights agreement may be subject to certain restrictions and
limitations contained in our charter.
SERIES B PREFERRED STOCK
We have one outstanding share of Series B preferred stock, which is owned
by Northwest Airlines, Inc. Set forth below is a description of some of the
material provisions of the Series B preferred stock.
Ranking. The Series B preferred stock ranks junior to all classes of our
capital stock other than our common stock upon liquidation, dissolution or
winding up of our company.
Dividends. No dividends are payable on our Series B preferred stock.
Voting Rights. The holder of the Series B preferred stock has the right to
block certain actions we may seek to take including:
- certain business combinations and similar changes of control transactions
involving us and a third party major air carrier;
41
- certain amendments to our rights plan (or redemption of those rights);
- any dividend or distribution of all or substantially all of our assets;
and
- certain reorganizations and restructuring transactions involving us.
Redemption. The Series B preferred stock is redeemable by us at a nominal
price under the following circumstances:
- Northwest Airlines transfers or encumbers the Series B preferred stock;
- there is a change of control of Northwest involving a third party major
air carrier;
- the Northwest Alliance terminates or expires (other than as a result of a
breach by us); or
- Northwest materially breaches its standstill obligations to us or
triggers our rights agreement (described below under "Description of
Common Stock").
CORPORATE GOVERNANCE AND CONTROL
Our certificate of incorporation provides that our board of directors will
consist of a number of directors as may be determined from time to time by the
board of directors in accordance with the bylaws. Our board of directors
currently consists of 13 directors elected by common stockholders, subject to
the rights of preferred stockholders to elect additional directors as set forth
in any preferred stock designations.
BUSINESS COMBINATIONS
Our certificate of incorporation provides that we are not governed by
Section 203 of the General Corporation Law of Delaware which, in the absence of
such provisions, would have imposed additional requirements regarding mergers
and other business combinations.
PROCEDURAL MATTERS
Our bylaws require stockholders seeking to nominate directors or propose
other matters for action at a stockholders' meeting to give us notice within
specified periods in advance of the meeting and to follow certain other
specified procedures.
CHANGE OF CONTROL
Because a separate class vote is required pursuant to the terms of the
Series B preferred stock in connection with some changes of control requiring
stockholder approval as described under "-- Series B Preferred Stock -- Voting
Rights," a change of control of our company could be delayed, deferred or
prevented.
In addition, the existence of the preferred stock purchase rights may have
the effect of delaying or preventing a change of control of our company. See
"-- Preferred Stock Purchase Rights" above.
LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION
Our certificate of incorporation provides, to the full extent permitted by
Delaware law, that directors will not be liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director. As required under
current Delaware law, our certificate of incorporation and bylaws currently
provide that this waiver may not apply to liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- or acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
42
- under Section 174 of the Delaware General Corporation Law (governing
distributions to stockholders); or
- for any transaction from which the director derived any improper personal
benefit.
However, in the event the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of any of our directors will be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Our certificate of incorporation further
provides that we will indemnify each of our directors and officers to the full
extent permitted by Delaware law and may indemnify certain other persons as
authorized by the Delaware General Corporation Law. These provisions do not
eliminate any monetary liability of directors under the federal securities laws.
DESCRIPTION OF DEPOSITARY SHARES
We may offer fractional shares of preferred stock, rather than full shares
of preferred stock. If we decide to offer fractional shares of preferred stock,
we will issue receipts for depositary shares. Each depositary share will
represent a fraction of a share of a particular series of preferred stock, and
the prospectus supplement will indicate that fraction. The shares of preferred
stock represented by depositary shares will be deposited under a deposit
agreement between our company and a depositary that is a bank or trust company
that meets certain requirements and is selected by us. The depositary will be
specified in the applicable prospectus supplement. Each owner of a depositary
share will be entitled to all of the rights and preferences of the preferred
stock represented by the depositary share. The depositary shares will be
evidenced by depositary receipts issued pursuant to the deposit agreement.
Depositary receipts will be distributed to those persons purchasing the
fractional shares of preferred stock in accordance with the terms of the
offering.
We have summarized selected provisions of the deposit agreement and the
depositary receipts, but the summary is qualified by reference to the provisions
of the depositary agreement and the depositary receipts. The particular terms of
any series of depositary shares will be described in the applicable prospectus
supplement. If so indicated in the prospectus supplement, the terms of any such
series may differ from the terms set forth below.
DIVIDENDS
The depositary will distribute all cash dividends or other cash
distributions received by it in respect of the preferred stock to the record
holders of depositary shares relating to such preferred shares in proportion to
the numbers of depositary shares held on the relevant record date. The amount
made available for distribution will be reduced by any amounts withheld by the
depositary or us on account of taxes.
In the event of a distribution other than in cash, the depositary will
distribute securities or property received by it to the record holders of
depositary shares in proportion to the numbers of depositary shares held on the
relevant record date, unless the depositary determines that it is not feasible
to make such distribution. In that case, the depositary may make the
distribution by such method as it deems equitable and practicable. One such
possible method is for the depositary to sell the securities or property and
then distribute the net proceeds from the sale as provided in the case of a cash
distribution.
WITHDRAWAL OF SHARES
Upon surrender of depositary receipts representing any number of whole
shares at the depositary's office, unless the related depositary shares
previously have been called for redemption, the holder of the depositary shares
evidenced by the depositary receipts will be entitled to delivery of the number
of whole shares of the related series of preferred stock and all money and other
property, if any, underlying such depositary shares. However, once such an
exchange is made, the preferred stock cannot thereafter be redeposited in
exchange for depositary shares. Holders of depositary shares will be entitled to
receive whole shares of the related series of preferred stock on the basis set
forth in the applicable prospectus supplement. If the depositary receipts
delivered by the holder evidence a number of depositary shares representing more
than the number of whole
43
shares of preferred stock of the related series to be withdrawn, the depositary
will deliver to the holder at the same time a new depositary receipt evidencing
the excess number of depositary shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever we redeem the preferred stock, the depositary will redeem a number
of depositary shares representing the same number of shares of preferred stock
so redeemed. If fewer than all of the depositary shares are to be redeemed, the
depositary shares to be redeemed will be selected by lot, pro rata or by any
other equitable method as the depositary may determine.
VOTING OF UNDERLYING SHARES
Upon receipt of notice of any meeting at which the holders of the preferred
stock of any series are entitled to vote, the depositary will mail the
information contained in the notice of the meeting to the record holders of the
depositary shares relating to that series of preferred shares. Each record
holder of the depositary shares on the record date will be entitled to instruct
the depositary as to the exercise of the voting rights represented by the number
of shares of preferred stock underlying the holder's depositary shares. The
depositary will endeavor, to the extent it is practical to do so, to vote the
number of whole shares of preferred stock underlying such depositary shares in
accordance with such instructions. We will agree to take all action that the
depositary may deem reasonably necessary in order to enable the depositary to do
so. To the extent the depositary does not receive specific instructions from the
holders of depositary shares relating to such preferred shares, it will abstain
from voting such shares of preferred stock.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The form of depositary receipt evidencing the depositary shares and any
provision of the applicable deposit agreement may at any time be amended by
agreement between us and the depositary. We may, with the consent of the
depositary, amend the deposit agreement from time to time in any manner that we
desire. However, if the amendment would materially and adversely alter the
rights of the existing holders of depositary shares, the amendment would need to
be approved by the holders of at least a majority of the depositary shares then
outstanding.
The deposit agreement may be terminated by us or the depositary if:
- all outstanding depositary shares have been redeemed; or
- there has been a final distribution in respect of the shares of preferred
stock of the applicable series in connection with our liquidation,
dissolution or winding up and such distribution has been made to the
holders of depositary receipts.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering to us notice of its
election to do so. We may remove a depositary at any time. Any resignation or
removal will take effect upon the appointment of a successor depositary and its
acceptance of appointment.
CHARGES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of any depositary arrangements. We will pay all
charges of each depositary in connection with the initial deposit of the
preferred shares of any series, the initial issuance of the depositary shares,
any redemption of such preferred shares and any withdrawals of such preferred
shares by holders of depositary shares. Holders of depositary shares will be
required to pay any other transfer taxes.
44
NOTICES
Each depositary will forward to the holders of the applicable depositary
shares all notices, reports and communications from us which are delivered to
such depositary and which we are required to furnish the holders of the
preferred shares.
LIMITATION OF LIABILITY
The deposit agreement contains provisions that limit our liability and the
liability of the depositary to the holders of depositary shares. Both the
depositary and we are also entitled to an indemnity from the holders of the
depositary shares prior to bringing, or defending against, any legal proceeding.
We or any depositary may rely upon written advice of counsel or accountants, or
information provided by persons presenting preferred shares for deposit, holders
of depositary shares or other persons believed by us or it to be competent and
on documents believed by us or them to be genuine.
DESCRIPTION OF WARRANTS
We may issue warrants to purchase any of our securities. We may issue
warrants independently or together with any other securities offered by any
prospectus supplement and the warrants may be attached to or separate from those
securities. Each series of warrants will be issued under a separate warrant
agreement, to be entered into between us and a warrant agent specified in a
prospectus supplement. The warrant agent will act solely as our agent in
connection with the warrants of such series and will not assume any obligation
or relationship of agency or trust with any of the holders of the warrants. We
will set forth further terms of the warrants and the applicable warrant
agreements in the applicable prospectus supplement relating to the issuance of
any warrants, including, where applicable, the following:
- the title of the warrants;
- the aggregate number of the warrants;
- the number and type of securities purchasable upon exercise of the
warrants;
- the designation and terms of the securities, if any, with which the
warrants are issued and the number of the warrants issued with each such
offered security;
- the date, if any, on and after which the warrants and the related
securities will be separately transferable;
- the price at which each security purchasable upon exercise of the
warrants may be purchased;
- the date on which the right to exercise the warrants shall commence and
the date on which the right shall expire;
- the minimum or maximum amount of the warrants which may be exercised at
any one time;
- any circumstances that will cause the warrants to be deemed to be
automatically exercised; and
- any other material terms of the warrants.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and obligating us to sell to the holders, a
specified number of shares of common stock or other securities at a future date
or dates, which we refer to in this prospectus as "stock purchase contracts."
The price per share of the securities and the number of shares of the securities
may be fixed at the time the stock purchase contracts are issued or may be
determined by reference to a specific formula set forth in the stock purchase
contracts. The stock purchase contracts may be issued separately or as part of
units consisting of a stock purchase contract and debt securities, preferred
securities, warrants or debt obligations of third parties, including U.S.
treasury securities, securing the holders' obligations to purchase the
securities under the stock purchase contracts,
45
which we refer to herein as "stock purchase units." The stock purchase contracts
may require holders to secure their obligations under the stock purchase
contracts in a specified manner. The stock purchase contracts also may require
us to make periodic payments to the holders of the stock purchase units or vice
versa, and those payments may be unsecured or refunded on some basis.
The applicable prospectus supplement will describe the terms of the stock
purchase contracts or stock purchase units. The description in the prospectus
supplement will not necessarily be complete, and reference will be made to the
stock purchase contracts, and, if applicable, collateral or depositary
arrangements, relating to the stock purchase contracts or stock purchase units,
which will be filed with the SEC each time we issue stock purchase contracts or
stock purchase units. Material United States federal income tax considerations
applicable to the stock purchase units and the stock purchase contracts will
also be discussed in the applicable prospectus supplement.
PLAN OF DISTRIBUTION
Any of the securities being offered hereby may be sold in any one or more
of the following ways from time to time:
- through agents;
- to or through underwriters;
- through dealers;
- directly by us; or
- in the case of trust preferred securities, by the trust to purchasers.
The distribution of the securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
Offers to purchase securities may be solicited by agents designated by us
from time to time. Any such agent involved in the offer or sale of the
securities in respect of which this prospectus is delivered will be named, and
any commissions payable by us or the trust to such agent will be set forth, in
the applicable prospectus supplement. Unless otherwise indicated in such
prospectus supplement, any such agent will be acting on a reasonable best
efforts basis for the period of its appointment. Any such agent may be deemed to
be an underwriter, as that term is defined in the Securities Act of 1933, of the
securities so offered and sold.
If securities are sold by means of an underwritten offering, we and, in the
case of an offering of trust preferred securities, the trust will execute an
underwriting agreement with an underwriter or underwriters at the time an
agreement for such sale is reached, and the names of the specific managing
underwriter or underwriters, as well as any other underwriters, the respective
amounts underwritten and the terms of the transaction, including commissions,
discounts and any other compensation of the underwriters and dealers, if any,
will be set forth in the applicable prospectus supplement which will be used by
the underwriters to make resales of the securities in respect of which this
prospectus is being delivered to the public. If underwriters are utilized in the
sale of any securities in respect of which this prospectus is being delivered,
such securities will be acquired by the underwriters for their own account and
may be resold from time to time in one or more transactions, including
negotiated transactions, at fixed public offering prices or at varying prices
determined by the underwriters at the time of sale. Securities may be offered to
the public either through underwriting syndicates represented by managing
underwriters or directly by one or more underwriters. If any underwriter or
underwriters are utilized in the sale of securities, unless otherwise indicated
in the applicable prospectus supplement, the underwriting agreement will provide
that the obligations of the underwriters are subject to certain conditions
precedent and that the underwriters with respect to a sale of such securities
will be obligated to purchase all such securities if any are purchased.
We or the trust, as applicable, may grant to the underwriters options to
purchase additional securities, to cover over-allotments, if any, at the initial
public offering price (with additional underwriting commissions or
46
discounts), as may be set forth in the prospectus supplement relating thereto.
If we or the trust, as applicable, grants any over-allotment option, the terms
of such over-allotment option will be set forth in the prospectus supplement for
such securities.
If a dealer is used in the sale of the securities in respect of which this
prospectus is delivered, we or the trust, as applicable, will sell such
securities to the dealer as principal. The dealer may then resell such
securities to the public at varying prices to be determined by such dealer at
the time of resale. Any such dealer may be deemed to be an underwriter, as such
term is defined in the Securities Act, of the securities so offered and sold.
The name of the dealer and their terms of the transaction will be set forth in
the prospectus supplement relating thereto.
Offers to purchase securities may be solicited directly by us or the trust,
as applicable, and the sale thereof may be made by us or the trust directly to
institutional investors or others, who may be deemed to be underwriters within
the meaning of the Securities Act of 1933 with respect to any resale thereof.
The terms of any such sales will be described in the prospectus supplement
relating thereto.
Securities may also be offered and sold, if so indicated in the applicable
prospectus supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("remarketing firms") acting as principals for their own
accounts or as agents for us or the trust, as applicable. Any remarketing firm
will be identified and the terms of its agreement, if any, with us or the trust
and its compensation will be described in the applicable prospectus supplement.
Remarketing firms may be deemed to be underwriters, as that term is defined in
the Securities Act of 1933, in connection with the securities remarketed
thereby.
If so indicated in the applicable prospectus supplement, we or the trust,
as applicable, may authorize agents and underwriters to solicit offers by
certain institutions to purchase securities from us or the trust at the public
offering price set forth in the applicable prospectus supplement pursuant to
delayed delivery contracts providing for payment and delivery on the date or
dates stated in the applicable prospectus supplement. Such delayed delivery
contracts will be subject to only those conditions set forth in the applicable
prospectus supplement. A commission indicated in the applicable prospectus
supplement will be paid to underwriters and agents soliciting purchases of
securities pursuant to delayed delivery contracts accepted by us or the trust,
as applicable.
Agents, underwriters, dealers and remarketing firms may be entitled under
relevant agreements with us or the trust, as applicable, to indemnification by
us or the trust against certain liabilities, including liabilities under the
Securities Act, or to contribution with respect to payments which such agents,
underwriters, dealers and remarketing firms may be required to make in respect
thereof.
Each series of securities will be a new issue and will have no established
trading market. We may elect to list any series of securities on an exchange
but, unless otherwise specified in the applicable prospectus supplement, we
shall not be obligated to do so. No assurance can be given as to the liquidity
of the trading market for any of the securities.
Agents, underwriters, dealers and remarketing firms may be customers of,
engage in transactions with, or perform services for, us and our subsidiaries in
the ordinary course of business.
LEGAL MATTERS
Unless otherwise specified in the applicable prospectus supplement, the
validity of the securities (other than the preferred securities of the trust)
will be passed upon for us by Vinson & Elkins L.L.P., Houston, Texas, and will
be passed upon for any agents, dealers or underwriters by counsel named in the
applicable prospectus supplement. The validity of the trust preferred securities
of the trust under Delaware law will be passed upon for us and the trust by
Morris, Nichols, Arsht & Tunnell, special Delaware counsel to us and the trust.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K for
the year ended December 31, 2000 as set forth in their reports, which are
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
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$175,000,000
CONTINENTAL AIRLINES, INC.
4.50% CONVERTIBLE NOTES DUE 2007
CONTINENTAL AIRLINES LOGO
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PROSPECTUS SUPPLEMENT
JANUARY 16, 2002
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SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
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