AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 2003
REGISTRATION NO. 333-108576
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CONTINENTAL AIRLINES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2099724
(State of incorporation) (I.R.S. Employer Identification No.)
1600 SMITH STREET
HOUSTON, TEXAS 77002
(713) 324-5000
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)
---------------------
JENNIFER L. VOGEL, ESQ.
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
1600 SMITH STREET
DEPARTMENT HQSEO
HOUSTON, TEXAS 77002
(713) 324-2950
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
KEVIN P. LEWIS
VINSON & ELKINS L.L.P.
2300 FIRST CITY TOWER
HOUSTON, TEXAS 77002-6760
(713) 758-2222
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The information is this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 10, 2003
PROSPECTUS
(CONTINENTAL LOGO)
CONTINENTAL AIRLINES, INC.
$175,000,000
5% CONVERTIBLE NOTES DUE 2023
---------------------
This prospectus relates to the offering for resale of our 5% Convertible
Notes due 2023 and the shares of our common stock issuable upon conversion of
the notes. The notes were offered and issued on June 10, 2003 to qualified
institutional buyers, as defined in, and in reliance on, Rule 144A under the
Securities Act of 1933, as amended, or the Securities Act, in transactions
exempt from, or not subject to, the registration requirements of the Securities
Act. This prospectus will be used by selling securityholders to resell their
notes and shares of our common stock issuable upon conversion of their notes. We
will not receive any proceeds from sales by the selling securityholders.
We will pay interest at the rate of 5% per year on the principal amount from
June 10, 2003, or from the most recent date to which interest has been paid or
provided for, semiannually in arrears on June 15 and December 15 of each year,
beginning December 15, 2003. The notes will mature on June 15, 2023.
Holders may convert all or a portion of their notes into shares of our
common stock under the following circumstances: (1) at any time during or after
any fiscal quarter commencing after June 30, 2003 if the closing sale price of
our common stock for at least 20 trading days in a period of 30 consecutive
trading days ending on the last trading day of the fiscal quarter prior to such
quarter is greater than 120% of the conversion price per share of common stock
on such last day; (2) subject to certain exceptions, during the five business
day period after any five consecutive trading day period in which the trading
price per $1,000 principal amount of the notes for each day of the five trading
day period was less than 98% of the product of the closing sale price of our
common stock and the number of shares issuable upon conversion of $1,000
principal amount of the notes; (3) if the notes have been called for redemption;
or (4) upon the occurrence of specified corporate transactions described in this
prospectus.
The conversion rate is 50 shares of our common stock per $1,000 principal
amount of the notes, subject to adjustment. Upon conversion, we may at our
option choose to deliver, in lieu of our common stock, cash or a combination of
cash and common stock as described herein.
Beginning June 18, 2010, we may redeem all or a portion of the notes for
cash for a price equal to 100% of the principal amount of the notes to be
redeemed plus accrued and unpaid interest, if any.
Holders may require us to repurchase all or a portion of their notes on June
15, 2010, June 15, 2013 and June 15, 2018 at a repurchase price equal to 100% of
the principal amount of the notes to be repurchased plus accrued and unpaid
interest, if any. We may at our option choose to pay the repurchase price for
any such notes in cash or in shares of common stock (valued as described herein)
or any combination thereof. Should we be required to repurchase the notes at any
of the redemption dates, it is our policy that we would satisfy the requirement
in cash.
The notes represent our unsubordinated, unsecured obligations. The notes
rank equally with all of our other existing and future unsecured and
unsubordinated indebtedness. However, the notes are effectively subordinated to
all of our existing and future secured debt to the extent of the security on
such other debt and to all existing and future obligations of our subsidiaries.
Our common stock is listed on the New York Stock Exchange and trades under
the symbol "CAL". On December 5, 2003, the last reported sale price of our
common stock on the New York Stock Exchange was $15.52 per share.
---------------------
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
December 10, 2003
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS AND
THOSE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH DIFFERENT INFORMATION. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES
OFFERED BY THIS PROSPECTUS IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR
FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER IN SUCH
JURISDICTION. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS OR ANY DOCUMENT INCORPORATED BY REFERENCE IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT COVER OF THE APPLICABLE DOCUMENT.
---------------------
TABLE OF CONTENTS
PAGE
----
About This Prospectus....................................... i
Where You Can Find More Information......................... ii
Special Note Regarding Forward-Looking Statements........... iii
Summary..................................................... 1
Risk Factors................................................ 4
Use of Proceeds............................................. 11
Ratio of Earnings to Fixed Charges.......................... 12
Price Range of Our Common Stock............................. 12
Dividend Policy............................................. 13
Description of Notes........................................ 13
Description of Our Capital Stock............................ 27
Certain United States Federal Income Tax Considerations..... 33
Certain ERISA Considerations................................ 37
Selling Securityholders..................................... 38
Plan of Distribution........................................ 42
Legal Matters............................................... 44
Experts..................................................... 44
---------------------
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, or the SEC, utilizing a "shelf" registration
process or continuous offering process. Under this shelf registration process,
the selling securityholders may, from time to time, sell the securities
described in this prospectus in one or more offerings. This prospectus provides
you with a general description of the securities which may be offered by the
selling securityholders. Each time a selling securityholder sells securities,
the selling securityholder is required to provide you with this prospectus and,
in certain cases, a prospectus supplement containing specific information about
the selling securityholder and the terms of the securities being offered. That
prospectus supplement may include additional risk factors or other special
considerations applicable to those securities. Any prospectus supplement may
also add, update, or change information in this prospectus. If there is any
inconsistency between the information in this prospectus and any prospectus
supplement, you should rely on the information in that prospectus supplement.
You should read both this prospectus and any prospectus supplement together with
additional information described under "Where You Can Find More Information."
As used in this prospectus, the terms "company," "we," "our," "ours" and
"us" may, depending on the context, refer to Continental Airlines, Inc. or to
one or more of its consolidated subsidiaries or to all of them taken as a whole.
When we refer to "common stock" throughout this prospectus, we include all
rights attaching to our common stock under any stockholder rights plan in effect
at the relevant time.
i
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms at 450 Fifth Street, N.W., Room 1024, Washington,
DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Our SEC filings are also available to the public over
the Internet at the SEC's website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be a part of this prospectus, and
information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the following documents
we have already filed and any future filings we make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than Current Reports (or portions thereof) furnished
under Items 9 or 12 of Form 8-K, until the offering of the notes is completed.
- Annual Report on Form 10-K/A-1 for the year ended December 31, 2002;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2003,
June 30, 2003 and September 30, 2003;
- Current Reports on Form 8-K filed January 3, 2003, January 15, 2003,
February 4, 2003, March 4, 2003, March 19, 2003, March 20, 2003, April 2,
2003, April 15, 2003, May 2, 2003, May 12, 2003, May 14, 2003, June 3,
2003, June 5, 2003, June 12, 2003, July 2, 2003, August 4, 2003, August
5, 2003, September 3, 2003, September 17, 2003, October 2, 2003, November
4, 2003, November 10, 2003, November 18, 2003, December 2, 2003, and
December 10, 2003;
- The description of our common stock contained in our Registration
Statement on Form 8-A/A, as filed with the SEC on February 6, 2001; and
- The description and terms of the preferred share purchase rights
associated with our common stock contained in our registration statement
on Form 8-A/A, as filed with the SEC on January 22, 2001.
You may obtain any of these incorporated documents from us without charge,
excluding any exhibits to these documents unless the exhibit is specifically
incorporated by reference in such document, from our website
(www.continental.com) or by requesting them from us in writing or by telephone
at the following address:
Continental Airlines, Inc.
1600 Smith Street
Dept. HQSLG
Houston, Texas 77002
Attention: Secretary
Telephone: (713) 324-2950
ii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents we incorporate by reference may contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. 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 in our SEC reports incorporated in this prospectus by reference or as
stated in "Risk Factors".
All forward-looking statements attributable to us are expressly qualified
in their entirety by the cautionary statements above.
You should not place undue reliance on these forward-looking statements. We
caution that the foregoing list of important factors is not exhaustive. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
iii
SUMMARY
This summary contains basic information about us and the notes. Because it
is a summary, it does not contain all of the information that you should
consider before investing. You should read this entire prospectus carefully,
including the section entitled "Risk Factors" and our financial statements and
the related notes, contained elsewhere or incorporated by reference in this
prospectus, before making an investment decision.
OUR COMPANY
We are a major United States air carrier engaged in the business of
transporting passengers, cargo and mail. We are the fifth largest United States
airline (as measured by the number of scheduled miles flown by revenue
passengers, known as revenue passenger miles, in 2002) and together with
ExpressJet Airlines, Inc. ("ExpressJet"), and our wholly owned subsidiary,
Continental Micronesia, Inc., served 222 airports worldwide at September 30,
2003. As of September 30, 2003, we flew to 125 domestic and 97 international
destinations and offered additional connecting service through alliances with
domestic and foreign carriers. We directly served 16 European cities, seven
South American cities, Tel Aviv, Hong Kong and Tokyo as of September 30, 2003,
and are one of the leading airlines providing service to Mexico and Central
America, serving 29 cities, more destinations than any other United States
airline. Through its Guam hub, Continental Micronesia provides extensive service
in the western Pacific, including service to more Japanese cities than any other
United States carrier.
Our executive offices are located at 1600 Smith Street, Houston, Texas
77002. Our primary telephone number is (713) 324-2950. Our Internet address is
www.continental.com. Information on our website is not incorporated into this
prospectus and is not a part of this prospectus.
THE OFFERING
Notes......................... $175,000,000 aggregate principal amount of 5%
Convertible Notes due 2023. Each note was
issued at a price of $1,000 per note and has a
principal amount of $1,000.
Maturity...................... June 15, 2023.
Interest...................... The notes bear interest at the rate of 5% per
year on the principal amount beginning June 10,
2003, or from the most recent date to which
interest has been paid or provided for.
Interest is payable semiannually in arrears on
June 15 and December 15 of each year, beginning
December 15, 2003. The interest rate is
calculated using a 360-day year composed of
twelve 30-day months.
Conversion Rights............. Holders may convert all or a portion of their
notes, in multiples of $1,000 principal amount,
into common stock only if at least one of the
conditions described below is satisfied. For
each $1,000 principal amount of notes
surrendered for conversion, if the conditions
for conversion are satisfied, a holder will
receive 50 shares of our common stock, subject
to adjustment. When we refer to "common stock"
throughout this prospectus, we include all
rights attaching to our common stock under any
stockholder rights plan in effect at the
relevant time. In lieu of delivering shares of
our common stock upon conversion of all or any
portion of the notes, we may elect to pay cash
or a combination of cash and shares of our
common stock for the notes surrendered.
Holders may surrender notes for conversion into
shares of our common stock at any time during
or after any fiscal quarter commencing after
June 30, 2003 if the closing sale price of our
1
common stock for at least 20 trading days in a
period of 30 consecutive trading days ending on
the last trading day of the preceding fiscal
quarter is more than 120% of the conversion
price per share of common stock on such last
day. If the foregoing condition is satisfied,
then the notes will be convertible at any time
at the option of the holder, through maturity.
The conversion price per share as of any day
will equal the principal amount of a note,
divided by the conversion rate, subject to any
adjustments to the conversion rate through that
day.
Holders may also surrender notes for conversion
during the five business day period after any
five consecutive trading day period in which
the trading price per $1,000 principal amount
of notes for each day of that period was less
than 98% of the product of the closing sale
price for our common stock for each day of that
period and the number of shares of common stock
issuable upon conversion of $1,000 principal
amount of notes; provided that if on the date
of any such conversion that is on or after June
15, 2018, the closing sale price of our common
stock is greater than the conversion price,
then holders will receive, in lieu of common
stock based on the conversion price, cash or
common stock or a combination of cash and
common stock, at our option, with a value equal
to the principal amount of such notes plus
accrued and unpaid interest, as of the
conversion date.
Notes called for redemption may be surrendered
for conversion until the close of business on
the business day immediately preceding the
redemption date. In addition, if we make a
distribution to our stockholders with a per
share value of more than 12.5% of the closing
sale price of our common stock on the date
immediately preceding the declaration of such
distribution, or if we are a party to certain
consolidations, mergers or binding share
exchanges, notes may be surrendered for
conversion, as provided in "Description of
Notes -- Conversion Rights." The ability to
surrender notes for conversion will expire at
the close of business on the business day
immediately preceding the final maturity date.
Ranking....................... The notes represent our unsubordinated,
unsecured obligations and rank equal in right
of payment to all of our existing and future
unsecured and unsubordinated debt. However, the
notes are effectively subordinated to all of
our existing and future secured debt to the
extent of the collateral securing such debt and
to all existing and future liabilities of our
subsidiaries. See "Description of
Notes -- Ranking of the Notes."
Sinking Fund.................. None.
Redemption of Notes at Our
Option........................ We may redeem for cash all or a portion of the
notes at any time on or after June 18, 2010, at
a redemption price equal to 100% of the
principal amount, plus accrued and unpaid
interest, if any. See "Description of
Notes -- Redemption of Notes at Our Option."
Repurchase at Option of the
Holder on Specified Dates..... Holders may require us to repurchase the notes
on June 15 of 2010, 2013 and 2018 at a
repurchase price equal to 100% of their
principal amount, plus accrued and unpaid
interest, if any. We may
2
at our option choose to pay the repurchase
price for any such notes in cash or in shares
of common stock (valued as described herein) or
any combination thereof. Should we be required
to repurchase the notes at any of the
redemption dates, it is our policy that we
would satisfy the requirement in cash. See
"Description of Notes -- Repurchase at Option
of the Holder on Specified Dates."
Repurchase at Option of the
Holder Upon a Change in
Control....................... In certain circumstances involving a change in
control (as described under "Description of
Notes -- Repurchase at Option of the Holder
Upon a Change in Control") prior to maturity,
holders may require us to purchase all or a
portion of their notes for cash at a repurchase
price equal to 100% of their principal amount,
plus accrued and unpaid interest, if any. See
"Description of Notes -- Repurchase at Option
of the Holder Upon a Change in Control."
DTC Eligibility............... The notes were issued in fully registered book
entry form and are represented by one permanent
global note without coupons. The global note
was deposited with a custodian for and
registered in the name of a nominee of The
Depository Trust Company in New York, New York.
Beneficial interests in the global note are
shown on, and transfers thereof will be
effected only through, records maintained by
DTC and its direct and indirect participants,
and your interest in the global note may not be
exchanged for certificated notes, except in
limited circumstances described herein. See
"Description of Notes -- Book-Entry System."
Trading....................... We do not intend to list the notes on any
national securities exchange. However, the
notes and the common stock issuable upon
conversion of the notes are eligible for
trading in PORTAL.
Common Stock.................. Our common stock is listed on the New York
Stock Exchange under the symbol "CAL".
Use of Proceeds............... We will not receive any of the proceeds from
the sale of notes or the common stock
contemplated by this prospectus.
3
RISK FACTORS
You should read carefully this entire prospectus and the documents
incorporated by reference in this prospectus before investing in the notes.
This prospectus includes "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. All statements other than statements of historical facts
included or incorporated by reference in this prospectus, including statements
regarding our future financial position, are forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we cannot assure you that such expectations will be
correct. Important factors that could cause actual results to differ materially
from such expectations are disclosed below and elsewhere in this prospectus. See
"Special Note Regarding Forward-Looking Statements."
TERRORIST ATTACKS AND INTERNATIONAL HOSTILITIES
THE 2001 TERRORIST ATTACKS AND THE RECENT WAR IN IRAQ HAVE ADVERSELY AFFECTED,
AND ANY ADDITIONAL TERRORIST ATTACKS OR HOSTILITIES MAY FURTHER ADVERSELY
AFFECT, OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS.
As described in greater detail in our filings with the SEC, the terrorist
attacks of September 11, 2001 involving commercial aircraft adversely affected
our financial condition, results of operations and prospects, and the airline
industry generally. Those effects continue, although they have been mitigated
somewhat by increased traffic, money received by us under the Air Transportation
Safety and System Stabilization Act (the "Stabilization Act") and the Emergency
Wartime Supplemental Appropriations Act and by 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 affect us and
the airline industry. The recent war in Iraq further decreased demand for air
travel, and additional hostilities could potentially have a material adverse
impact on our financial condition, liquidity and results of operations.
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, insurance and other costs, significantly
higher ticket refunds, significantly reduced load factors (defined as revenue
passenger miles divided by available seat miles), and significantly reduced
yields. Further terrorist attacks against 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, insurance and other costs. In addition, terrorist attacks not
involving commercial aircraft, post-war unrest in Iraq or other world events
could result in decreased load factors and yields and could also result in
increased costs for us and the airline industry. For instance, fuel costs rose
significantly during late 2002 and the first quarter of 2003 and remain at
historically high levels. 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 or the impact of any further terrorist attacks
or the recent war in Iraq. However, given the magnitude of the unprecedented
events of September 11, 2001 and their continuing aftermath, the adverse impact
to our financial condition, results of operations, liquidity and prospects may
continue to be material, and our financial resources might not be sufficient to
absorb it or that of any further terrorist attacks or post-war unrest in Iraq.
4
RISK FACTORS RELATING TO THE COMPANY
WE CONTINUE TO EXPERIENCE SIGNIFICANT LOSSES.
Since September 11, 2001, we have incurred significant losses. We recorded
net losses of $451 million in 2002 and $9 million for the first nine months of
2003, and expect to incur significant losses for the fourth quarter and the full
year 2003. Passenger revenue per available seat mile and overall passenger
revenue for our mainline jet operations have declined since September 11, 2001.
Passenger revenue per available seat mile dropped 4.1% for the year ended
December 31, 2002 versus the same period in 2001 and overall passenger revenue
declined 7.0% during 2002 compared to 2001. During the first nine months of
2003, the revenue decline has moderated slightly, as passenger revenue per
available seat mile increased 0.7% and overall passenger revenue increased 1.9%
versus the same period in 2002. Business traffic, our most profitable source of
revenue, and yields are down significantly from historical levels, 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. Further, the long-term
impact of any changes in fare structures, most importantly in relation to
business fares, booking patterns, low-cost competitor growth, increased usage of
regional jets, competitor bankruptcies and other changes in industry structure
and conduct, cannot be predicted at this time, but could have a material adverse
effect on our financial condition, liquidity and results of operations.
In addition, our capacity purchase agreement with ExpressJet provides that
we purchase, in advance, all of ExpressJet's 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 our remaining interests in ExpressJet. During the third quarter of
2003, we sold approximately 9.8 million shares of Holdings common stock to
Holdings, reducing our ownership of Holdings from 53.1% to 44.6%. We also
contributed approximately 7.4 million shares of Holdings common stock to our
defined benefit pension plan, further reducing our ownership of Holdings to
30.9% as of September 30, 2003. The independent trustee for our defined benefit
pension plan subsequently sold a portion of the shares of Holdings that we
contributed to the plan. As a result of such sales by the defined benefit
pension plan, the combined amount of Holdings common stock owned by us and our
defined benefit plan fell below 41% on November 12, 2003, the point at which we
will no longer consolidate Holdings and ExpressJet. Accordingly, we have
deconsolidated Holdings and ExpressJet as of November 12, 2003. The primary
effects of the deconsolidation of Holdings from our financial statements are a
decrease in current assets, primarily due to the elimination of Holdings' cash,
a decrease in total assets, a decrease in long-term debt and a decrease in
operating income as a result of the exclusion of Holdings' operating income from
our statement of operations. This decrease in operating income is offset by
increases in income from our equity in Holdings' earnings. Among the documents
incorporated by reference into this Prospectus is a Current Report on Form 8-K
dated November 18, 2003, which presents our pro forma consolidated financial
statements reflecting (1) our results of operations for the nine months ended
September 30, 2003 and the year ended December 31, 2002, as if the accounts of
Holdings had been accounted for using the equity method of accounting set forth
in APB Opinion No. 18, "The Equity Method of Accounting for Investments in
Common Stock", rather than being consolidated, effective as of the beginning of
each period, and (2) our balance sheet as of September 30, 2003, adjusted to
report Holdings using the equity method of accounting as of that date.
OUR HIGH LEVERAGE MAY AFFECT OUR ABILITY TO SATISFY OUR SIGNIFICANT FINANCING
NEEDS OR MEET OUR OBLIGATIONS.
As is the case with our principal competitors, we have a high proportion of
debt compared to our equity capital. We also have significant operating lease
and facility rental obligations, as well as significant future funding
requirements for a noncontributory defined benefit plan. During 2002, the amount
of our long-term debt increased 24%. In addition, we have fewer cash resources
than some of our principal competitors and substantially all of our property and
equipment is subject to liens securing indebtedness. Accordingly, we may be less
able than some of our competitors to withstand a prolonged recession in the
airline industry or respond as well to changing economic and competitive
conditions. Moreover, competitors emerging from bankruptcy
5
will likely have lower cost structures and greater operating flexibility after
reorganizing their companies in bankruptcy.
As of September 30, 2003, we had approximately:
- $6.1 billion (including current maturities) of long-term debt and capital
lease obligations.
- $764 million of stockholders' equity.
- $1.6 billion in consolidated cash, cash equivalents and short-term
investments, of which $139 million is restricted cash and $171 million is
cash held by Holdings to which we did not have access. Effective November
12, 2003, we no longer consolidate Holdings and ExpressJet.
We have substantial commitments for capital expenditures, including for the
acquisition of new aircraft. As of September 30, 2003, we had firm purchase
commitments for 67 aircraft from Boeing, with an estimated cost of approximately
$2.6 billion and options to purchase an additional 87 Boeing aircraft. During
the second quarter of 2003, we agreed to defer firm deliveries of 36 Boeing 737
aircraft that were originally scheduled for delivery in 2005, 2006 and 2007.
These aircraft will now be delivered in 2008 and beyond. Additionally, we
reached an agreement with Boeing regarding the terms of delivery of the 11
Boeing 757-300 aircraft that we had on order as of September 30, 2003. We now
expect to take delivery of five 757-300 aircraft in 2004. The final six 757-300
aircraft originally scheduled for delivery in late 2004 and the first half of
2005 have been substituted with six 737-800 aircraft expected to be delivered in
the second half of 2005. Furthermore, the 757-300 option count has been reduced
from 11 to zero. As a result, we expect to take delivery of a total of four
Boeing aircraft in the fourth quarter of 2003, 16 Boeing aircraft in 2004
(including the five 757-300 aircraft) and seven Boeing aircraft in 2005.
Incorporating these changes to the Boeing order and excluding the two 737-800
aircraft delivered in October and November 2003, we have firm purchase
commitments for 65 Boeing aircraft with an estimated cost of approximately $2.5
billion and options to purchase an additional 84 Boeing aircraft.
We currently have agreements in principle for the financing of the two
remaining 737-800 aircraft scheduled for delivery in the fourth quarter of 2003,
six of the eleven 737-800 aircraft scheduled for delivery in 2004 and all five
of the 757-300 aircraft scheduled for delivery in 2004. We do not have backstop
financing or any other financing currently in place for the remainder of the
aircraft. In addition, at September 30, 2003, we had firm commitments to
purchase eight spare engines related to the new Boeing aircraft for
approximately $53 million. We have financing in place for the first three of
these spare engines, which are scheduled for delivery between October and
December 2003. We do not have any financing currently in place for the remaining
five spare engines, which are scheduled to be delivered in 2004 and the first
quarter of 2005. Further financing will be needed to satisfy our capital
commitments for our firm aircraft. We can provide no assurance that sufficient
financing will be available for the aircraft on order or other related capital
expenditures.
As of September 30, 2003, ExpressJet had firm commitments for an additional
56 regional jets from Empresa Brasileira de Aeronautica S.A. delivering through
2006, with an estimated aggregate cost of $1.1 billion. ExpressJet does not have
any obligation to take any of these firm aircraft that are not financed by a
third party and leased either to ExpressJet or us. Under the capacity purchase
agreement between us and ExpressJet, we have agreed to lease as lessee and
sublease to ExpressJet the regional jets that are subject to ExpressJet's firm
purchase commitments. In addition, under the capacity purchase agreement with
ExpressJet, we generally are obligated to purchase all of the capacity provided
by these new aircraft as they deliver to ExpressJet. We cannot predict whether
passenger traffic levels will enable us to utilize fully regional jets
delivering to ExpressJet in the future.
We also have significant operating lease and facility rental obligations,
as well as significant future funding requirements for our noncontributory
defined benefit plan. For the year ended December 31, 2002, annual aircraft and
facility rental expense under operating leases approximated $1.3 billion. We
have a noncontributory defined benefit plan covering substantially all of our
employees. We contributed $272 million in cash to the plan in 2003 and
approximately 7.4 million shares of Holdings common stock valued at
approximately $100 million to the plan on September 9, 2003. As a result, we
have satisfied all minimum required contributions to the plan during 2003.
Although our 2004 minimum funding requirements are not
6
expected to be material, we currently expect to make significant contributions
to the plan in 2004 and thereafter.
Additional financing will be needed to satisfy our capital commitments. We
cannot predict whether sufficient financing will be available. On several
occasions subsequent to September 11, 2001, including in March and April 2003,
each of Moody's, Standard & Poor's and Fitch, Inc. downgraded the credit ratings
of a number of major airlines, including our credit ratings, and further
downgrades are possible. Reductions in our credit ratings have increased the
interest we pay on new issuances of debt and may increase the cost of and reduce
the financing available to us in the future. We do not have debt obligations
that would be accelerated as a result of a credit rating downgrade.
SIGNIFICANT CHANGES OR EXTENDED PERIODS OF HIGH FUEL COSTS OR FUEL SUPPLY
DISRUPTIONS WOULD MATERIALLY AFFECT OUR OPERATING RESULTS.
Fuel costs, which are at historically high levels, constitute a significant
portion of our operating expense. Fuel costs represented approximately 11.7% of
our operating expenses for the year ended December 31, 2002 and 13.9% of our
operating expenses for the year ended December 31, 2001. Fuel costs represented
approximately 15.0% of our operating expenses for the nine months ended
September 30, 2003, compared to 11.1% for the same period in 2002. Fuel prices
and supplies are influenced significantly by international political and
economic circumstances, such as the political crises in Venezuela and Nigeria
and post-war unrest in Iraq. From time to time we enter 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. Depending upon the hedging method employed,
our strategy may limit our ability to benefit from declines in fuel prices. We
have hedged approximately 60% of our fuel requirements for the remainder of 2003
with petroleum call options. If a future fuel supply shortage were to arise from
OPEC production curtailments, a disruption of oil imports, post-war unrest in
Iraq, other conflicts in the Middle East, or otherwise, higher fuel prices or
reduction of scheduled airline service could result. Significant changes in fuel
costs would materially affect our operating results.
LABOR COSTS IMPACT OUR RESULTS OF OPERATIONS.
Labor costs constitute a significant percentage of our total operating
costs. Many of our work groups are represented by unions. Our mechanics,
represented by the International Brotherhood of Teamsters, ratified a new
four-year collective bargaining agreement in December 2002 that made an
adjustment to current pay and recognized current industry conditions. This
agreement becomes amendable with respect to wages, pension and health insurance
provisions on December 31, 2003. Work rules and other contract items are
established through 2006. Collective bargaining agreements between us and our
pilots and between ExpressJet and its pilots (both of whom are represented by
the Air Line Pilots Association) became amendable in October 2002. After being
deferred due to the economic uncertainty following the September 11, 2001
terrorist attacks, negotiations recommenced in September 2002 and are
continuing. Although we may incur increased labor costs in connection with the
negotiation of the pilot collective bargaining agreements, the labor cost
uncertainty associated with recent major hub-and-spoke carrier bankruptcies
makes predicting the outcome of negotiations more difficult. US Airways Group,
Inc. and United Air Lines, Inc. have significantly decreased their labor costs
during their bankruptcy cases. Earlier this year, American Airlines, Inc. agreed
with its major labor groups on significant labor cost reductions. Delta Air
Lines, Inc. and Northwest Airlines, Inc. have each announced that they are
seeking to decrease their labor costs significantly. Although we enjoy generally
good relations with our employees, we can provide 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.
Our ability to utilize certain net operating loss carryforwards may be
limited by certain events. At December 31, 2002, we had estimated net operating
loss carryforwards ("NOLs") of $2.0 billion for federal
7
income tax purposes that will expire through 2022. Due to a change in our
ownership on April 27, 1993, the ultimate utilization of our NOLs 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 of an ownership change, 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 4.65% for September 2003). Any unused annual limitation may be
carried over to later years. 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 $52 million per year other than
through the recognition of future built-in gain transactions.
We believe that ExpressJet Holdings, Inc.'s initial public offering created
a change in ownership limitation on the utilization of ExpressJet's NOLs. As a
result, ExpressJet will be limited in the utilization of its NOLs to offset up
to approximately $43 million of post-change taxable income per year. At December
31, 2002, ExpressJet's stand-alone NOLs were $105 million, which expire between
2004 and 2020. We do not expect this limitation to have any material impact on
our financial condition.
The Internal Revenue Service ("IRS") is in the process of examining our
income tax returns for years through 1999 and has indicated that it may disallow
certain deductions we claimed. In addition, the IRS has begun an examination of
our income tax returns for the years 2000 and 2001. We believe the ultimate
resolution of these audits will not have a material adverse effect on our
financial condition, liquidity or results of operations.
CONTINENTAL MICRONESIA'S DEPENDENCE ON THE JAPANESE ECONOMY MAY RESULT IN
CURRENCY RISK.
Because the majority of Continental Micronesia'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 option and
forward contracts as a hedge against a portion of our expected net yen cash flow
position. As of September 30, 2003, we had entered into option and forward
contracts to hedge approximately 70% and 51% of our projected yen-denominated
net cash flows for the remainder of 2003 and 2004, respectively.
RISK FACTORS RELATING TO THE AIRLINE INDUSTRY
THE AIRLINE INDUSTRY 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 us, or both. In recent years, the market share held by low cost
carriers has increased significantly and is expected to continue to increase.
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 recent war in Iraq, have resulted in dramatic
losses for us and the airline industry generally. We cannot predict when
conditions will improve. US Airways Group, Inc., United Air Lines, Inc. and
several small competitors have filed for bankruptcy protection, although US
Airways emerged from bankruptcy on March 31, 2003. Other carriers could follow.
These carriers could
8
operate under bankruptcy protection in a manner that would be adverse to us and
could emerge from bankruptcy as more vigorous competitors with substantially
lower costs.
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 codesharing, 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, Inc. and our new alliance with
Delta Air Lines, Inc. and Northwest Airlines, Inc. are examples of such
arrangements, and we have existing alliances with numerous other air carriers.
Other major U.S. airlines have alliances or planned alliances more extensive
than ours, providing them with route systems of relatively greater utility to
customers than our more limited route system. We cannot predict the extent to
which we will 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.
THE AVIATION 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 federalized
substantially all aspects of civil aviation security, creating a new
Transportation Security Administration under the Department of Transportation
(the "TSA"). Among other things, the law required that all checked baggage be
screened by explosive detection systems by December 31, 2002 (although during
the implementation phase, other permitted methods of screening are being
utilized and federal law permits individual airports to request extensions of
such deadline). At some airports, the TSA has provided for temporary security
measures. Implementation of the requirements of the Aviation Security Act has
resulted in increased costs for the airline industry and may result in
additional costs, delays and disruptions in air travel. However, pursuant to the
Emergency Wartime Supplemental Appropriations Act, some of these costs have been
reimbursed by the U.S. government. In May 2003, Continental received and
recognized in earnings $176 million in cash from the U.S. government pursuant to
the Emergency Wartime Supplemental Appropriations Act. This amount is
reimbursement for Continental's proportional share of passenger security and air
carrier security fees paid or collected by U.S. carriers as of the date of
enactment of the legislation, together with other items.
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. 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 revenue. 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 and other environmental concerns, 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.
Additionally, because of significantly higher security and other costs
incurred by airports since September 11, 2001, and because reduced landing
weights since September 11, 2001 have reduced the fees airlines pay to airports,
many airports are significantly increasing their rates and charges to air
carriers, including to us. Restrictions on the ownership and transfer of airline
routes and takeoff and landing slots have also been
9
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
current laws and regulations, or 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 the year for most U.S.
air carriers. Our results of operations generally reflect this seasonality.
RISKS RELATED TO THE NOTES
THE NOTES ARE UNSECURED AND EFFECTIVELY SUBORDINATED TO OUR SECURED DEBT AND
TO ALL OBLIGATIONS OF OUR SUBSIDIARIES.
The notes represent our unsubordinated, unsecured obligations and rank
equal in right of payment to all of our other existing and future unsecured and
unsubordinated debt. However, the notes are effectively subordinated to all of
our existing and future secured debt, to the extent of the security on such
other debt and to all existing and future obligations of our subsidiaries. As of
September 30, 2003, after giving effect to the offering of the notes, we and our
subsidiaries had $6.1 billion (including current maturities) of long-term debt
and capital lease obligations outstanding, of which $5.1 billion was secured by
our assets and the assets of our subsidiaries. In addition, we have entered into
guarantees for approximately $1.6 billion aggregate principal amount of
tax-exempt special facilities revenue bonds and related interest. These bonds,
issued by various airport municipalities, are payable solely from our rentals
paid under long-term agreements with the respective governing bodies.
In the event of any distribution of our assets in any foreclosure,
dissolution, winding-up, liquidation, reorganization, or other bankruptcy
proceeding, holders of secured indebtedness will have prior claim to those of
our assets that constitute their collateral. Holders of the notes will
participate ratably with all holders of our unsecured indebtedness that is
deemed to be of the same class as the notes, and potentially with all of our
other general creditors, based upon the respective amounts owed to each holder
or creditor, in our remaining assets. In any of the foregoing events, we cannot
assure you that there will be sufficient assets to pay amounts due on the notes.
As a result, holders of notes may receive less, ratably, than holders of secured
indebtedness.
We are not restricted by the notes from incurring indebtedness, and our
subsidiaries may incur significant indebtedness without guaranteeing the notes.
In addition, the notes do not restrict the ability of us or our subsidiaries to
incur liens.
WE MAY NOT HAVE THE FINANCIAL RESOURCES TO REPURCHASE THE NOTES UPON THE
OCCURRENCE OF A "CHANGE IN CONTROL" OR AT THE OPTION OF A HOLDER.
In the event of a "change in control" under the indenture governing the
notes, we will have to offer to repurchase all outstanding notes at a purchase
price equal to 100% of the principal amount plus accrued and unpaid interest, if
any. In addition, holders may require us to repurchase their notes on June 15 of
2010, 2013 and 2018. It is possible that we will not have, nor have access to,
sufficient funds at the time of any such repurchase request or change of control
to make the required repurchase of the notes. In addition, our ability to
repurchase the notes in cash in such event may be limited by law, by the
indenture, by the terms of other agreements relating to our outstanding debt and
by debt and agreements which may be entered into, replaced, supplemented or
amended from time to time. Further, certain important corporate events, such as
leveraged recapitalizations that would increase the level of our indebtedness,
would not constitute a change of control under the indenture. See "Description
of Notes -- Repurchase at Option of the Holder" and "-- Repurchase at Option of
the Holder Upon a Change in Control."
10
THERE IS NO PUBLIC MARKET FOR THE NOTES.
There is no established trading market for the notes. The notes are
eligible for trading in PORTAL, but no market for the notes may develop, and any
market that develops may not last. We do not intend to apply for listing of the
notes on any securities exchange or other stock market.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the notes or the
common stock contemplated by this prospectus. See "Selling Securityholders" for
a list of those entities receiving proceeds from the sale of the notes or the
underlying common stock.
11
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of our "earnings" to our "fixed charges" for each of the years
1998 through 2002 and for the nine months ended September 30, 2003 were:
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------
2003 2002 2001 2000 1999 1998
------------- ---- ---- ---- ---- ----
1.11 --(1) --(1) 1.51 1.80 1.87
---------------
(1) For the years ended December 31, 2002 and 2001, earnings were inadequate to
cover fixed charges and the coverage deficiency was $640 million and $159
million, respectively.
For purposes of the ratios, "earnings" means the sum of:
- our pre-tax income (loss) adjusted for undistributed income of companies
in which we have a minority equity interest; 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 interest
expense.
PRICE RANGE OF OUR COMMON STOCK
Our common stock (Class B common stock) is quoted on the New York Stock
Exchange under the symbol "CAL". The table below shows the high and low sales
prices for our common stock for the period indicated below:
HIGH LOW
------ ------
FISCAL 2003
Fourth Quarter (through December 5)....................... $21.70 $14.85
Third Quarter............................................. 18.87 12.05
Second Quarter............................................ 15.90 5.30
First Quarter............................................. 9.39 4.16
FISCAL 2002
Fourth Quarter............................................ $ 9.85 $ 3.59
Third Quarter............................................. 16.00 4.80
Second Quarter............................................ 30.50 14.46
First Quarter............................................. 35.25 25.74
FISCAL 2001
Fourth Quarter............................................ $27.50 $14.85
Third Quarter............................................. 52.32 12.35
Second Quarter............................................ 51.95 38.70
First Quarter............................................. 57.88 39.10
12
DIVIDEND POLICY
We have paid no cash dividends on our common stock and have no current
intention of doing so. Certain of our credit agreements restrict our and some of
our subsidiaries' ability to pay cash dividends or repurchase capital stock by
imposing minimum unrestricted cash requirements on us and limiting the amount of
any dividends and repurchases when aggregated with other payments or
distributions. Any future determination to pay cash dividends will be at the
discretion of our board of directors, subject to applicable limitations under
Delaware law, and will be dependent upon our results of operations, financial
condition, contractual restrictions and other factors deemed relevant by our
board of directors.
DESCRIPTION OF NOTES
We issued the notes under an indenture, dated as of June 10, 2003, between
us, as issuer, and Bank One, N.A., as trustee. The following summarizes the
material provisions of the notes. We refer to the indenture as the "indenture."
The following description does not purport to be complete and is subject to, and
qualified by reference to, all of the provisions of the indenture and the notes,
which we urge you to read because they, and not this description, define your
rights as a note holder. A copy of the indenture has been filed with the
registration statement relating to this prospectus. As used in this description
of notes, the words "we," "us" and "our" refer only to Continental Airlines,
Inc. and do not include any current, former or future subsidiary of Continental
Airlines, Inc.
GENERAL
The notes are limited to $175,000,000 aggregate principal amount. The notes
will mature on June 15, 2023. The principal amount, and the issue price, of each
note is $1,000. The notes are payable at the principal corporate trust office of
the paying agent, which is currently an office or agency of the trustee, or an
office or agency maintained by us for such purpose, in the Borough of Manhattan,
The City of New York.
The notes bear interest at the rate of 5% per year on the principal amount
from June 10, 2003, or from the most recent date to which interest has been paid
or provided for. Interest is payable semiannually in arrears on June 15 and
December 15, commencing on December 15, 2003, to holders of record at the close
of business on the June 1 and December 1 immediately preceding such interest
payment date. Each payment of interest on the notes will include interest
accrued through the day before the applicable interest payment date (or
purchase, redemption or, in certain circumstances, conversion date, as the case
may be). Any payment required to be made on any day that is not a business day
will be made on the next succeeding business day. The interest rate is
calculated using a 360-day year composed of twelve 30-day months.
Maturity, conversion, repurchase by us at the option of a holder or
redemption of a note at our option will cause the interest, if any, to cease to
accrue on such note. We may not reissue a note that has matured or been
converted, repurchased by us at your option, redeemed or otherwise cancelled,
except for registration of transfer, exchange or replacement of such note.
Notes may be presented for conversion at the office of the conversion agent
and for exchange or registration of transfer at the office of the registrar. The
conversion agent and the registrar are currently the trustee. No service charge
will be made for any registration of transfer or exchange of notes. However, the
holder will be required to pay any tax, assessment or other governmental charge
payable as a result of such transfer or exchange.
The indenture does not limit the amount of other indebtedness or securities
that may be issued by us or any of our subsidiaries. The indenture does not
contain any financial covenants or restrictions on the payment of dividends, the
incurrence of senior debt or the issuance or repurchase of our securities (other
than the notes). The indenture contains no covenants or other provisions to
afford protection to holders of notes in the event of a highly leveraged
transaction or a change in control except to the extent described under
"Repurchase at Option of the Holder Upon a Change in Control."
13
METHODS OF RECEIVING PAYMENTS ON THE NOTES
Each installment of semiannual interest on any note shall be paid in
same-day funds by transfer to an account maintained by the payee located inside
the United States, if the trustee shall have received proper wire transfer
instructions from such payee not later than the related record date or, if no
such instructions have been received, by check drawn on a bank in New York City
mailed to the payee at its address set forth on the registrar's books.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee is currently acting as paying agent and registrar. We may
change the paying agent or registrar without prior notice to the holders of the
notes, and we or any of our subsidiaries may act as paying agent or registrar.
RANKING OF THE NOTES
The notes represent our unsubordinated, unsecured obligations and rank
equal in right of payment to all of our other existing and future unsecured and
unsubordinated indebtedness. However, the notes are effectively subordinated to
all of our existing and future secured indebtedness to the extent of the
security on such other debt and to all existing and future obligations of our
subsidiaries.
As of September 30, 2003, we and our subsidiaries had:
- approximately $6.1 billion (including current maturities) of long-term
debt and capital lease obligations, including outstanding debt of
approximately $4.4 billion that would have been effectively senior to the
notes;
- entered into guarantees for $1.6 billion aggregate principal amount of
tax-exempt special facilities revenue bonds and related interest; and
- $764 million of stockholders' equity.
Holders of the notes are creditors of only Continental Airlines, Inc. 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. See "Risk Factors -- The notes are unsecured and effectively
subordinated to our secured debt and to all obligations of our subsidiaries."
CONVERSION RIGHTS
Holders may convert all or a portion of their notes, in multiples of $1,000
principal amount, into common stock only if at least one of the conditions
described below under "-- Events Permitting Conversion" is satisfied. In
addition, a holder may convert a note until the close of business on the
business day immediately preceding the redemption date if we call a note for
redemption. A note for which a holder has delivered a repurchase notice or a
notice requiring us to repurchase such note upon a Change in Control (as defined
below) may be surrendered for conversion only if such notice is withdrawn in
accordance with the indenture.
The initial conversion rate is 50 shares of common stock per $1,000
principal amount of each note, subject to adjustment upon the occurrence of the
events described below. A holder of a note otherwise entitled to a fractional
share will receive cash equal to the applicable portion of the closing sale
price of our common stock on the trading day immediately preceding the
conversion date. Upon a surrender of notes for conversion, we will have the
option to deliver cash or a combination of cash and shares of our common stock
as described below. The ability to surrender notes for conversion will expire at
the close of business on the business day immediately preceding the final
maturity date.
14
To exercise its conversion right, a holder must:
- complete and manually sign a conversion notice, a form of which is on the
back of the note, and deliver the conversion notice to the conversion
agent;
- surrender the note to the conversion agent;
- if required by the conversion agent, furnish appropriate endorsements and
transfer documents; and
- if required, pay all transfer or similar taxes.
On conversion of a note, a holder will not receive, except as described
below, any cash payment of accrued interest. Delivery to the holder of the full
number of shares of common stock (or, at our option, cash in lieu thereof) into
which $1,000 principal amount of the note is convertible, together with any cash
payment of such holder's fractional shares, will be deemed to satisfy:
- our obligation to pay the principal amount of the note; and
- except as described below, our obligation to pay accrued but unpaid
interest attributable to the period from the most recent interest payment
date through the conversion date.
As a result, accrued interest will be deemed to be paid in full rather than
cancelled, extinguished or forfeited, except as described below. Holders of
notes at the close of business on a record date will receive payment of interest
payable on the corresponding interest payment date notwithstanding the
conversion of such notes at any time after the close of business on such record
date. Notes surrendered for conversion by a holder during the period from the
close of business on any record date to the opening of business on the next
interest payment date, except for notes to be redeemed within this period or on
the next interest payment date, must be accompanied by payment of an amount
equal to the interest that the holder is to receive on the principal amount of
notes so converted.
In lieu of delivery of shares of our common stock upon notice of conversion
of any notes, we may elect to pay holders surrendering notes an amount in cash
per $1,000 principal amount per note equal to the average sale price of our
common stock for the five consecutive trading days immediately following either
(a) the date of our notice of our election to deliver cash as described below if
we have not given notice of redemption, or (b) the conversion date, in the case
of conversion following our notice of redemption specifying that we intend to
deliver cash upon conversion, in either case multiplied by the conversion rate
in effect on that date. We will inform the holders through the trustee no later
than two business days following the conversion date of our election to deliver
shares of our common stock or to pay cash in lieu of delivery of the shares,
unless we have already informed holders of our election in connection with our
optional redemption of the notes as described under "-- Redemption of Notes at
Our Option." If we elect to deliver all of such payment in shares of our common
stock, the shares will be delivered through the conversion agent no later than
the fifth business day following the conversion date. If we elect to pay all or
a portion of such payment in cash, the payment, including any delivery of our
common stock, will be made to holders surrendering notes no later than the tenth
business day following the applicable conversion date. If an Event of Default,
as described under "-- Events of Default" below (other than a Default (as
defined below) in a cash payment upon conversion of the notes), has occurred and
is continuing, the indenture will not permit us to pay cash upon conversion of
any notes or portion of a note (other than cash for fractional shares).
For a discussion of the tax treatment of a holder receiving shares of our
common stock or cash upon surrendering notes for conversion, see "Certain United
States Federal Income Tax Considerations -- Consequences to U.S. Holders,
-- Exchange of Notes into Common Stock, Cash or a Combination Thereof."
We will adjust the initial conversion rate 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
15
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 Airlines, Inc.), 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;
(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 rate 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 rate 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 rate 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 rate 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 rate 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 rate 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.
We may from time to time, to the extent permitted by law, increase the
conversion rate of the notes by any amount. We may make such increases in the
conversion rate, 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 rate unless such
adjustment would require a change of at least 1% in the conversion rate 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.
16
In the event that we pay a dividend or make a distribution on shares of our
common stock consisting of capital stock of, or similar equity interests in, a
subsidiary or other business unit of ours, the conversion rate will be adjusted
based on the market value of the securities so distributed relative to the
market value of our common stock, in each case based on the average closing
prices of those securities for the 10 trading days commencing on and including
the fifth trading day after the date on which "ex-dividend trading" commences
for such dividend or distribution on the principal United States securities
exchange or market on which the securities are then listed or quoted.
In the event that we elect to make a distribution to all holders of shares
of our common stock pursuant to clause (2) or clause (4) of the fifth preceding
paragraph, which has a per share value equal to more than 12.5% of the closing
sale price of our shares of common stock on the day preceding the declaration
date for such distribution, we will be required to give notice to the holders of
notes at least 20 days prior to the date for such distribution and, upon the
giving of such notice, the notes may be surrendered for conversion at any time
until the close of business on the business day prior to the date of
distribution or until we announce that such distribution will not take place.
Holders of the notes may, in certain circumstances, be deemed to have
received a distribution subject to U.S. federal income tax as a dividend upon:
- a taxable distribution to holders of common stock which results in an
adjustment of the conversion rate;
- an increase in the conversion rate at our discretion; or
- failure to adjust the conversion rate in some instances.
See "Certain United States Federal Income Tax
Considerations -- Consequences to U.S. Holders -- Constructive Dividend."
If we are a party to a consolidation, merger or binding share exchange or a
transfer of all or substantially all of our assets, the right to convert a note
into common stock may be changed into a right to convert it into the kind and
amount of securities, cash or other assets of Continental Airlines, Inc. or
those of another person which the holder would have received if the holder had
converted the notes immediately prior to the transaction. However, if such
transaction constitutes a Change in Control as defined below, the notes will
cease to be convertible after the fifteenth day following the actual effective
date of the transaction giving rise to such Change in Control.
The conversion agent will, on our behalf, determine if the notes are
convertible and notify the trustee and us accordingly. If one or more of the
conditions to the conversion of the notes has been satisfied, we will promptly
notify the holders of the notes thereof and use our reasonable best efforts to
post this information on our website or otherwise publicly disclose this
information.
A "trading day" is any day on which the New York Stock Exchange is open for
trading or, if the applicable security is quoted on the Nasdaq National Market,
a day on which trades may be made on such market or, if the applicable security
is not so listed, admitted for trading or quoted, any business day.
EVENTS PERMITTING CONVERSION
Conversion Based on Common Stock Price. Holders may surrender notes for
conversion at any time during or after any fiscal quarter commencing after June
30, 2003 if the sale price of our common stock (as defined below) for at least
20 trading days in a period of 30 consecutive trading days ending on the last
trading day of the preceding fiscal quarter is more than 120% of the conversion
price (as defined below) per share of common stock on the last day of such
preceding fiscal quarter. If the foregoing condition is satisfied, then the
notes will be convertible at any time thereafter at the option of the holder,
through maturity. Upon a surrender of notes for conversion, in lieu of delivery
of shares of our common stock, we will have the right to deliver cash or a
combination of cash and common stock, as described above.
The conversion price per share as of any day will equal the principal
amount of a note, divided by the conversion rate on that day. The sale price of
our common stock on any trading day means the closing per
17
share sale price (or if no closing sale price is reported, the average of the
bid and ask prices or, if more than one in either case, the average of the
average bid and the average ask prices) on such date on the principal national
securities exchange on which the common stock is listed or, if our common stock
is not listed on a national securities exchange, as reported by the Nasdaq
National Market or otherwise as provided in the indenture.
Conversion Based on Trading Price of Notes. Subject to the exception in
the paragraph below, holders may also surrender notes for conversion prior to
maturity during the five business day period after any five consecutive trading
day period in which the "trading price" per $1,000 principal amount of notes, as
determined following a request by a holder of notes in accordance with the
procedures described below, for each day of that period was less than 98% of the
product of the closing sale price of our common stock and the number of shares
issuable upon conversion of $1,000 principal amount of notes (the "trading price
condition"). Upon a surrender of notes for conversion, in lieu of delivery of
shares of our common stock, we will have the right to deliver cash or a
combination of cash and common stock, as described above.
Notwithstanding the foregoing paragraph, if on the date of any conversion
pursuant to the trading price condition that is on or after June 15, 2018, the
closing sale price of our common stock is greater than the conversion price,
then holders will receive, in lieu of common stock based on the conversion
price, cash or common stock or a combination of cash and common stock, at our
option, with a value equal to the principal amount of such notes plus accrued
and unpaid interest, as of the conversion date ("Principal Value Conversion").
We will notify holders that surrender their notes for conversion, if it is a
Principal Value Conversion, by the second trading day following the date of
conversion, whether we will pay them all or a portion of the principal amount
plus accrued and unpaid interest in cash, common stock or a combination of cash
and common stock, and in what percentage. Any common stock delivered upon a
Principal Value Conversion will be valued at the greater of the conversion price
on the conversion date and the applicable stock price as of the conversion date.
We will pay such holders any portion of the principal amount plus accrued and
unpaid interest to be paid in cash and deliver common stock with respect to any
portion of the principal amount plus accrued and unpaid interest to be paid in
common stock no later than the third business day following the determination of
the applicable stock price.
The "applicable stock price" means, in respect of a date of determination,
the average of the closing sales price per share of common stock over the
five-trading day period starting the third trading day following such date of
determination.
The "trading price" of the notes on any date of determination means the
average of the secondary market bid quotations obtained by the trustee for $10
million principal amount of the notes at approximately 3:30 p.m., New York City
time, on such determination date from three independent nationally recognized
securities dealers we select; provided that if three such bids cannot reasonably
be obtained by the trustee, but two such bids are obtained, then the average of
the two bids shall be used, and if only one such bid can reasonably be obtained
by the trustee, that one bid shall be used. If the trustee cannot reasonably
obtain at least one bid for $10 million principal amount of the notes from a
nationally recognized securities dealer, then the trading price per $1,000
principal amount of notes will be deemed to be less than 98% of the product of
the "closing sale price" of our common stock and the number of shares issuable
upon conversion of $1,000 principal amount of the notes.
In connection with any conversion upon satisfaction of the above trading
pricing condition, the trustee will have no obligation to determine the trading
price of the notes unless we have requested such determination; and we shall
have no obligation to make such request unless a holder of the notes provides us
with reasonable evidence that the trading price per $1,000 principal amount of
notes would be less than 98% of the product of the closing sale price of our
common stock and the number of shares of common stock issuable upon conversion
of $1,000 principal amount of the notes. At such time, we shall instruct the
trustee to determine the trading price of the notes beginning on the next
trading day and on each successive trading day until the trading price per
$1,000 principal amount of the notes is greater than 98% of the product of the
closing sale price of our common stock and the number of shares issuable upon
conversion of $1,000 principal amount of the notes.
18
Conversion Based on Redemption. A holder may surrender for conversion a
note called for redemption at any time prior to the close of business on the
business day immediately preceding the redemption date, even if it is not
otherwise convertible at such time. A note for which a holder has delivered a
repurchase notice or a notice requiring us to redeem such note upon a Change in
Control may be surrendered for conversion only if such notice is withdrawn in
accordance with the indenture. Upon a surrender of notes for conversion, in lieu
of delivery of shares of our common stock, we will have the right to deliver
cash or a combination of cash and common stock, as described above.
Conversion Upon Occurrence of Certain Corporate Transactions. If we are
party to a consolidation, merger or binding share exchange or a transfer of all
or substantially all of our assets pursuant to which our common stock would be
converted into cash, securities or other property, reclassified or changed, a
note may be surrendered for conversion at any time from and after the date which
is 15 days prior to the anticipated effective date of the transaction until 15
days after the actual effective date of such transaction. Upon a surrender of
notes for conversion, in lieu of delivery of shares of our common stock, we will
have the right to deliver cash or a combination of cash and common stock, as
described above. At the effective date of any such transaction, the right to
convert a note into common stock will be changed into a right to convert it into
the kind and amount of securities, cash or other of our assets or another person
which the holder would have received if the holder had converted the holder's
notes into shares of our common stock immediately prior to the transaction. If
such transaction also constitutes a Change in Control, the holder will be able
to require us to purchase all or a portion of such holder's notes as described
under "-- Repurchase at Option of the Holder Upon a Change in Control."
Conversion Upon Occurrence of Specified Distributions. The notes will also
be convertible upon the occurrence of certain distributions resulting in an
adjustment to the conversion rate as described above.
REDEMPTION OF NOTES AT OUR OPTION
No sinking fund is provided for the notes. Prior to June 18, 2010, we
cannot redeem the notes at our option. Beginning on June 18, 2010, we may redeem
the notes for cash, as a whole at any time or from time to time in part. We will
give not less than 30 days' or more than 60 days' notice of redemption by mail
to holders of notes.
If redeemed at our option, the notes will be redeemed at a redemption price
equal to 100% of the principal amount, plus accrued and unpaid interest, if any.
If less than all of the outstanding notes are to be redeemed, the trustee
will select the notes to be redeemed in principal amounts of $1,000 or integral
multiples of $1,000 principal amount. In this case, the trustee may select the
notes by lot, pro rata or by any other method the trustee considers fair and
appropriate. If a portion of a holder's notes is selected for partial redemption
and the holder converts a portion of the notes, the converted portion will be
deemed to be the portion selected for redemption.
REPURCHASE AT OPTION OF THE HOLDER ON SPECIFIED DATES
Holders have the right to require us to repurchase the notes on June 15 of
2010, 2013 and 2018. We will be required to repurchase any outstanding note for
which a holder delivers a written repurchase notice to the paying agent. This
notice must be delivered during the period beginning at any time from the
opening of business on the date that is 20 business days prior to the repurchase
date until the close of business on the third business day prior to the
repurchase date. If a repurchase notice is given and withdrawn during that
period, we will not be obligated to repurchase the notes listed in the notice.
Our repurchase obligation will be subject to certain additional conditions.
The repurchase price payable for a note will be equal to 100% of the
principal amount plus accrued and unpaid interest, if any, on such notes to, but
excluding, the repurchase date. We may, at our option, elect to pay the
repurchase price in cash, in shares of our common stock or in any combination of
cash and common stock. For a discussion of the tax treatment of holders
receiving cash, shares of our common stock or both, see
19
"Certain United States Federal Income Tax Considerations -- Consequences to U.S.
Holders -- Exchange of Notes into Common Stock, Cash or a Combination Thereof."
Should we be required to repurchase the notes at any of the redemption
dates, it is our policy that we would satisfy the requirement in cash.
However, if, as permitted by the indenture, we elect to pay the repurchase
price, in whole or in part, in shares of our common stock, the number of shares
to be delivered in exchange for the portion of the repurchase price to be paid
in our common stock will be equal to that portion of the repurchase price
divided by 97.5% of the average closing sale price of our common stock for the
five trading days ending on the third business day prior to the applicable
repurchase date (appropriately adjusted to take into account the occurrence of
certain events that would result in an adjustment of the conversion rate with
respect to our common stock). We will not, however, deliver fractional shares in
repurchases using shares of our common stock as consideration. Holders who would
otherwise be entitled to receive fractional shares will instead receive cash in
an amount equal to the market price of a share of our common stock multiplied by
such fraction.
Because the market price of our common stock will be determined prior to
the applicable repurchase date, holders bear the market risk that our common
stock will decline in value between the date the market price is calculated and
the repurchase date.
The paying agent is currently the trustee.
The repurchase notice must state:
(1) if certificated notes have been issued, the note certificate
numbers (or, if a holder's notes are not certificated, such holder's
repurchase notice must comply with appropriate DTC procedures);
(2) the portion of the principal amount of notes to be repurchased,
which must be in $1,000 multiples; and
(3) that the notes are to be repurchased by us pursuant to the
applicable provisions of the notes and the indenture.
Holders may withdraw any written repurchase notice by delivering a written
notice of withdrawal to the paying agent prior to the close of business on the
business day immediately preceding the repurchase date. The withdrawal notice
must state:
- the principal amount of the withdrawn notes;
- if certificated notes have been issued, the certificate numbers of the
withdrawn notes (or, if a holder's notes are not certificated, such
holder's withdrawal notice must comply with appropriate DTC procedures);
and
- the principal amount, if any, which remains subject to the repurchase
notice.
We must give notice of an upcoming repurchase date to all note holders not
less than 20 business days prior to the repurchase date at their address shown
in the register of the registrar. We will also give notice to beneficial owners
as required by applicable law. This notice will state, among other things:
- whether we will pay the repurchase price of the notes in cash, shares of
our common stock, or both (in which case the relative percentages will be
specified);
- if we elect to pay all or a portion of the repurchase price in shares of
our common stock, the method by which we are required to calculate market
price of the common stock; and
- the procedures that holders must follow to require us to repurchase their
notes.
Our right to repurchase notes, in whole or in part, with shares of our
common stock is subject to various conditions, including:
- registration of the shares of our common stock to be issued upon
repurchase under the Securities Act and the Exchange Act, if required;
20
- qualification or registration of the shares of our common stock to be
issued upon repurchase under applicable state securities laws, if
necessary, or the availability of an exemption therefrom; and
- listing of our common stock on a United States national securities
exchange or quoted on an inter-dealer quotation system of any registered
United States national securities association.
If these conditions are not satisfied by a repurchase date, we will pay the
repurchase price of the notes to be repurchased entirely in cash. We may not
change the form or components or percentages of components of consideration to
be paid for the notes once we have given the note holders the required notice,
except as described in the preceding sentence.
Payment of the repurchase price for a note for which a repurchase notice
has been delivered and not withdrawn is conditioned upon book-entry transfer or
delivery of the note, together with necessary endorsements, to the paying agent
at its office in the Borough of Manhattan, The City of New York, or any other
office of the paying agent, at any time after delivery of the repurchase notice.
Payment of the repurchase price for the note will be made promptly following the
later of the repurchase date and the time of book-entry transfer or delivery of
the note. If the paying agent holds money sufficient to pay the repurchase price
of the note on the business day following the repurchase date, then, on and
after the date:
- the note will cease to be outstanding;
- interest will cease to accrue; and
- all other rights of the holder will terminate.
This will be the case whether or not book-entry transfer of the note has
been made or the note has been delivered to the paying agent, and all other
rights of the note holder will terminate, other than the right to receive the
repurchase price upon delivery of the note.
Our ability to repurchase notes with cash may be limited by the terms of
our then-existing borrowing agreements. Even though we become obligated to
repurchase any outstanding note on a repurchase date, we may not have sufficient
funds to pay the repurchase price on that repurchase date. See "Risk
Factors -- We may not have the financial resources to repurchase the notes upon
the occurrence of a "change in control' or at the option of a holder."
We will comply with the provisions of Rule 13e-4 and any other tender offer
rules under the Exchange Act that may be applicable in connection with any offer
by us to repurchase the notes.
REPURCHASE AT OPTION OF THE HOLDER 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 but 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
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 Exchange Act, 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
21
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);
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 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 Change of 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 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 National 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 a 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 or 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.
Our failure to repurchase the notes when required would result in an Event
of Default with respect to the notes. See "-- Events of Default."
We will comply with the provisions of Rule 13e-4 and any other tender offer
rules under the Exchange Act that may be applicable in connection with any offer
by us to repurchase the notes.
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.
22
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 us that may adversely affect holders.
MERGER AND SALES OF ASSETS BY THE COMPANY
The 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 notes, and our obligations under
the indenture;
- immediately after giving effect to such transactions, no Event of Default
(as defined below) or Default (as defined below) 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 indenture and the notes.
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 notes will not have the right to require
redemption of their securities or similar rights.
EVENTS OF DEFAULT
An "Event of Default" occurs with respect to the notes if any of the
following occurs:
- we fail to pay interest on the notes or any other amount applicable to
the notes within 30 days of the due date;
- we fail to pay principal on any notes on its due date;
- we default for 60 days after notice to us by the trustee, or by the
holders of 25% in aggregate principal amount of the notes then
outstanding, in the performance of any other agreement applicable to the
notes; or
- certain events of bankruptcy, insolvency or reorganization occur.
If an event of default shall have happened and be continuing, either the
trustee or the holders of not less than 25% in aggregate principal amount of the
notes then outstanding may, by written notice to us (and to the trustee, if
notice is given by the holders of the notes), declare the principal amount of
the notes accrued through the date of such declaration, and any accrued and
unpaid interest through the date of such declaration, to be immediately due and
payable.
The indenture provides that the trustee will give to the holders of the
notes notice of all uncured Defaults (as defined below) within 90 days after the
occurrence of Default. However, notice will not be given until 60 days after the
occurrence of a Default with respect to the notes involving a failure to perform
a covenant other than the obligation pay principal and interest. Further, in the
case of default in payment on the notes, 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 notes. "Default" means any event which is, or after the passage
of time or both, would be, an Event of Default.
Under the indenture, 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 provisions for
indemnification, the indenture provides that the holders of not less than a
majority in aggregate principal amount of the notes may direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
for the notes, or exercising any trust or power conferred on the trustee. We are
23
required to file annually with the trustee a certificate as to our compliance
with all conditions and covenants under the indenture, except an Event of
Default based on the payment of the principal or interest on the notes and
certain other defaults.
By notice to the trustee, the holders of not less than the majority in
total principal amount of the notes may waive any past Default or Event of
Default with respect to that series and its consequences. Further, a majority of
the 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, or interest, if any, on the notes (and any
resulting acceleration) and certain other defaults.
MODIFICATION OF INDENTURE
Without Holder Consent. Without the consent of any holders of notes, 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 the notes, or
- to surrender any right or power conferred upon us; or
- to add any additional Events of Default for the notes; or
- to add or change any provisions to such extent as necessary to permit or
facilitate the issuance of the notes in bearer or in global form; or
- to provide security for the notes; or
- to establish the form or terms of the notes 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 notes 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 notes issued under the 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 indenture or so as to permit changes to, or the
elimination of, provisions which, at the date of the indenture or at any time
thereafter, were required by the Trust Indenture Act to be contained in the
indenture, the indenture 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 notes is generally
required for the purpose of adding to, or changing or eliminating any of the
provisions of, the notes pursuant to a supplemental indenture. However, no
amendment or modification may, without the consent of the holder of each
outstanding notes directly affected thereby,
- change the stated maturity of the principal or interest on the notes
(other than pursuant to the terms thereof); or
- reduce the principal amount, interest or premium payable or change the
currency in the notes are payable; or
- impair the right to bring suit to enforce any payment; or
24
- reduce the percentages of holders whose consent is required to modify or
amend the indenture of compliance with certain provisions of the
indentures or for waiver of certain Defaults; or
- change our obligation to maintain an office or agency in the places and
for the purposes specified in the indenture; or
- modify any of the foregoing provisions.
DISCHARGE OF THE INDENTURE
We may satisfy and discharge our obligations under the indenture by
delivering to the trustee for cancellation all outstanding notes or by
depositing with the trustee, the paying agent or the conversion agent, if
applicable, after the notes have become due and payable, whether at stated
maturity or any redemption date, or any repurchase date, or a Change in Control
purchase date, or upon conversion or otherwise, cash or shares of common stock
(as applicable under the terms of the indenture) sufficient to pay all of the
outstanding notes and paying all other sums payable under the indenture.
CALCULATIONS IN RESPECT OF NOTES
Bank One, N.A., as calculation agent, is responsible for making all
calculations called for under the notes. These calculations include, but are not
limited to, determination of the market prices of our common stock. The trustee
will make all these calculations in good faith and, absent manifest error, its
calculations will be final and binding on holders of notes. The trustee will
provide us with a schedule of its calculations, and the trustee is entitled to
rely upon the accuracy of its calculations without independent verification.
LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect of Continental Airlines,
Inc., the claim of a holder of a note is, under Title 11 of the United States
Code, limited to the principal amount, together with any accrued and unpaid
interest, on such note as of the date of the commencement of the proceeding.
GOVERNING LAW
The indenture and the notes are governed by, and construed in accordance
with, the laws of the State of New York.
INFORMATION CONCERNING THE TRUSTEE
Bank One, N.A. is the trustee, registrar, paying agent and conversion agent
and responsible for making all calculations under the indenture for the notes.
BOOK-ENTRY SYSTEM
The notes have been issued in the form of a global security held in
book-entry form. DTC or its nominee is the sole registered holder of the notes
for all purposes under the indenture. Owners of beneficial interests in the
notes represented by the global security hold their interests pursuant to the
procedures and practices of DTC. As a result, beneficial interests in any such
securities are shown on, and may only be transferred through, records maintained
by DTC and its direct and indirect participants, and any such interest may not
be exchanged for certificated securities, except in limited circumstances.
Owners of beneficial interests must exercise any rights in respect of their
interests, including any right to convert or require purchase of their interests
in the notes, in accordance with the procedures and practices of DTC. Beneficial
owners are not be holders and are not be entitled to any rights under the global
security or the indenture. We and the trustee, and any of our or their
respective agents, may treat DTC as the sole holder and registered owner of the
global security. Investors who purchase notes in offshore transactions in
reliance on Regulation S under the Securities Act may hold their interests in
the global security directly through Euroclear Bank S.A./N.V., as operator of
the Euroclear System ("Euroclear") and Clearstream Banking, societe anonyme
("Clearstream"), if they are participants in such systems, or indirectly through
organizations that are participants in
25
such systems. Euroclear and Clearstream will hold interests in the global
security on behalf of their participants through their respective depositaries,
which in turn will hold such interests in the global security in such
depositaries' names on the books of DTC.
EXCHANGE OF GLOBAL SECURITY
Notes represented by the global security will be exchangeable for
certificated securities with the same terms only if:
- DTC is unwilling or unable to continue as depositary or if DTC ceases to
be a clearing agency registered under the Exchange Act and a successor
depositary is not appointed by us within 90 days; or
- we decide to discontinue use of the system of book-entry transfer through
DTC (or any successor depositary);
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
facilitates the settlement of transactions among its participants through
electronic computerized book-entry changes in participants' accounts,
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers, including the initial
purchasers, banks, trust companies, clearing corporations and other
organizations, some of whom and/or their representatives, own DTC. Access to
DTC's book-entry system is also 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.
REGISTRATION RIGHTS
We and the initial purchasers entered into a registration rights agreement
dated June 10, 2003. Pursuant to the registration rights agreement, we have
agreed, at our expense, for the benefit of the holders, to file with the SEC a
shelf registration statement (of which this prospectus forms a part) covering
resale of the notes and the shares of common stock issuable upon conversion of
the notes within 90 days after June 10, 2003. We have agreed to use our
reasonable best efforts to cause the shelf registration statement to become
effective within 180 days of such date, and to keep a shelf registration
statement effective until the earlier of:
- the sale pursuant to Rule 144 under the Securities Act or a shelf
registration statement of all the securities registered thereunder; and
- the expiration of the holding period applicable to such securities held
by persons that are not our affiliates under Rule 144(k) under the
Securities Act or any successor provision, subject to certain permitted
exceptions.
We are permitted to suspend the use of the prospectus that is part of the
shelf registration statement under certain circumstances relating to corporate
developments, public filings with the SEC and similar events for a period not to
exceed 30 days in any three-month period and not to exceed an aggregate of 90
days in any 12-month period. We have agreed to pay predetermined additional
amounts as described herein ("additional amounts") to holders of the notes and
holders of shares of common stock issuable upon conversion of the notes if a
shelf registration statement is not timely filed or made effective or if the
prospectus is unavailable for the periods in excess of those permitted above.
Such additional amounts will accrue until such failure to file or become
effective or unavailability is cured,
- in respect of any notes, at a rate per year equal to 0.25% for the first
90-day period after the occurrence of such event and 0.5% thereafter of
the principal amount thereof; and
- in respect of any shares of common stock issued upon conversion of notes,
at a rate per year equal to 0.25% for the first 90-day period and 0.5%
thereafter of the then applicable conversion price (as defined below).
26
So long as the failure to file or become effective or unavailability
continues, we will pay additional amounts in cash on June 15 and December 15 of
each year to the holders of record of the notes or shares of common stock on the
immediately preceding June 1 and December 1. When such registration default is
cured, accrued and unpaid additional amounts will be paid in cash to the record
holder as of the date of such cure.
A holder who sells notes and shares of common stock issued upon conversion
of the notes pursuant to the shelf registration statement generally will be
required to be named as a selling securityholder in the related prospectus,
deliver a prospectus to purchasers and be bound by certain provisions of the
registration rights agreement that are applicable to such holder, including
certain indemnification provisions. We will pay all expenses of the shelf
registration statement, provide to each registered holder copies of such
prospectus, notify each registered holder when the shelf registration statement
has become effective and take certain other actions as are required to permit,
subject to the foregoing, unrestricted resales of the notes and the shares of
common stock issued upon conversion of the notes.
The term "applicable conversion price" means, as of any date of
determination, $1,000 principal amount of notes divided by the conversion rate
in effect as of such date of determination or, if no notes are then outstanding,
the conversion rate that would be in effect were notes then outstanding.
DESCRIPTION OF OUR CAPITAL STOCK
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."
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 5, 2003, we had outstanding 66,035,311
shares of Class B common stock and one share of Series B preferred stock.
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.
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
27
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 "foreign" 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 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. and its affiliates could
preclude the registration, and thus the voting of, certain shares owned by 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.
28
The preferred stock purchase rights 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 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;
29
- 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 25% of the outstanding shares of common stock.
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.
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.
30
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;
- 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 Airlines involving a third
party major air carrier;
- our alliance with Northwest Airlines terminates or expires (other than as
a result of a breach by us); or
- Northwest Airlines materially breaches its standstill obligations to us
or triggers our rights agreement (described above under "Preferred Stock
Purchase Rights").
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
31
directors currently consists of 14 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;
- 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.
32
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary discusses the material U.S. federal income tax
considerations relating to the purchase, ownership and disposition of the notes
and the shares of common stock into which the notes may be converted. Except
where noted, this summary deals only with notes and shares of common stock held
as capital assets and is applicable only to initial purchasers of notes who
purchased the notes at their initial offering price. Additionally, this summary
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
insurance companies;
- tax consequences to persons holding notes or shares of common stock as
part of a hedging, integrated, constructive sale or conversion
transaction or a straddle;
- tax consequences to U.S. holders (as defined below) of notes or shares of
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 U.S. federal income tax consequences different
from those discussed below.
If a partnership holds our notes or shares of common stock, the tax
treatment of a partner in the partnership 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 shares of common stock, you should consult your
tax advisor.
IF YOU ARE CONSIDERING THE PURCHASE OF NOTES, YOU ARE URGED TO CONSULT YOUR
OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES
TO YOU AND ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL, FOREIGN
OR OTHER TAXING JURISDICTION.
CONSEQUENCES TO U.S. HOLDERS
The following is a summary of the U.S. federal income tax consequences that
will apply to you if you are a U.S. holder of notes or shares of common stock.
Certain consequences to "non-U.S. holders" of notes and shares of common stock
are described under "-- Consequences to Non-U.S. Holders" below. "U.S. holder"
means a beneficial owner of a note that is for U.S. federal income tax purposes:
- a citizen or resident of the U.S.;
- a corporation or partnership created or organized in or under the laws of
the U.S. or any political subdivision of the U.S.;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust if (1) it is subject to the primary supervision of a court within
the U.S. and one or more U.S. persons have the authority to control all
substantial decisions of the trust, or (2) it has a valid election in
effect under applicable U.S. treasury regulations to be treated as a U.S.
person.
INTEREST ON THE NOTES
Payments of stated interest on the notes will be subject to U.S. federal
income taxation as ordinary income at the time such payments accrue or are
received, in accordance with your method of accounting for tax purposes.
33
MARKET DISCOUNT
If you purchase a note for an amount that is less than its issue price,
subject to a de minimis exception you will be treated as having purchased the
note at a "market discount." In such case, you will be required to treat any
principal payment on, or any gain realized on the sale, exchange, or other
disposition of, the note as ordinary income to the extent of the lesser of (i)
the amount of such payment or realized gain or (ii) the market discount accrued
on the note while held by you and not previously included in income; you also
may be required to defer the deduction of all or a portion of any interest paid
or accrued on indebtedness incurred or maintained to purchase or carry the note.
Alternatively, you may elect (with respect to the note and all your other market
discount obligations acquired by you after the first day of the first taxable
year to which such election applies) to include market discount in income
currently as it accrues. This election may only be revoked with the consent of
the IRS. Market discount is considered to accrue ratably during the period from
the date of acquisition to the maturity date of the note, unless you elect to
accrue market discount on the basis of a constant interest rate. Amounts
includible in income as market discount are generally treated as ordinary
interest income.
PREMIUM
If you purchase a note for an amount that is greater than the principal
amount of the note, you will be treated as having purchased the note with
"amortizable bond premium" equal in amount to such excess. You may elect (with
respect to the note and all your other obligations with amortizable bond premium
held on or acquired by you after the first day of the first taxable year to
which such election applies) to amortize such premium using a constant yield
method over the remaining term of the note and may offset interest income
otherwise required to be included in respect to the note during any taxable year
by the amortized amount of such excess for the taxable year. This election may
only be revoked with the consent of the IRS.
If you elect to amortize bond premium, you must reduce your basis in a note
by the amount of any bond premium amortized during your holding period. If you
do not elect to amortize bond premium, the bond premium will be included in your
basis when the note matures or when you dispose of the note and, in the case of
a taxable disposition, will generally result in the recognition of a capital
loss.
CONSTRUCTIVE DIVIDEND
The conversion ratio 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. Any deemed dividend distribution may not be eligible for
the preferential U.S. federal income tax rates applicable to certain dividends
under recently enacted legislation.
SALE, EXCHANGE, REDEMPTION OR OTHER TAXABLE DISPOSITION OF NOTES
Except as provided below under "-- Exchange of Notes into Common Stock,
Cash or a Combination Thereof," you will generally recognize gain or loss upon
the sale, exchange, redemption or other taxable disposition of a note equal to
the difference between the amount realized upon the sale, exchange, redemption
or other taxable disposition (except to the extent of any accrued but unpaid
interest, which is required to be treated as interest income) and your adjusted
tax basis in the note. Your adjusted tax basis in a note will generally be equal
to the amount paid for the note, increased by any amounts includible in income
by you as market discount (as described above) and reduced by any amortized
premium (as described above). Except as described above with respect to market
discount, any gain or loss recognized on a taxable disposition of the note will
be capital gain or loss. If you are an individual and have held the note for
more than one year, such capital gain will be subject to tax at a maximum rate
of 15%. The deductibility of net capital losses by individuals and corporations
is subject to limitations.
34
EXCHANGE OF NOTES INTO COMMON STOCK, CASH OR A COMBINATION THEREOF
You will not recognize gain or loss on the exchange of your notes solely
for common stock upon conversion or repurchase, except to the extent of the fair
market value of common stock received with respect to accrued, but unpaid
interest, which will be treated as interest income. If you receive solely cash
in exchange for your notes upon conversion or repurchase, your gain or loss will
be determined in the same manner as if you disposed of the note in a taxable
disposition (as described above under "-- Sale, Exchange, Redemption or Other
Taxable Disposition of Notes"). If a combination of cash and stock is received
in exchange for your notes upon conversion or repurchase, the amount of gain
recognized will be equal to the excess of the fair market value of the common
stock and cash received (except to the extent of amounts received with respect
to accrued but unpaid interest which will be treated as interest income) over
your adjusted tax basis in the note, but in no event should the amount
recognized exceed the amount of cash received. You may not recognize any loss on
the exchange. The amount of gain or loss recognized on the receipt of cash in
lieu of a fractional share will be equal to the difference between the amount of
cash you receive in respect of the fractional share and the portion of your
adjusted tax basis in the note that is allocable to the fractional share.
The tax basis of the shares of common stock received upon a conversion or
repurchase will equal the adjusted tax basis of the note that was converted or
repurchased (excluding the portion of the tax basis that is allocable to any
fractional share), reduced by the amount of any cash received (other than cash
received in lieu of a fractional share) and increased by the amount of gain, if
any, recognized (other than with respect to a fractional share). Your holding
period for shares of common stock will include the period during which you held
the notes.
You are urged to contact your tax advisors concerning the ownership of
common stock.
CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of the U.S. federal tax consequences that will
apply to you if you are a non-U.S. holder of notes or shares of common stock.
The term "non-U.S. holder" means a beneficial owner of a note or share of common
stock that is not a U.S. holder. Special rules may apply to certain non-U.S.
holders such as "controlled foreign corporations", "passive foreign investment
companies" and "foreign personal holding companies". Such entities should
consult their own tax advisors to determine the U.S. federal, state, local and
other tax consequences that may be relevant to them.
INTEREST ON THE NOTES
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 rule", provided
that:
- you do not actually or constructively 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
(actually or constructively) through stock ownership;
- you are not a bank whose receipt of interest on a note is described in
section 881(c)(3)(A) of the Code; and
- (a) you provide your name and address, and certify, under penalties of
perjury, that you are not a U.S. person (which certification may be made
on an IRS W-8BEN (or successor form)) or (b) you hold your notes through
certain foreign intermediaries or certain foreign partnerships, and you
satisfy the certification requirements of applicable treasury
regulations. Special rules apply to non-U.S. holders that are
pass-through entities rather than corporations or individuals.
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 income tax treaty or (2) IRS Form W-8ECI (or successor form) stating
that interest paid on the note is not
35
subject to withholding tax because it is effectively connected with your conduct
of a trade or business in the U.S.
If you are engaged in a trade or business in the U.S. and interest on a
note is effectively connected with the conduct of that trade or business, you
will be subject to U.S. federal income tax on that interest on a net income
basis (although exempt from the 30% withholding tax) generally in the same
manner as if you were a U.S. 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 income tax 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 U.S.
DIVIDENDS
Any dividends paid to you with respect to the shares of common stock (and
any deemed dividends resulting from certain adjustments, or failure to make
adjustments, to the number of shares of common stock to be issued on conversion,
see "-- Constructive Dividend" above) will be subject to withholding tax at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty. However, dividends that are effectively connected with the conduct of a
trade or business within the U.S. and, where an applicable tax treaty so
provides, are attributable to a U.S. permanent establishment, are not subject to
the withholding tax, but instead are subject to U.S. federal income tax on a net
income basis at applicable graduated individual or corporate rates. Certain
certification and disclosure requirements must be complied with in order for
effectively connected income to be exempt from withholding. Any such effectively
connected dividends received by a foreign corporation 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.
A non-U.S. holder of shares of common stock who wishes to claim the benefit
of an applicable treaty rate is required to satisfy applicable certification and
other requirements. If you are eligible for a reduced rate of U.S. withholding
tax pursuant to an income tax treaty, you may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the Internal
Revenue Service.
As more fully described under "Description of Notes -- Registration
Rights," upon the occurrence of certain enumerated events we may be required to
pay additional amounts to you. Payments of such additional amounts may be
subject to U.S. federal withholding tax. You should contact your tax advisors
concerning the tax treatment of such additional amounts received by you.
SALE, EXCHANGE, REDEMPTION OR OTHER DISPOSITION OF NOTES OR SHARES OF COMMON
STOCK
Any gain realized upon the sale, exchange, redemption or other disposition
of a note or share of common stock generally will not be subject to U.S. federal
income tax unless:
- that gain is effectively connected with the conduct of a trade or
business in the U.S. by you;
- you are an individual who is present in the U.S. for 183 days or more in
the taxable year of that disposition, and certain other conditions are
met; or
- we are or have been a "U.S. real property holding corporation" for U.S.
federal income tax purposes.
An individual non-U.S. holder described in the first bullet point above
will be subject to U.S. federal income tax on the net gain derived from the
sale. An individual non-U.S. holder described in the second bullet point above
will be subject to a flat 30% U.S. federal income tax on the gain derived from
the sale, which may be offset by U.S. source capital losses, even though the
holder is not considered a resident of the U.S. A non-U.S. holder that is a
foreign corporation and is described in the first bullet point above will be
subject to tax on gain at regular graduated U.S. federal income tax rates and,
in addition, may be subject to a branch profits tax at a 30% rate or a lower
rate if so specified by an applicable income tax treaty.
We believe that we are not and do not anticipate becoming a "U.S. real
property holding corporation" for U.S. federal income tax purposes.
36
U.S. FEDERAL ESTATE TAX
Your estate will not be subject to U.S. federal estate tax on notes
beneficially owned by you at the time of your death, provided that any payment
to you on the notes would be eligible for exemption from the 30% U.S. federal
withholding tax under the "portfolio interest rule" described above under
"-- Interest on the Notes" without regard to the statement requirement described
in the last bullet point and, at the time of your death, payments with respect
to the note would not have been effectively connected with the conduct by you of
a trade or business in the U.S. However, shares of common stock held by you at
the time of your death will be included in your gross estate for U.S. federal
estate tax purposes unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report to the IRS and to you the amount of interest and
dividends paid to you and the amount of tax, if any, withheld with respect to
those payments. Copies of the information returns reporting such interest and
dividend payments and any withholding may also be made available to the tax
authorities in the country in which you reside under the provisions of an
applicable income tax treaty.
In general, you will not be subject to backup withholding with respect to
payments that we make to you provided that we do not have actual knowledge or
reason to know that you are a U.S. person, as defined under the Code, that is
not an exempt recipient and you have provided the statement described above in
the last bullet point under "Consequences to Non-U.S. Holders -- Interest on the
Notes."
You will be subject to information reporting and, depending on the
circumstances, backup withholding with respect to the proceeds of the sale of a
note within the U.S. or conducted through certain U.S.-related financial
intermediaries, unless the payor of the proceeds receives the statement
described above and does not have actual knowledge or reason to know that you
are a U.S. person, as defined under the Code, that is not an exempt recipient 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 U.S. federal income tax liability provided the
required information is furnished to the IRS.
CERTAIN ERISA CONSIDERATIONS
The following is a summary of certain considerations associated with the
purchase of the notes by employee benefit plans that are subject to Title I of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
plans, individual retirement accounts and other arrangements that are subject to
Section 4975 of the Code or provisions under any federal, state, local, non-U.S.
or other laws or regulations that are similar to such provisions of the Code or
ERISA (collectively, "Similar Laws"), and entities whose underlying assets are
considered to include "plan assets" of such plans, accounts and arrangements
(each, a "Plan").
GENERAL FIDUCIARY MATTERS
ERISA and the Code impose certain duties on persons who are fiduciaries of
a Plan subject to Title I of ERISA or Section 4975 of the Code (an "ERISA Plan")
and prohibit certain transactions involving the assets of an ERISA Plan and its
fiduciaries or other interested parties. Under ERISA and the Code, any person
who exercises any discretionary authority or control over the administration of
such an ERISA Plan or the management or disposition of the assets of such an
ERISA Plan, or who renders investment advice for a fee or other compensation to
such an ERISA Plan, is generally considered to be a fiduciary of the ERISA Plan.
In considering an investment in the notes of a portion of the assets of any
Plan, a fiduciary should determine whether the investment is in accordance with
the documents and instruments governing the Plan and the applicable provisions
of ERISA, the Code or any Similar Law relating to a fiduciary's duties to the
Plan including, without limitation, the prudence, diversification, delegation of
control and prohibited transaction provisions of ERISA, the Code and any other
applicable Similar Laws.
37
PROHIBITED TRANSACTION ISSUES
Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans from
engaging in specified transactions involving plan assets with persons or
entities who are "parties in interest," within the meaning of ERISA, or
"disqualified persons," within the meaning of Section 4975 of the Code, unless
an exemption is available. A party in interest or disqualified person who
engages in a non-exempt prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code. In addition, the
fiduciary of the ERISA Plan that engaged in such a non-exempt prohibited
transaction may be subject to penalties and liabilities under ERISA and the
Code.
The acquisition and/or holding of the notes by an ERISA Plan with respect
to which Continental Airlines, Inc. and the initial purchasers are considered a
party in interest or a disqualified person, and the conversion of the notes by
an ERISA Plan with respect to which the company is considered a party in
interest or disqualified person, may constitute or result in a direct or
indirect prohibited transaction under Section 406 of ERISA and/or Section 4975
of the Code, unless the notes are acquired and held in accordance with an
applicable statutory, class or individual prohibited transaction exemption. In
this regard, the U.S. Department of Labor has issued prohibited transaction
class exemptions, or "PTCEs," that may apply to the acquisition, holding and
conversion of the notes. These class exemptions include, without limitation,
PTCE 84-14 respecting transactions determined by independent qualified
professional asset managers, PTCE 90-1 respecting insurance company pooled
separate accounts, PTCE 91-38 respecting bank collective investment funds, PTCE
95-60 respecting life insurance company general accounts and PTCE 96-23
respecting transactions determined by in-house asset managers. There can be no
assurance that all of the conditions of any such exemptions will be satisfied.
Because of the foregoing, the notes should not be purchased or held by any
person investing "plan assets" of any Plan, unless such purchase and holding and
any conversion will not constitute a non-exempt prohibited transaction under
ERISA and the Code or similar violation of any applicable Similar Laws.
REPRESENTATION
Accordingly, by acceptance of the notes, each purchaser and subsequent
transferee of the notes will be deemed to have represented and warranted that
either (i) such purchaser or transferee is not a Plan and no portion of the
assets used by such purchaser or transferee to acquire and hold the notes
constitutes assets of any Plan or (ii) the purchase, holding and conversion of
the notes by such purchaser or transferee will not constitute a non-exempt
prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or
similar violation under any applicable Similar Laws.
The foregoing discussion is general in nature and is not intended to be
all-inclusive. Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons considering purchasing
the notes on behalf of, or with the assets of, any Plan, consult with their
counsel regarding the potential applicability of ERISA, Section 4975 of the Code
and any Similar Laws to such investment and whether an exemption would be
applicable to the purchase, holding and conversion of the notes.
SELLING SECURITYHOLDERS
The notes, and any shares of our common stock issued upon conversion of the
notes, are being offered by the selling securityholders listed in the table
below or referred to in a prospectus supplement. The common stock which may be
issued directly by us upon conversion of notes which are purchased in a sale
contemplated by this prospectus is not being offered by the selling
securityholders. Only those shares of common stock issued upon conversion of the
notes may be offered by the selling securityholders. We issued and sold the
notes in a private placement to the initial purchasers, and the notes were
simultaneously sold by the initial purchasers to the selling securityholders in
transactions exempt from registration under the Securities Act.
No offer or sale under this prospectus may be made by a holder of the
securities unless that holder is listed in the table in this prospectus or until
that holder has notified us and a supplement to this prospectus has
38
been filed or an amendment to the related registration statement has become
effective. We will supplement or amend this prospectus to include additional
selling securityholders upon request and upon provision of all required
information to us.
The selling securityholders may offer and sell, from time to time, any or
all of the notes or common stock issued upon conversion of those notes.
The following table, which we have prepared based on information provided
to us by the applicable selling securityholder, sets forth the name, principal
amount of notes, and number of shares of common stock beneficially owned by the
selling securityholders intending to sell the notes or common stock and the
principal amount of notes or shares of common stock to be offered. Unless set
forth below, none of the selling securityholders selling in connection with the
prospectus or prospectus supplement has held any position or office with, been
employed by, or otherwise has had a material relationship with us or any of our
affiliates during the three years prior to the date of the prospectus or
prospectus supplement.
PRINCIPAL AMOUNT
OF NOTES COMMON
BENEFICIALLY PERCENTAGE COMMON STOCK STOCK THAT PERCENTAGE OF
OWNED THAT OF NOTES OWNED PRIOR TO MAY BE SOLD COMMON STOCK
NAME MAY BE SOLD OUTSTANDING CONVERSION HEREBY(1) OUTSTANDING(2)
---- ---------------- ----------- -------------- ----------- --------------
AG Domestic Convertibles,
L.P. ......................... $ 4,200,000 2.40% 0 210,000 *
AG Offshore Convertibles, Ltd... $ 7,800,000 4.46% 0 390,000 *
Akanthos Arbitrage Master Fund,
L.P. ......................... $ 5,000,000 2.86% 0 250,000 *
Amaranth L.L.C. ................ $ 40,480,000 23.13% 1,900 2,024,000 2.97%
Aristeia International Limited $ 9,315,000 5.32% 0 465,750 *
Aristeia Trading LLC............ $ 2,185,000 1.25% 0 109,250 *
Arkansas Teachers Retirement.... $ 3,515,000 2.01% 0 175,750 *
Attorneys Title Insurance
Fund.......................... $ 100,000 * 0 5,000 *
Baptist Health of South
Florida....................... $ 503,000 * 0 25,150 *
Barclays Global Investors
Diversified Alpha Plus
Funds......................... $ 39,000 * 0 1,950 *
BP Amoco PLC Master Trust....... $ 379,000 * 0 18,950 *
Chrysler Corporation Master
Retirement Trust.............. $ 1,385,000 * 0 69,250 *
Credit Suisse First Boston
LLC........................... $ 1,500,000 * 0 75,000 *
DBAG LONDON..................... $ 4,000,000 2.29% 0 200,000 *
DeepRock & Co................... $ 1,000,000 * 0 50,000 *
Engineers Joint Pension......... $ 335,000 * 0 16,750 *
Forest Fulcrum Fund LP.......... $ 94,000 * 0 4,700 *
Forest Global Convertible Fund,
Ltd., Class A5................ $ 2,470,000 1.41% 0 123,500 *
Forest Multi-Strategy Master
Fund SPC...................... $ 57,000 * 0 2,850 *
GLG Market Neutral Fund......... $ 7,000,000 4.00% 0 350,000 *
GLG Global Convertible Fund..... $ 1,875,000 1.07% 0 93,750 *
GLG Global Convertible UCITS
Fund.......................... $ 625,000 * 0 31,250 *
Grace Convertible Arbitrage
Fund, Ltd..................... $ 3,000,000 1.71% 0 150,000 *
Guggenheim Portfolio Co. XV,
LLC........................... $ 500,000 * 0 25,000 *
39
PRINCIPAL AMOUNT
OF NOTES COMMON
BENEFICIALLY PERCENTAGE COMMON STOCK STOCK THAT PERCENTAGE OF
OWNED THAT OF NOTES OWNED PRIOR TO MAY BE SOLD COMMON STOCK
NAME MAY BE SOLD OUTSTANDING CONVERSION HEREBY(1) OUTSTANDING(2)
---- ---------------- ----------- -------------- ----------- --------------
Hotel Union & Hotel Industry of
Hawaii Pension Plan........... $ 136,000 * 0 6,800 *
Jefferies & Company Inc. ....... $ 3,000 * 0 150 *
KBC Financial Products USA
Inc. ......................... $ 1,000,000 * 0 50,000 *
KD Convertible Arbitrage Fund
L.P. ......................... $ 3,250,000 1.86% 0 162,500 *
LDG Limited..................... $ 41,000 * 0 2,050 *
Lexington Vantage Fund.......... 7,000 * 0 350 *
LLT Limited..................... $ 36,000 * 0 1,800 *
Lydian Global Opportunities
Master Fund Ltd. ............. $ 3,500,000 2.00% 0 175,000 *
Lyxor/Forest Fund Ltd. ......... $ 1,201,000 * 0 60,050 *
Microsoft Corporation........... $ 1,035,000 * 0 51,750 *
Morgan Stanley & Co.,
Incorporated.................. $ 12,712,000 7.26% 8,768 635,600 *
Motion Picture Industry Health
Plan -- Active Member Fund.... $ 145,000 * 0 7,250 *
Motion Picture Industry Health
Plan -- Retiree Member Fund... $ 90,000 * 0 4,500 *
New York Life Insurance Company
(Pre 82)...................... $ 1,255,000 * 0 62,750 *
New York Life Insurance Company
(Post 82)..................... $ 2,745,000 1.57% 0 137,250 *
Nicholas Applegate Capital
Management Convertible Fund... $ 530,000 * 0 26,500 *
OCM Convertible Trust........... $ 1,540,000 * 0 77,000 *
O'Connor Global Convertible
Arbitrage Master Limited...... $ 1,000,000 * 0 50,000 *
Partner Reinsurance Company
Ltd. ......................... $ 455,000 * 0 22,750 *
Peoples Benefit Life Insurance
Company Teamsters............. $ 1,000,000 * 0 50,000 *
Qwest Occupational Health
Trust......................... $ 180,000 * 0 9,000 *
RAM Trading Inc. ............... $ 2,000,000 1.14% 0 100,000 *
Ramius Capital Group............ $ 500,000 * 0 25,000 *
Ramius Master Fund, Ltd. ....... $ 4,225,000 2.41% 0 211,250 *
Ramius Partners II, LP.......... $ 200,000 * 0 10,000 *
Ramius, LP...................... $ 100,000 * 0 5,000 *
RBC Alternative Assets, L.P..... $ 200,000 * 8,700 10,000 *
RCG Baldwin, LP................. $ 400,000 * 0 20,000 *
RCG Halifax Master Fund, Ltd.... $ 250,000 * 0 12,500 *
RCG Latitude Master Fund,
Ltd........................... $ 4,225,000 2.41% 0 211,250 *
RCG Multi Strategy Master Fund,
Ltd........................... $ 1,050,000 * 0 52,500 *
Relay 11 Holdings Co............ $ 19,000 * 0 950 *
40
PRINCIPAL AMOUNT
OF NOTES COMMON
BENEFICIALLY PERCENTAGE COMMON STOCK STOCK THAT PERCENTAGE OF
OWNED THAT OF NOTES OWNED PRIOR TO MAY BE SOLD COMMON STOCK
NAME MAY BE SOLD OUTSTANDING CONVERSION HEREBY(1) OUTSTANDING(2)
---- ---------------- ----------- -------------- ----------- --------------
Sage Capital.................... $ 3,800,000 2.17% 0 190,000 *
San Diego City Retirement....... $ 715,000 * 0 35,750 *
San Diego County Convertible.... $ 1,550,000 * 0 77,500 *
Southern Farm Bureau Life
Insurance..................... $ 770,000 * 0 38,500 *
Sphinx Fund..................... $ 12,000 * 0 600 *
SPhinX Convertible Arb Fund
SPC........................... $ 144,000 * 0 7,200 *
Sphinx Convertible Arbitrage
SPC........................... $ 9,000 * 0 450 *
SSI Blended Market Neutral
L.P. ......................... $ 260,000 * 0 13,000 *
SSI Hedged Convertible Market
Neutral....................... $ 286,000 * 0 14,300 *
St. Albans Partners Ltd......... $ 1,000,000 * 0 50,000 *
State Employees' Retirement Fund
of the State of Delaware...... $ 605,000 * 0 30,250 *
Sunrise Partners Limited
Partnership................... $ 4,520,000 2.58% 0 226,000 *
TQA Master Fund, Ltd............ $ 2,052,900 1.17% 0 102,645 *
TQA Master Plus Fund, Ltd....... $ 3,469,100 1.98% 0 173,455 *
Vanguard Convertible Securities
Fund, Inc. ................... $ 3,815,000 2.18% 0 190,750 *
Viacom Inc. Pension Plan Master
Trust......................... $ 12,000 * 0 600 *
Wachovia Capital Markets LLC.... $ 830,000 * 0 41,500 *
Wake Forest University.......... $ 480,000 * 0 24,000 *
Wyoming State Treasurer......... $ 815,000 * 0 40,750 *
Xavex Convertible Arbitrage 4
Fund.......................... $ 15,000 * 0 750 *
Xavex Convertible Arbitrage 5... $ 800,000 * 0 40,000 *
Xavex Convertible Arbitrage 7
Fund.......................... $ 381,000 * 0 19,050 *
Yield Strategies Fund I, L.P.... $ 1,000,000 * 0 50,000 *
Yield Strategies Fund II,
L.P........................... $ 1,000,000 * 0 50,000 *
Zurich Institutional Benchmarks
Master Fund Ltd. ............. $ 830,000 * 0 41,500 *
Any other holder of notes or
future transferee, pledgee,
donee, or successor of any
such holder(3)................ $ 3,442,000 1.97% -- 172,100 *
Total......................... $175,000,000 100% -- 8,750,000 11.70%
---------------
* Less than 1.00%.
(1) Assumes conversion of all of the holder's notes at a conversion price of 50
shares of our common stock per $1,000 principal amount at maturity of the
notes. This conversion price, however, will be subject to adjustment as
described under "Description of the Notes -- Conversion Rights." As a
result, the number of shares of our common stock issuable upon conversion of
the notes may increase or decrease in the future.
(2) Calculated based on 66,035,311 shares of common stock outstanding as of
December 5, 2003. In calculating this amount for each holder, we treated as
outstanding the number of shares of common stock issuable upon conversion of
all of that holder's notes but we did not assume conversion of any other
holder's notes.
41
(3) Information about other selling securityholders will be set forth in one or
more post-effective amendments, if required. Assumes that any other holders
of notes, or any future transferees, pledges, donees, or successors of or
from any such other holders of notes, do not beneficially own any common
stock other than the common stock issuable upon conversion of the notes at
the initial conversion rate.
We prepared this table based on the information supplied to us by the
selling securityholders named in the table, and we have not sought to verify
such information. We do not believe we have had in the past three years any
material relationships with the selling securityholders listed in the above
table and such selling securityholders have not advised us of any such material
relationships. However, in the ordinary course of business, Credit Suisse First
Boston LLC, DBAG LONDON, an affiliate of Deutsche Bank, and Morgan Stanley &
Co., Incorporated, and each of their respective affiliates, have performed in
the past three years banking, investment banking, custodial, advisory and other
financial services for us or our subsidiaries from time to time for which they
have received customary fees and expenses. In particular, an affiliate of Credit
Suisse First Boston LLC is a lender under our bank credit agreements. Credit
Suisse First Boston LLC, Deutsche Bank and Morgan Stanley & Co., Incorporated,
and each of their respective affiliates may, from time to time, engage in
transactions with and perform services for us in the future.
The selling securityholders listed in the above table may have sold or
transferred, in transactions exempt from the registration requirements of the
Securities Act, some or all of the notes or shares of our common stock since the
date on which the information in the above table was provided to us. Information
about the selling securityholders may change over time.
Because the selling securityholders may offer all or some of their notes or
the shares of our common stock issuable upon conversion of the notes from time
to time, we cannot estimate the amount of the notes or number of shares of our
common stock that will be held by the selling securityholders upon the
termination of any particular offering by such selling securityholder. Please
refer to "Plan of Distribution."
PLAN OF DISTRIBUTION
The notes and the common stock are being registered to permit public
secondary trading of these securities by the holders thereof from time to time
after the date of this prospectus. We have agreed, among other things, to bear
all expenses (other than any underwriting discounts and selling commissions) in
connection with the registration and sale of the notes and the common stock
covered by this prospectus.
We will not receive any of the proceeds from the offering of notes or the
common stock by the selling securityholders. We have been advised by the selling
securityholders that the selling securityholders may sell all or a portion of
the notes and common stock beneficially owned by them and offered hereby from
time to time on any exchange on which the securities are listed on terms to be
determined at the times of such sales. The selling securityholders may also make
private sales directly or through a broker or brokers. Alternatively, any of the
selling securityholders may from time to time offer the notes or the common
stock beneficially owned by them through underwriters, dealers or agents, who
may receive compensation in the form of underwriting discounts, commissions or
concessions from the selling securityholders and the purchasers of the notes and
the common stock for whom they may act as agent. The aggregate proceeds to the
selling securityholders from the sale of the notes or common stock offering by
them hereby will be the purchase price of such notes or common stock less
discounts and commissions, if any.
The notes and common stock may be sold from time to time in one or more
transactions at fixed offering prices, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. These prices will
be determined by the holders of such securities or by agreement between these
holders and underwriters or dealers who may receive fees or commissions in
connection therewith.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of the notes or our common stock or otherwise, the
selling securityholder may enter into hedging transactions with broker-dealers
or others, which may in turn engage in short sales of the notes or our common
stock in the course of hedging the positions they assume. The selling
securityholder may
42
also sell notes or our common stock short and deliver notes or our common stock
to close out short positions, or loan or pledge notes or our common stock to
broker-dealers or others that in turn may sell such securities. The selling
securityholder may pledge or grant a security interest in some or all of the
notes or our common stock issued upon conversion of the notes owned by it and if
it defaults in the performance of its secured obligations, the pledgees or
secured parties may offer and sell the notes or our common stock from time to
time pursuant to this prospectus. The selling securityholder also may transfer
and donate notes or shares of our common stock issuable upon conversion of the
notes in other circumstances in which case the transferees, donees, pledgees or
other successors in interest will be the selling securityholder for purposes of
the prospectus. The selling securityholder may sell short our common stock and
may deliver this prospectus in connection with such short sales and use the
shares of our common stock covered by the prospectus to cover such short sales.
In addition, any notes or shares of our common stock covered by this prospectus
that qualify for sale pursuant to Rule 144, Rule 144A or any other available
exemption from registration under the Securities Act may be sold under Rule 144,
Rule 144A or such other available exemption.
At the time a particular offering of notes or shares of our common stock
issuable upon conversion of the notes is made, a prospectus supplement, if
required, will be distributed which will set forth the aggregate amount of notes
or number of shares of our common stock being offered and the terms of the
offering, including the name or names of any underwriters, dealers, brokers or
agents, if any, and any discounts, commissions or concessions allowed or
reallowed to be paid to brokers or dealers.
Although the notes are eligible for trading in the PORTAL market, we do not
intend to apply for listing of the notes on any securities exchange or for
inclusion of the notes in any automated quotation system. Accordingly, no
assurance can be given as to the development of liquidity or any trading market
for the notes. See "Risk Factors -- Risks Relating to the Notes." Our
outstanding common stock is listed for trading on the New York Stock Exchange.
The notes were issued and sold on June 10, 2003 in transactions exempt from
the registration requirements of the Securities Act to persons reasonably
believed by the initial purchasers to be "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act). We have agreed to indemnify the
initial purchasers and each selling securityholder, and each selling
securityholder has agreed to indemnify us, the initial purchasers and each other
selling securityholder against certain liabilities arising under the Securities
Act.
Selling securityholders and any underwriters, dealers, brokers or agents
who participate in the distribution of the notes or our common stock may be
deemed to be "underwriters" within the meaning of the Securities Act and any
profits on the sale of the notes and our common stock by them and any discounts,
commissioners or concessions received by any such underwriters, dealers, brokers
or agents may be deemed to be underwriting discounts and commissions under the
Securities Act.
The selling securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M which may limit the timing of purchases and sales of the notes and our common
stock by the selling securityholders and any other such person. Furthermore,
Regulation M under the Exchange Act may restrict the ability of any person
engaged in a distribution of the notes and our common stock being distributed
for a period of up to five business days prior to the commencement of such
distribution. All of the foregoing may affect the marketability of the notes and
our common stock and the ability of any person or entity to engage in
market-making activities with respect to the notes and our common stock.
We will use our reasonable efforts to keep the registration statement of
which this prospectus is a part effective until the earliest of (i) the sale
pursuant to Rule 144 under the Securities Act or a shelf registration statement
of all the notes and the shares of common stock issuable upon conversion of the
notes and (ii) the expiration of the holding period applicable to such
securities held by our nonaffiliates under Rule 144(k) under the Securities Act,
or any successor provision, subject to certain permitted exceptions. See
"Description of Notes -- Registration Rights."
43
LEGAL MATTERS
The validity of the notes and the validity of the common stock issuable
upon conversion of the notes have been passed upon for Continental Airlines,
Inc. by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements (including the financial statement
schedule) of Continental Airlines, Inc. appearing in its Annual Report (Form
10-K/A-1) for the year ended December 31, 2002 have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. Such consolidated financial
statements (including the financial statement schedule) are, and audited
consolidated financial statements to be included in subsequently filed documents
will be, incorporated herein by reference in reliance upon such reports of Ernst
& Young LLP pertaining to such consolidated financial statements (to the extent
covered by consents filed with the SEC) given on the authority of such firm as
experts in accounting and auditing.
44
(CONTINENTAL LOGO)
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by us in
connection with the registration of the securities covered hereby. All expenses
other than the SEC registration fee are estimates. Each selling securityholder
will pay all costs and expenses of selling its securities, including all agency
fees and commissions and underwriting discounts and commissions and all fees and
disbursements of its counsel or other advisors or experts retained by such
selling securityholder, other than the counsel and experts specifically referred
to in the registration rights agreement relating to the securities.
Registration fee............................................ $ 14,158
Fees and expenses of accountants............................ 75,000
Fees and expenses of legal counsel.......................... 75,000
Printing and engraving expenses............................. 20,000
Miscellaneous............................................... 20,000
--------
Total..................................................... $204,158
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 102 of the Delaware General Corporation Law (the
"DGCL"), our Amended and Restated Certificate of Incorporation provides that, to
the fullest extent permitted by Delaware law, no director shall be liable to us
or our stockholders for monetary damages for breach of fiduciary duty as
director. By virtue of these provisions, a director is not personally liable for
monetary damages for breach of such director's fiduciary duty except for
liability for (i) breach of duty of loyalty, (ii) acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) dividends or stock repurchases or redemptions that are unlawful under the
DGCL and (iv) any transaction from which such director receives an improper
personal benefit. In addition, our Amended and Restated Certificate of
Incorporation provides that if the DGCL is amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
the directors will be eliminated or limited to the fullest extent permitted by
the DGCL, as amended. As a result, our rights and our stockholders' rights to
obtain monetary damages for acts or omissions of directors will be more limited
than they would be in the absence of the limitation of liability provision. The
limitation of liability provision does not limit or affect a stockholder's
ability to seek and obtain relief under the federal securities laws.
Section 145 of the DGCL permits indemnification upon a determination that
an officer or director has met the applicable standard of conduct. Such officer
or director is required to have acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of a corporation and,
with respect to any criminal action, without reasonable cause to believe his
conduct was unlawful. Section 145 does not authorize indemnification in actions
brought by or in the right of a corporation with respect to any claim, issue or
matter as to which a director or officer is adjudged to be liable to the
corporation, unless specifically authorized by the Delaware Court of Chancery or
the court in which such action is brought. Our Amended and Restated Certificate
of Incorporation provides for the mandatory indemnification of officers and
directors to the fullest extent permitted under the DGCL. Section 145 also
expressly provides that the power to indemnify authorized thereby is not
exclusive of any rights granted under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise.
The above discussion of our Amended and Restated Certificate of
Incorporation and of Sections 102 and 145 of the DGCL is not intended to be
exhaustive and is qualified in its entirety by our Amended and Restated
Certificate of Incorporation and the DGCL.
We have purchased liability insurance policies covering our directors and
officers to insure against certain losses incurred by them.
II-1
ITEM 16. EXHIBITS.
+1.1 -- Purchase Agreement by and among us and Citigroup Global
Markets Inc., Credit Suisse First Boston LLC, Morgan Stanley
& Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, dated as of June 10, 2003.
4.1 -- Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to our Annual
Report on Form 10-K for the fiscal year ended December 31,
2000).
4.2 -- Certificate of Designation of Series A Junior Participating
Preferred Stock (incorporated by reference to Exhibit 3.1(a)
to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2000).
4.3 -- Certificate of Amendment of Certificate of Designation of
Series A Junior Participating Preferred Stock (incorporated
by reference to Exhibit 3.1(b) to our Annual Report on Form
10-K for the year ended December 31, 2001).
4.4 -- Certificate of Designation of Series B Preferred Stock
(incorporated by reference to Exhibit 3.1(b) to our Annual
Report on Form 10-K for the fiscal year ended December 31,
2000).
4.5 -- Bylaws (incorporated by reference to Exhibit 3.2 to our
Annual Report on Form 10-K for the fiscal year ended
December 31, 2000).
4.6 -- Specimen Class B Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to our Registration Statement on
Form S-1 (No. 33-68870)).
4.7 -- Amended and Restated Rights Agreement, dated as of November
15, 2000, between us and ChaseMellon Shareholder Services,
LLC, as rights agent (incorporated by reference to Exhibit
99.11 to our Current Report on Form 8-K dated November 15,
2000).
4.8 -- Form of Rights Certificate (incorporated by reference to
Exhibit B to Exhibit 99.11 to our Current Report our Form
8-K dated November 15, 2000).
4.9 -- Warrant Agreement, dated as of April 27, 1993 (incorporated
by reference to Exhibit 4.7 to our Current Report on Form
8-K dated April 16, 1993).
4.10 -- We hereby agree to furnish to the SEC, upon request, copies
of certain instruments defining the rights of holders of
long-term debt of the kind described in Item
601(b)(4)(iii)(A) of Regulation S-K.
+4.11 -- Indenture by and between us and Bank One, N.A., dated as of
June 10, 2003, relating to our 5% Convertible Notes due
2023.
+4.12 -- Form of 5% Convertible Note due 2023 (included as an exhibit
to Exhibit 4.11).
+4.13 -- Registration Rights Agreement by and among us and Citigroup
Global Markets Inc., Credit Suisse First Boston LLC, Morgan
Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner
& Smith Incorporated, as initial purchasers, dated as of
June 10, 2003.
+5.1 -- Opinion of Vinson & Elkins L.L.P.
+12.1 -- Calculation of Ratio of Earnings to Fixed Charges.
*23.1 -- Consent of Ernst & Young LLP.
+23.2 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
+24.1 -- Powers of Attorney.
+25.1 -- Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939 of Bank One, N.A., as
trustee under the Indenture.
---------------
* The version of this exhibit filed with this amendment replaces the version
originally filed.
+ Previously filed.
II-2
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
a. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
b. To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee", table in the
effective registration statement; and
c. To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that the undertakings set forth in clauses a and b above do
not apply if information required to be included in a post-effective amendment
by those clauses is contained in periodic reports filed with the Securities and
Exchange Commission by the registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934, that are incorporated by reference in the
registration statement.
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. That, for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
5. That, for purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions set forth in response to Item 15, or
otherwise, the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. If a claim for indemnification
II-3
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Houston, State of Texas, December 10, 2003.
CONTINENTAL AIRLINES, INC.
By: /s/ JENNIFER L. VOGEL
------------------------------------
Name: Jennifer L. Vogel
Title: Senior Vice President,
General Counsel and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed on behalf of the following persons in the
capacities indicated, on December 10, 2003.
SIGNATURE TITLE
--------- -----
* Chairman of the Board, Chief Executive Officer
------------------------------------------------ (Principal Executive Officer) and Director
Gordon M. Bethune
* President, Chief Operating Officer and Director
------------------------------------------------
Lawrence W. Kellner
* Senior Vice President, and Chief Financial Officer
------------------------------------------------ (Principal Financial Officer)
Jeffrey J. Misner
* Vice President and Controller
------------------------------------------------ (Principal Accounting Officer)
Chris T. Kenny
* Director
------------------------------------------------
Thomas J. Barrack, Jr.
* Director
------------------------------------------------
David Bonderman
* Director
------------------------------------------------
Kirbyjon H. Caldwell
* Director
------------------------------------------------
Patrick Foley
* Director
------------------------------------------------
Douglas H. McCorkindale
* Director
------------------------------------------------
George G. C. Parker
II-5
SIGNATURE TITLE
--------- -----
* Director
------------------------------------------------
Richard W. Pogue
* Director
------------------------------------------------
William S. Price III
* Director
------------------------------------------------
Karen Hastie Williams
* Director
------------------------------------------------
Ronald B. Woodard
* Director
------------------------------------------------
Charles A. Yamarone
*By: /s/ JENNIFER L. VOGEL
------------------------------------------
Jennifer L. Vogel
Attorney in Fact
II-6
EXHIBIT INDEX
+1.1 -- Purchase Agreement by and among us and Citigroup Global
Markets Inc., Credit Suisse First Boston LLC, Morgan Stanley
& Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, dated as of June 10, 2003.
4.1 -- Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to our Annual
Report on Form 10-K for the fiscal year ended December 31,
2000).
4.2 -- Certificate of Designation of Series A Junior Participating
Preferred Stock (incorporated by reference to Exhibit 3.1(a)
to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2000).
4.3 -- Certificate of Amendment of Certificate of Designation of
Series A Junior Participating Preferred Stock (incorporated
by reference to Exhibit 3.1(b) to our Annual Report on Form
10-K for the year ended December 31, 2001).
4.4 -- Certificate of Designation of Series B Preferred Stock
(incorporated by reference to Exhibit 3.1(b) to our Annual
Report on Form 10-K for the fiscal year ended December 31,
2000).
4.5 -- Bylaws (incorporated by reference to Exhibit 3.2 to our
Annual Report on Form 10-K for the fiscal year ended
December 31, 2000).
4.6 -- Specimen Class B Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to our Registration Statement on
Form S-1 (No. 33-68870)).
4.7 -- Amended and Restated Rights Agreement, dated as of November
15, 2000, between us and ChaseMellon Shareholder Services,
LLC, as rights agent (incorporated by reference to Exhibit
99.11 to our Current Report on Form 8-K dated November 15,
2000).
4.8 -- Form of Rights Certificate (incorporated by reference to
Exhibit B to Exhibit 99.11 to our Current Report our Form
8-K dated November 15, 2000).
4.9 -- Warrant Agreement, dated as of April 27, 1993 (incorporated
by reference to Exhibit 4.7 to our Current Report on Form
8-K dated April 16, 1993).
4.10 -- We hereby agree to furnish to the SEC, upon request, copies
of certain instruments defining the rights of holders of
long-term debt of the kind described in Item
601(b)(4)(iii)(A) of Regulation S-K.
+4.11 -- Indenture by and between us and Bank One, N.A., dated as of
June 10, 2003, relating to our 5% Convertible Notes due
2023.
+4.12 -- Form of 5% Convertible Note due 2023 (included as an exhibit
to Exhibit 4.11).
+4.13 -- Registration Rights Agreement by and among us and Citigroup
Global Markets Inc., Credit Suisse First Boston LLC, Morgan
Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner
& Smith Incorporated, as initial purchasers, dated as of
June 10, 2003.
+5.1 -- Opinion of Vinson & Elkins L.L.P.
+12.1 -- Calculation of Ratio of Earnings to Fixed Charges.
*23.1 -- Consent of Ernst & Young LLP.
+23.2 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
+24.1 -- Powers of Attorney.
+25.1 -- Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939 of Bank One, N.A., as
trustee under the Indenture.
---------------
* The version of this exhibit filed with this amendment replaces the version
originally filed.
+ Previously filed.