1
Filed pursuant to Rule 424(b)(3)
Registration No. 333-57188
THIS PRELIMINARY PROSPECTUS SUPPLEMENT RELATES TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, BUT IT IS NOT COMPLETE AND MAY BE
CHANGED. THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUPPLEMENT (Subject to Completion, Issued July 13, 2001)
(To Prospectus dated March 23, 2001)
$200,000,000
[CONTINENTAL AIRLINES LOGO]
2001-2 Pass Through Trust
CLASS D PASS THROUGH CERTIFICATES, SERIES 2001-2
------------------------
The Continental Airlines Class D Pass Through Certificates, Series 2001-2, are
being offered under this prospectus supplement. No other pass through
certificates of the same series will be issued. However, the Class D
certificates will rank junior in right of distributions to certain previously
issued Continental Airlines pass through certificates.
Upon the initial sale of the Class D certificates by the Class D trust,
$194,004,524 of the proceeds will be used by such trust to acquire Series D
equipment notes issued by Continental Airlines. Each such equipment note will be
secured by one of 59 Boeing aircraft currently owned by Continental Airlines.
The balance of such proceeds will be held in escrow. The Class D trust will use
the escrowed funds to acquire Series D equipment notes issued to finance the
purchase by Continental Airlines of four new Boeing aircraft scheduled for
delivery from August 2001 to December 2001. Each such equipment note will have a
security interest in the aircraft financed with the proceeds of such note. The
aircraft that will secure the Series D equipment notes also will secure
equipment notes held for one of several series of Continental Airlines pass
through certificates that previously were issued.
Interest on the Series D equipment notes will be payable semiannually on each
June 1 and December 1 after issuance, beginning on December 1, 2001. The entire
principal of the Series D equipment notes will be scheduled for payment on
December 1, 2006. Payments on the Series D equipment notes will be passed
through to the holders of the Class D certificates, subject in the case of any
Series D equipment note to the prior distribution of required amounts to the
trustees for the previously issued Continental Airlines pass through
certificates holding equipment notes secured by the same aircraft as such Series
D equipment note. The Class D certificates will not have the benefit of any
liquidity facility.
The certificates will not be listed on any national securities exchange.
------------------------
INVESTING IN THE CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE S-20.
------------------------
PASS THROUGH PRINCIPAL INTEREST FINAL EXPECTED PRICE TO
CERTIFICATES AMOUNT RATE DISTRIBUTION DATE PUBLIC(1)
------------ --------- -------- ----------------- ---------
Class D $200,000,000 % December 1, 2006 100%
(1) Plus accrued interest, if any, from the date of issuance.
The underwriters will purchase all of the Class D certificates if any are
purchased. The aggregate proceeds from the sale of the Class D certificates will
be $200,000,000. Continental will pay the underwriters a commission of $ .
Delivery of the Class D certificates in book-entry form only will be made on or
about , 2001.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
------------------------
MORGAN STANLEY CREDIT SUISSE FIRST BOSTON
July , 2001.
2
PRESENTATION OF INFORMATION
These offering materials consist of two documents: (a) this Prospectus
Supplement, which describes the terms of the certificates that we are currently
offering, and (b) the accompanying Prospectus, which provides general
information about our pass through certificates, some of which may not apply to
the certificates that we are currently offering. The information in this
Prospectus Supplement replaces any inconsistent information included in the
accompanying Prospectus.
We have given certain capitalized terms specific meanings for purposes of
this Prospectus Supplement. The "Index of Terms" attached as Appendix I to this
Prospectus Supplement lists the page in this Prospectus Supplement on which we
have defined each such term.
At various places in this Prospectus Supplement and the Prospectus, we
refer you to other sections of such documents for additional information by
indicating the caption heading of such other sections. The page on which each
principal caption included in this Prospectus Supplement and the Prospectus can
be found is listed in the Table of Contents below. All such cross references in
this Prospectus Supplement are to captions contained in this Prospectus
Supplement and not in the Prospectus, unless otherwise stated.
S-2
3
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
PROSPECTUS SUPPLEMENT SUMMARY................... S-5
Overview of Structure......................... S-5
Summary of Terms of Certificates.............. S-6
Equipment Notes and the Aircraft.............. S-7
Aggregate Outstanding Principal Balances...... S-9
Owned Aircraft Outstanding Principal
Balances.................................... S-10
Cash Flow Structure........................... S-11
The Offering.................................. S-12
SUMMARY FINANCIAL AND OPERATING DATA............ S-17
RISK FACTORS.................................... S-20
Risk Factors Relating to the Company.......... S-20
Risk Factors Relating to the Airline
Industry.................................... S-21
Risk Factors Relating to the Certificates and
the Offering................................ S-23
RECENT DEVELOPMENTS............................. S-25
Proposed Initial Public Offering of
Continental Express......................... S-25
USE OF PROCEEDS................................. S-25
THE COMPANY..................................... S-26
Domestic Operations........................... S-26
International Operations...................... S-27
DESCRIPTION OF THE CERTIFICATES................. S-29
General....................................... S-29
Subordination................................. S-30
Payments and Distributions.................... S-32
Pool Factors.................................. S-35
Reports to Certificateholders................. S-35
Indenture Defaults and Certain Rights Upon an
Indenture Default........................... S-36
Purchase Rights of Certificateholders......... S-38
PTC Event of Default.......................... S-39
Merger, Consolidation and Transfer of
Assets...................................... S-39
Modifications of the Pass Through Trust
Agreement and Certain Other Agreements...... S-40
Obligation to Purchase Equipment Notes........ S-42
Liquidation of Original Trust................. S-43
Termination of the Trust...................... S-44
The Trustees.................................. S-44
Book-Entry; Delivery and Form................. S-44
DESCRIPTION OF THE DEPOSIT AGREEMENT............ S-45
General....................................... S-45
Unused Deposits............................... S-45
Distribution Upon Occurrence of Triggering
Event....................................... S-45
Depositary.................................... S-46
DESCRIPTION OF THE ESCROW AGREEMENT............. S-47
DESCRIPTION OF THE LIQUIDITY FACILITIES FOR THE
PRIOR SERIES.................................. S-48
General....................................... S-48
Drawings...................................... S-49
PAGE
----
Reimbursement of Drawings..................... S-51
Liquidity Events of Default................... S-53
DESCRIPTION OF THE INTERCREDITOR AGREEMENTS..... S-54
Intercreditor Rights.......................... S-54
Priority of Distributions..................... S-56
Voting of Equipment Notes..................... S-60
The Subordination Agent....................... S-61
DESCRIPTION OF THE AIRCRAFT..................... S-62
The Aircraft.................................. S-62
Future Deliveries of Aircraft................. S-63
Substitute Aircraft........................... S-64
DESCRIPTION OF THE EQUIPMENT NOTES.............. S-65
General....................................... S-65
Subordination................................. S-65
Principal and Interest Payments............... S-66
Redemption.................................... S-66
Security...................................... S-67
Indenture Defaults, Notice and Waiver......... S-67
Remedies...................................... S-68
Cross-Collateralization....................... S-69
Modification of Indentures.................... S-69
Indemnification............................... S-70
Certain Provisions Relating to the Aircraft... S-70
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES.... S-74
General....................................... S-74
Tax Status of the Trusts...................... S-74
Taxation of Certificateholders Generally...... S-75
Effect of Reallocation of Payments under the
Intercreditor Agreements.................... S-76
Dissolution of Original Trust and Formation of
Successor Trust............................. S-77
Sale or Other Disposition of the
Certificates................................ S-77
Foreign Certificateholders.................... S-77
Backup Withholding............................ S-77
CERTAIN DELAWARE TAXES.......................... S-78
CERTAIN ERISA CONSIDERATIONS.................... S-78
UNDERWRITING.................................... S-80
LEGAL MATTERS................................... S-81
EXPERTS......................................... S-81
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE..................................... S-82
INDEX OF TERMS............................ Appendix I
S-3
4
TABLE OF CONTENTS--(CONTINUED)
PROSPECTUS
PAGE
----
WHERE YOU CAN FIND MORE INFORMATION............. 1
FORWARD-LOOKING STATEMENTS...................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE..................................... 2
SUMMARY......................................... 3
The Offering.................................. 3
Certificates.................................. 3
Pass Through Trusts........................... 3
Equipment Notes............................... 4
THE COMPANY..................................... 6
USE OF PROCEEDS................................. 6
RATIO OF EARNINGS TO FIXED CHARGES.............. 7
DESCRIPTION OF THE CERTIFICATES................. 7
General....................................... 7
Book-Entry Registration....................... 10
Payments and Distributions.................... 13
Pool Factors.................................. 13
Reports to Certificateholders................. 14
Voting of Equipment Notes..................... 15
Events of Default and Certain Rights Upon an
Event of Default............................ 15
Merger, Consolidation and Transfer of
Assets...................................... 17
Modifications of the Basic Agreement.......... 18
Modification of Indenture and Related
Agreements.................................. 19
Cross-Subordination Issues.................... 19
Termination of the Pass Through Trusts........ 19
Delayed Purchase of Equipment Notes........... 19
Liquidity Facility............................ 20
PAGE
----
The Pass Through Trustee...................... 20
DESCRIPTION OF THE EQUIPMENT NOTES.............. 21
General....................................... 21
Principal and Interest Payments............... 21
Redemption.................................... 21
Security...................................... 21
Ranking of Equipment Notes.................... 23
Payments and Limitation of Liability.......... 23
Defeasance of the Indentures and the Equipment
Notes in Certain Circumstances.............. 24
Assumption of Obligations by Continental...... 24
Liquidity Facility............................ 25
Intercreditor Issues.......................... 25
U.S. INCOME TAX MATTERS......................... 26
General....................................... 26
Tax Status of the Pass Through Trusts......... 26
Taxation of Certificateholders Generally...... 26
Effects of Subordination of Certificateholders
of Subordinated Trusts...................... 27
Original Issue Discount....................... 27
Sales or Other Disposition of the
Certificates................................ 27
Foreign Certificateholders.................... 28
Backup Withholding............................ 28
ERISA CONSIDERATIONS............................ 28
PLAN OF DISTRIBUTION............................ 28
LEGAL OPINIONS.................................. 30
EXPERTS......................................... 30
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY BE ACCURATE ONLY
ON THE DATE OF THIS DOCUMENT.
S-4
5
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information from this Prospectus
Supplement and the accompanying Prospectus and may not contain all of the
information that is important to you. For more complete information about the
Certificates and Continental Airlines, you should read this entire Prospectus
Supplement and the accompanying Prospectus, as well as the materials filed with
the Securities and Exchange Commission that are considered to be part of this
Prospectus Supplement and the Prospectus. See "Incorporation of Certain
Documents by Reference" in this Prospectus Supplement and the Prospectus.
OVERVIEW OF STRUCTURE
Under the terms of seven series of Continental pass through certificates
previously issued, we are entitled to sell Series D Equipment Notes secured by
Aircraft financed under each such Prior Series. The "Prior Series" are
Continental pass through certificates previously issued and designated as Series
1997-4, 1998-1, 1998-3, 1999-1, 1999-2, 2000-1 and 2000-2. Accordingly, we have
arranged the sale of the Class D Certificates so that we may sell such Series D
Equipment Notes.
Each such Prior Series of Certificates provides for the Class D Trustee to
enter into the Intercreditor Agreement relating to such series. Under the terms
of the Intercreditor Agreement for each Prior Series, payments from the
Equipment Notes secured by Aircraft financed under such series (including the
Series D Equipment Notes) will be applied to satisfy required distributions to
the Certificates of such series and the Liquidity Providers for such series
before any distribution is made to the Class D Trustee. In addition, if an
Indenture Default occurs with respect to Series D Equipment Notes, the exercise
of remedies will be controlled by the Trustees for the Certificates of the
applicable series (or, in certain circumstances, the Liquidity Providers for
such series) until they have received their required distributions.
The Series D Equipment Notes held for the Class D Trust will be secured
only by Aircraft that we own. However, the Trusts for the Prior Series also hold
(or will hold) Equipment Notes secured by Aircraft leased to us. Under the
Intercreditor Agreement applicable to each Prior Series, payments from all
Equipment Notes held for the benefit of such Certificates, whether secured by
owned or leased Aircraft, will be distributed to the Trustees for the
Certificates of such series before being distributed to the Class D Trustee.
Accordingly, you should consider the payments required on all Equipment Notes
held for each Prior Series in evaluating the obligations that are senior to the
Class D Certificates under such series.
The Series D Equipment Notes held for the Class D Trust will be
cross-collateralized. This means that proceeds available from the sale of an
Aircraft that secures any such Series D Equipment Note or from other exercise of
remedies with respect to such Aircraft, after the payment of all Equipment Notes
issued with respect to such Aircraft, will be available to cover shortfalls with
respect to other Series D Equipment Notes issued with respect to the same Prior
Series. Such excess proceeds will, however, be subject to the Intercreditor
Agreement of such Prior Series. As a result, such excess proceeds will be
applied to satisfy required distributions to the Certificates of such Prior
Series before any distribution is made to the Class D Trustee. Any excess
proceeds remaining after all Series D Equipment Notes issued with respect to the
same Prior Series have been paid in full will be applied to any shortfalls on
Series D Equipment Notes issued with respect to other Prior Series, and such
payments will not be subject to the Intercreditor Agreements of such other Prior
Series. However, the Equipment Notes will not otherwise be cross-collateralized,
so that excess proceeds from any leased Aircraft will not be available for
distribution to cover shortfalls with respect to any other Aircraft, and the
Indentures will not contain cross-default provisions.
S-5
6
SUMMARY OF TERMS OF CERTIFICATES
PRIOR SERIES
-------------------------------------------------------------------------------------------
1997-4 1998-1 1998-3 1999-1 1999-2 2000-1
------------- -------------- ------------- -------------- -------------- -------------
Aggregate Outstanding
Amount(1)............... $683,346,467 $693,841,749 $488,764,552 $754,379,521 $698,687,555 $727,707,732
Original Issuance Date... Oct. 23, 1997 Feb. 20, 1998 Nov. 3, 1998 Feb. 8, 1999 Jun. 17, 1999 Mar. 15, 2000
Ratings:
Moody's................. Various Various Various Various Various Various
Standard & Poor's....... Various Various Various Various Various Various
Number of Aircraft:
Owned................... 5 10 12 6 11 9
Leased.................. 19 14 2 16 10 12
Loan to Assumed Aircraft
Value
(cumulative)(2)(3):
Owned Aircraft.......... 67.7% 63.1% 65.2% 62.5% 61.7% 60.2%
Aggregate............... 61.8% 60.7% 64.2% 59.6% 58.6% 64.7%
Expected Principal
Distribution Window..... 1.7-20.2 1.1-19.6 1.5-19.5 0.5-20.0 0.7-20.7 0.6-20.6
(in years from
applicable original
issuance date)
Regular Distribution
Dates................... January 2 and March 15 and May 1 and February 2 and March 15 and May 1 and
July 2 September 15 November 1 August 2 September 15 November 1
Final Expected Regular
Distribution Date....... Jan. 2, 2018 Sept. 15, 2017 May 1, 2018 Feb. 2, 2019 Mar. 15, 2020 Nov. 1, 2020
Final Maturity Date...... July 2, 2019 March 15, 2019 Nov. 1, 2019 Aug. 2, 2020 Sept. 15, 2021 May 1, 2022
Minimum Denomination..... $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
Section 1110
Protection.............. Yes Yes Yes Yes Yes Yes
Liquidity Facility
Coverage................ 3 semi-annual 3 semi-annual 3 semi-annual 3 semi-annual 3 semi-annual 3 semi-annual
interest interest interest interest interest interest
payments payments payments payments payments payments
PRIOR SERIES
------------- CLASS D
2000-2 CERTIFICATES
------------- ------------
Aggregate Outstanding
Amount(1)............... $840,958,000 $200,000,000
Original Issuance Date... Nov. 28, 2000
Ratings:
Moody's................. Various
Standard & Poor's....... Various
Number of Aircraft:
Owned................... 10 63
Leased.................. 13 0
Loan to Assumed Aircraft
Value
(cumulative)(2)(3):
Owned Aircraft.......... 65.5% 69.2%
Aggregate............... 63.5% 63.3%
Expected Principal
Distribution Window..... 0.8-20.3 5.4
(in years from
applicable original
issuance date)
Regular Distribution
Dates................... April 2 and June 1 and
October 2 December 1
Final Expected Regular
Distribution Date....... Apr. 2, 2021 Dec. 1, 2006
Final Maturity Date...... Oct. 2, 2022 Dec. 1, 2006
Minimum Denomination..... $1,000 $1,000
Section 1110
Protection.............. Yes Yes
Liquidity Facility
Coverage................ 3 semi-annual None
interest
payments
------------
(1) In the case of the Prior Series, reflects aggregate amount of all classes of
certificates of such series. Amounts are as of the expected issuance date of
the Class D Certificates.
(2) Loan to Assumed Aircraft Value is as of the expected issuance date of the
Class D Certificates. Loan to Assumed Aircraft Value for each Prior Series
does not reflect the issuance of the Class D Certificates. Assumed Aircraft
Value for each Prior Series is the aggregate of the original appraised value
of each Aircraft financed under that series, determined shortly before such
Prior Series was issued, reduced at an assumed depreciation rate of
approximately 3% of the original appraised value per year after the year of
delivery of such Aircraft. We have not obtained more recent appraisals of
the Aircraft, and the oldest of the appraisals was prepared almost four
years ago. In addition, we cannot assure you that our assumed rate of
depreciation accurately reflects the decline in value of the Aircraft
subsequent to their delivery. Therefore, you should not rely on these
Assumed Aircraft Values as reflecting the current value of any Aircraft or
any appraiser's current opinion of such value. The original appraised value
of each Aircraft was the lesser of the average and median values of such
Aircraft as appraised at about the time of the offering of the applicable
Prior Series by three independent appraisal and consulting firms, projected
as of the scheduled delivery month of such Aircraft. These appraisals were
based upon varying assumptions and methodologies. An appraisal is only an
estimate of value and should not be relied upon as a measure of realizable
value. See "Risk Factors--Risk Factors Relating to the Certificates and the
Offering--Appraisals and Realizable Value of Aircraft".
(3) In the case of Series 2000-2, we have calculated these percentages assuming
that the Aircraft listed under "Future Deliveries" in the chart under
"-- Equipment Notes and the Aircraft" are selected by Continental to be
financed hereunder from among the 16 aircraft that are available and that
such Aircraft are financed utilizing the maximum amount of debt pursuant to
the terms of such series, although we are entitled to finance other Aircraft
instead. In addition, we have assumed that we will finance a total of four
Owned Aircraft thereunder.
S-6
7
EQUIPMENT NOTES AND THE AIRCRAFT
The 63 Boeing aircraft expected to secure the Series D Equipment Notes to
be purchased by the Class D Trust pursuant to this offering will consist of 59
aircraft that were acquired by Continental prior to the Issuance Date and four
aircraft scheduled for delivery from August 2001 to December 2001. Set forth
below is certain information about the aircraft (assuming for purposes of the
chart below that the aircraft listed under "Future Deliveries" are selected by
Continental to be financed hereunder from among the 16 aircraft that are
available):
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT OF
OF SENIOR SERIES D
REGISTRATION MANUFACTURER'S DELIVERY EQUIPMENT EQUIPMENT
AIRCRAFT TYPE NUMBER SERIAL NUMBER MONTH(1) NOTES(2) NOTES(3)
---------------------------------------------- ------------ -------------- -------------- ----------- -----------
PREVIOUSLY DELIVERED
PRIOR SERIES 1997-4
Boeing 737-524................................ N11656 28917 April 1998 $18,036,495 $ 1,000
Boeing 737-524................................ N23657 28918 May 1998 18,036,495 1,000
Boeing 737-524................................ N18658 28919 June 1998 17,918,473 1,000
Boeing 737-524................................ N15659 28920 June 1998 17,918,473 1,000
Boeing 737-524................................ N14660 28921 July 1998 17,918,473 1,000
PRIOR SERIES 1998-1
Boeing 737-524................................ N14664 28925 August 1998 17,553,826 492,617
Boeing 737-524................................ N13665 28926 August 1998 18,411,000 255,682
Boeing 737-524................................ N14667 28927 September 1998 12,127,000 7,611,401
Boeing 737-524................................ N14668 28928 October 1998 12,127,000 7,611,401
Boeing 737-824................................ N26226 28935 December 1998 27,542,572 1,000
Boeing 757-224................................ N48127 28968 February 1998 32,084,559 1,745,450
Boeing 757-224................................ N17128 27567 March 1998 36,661,190 1,000
Boeing 757-224................................ N29129 28969 March 1998 36,661,190 1,000
Boeing 757-224................................ N19130 28970 May 1998 36,660,677 1,000
Boeing 757-224................................ N33132 29281 June 1998 32,895,484 4,514,833
PRIOR SERIES 1998-3
Boeing 737-724................................ N29717 28936 January 1999 20,140,936 5,117,659
Boeing 737-724................................ N13718 28937 January 1999 20,140,936 5,117,659
Boeing 737-724................................ N17719 28938 February 1999 24,133,840 898,492
Boeing 737-724................................ N13720 28939 February 1999 24,133,841 898,491
Boeing 737-724................................ N23721 28940 March 1999 24,133,841 898,491
Boeing 737-724................................ N27722 28789 April 1999 24,342,313 519,655
Boeing 737-724................................ N21723 28790 April 1999 24,342,313 519,655
Boeing 737-824................................ N13227 28788 May 1999 29,039,514 1,093,779
Boeing 757-224................................ N67134 29283 February 1999 35,854,516 480,732
Boeing 757-224................................ N41135 29284 February 1999 35,902,797 429,056
Boeing 757-224................................ N19136 29285 March 1999 35,948,984 379,326
Boeing 777-224ER.............................. N77006 29476 December 1998 82,272,052 1,857,715
PRIOR SERIES 1999-1
Boeing 737-724................................ N27734 28949 September 1999 21,484,522 3,532,443
Boeing 737-824................................ N14228 28792 May 1999 28,008,204 6,833,055
Boeing 737-824................................ N26232 28942 June 1999 28,008,204 6,785,724
Boeing 737-824................................ N14235 28947 August 1999 26,028,156 3,744,342
Boeing 777-224ER.............................. N78009 29479 April 1999 83,255,029 26,085,789
Boeing 777-224ER.............................. N79011 29859 June 1999 83,446,461 22,753,430
PRIOR SERIES 1999-2
Boeing 737-724................................ N24729 28945 July 1999 22,626,590 2,770,644
Boeing 737-724................................ N16732 28948 August 1999 22,652,076 2,742,152
Boeing 737-724................................ N14735 28950 September 1999 22,679,520 2,712,617
Boeing 737-724................................ N24736 28803 September 1999 22,679,520 2,712,617
Boeing 737-824................................ N35236 28801 September 1999 27,534,191 3,112,834
Boeing 737-824................................ N14240 28952 October 1999 27,166,073 3,471,816
Boeing 737-824................................ N18243 28806 October 1999 28,082,761 2,239,527
Boeing 737-824................................ N27246 28956 November 1999 27,070,163 2,238,278
Boeing 737-824................................ N14249 28809 December 1999 28,150,117 2,104,868
Boeing 757-224................................ N34137 30229 November 1999 37,073,108 1,000
Boeing 777-224ER.............................. N78013 29861 September 1999 83,180,869 6,038,022
S-7
8
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT OF
OF SENIOR SERIES D
REGISTRATION MANUFACTURER'S DELIVERY EQUIPMENT EQUIPMENT
AIRCRAFT TYPE NUMBER SERIAL NUMBER MONTH(1) NOTES(2) NOTES(3)
---------------------------------------------- ------------ -------------- -------------- ----------- -----------
PRIOR SERIES 2000-1
Boeing 737-824................................ N37252 30583 September 2000 $27,027,573 $ 3,858,745
Boeing 737-824................................ N37253 30584 September 2000 26,982,212 3,951,584
Boeing 737-824................................ N76254 30779 September 2000 30,906,238 398,837
Boeing 757-224................................ N17139 30352 February 2000 37,341,896 1,000
Boeing 757-224................................ N41140 30353 February 2000 37,341,896 1,000
Boeing 757-224................................ N19141 30354 June 2000 38,171,925 1,000
Boeing 767-424ER.............................. N66051 29446 August 2000 55,748,275 8,304,820
Boeing 767-424ER.............................. N67052 29447 September 2000 59,625,897 5,733,621
Boeing 767-424ER.............................. N59053 29448 October 2000 62,013,645 158,387
PRIOR SERIES 2000-2
Boeing 737-924................................ N79402 30119 July 2001 31,812,000 5,393,039
Boeing 737-924................................ N38403 30120 July 2001 32,076,000 678,463
Boeing 767-224ER.............................. N68155 30434 February 2001 50,400,000 7,294,641
Boeing 767-224ER.............................. N76156 30435 February 2001 50,400,000 7,224,225
Boeing 767-224ER.............................. N67158 30437 May 2001 50,400,000 1,000
Boeing 767-424ER.............................. N66056 29451 June 2001 65,623,800 10,673,910
FUTURE DELIVERIES
PRIOR SERIES 2000-2
Boeing 737-824................................ N33264 31584 August 2001 30,712,500 2,467,894
Boeing 737-824................................ N76265 31585 August 2001 30,712,500 2,467,894
Boeing 737-924................................ N73406 30123 September 2001 32,076,000 529,844
Boeing 737-924................................ N37407 30124 September 2001 32,076,000 529,844
------------
(1) In the case of Aircraft listed under "Future Deliveries", the month listed
is the scheduled month of delivery. The delivery deadline for purposes of
financing a new aircraft pursuant to this offering is February 1, 2002 (or
later under certain circumstances). The actual delivery date for any such
new aircraft may be subject to delay or acceleration. See "Description of
the Aircraft--Future Deliveries of Aircraft". Continental has the option to
substitute other aircraft if the delivery of any Aircraft is expected to be
delayed for more than 30 days after the month scheduled for delivery or
beyond the delivery deadline. See "Description of the Aircraft--Substitute
Aircraft".
(2) In the case of Aircraft listed under "Future Deliveries", the amounts listed
are the maximum principal amount of Senior Equipment Notes that may be
issued with respect to each Aircraft. The actual principal amount of Senior
Equipment Notes issued for an Aircraft may be less depending on the
circumstances of the financing of such Aircraft. For information concerning
the maximum principal amount of Senior Equipment Notes applicable to other
aircraft of the same type that Continental may choose to finance pursuant to
this offering after the Issuance Date in lieu of certain aircraft listed
under "Future Deliveries" in this chart, see "Description of the
Aircraft--Future Deliveries of Aircraft".
(3) The principal amount of Series D Equipment Notes applicable to other
aircraft of the same type that Continental may choose to finance pursuant to
this offering after the Issuance Date in lieu of certain aircraft listed
under "Future Deliveries" in this chart will be the same as listed above for
such type.
S-8
9
AGGREGATE OUTSTANDING PRINCIPAL BALANCES
The following table sets forth the outstanding principal balances for all
Senior Equipment Notes (whether secured by Leased Aircraft or Owned Aircraft)
and Series D Equipment Notes issued under each Prior Series and the outstanding
amount of the Class D Certificates, in each case as of the expected Issuance
Date and each December 1 Class D Regular Distribution Date thereafter. Although
the Series D Equipment Notes will be secured only by Owned Aircraft, payments
from all Equipment Notes held for the benefit of a Prior Series will distributed
to Certificates of such Prior Series before distribution to the Class D
Certificates. Accordingly, you should consider the payments required on all
Equipment Notes held for each Prior Series in evaluating obligations that are
senior to the Class D Certificates under such series. The Assumed Aircraft
Values set forth below may not reflect current appraised values, as discussed in
note (1) below.
1997-4 1998-1
---------------------------------------- -------------------------------------------
ASSUMED ASSUMED
AIRCRAFT SENIOR AIRCRAFT SENIOR
DATE VALUE(1) NOTES SERIES D VALUE(1) NOTES SERIES D
--------------------- -------------- ------------ -------- -------------- ------------ -----------
, 2001........ $1,105,675,940 $683,346,467 $5,000 $1,143,905,201 $693,841,749 $22,235,385
December 1, 2001..... 1,105,675,940 683,346,467 5,000 1,125,562,268 689,185,874 22,235,385
December 1, 2002..... 1,082,150,920 648,452,523 5,000 1,101,614,135 631,455,254 22,235,385
December 1, 2003..... 1,058,625,900 615,352,107 5,000 1,077,666,001 612,137,350 22,235,385
December 1, 2004..... 1,035,100,880 584,439,287 5,000 1,053,717,868 577,041,040 22,235,385
December 1, 2005..... 1,011,575,860 541,869,630 5,000 1,029,769,734 531,907,087 22,235,385
December 1, 2006..... 916,860,840 484,672,514 0 1,005,821,601 490,936,068 0
1998-3 1999-1
------------------------------------------ -------------------------------------------
ASSUMED ASSUMED
AIRCRAFT SENIOR AIRCRAFT SENIOR
DATE VALUE(1) NOTES SERIES D VALUE(1) NOTES SERIES D
--------------------- ------------ ------------ ----------- -------------- ------------ -----------
, 2001........ $760,800,907 $488,764,552 $18,210,710 $1,266,658,767 $754,379,521 $69,734,783
December 1, 2001..... 760,800,907 478,203,660 18,210,710 1,235,288,467 705,713,968 69,734,783
December 1, 2002..... 736,520,027 455,042,233 18,210,710 1,195,864,367 678,716,398 69,734,783
December 1, 2003..... 712,239,147 409,512,499 18,210,710 1,156,440,267 655,354,420 69,734,783
December 1, 2004..... 687,958,267 398,338,153 18,210,710 1,117,016,167 629,388,024 69,734,783
December 1, 2005..... 663,677,387 314,344,427 18,210,710 1,077,592,067 571,840,615 69,734,783
December 1, 2006..... 639,396,507 305,912,359 0 1,038,167,967 545,817,032 0
1999-2 2000-1
------------------------------------------- -------------------------------------------
ASSUMED ASSUMED
AIRCRAFT SENIOR AIRCRAFT SENIOR
DATE VALUE(1) NOTES SERIES D VALUE(1) NOTES SERIES D
------------------------------ -------------- ------------ ----------- -------------- ------------ -----------
, 2001................. $1,192,458,183 $698,687,555 $30,144,374 $1,237,033,857 $727,707,732 $22,408,994
December 1, 2001.............. 1,155,578,033 682,033,096 30,144,374 1,214,934,377 722,241,502 22,408,994
December 1, 2002.............. 1,118,697,883 661,810,854 30,144,374 1,177,359,087 701,669,814 22,408,994
December 1, 2003.............. 1,081,817,733 642,062,120 30,144,374 1,139,783,797 674,058,618 22,408,994
December 1, 2004.............. 1,044,937,583 547,629,668 30,144,374 1,102,208,507 657,415,804 22,408,994
December 1, 2005.............. 1,008,057,433 529,349,048 30,144,374 1,064,633,217 570,237,345 22,408,994
December 1, 2006.............. 971,177,283 510,483,506 0 1,027,057,927 536,053,964 0
2000-2(2) 2001-2
------------------------------------------- ------------
ASSUMED
AIRCRAFT SENIOR CLASS D
DATE VALUE(1) NOTES SERIES D CERTIFICATES
------------------------------ -------------- ------------ ----------- ------------
, 2001................. $1,300,633,334 $840,958,000 $37,260,754 $200,000,000
December 1, 2001.............. 1,300,633,334 823,043,015 37,260,754 200,000,000
December 1, 2002.............. 1,261,588,791 751,978,447 37,260,754 200,000,000
December 1, 2003.............. 1,222,544,247 720,769,374 37,260,754 200,000,000
December 1, 2004.............. 1,183,499,704 701,099,833 37,260,754 200,000,000
December 1, 2005.............. 1,144,455,161 666,778,188 37,260,754 200,000,000
December 1, 2006.............. 1,105,410,618 638,735,932 0 0
------------
(1) Assumed Aircraft Value for each Prior Series is the aggregate of the
ORIGINAL appraised value of each Aircraft financed under that series,
determined shortly before such Prior Series was issued, reduced at an
assumed depreciation rate of approximately 3% of the original appraised
value per year after the year of delivery of such Aircraft. We have not
obtained more recent appraisals of the Aircraft, and the oldest of the
appraisals was prepared almost four years ago. In addition, we cannot assure
you that our assumed rate of depreciation accurately reflects the decline in
value of the Aircraft subsequent to their delivery. THEREFORE, YOU SHOULD
NOT RELY ON THESE ASSUMED AIRCRAFT VALUES AS REFLECTING THE CURRENT VALUE OF
ANY AIRCRAFT OR ANY APPRAISER'S CURRENT OPINION OF SUCH VALUE. The original
appraised value of each Aircraft was the lesser of the average and median
values of such Aircraft as appraised at about the time of the offering of
the applicable Prior Series by three independent appraisal and consulting
firms, projected as of the scheduled delivery month of such Aircraft. These
appraisals were based upon varying assumptions and methodologies. An
appraisal is only an estimate of value and should not be relied upon as a
measure of realizable value. See "Risk Factors--Risk Factors Relating to the
Certificates and the Offering--Appraisals and Realizable Value of Aircraft".
(2) Since all Aircraft have not yet been financed under the Series 2000-2, we
have prepared this information assuming that the Series 2000-2 Trust will
acquire the maximum principal amount of Equipment Notes for all Aircraft
expected to be financed under such series and utilizing our expected
amortization schedule for such Equipment Notes. The actual outstanding
balances may differ.
S-9
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OWNED AIRCRAFT OUTSTANDING PRINCIPAL BALANCES
The following table sets forth the outstanding principal balances for the
Senior Equipment Notes and Series D Equipment Notes secured by Owned Aircraft
issued under each Prior Series and the outstanding amount of the Class D
Certificates, in each case as of the expected Issuance Date and each December 1
Class D Regular Distribution Date thereafter. The Assumed Owned Aircraft Values
set forth below may not reflect current appraised values, as discussed in note
(1) below.
1997-4 1998-1
------------------------------------- -----------------------------------------
ASSUMED ASSUMED
OWNED OWNED
AIRCRAFT SENIOR AIRCRAFT SENIOR
DATE VALUE(1) NOTES SERIES D VALUE(1) NOTES SERIES D
------------------------ ------------ ----------- -------- ------------ ------------ -----------
, 2001........... $132,775,000 $89,828,408 $5,000 $416,071,600 $262,724,498 $22,235,385
December 1, 2001........ 132,775,000 89,828,408 5,000 412,891,867 258,886,826 22,235,385
December 1, 2002........ 129,950,000 78,480,383 5,000 404,106,934 217,099,101 22,235,385
December 1, 2003........ 127,125,000 73,418,217 5,000 395,322,000 210,576,022 22,235,385
December 1, 2004........ 124,300,000 71,816,442 5,000 386,537,067 197,452,194 22,235,385
December 1, 2005........ 121,475,000 60,534,334 5,000 377,752,134 184,995,090 22,235,385
December 1, 2006........ 47,460,000 27,822,833 0 368,967,200 161,821,951 0
1998-3 1999-1
----------------------------------------- -----------------------------------------
ASSUMED ASSUMED
OWNED OWNED
AIRCRAFT SENIOR AIRCRAFT SENIOR
DATE VALUE(1) NOTES SERIES D VALUE(1) NOTES SERIES D
------------------------ ------------ ------------ ----------- ------------ ------------ -----------
, 2001........... $583,046,907 $380,385,884 $18,210,710 $432,343,863 $270,230,576 $69,734,783
December 1, 2001........ 583,046,907 369,824,992 18,210,710 422,879,993 222,120,282 69,734,783
December 1, 2002........ 564,439,027 350,271,597 18,210,710 409,383,823 212,998,510 69,734,783
December 1, 2003........ 545,831,147 311,653,275 18,210,710 395,887,653 208,113,730 69,734,783
December 1, 2004........ 527,223,267 303,660,991 18,210,710 382,391,483 203,148,884 69,734,783
December 1, 2005........ 508,615,387 234,092,593 18,210,710 368,895,313 165,027,194 69,734,783
December 1, 2006........ 490,007,507 226,579,875 0 355,399,143 159,663,951 0
1999-2 2000-1
----------------------------------------- -----------------------------------------
ASSUMED ASSUMED
OWNED OWNED
AIRCRAFT SENIOR AIRCRAFT SENIOR
DATE VALUE(1) NOTES SERIES D VALUE(1) NOTES SERIES D
----------------------------------- ------------ ------------ ----------- ------------ ------------ -----------
, 2001...................... $565,880,863 $348,894,989 $30,144,374 $622,758,263 $375,159,557 $22,408,994
December 1, 2001................... 548,379,393 338,161,697 30,144,374 612,276,933 371,908,985 22,408,994
December 1, 2002................... 530,877,923 326,413,406 30,144,374 593,340,533 360,134,226 22,408,994
December 1, 2003................... 513,376,453 317,599,401 30,144,374 574,404,133 349,393,850 22,408,994
December 1, 2004................... 495,874,983 245,152,017 30,144,374 555,467,733 343,468,564 22,408,994
December 1, 2005................... 478,373,513 238,076,907 30,144,374 536,531,333 277,681,862 22,408,994
December 1, 2006................... 460,872,043 231,317,557 0 517,594,933 256,520,304 0
2000-2(2) 2001-2
----------------------------------------- ------------
ASSUMED
OWNED
AIRCRAFT SENIOR CLASS D
DATE VALUE(1) NOTES SERIES D CERTIFICATES
----------------------------------- ------------ ------------ ----------- ------------
, 2001...................... $615,883,334 $403,425,808 $37,260,754 $200,000,000
December 1, 2001................... 615,883,334 391,993,493 37,260,754 200,000,000
December 1, 2002................... 597,389,299 355,585,010 37,260,754 200,000,000
December 1, 2003................... 578,895,263 338,512,565 37,260,754 200,000,000
December 1, 2004................... 560,401,228 328,933,321 37,260,754 200,000,000
December 1, 2005................... 541,907,192 319,481,204 37,260,754 200,000,000
December 1, 2006................... 523,413,157 306,503,923 0 0
------------
(1) Assumed Owned Aircraft Value for each Prior Series is the aggregate of the
ORIGINAL appraised value of each Owned Aircraft financed under that series,
determined shortly before such Prior Series was issued, reduced at an
assumed depreciation rate of approximately 3% of the original appraised
value per year after the year of delivery of such Aircraft. We have not
obtained more recent appraisals of the Aircraft, and the oldest of the
appraisals was prepared almost four years ago. In addition, we cannot assure
you that our assumed rate of depreciation accurately reflects the decline in
value of the Aircraft subsequent to their delivery. THEREFORE, YOU SHOULD
NOT RELY ON THESE ASSUMED OWNED AIRCRAFT VALUES AS REFLECTING THE CURRENT
VALUE OF ANY OWNED AIRCRAFT OR ANY APPRAISER'S CURRENT OPINION OF SUCH
VALUE. The appraised value of each Aircraft is the lesser of the average and
median values of such Aircraft as appraised at about the time of the
offering of the applicable Prior Series by three independent appraisal and
consulting firms, projected as of the scheduled delivery month of such
Aircraft. These appraisals were based upon varying assumptions and
methodologies. An appraisal is only an estimate of value and should not be
relied upon as a measure of realizable value. See "Risk Factors--Risk
Factors Relating to the Certificates and the Offering--Appraisals and
Realizable Value of Aircraft".
(2) Since all Aircraft have not yet been financed under the Series 2000-2, we
have prepared this information assuming that the Series 2000-2 Trust will
acquire the maximum principal amount of Equipment Notes for a total of ten
owned aircraft expected to be financed under such series and utilizing our
expected amortization schedule for such Equipment Notes. The actual
outstanding balances and the number of owned aircraft may differ.
S-10
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CASH FLOW STRUCTURE
Set forth below is a diagram illustrating the structure for certain cash
flows relevant to the Class D Certificates and the Series D Equipment Notes to
be issued in connection with this offering. For these purposes, we have only
included three Prior Series, although there are seven Prior Series. For purposes
of this diagram, all Prior Series are substantially the same.
[Diagram omitted, which shows that, in the case of each of the Series 1997-4,
1998-1 and 1998-2, Continental will pay to the Loan Trustees for Leased Aircraft
and Owned Aircraft for such Series (a) the lease rental payments, which are
assigned by the Owner Trustee, on Leased Aircraft and (b) the mortgage payments
on Owned Aircraft. From such lease rental payments and mortgage payments with
respect to each such Series, the Loan Trustees for such Series will make
Equipment Note payments on the Series A Equipment Notes, the Series B Equipment
Notes, the Series C Equipment Notes and the Series D Equipment Notes with
respect to all Aircraft financed under such Series to the Subordination Agent
for such Series. Excess rental payments will be paid by the Loan Trustees to the
lessors for Leased Aircraft. From the Equipment Note payments with respect to
each such Series, the Subordination Agent for such Series will pay principal,
premium, if any, and interest distributions to the Class A Trustee, the Class B
Trustee and the Class C Trustee for such Series. The Subordination Agent for
each such Series may also receive advances, if any, from, and pay
reimbursements, if any, to, the applicable Liquidity Providers. Each
Subordination Agent will distribute any remaining distributions to the Class D
Trustee, who will pay such remaining distributions to the Class D
Certificateholders. The Depositary will make interest payments on the Deposits
to the Escrow Agent. From such interest payments, the Escrow Agent will make
payments to the Class D Certificateholders.]
------------
(1) Each Aircraft leased to Continental will be subject to a separate Lease and
a related Indenture; each Aircraft owned by Continental will be subject to a
separate Indenture. Series D Equipment Notes will be issued only for
Aircraft owned by Continental.
(2) Advances by Liquidity Providers will not cover any amounts distributable
with respect to the Class D Certificates.
(3) Paid in priority to distributions to the Class D Trustee.
(4) Initially, the proceeds of the offering of the Class D Certificates that are
not used to purchase Series D Equipment Notes on the Issuance Date will be
held in escrow and deposited with the Depositary. The Depositary will hold
such funds as interest-bearing Deposits. The Class D Trust will withdraw
funds from the Deposits to purchase Series D Equipment Notes from time to
time as each Owned Aircraft is financed after the Issuance Date under the
Series 2000-2, which also has a similar escrow and deposit arrangement. The
scheduled payments of interest on the Series D Equipment Notes and on the
Deposits, taken together, will be sufficient to pay accrued interest on the
outstanding Class D Certificates.
S-11
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THE OFFERING
Certificates Offered.......... Class D Certificates.
The Class D Certificates will represent a
fractional undivided interest in the Class D
Trust. No other Certificates of the same
Series will be issued.
Use of Proceeds............... The proceeds from the sale of the Class D
Certificates will be used as follows:
- If applied to acquire Series D Equipment
Notes on the Issuance Date, such proceeds
will be used by Continental for general
corporate purposes.
- If not so used on the Issuance Date, such
proceeds will be deposited with the
Depositary. Such Deposits thereafter are
expected to be withdrawn to acquire Series
D Equipment Notes, and such proceeds will
be used by Continental to finance its
acquisition of four new Boeing aircraft.
Subordination Agent, Trustee,
Paying Agent and Loan
Trustee..................... Wilmington Trust Company.
Escrow Agent.................. Wells Fargo Bank Northwest, National
Association.
Depositary.................... Credit Suisse First Boston, New York Branch.
Trust Property................ The property of the Class D Trust will
include:
- Series D Equipment Notes issued under each
Prior Series acquired by the Class D
Trust.
- Funds from time to time deposited with the
Class D Trustee.
Regular Distribution Dates.... June 1 and December 1, commencing on December
1, 2001.
Record Dates.................. The fifteenth day preceding the related
Distribution Date.
Distributions................. The Class D Trustee will distribute all
payments of principal, premium (if any) and
interest received on the Series D Equipment
Notes held in the Class D Trust to the
holders of the Class D Certificates, subject
to the subordination provisions of the Prior
Series under which such Series D Equipment
Notes are issued.
Scheduled payments of principal and interest
made on the Series D Equipment Notes will be
distributed on the applicable Regular
Distribution Dates.
Payments of principal, premium (if any) and
interest made on the Series D Equipment Notes
resulting from any early redemption of such
Equipment Notes will be distributed on a
special distribution date after not less than
15 days' notice to Class D
Certificateholders.
Subordination................. Distributions under the Intercreditor
Agreement for each Prior Series on the
Certificates of such Prior Series and the
Class D Certificates will be made in the
following order:
- First, to the holders of the Class A
Certificates of such Prior Series.
- Second, to the holders of the Class B
Certificates of such Prior Series.
S-12
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- Third, to the holders of the Class C
Certificates of such Prior Series.
- Fourth, to the holders of the Class D
Certificates.
See "Description of the Intercreditor
Agreements--Priority of Distributions". If
Continental is in bankruptcy or certain other
specified events have occurred but
Continental is continuing to meet certain of
its obligations, the subordination provisions
applicable to the Certificates permit
distributions to be made to junior
Certificates prior to making distributions in
full on the senior Certificates.
Control of Loan Trustee....... The holders of at least a majority of the
outstanding principal amount of Equipment
Notes issued under each Indenture will be
entitled to direct the Loan Trustee under
such Indenture in taking action as long as no
Indenture Default is continuing thereunder.
If an Indenture Default is continuing under
an Indenture covered by a Prior Series,
subject to certain conditions, the
"Controlling Party" for such Prior Series
will direct the applicable Loan Trustee
(including in exercising remedies, such as
accelerating such Equipment Notes or
foreclosing the lien on the aircraft securing
such Equipment Notes).
The Controlling Party with respect to any
Prior Series will be:
- The Class A Trustee of such Prior Series.
- Upon payment of final distributions to the
holders of the Class A Certificates of
such Prior Series, the Class B Trustee of
such Prior Series.
- Upon payment of final distributions to the
holders of the Class B Certificates of
such Prior Series, the Class C Trustee of
such Prior Series.
- Upon payment of final distributions to the
holders of the Class C Certificates of
such Prior Series, the Class D Trustee.
- Under certain circumstances, and
notwithstanding the foregoing, the
liquidity provider with respect to such
Prior Series with the largest amount owed
to it.
In exercising remedies with respect to any
Prior Series during the nine months after the
earlier of (a) the acceleration of the
Equipment Notes issued pursuant to any
related Indenture or (b) the bankruptcy of
Continental, the applicable Controlling Party
may not direct the sale of such Equipment
Notes or the aircraft subject to the lien of
such Indenture for less than certain
specified minimums or modify lease rental
payments for such aircraft below a specified
threshold.
Right to Buy Other Classes of
Certificates................ If Continental is in bankruptcy or certain
other specified events have occurred with
respect to any Prior Series, the
Certificateholders of such Prior Series and
the Class D
S-13
14
Certificateholders may have the right to buy
certain Classes of Certificates of such Prior
Series on the following basis:
- The Class B Certificateholders of such
Prior Series will have the right to
purchase all of the Class A Certificates
of such Prior Series.
- The Class C Certificateholders of such
Prior Series will have the right to
purchase all of the Class A and Class B
Certificates of such Prior Series.
- The Class D Certificateholders will have
the right to purchase all of the Class A,
Class B and Class C Certificates of such
Prior Series.
The purchase price in each case described
above will be the outstanding balance of the
applicable Class of Certificates plus accrued
and unpaid interest.
Escrowed Funds................ Funds in escrow for the Certificateholders of
the Class D Trust will be held by the
Depositary as Deposits relating to such
Trust. The Class D Trustee may withdraw these
funds from time to time to purchase Series D
Equipment Notes prior to the deadline
established for purposes of this offering. On
each Regular Distribution Date, the
Depositary will pay interest accrued on the
Deposits at a rate per annum equal to the
interest rate applicable to the Class D
Certificates. The Deposits and interest paid
thereon will not be subject to the
subordination provisions applicable to the
Certificates. The Deposits cannot be used to
pay any other amount in respect of the
Certificates.
Unused Escrowed Funds......... All of the Deposits held in escrow may not be
used to purchase Series D Equipment Notes by
the deadline established for purposes of this
offering. This may occur because of delays in
the delivery of aircraft or other reasons.
See "Description of the
Certificates--Obligation to Purchase
Equipment Notes". If any funds remain as
Deposits after such deadline, the funds held
as Deposits will be withdrawn by the Escrow
Agent and distributed, with accrued and
unpaid interest but without premium, to the
Class D Certificateholders after at least 15
days' prior written notice. See "Description
of the Deposit Agreement--Unused Deposits".
Obligation to Purchase
Equipment Notes............ On the Issuance Date, the Class D Trustee
will purchase Series D Equipment Notes with
respect to 59 Aircraft then owned by
Continental.
After the Issuance Date, upon each financing
of an Owned Aircraft under the Series 2000-2,
so long as adequate Deposits are available,
the Class D Trustee will be obligated to
purchase Series D Equipment Notes pursuant to
the Note Purchase Agreement. Each Owned
Aircraft financing will be entered into
pursuant to forms of financing agreements
prescribed by the Note Purchase Agreement. In
addition, the terms of such financing
agreements must contain the Mandatory
Document Terms and must not vary the
Mandatory Economic Terms set forth in the
Note Purchase Agreement. Continental must
also
S-14
15
obtain written confirmation from each Rating
Agency that the use of financing agreements
modified in any material respect from the
forms prescribed by the Note Purchase
Agreement will not result in a withdrawal,
suspension or downgrading of the rating of
any applicable Class of Certificates.
The Class D Trustee will not be obligated to
purchase Series D Equipment Notes if, at the
time of issuance, Continental is in
bankruptcy or certain other specified events
have occurred. See "Description of the
Certificates--Obligation to Purchase
Equipment Notes".
Equipment Notes
(a) Issuer................... Continental.
(b) Interest................. The Series D Equipment Notes will accrue
interest at the same rate per annum as the
Class D Certificates, which is set forth on
the cover page of this Prospectus Supplement.
Interest will be payable on June 1 and
December 1 of each year, commencing on the
first such date after issuance of such
Equipment Notes. Interest is calculated on
the basis of a 360-day year consisting of
twelve 30-day months.
(c) Principal................ The entire principal amount of the Series D
Equipment Notes is scheduled to be paid on
December 1, 2006.
(d) Redemption............... AIRCRAFT EVENT OF LOSS. If an Event of Loss
occurs with respect to an Owned Aircraft, all
of the Equipment Notes issued with respect to
such Aircraft will be redeemed, unless
Continental replaces such Aircraft under the
related financing agreements. The redemption
price in such case will be the unpaid
principal amount of such Equipment Notes,
together with accrued interest, but without
any premium.
OPTIONAL REDEMPTION. Continental may elect
to redeem the Equipment Notes with respect to
an Owned Aircraft prior to maturity. The
redemption price in such case will be the
unpaid principal amount of such Equipment
Notes, together with accrued interest plus a
Make-Whole Premium. See "Description of the
Equipment Notes--Redemption".
(e) Security................. The Series D Equipment Notes issued with
respect to each Owned Aircraft will be
secured by a first priority security interest
in such Aircraft.
There will not be cross-default provisions in
the Indentures. This means that if the
Equipment Notes issued with respect to one or
more Aircraft are in default and the
Equipment Notes issued with respect to the
remaining Aircraft are not in default, no
remedies will be exercisable with respect to
the remaining Aircraft.
(f) Cross-collateralization.. The Series D Equipment Notes held for the
Class D Trust will be cross-collateralized.
This means that proceeds available from the
sale of an Owned Aircraft that secures any
such Series D Equipment Notes or from other
exercise of remedies with respect to such
Aircraft, after the payment of all other
Equipment Notes issued with respect to such
Aircraft, will be available to cover
shortfalls with respect to other Series D
S-15
16
Equipment Notes issued with respect to the
same Prior Series. In the absence of any such
shortfall, such excess proceeds will be held
as additional collateral for the outstanding
Series D Equipment Notes issued with respect
to the same Prior Series until they have been
paid in full and, once paid in full, for the
Series D Equipment Notes issued with respect
to the other Prior Series.
Such excess proceeds will be subject to the
Intercreditor Agreement of the Prior Series
under which the Owned Aircraft that produced
such excess proceeds was financed. As a
result, such excess proceeds will be applied
to satisfy required distributions to the
Certificates of such Prior Series before any
distribution is made to the Class D Trustee.
However, excess proceeds used to pay Series D
Equipment Notes of another Prior Series will
not be subject to the Intercreditor Agreement
of such other Prior Series.
(g) Section 1110
Protection.................. Continental's outside counsel will provide
its opinion to the Class D Trustee that the
benefits of Section 1110 of the U.S.
Bankruptcy Code will be available with
respect to the Series D Equipment Notes.
Certain Federal Income Tax
Consequences................ Each Certificate Owner generally should
report on its federal income tax return its
pro rata share of income from the Deposits
and income from the Series D Equipment Notes
and other property held by the Class D Trust.
See "Certain U.S. Federal Income Tax
Consequences".
Certain ERISA
Considerations.............. Each person who acquires a Class D
Certificate will be deemed to have
represented that either: (a) no employee
benefit plan assets have been used to
purchase such Certificate or (b) the purchase
and holding of such Certificate are exempt
from the prohibited transaction restrictions
of the Employee Retirement Income Security
Act of 1974 and the Internal Revenue Code of
1986 pursuant to one or more prohibited
transaction statutory or administrative
exemptions. See "Certain ERISA
Considerations".
Rating of the Certificates.... It is a condition to the issuance of the
Class D Certificates that they be rated not
less than by Moody's and not less than
by Standard & Poor's.
The issuance of the Class D Certificates is
also subject to receipt of written
confirmation from Moody's and Standard &
Poor's that the terms and the proposed
issuance of the Class D Certificates and the
Series D Equipment Notes will not result in a
withdrawal, suspension or downgrading of the
ratings of the Class A Certificates, the
Class B Certificates or the Class C
Certificates of any Prior Series. A rating is
not a recommendation to purchase, hold or
sell Certificates, since such rating does not
address market price or suitability for a
particular investor. There can be no
assurance that such ratings will not be
lowered or withdrawn by a Rating Agency.
Rating of the Depositary...... The Depositary has short-term unsecured debt
ratings of P-1 from Moody's and A-1+ from
Standard & Poor's.
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SUMMARY FINANCIAL AND OPERATING DATA
The following tables summarize certain consolidated financial data and
certain operating data with respect to Continental. The following selected
consolidated financial data for the years ended December 31, 2000, 1999 and 1998
are derived from the audited consolidated financial statements of Continental
including the notes thereto incorporated by reference in the Prospectus and
should be read in conjunction with those financial statements. The following
selected consolidated financial data for the years ended December 31, 1997 and
1996 are derived from the selected financial data contained in Continental's
Annual Report on Form 10-K for the year ended December 31, 2000, incorporated by
reference in the Prospectus, and the audited consolidated financial statements
of Continental for the years ended December 31, 1997 and 1996 and should be read
in conjunction therewith. The consolidated financial data of Continental for the
three months ended March 31, 2001 and 2000 are derived from the unaudited
consolidated financial statements of Continental incorporated by reference in
this Prospectus Supplement, which include all adjustments (consisting solely of
normal recurring accruals) that Continental considers necessary for the fair
presentation of the financial position and results of operations for these
periods. Operating results for the three months ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ----------------------------------------------
2001 2000 2000 1999 1998 1997 1996
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS OF DOLLARS, EXCEPT OPERATING DATA,
PER SHARE DATA AND RATIOS)
FINANCIAL DATA--OPERATIONS:
Operating Revenue.................... $2,451 $2,277 $9,899 $8,639 $7,927 $7,194 $6,347
Operating Expenses................... 2,375 2,214 9,170 8,039(1) 7,226(2) 6,478 5,822(3)
------ ------ ------ ------ ------ ------ ------
Operating Income..................... 76 63 729 600 701 716 525
Nonoperating Income (Expense), net... (57) (40) (158) 198(4) (53) (76) (97)
------ ------ ------ ------ ------ ------ ------
Income before Income Taxes, Minority
Interest, Extraordinary Charges and
Cumulative Effect of Change in
Accounting Principles.............. 19 23 571 798(5) 648 640 428
Net Income........................... $ 9 $ 14 $ 342 $ 455 $ 383 $ 385 $ 319
====== ====== ====== ====== ====== ====== ======
Earnings per Common Share............ $ 0.17 $ 0.21 $ 5.62 $ 6.54(6) $ 6.34 $ 6.65 $ 5.75
====== ====== ====== ====== ====== ====== ======
Earnings per Common Share Assuming
Dilution........................... $ 0.16 $ 0.21 $ 5.45 $ 6.20(7) $ 5.02 $ 4.99 $ 4.17
====== ====== ====== ====== ====== ====== ======
Ratio of Earnings to Fixed
Charges(8)......................... 1.03x 1.06x 1.51x 1.80x 1.94x 2.07x 1.81x
====== ====== ====== ====== ====== ====== ======
OPERATING DATA(9):
Revenue passenger miles
(millions)(10)..................... 15,114 15,005 64,161 60,022 53,910 47,906 41,914
Available seat miles
(millions)(11)..................... 21,459 20,951 86,100 81,946 74,727 67,576 61,515
Passenger load factor(12)............ 70.4% 71.6% 74.5% 73.2% 72.1% 70.9% 68.1%
Breakeven passenger load
factor(13)(14)..................... 65.0% 68.2% 65.6% 64.7% 61.6% 60.1% 60.7%
Passenger revenue per available seat
mile (cents)(15)................... 9.76 9.33 9.84 9.12 9.23 9.29 9.01
Operating cost per available seat
mile (cents)(14)(16)............... 9.91 9.68 9.69 8.99 8.89 9.04 8.75
Average yield per revenue passenger
mile (cents)(17)................... 13.86 13.03 13.20 12.45 12.79 13.11 13.22
Average length of aircraft flight
(miles)............................ 1,164 1,131 1,159 1,114 1,044 967 896
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MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
(IN MILLIONS OF DOLLARS)
FINANCIAL DATA--BALANCE SHEET:
ASSETS:
Cash, Cash Equivalents and Short-Term Investments......... $1,007 $1,395
Other Current Assets...................................... 1,174 1,064
Total Property and Equipment, Net......................... 5,504 5,163
Routes, Gates and Slots, Net.............................. 1,068 1,081
Other Assets, Net......................................... 515 498
------ ------
Total Assets........................................... $9,268 $9,201
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities....................................... $3,174 $2,980
Long-Term Debt and Capital Leases......................... 3,639 3,374
Deferred Credits and Other Long-Term Liabilities.......... 1,043 995
Continental-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely
Convertible Subordinated Debentures(18)................ 243 242
Redeemable Common Stock(19)............................... -- 450
Common Stockholders' Equity............................... 1,169 1,160
------ ------
Total Liabilities and Stockholders' Equity............. $9,268 $9,201
====== ======
------------
(1) Includes an $81 million fleet disposition/impairment loss resulting from
Continental's decision to accelerate the retirement of six DC-10-30
aircraft and the disposal of related excess inventory.
(2) Includes a $122 million fleet disposition/impairment loss resulting from
Continental's decision to accelerate the retirement of certain jet and
turboprop aircraft.
(3) Includes a $128 million fleet disposition loss associated primarily with
Continental's decision to accelerate the replacement of certain jet
aircraft.
(4) Includes a $297 million gain on the sale of the Company's interest in
AMADEUS Global Travel Distribution S.A.
(5) Reflects income before income taxes and cumulative effect of a change in
accounting principle. During 1999, Continental recorded a $33 million
charge for the cumulative effect of changes in the accounting for the sale
of frequent flyer mileage credits to participating partners and
preoperating costs related to the integration of new types of aircraft.
(6) Reflects earnings per common share after cumulative effect of changes in
accounting principles. See Note (5) for a description of the changes in
accounting principles. Earnings per common share for the year ended
December 31, 1999 was $7.02 before the cumulative effect of such changes in
accounting principles.
(7) Reflects earnings per common share assuming dilution after cumulative
effect of changes in accounting principles. See Note (5) for a description
of the changes in accounting principles. Earnings per common share assuming
dilution for the year ended December 31, 1999 was $6.64 before the
cumulative effect of such changes in accounting principles.
(8) For purposes of calculating this ratio, earnings consist of income before
income taxes, minority interest, extraordinary charges and cumulative
effect of a change in accounting principle plus interest expense (net of
capitalized interest), the portion of rental expense representative of
interest expense and amortization of previously capitalized interest. Fixed
charges consist of interest expense and the portion of rental expense
representative of interest expense.
(9) Includes operating data for CMI, but does not include operating data for
Express's regional jet operations or turboprop operations.
(10) The number of scheduled miles flown by revenue passengers.
(11) The number of seats available for passengers multiplied by the number of
scheduled miles those seats are flown.
(12) Revenue passenger miles divided by available seat miles.
(13) The percentage of seats that must be occupied by revenue passengers in
order for the airline to break even on an income before income taxes basis,
excluding nonrecurring charges, nonoperating items and other special items.
(14) Excludes a $81 million fleet disposition/impairment loss in 1999, a $122
million fleet disposition/impairment loss in 1998 and a $128 million fleet
disposition loss in 1996. See Notes (1), (2) and (3) for description of the
charges.
(15) Passenger revenue divided by available seat miles.
(16) Operating expenses divided by available seat miles.
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(17) The average revenue received for each mile a revenue passenger is carried.
(18) The sole assets of the Trust are convertible subordinated debentures with
an aggregate principal amount of $250 million, which bear interest at the
rate of 6% per annum and mature on November 15, 2030. Upon repayment, the
Continental-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust will be mandatorily redeemed.
(19) Represents the Company's commitment to repurchase 6.7 million shares of
Class A common stock of Continental owned by Northwest Airlines
Corporation. The transaction closed on January 22, 2001 and was accounted
for as an equity transaction.
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RISK FACTORS
RISK FACTORS RELATING TO THE COMPANY
HIGH LEVERAGE AND SIGNIFICANT FINANCING NEEDS
Continental has a higher proportion of debt compared to its equity capital
than some of its principal competitors. In addition, Continental has less cash
resources than some of its principal competitors. A majority of Continental's
property and equipment is subject to liens securing indebtedness. Accordingly,
Continental may be less able than some of its competitors to withstand a
prolonged recession in the airline industry or respond as flexibly to changing
economic and competitive conditions.
As of March 31, 2001, Continental had:
-- approximately $4.0 billion (including current maturities) of
long-term debt and capital lease obligations.
-- approximately $1.4 billion of Continental-obligated mandatorily
redeemable preferred securities of trust, redeemable common stock and
common stockholders' equity.
-- approximately $1.0 billion in cash and cash equivalents.
Continental has substantial commitments for capital expenditures, including
for the acquisition of new aircraft. As of March 31, 2001, Continental had
agreed to acquire or lease a total of 90 Boeing jet aircraft through 2005.
Continental anticipates taking delivery of 36 Boeing jet aircraft in 2001 (four
of which were placed in service during the first quarter of 2001). Continental
also has options for an additional 97 aircraft (exercisable subject to certain
conditions). The estimated aggregate cost of Continental's firm commitments for
Boeing aircraft is approximately $4 billion. Continental currently plans to
finance its new Boeing aircraft with a combination of enhanced pass through
trust certificates, lease equity and other third-party financing, subject to
availability and market conditions. As of March 31, 2001, Continental had
approximately $679 million in financing arranged for such Boeing deliveries.
Continental also has commitments or letters of intent for backstop financing for
approximately 19% of the anticipated remaining acquisition cost of future Boeing
deliveries. In addition, at March 31, 2001, Continental had firm commitments to
purchase 25 spare engines related to the new Boeing aircraft for approximately
$150 million, which will be deliverable through March 2005.
As of March 31, 2001, Express, Continental's subsidiary that operates
regional jet and turboprop aircraft, had firm commitments for 168 Embraer
regional jets with options for an additional 100 Embraer regional jets
exercisable through 2007. Express anticipates taking delivery of 41 regional
jets in 2001 (ten of which were delivered in the first quarter of 2001). As of
March 31, 2001, the estimated cost of Continental's firm commitments for Embraer
regional jets was approximately $3 billion. Neither Express nor Continental will
have any obligation to take any such firm Embraer aircraft that are not financed
by a third party and leased to Continental.
For 2000, cash expenditures under operating leases relating to aircraft
approximated $864 million, compared to $758 million for 1999, and approximated
$353 million relating to facilities and other rentals compared to $328 million
in 1999. Continental expects that its operating lease expenses for 2001 will
increase over 2000 amounts.
Additional financing will be needed to satisfy Continental's capital
commitments. We cannot predict whether sufficient financing will be available
for capital expenditures not covered by firm financing commitments.
CONTINENTAL'S HISTORICAL OPERATING RESULTS
Continental has recorded positive net income in each of the last six years.
However, Continental experienced significant operating losses in the previous
eight years. Historically, the financial results of the U.S. airline industry
have been cyclical. We cannot predict whether current industry conditions will
continue.
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SIGNIFICANT COST OF AIRCRAFT FUEL
Fuel costs constitute a significant portion of Continental's operating
expenses. Fuel costs were approximately 14.5% and 15.1% of operating expenses
for the three months ended March 31, 2001 and 2000, respectively, 15.6% of
operating expenses for the year ended December 31, 2000, and 9.7% for the year
ended December 31, 1999 (excluding fleet disposition/impairment losses).
Fuel prices and supplies are influenced significantly by international
political and economic circumstances. 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. Our fuel hedging strategy could result in
Continental not fully benefiting from certain fuel price declines. If a fuel
supply shortage were to arise from OPEC production curtailments, a disruption of
oil imports or otherwise, higher fuel prices or a reduction of scheduled airline
service could result. Significant changes in fuel costs or continuation of
current high jet fuel prices would materially affect Continental's operating
results.
LABOR COSTS
Labor costs constitute a significant percentage of Continental's total
operating costs, and Continental experiences competitive pressure to increase
wages and benefits. In July 2000, Continental completed a three-year program
bringing all employees to industry standard wages and also announced and began
to implement a phased plan to bring employee benefits to industry standard
levels by 2003. The plan provides for increases in vacation, paid holidays,
increased 401(k) Company matching contributions and additional past service
retirement credit for most senior employees.
Collective bargaining agreements between Continental and its mechanics (who
are represented by the International Brotherhood of Teamsters) and between both
Continental and Express and their respective pilots (who are represented by the
Air Line Pilots Association) become amendable in January 2002 and October 2002,
respectively. Negotiations with the union representing our mechanics will
commence later this year, and negotiations with the union representing
Continental and Express pilots will follow. Other U.S. air carriers that have
recently negotiated collective bargaining contracts have agreed to significant
pay and benefit increases. We anticipate increased labor costs in connection
with renegotiation of our collective bargaining agreements. In addition, certain
other U.S. air carriers have experienced work slowdowns, strikes or other labor
disruptions in connection with contract negotiations. Although Continental
enjoys generally good relations with its employees, there can be no assurance
that Continental will not experience labor disruptions in the future.
RISK FACTORS RELATING TO THE AIRLINE INDUSTRY
COMPETITION AND INDUSTRY CONDITIONS
The airline industry is highly competitive and susceptible to price
discounting. Carriers have used discount fares to stimulate traffic during
periods of slack demand, to generate cash flow and to increase market share.
Some of Continental's competitors have substantially greater financial resources
or lower cost structures than Continental.
Airline profit levels are highly sensitive to changes in fuel costs, fare
levels and passenger demand. Passenger demand and fare levels have in the past
been influenced by, among other things, the general state of the economy (both
internationally and domestically), international events, airline capacity and
pricing actions taken by carriers. Domestically, from 1990 to 1993, the weak
U.S. economy, turbulent international events and extensive price discounting by
carriers contributed to unprecedented losses for U.S. airlines. After 1993, the
U.S. economy improved and excessive price discounting abated.
The airline industry is currently experiencing a decline in traffic,
particularly business traffic (which has a higher yield than leisure traffic),
due to the recent slowing of growth in the economy. Continental experienced a
decline in both load factor and yield in May and June, 2001, as compared to the
same month in 2000, resulting in a decrease in system-wide passenger revenue per
available seat mile of approximately 10 to
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12 percent in June and 9 to 11 percent in May, as compared to the applicable
month in the prior year. Continental anticipates that softening economic
conditions, domestically and globally, will continue to put pressure on the
industry and Continental while those conditions continue.
In recent years, the major U.S. airlines have sought to form marketing
alliances with other U.S. and foreign air carriers. Such alliances generally
provide for "code-sharing", frequent flyer reciprocity, coordinated scheduling
of flights of each alliance member to permit convenient connections and other
joint marketing activities. Such arrangements permit an airline to market
flights operated by other alliance members as its own. This increases the
destinations, connections and frequencies offered by the airline, which provide
an opportunity to increase traffic on such airline's segment of flights
connecting with alliance partners. The Northwest Alliance is an example of such
an arrangement, and Continental has existing alliances with numerous other air
carriers. Other major U.S. airlines have alliances or planned alliances more
extensive than Continental's. We cannot predict the extent to which Continental
will benefit from its alliances or be disadvantaged by competing alliances.
In recent years, and particularly since its deregulation in 1978, the U.S.
airline industry has also undergone substantial consolidation, and it may in the
future undergo additional consolidation. For example, in May 2000, United, the
nation's largest commercial airline, announced its agreement to acquire US
Airways, the nation's sixth largest commercial airline, subject to regulatory
approvals and other conditions. In connection with its proposed acquisition of
US Airways, United Airlines agreed to sell a portion of US Airways' assets to
American Airlines and to sell three regional airlines to Atlantic Coast
Airlines, another regional airline. In April 2001, American acquired the
majority of Trans World Airlines, Inc.'s assets. Continental routinely monitors
changes in the competitive landscape and engages in analysis and discussions
regarding its strategic position, including alliances and business combination
transactions. Continental has had, and anticipates it will continue to have,
discussions with third parties regarding strategic alternatives. The impact on
Continental of these transactions and any additional consolidation within the
U.S. airline industry cannot be predicted at this time.
REGULATORY MATTERS
Airlines are subject to extensive regulatory and legal compliance
requirements that engender significant costs. In the last several years, the
Federal Aviation Administration ("FAA") has issued a number of directives and
other regulations relating to the maintenance and operation of aircraft that
have required significant expenditures. Such FAA requirements cover, among other
things, retirement of older aircraft, security measures, collision avoidance
systems, airborne windshear avoidance systems, noise abatement, commuter
aircraft safety and increased inspections and maintenance procedures to be
conducted on older aircraft. We expect to continue incurring expenses in
complying with the FAA's regulations.
Additional laws, regulations, taxes and airport rates and charges have been
proposed from time to time that could significantly increase the cost of airline
operations or reduce revenues. For instance, "passenger bill of rights"
legislation was introduced in Congress that would, among other things, require
the payment of compensation to passengers as a result of certain delays, and
limit the ability of carriers to prohibit or restrict usage of certain tickets
in manners currently prohibited or restricted.
The DOT has proposed rules that would significantly limit major carriers'
ability to compete with new entrant carriers. If adopted, these measures could
have the effect of raising ticket prices, reducing revenue and increasing costs.
Restrictions on the ownership and transfer of airline routes and takeoff and
landing slots have also been proposed. The ability of U.S. carriers to operate
international routes is subject to change because the applicable arrangements
between the United States and foreign governments may be amended from time to
time, or because appropriate slots or facilities are not made available. We
cannot provide assurance that laws or regulations enacted in the future will not
adversely affect us.
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RISK FACTORS RELATING TO THE CERTIFICATES AND THE OFFERING
APPRAISALS AND REALIZABLE VALUE OF AIRCRAFT
In connection with the offering of each Prior Series, three independent
appraisal and consulting firms prepared appraisals of the Aircraft expected to
be financed pursuant to such Prior Series. See "Experts" for the names of such
firms. Reports summarizing such appraisals have been attached as Exhibits to a
recent Continental Current Report on Form 8-K, filed with the Commission, and
are incorporated herein by reference. See "Incorporation of Certain Documents by
Reference". We have not obtained more recent appraisals of the Aircraft, and the
oldest of the appraisals was prepared almost four years ago.
The original "appraised value" of an Aircraft for purposes of the offering
of a Prior Series was the lesser of the average and median values of such
Aircraft as set forth in the three appraisals obtained for such offering. Such
appraisals were based on varying assumptions and methodologies (as stated in
such reports), which differ among the appraisers, and were prepared without
physical inspection of the Aircraft. Appraisals that are based on other
assumptions and methodologies may result in valuations that are materially
different from those contained in such appraisals.
An appraisal is only an estimate of value. It does not indicate the price
at which an Aircraft may be purchased from the Aircraft manufacturer. Nor should
an appraisal be relied upon as a measure of realizable value. The proceeds
realized upon a sale of any Aircraft may be less than its appraised value. In
particular, the appraisals of the Aircraft were estimates at about the time of
the offering of each Prior Series of values of Aircraft expected to be financed
under such Prior Series as of future delivery dates.
In calculating the assumed aircraft value of an Aircraft for purposes of
this Prospectus Supplement, we have assumed that the original appraised value of
such Aircraft depreciated by approximately 3% of its initial appraised value per
year after the year of delivery of such Aircraft. We cannot assure you that our
assumed rate of depreciation accurately reflects the decline in value of any
Aircraft subsequent to its delivery. The actual value of an Aircraft can
fluctuate over time with greater volatility than the 3% annual depreciation rate
that we have assumed for purposes of calculating assumed aircraft values.
Therefore, you should not rely on the assumed aircraft values of the Aircraft
set forth in this Prospectus Supplement as reflecting the current value of any
Aircraft or any appraiser's current opinion of such value.
The value of an Aircraft if remedies are exercised under the applicable
Indenture will depend on market and economic conditions, the supply of similar
aircraft, the availability of buyers, the condition of the Aircraft and other
factors. Accordingly, we cannot assure you that the proceeds realized upon any
such exercise of remedies would be sufficient to satisfy in full payments due on
the applicable Certificates.
PRIORITY OF DISTRIBUTIONS; SUBORDINATION
The Class D Certificates are subordinated to the Class A, B and C
Certificates in rights to distributions made in respect of the Prior Series
under which such Class A, B and C Certificates were issued. See "Description of
the Certificates--Subordination". Consequently, a payment default under any
Equipment Note or the occurrence of a Triggering Event may cause the
distribution to more senior Classes of Certificates of payments received from
payment on one or more junior series of Equipment Notes. If this should occur,
the interest accruing on the remaining Equipment Notes would be less than the
interest accruing on the remaining Certificates. This is because the remaining
Certificates of the junior Classes accrue interest at a higher rate than the
remaining Equipment Notes, which include series applicable to the senior Classes
bearing interest at a lower rate. As a result of this possible interest
shortfall, the holders of the Class D Certificates may not receive the full
amount due to them after a payment default under any Equipment Note even if all
Equipment Notes are eventually paid in full.
CONTROL OVER COLLATERAL; SALE OF COLLATERAL
If an Indenture Default is continuing, subject to certain conditions, the
Loan Trustee under such Indenture will be directed by the applicable
"Controlling Party" in exercising remedies under such Indenture, including
accelerating the applicable Equipment Notes or foreclosing the lien on the
Aircraft securing such
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Equipment Notes. See "Description of the Certificates--Indenture Defaults and
Certain Rights Upon an Indenture Default".
The Controlling Party with respect to any Prior Series will be:
-- The Class A Trustee of such Prior Series.
-- Upon payment of final distributions to the holders of the Class A
Certificates of such Prior Series, the Class B Trustee of such Prior
Series.
-- Upon payment of final distributions to the holders of the Class B
Certificates of such Prior Series, the Class C Trustee of such Prior
Series.
-- Upon payment of final distributions to the holders of the Class C
Certificates of such Prior Series, the Class D Trustee.
-- Under certain circumstances, and notwithstanding the foregoing, the
liquidity provider with respect to such Prior Series with the largest
amount owed to it.
During the continuation of any Indenture Default under an Indenture covered
by a Prior Series, the Controlling Party for such Prior Series may direct the
acceleration and sale of the Equipment Notes issued under such Indenture,
subject to certain limitations. See "Description of the Intercreditor
Agreements--Intercreditor Rights--Sale of Equipment Notes or Aircraft". The
market for Equipment Notes during any Indenture Default may be very limited, and
there can be no assurance as to the price at which they could be sold. If the
Controlling Party directs the sale of any Equipment Notes for less than their
outstanding principal amount, the Class D Certificateholders will receive a
smaller amount of principal distributions than anticipated and will not have any
claim for the shortfall against Continental or any Trustee.
RATINGS OF THE CLASS D CERTIFICATES
It is a condition to the issuance of the Class D Certificates that they be
rated not lower than by Moody's and not lower than by Standard &
Poor's. The issuance of the Class D Certificates is also subject to receipt of
written confirmation from Moody's and Standard & Poor's that the terms and the
proposed issuance of the Class D Certificates and the Series D Equipment Notes
will not result in a withdrawal, suspension or downgrading of the ratings of the
Class A Certificates, the Class B Certificates or the Class C Certificates of
any Prior Series. A rating is not a recommendation to purchase, hold or sell
Certificates, since such rating does not address market price or suitability for
a particular investor. A rating may not remain for any given period of time and
may be lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future (including the downgrading of Continental or the
Depositary) so warrant.
The rating of the Class D Certificates is based primarily on the default
risk of the Equipment Notes and the Depositary, the collateral value provided by
the Aircraft relating to the Equipment Notes and the subordination provisions
applicable to the Certificates. Standard & Poor's has indicated that its rating
applies to a unit consisting of Class D Certificates representing the Trust
Property and Escrow Receipts initially representing undivided interests in
certain rights to $5,995,476 of Deposits. Amounts deposited under the Escrow
Agreements are not property of Continental and are not entitled to the benefits
of Section 1110 of the U.S. Bankruptcy Code. Neither the Class D Certificates
nor the Escrow Receipts may be separately assigned or transferred.
RETURN OF ESCROWED FUNDS
Under certain circumstances, all of the funds held in escrow as Deposits
may not be used to purchase Series D Equipment Notes by the deadline established
for purposes of this offering. See "Description of the Deposit Agreement--Unused
Deposits". If any funds remain as Deposits after such deadline, they will be
withdrawn by the Escrow Agent and distributed, with accrued and unpaid interest
but without any premium, to the Class D Certificateholders.
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LIMITED ABILITY TO RESELL THE CLASS D CERTIFICATES
Prior to this offering, there has been no public market for the Class D
Certificates. Neither Continental nor any Trust intends to apply for listing of
the Class D Certificates on any securities exchange or otherwise. The
Underwriters may assist in resales of the Class D Certificates, but they are not
required to do so. A secondary market for the Class D Certificates may not
develop. If a secondary market does develop, it might not continue or it might
not be sufficiently liquid to allow you to resell any of your Class D
Certificates.
RECENT DEVELOPMENTS
PROPOSED INITIAL PUBLIC OFFERING OF CONTINENTAL EXPRESS
Continental has announced that its wholly owned subsidiary, ExpressJet
Holdings, Inc. ("Holdings"), filed a registration statement with the Commission
for a proposed initial public offering of its Class A common stock. Holdings
wholly owns ExpressJet Airlines, Inc., the regional airline that operates as
Continental Express ("Express"). Such registration statement has not yet become
effective. If such offering is completed, Continental intends to distribute its
remaining shares of Holdings as a dividend to Continental's stockholders soon
after six months have elapsed from the closing of such offering. This
distribution will be subject to receipt of a favorable ruling from the Internal
Revenue Service that it will not be taxable to Continental or its stockholders.
In connection with the planned offering, Continental intends to prepay a
portion of its outstanding indebtedness.
Continental has filed a Current Report on Form 8-K with the Commission that
includes unaudited pro forma consolidated condensed financial statements that
give effect to Continental's planned distribution of its shares of Holdings, the
expected prepayment by Continental of $150 million of its debt in connection
with the planned offering and the capacity purchase agreement between
Continental and Express that became effective January 1, 2001. The Current
Report has been incorporated by reference in this Prospectus Supplement. See
"Incorporation of Certain Documents by Reference". Based on these pro forma
financial statements, if these transactions had been completed as of January 1,
2000, Continental's net income for the year 2000 would have been $318 million,
rather than $342 million as reported. Similarly, if these transactions had been
completed as of January 1, 2001, for the three months ended March 31, 2001,
Continental would have broken even on a net income basis, as compared to net
income of $9 million as reported. These pro forma financial statements have been
prepared for illustrative purposes only, are subject to certain assumptions and
limitations stated therein and are not necessarily indicative of the operating
results or financial position that would have occurred if the transactions had
been consummated at the assumed dates, nor are they necessarily indicative of
future results of operations. The pro forma financial statements should be read
in conjunction with Continental's audited historical financial statements and
the related notes thereto and the other information about Continental filed with
the Commission.
Consummation of the proposed offering and related distribution are subject
to a number of conditions. No assurance can be given that either the offering or
the distribution to Continental's stockholders will be completed.
USE OF PROCEEDS
The proceeds from the sale of the Class D Certificates applied to acquire
Series D Equipment Notes on the Issuance Date will be used by Continental for
general corporate purposes, including working capital and other liquidity
requirements. To the extent the proceeds are not so used on the Issuance Date,
they will be deposited with the Depositary on behalf of the Escrow Agent for the
benefit of the Class D Certificateholders. Such Deposits thereafter are expected
to be withdrawn to acquire Series D Equipment Notes, and such proceeds will be
used by Continental to finance its acquisition of four new Boeing aircraft.
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THE COMPANY
Continental Airlines, Inc. ("Continental" or the "Company") is a major
United States air carrier engaged in the business of transporting passengers,
cargo and mail. Continental is the fifth largest United States airline (as
measured by revenue passenger miles in 2000) and, together with its wholly owned
subsidiaries, Express and Continental Micronesia, Inc. ("CMI"), serves 227
airports worldwide. As of June 30, 2001, Continental flew to 132 domestic and 95
international destinations and offered additional connecting service through
alliances with domestic and foreign carriers. Continental directly serves 17
European cities, 8 South American cities, Tokyo, Hong Kong and Tel Aviv and is
one of the leading airlines providing service to Mexico and Central America,
serving more destinations there than any other United States airline. Through
its Guam hub, CMI provides extensive service in the western Pacific, including
service to more Japanese cities than any other United States carrier. The
Company's executive offices are located at 1600 Smith Street, Houston, Texas
77002.
DOMESTIC OPERATIONS
Continental operates its domestic route system primarily through its hubs
at Newark International Airport ("Newark"), George Bush Intercontinental Airport
("Bush Intercontinental") in Houston and Hopkins International Airport ("Hopkins
International") in Cleveland. The Company's hub system allows it to transport
passengers between a large number of destinations with substantially more
frequent service than if each route were served directly. The hub system also
allows Continental to add service to a new destination from a large number of
cities using only one or a limited number of aircraft. As of June 30, 2001,
Continental operated 56% of the average daily jet departures from Newark, 78% of
the average daily jet departures from Bush Intercontinental, and 51% of the
average daily jet departures from Hopkins International (in each case excluding
regional jets). Each of Continental's domestic hubs is located in a large
business and population center, contributing to a high volume of "origin and
destination" traffic.
CONTINENTAL EXPRESS
Continental's jet service at each of its domestic hub cities is coordinated
with Express, which operates new-generation regional jets and turboprop aircraft
under the name "Continental Express". The regional jets average two years of age
and seat either 37 or 50 passengers. The turboprop aircraft average
approximately 10 years of age and seat 46 or fewer passengers. Continental has
announced a planned initial public offering and subsequent spin-off of its
ownership interest in Express, subject to a number of conditions. See "Recent
Developments--Proposed Initial Public Offering of Continental Express".
As of June 30, 2001, Express served 42 destinations from Newark (39 by
regional jet), 64 destinations from Bush Intercontinental (47 by regional jet)
and 59 destinations from Hopkins International (44 by regional jet). In
addition, commuter feed traffic is currently provided by other code-sharing
partners.
Continental believes Express's regional jet and turboprop operations
complement Continental's jet operations by allowing more frequent service to
small cities than could be provided economically with conventional jet aircraft
and by carrying traffic that connects onto Continental's jets. In many cases,
Express (and Continental) compete for such connecting traffic with commuter
airlines owned by or affiliated with other major airlines operating out of the
same or other cities. Continental believes that Express's new regional jets
provide greater comfort and enjoy better customer acceptance than its turboprop
aircraft. The regional jets also allow Express to serve certain routes that
cannot be served by turboprop aircraft. Continental anticipates that Express's
fleet will be entirely comprised of regional jets by 2004.
DOMESTIC CARRIER ALLIANCES
Continental has entered into and continues to develop alliances with
domestic carriers. In 1998, the Company entered into a long-term global alliance
with Northwest Airlines, Inc. ("Northwest Airlines"). Contemporaneously with the
commencement of the Northwest Alliance, Northwest Airlines Corporation
("Northwest") purchased from a stockholder of the Company approximately 8.7
million shares of Class A common stock, par value $.01 per share ("Class A
common stock"), of the Company. On January 22, 2001,
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the Company repurchased approximately 6.7 million of such shares for $450
million, and reclassified all issued shares of Class A common stock into Class B
common stock, par value $.01 per share ("Class B common stock"). At the same
time, Continental and Northwest Airlines extended the term of the Northwest
Alliance through 2025, subject to earlier termination by either carrier in the
event of certain changes in control of either Northwest Airlines or Continental.
The Northwest Alliance provides that each carrier will place its code on a large
number of the flights of the other and includes reciprocity of frequent flyer
programs and executive lounge access. Significant other joint marketing
activities are being undertaken, while preserving the separate identities of the
carriers. Northwest Airlines and Continental have also begun to enter into joint
contracts with major corporations and travel agents with the objective of
creating access to a broader product line encompassing the route systems of both
carriers. Continental has also entered into agreements to code share with
certain Northwest Airlines regional affiliates.
Continental also has domestic code-sharing agreements with America West
Airlines, Inc., Gulfstream International Airlines, Inc. ("Gulfstream"), Mesaba
Aviation, Inc., Hawaiian Airlines, Inc., Alaska Airlines, Inc., Horizon
Airlines, Inc., Champlain Enterprises, Inc. (doing business as CommutAir) and
American Eagle Airlines, Inc. Continental also owns 28% of the common equity of
Gulfstream.
INTERNATIONAL OPERATIONS
Continental directly serves destinations throughout Europe, Canada, Mexico,
Central and South America and the Caribbean as well as Tokyo, Hong Kong and Tel
Aviv and has extensive operations in the western Pacific conducted by CMI. As
measured by available seat miles for 2000, approximately 38% of Continental's
jet operations, including CMI, were dedicated to international traffic. As of
June 30, 2001, the Company offered 161 weekly departures to 17 European cities
and marketed service to three other cities in Europe through code-sharing
agreements. Continental is one of the leading airlines providing service to
Mexico and Central America, serving more destinations there than any other
United States airline.
Continental's Newark hub is a significant international gateway. From
Newark, at June 30, 2001 Continental served 17 European cities, six Canadian
cities, four Mexican cities, five Central American cities, six South American
cities, 11 Caribbean destinations, Tel Aviv, Tokyo and Hong Kong. In addition,
Continental markets numerous other destinations through code-sharing
arrangements with foreign carriers.
The Company's Houston hub is the focus of its operations in Mexico and
Central America. As of June 30, 2001, Continental flew from Houston to 21 cities
in Mexico, every country in Central America, six cities in South America, two
Caribbean destinations, three cities in Canada, two cities in Europe and Tokyo.
Of the 21 cities in Mexico to which Continental flies from Houston, ten cities
are served by regional jets operated by Express.
Continental flies to London, Montreal, Toronto, San Juan and Cancun from
its hub in Cleveland.
CONTINENTAL MICRONESIA
CMI is a United States-certificated international air carrier engaged in
the business of transporting passengers, cargo and mail in the western Pacific.
From its hub operations based on the island of Guam, CMI provides service to
eight cities in Japan, more than any other United States carrier, as well as
other Pacific Rim destinations, including Taiwan, the Philippines, Hong Kong,
Australia and Indonesia. Service to these Japanese cities and certain other
Pacific Rim destinations is subject to a variety of regulatory restrictions
limiting the ability of other carriers to service these markets.
CMI is the principal air carrier in the Micronesian Islands, where it
pioneered scheduled air service in 1968. CMI's route system is linked to the
United States market through Tokyo and Honolulu, each of which CMI serves
non-stop from Guam. CMI and Continental also maintain a code-sharing agreement
and coordinate schedules on certain flights from the west coast of the United
States to Honolulu, and from Honolulu to Guam, to facilitate travel from the
United States into CMI's route system.
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FOREIGN CARRIER ALLIANCES
Continental seeks to develop international alliance relationships that
complement Continental's own flying and permit expanded service through its hubs
to major international destinations. International alliances assist Continental
in the development of its route structure by enabling Continental to offer more
frequencies in a market, by providing passengers connecting service from
Continental's international flights to other destinations beyond an alliance
partner's hub, or by expanding the product line that Continental may offer in a
foreign destination.
Continental has implemented international code-sharing agreements with Air
China, EVA Airways Corporation, an airline based in Taiwan, Virgin Atlantic
Airways ("Virgin"), Societe Air France ("Air France"), and Compania Panamena de
Aviacion, S.A., 49% of the common equity of which is owned by Continental.
Certain of Continental's code-sharing agreements involve block-space
arrangements (pursuant to which the carriers agree to share capacity and bear
economic risk for blocks of seats on certain routes). Continental and Air France
purchase blocks of seats on each other's flights between Houston and Newark and
Paris. Continental and Virgin exchange blocks of seats on each other's flights
between Newark and London, and Continental purchases blocks of seats on eight
other routes flown by Virgin between the United Kingdom and the United States.
Continental and Air France are continuing to discuss terminating certain
portions of their alliance.
On June 5, 2001, Continental formed a marketing alliance with Transbrasil
to include codesharing on each other's flights, subject to government approval.
Continental will place its code on Transbrasil flights operating between Sao
Paulo and Orlando and Sao Paulo and Miami and to several other cities in Brazil
beyond Sao Paulo. Transbrasil will codeshare on Continental's daily flights
between Sao Paulo and Rio de Janeiro to both Houston Intercontinental and Newark
with continuing codeshare service to over 27 U.S. destinations served by
Continental.
Most of Continental's larger U.S. competitors are members of global airline
groups involving multi-carrier marketing activities. Continental does not
currently have an agreement to join such a group, and it is likely that any
group formed by Continental in the future would be smaller than some of these
groups.
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DESCRIPTION OF THE CERTIFICATES
The following summary describes all material terms of the Class D
Certificates and supplements (or, to the extent inconsistent therewith,
replaces) the description of the general terms and provisions of the
Certificates set forth in the Prospectus accompanying this Prospectus Supplement
(the "Prospectus"). The summary does not purport to be complete and is qualified
in its entirety by reference to all of the provisions of the Basic Agreement,
which was filed with the Securities and Exchange Commission (the "Commission")
as an exhibit to the Company's Current Report on Form 8-K dated September 25,
1997, and to all of the provisions of the Certificates, the Trust Supplements
for the Trusts, the Deposit Agreement, the Escrow Agreement, the Intercreditor
Agreements and the trust supplement applicable to the Successor Trust, each of
which was filed as an exhibit to a Current Report on Form 8-K filed by
Continental with the Commission or, if executed for this offering (the
"Offering"), will be so filed. The references to Sections in parentheses in the
following summary are to the relevant Sections of the Basic Agreement unless
otherwise indicated.
GENERAL
Under the terms of seven series of Continental pass through certificates
previously issued, we are entitled to sell Series D Equipment Notes secured by
aircraft financed under each such prior series. The "Prior Series" are
Continental pass through certificates previously issued and designated as Series
1997-4, 1998-1, 1998-3, 1999-1, 1999-2, 2000-1 and 2000-2. Accordingly, we have
arranged the sale of the Class D Certificates so that we may sell such Series D
Equipment Notes.
Each Class D Pass Through Certificate will represent a fractional undivided
interest in the Class D Continental Airlines 2001-2 Pass Through Trust (the
"Class D Trust"). Each Class A Certificate represents a fractional undivided
interest in one of the Continental Airlines 1997-4A, 1998-1A, 1998-3A-1,
1998-3A-2, 1999-1A, 1999-2A-1, 1999-2A-2, 2000-1A-1, 2000-1A-2, 2000-2A-1 or
2000-2A-2 Pass Through Trust (the "Class A Trusts"). Each Class B Certificate
represents a fractional undivided interest in one of the Continental Airlines
1997-4B, 1998-1B, 1998-3B, 1999-1B, 1999-2B, 2000-1B or 2000-2B Pass Through
Trust (the "Class B Trusts"). Each Class C Certificate represents a fractional
undivided interest in one of the Continental Airlines 1997-4C, 1998-1C,
1998-3C-1, 1998-3C-2, 1999-1C, 1999-2C-1, 1999-2C-2, 2000-1C-1, 2000-1C-2 or
2000-2C Pass Through Trust (the "Class C Trusts" and, collectively with the
Class A Trusts, the Class B Trusts and the Class D Trust, the "Trusts").
The Class D Trust will be formed pursuant to a pass through trust agreement
between Continental and Wilmington Trust Company, as trustee (the "Trustee"),
dated as of September 25, 1997 (the "Basic Agreement"), and a separate
supplement thereto, and each of the other Trusts were formed pursuant to the
Basic Agreement and a separate supplement thereto (each, a "Trust Supplement"
and, together with the Basic Agreement, collectively, the "Pass Through Trust
Agreements") relating to such Trusts between Continental and the Trustee, as
trustee under each Trust. The Pass Through Certificates issued by the Class A
Trusts, the Class B Trusts, the Class C Trusts and the Class D Trust are
referred to herein, respectively, as the "Class A Certificates", the "Class B
Certificates", the "Class C Certificates" and the "Class D Certificates" and,
collectively, as the "Certificates".
Each Class D Certificate will represent a fractional undivided interest in
the Trust created by the Basic Agreement and the applicable Trust Supplement.
(Section 2.01) The Trust Property of the Class D Trust (the "Trust Property")
will consist of:
-- Series D Equipment Notes issued on a recourse basis by Continental in
connection with each separate secured loan transaction with respect
to each Owned Aircraft, subject to the Intercreditor Agreement of the
Prior Series under which such Owned Aircraft was or will be financed.
-- The rights of the Class D Trust to acquire Equipment Notes under the
Note Purchase Agreement.
-- The rights of the Class D Trust under the Escrow Agreement to request
the Escrow Agent to withdraw from the Depositary funds sufficient to
enable such Trust to purchase Equipment Notes on the delivery of an
Owned Aircraft during the Delivery Period.
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-- The rights of the Class D Trust under the Intercreditor Agreement for
each Prior Series (including all monies receivable in respect of such
rights).
-- Funds from time to time deposited with the Class D Trustee in
accounts relating to the Class D Trust.
The Class D Certificates will be issued in fully registered form only and
will be subject to the provisions described below under "--Book-Entry; Delivery
and Form". Class D Certificates will be issued only in minimum denominations of
$1,000 or integral multiples thereof, except that one Class D Certificate may be
issued in a different denomination. (Section 3.01)
The Class D Certificates represent interests in the Class D Trust, and all
payments and distributions thereon will be made only from the Trust Property of
the Class D Trust. (Section 3.09) The Certificates do not represent an interest
in or obligation of Continental, the Trustees, any of the Loan Trustees or any
affiliate of any thereof.
Pursuant to the Escrow Agreement, the Certificateholders of the Class D
Trust as holders of the Escrow Receipts affixed to each Class D Certificate are
entitled to certain rights with respect to the Deposits relating to the Class D
Trust. Accordingly, any transfer of a Class D Certificate will have the effect
of transferring the corresponding rights with respect to the Deposits, and
rights with respect to the Deposits may not be separately transferred by holders
of the Class D Certificates (the "Certificateholders"). Rights with respect to
the Deposits and the Escrow Agreement, except for the right to request
withdrawals for the purchase of Series D Equipment Notes, will not constitute
Trust Property of the Class D Trust.
SUBORDINATION
The subordination terms of the Certificates vary depending upon whether a
"Triggering Event" has occurred under the applicable Prior Series. "Triggering
Event" means, with respect to any Prior Series, (x) the occurrence of an
Indenture Default under all Indentures relating to such Prior Series resulting
in a PTC Event of Default with respect to the most senior Class of Certificates
of such Prior Series then outstanding, (y) the acceleration of all of the
outstanding Equipment Notes held for Trusts under such Prior Series (provided,
in the case of the Series 2000-2, that during the Delivery Period the aggregate
principal amount thereof exceeds $300 million) or (z) certain bankruptcy or
insolvency events involving Continental.
The Series D Equipment Notes held for the Class D Trust will be secured
only by Owned Aircraft. However, the Trusts for the Prior Series also hold (or
will hold) Equipment Notes secured by Leased Aircraft. Under the Intercreditor
Agreement applicable to each Prior Series, payments from all Equipment Notes
held for the benefit of such Certificates, whether secured by Owned Aircraft or
Leased Aircraft, will be distributed to the Trustees for the Certificates of
such series before being distributed to the Class D Trustee. Accordingly, the
payments required on all Equipment Notes held for each Prior Series should be
considered in evaluating the obligations that are senior to the Class D
Certificates under such series.
BEFORE A TRIGGERING EVENT
On each Class D Regular Distribution Date and each Regular Distribution
Date or Special Distribution Date for a Prior Series (each, a "Distribution
Date"), so long as no Triggering Event with respect to such Prior Series shall
have occurred (whether or not continuing), all payments received by the
Subordination Agent for such Prior Series in respect of Senior Equipment Notes
held for Trusts under such Prior Series and Series D Equipment Notes issued
under Owned Aircraft Indentures relating to such Prior Series and certain other
payments under the related Indenture will be distributed under the Intercreditor
Agreement for such Prior Series in the following order:
-- To the Liquidity Provider for such Prior Series to the extent
required to pay the Liquidity Expenses for such Prior Series.
-- To the Liquidity Provider for such Prior Series to the extent
required to pay interest accrued on the Liquidity Obligations for
such Prior Series.
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-- To the Liquidity Provider for such Prior Series to the extent
required to pay or reimburse such Liquidity Provider for certain
Liquidity Obligations for such Prior Series (other than amounts
payable pursuant to the two preceding clauses) and, if applicable, to
replenish each Cash Collateral Account for such Prior Series up to
the Required Amount for such Prior Series.
-- To the trustee for the Class A Trust (the "Class A Trustee") of such
Prior Series to the extent required to pay Expected Distributions on
the Class A Certificates of such Prior Series.
-- To the trustee for the Class B Trust (the "Class B Trustee") of such
Prior Series to the extent required to pay Expected Distributions on
the Class B Certificates of such Prior Series.
-- To the trustee for the Class C Trust (the "Class C Trustee") of such
Prior Series to the extent required to pay Expected Distributions on
the Class C Certificates of such Prior Series.
-- To the trustee for the Class D Trust (the "Class D Trustee") to the
extent required to pay Expected Distributions on the Class D
Certificates.
-- To the Subordination Agent for such Prior Series and each Trustee of
such Prior Series and the Class D Trustee for the payment of certain
fees and expenses.
Notwithstanding the foregoing, on any Class D Regular Distribution Date
that is not a Special Distribution Date, no distributions will be made to the
Class A Trustee, the Class B Trustee or the Class C Trustee in respect of
Expected Distributions unless on the immediately preceding Distribution Date all
amounts payable to them in respect of Expected Distributions were not
distributed in full. In addition, on any Regular Distribution Date that is not a
Class D Regular Distribution Date or a Special Distribution Date, no
distributions will be made to the Class D Trustee in respect of Expected
Distributions unless on the immediately preceding Distribution Date all amounts
payable to the Class D Trustee in respect of Expected Distributions were not
distributed in full.
AFTER A TRIGGERING EVENT
Upon the occurrence of a Triggering Event with respect to a Prior Series
and at all times thereafter, all payments received by the Subordination Agent
for such Prior Series in respect of the Senior Equipment Notes held for Trusts
under such Prior Series and Series D Equipment Notes issued under Owned Aircraft
Indentures relating to such Prior Series and certain other payments will be
distributed under the Intercreditor Agreement for such Prior Series in the
following order:
-- To the Subordination Agent for such Prior Series, any Trustee of such
Prior Series, the Class D Trustee, any Certificateholder of such
Prior Series, any Class D Certificateholder and the Liquidity
Provider for such Prior Series to the extent required to pay
Administration Expenses of such Prior Series.
-- To the Liquidity Provider for such Prior Series to the extent
required to pay the Liquidity Expenses for such Prior Series.
-- To the Liquidity Provider for such Prior Series to the extent
required to pay interest accrued on the Liquidity Obligations for
such Prior Series.
-- To the Liquidity Provider for such Prior Series to the extent
required to pay the outstanding amount of all Liquidity Obligations
for such Prior Series and, if applicable, with respect to any
particular Liquidity Facility under such Prior Series, unless (x)
less than 65% of the aggregate outstanding principal amount of all
Equipment Notes under such Prior Series are Performing Equipment
Notes and a Liquidity Event of Default shall have occurred and is
continuing under such Liquidity Facility or (y) a Final Drawing shall
have occurred under such Liquidity Facility, to replenish the Cash
Collateral Account with respect to such Liquidity Facility up to the
Required Amount for the related Class of Certificates (less the
amount of any repayments of Interest Drawings under such Liquidity
Facility while sub-clause (x) of this clause is applicable).
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-- To the Subordination Agent for such Prior Series, any Trustee of such
Prior Series, the Class D Trustee, any Certificateholder of such
Prior Series or any Class D Certificateholder to the extent required
to pay certain fees, taxes, charges and other amounts payable.
-- To the Class A Trustee for such Prior Series to the extent required
to pay Adjusted Expected Distributions on the Class A Certificates of
such Prior Series.
-- To the Class B Trustee for such Prior Series to the extent required
to pay Adjusted Expected Distributions on the Class B Certificates
for such Prior Series.
-- To the Class C Trustee for such Prior Series to the extent required
to pay Adjusted Expected Distributions on the Class C Certificates
for such Prior Series.
-- To the Class D Trustee to the extent required to pay Adjusted
Expected Distributions on the Class D Certificates.
For purposes of calculating Expected Distributions or Adjusted Expected
Distributions with respect to the Certificates of any Trust, any premium paid on
the Equipment Notes held in such Trust that has not been distributed to the
Certificateholders of such Trust (other than such premium or a portion thereof
applied to the payment of interest on the Certificates of such Trust or the
reduction of the Pool Balance of such Trust) shall be added to the amount of
Expected Distributions or Adjusted Expected Distributions.
Payments in respect of the Deposits and monies drawn under a Liquidity
Facility will not be subject to the subordination provisions of any
Intercreditor Agreement.
PAYMENTS AND DISTRIBUTIONS
Payments of interest on the Deposits with respect to the Class D Trust and
payments of principal, premium (if any) and interest on the Series D Equipment
Notes or with respect to other Trust Property held in the Class D Trust will be
distributed by the Paying Agent (in the case of the Deposits) or by the Class D
Trustee (in the case of Trust Property of such Trust) to Class D
Certificateholders on the date receipt of such payment is confirmed, except in
the case of certain types of Special Payments.
The Deposits held with respect to the Class D Trust and the Series D
Equipment Notes held in the Class D Trust will accrue interest at the rate per
annum for the Class D Certificates set forth on the cover page of this
Prospectus Supplement (the "Stated Interest Rate" for the Class D Certificates).
Interest will be payable on June 1 and December 1 of each year, commencing on
December 1, 2001 (or, in the case of Series D Equipment Notes issued after such
date, commencing with the first such date to occur after initial issuance
thereof). Such interest payments will be distributed to the Class D
Certificateholders on each such date until the final Class D Regular
Distribution Date, subject in the case of payments on the Series D Equipment
Notes to the applicable Intercreditor Agreement. Interest is calculated on the
basis of a 360-day year consisting of twelve 30-day months.
The entire principal amount of the Series D Equipment Notes is scheduled
for payment on December 1, 2006.
Scheduled payments of interest on the Deposits and of interest or principal
on the Series D Equipment Notes are herein referred to as "Scheduled Payments",
June 1 and December 1 of each year are herein referred to as "Class D Regular
Distribution Dates". See "Description of the Equipment Notes--Principal and
Interest Payments". The "Final Maturity Date" for the Class D Certificates is
December 1, 2006. The following table sets forth information regarding the
interest rate (the "Stated Interest Rate"), regular
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distribution dates (together with the Class D Regular Distribution Dates, the
"Regular Distribution Dates"), final expected distribution date and Final
Maturity Date of each Class of Certificates of the Prior Series.
CLASS OF
CERTIFICATES INTEREST RATE REGULAR DISTRIBUTION DATES FINAL EXPECTED DISTRIBUTION DATE FINAL MATURITY DATE
------------ ------------- -------------------------- -------------------------------- -------------------
1997-4A 6.900% January 2 and July 2 January 2, 2018 July 2, 2019
1997-4B 6.900 January 2 and July 2 January 2, 2017 July 2, 2018
1997-4C 6.800 January 2 and July 2 July 2, 2007 January 2, 2009
1998-1A 6.648 March 15 and September 15 September 15, 2017 March 15, 2019
1998-1B 6.748 March 15 and September 15 March 15, 2017 September 15, 2018
1998-1C 6.541 March 15 and September 15 March 15, 2008 September 15, 2009
1998-3A-1 6.820 May 1 and November 1 May 1, 2018 November 1, 2019
1998-3A-2 6.320 May 1 and November 1 November 1, 2008 May 1, 2010
1998-3B 7.020 May 1 and November 1 May 1, 2017 November 1, 2018
1998-3C-1 7.080 May 1 and November 1 November 1, 2004 May 1, 2006
1998-3C-2 7.250 May 1 and November 1 November 1, 2005 May 1, 2007
1999-1A 6.545 February 2 and August 2 February 2, 2019 August 2, 2020
1999-1B 6.795 February 2 and August 2 August 2, 2018 February 2, 2020
1999-1C 6.954 February 2 and August 2 August 2, 2009 February 2, 2011
1999-2A-1 7.256 March 15 and September 15 March 15, 2020 September 15, 2021
1999-2A-2 7.056 March 15 and September 15 September 15, 2009 March 15, 2011
1999-2B 7.566 March 15 and September 15 March 15, 2020 September 15, 2021
1999-2C-1 7.730 March 15 and September 15 March 15, 2011 September 15, 2012
1999-2C-2 7.434 March 15 and September 15 September 15, 2004 March 15, 2006
2000-1A-1 8.048 May 1 and November 1 November 1, 2020 May 1, 2022
2000-1A-2 7.918 May 1 and November 1 May 1, 2010 November 1, 2011
2000-1B 8.388 May 1 and November 1 November 1, 2020 May 1, 2022
2000-1C-1 8.499 May 1 and November 1 May 1, 2011 November 1, 2012
2000-1C-2 8.321 May 1 and November 1 May 1, 2005 November 1, 2006
2000-2A-1 7.707 April 2 and October 2 April 2, 2021 October 2, 2022
2000-2A-2 7.487 April 2 and October 2 October 2, 2010 April 2, 2012
2000-2B 8.307 April 2 and October 2 April 2, 2018 October 2, 2019
2000-2C 8.312 April 2 and October 2 April 2, 2011 October 2, 2012
The Paying Agent will distribute on each Class D Regular Distribution Date
to the Class D Certificateholders all Scheduled Payments received in respect of
the Deposits, the receipt of which is confirmed by the Paying Agent on such
Class D Regular Distribution Date. The Class D Trustee will distribute on each
Class D Regular Distribution Date to the Class D Certificateholders all
Scheduled Payments received in respect of Series D Equipment Notes, the receipt
of which is confirmed by the Class D Trustee on such Class D Regular
Distribution Date, subject to the Intercreditor Agreement applicable to each
such Series D Equipment Notes. Each Class D Certificateholder will be entitled
to receive its proportionate share, based upon its fractional interest in the
Class D Trust, of any distribution in respect of Scheduled Payments or interest
on the Deposits and, subject to each applicable Intercreditor Agreement, of
principal or interest on Series D Equipment Notes held on behalf of such Trust.
Each such distribution of Scheduled Payments will be made by the applicable
Paying Agent or Trustee to the Class D Certificateholders of record on the
record date applicable to such Scheduled Payment subject to certain exceptions.
(Sections 4.01 and 4.02; Escrow Agreement, Section 2.03) If a Scheduled Payment
is not received by the Paying Agent or the Class D Trustee on a Class D Regular
Distribution Date but is received within five days thereafter, it will be
distributed on the date received to such holders of record, subject to the
applicable Intercreditor Agreement. If it is received after such five-day
period, it will be treated as a Special Payment and distributed as described
below.
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Any payment in respect of, or any proceeds of, any Equipment Note, Trust
Indenture Estate under (and as defined in) any Leased Aircraft Indenture or
Collateral under (and as defined in) any Owned Aircraft Indenture other than a
Scheduled Payment (each, a "Special Payment") will be distributed on, in the
case of an early redemption or a purchase of any Equipment Note, the date of
such early redemption or purchase (which shall be a Business Day), and otherwise
on the Business Day specified for distribution of such Special Payment pursuant
to a notice delivered by each Trustee under the applicable Prior Series and the
Class D Trustee as soon as practicable after such Trustee has received funds for
such Special Payment (each, a "Special Distribution Date" with respect to the
applicable Prior Series). Any such distribution will be subject to each
applicable Intercreditor Agreement. Any unused Deposits to be distributed after
the Delivery Period Termination Date or the occurrence of a Triggering Event,
together with accrued and unpaid interest thereon (each, also a "Special
Payment"), will be distributed on a date 25 days after the Paying Agent has
received notice of the event requiring such distribution (also, a "Special
Distribution Date" with respect to the applicable Prior Series or the Class D
Certificates, as the case may be). However, if such date is within ten days
before or after a Regular Distribution Date, such Special Payment shall be made
on such Regular Distribution Date.
The Paying Agent, in the case of the Deposits, and the Class D Trustee, in
the case of Trust Property, will mail a notice to the Class D Certificateholders
stating the scheduled Special Distribution Date, the related record date, the
amount of the Special Payment and the reason for the Special Payment. In the
case of a redemption or purchase of the Series D Equipment Notes held in the
Class D Trust or any distribution of unused Deposits after the Delivery Period
Termination Date or the occurrence of a Triggering Event, such notice will be
mailed not less than 15 days prior to the date such Special Payment is scheduled
to be distributed, and in the case of any other Special Payment, such notice
will be mailed as soon as practicable after the Class D Trustee has confirmed
that it has received funds for such Special Payment. (Section 4.02(c); Class D
Trust Supplement, Section 3.01; Escrow Agreement, Sections 2.03 and 2.06) Each
distribution of a Special Payment, other than a final distribution, on a Special
Distribution Date will be made by the Paying Agent or the Class D Trustee, as
applicable, to the Class D Certificateholders of record on the record date
applicable to such Special Payment. (Section 4.02(b); Escrow Agreement, Section
2.03) See "--Indenture Defaults and Certain Rights Upon an Indenture Default"
and "Description of the Equipment Notes--Redemption".
The Pass Through Trust Agreement relating to the Class D Trust (the "Class
D Pass Through Trust Agreement") requires that the Class D Trustee establish and
maintain, for the Class D Trust and for the benefit of the Class D
Certificateholders, one or more non-interest bearing accounts (the "Certificate
Account") for the deposit of payments representing Scheduled Payments received
by such Trustee. The Class D Pass Through Trust Agreement requires that the
Class D Trustee establish and maintain, for the Class D Trust and for the
benefit of the Class D Certificateholders, one or more accounts (the "Special
Payments Account") for the deposit of payments representing Special Payments
received by such Trustee, which shall be non-interest bearing except in certain
circumstances where such Trustee may invest amounts in such account in certain
permitted investments. Pursuant to the terms of the Class D Pass Through Trust
Agreement, the Class D Trustee is required to deposit any Scheduled Payments
relating to the Class D Trust received by it in the Certificate Account and to
deposit any Special Payments so received by it in the Special Payments Account.
(Section 4.01) All amounts so deposited will be distributed by the Class D
Trustee on a Class D Regular Distribution Date or a Special Distribution Date,
as appropriate. (Section 4.02)
The Escrow Agreement requires that the Paying Agent establish and maintain,
for the benefit of the Receiptholders, one or more accounts (the "Paying Agent
Account"), which shall be non-interest bearing. Pursuant to the terms of the
Escrow Agreement, the Paying Agent is required to deposit interest on Deposits
relating to the Class D Trust and any unused Deposits withdrawn by the Escrow
Agent in the related Paying Agent Account. All amounts so deposited will be
distributed by the Paying Agent on a Class D Regular Distribution Date or
Special Distribution Date, as appropriate.
The final distribution for the Class D Trust will be made only upon
presentation and surrender of the Class D Certificates at the office or agency
of the Class D Trustee specified in the notice given by the Class D Trustee of
such final distribution. The Class D Trustee will mail such notice of the final
distribution to the
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Class D Certificateholders, specifying the date set for such final distribution
and the amount of such distribution. (Class D Trust Supplement, Section 7.01)
See "--Termination of the Trust" below. Distributions in respect of Class D
Certificates issued in global form will be made as described in "--Book Entry;
Delivery and Form" below.
If any Distribution Date is a Saturday, Sunday or other day on which
commercial banks are authorized or required to close in New York, New York,
Houston, Texas, Wilmington, Delaware, or Salt Lake City, Utah (any other day
being a "Business Day"), distributions scheduled to be made on such Regular
Distribution Date or Special Distribution Date will be made on the next
succeeding Business Day without additional interest.
POOL FACTORS
The "Pool Balance" for each Trust or for the Certificates issued by any
Trust indicates, as of any date, the original aggregate face amount of such
Certificates of such Trust less the aggregate amount of all payments made in
respect of the Certificates of such Trust or in respect of Deposits relating to
such Trust other than payments made in respect of interest or premium or
reimbursement of any costs or expenses incurred in connection therewith. The
Pool Balance for each Trust or for the Certificates of such Trust as of any
Distribution Date shall be computed after giving effect to any special
distribution with respect to unused Deposits, payment of principal of the
Equipment Notes or payment with respect to other Trust Property held in such
Trust and the distribution thereof to be made on that date. (Trust Supplements,
Section 2.01) See "Intercreditor Agreements--Priority of Distributions" for a
discussion of a different calculation of the Pool Balance of the Class D
Certificates for purposes of determining Expected Distributions and Adjusted
Expected Distributions.
The "Pool Factor" for each Trust as of any Distribution Date is the
quotient (rounded to the seventh decimal place) computed by dividing (i) the
Pool Balance by (ii) the original aggregate face amount of the Certificates of
such Trust. The Pool Factor for each Trust or for the Certificates of such Trust
as of any Distribution Date shall be computed after giving effect to any special
distribution with respect to unused Deposits, payment of principal of the
Equipment Notes or payments with respect to other Trust Property held in such
Trust and the distribution thereof to be made on that date. (Trust Supplements,
Section 2.01) The Pool Factor for each Trust is 1.0000000 on the date of
issuance of the applicable Certificates; thereafter, the Pool Factor for each
Trust will decline as described herein to reflect reductions in the Pool Balance
of such Trust. The amount of a Certificateholder's pro rata share of the Pool
Balance of a Trust can be determined by multiplying the par value of the
holder's Certificate of such Trust by the Pool Factor for such Trust as of the
applicable Distribution Date. Notice of the Pool Factor and the Pool Balance for
each Trust will be mailed to Certificateholders of such Trust on each
Distribution Date. (Trust Supplements, Section 3.01)
The Pool Factor and Pool Balance of the Class D Trust will be recomputed if
there has been an early redemption, or default in the payment of principal or
interest in respect of one or more of the Series D Equipment Notes held in the
Class D Trust, as described in "--Indenture Defaults and Certain Rights Upon an
Indenture Default" and "Description of the Equipment Notes--Redemption", or a
special distribution attributable to unused Deposits after the Delivery Period
Termination Date or the occurrence of a Triggering Event, as described in
"Description of the Deposit Agreement". In the event of any such redemption,
default or special distribution, the Pool Factor and the Pool Balance of the
Class D Trust will be recomputed after giving effect thereto and notice thereof
will be mailed to the Class D Certificateholders promptly after the occurrence
of any such event.
REPORTS TO CERTIFICATEHOLDERS
On each Class D Regular Distribution Date and on each Special Distribution
Date, the Paying Agent and Class D Trustee will include with each distribution
by it of a Scheduled Payment or Special Payment to
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Class D Certificateholders a statement setting forth the following information
(per $1,000 aggregate principal amount of Class D Certificate, except as to the
amounts described in items (a) and (f) below):
(a) The aggregate amount of funds distributed on such Distribution
Date under the Class D Pass Through Trust Agreement and under the Escrow
Agreement, indicating the amount allocable to each source.
(b) The amount of such distribution under the Class D Pass Through
Trust Agreement allocable to principal and the amount allocable to premium,
if any.
(c) The amount of such distribution under the Class D Pass Through
Trust Agreement allocable to interest.
(d) The amount of such distribution under the Escrow Agreement
allocable to interest.
(e) The amount of such distribution under the Escrow Agreement
allocable to unused Deposits, if any.
(f) The Pool Balance and the Pool Factor for the Class D Trust. (Class
D Trust Supplement, Section 3.01(a))
So long as the Class D Certificates are registered in the name of DTC or
its nominee, on the record date prior to each Distribution Date, the Class D
Trustee will request from DTC a securities position listing setting forth the
names of all DTC Participants reflected on DTC's books as holding interests in
the Class D Certificates on such record date. On each Class D Regular
Distribution Date and on each Special Distribution Date, the Paying Agent and
the Class D Trustee will mail to each such DTC Participant the statement
described above and will make available additional copies as requested by such
DTC Participant for forwarding to Certificate Owners. (Class D Trust Supplement,
Section 3.01(a))
In addition, after the end of each calendar year, the Paying Agent and the
Class D Trustee will furnish to each Class D Certificateholder at any time
during the preceding calendar year a report containing the sum of the amounts
determined pursuant to clauses (a), (b), (c), (d) and (e) above for such
calendar year or, in the event such person was a Class D Certificateholder
during only a portion of such calendar year, for the applicable portion of such
calendar year, and such other items as are readily available to the Class D
Trustee and which a Class D Certificateholder shall reasonably request as
necessary for the purpose of such Certificateholder's preparation of its U.S.
federal income tax returns. (Class D Trust Supplement, Section 3.01(b)) Such
report and such other items shall be prepared on the basis of information
supplied to the Class D Trustee by the DTC Participants and shall be delivered
by the Class D Trustee to such DTC Participants to be available for forwarding
by such DTC Participants to Certificate Owners in the manner described above.
(Class D Trust Supplement, Section 3.01(b)) At such time, if any, as the Class D
Certificates are issued in the form of definitive certificates, the Paying Agent
and the Class D Trustee will prepare and deliver the information described above
to each Class D Certificateholder of record as the name and period of ownership
of such Certificateholder appears on the records of the registrar of the Class D
Certificates.
INDENTURE DEFAULTS AND CERTAIN RIGHTS UPON AN INDENTURE DEFAULT
An event of default under an Indenture (an "Indenture Default") will, with
respect to an Indenture relating to a Leased Aircraft (a "Leased Aircraft
Indenture"), include an event of default under the related Lease (a "Lease Event
of Default"). Since the Equipment Notes issued under an Indenture will be held
in more than one Trust, a continuing Indenture Default under such Indenture
would affect the Equipment Notes held by each such Trust. There are no
cross-default provisions in the Indentures or in the lease agreements (the
"Leases") with respect to any leased aircraft securing or expected to secure the
Senior Equipment Notes (a "Leased Aircraft") (unless otherwise agreed between an
Owner Participant and Continental, which Continental does not expect).
Consequently, events resulting in an Indenture Default under any particular
Indenture may or may not result in an Indenture Default under any other
Indenture, and a Lease Event of Default under any particular Lease may or may
not constitute a Lease Event of Default under any other
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Lease. If an Indenture Default occurs in fewer than all of the Indentures under
a Prior Series, notwithstanding the treatment of Equipment Notes issued under
any Indenture under which an Indenture Default has occurred, payments of
principal and interest on all of the Equipment Notes (including the Series D
Equipment Notes) will continue to be distributed to the holders of the
Certificates of such Prior Series as originally scheduled, subject to the
applicable Intercreditor Agreement. See "Description of the Intercreditor
Agreements--Priority of Distributions".
With respect to each Leased Aircraft, the beneficial owner of such Leased
Aircraft (each, an "Owner Participant") and the owner trustee of a trust for the
benefit of such Owner Participant (each, an "Owner Trustee") will, under the
related Leased Aircraft Indenture, have the right under certain circumstances to
cure Indenture Defaults that result from the occurrence of a Lease Event of
Default under the related Lease. If the Owner Trustee or the Owner Participant
exercises any such cure right, the Indenture Default will be deemed to have been
cured.
In the event that the same institution acts as Trustee of multiple Trusts,
in the absence of instructions from the Certificateholders of any such Trust,
such Trustee could be faced with a potential conflict of interest upon an
Indenture Default. In such event, each Trustee has indicated that it would
resign as Trustee of one or all such Trusts, and a successor trustee would be
appointed in accordance with the terms of the applicable Pass Through Trust
Agreement. Wilmington Trust Company is the Trustee under each Trust.
Upon the occurrence and continuation of an Indenture Default under a Prior
Series, the Controlling Party for such Prior Series will direct the Indenture
Trustee under such Indenture in the exercise of remedies thereunder and may
accelerate and sell all (but not less than all) of the Equipment Notes issued
under such Indenture to any person, subject to certain limitations. See
"Description of the Intercreditor Agreements--Intercreditor Rights--Sale of
Equipment Notes or Aircraft". The proceeds of such sale will be distributed
pursuant to the provisions of the applicable Intercreditor Agreement. Any such
proceeds so distributed to any Trustee upon any such sale shall be deposited in
the applicable Special Payments Account and shall be distributed to the
Certificateholders of the applicable Trust on a Special Distribution Date.
(Sections 4.01 and 4.02) The market for Equipment Notes at the time of the
existence of an Indenture Default may be very limited and there can be no
assurance as to the price at which they could be sold. If any such Equipment
Notes are sold for less than their outstanding principal amount prior to the
payment in full of the Class D Certificates, the Class D Certificateholders will
receive a smaller amount of principal distributions than anticipated and will
not have any claim for the shortfall against Continental, any Liquidity
Provider, any Owner Trustee, any Owner Participant or any Trustee.
Any amount, other than Scheduled Payments received on a Regular
Distribution Date or within five days thereafter, distributed to the Trustee of
any Trust under a Prior Series or the Class D Trustee by the Subordination Agent
for such Prior Series on account of any Equipment Note, Trust Indenture Estate
under (and as defined in) any Leased Aircraft Indenture or Collateral under (and
as defined in) any Owned Aircraft Indenture held for such Trustee following an
Indenture Default will be deposited in the Special Payments Account for the
applicable Trust and will be distributed to the Certificateholders of such Trust
on a Special Distribution Date. (Sections 4.01 and 4.02; Trust Supplements,
Section 3.01) In addition, if, following an Indenture Default under any Leased
Aircraft Indenture, the applicable Owner Participant or Owner Trustee exercises
its option to redeem or purchase the outstanding Equipment Notes issued under
such Leased Aircraft Indenture, the price paid by such Owner Participant or
Owner Trustee for the Equipment Notes issued under such Leased Aircraft
Indenture and distributed to such Trust by the Subordination Agent will be
deposited in the Special Payments Account for such Trust and will be distributed
to the Certificateholders of such Trust on a Special Distribution Date.
(Sections 4.01 and 4.02)
Any funds representing payments received with respect to any defaulted
Equipment Notes, or the proceeds from the sale of any Equipment Notes, held by
the Trustee in the Special Payments Account for such Trust will, to the extent
practicable, be invested and reinvested by such Trustee in certain permitted
investments pending the distribution of such funds on a Special Distribution
Date. (Section 4.04) Such permitted investments are defined as obligations of
the United States or agencies or instrumentalities thereof for the payment of
which the full faith and credit of the United States is pledged and which mature
in not
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more than 60 days or such lesser time as is required for the distribution of any
such funds on a Special Distribution Date. (Section 1.01)
Each Pass Through Trust Agreement provides that the applicable Trustee
will, within 90 days after the occurrence of any default known to the Trustee,
give to the Certificateholders of such Trust notice, transmitted by mail, of
such uncured or unwaived default with respect to such Trust known to it,
provided that, except in the case of default in a payment of principal, premium,
if any, or interest on any of the Equipment Notes held in such Trust, the
applicable Trustee will be protected in withholding such notice if it in good
faith determines that the withholding of such notice is in the interests of such
Certificateholders. (Section 7.02) The term "default" as used in this paragraph
only with respect to any Trust means the occurrence of an Indenture Default
under any Indenture pursuant to which Equipment Notes held by such Trust were
issued, as described above, except that in determining whether any such
Indenture Default has occurred, any grace period or notice in connection
therewith will be disregarded.
Each Pass Through Trust Agreement contains a provision entitling the
applicable Trustee, subject to the duty of such Trustee during a default to act
with the required standard of care, to be offered reasonable security or
indemnity by the holders of the Certificates of such Trust before proceeding to
exercise any right or power under such Pass Through Trust Agreement at the
request of such Certificateholders. (Section 7.03(e))
Subject to certain qualifications set forth in each Pass Through Trust
Agreement and to each applicable Intercreditor Agreement, the Certificateholders
of each Trust holding Certificates evidencing fractional undivided interests
aggregating not less than a majority in interest in such Trust shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee with respect to such Trust or pursuant to the
terms of such Intercreditor Agreement, or exercising any trust or power
conferred on such Trustee under such Pass Through Trust Agreement or such
Intercreditor Agreement, including any right of such Trustee as Controlling
Party under such Intercreditor Agreement or as holder of the Equipment Notes.
(Section 6.04)
In certain cases, the holders of the Certificates of a Trust evidencing
fractional undivided interests aggregating not less than a majority in interest
of such Trust may on behalf of the holders of all the Certificates of such Trust
waive any past "event of default" under such Trust (i.e., any Indenture Default
under any Indenture pursuant to which Equipment Notes held by such Trust were
issued) and its consequences or, if the Trustee of such Trust is the Controlling
Party, may direct the Trustee to instruct the applicable Loan Trustee to waive
any past Indenture Default and its consequences, except (i) a default in the
deposit of any Scheduled Payment or Special Payment or in the distribution
thereof, (ii) a default in payment of the principal, premium, if any, or
interest with respect to any of the Equipment Notes and (iii) a default in
respect of any covenant or provision of the Pass Through Trust Agreement that
cannot be modified or amended without the consent of each Certificateholder of
such Trust affected thereby. (Section 6.05) Each Indenture will provide that,
with certain exceptions, the holders of the majority in aggregate unpaid
principal amount of the Equipment Notes issued thereunder may on behalf of all
such holders waive any past default or Indenture Default thereunder.
Notwithstanding such provisions of the Indentures, pursuant to the Intercreditor
Agreement for each Prior Series only the Controlling Party for such Prior Series
will be entitled to waive any such past default or Indenture Default.
PURCHASE RIGHTS OF CERTIFICATEHOLDERS
Upon the occurrence and during the continuation of a Triggering Event under
a Prior Series, with ten days' written notice to the Trustee and each
Certificateholder of the same Class:
-- The Class B Certificateholders of such Prior Series will have the
right to purchase all of the Class A Certificates of such Prior
Series.
-- The Class C Certificateholders of such Prior Series will have the
right to purchase all of the Class A and Class B Certificates of such
Prior Series.
-- The Class D Certificateholders will have the right to purchase all of
the Class A, Class B and Class C Certificates of such Prior Series.
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In each case the purchase price will be equal to the Pool Balance of the
relevant Class or Classes of Certificates plus accrued and unpaid interest
thereon to the date of purchase, without premium, but including any other
amounts then due and payable to the Certificateholders of such Class or Classes.
Such purchase right may be exercised by any Certificateholder of the Class or
Classes entitled to such right. In each case, if prior to the end of the ten-day
notice period, any other Certificateholder of the same Class notifies the
purchasing Certificateholder that the other Certificateholder wants to
participate in such purchase, then such other Certificateholder may join with
the purchasing Certificateholder to purchase the Certificates pro rata based on
the interest in the Trust held by each Certificateholder. (Trust Supplements,
Section 4.01)
PTC EVENT OF DEFAULT
A Pass Through Certificate Event of Default (a "PTC Event of Default")
under each Pass Through Trust Agreement means the failure to pay:
-- The outstanding Pool Balance of the applicable Class of Certificates
within ten Business Days of the Final Maturity Date for such Class.
-- Interest due on such Class of Certificates within ten Business Days
of the applicable Distribution Date (unless, in the case of the Class
A, B and C Certificates under any Prior Series, the Subordination
Agent for such Prior Series shall have made Interest Drawings, or
withdrawals from the Cash Collateral Account for such Class of
Certificates, with respect thereto in an aggregate amount sufficient
to pay such interest and shall have distributed such amount to the
Trustee entitled thereto). (Section 1.01)
Any failure to make expected principal distributions with respect to any
Class of Certificates on any Regular Distribution Date (other than the Final
Maturity Date) will not constitute a PTC Event of Default with respect to such
Certificates. With respect to each Prior Series, a PTC Event of Default with
respect to the most senior outstanding Class of Certificates of such Prior
Series (or, if no Class A, B or C Certificates of such Prior Series are
outstanding, the Class D Certificates) resulting from an Indenture Default under
all Indentures under such Prior Series will constitute a Triggering Event for
such Prior Series. See "Description of the Intercreditor Agreements--Priority of
Distributions" for a discussion of the consequences of the occurrence of a
Triggering Event and of the different calculation of the Pool Balance of the
Class D Certificates for purposes of determining Expected Distributions and
Adjusted Expected Distributions with respect to any Prior Series.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
Continental will be prohibited from consolidating with or merging into any
other corporation or transferring substantially all of its assets as an entirety
to any other corporation unless:
-- The surviving successor or transferee corporation shall be validly
existing under the laws of the United States or any state thereof or
the District of Columbia.
-- The surviving successor or transferee corporation shall be a "citizen
of the United States" (as defined in Title 49 of the United States
Code relating to aviation (the "Transportation Code")) holding an air
carrier operating certificate issued pursuant to Chapter 447 of Title
49, United States Code, if, and so long as, such status is a
condition of entitlement to the benefits of Section 1110 of the
Bankruptcy Code.
-- The surviving successor or transferee corporation shall expressly
assume all of the obligations of Continental contained in the Basic
Agreement and any Trust Supplement, the Note Purchase Agreement, the
Participation Agreements and the Indentures, and any other operative
documents.
-- Continental shall have delivered a certificate and an opinion or
opinions of counsel indicating that such transaction, in effect,
complies with such conditions.
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In addition, after giving effect to such transaction, no Indenture Default,
in the case of an Owned Aircraft, shall have occurred and be continuing.
(Section 5.02; Owned Aircraft Indentures, Section 4.07)
The Basic Agreement, the Trust Supplements, the Note Purchase Agreement,
the Participation Agreements and the Indentures will not contain any covenants
or provisions which may afford the applicable Trustee or Certificateholders
protection in the event of a highly leveraged transaction, including
transactions effected by management or affiliates, which may or may not result
in a change in control of Continental.
MODIFICATIONS OF THE PASS THROUGH TRUST AGREEMENT AND CERTAIN OTHER AGREEMENTS
The Class D Pass Through Trust Agreement contains provisions permitting, at
the request of the Company, the execution of amendments or supplements to such
Pass Through Trust Agreement or, if applicable, to the Deposit Agreement, the
Escrow Agreement, the Intercreditor Agreements or the Note Purchase Agreement,
without the consent of the holders of any of the Class D Certificates:
-- To evidence the succession of another corporation to Continental and
the assumption by such corporation of Continental's obligations under
such Pass Through Trust Agreement or the Note Purchase Agreement.
-- To add to the covenants of Continental for the benefit of holders of
such Certificates or to surrender any right or power conferred upon
Continental in such Pass Through Trust Agreement, the Intercreditor
Agreements or the Note Purchase Agreement.
-- To correct or supplement any provision of such Pass Through Trust
Agreement, the Deposit Agreement, the Escrow Agreement, the
Intercreditor Agreements or, the Note Purchase Agreement which may be
defective or inconsistent with any other provision in such Pass
Through Trust Agreement, the Deposit Agreement, the Escrow Agreement,
the Intercreditor Agreements or the Note Purchase Agreement, as
applicable, or to cure any ambiguity or to modify any other provision
with respect to matters or questions arising under such Pass Through
Trust Agreement, the Deposit Agreement, the Escrow Agreement, the
Intercreditor Agreements or, the Note Purchase Agreement, provided
that such action shall not materially adversely affect the interests
of the holders of such Certificates; to correct any mistake in such
Pass Through Trust Agreement, the Deposit Agreement, the Escrow
Agreement, the Intercreditor Agreements or the Note Purchase
Agreement.
-- To comply with any requirement of the Commission, any applicable law,
rules or regulations of any exchange or quotation system on which the
Class D Certificates are listed, or any regulatory body.
-- To modify, eliminate or add to the provisions of such Pass Through
Trust Agreement, the Deposit Agreement, the Escrow Agreement, the
Intercreditor Agreements or the Note Purchase Agreement to such
extent as shall be necessary to continue the qualification of such
Pass Through Trust Agreement (including any supplemental agreement)
under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), or any similar federal statute enacted after the
execution of such Pass Through Trust Agreement, and to add to such
Pass Through Trust Agreement, the Deposit Agreement, the Escrow
Agreement, the Intercreditor Agreements or the Note Purchase
Agreement such other provisions as may be expressly permitted by the
Trust Indenture Act.
-- To evidence and provide for the acceptance of appointment under such
Pass Through Trust Agreement, the Deposit Agreement, the Escrow
Agreement, the Intercreditor Agreements or the Note Purchase
Agreement by a successor Trustee and to add to or change any of the
provisions of such Pass Through Trust Agreement, the Deposit
Agreement, the Escrow Agreement, the Intercreditor Agreements or the
Note Purchase Agreement as shall be necessary to provide for or
facilitate the administration of the Trusts under the Basic Agreement
by more than one Trustee.
In each case, such modification or supplement may not adversely affect the
status of the Trust as a grantor trust under Subpart E, Part I of Subchapter J
of Chapter 1 of Subtitle A of the Internal Revenue Code of 1986, as amended (the
"Code"), for U.S. federal income tax purposes. (Section 9.01; Class D Trust
Supplement, Section 6.01)
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The Class D Pass Through Trust Agreement also contains provisions
permitting the execution, with the consent of the holders of the Class D
Certificates evidencing fractional undivided interests aggregating not less than
a majority in interest of the Class D Trust, of amendments or supplements adding
any provisions to or changing or eliminating any of the provisions of such Pass
Through Trust Agreement, the Deposit Agreement, the Escrow Agreement, the
Intercreditor Agreements or the Note Purchase Agreement to the extent applicable
to such Certificateholders or of modifying the rights and obligations of such
Certificateholders under such Pass Through Trust Agreement, the Deposit
Agreement, the Escrow Agreement, the Intercreditor Agreements or the Note
Purchase Agreement. No such amendment or supplement may, without the consent of
the holder of each Class D Certificate so affected thereby:
-- Reduce in any manner the amount of, or delay the timing of, any
receipt by the Class D Trustee (or, with respect to the Deposits, the
Receiptholders) of payments with respect to the Series D Equipment
Notes held in such Trust or distributions in respect of any Class D
Certificate (or, with respect to the Deposits, payments upon the
Deposits), or change the date or place of any payment in respect of
any Class D Certificate, or make distributions payable in coin or
currency other than that provided for in such Class D Certificates,
or impair the right of any Class D Certificateholder to institute
suit for the enforcement of any such payment when due.
-- Permit the disposition of any Equipment Note held in such Trust,
except as provided in such Pass Through Trust Agreement and related
Intercreditor Agreement, or otherwise deprive such Certificateholder
of the benefit of the ownership of the applicable Equipment Notes.
-- Alter the priority of distributions specified in any Intercreditor
Agreement in a manner materially adverse to such Certificateholders.
-- Reduce the percentage of the aggregate fractional undivided interests
of the Trust provided for in such Pass Through Trust Agreement, the
consent of the holders of which is required for any such supplemental
trust agreement or for any waiver provided for in such Pass Through
Trust Agreement.
-- Modify any of the provisions relating to the rights of the Class D
Certificateholders in respect of the waiver of events of default or
receipt of payment.
-- Adversely affect the status of the Class D Trust as a grantor trust
under Subpart E, Part I of Subchapter J of Chapter 1 of Subtitle A of
the Code for U.S. federal income tax purposes. (Section 9.02; Class D
Trust Supplement, Section 6.02)
In the event that the Class D Trustee, as holder (or beneficial owner
through the Subordination Agent) of any Series D Equipment Note in trust for the
benefit of the Class D Certificateholders or as Controlling Party under any
Intercreditor Agreement, receives (directly or indirectly through the
Subordination Agent) a request for a consent to any amendment, modification,
waiver or supplement under any Indenture, any Participation Agreement, any
Series D Equipment Note or any other related document, the Class D Trustee shall
forthwith send a notice of such proposed amendment, modification, waiver or
supplement to each Class D Certificateholder as of the date of such notice. The
Class D Trustee shall request from the Class D Certificateholders a direction as
to:
-- Whether or not to take or refrain from taking (or direct the
applicable Subordination Agent to take or refrain from taking) any
action which a holder of such Equipment Note or the Controlling Party
under such Intercreditor Agreement has the option to direct.
-- Whether or not to give or execute (or direct the applicable
Subordination Agent to give or execute) any waivers, consents,
amendments, modifications or supplements as a holder of such
Equipment Note or as Controlling Party under such Intercreditor
Agreement.
-- How to vote (or direct the applicable Subordination Agent to vote)
any Equipment Note if a vote has been called for with respect
thereto.
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Provided such a request for Class D Certificateholder direction shall have
been made, in directing any action or casting any vote or giving any consent as
the holder of any Series D Equipment Note (or in directing the applicable
Subordination Agent in any of the foregoing):
-- Other than as Controlling Party under such Intercreditor Agreement,
the Class D Trustee shall vote for or give consent to any such action
with respect to such Series D Equipment Note in the same proportion
as that of (x) the aggregate face amount of all Class D Certificates
actually voted in favor of or for giving consent to such action by
such direction of Certificateholders to (y) the aggregate face amount
of all outstanding Class D Certificates.
-- As the Controlling Party under such Intercreditor Agreement, the
Class D Trustee shall vote as directed in such Certificateholder
direction by the Class D Certificateholders evidencing fractional
undivided interests aggregating not less than a majority in interest
in the Class D Trust.
For purposes of the immediately preceding paragraph, a Class D Certificate
shall have been "actually voted" if the Class D Certificateholder has delivered
to the Class D Trustee an instrument evidencing such Class D Certificateholder's
consent to such direction prior to one Business Day before the Class D Trustee
directs such action or casts such vote or gives such consent. Notwithstanding
the foregoing, but subject to certain rights of the Class D Certificateholders
under the Class D Pass Through Trust Agreement and subject to the applicable
Intercreditor Agreements, the Class D Trustee may, in its own discretion and at
its own direction, consent and notify the relevant Loan Trustee of such consent
(or direct the applicable Subordination Agent to consent and notify the relevant
Loan Trustee of such consent) to any amendment, modification, waiver or
supplement under the relevant Indenture or Participation Agreement, any relevant
Equipment Note or any other related document, if an Indenture Default under any
Indenture shall have occurred and be continuing, or if such amendment,
modification, waiver or supplement will not materially adversely affect the
interests of the Class D Certificateholders. (Section 10.01)
OBLIGATION TO PURCHASE EQUIPMENT NOTES
On the Issuance Date, the Class D Trustee will purchase Series D Equipment
Notes with respect to the Owned Aircraft previously financed under the Prior
Series.
From the Issuance Date until the Delivery Period Termination Date, upon
each financing of an Owned Aircraft under the Series 2000-2, so long as adequate
Deposits are available, the Class D Trustee will be obligated to purchase Series
D Equipment Notes pursuant to a note purchase agreement (the "Note Purchase
Agreement"). The Note Purchase Agreement provides for the relevant parties to
enter into a Participation Agreement and an Owned Aircraft Indenture relating to
the financing of such Owned Aircraft. The description of such financing
agreements in this Prospectus Supplement is based on the forms of such
agreements prescribed by the Note Purchase Agreement. In addition, under the
Note Purchase Agreement, the terms of such agreements are required (a) to
contain the Mandatory Document Terms and (b) not to vary the Mandatory Economic
Terms. Continental must also obtain written confirmation from each Rating Agency
that the use of financing agreements modified in any material respect from the
forms prescribed by the Note Purchase Agreement will not result in a withdrawal,
suspension or downgrading of the rating of any applicable Class of Certificates.
Further, under the Note Purchase Agreement, it is a condition precedent to the
obligation of the Class D Trustee to purchase the Equipment Notes related to the
financing of an Owned Aircraft that no Triggering Event shall have occurred
under any Intercreditor Agreement. The Class D Trustee will have no right or
obligation to purchase Equipment Notes after the Delivery Period Termination
Date.
The "Mandatory Economic Terms", as defined in the Note Purchase Agreement,
require, among other things, that:
-- The principal amount of the Series D Equipment Notes issued (i) with
respect to each of the two Boeing 737-824 Owned Aircraft shall equal
$2,467,894 and (ii) with respect to each of the two Boeing 737-924
Owned Aircraft shall equal $529,844.
-- The final maturity date of the Series D Equipment Notes shall be
December 1, 2006, and there shall be no scheduled amortization of
such Equipment Notes.
-- The final expected distribution date of the Class D Certificates
shall be December 1, 2006.
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-- As of the Delivery Period Termination Date, the original aggregate
principal amount of the Series D Equipment Notes shall equal the
original aggregate face amount of the Class D Certificates (assuming
Series D Equipment Notes are acquired for all of the Owned Aircraft
to be delivered after the Issuance Date).
-- The interest rate applicable to the Series D Equipment Notes must be
equal to the rate applicable to the Class D Certificates.
-- The payment dates for the Series D Equipment Notes must be June 1 and
December 1.
-- The amounts payable under the all-risk aircraft hull insurance
maintained with respect to each Owned Aircraft must be sufficient to
pay the unpaid principal amount of the related Equipment Notes
together with six months of interest accrued thereon, subject to
certain rights of self-insurance.
-- (a) The past due rate in the Indentures, (b) the Make-Whole Premium
payable under the Indentures, (c) the provisions relating to the
redemption of Equipment Notes in the Indentures, and (d) the
indemnification of the Loan Trustees, Subordination Agent, the Class
D Trustee, the Escrow Agent and registered holders of the Equipment
Notes (in such capacity, the "Note Holders") with respect to certain
taxes and expenses, in each case shall be provided as set forth in
the forms of Participation Agreements and Indentures prescribed by
the Note Purchase Agreement (collectively, the "Aircraft Operative
Agreements").
The "Mandatory Document Terms" prohibit modifications in any material
adverse respect to certain specified provisions of the Aircraft Operative
Agreements contemplated by the Note Purchase Agreement, as follows:
-- In the case of the Indentures, modifications are prohibited (i) to
the Granting Clause of the Indentures so as to deprive the Note
Holders of a first priority security interest in the Aircraft,
certain of Continental's rights under its purchase agreement with the
Aircraft manufacturer or to eliminate the obligations intended to be
secured thereby, (ii) to certain provisions relating to the issuance,
redemption, payments, and ranking of the Equipment Notes (including
the obligation to pay the Make-Whole Premium in certain
circumstances), (iii) to certain provisions regarding Indenture
Defaults and remedies relating thereto, (iv) to certain provisions
relating to any replaced airframe or engines with respect to an
Aircraft and (v) to the provision that New York law will govern the
Indentures.
-- In the case of the Participation Agreements, modifications are
prohibited (i) to certain conditions to the obligations of the
Trustees to purchase the Equipment Notes issued with respect to an
Aircraft involving good title to such Aircraft, obtaining a
certificate of airworthiness with respect to such Aircraft,
entitlement to the benefits of Section 1110 with respect to such
Aircraft and filings of certain documents with the FAA, (ii) to the
provisions restricting the Note Holder's ability to transfer such
Equipment Notes, (iii) to certain provisions requiring the delivery
of legal opinions and (iv) to the provision that New York law will
govern the Participation Agreements.
-- In the case of all of the Aircraft Operative Agreements,
modifications are prohibited in any material adverse respect as
regards the interest of the Note Holders, the Subordination Agent or
the Loan Trustee in the definition of "Make-Whole Premium".
LIQUIDATION OF ORIGINAL TRUST
On the earlier of (i) the first Business Day after February 1, 2002 or, if
later, the fifth Business Day after the Delivery Period Termination Date and
(ii) the fifth Business Day after the occurrence of a Triggering Event with
respect to any Prior Series (such Business Day, the "Transfer Date"), the Class
D Trust established on the Issuance Date (the "Original Trust") will transfer
and assign all of its assets and rights to a newly created successor trust (the
"Successor Trust") with substantially identical terms, except that (i) the
Successor Trust will not have the right to purchase new Equipment Notes and (ii)
Delaware law will govern the Original Trust and New York law will govern the
Successor Trust. The institution acting as Trustee of the Original Trust (the
"Original Trustee") will also act as Trustee of the Successor Trust (the "New
Trustee"). The New Trustee will assume the obligations of the Original Trustee
under each transaction document to
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which the Original Trustee was a party. Upon the effectiveness of such transfer,
assignment and assumption, the Original Trust will be liquidated and each of the
Class D Certificates will represent the same percentage interest in the
Successor Trust as it represented in the Original Trust immediately prior to
such transfer, assignment and assumption. Unless the context otherwise requires,
all references in this Prospectus Supplement to the Class D Trust, the Class D
Trustee, the Class D Pass Through Trust Agreement and similar terms shall apply
to the Original Trust until the effectiveness of such transfer, assignment and
assumption, and thereafter shall be applicable with respect to the Successor
Trust. If for any reason such transfer, assignment and assumption cannot be
effected to the Successor Trust, the Original Trust will continue in existence
until it is effected. The Original Trust may be treated as a partnership for
U.S. federal income tax purposes. The Successor Trust will, in the opinion of
Tax Counsel, be treated as a grantor trust. See "Certain U.S. Federal Income Tax
Consequences".
TERMINATION OF THE TRUST
The obligations of Continental and the Class D Trustee with respect to the
Class D Trust will terminate upon the distribution to Class D Certificateholders
of all amounts required to be distributed to them pursuant to the Class D Pass
Through Trust Agreement and the disposition of all property held in the Class D
Trust. The Class D Trustee will send to each Class D Certificateholder notice of
the termination of the Class D Trust, the amount of the proposed final payment
and the proposed date for the distribution of such final payment for the Class D
Trust. The final distribution to any Class D Certificateholder will be made only
upon surrender of such Certificateholder's Class D Certificates at the office or
agency of the Class D Trustee specified in such notice of termination. (Class D
Trust Supplement, Section 7.01)
THE TRUSTEES
The Trustee for each Trust is Wilmington Trust Company. The Trustees'
address is Wilmington Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration.
BOOK-ENTRY; DELIVERY AND FORM
Upon issuance, the Class D Certificates will be represented by one or more
fully registered global certificates. Each global certificate will be deposited
with, or on behalf of, The Depository Trust Company ("DTC") and registered in
the name of Cede & Co. ("Cede"), the nominee of DTC. Similar procedures were
followed with respect to the other Certificates. DTC was created to hold
securities for its participants ("DTC Participants") and facilitate the
clearance and settlement of securities transactions between DTC Participants
through electronic book-entry changes in accounts of the DTC Participants,
thereby eliminating the need for physical movement of certificates. DTC
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and certain other organizations. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Interests in a global certificate
may also be held through the Euroclear System and Clearstream, Luxembourg. See
"Description of the Certificates--Book-Entry Registration" in the Prospectus for
a discussion of the book-entry procedures applicable to the Class D Certificates
and the limited circumstances under which definitive certificates may be issued
for the Class D Certificates.
So long as such book-entry procedures are applicable, no person acquiring
an interest in the Class D Certificates (together with the owners of the Class
A, B and C Certificates, the "Certificate Owners") will be entitled to receive a
certificate representing such person's interest in such Certificates. Unless and
until definitive certificates are issued under the limited circumstances
described in the Prospectus, all references to actions by Certificateholders
shall refer to actions taken by DTC upon instructions from DTC Participants, and
all references herein to distributions, notices, reports and statements to
Certificateholders shall refer, as the case may be, to distributions, notices,
reports and statements to DTC or Cede, as the registered holder of such
Certificates, or to DTC Participants for distribution to Certificate Owners in
accordance with DTC procedures.
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DESCRIPTION OF THE DEPOSIT AGREEMENT
The following summary describes all material terms of the Deposit
Agreement. The summary does not purport to be complete and is qualified in its
entirety by reference to all of the provisions of the Deposit Agreement, which
will be filed as an exhibit to a Current Report on Form 8-K to be filed by
Continental with the Commission.
GENERAL
Under the Escrow Agreement, the Escrow Agent will enter into a Deposit
Agreement with the Depositary. Pursuant to the Escrow Agreement, the Depositary
will establish separate accounts into which the proceeds of the Offering, to the
extent not used to purchase Series D Equipment Notes on the Issuance Date, will
be deposited (each, a "Deposit" and collectively, together with the deposits
under the deposit agreements for the Series 2000-2, the "Deposits" ) on behalf
of such Escrow Agent. Pursuant to the Deposit Agreement (the "Deposit
Agreement"), on each Class D Regular Distribution Date the Depositary will pay
to the Paying Agent on behalf of the Escrow Agent, for distribution to the Class
D Certificateholders, an amount equal to interest accrued on the Deposits during
the relevant interest period at a rate per annum equal to the interest rate
applicable to the Class D Certificates. After the date of original issuance of
the Class D Certificates (the "Issuance Date"), upon each delivery of a relevant
Owned Aircraft during the Delivery Period (so long as there are adequate
Deposits), the Class D Trustee will request the Escrow Agent to withdraw from
the Deposits funds sufficient to enable the Class D Trustee to purchase the
Series D Equipment Note issued with respect to such Owned Aircraft. Accrued but
unpaid interest on all such Deposits withdrawn will be paid on the next Class D
Regular Distribution Date. Any portion of any Deposit withdrawn which is not
used to purchase such Equipment Note will be re-deposited by the Class D Trustee
into an account relating to the Class D Trust. The Deposits and interest paid
thereon will not be subject to the subordination provisions of any Intercreditor
Agreement and will not be available to pay any other amount in respect of the
Class D Certificates.
UNUSED DEPOSITS
The Class D Trustee's obligation to purchase the Series D Equipment Notes
is subject to satisfaction of certain conditions at the time of financing, as
set forth in the Note Purchase Agreement. See "Description of the
Certificates--Obligation to Purchase Equipment Notes". Since the Owned Aircraft
to be financed pursuant to the Note Purchase Agreement are scheduled for
delivery from time to time during the Delivery Period, no assurance can be given
that all such conditions will be satisfied at the time of delivery for each such
Aircraft. Moreover, since such Aircraft will be newly manufactured, their
delivery as scheduled is subject to delays in the manufacturing process and to
the Aircraft manufacturer's right to postpone deliveries under its agreement
with Continental. See "Description of the Aircraft--Future Deliveries of
Aircraft".
If any funds remain as Deposits with respect to the Class D Trust at the
end of the Delivery Period or, if earlier, upon the acquisition by the Class D
Trust of Series D Equipment Notes with respect to all of the Owned Aircraft to
be financed pursuant to the Note Purchase Agreement (the "Delivery Period
Termination Date"), such funds will be withdrawn by the Escrow Agent and
distributed, with accrued and unpaid interest thereon but without premium, to
the Class D Certificateholders after at least 15 days' prior written notice.
DISTRIBUTION UPON OCCURRENCE OF TRIGGERING EVENT
If a Triggering Event shall occur under the Series 2000-2 prior to the
Delivery Period Termination Date, the Escrow Agent will withdraw any funds then
held as Deposits with respect to the Class D Trust and cause such funds, with
accrued and unpaid interest thereon but without any premium, to be distributed
to the Class D Certificateholders by the Paying Agent on behalf of the Escrow
Agent, after at least 15 days' prior written notice. Accordingly, if a
Triggering Event occurs under the Series 2000-2 prior to the Delivery Period
Termination Date, the Class D Trust will not acquire Series D Equipment Notes
issued with respect to Aircraft delivered after the occurrence of such
Triggering Event.
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DEPOSITARY
Credit Suisse First Boston, New York Branch, will act as depositary (the
"Depositary"). Credit Suisse First Boston ("CSFB") is a Swiss bank with total
consolidated assets of approximately Sfr 674 billion ($413 billion) and total
consolidated shareholder's equity of approximately Sfr 29 billion ($18 billion),
in each case at December 31, 2000. CSFB was founded in 1856 in Zurich. CSFB's
registered head office is in Zurich, Switzerland.
CSFB has been licensed by the Superintendent of Banks of the State of New
York to operate a branch in New York. It is also subject to review and
supervision by the Federal Reserve Bank.
CSFB has long-term unsecured debt ratings of A1 from Moody's Investors
Service, Inc. ("Moody's") and AA from Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("Standard & Poor's", and together
with Moody's, the "Rating Agencies"), and short-term unsecured debt ratings of
P-1 from Moody's and A-1+ from Standard & Poor's.
CSFB's New York branch has executive offices at Eleven Madison Avenue, New
York, New York 10010, (212) 325-9000. A copy of the Annual Report of CSFB for
the year ended December 31, 2000 may be obtained from CSFB by delivery of a
written request to its New York branch, Attention: Corporate Affairs.
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DESCRIPTION OF THE ESCROW AGREEMENT
The following summary describes all material terms of the escrow and paying
agent agreement (the "Escrow Agreement"). The summary does not purport to be
complete and is qualified in its entirety by reference to all of the provisions
of the Escrow Agreement, which will be filed as an exhibit to a Current Report
on Form 8-K to be filed by Continental with the Commission.
Wells Fargo Bank Northwest, National Association, as escrow agent (the
"Escrow Agent"), Wilmington Trust Company, as paying agent on behalf of the
Escrow Agent (the "Paying Agent"), the Class D Trustee and the Underwriters will
enter into an Escrow Agreement for the benefit of the Class D Certificateholders
as holders of the escrow receipts affixed thereto (in such capacity, a
"Receiptholder"). The cash proceeds of the offering of the Class D Certificates,
to the extent not used to purchase Series D Equipment Notes on the Issuance
Date, will be deposited on behalf of the Escrow Agent (for the benefit of
Receiptholders) with the Depositary as Deposits. The Escrow Agent shall permit
the Class D Trustee to cause funds to be withdrawn from the Deposits on or prior
to the Delivery Period Termination Date to allow such Trustee to purchase the
Series D Equipment Notes pursuant to the Note Purchase Agreement. In addition,
the Escrow Agent shall direct the Depositary to pay interest on the Deposits
accrued in accordance with the Deposit Agreement to the Paying Agent for
distribution to the Receiptholders.
The Escrow Agreement requires that the Paying Agent establish and maintain,
for the benefit of the Receiptholders, one or more Paying Agent Account(s),
which shall be non-interest-bearing. The Paying Agent shall deposit interest on
Deposits and any unused Deposits withdrawn by the Escrow Agent in the Paying
Agent Account. The Paying Agent shall distribute these amounts on a Class D
Regular Distribution Date or Special Distribution Date, as appropriate.
Upon receipt by the Depositary of cash proceeds from this Offering, the
Escrow Agent will issue one or more escrow receipts ("Escrow Receipts") which
will be affixed by the Class D Trustee to each Class D Certificate. Each Escrow
Receipt evidences a fractional undivided interest in amounts from time to time
deposited into the Paying Agent Account and is limited in recourse to amounts
deposited into such account. An Escrow Receipt may not be assigned or
transferred except in connection with the assignment or transfer of the Class D
Certificate to which it is affixed. Each Escrow Receipt will be registered by
the Escrow Agent in the same name and manner as the Certificate to which it is
affixed.
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DESCRIPTION OF THE LIQUIDITY FACILITIES FOR THE PRIOR SERIES
The following summary describes all terms that are material to a holder of
Class D Certificates of the Liquidity Facilities for the Class A, B and C
Certificates and certain provisions of the Intercreditor Agreements relating to
the Liquidity Facilities. The summary supplements (and, to the extent
inconsistent therewith, replaces) the description of the general terms and
provisions relating to the Liquidity Facilities and the Intercreditor Agreement
set forth in the Prospectus. The summary does not purport to be complete and is
qualified in its entirety by reference to all of the provisions of the Liquidity
Facilities and the Intercreditor Agreements, each of which was filed as an
exhibit to a Current Report on Form 8-K filed by Continental with the
Commission, and to the amendment to each Intercreditor Agreement to be executed
in connection with this Offering, which will be so filed. The provisions of the
Liquidity Facilities are substantially identical except as otherwise indicated.
Except as otherwise indicated, the following summary relates to the
Intercreditor Agreement and the Liquidity Facilities for each Prior Series. The
terms and conditions of each of the Liquidity Facilities and the Intercreditor
Agreements are substantially the same.
GENERAL
The Class D Certificates will not have the benefit of a Liquidity Facility,
unlike the Class A, B and C Certificates. For each Class of Certificates issued
under each Prior Series, the Subordination Agent for such Prior Series has
entered into one or more revolving credit agreements (each, a "Liquidity
Facility") with the liquidity provider thereunder (each, a "Liquidity
Provider"). The Liquidity Providers are listed under "--Drawings".
The Intercreditor Agreement and the Liquidity Facilities for each Prior
Series provide that certain payments to the Liquidity Providers for such Prior
Series be made prior to payments to the Trustees for such Prior Series and the
Class D Trustee. See "Description of the Intercreditor Agreements--Priority of
Distributions".
Under each Liquidity Facility, the Liquidity Provider thereunder will, if
necessary, make one or more advances ("Interest Drawings") to the related
Subordination Agent in an aggregate amount (the "Required Amount") sufficient to
pay interest on the related Certificates on up to three consecutive semiannual
Regular Distribution Dates thereunder at the applicable Stated Interest Rate. If
interest payment defaults occur which exceed the amount covered by or available
under the Liquidity Facility for any Trust (other than the Class D Trust), the
Certificateholders of such Trust will bear their allocable share of the
deficiencies to the extent that there are no other sources of funds. The initial
liquidity provider with respect to each Trust (other than the Class D Trust) may
be replaced by one or more other entities with respect to any of such Trusts
under certain circumstances.
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DRAWINGS
The aggregate amount available under the Liquidity Facility for each Trust
(other than the Class D Trust) at the expected Issuance Date (or, in the case of
the Series 2000-2, October 2, 2001, the first Regular Distribution Date with
respect to such Series after the first 23 aircraft available to be financed by
such Series are scheduled to have been delivered, assuming that such aircraft
are so financed, that Senior Equipment Notes in the maximum principal amount
with respect to all such aircraft are acquired by the applicable Trusts and that
all interest and principal due on or prior to such date is paid), together with
certain information relating to margins payable under the Liquidity Facilities,
are listed in the table below:
MARGIN FOR DRAWINGS
---------------------------------------------
INTEREST DRAWINGS
AVAILABLE AND FINAL DOWNGRADE NON-EXTENSION
TRUST LIQUIDITY PROVIDERS AMOUNT DRAWINGS DRAWINGS DRAWINGS
--------- --------------------------------------- ----------- ----------------- --------- -------------
1997-4A ABN AMRO Bank N.V. and Westdeutsche $47,535,304 1.75% 1.75% 1.75%
Landesbank Girozentrale
1997-4B ABN AMRO Bank N.V. and Westdeutsche 13,571,147 1.75 1.75 1.75
Landesbank Girozentrale
1997-4C ABN AMRO Bank N.V. and Westdeutsche 9,480,489 1.75 1.75 1.75
Landesbank Girozentrale
1998-1A AIG Matched Funding Corp. 44,371,982 1.75 1.75 1.75
1998-1B AIG Matched Funding Corp. 12,682,221 1.75 1.75 1.75
1998-1C AIG Matched Funding Corp. 11,668,475 1.75 1.75 1.75
1998-3A-1 Westdeutsche Landesbank Girozentrale 8,575,119 1.75 1.75 1.75
1998-3A-2 Westdeutsche Landesbank Girozentrale 18,883,212 1.75 1.75 1.75
1998-3B Morgan Stanley Capital Services, Inc. 6,011,797 1.75 1.75 1.75
1998-3C-1 Morgan Stanley Capital Services, Inc. 7,730,957 1.75 1.75 1.75
1998-3C-2 Morgan Stanley Capital Services, Inc. 8,250,101 1.75 1.75 1.75
1999-1A Bayerische Landesbank Girozentrale 49,778,783 1.75 1.75 1.75
1999-1B Bayerische Landesbank Girozentrale 13,870,976 1.75 1.75 1.75
1999-1C Bayerische Landesbank Girozentrale 11,604,296 1.75 1.75 1.75
1999-2A-1 Bayerische Landesbank Girozentrale 31,462,205 1.75 1.75 1.75
1999-2A-2 Bayerische Landesbank Girozentrale 20,366,262 1.75 1.75 1.75
1999-2B Bayerische Landesbank Girozentrale 12,260,566 1.75 1.75 1.75
1999-2C-1 Bayerische Landesbank Girozentrale 3,314,665 1.75 1.75 1.75
1999-2C-2 Bayerische Landesbank Girozentrale 8,984,918 1.75 1.75 1.75
2000-1A-1 Landesbank Hessen-Thuringen 46,468,219 2.00 2.00 2.00
Girozentrale
2000-1A-2 Landesbank Hessen-Thuringen 13,997,282 2.00 2.00 2.00
Girozentrale
2000-1B Landesbank Hessen-Thuringen 14,060,001 2.00 2.00 2.00
Girozentrale
2000-1C-1 Morgan Stanley Capital Services, Inc. 8,575,429 2.25 2.25 2.25
2000-1C-2 Morgan Stanley Capital Services, Inc. 5,731,130 2.25 2.25 2.25
2000-2A-1 Landesbank Hessen-Thuringen 43,969,206 1.50 1.50 1.50
Girozentrale
2000-2A-2 Landesbank Hessen-Thuringen 19,177,876 1.50 1.50 1.50
Girozentrale
2000-2B Landesbank Hessen-Thuringen 18,826,320 1.50 1.50 1.50
Girozentrale
2000-2C Landesbank Hessen-Thuringen 17,301,096 1.50 1.50 1.50
Girozentrale
Except as otherwise provided below, the Liquidity Facility for each Trust
(other than the Class D Trust) will enable the related Subordination Agent to
make Interest Drawings thereunder promptly on or after any Regular Distribution
Date (other than any Class D Regular Distribution Date that is not a Special
Distribution Date) thereunder to pay interest then due and payable on the
Certificates of such Trust at the Stated Interest Rate for such Trust to the
extent that the amount, if any, available to such Subordination Agent on such
Regular Distribution Date is not sufficient to pay such interest; provided,
however, that the maximum amount available to be drawn under the Liquidity
Facility with respect to any Trust (other than the Class D Trust) on any Regular
Distribution Date thereunder to fund any shortfall of interest on Certificates
of
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such Trust will not exceed the then Maximum Available Commitment under such
Liquidity Facility. The "Maximum Available Commitment" at any time under each
Liquidity Facility is an amount equal to the then Required Amount of such
Liquidity Facility less the aggregate amount of each Interest Drawing
outstanding under such Liquidity Facility at such time, provided that following
a Downgrade Drawing, a Final Drawing or a Non-Extension Drawing under a
Liquidity Facility, the Maximum Available Commitment under such Liquidity
Facility shall be zero.
The Liquidity Facility for any Class of Certificates under any Prior Series
does not provide for drawings thereunder to pay for principal of or premium on
the Certificates of such Class or any interest on the Certificates of such Class
in excess of the Stated Interest Rate for such Class or more than three
semiannual installments of interest thereon or principal of or interest or
premium on the Certificates of any other Class. (Liquidity Facilities, Section
2.02; Intercreditor Agreements, Section 3.6) In addition, the Liquidity Facility
with respect to each Trust (other than the Class D Trust) does not provide for
drawings thereunder to pay any amounts payable with respect to the Deposits
relating to such Trust.
Each payment by a Liquidity Provider reduces by the same amount the Maximum
Available Commitment under the related Liquidity Facility, subject to
reinstatement as hereinafter described. With respect to any Interest Drawings,
upon reimbursement of the applicable Liquidity Provider in full for the amount
of such Interest Drawings plus interest thereon, the Maximum Available
Commitment under such Liquidity Facility in respect of interest on the
Certificates of such Trust will be reinstated to an amount not to exceed the
then Required Amount of the related Liquidity Facility. However, such Liquidity
Facility will not be so reinstated at any time if (i) a Liquidity Event of
Default shall have occurred and be continuing under such Liquidity Facility and
(ii) less than 65% of the then aggregate outstanding principal amount of all
Equipment Notes issued under the related Prior Series are Performing Equipment
Notes. With respect to any other drawings under such Liquidity Facility, amounts
available to be drawn thereunder are not subject to reinstatement. The Required
Amount of the Liquidity Facility for any Trust (other than the Class D Trust)
will be automatically reduced from time to time to an amount equal to the next
three successive interest payments due on the Certificates of such Trust
(without regard to expected future payment of principal of such Certificates) at
the Stated Interest Rate for such Trust. (Liquidity Facilities, Section 2.04(a);
Intercreditor Agreements, Section 3.6(j))
"Performing Equipment Note" means an Equipment Note with respect to which
no payment default has occurred and is continuing (without giving effect to any
acceleration); provided that in the event of a bankruptcy proceeding under the
U.S. Bankruptcy Code in which Continental is a debtor any payment default
existing during the 60-day period under Section 1110(a)(2)(A) of the U.S.
Bankruptcy Code (or such longer period as may apply under Section 1110(b) of the
U.S. Bankruptcy Code or as may apply for the cure of such payment default under
Section 1110(a)(2)(B) of the U.S. Bankruptcy Code) shall not be taken into
consideration until the expiration of the applicable period.
If at any time the short-term unsecured debt rating of a Liquidity Provider
for any Trust (other than the Class D Trust) then issued by either Rating Agency
is lower than the threshold rating specified for such Trust (except under
certain circumstances subject to written confirmation of the Rating Agencies
that such circumstances will not result in the downgrading, withdrawal or
suspension of the ratings of the relevant Class of Certificates), and such
Liquidity Facility is not replaced with a replacement Liquidity Facility within
a specified number of days after notice of such downgrading and as otherwise
provided in the applicable Intercreditor Agreement, such Liquidity Facility will
be drawn in full up to the then Maximum Available Commitment under such
Liquidity Facility (the "Downgrade Drawing"). The proceeds of a Downgrade
Drawing will be deposited into a cash collateral account (the "Cash Collateral
Account") for such Class of Certificates and used for the same purposes and
under the same circumstances and subject to the same conditions as cash payments
of Interest Drawings under such Liquidity Facility would be used. (Liquidity
Facilities, Section 2.02(c); Intercreditor Agreements, Section 3.6(c)) If a
qualified replacement Liquidity Facility is subsequently provided, the balance
of the Cash Collateral Account will be repaid to the replaced Liquidity
Provider.
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The Liquidity Facility for each Trust (other than the Class D Trust)
provides that the applicable Liquidity Provider's obligations thereunder will
expire on the earliest of:
-- 364 days after the initial issuance date of the Certificates issued
by such Trust (counting from, and including, such issuance date).
-- The date on which the applicable Subordination Agent delivers to such
Liquidity Provider a certification that all of the Certificates of
such Trust have been paid in full.
-- The date on which the applicable Subordination Agent delivers to such
Liquidity Provider a certification that a replacement Liquidity
Facility has been substituted for such Liquidity Facility.
-- The fifth Business Day following receipt by the applicable
Subordination Agent of a Termination Notice from such Liquidity
Provider (see "--Liquidity Events of Default").
-- The date on which no amount is or may (by reason of reinstatement)
become available for drawing under such Liquidity Facility.
Each Liquidity Facility provides that it may be extended for additional
364-day periods by mutual agreement of the relevant Liquidity Provider and the
relevant Subordination Agent. Under certain circumstances the Liquidity Provider
may extend its Liquidity Facilities to the date that is 15 days after the Final
Maturity Date for the relevant Class of Certificates.
Each Intercreditor Agreement provides for the replacement of the Liquidity
Facility for any related Trust (other than the Class D Trust) if such Liquidity
Facility is scheduled to expire earlier than 15 days after the Final Maturity
Date for the Certificates of such Trust and such Liquidity Facility is not
extended at least 25 days prior to its then scheduled expiration date. If such
Liquidity Facility is not so extended or replaced by the 25th day prior to its
then scheduled expiration date, such Liquidity Facility will be drawn in full up
to the then Maximum Available Commitment under such Liquidity Facility (the
"Non-Extension Drawing"). The proceeds of the Non-Extension Drawing will be
deposited in the Cash Collateral Account for the related Class of Certificates
as cash collateral to be used for the same purposes and under the same
circumstances, and subject to the same conditions, as cash payments of Interest
Drawings under such Liquidity Facility would be used. (Liquidity Facilities,
Section 2.02(b); Intercreditor Agreements, Section 3.6(d))
Upon receipt by the relevant Subordination Agent of a Termination Notice
with respect to any Liquidity Facility from the relevant Liquidity Provider,
such Subordination Agent shall request a final drawing (a "Final Drawing") under
such Liquidity Facility in an amount equal to the then Maximum Available
Commitment thereunder. Such Subordination Agent will hold the proceeds of the
Final Drawing in the Cash Collateral Account for the related Trust as cash
collateral to be used for the same purposes and under the same circumstances,
and subject to the same conditions, as cash payments of Interest Drawings under
such Liquidity Facility would be used. (Liquidity Facilities, Section 2.02(d);
Intercreditor Agreements, Section 3.6(i))
REIMBURSEMENT OF DRAWINGS
The Subordination Agent for each Prior Series must reimburse amounts drawn
under any related Liquidity Facility by reason of an Interest Drawing, Final
Drawing, Downgrade Drawing or Non-Extension Drawing and interest thereon, but
only to the extent that such Subordination Agent has funds available therefor.
INTEREST DRAWINGS AND FINAL DRAWINGS
Amounts drawn by reason of an Interest Drawing or Final Drawing under a
Liquidity Facility relating to any Trust (other than the Class D Trust) will be
immediately due and payable, together with interest on the amount of such
drawing. From the date of the drawing to (but excluding) the third business day
following the applicable Liquidity Provider's receipt of the notice of such
Interest Drawing, interest will accrue at the Base Rate plus the applicable
margin specified in the table under "--Drawings". Thereafter, interest will
accrue at LIBOR for the applicable interest period plus such margin. In the case
of the Final Drawing, however, the Subordination Agent may convert the Final
Drawing into a drawing bearing interest at the Base Rate plus such margin on the
last day of an interest period for such Drawing.
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"Base Rate" means a fluctuating interest rate per annum in effect from time
to time, which rate per annum shall at all times be equal to (a) the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a business day, for the next preceding business day)
by the Federal Reserve Bank of New York, or if such rate is not so published for
any day that is a business day, the average of the quotations for such day for
such transactions received by the applicable Liquidity Provider from three
Federal funds brokers of recognized standing selected by it, plus (b)
one-quarter of one percent ( 1/4 of 1%).
"LIBOR" means, with respect to any interest period, (i) the rate per annum
appearing on display page 3750 (British Bankers Association--LIBOR) of the Dow
Jones Markets Service (or any successor or substitute therefor) at approximately
11:00 A.M. (London time) two business days before the first day of such interest
period, as the rate for dollar deposits with a maturity comparable to such
interest period, or (ii) if the rate calculated pursuant to clause (i) above is
not available, the average (rounded upwards, if necessary, to the next 1/16 of
1%) of the rates per annum at which deposits in dollars are offered for the
relevant interest period by three banks of recognized standing selected by the
applicable Liquidity Provider in the London interbank market at approximately
11:00 A.M. (London time) two business days before the first day of such interest
period in an amount approximately equal to the principal amount of the LIBOR
Advance to which such interest period is to apply and for a period comparable to
such interest period.
DOWNGRADE DRAWINGS AND NON-EXTENSION DRAWINGS
The amount drawn under any Liquidity Facility by reason of a Downgrade
Drawing or a Non-Extension Drawing will be treated as follows:
-- Such amount will be released on any Distribution Date (other than any
Class D Regular Distribution Date that is not a Special Distribution
Date) under such Liquidity Facility to the applicable Liquidity
Provider to the extent that such amount exceeds the Required Amount.
-- Any portion of such amount withdrawn from the Cash Collateral Account
for such Certificates to pay interest on such Certificates will be
treated in the same way as Interest Drawings.
-- The balance of such amount will be invested in certain specified
eligible investments.
Any Downgrade Drawing under any of the Liquidity Facilities, other than any
portion thereof applied to the payment of interest on the related Certificates,
will bear interest (x) subject to clause (y) below, at a rate equal to LIBOR for
the applicable interest period (or, in the case of certain Prior Series, in an
amount equal to the investment earnings on amounts deposited in the related Cash
Collateral Account attributable to such Liquidity Facility) plus a specified
margin on the outstanding amount from time to time of such Downgrade Drawing and
(y) from and after the date, if any, on which it is converted into a Final
Drawing as described below under "--Liquidity Events of Default", at a rate
equal to LIBOR for the applicable interest period (or, as described in the first
paragraph under "--Interest Drawings and Final Drawings", the Base Rate or, in
the case of certain Prior Series, in an amount equal to investment earnings on
amounts deposited in the related Cash Collateral Account attributable to such
Liquidity Facility) plus the applicable margin specified in the table under
"--Drawings".
Any Non-Extension Drawing under any of the Liquidity Facilities, other than
any portion thereof applied to the payment of interest on the related
Certificates, will bear interest (x) subject to clause (y) below, at a rate
equal to LIBOR for the applicable interest period (or, in the case of certain
Prior Series, in an amount equal to the investment earnings on amounts deposited
in the related Cash Collateral Account attributable to such Liquidity Facility)
plus a specified margin on the outstanding amount from time to time of such Non-
Extension Drawing and (y) from and after the date, if any, on which it is
converted into a Final Drawing as described below under "--Liquidity Events of
Default", at a rate equal to LIBOR for the applicable interest period (or, as
described in the first paragraph under "--Interest Drawings and Final Drawings",
the Base Rate or, in the case of certain Prior Series, in an amount equal to
investment earnings on amounts deposited in the related Cash Collateral Account
attributable to such Liquidity Facility) plus the applicable margin specified in
the table under "--Drawings".
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LIQUIDITY EVENTS OF DEFAULT
Events of Default under each Liquidity Facility (each, a "Liquidity Event
of Default") will consist of:
-- The acceleration of all the Equipment Notes issued under the related
Prior Series (provided, in the case of the Series 2000-2, that if
such acceleration occurs during the Delivery Period, the aggregate
principal amount thereof exceeds $300 million).
-- Certain bankruptcy or similar events involving Continental.
(Liquidity Facilities, Section 1.01)
If (i) any Liquidity Event of Default under any Liquidity Facility has
occurred and is continuing and (ii) less than 65% of the aggregate outstanding
principal amount of all Equipment Notes issued under the related Prior Series
are Performing Equipment Notes, the applicable Liquidity Provider may, in its
discretion, give a notice of termination of such Liquidity Facility (a
"Termination Notice"). The Termination Notice will have the following
consequences:
-- The related Liquidity Facility will expire on the fifth Business Day
after the date on which such Termination Notice is received by the
applicable Subordination Agent.
-- The applicable Subordination Agent will promptly request, and the
applicable Liquidity Provider will make, a Final Drawing thereunder
in an amount equal to the then Maximum Available Commitment
thereunder.
-- Any Interest Drawing, Downgrade Drawing or Non-Extension Drawing
under such Liquidity Facility remaining unreimbursed as of the date
of termination will be automatically converted into a Final Drawing
thereunder.
-- All amounts owing to the applicable Liquidity Provider automatically
will be accelerated.
Notwithstanding the foregoing, the applicable Subordination Agent will be
obligated to pay amounts owing to the applicable Liquidity Provider only to the
extent of funds available therefor after giving effect to the payments in
accordance with the provisions set forth under "Description of the Intercreditor
Agreements--Priority of Distributions". (Liquidity Facilities, Section 6.01)
Upon the circumstances described below under "Description of the Intercreditor
Agreements--Intercreditor Rights", a liquidity provider may become the
Controlling Party with respect to the related Prior Series with respect to the
exercise of remedies under the Indentures under such Prior Series.
(Intercreditor Agreements, Section 2.6(c))
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DESCRIPTION OF THE INTERCREDITOR AGREEMENTS
The following summary describes all material provisions of the
Intercreditor Agreement for each Prior Series, as amended for this Offering
(collectively, the "Intercreditor Agreements"), among the Class D Trustee, the
Trustees relating to such Prior Series, the Liquidity Provider(s) relating to
such Prior Series and Wilmington Trust Company, as subordination agent relating
to such Prior Series (the "Subordination Agent"). The summary supplements (and,
to the extent inconsistent therewith, replaces) the description of the general
terms and provisions relating to the Intercreditor Agreement set forth in the
Prospectus. The summary does not purport to be complete and is qualified in its
entirety by reference to all of the provisions of the Intercreditor Agreements,
each of which was filed as an exhibit to a Current Report on Form 8-K filed by
Continental with the Commission, and to the amendment to each Intercreditor
Agreement to be executed in connection with this Offering, which will be so
filed.
Except as otherwise indicated, the following summary relates to the
Intercreditor Agreement for each Prior Series. The terms and conditions of each
of the Intercreditor Agreements are substantially the same.
INTERCREDITOR RIGHTS
CONTROLLING PARTY
Each Loan Trustee will be directed in taking, or refraining from taking,
any action under the applicable Indenture or with respect to the Equipment Notes
issued under such Indenture, by the holders of at least a majority of the
outstanding principal amount of the Equipment Notes issued under such Indenture,
so long as no Indenture Default (which, with respect to Leased Aircraft, has not
been cured by the applicable Owner Trustee or Owner Participant) shall have
occurred and be continuing thereunder. For so long as the Subordination Agent
for any Prior Series is the registered holder of the related Equipment Notes,
such Subordination Agent will act with respect to the preceding sentence in
accordance with the directions of the Trustees for whom the Equipment Notes
issued under such Indenture are held as Trust Property, to the extent
constituting, in the aggregate, directions with respect to the required
principal amount of such Equipment Notes.
After the occurrence and during the continuance of an Indenture Default
under an Indenture (which, with respect to Leased Aircraft, has not been cured
by the applicable Owner Trustee or Owner Participant), the applicable Loan
Trustee will be directed in taking, or refraining from taking, any action
thereunder or with respect to the Equipment Notes issued under such Indenture,
including acceleration of such Equipment Notes or foreclosing the lien on the
related Aircraft, by the Controlling Party for the related Prior Series, subject
to the limitations described below. See "Description of the
Certificates--Indenture Defaults and Certain Rights Upon an Indenture Default"
for a description of the rights of the Certificateholders of each Trust to
direct the respective Trustees.
The "Controlling Party" with respect to a Prior Series will be:
-- The Class A Trustee of such Prior Series.
-- Upon payment of Final Distributions to the holders of Class A
Certificates of such Prior Series, the Class B Trustee of such Prior
Series.
-- Upon payment of Final Distributions to the holders of Class B
Certificates of such Prior Series, the Class C Trustee of such Prior
Series.
-- Upon payment of Final Distributions to the holders of Class C
Certificates of such Prior Series, the Class D Trustee.
-- Under certain circumstances, and notwithstanding the foregoing, the
liquidity provider with respect to such Prior Series with the largest
amount owed to it, as discussed in the next paragraph.
The Intercreditor Agreement for each Prior Series provides that at any time
after 18 months from the earlier to occur of (x) the date on which the entire
available amount under any Liquidity Facility shall have been drawn (for any
reason other than a Downgrade Drawing or a Non-Extension Drawing thereunder) and
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remain unreimbursed, (y) the date on which the entire amount of any Downgrade
Drawing or Non-Extension Drawing thereunder shall have been withdrawn from the
relevant Cash Collateral Account to pay interest on the relevant Class of
Certificates of such Prior Series and remain unreimbursed and (z) the date on
which all Equipment Notes of such Prior Series shall have been accelerated
(provided, in the case of the Series 2000-2, that if such acceleration occurs
prior to the Delivery Period Termination Date, the aggregate principal amount
thereof exceeds $300 million), the liquidity provider for such Prior Series with
the highest outstanding amount of Liquidity Obligations shall have the right to
become the Controlling Party with respect to any Indenture relating to such
Prior Series.
For purposes of giving effect to the rights of the Controlling Party for
each Prior Series, the Trustees of such Prior Series and the Class D Trustee
(other than such Controlling Party) shall irrevocably agree, and the
Certificateholders of such Prior Series and the Class D Certificateholders
(other than the Certificateholders represented by such Controlling Party) will
be deemed to agree by virtue of their purchase of Certificates, that the
Subordination Agent for such Prior Series, as record holder of the Equipment
Notes of such Prior Series and the related Series D Equipment Notes, shall
exercise its voting rights in respect of such Equipment Notes as directed by
such Controlling Party. (Intercreditor Agreements, Section 2.6) For a
description of certain limitations on each Controlling Party's rights to
exercise remedies, see "Description of the Equipment Notes--Remedies".
"Final Distributions" means, with respect to the Certificates of any Trust
(other than the Class D Trust) on any Distribution Date, the sum of (x) the
aggregate amount of all accrued and unpaid interest calculated at the applicable
Stated Interest Rate on the Pool Balance of such Certificates (excluding
interest payable on the Deposits relating to such Trust) and (y) the Pool
Balance of such Certificates as of the immediately preceding Distribution Date
(less the amount of the Deposits for such Class of Certificates as of such
preceding Distribution Date other than any portion of such Deposits thereafter
used to acquire Equipment Notes pursuant to the applicable note purchase
agreement). For purposes of calculating Final Distributions with respect to the
Certificates of any Trust (other than the Class D Trust), any premium paid on
the Equipment Notes held in such Trust which has not been distributed to the
Certificateholders of such Trust (other than such premium or a portion thereof
applied to the payment of interest on the Certificates of such Trust or the
reduction of the Pool Balance of such Trust) shall be added to the amount of
such Final Distributions.
SALE OF EQUIPMENT NOTES OR AIRCRAFT
Upon the occurrence and during the continuation of any Indenture Default
under any Indenture, the Controlling Party for the related Prior Series may
accelerate and, subject to the provisions of the immediately following sentence,
sell all (but not less than all) of the Equipment Notes issued under such
Indenture to any person. So long as, with respect to any Prior Series, any
Certificates of such Prior Series or any Class D Certificates are outstanding,
during nine months after the earlier of (x) the acceleration of the Equipment
Notes under any Indenture relating to such Prior Series and (y) the bankruptcy
or insolvency of Continental, without the consent of each Trustee of such Prior
Series and the Class D Trustee, no Aircraft subject to the lien of such
Indenture or such Equipment Notes may be sold, if the net proceeds from such
sale would be less than the Minimum Sale Price for such Aircraft or such
Equipment Notes. In addition, with respect to any Leased Aircraft, the amount
and payment dates of rentals payable by Continental under the related Lease may
not be adjusted during this nine-month period, if, as a result of such
adjustment, the discounted present value of all such rentals would be less than
75% of the discounted present value of the rentals payable by Continental under
such Lease before giving effect to such adjustment.
"Minimum Sale Price" means, with respect to any Aircraft or the Equipment
Notes issued in respect of such Aircraft, at any time, the lesser of (1) 75% of
the Appraised Current Market Value of such Aircraft and (2) the aggregate
outstanding principal amount of such Equipment Notes, plus accrued and unpaid
interest thereon. The Minimum Sale Price for such Aircraft and the discounted
present value of all rentals shall be determined using the weighted average
interest rate of the Equipment Notes outstanding under such Indenture as the
discount rate.
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PRIORITY OF DISTRIBUTIONS
BEFORE A TRIGGERING EVENT
So long as no Triggering Event shall have occurred (whether or not
continuing) with respect to a Prior Series, all payments in respect of the
Senior Equipment Notes held for Trusts under such Prior Series and Series D
Equipment Notes issued under Owned Aircraft Indentures relating to such Prior
Series and certain other payments received on any Distribution Date will be
promptly distributed by the Subordination Agent for such Prior Series on such
Distribution Date in the following order of priority:
-- To the Liquidity Provider for such Prior Series to the extent
required to pay the Liquidity Expenses for such Prior Series.
-- To the Liquidity Provider for such Prior Series to the extent
required to pay interest accrued on the Liquidity Obligations for
such Prior Series.
-- To the Liquidity Provider for such Prior Series to the extent
required to pay or reimburse such Liquidity Provider for certain
Liquidity Obligations for such Prior Series (other than amounts
payable pursuant to the two preceding clauses) and, if applicable, to
replenish each Cash Collateral Account for such Prior Series up to
the Required Amount for such Prior Series.
-- To the Class A Trustee of such Prior Series to the extent required to
pay Expected Distributions on the Class A Certificates of such Prior
Series.
-- To the Class B Trustee of such Prior Series to the extent required to
pay Expected Distributions on the Class B Certificates of such Prior
Series.
-- To the Class C Trustee of such Prior Series to the extent required to
pay Expected Distributions on the Class C Certificates of such Prior
Series.
-- To the Class D Trustee to the extent required to pay Expected
Distributions on the Class D Certificates.
-- To the Subordination Agent for such Prior Series and each Trustee of
such Prior Series and the Class D Trustee for the payment of certain
fees and expenses.
Notwithstanding the foregoing, on any Class D Regular Distribution Date
that is not a Special Distribution Date, no distributions will be made to the
Class A Trustee, the Class B Trustee or the Class C Trustee in respect of
Expected Distributions unless on the immediately preceding Distribution Date all
amounts payable to them in respect of Expected Distributions were not
distributed in full. In addition, on any Regular Distribution Date that is not a
Class D Regular Distribution Date or a Special Distribution Date, no
distributions will be made to the Class D Trustee in respect of Expected
Distributions unless on the immediately preceding Distribution Date all amounts
payable to the Class D Trustee in respect of Expected Distributions were not
distributed in full.
"Liquidity Obligations" means, with respect to any Prior Series, the
obligations to reimburse or to pay the Liquidity Provider for such Prior Series
all principal, interest, fees and other amounts owing to it under each Liquidity
Facility for such Prior Series or certain other agreements (or such lesser
amount as such Liquidity Provider may otherwise agree).
"Liquidity Expenses" means, with respect to any Prior Series, the Liquidity
Obligations for such Prior Series other than any interest accrued thereon or the
principal amount of any drawing under the Liquidity Facilities for such Prior
Series.
"Expected Distributions" means, with respect to the Certificates of any
Trust on any Distribution Date (the "Current Distribution Date"), the sum of (1)
accrued and unpaid interest calculated at the Stated
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Interest Rate on the Pool Balance of such Certificates (excluding interest, if
any, payable with respect to any Deposits relating to such Trust) and (2) the
difference between:
(A) the Pool Balance of such Certificates as of the immediately
preceding Distribution Date (or, if the Current Distribution Date is the
first Distribution Date for such Certificates, the original aggregate face
amount of the Certificates of such Trust) and
(B) the Pool Balance of such Certificates as of the Current
Distribution Date calculated on the basis that (i) the principal of the
Equipment Notes held in such Trust has been paid when due (whether at
stated maturity, upon redemption, prepayment, purchase, acceleration or
otherwise) and such payments have been distributed to the holders of such
Certificates and (ii) the principal of any Equipment Notes formerly held in
such Trust that have been sold pursuant to the Intercreditor Agreement
applicable to such Certificates has been paid in full and such payments
have been distributed to the holders of such Certificates, but without
giving effect to any reduction in the Pool Balance as a result of any
distribution attributable to Deposits occurring after the immediately
preceding Distribution Date (or, if the Current Distribution Date is the
first Distribution Date for such Certificates, occurring after the initial
issuance of the Certificates of such Trust).
For purposes of determining the priority of distributions on account of the
redemption, purchase or prepayment of all of the Equipment Notes issued pursuant
to an Indenture, clause (1) of the definition of Expected Distributions shall be
deemed to read as follows: "(1) accrued, due and unpaid interest calculated at
the Stated Interest Rate on the Pool Balance of such Certificates together with
(without duplication) accrued and unpaid interest on a portion of such
Certificates equal to the outstanding principal amount of the Equipment Notes
held in such Trust and being redeemed, purchased or prepaid (immediately prior
to such redemption, purchase or prepayment), in each case excluding interest, if
any, payable with respect to any Deposits relating to such Trust".
AFTER A TRIGGERING EVENT
Upon the occurrence of a Triggering Event with respect to a Prior Series
and at all times thereafter, all funds received by the Subordination Agent for
such Prior Series in respect of the Senior Equipment Notes held for Trusts under
such Prior Series and Series D Equipment Notes issued under Owned Aircraft
Indentures relating to such Prior Series and certain other payments will be
promptly distributed by such Subordination Agent in the following order of
priority:
-- To the Subordination Agent for such Prior Series, any Trustee of such
Prior Series, the Class D Trustee, any Certificateholder of such
Prior Series, any Class D Certificateholder and the Liquidity
Provider for such Prior Series to the extent required to pay certain
out-of-pocket costs and expenses actually incurred by such
Subordination Agent or any such Trustee or to reimburse any such
Certificateholder or such Liquidity Provider in respect of payments
made to such Subordination Agent or such Trustee in connection with
the protection or realization of the value of such Equipment Notes,
any Trust Indenture Estate under (and as defined in) any Leased
Aircraft Indenture under such Prior Series or Collateral under (and
as defined in) any Owned Aircraft Indenture under such Prior Series
(collectively, the "Administration Expenses").
-- To the Liquidity Provider for such Prior Series to the extent
required to pay the Liquidity Expenses for such Prior Series.
-- To the Liquidity Provider for such Prior Series to the extent
required to pay interest accrued on the Liquidity Obligations for
such Prior Series.
-- To the Liquidity Provider for such Prior Series to the extent
required to pay the outstanding amount of all Liquidity Obligations
for such Prior Series and, if applicable, with respect to any
particular Liquidity Facility under such Prior Series, unless (x)
less than 65% of the aggregate outstanding principal amount of all
Equipment Notes under such Prior Series are Performing Equipment
Notes and a Liquidity Event of Default shall have occurred and is
continuing under such Liquidity Facility or (y) a Final Drawing shall
have occurred under such Liquidity Facility, to replenish the Cash
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Collateral Account with respect to such Liquidity Facility up to the
Required Amount for the related Class of Certificates (less the
amount of any repayments of Interest Drawings under such Liquidity
Facility while sub-clause (x) of this clause is applicable).
-- To the Subordination Agent for such Prior Series, any Trustee of such
Prior Series, the Class D Trustee, any Certificateholder of such
Prior Series or any Class D Certificateholder to the extent required
to pay certain fees, taxes, charges and other amounts payable for
such Prior Series.
-- To the Class A Trustee for such Prior Series to the extent required
to pay Adjusted Expected Distributions on the Class A Certificates of
such Prior Series.
-- To the Class B Trustee for such Prior Series to the extent required
to pay Adjusted Expected Distributions on the Class B Certificates
for such Prior Series.
-- To the Class C Trustee for such Prior Series to the extent required
to pay Adjusted Expected Distributions on the Class C Certificates
for such Prior Series.
-- To the Class D Trustee to the extent required to pay Adjusted
Expected Distributions on the Class D Certificates.
"Adjusted Expected Distributions" means, with respect to the Certificates
of any Trust on any Current Distribution Date, the sum of (1) accrued and unpaid
interest calculated at the Stated Interest Rate on the Pool Balance of such
Certificates (excluding interest, if any, payable with respect to any Deposits
relating to such Trust) and (2) the greater of:
(A) the difference between (x) the Pool Balance of such Certificates
as of the immediately preceding Distribution Date (or, if the Current
Distribution Date is the first Distribution Date for such Certificates, the
original aggregate face amount of the Certificates of such Trust) and (y)
the Pool Balance of such Certificates as of the Current Distribution Date
calculated on the basis that (i) the principal of the Equipment Notes other
than Performing Equipment Notes (the "Non-Performing Equipment Notes") held
in such Trust has been paid in full and such payments have been distributed
to the holders of such Certificates, (ii) the principal of the Performing
Equipment Notes held in such Trust has been paid when due (but without
giving effect to any acceleration of such Performing Equipment Notes) and
such payments have been distributed to the holders of such Certificates and
(iii) the principal of any Equipment Notes formerly held in such Trust that
have been sold pursuant to the Intercreditor Agreement applicable to such
Certificates has been paid in full and such payments have been distributed
to the holders of such Certificates, but without giving effect to any
reduction in the Pool Balance as a result of any distribution attributable
to Deposits occurring after the immediately preceding Distribution Date
(or, if the Current Distribution Date is the first Distribution Date,
occurring after the initial issuance of the Certificates of such Trust),
and
(B) the amount of the excess, if any, of (i) the Pool Balance of such
Class of Certificates as of the immediately preceding Distribution Date
(or, if the Current Distribution Date is the first Distribution Date for
such Certificates, the original aggregate face amount of the Certificates
of such Trust), less the amount of any Deposits for such Class of
Certificates as of such preceding Distribution Date (or, if the Current
Distribution Date is the first Distribution Date for such Certificates, the
original aggregate amount of any Deposits for such Class of Certificates)
other than any portion of such Deposits thereafter used to acquire
Equipment Notes pursuant to the Note Purchase Agreement, over (ii) the
Aggregate LTV Collateral Amount for such Class of Certificates for the
Current Distribution Date;
PROVIDED that, until the date of the initial LTV Appraisals, clause (B) shall
not apply.
For purposes of calculating Expected Distributions or Adjusted Expected
Distributions with respect to the Certificates of any Trust, any premium paid on
the Equipment Notes held in such Trust that has not been distributed to the
Certificateholders of such Trust (other than such premium or a portion thereof
applied to the payment of interest on the Certificates of such Trust or the
reduction of the Pool Balance of such Trust) shall be added to the amount of
Expected Distributions or Adjusted Expected Distributions.
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Since the Pool Balance of the Class D Certificates corresponds to Series D
Equipment Notes issued under all Prior Series but the calculation of "Expected
Distributions" and "Adjusted Expected Distributions" relates only to a single
Prior Series, these terms must be modified when applied to the Class D
Certificates. Accordingly, for purposes of determining any distribution under
any Prior Series to the Class D Trustee, the terms "Expected Distributions" and
"Adjusted Expected Distributions" will be changed as follows: (i) the original
aggregate face amount of the Class D Certificates for purposes of such Prior
Series shall be deemed to be the amount set forth in the table below for such
Prior Series, (ii) any reference in such definitions to "Equipment Notes" shall
be deemed to refer to the Series D Equipment Notes issued under Owned Aircraft
Indentures relating to such Prior Series, (iii) any reference in such
definitions to the "Intercreditor Agreement applicable to such Certificates"
shall be deemed to refer to the Intercreditor Agreement for such Prior Series
and (iv) the Pool Balance of the Class D Certificates for purposes of such Prior
Series shall be deemed to be the amount set forth in the table below for such
Prior Series less the aggregate amount of all payments made in respect of the
Class D Certificates under the Intercreditor Agreement for such Prior Series or
in respect of Deposits relating to the Class D Trust other than payments made
under such Intercreditor Agreement in respect of interest or premium or
reimbursement of any costs or expenses incurred in connection therewith. The
Pool Balance for the Class D Certificates as of any Distribution Date for
purposes of determining Expected Distributions and Adjusted Expected
Distributions under the Intercreditor Agreement for any Prior Series shall be
computed after giving effect to any special distribution with respect to unused
Deposits, payment of principal of the Series D Equipment Notes of such Prior
Series or payment with respect to other Trust Property held in the Class D Trust
and the distribution thereof pursuant to such Intercreditor Agreement (except in
the case of such unused Deposits) to be made on that date.
DEEMED ORIGINAL
AGGREGATE FACE AMOUNT
PRIOR SERIES OF CLASS D CERTIFICATES
------------ -----------------------
1997-4................................................. $ 5,000
1998-1................................................. 22,235,385
1998-3................................................. 18,210,710
1999-1................................................. 69,734,783
1999-2................................................. 30,144,374
2000-1................................................. 22,408,994
2000-2................................................. 37,260,754
For each Prior Series, "Aggregate LTV Collateral Amount" for any Class of
Certificates for any Distribution Date means the (i) the sum of the applicable
LTV Collateral Amounts for each Aircraft financed under such Prior Series, minus
(ii) the Pool Balance for each Class of Certificates under such Prior Series, if
any, senior to such Class, after giving effect to any distribution of principal
on such Distribution Date with respect to such senior Class or Classes, minus
(iii) in the case of the Class D Certificates, the sum of the applicable LTV
Collateral Amounts for each Leased Aircraft securing Equipment Notes of such
Prior Series.
For each Prior Series, "LTV Collateral Amount" of any Aircraft financed
under such Prior Series for any Class of Certificates means, as of any
Distribution Date, the lesser of (i) the LTV Ratio for such Class of
Certificates and such Prior Series multiplied by the Appraised Current Market
Value of such Aircraft (or with respect to any such Aircraft which has suffered
an Event of Loss under and as defined in the relevant Lease, in the case of a
Leased Aircraft, or relevant Indenture, in the case of an Owned Aircraft, the
amount of the insurance proceeds paid to the related Loan Trustee in respect
thereof to the extent then held by such Loan Trustee (and/or on deposit in the
Special Payments Account for such Prior Series) or payable to such Loan Trustee
in respect thereof) and (ii) the outstanding principal amount of the Equipment
Notes issued in respect of such Aircraft after giving effect to any principal
payments of such Equipment Notes on or before such Distribution Date.
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For each Prior Series, "LTV Ratio" means, for each Class of Certificates as
of any date, the percentages set forth in the following table (in the case of
the Series 2000-1, for the applicable time period):
CLASS A CLASS B CLASS C CLASS D
PRIOR SERIES TIME PERIOD CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
------------ ------------------------- ------------ ------------ ------------ ------------
1997-4 44.0% 56.0% 68.0% 69.0%
1998-1 40.5 53.0 64.0 65.0
1998-3 45.0 54.0 67.0 68.0
1999-1 42.5 53.0 67.0 68.0
1999-2 40.53 50.18 61.76 62.80
2000-1 Up to May 1, 2005 41.0 51.0 63.0 64.0
May 2, 2005 - May 1, 2010 41.0 49.0 63.0 64.0
After May 1, 2010 39.0 47.0 63.0 NA
2000-2 42.0 54.0 64.0 67.0
"Appraised Current Market Value" of any Aircraft means the lower of the
average and the median of the most recent three LTV Appraisals of such Aircraft.
After a Triggering Event occurs with respect to any Prior Series and any
Equipment Note under such Prior Series becomes a Non-Performing Equipment Note,
the Subordination Agent for such Prior Series shall obtain LTV Appraisals of all
of the Aircraft financed under such Prior Series as soon as practicable and
additional LTV Appraisals on or prior to each anniversary of the date of such
initial LTV Appraisals; provided that if the Controlling Party for such Prior
Series reasonably objects to the appraised value of the Aircraft shown in such
LTV Appraisals, such Controlling Party shall have the right to obtain or cause
to be obtained substitute LTV Appraisals (including LTV Appraisals based upon
physical inspection of such Aircraft).
"LTV Appraisal" means a current fair market value appraisal (which may be a
"desk-top" appraisal) performed by any Appraiser or any other nationally
recognized appraiser on the basis of an arm's-length transaction between an
informed and willing purchaser under no compulsion to buy and an informed and
willing seller under no compulsion to sell and both having knowledge of all
relevant facts.
Interest Drawings under the Liquidity Facility and withdrawals from the
Cash Collateral Account, in each case in respect of interest on the Certificates
of any Trust (other than the Class D Trust), will be distributed to the Trustee
for such Trust, notwithstanding the priority of distributions set forth in any
Intercreditor Agreement and otherwise described herein. All amounts on deposit
in the Cash Collateral Account for any Trust that are in excess of the Required
Amount will be paid to the applicable Liquidity Provider.
VOTING OF EQUIPMENT NOTES
In the event that the Subordination Agent for any Prior Series, as the
registered holder of any Equipment Note under such Prior Series, receives a
request for its consent to any amendment, modification, consent or waiver under
such Equipment Note or the related Indenture (or, if applicable, the related
Lease, the related participation agreement or other related document), (i) if no
Indenture Default shall have occurred and be continuing with respect to such
Indenture, such Subordination Agent shall request instructions from the
Trustee(s) of such Prior Series and the Class D Trustee, and shall vote or
consent in accordance with the directions of such Trustee(s) and the Class D
Trustee, and (ii) if any Indenture Default (which, in the case of any Leased
Aircraft Indenture, has not been cured by the applicable Owner Trustee or Owner
Participant) shall have occurred and be continuing with respect to such
Indenture, such Subordination Agent will exercise its voting rights as directed
by the Controlling Party for such Prior Series, subject to certain limitations;
provided that no such amendment, modification, consent or waiver shall, without
the consent of the Liquidity Provider for such Prior Series, reduce the amount
of rent, supplemental rent or stipulated loss values payable by Continental
under any Lease relating to such Prior Series or reduce the amount of principal
or interest payable by Continental under any Equipment Note issued under any
Owned Aircraft Indenture under such Prior Series. (Intercreditor Agreements,
Section 9.1(b))
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THE SUBORDINATION AGENT
Wilmington Trust Company is the Subordination Agent under each
Intercreditor Agreement. Continental and its affiliates may from time to time
enter into banking and trustee relationships with the Subordination Agent and
its affiliates. The Subordination Agent's address is Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attention: Corporate Trust Administration.
Each Subordination Agent may resign at any time, in which event a successor
Subordination Agent will be appointed as provided in the applicable
Intercreditor Agreement. The Controlling Party for each Prior Series may remove
the Subordination Agent for such Series for cause as provided in the
Intercreditor Agreement for such Series. In such circumstances, a successor
Subordination Agent for such Series will be appointed as provided in the
Intercreditor Agreement for such Series. Any resignation or removal of any
Subordination Agent and appointment of a successor Subordination Agent for such
Series does not become effective until acceptance of the appointment by such
successor Subordination Agent. (Intercreditor Agreements, Section 8.1)
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DESCRIPTION OF THE AIRCRAFT
THE AIRCRAFT
The 63 Boeing aircraft expected to secure the Series D Equipment Notes to
be purchased by the Class D Trust pursuant to this Offering (the "Owned
Aircraft" and, together with the Leased Aircraft, the "Aircraft") will consist
of 59 aircraft that were acquired by Continental prior to the Issuance Date and
four aircraft scheduled for delivery from August 2001 to December 2001. The
Owned Aircraft acquired prior to the Issuance Date consist of nine Boeing
737-524 aircraft, 12 Boeing 737-724 aircraft, 13 Boeing 737-824 aircraft, two
Boeing 737-924 aircraft, 12 Boeing 757-224 aircraft, three Boeing 767-224ER
aircraft, four Boeing 767-424ER aircraft and four Boeing 777-224ER aircraft,
each of which was be newly delivered by the manufacturer. See "Prospectus
Supplement Summary--Equipment Notes and the Aircraft" for additional information
with respect to each such Owned Aircraft. The Owned Aircraft scheduled for
delivery after the Issuance Date consist of two Boeing 737-824 aircraft and two
Boeing 737-924 aircraft, each of which will be newly delivered by the
manufacturer during the Delivery Period. The Aircraft have been designed to be
in compliance with Stage 3 noise level standards, which are the most restrictive
regulatory standards currently in effect in the United States for aircraft noise
abatement.
BOEING 737-524 AIRCRAFT
The Boeing 737-524 aircraft is a medium-range aircraft with a seating
capacity of approximately 104 passengers. The engine type utilized on
Continental's 737-524 is the CFM International, Inc. CFM56-3-B1.
BOEING 737-724 AIRCRAFT
The Boeing 737-724 aircraft is a medium-range aircraft with a seating
capacity of approximately 124 passengers. The engine type utilized on
Continental's 737-724 aircraft is the CFM International, Inc. CFM56-7B24.
BOEING 737-824 AIRCRAFT
The Boeing 737-824 aircraft is a medium-range aircraft with a seating
capacity of approximately 150 passengers. The engine type utilized on
Continental's 737-824 aircraft is the CFM International, Inc. CFM56-7B26.
BOEING 737-924 AIRCRAFT
The Boeing 737-924 aircraft is a medium-range aircraft with a seating
capacity of approximately 167 passengers. The engine type utilized on
Continental's 737-924 aircraft is the CFM International, Inc. CFM56-7B26.
BOEING 757-224 AIRCRAFT
The Boeing 757-224 aircraft is a medium-range aircraft with a seating
capacity of approximately 183 passengers. The engine type utilized on
Continental's 757-224 aircraft is the Rolls-Royce RB211-535E4B.
BOEING 767-224ER AIRCRAFT
The Boeing 767-224ER aircraft is a long-range aircraft with a seating
capacity of approximately 174 passengers. The engine type utilized on
Continental's 767-224ER aircraft is the General Electric Company CF6-80C2B4F.
BOEING 767-424ER AIRCRAFT
The Boeing 767-424ER aircraft is a long-range aircraft with a seating
capacity of approximately 235 passengers. The engine type utilized on
Continental's 767-424ER aircraft is the General Electric CF6-80C2B8F.
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BOEING 777-224ER AIRCRAFT
The Boeing 777-224ER aircraft is a long-range aircraft with a seating
capacity of approximately 283 passengers. The engine type utilized on
Continental's 777-224ER aircraft is the General Electric GE90-90B.
FUTURE DELIVERIES OF AIRCRAFT
The table below sets forth certain information about the aircraft that may
be financed with the proceeds of this Offering and that were not acquired prior
to the Issuance Date. All of such aircraft relate to Series 2000-2. Under the
Note Purchase Agreement, Continental will select to be financed pursuant to this
Offering two of the ten Boeing 737-824 aircraft listed below and two of the six
Boeing 737-924 aircraft listed below.
EXPECTED MAXIMUM PRINCIPAL
REGISTRATION MANUFACTURER'S SCHEDULED DELIVERY AMOUNT OF SENIOR
AIRCRAFT TYPE NUMBER SERIAL NUMBER MONTH(1) EQUIPMENT NOTES(2)
-------------- ------------ -------------- ------------------ ------------------
Boeing 737-824 N37263 31583 August 2001 $30,712,500
Boeing 737-824 N33264 31584 August 2001 30,712,500
Boeing 737-824 N76265 31585 August 2001 30,712,500
Boeing 737-824 N33266 32403 August 2001 30,712,500
Boeing 737-824 N37267 31586 September 2001 30,712,500
Boeing 737-824 N38268 31587 September 2001 30,712,500
Boeing 737-824 N76269 31588 October 2001 30,915,000
Boeing 737-824 N73270 31632 October 2001 30,915,000
Boeing 737-824 N35271 31589 November 2001 30,915,000
Boeing 737-824 N36272 31590 November 2001 30,915,000
Boeing 737-924 N72405 30122 August 2001 32,076,000
Boeing 737-924 N73406 30123 September 2001 32,076,000
Boeing 737-924 N37407 30124 September 2001 32,076,000
Boeing 737-924 N37408 30125 October 2001 32,274,000
Boeing 737-924 N75409 30126 November 2001 32,274,000
Boeing 737-924 N75410 30127 December 2001 32,274,000
------------
(1) The actual delivery date for any new aircraft may be subject to delay or
acceleration.
(2) The actual principal amount of Senior Equipment Notes issued for any new
aircraft may be less depending on the circumstances of the financing of such
aircraft.
The new aircraft that may be financed with the proceeds of this Offering
are scheduled for delivery under Continental's purchase agreements with The
Boeing Company ("Boeing") from August 2001 through December 2001. Under such
purchase agreements, delivery of an aircraft may be delayed due to "Excusable
Delay", which is defined to include, among other things, acts of God,
governmental acts or failures to act, strikes or other labor troubles, inability
to procure materials, or any other cause beyond Boeing's control or not
occasioned by Boeing's fault or negligence.
The Note Purchase Agreement provides that the delivery period (the
"Delivery Period") will expire on February 1, 2002, subject to extension if the
Equipment Notes relating to all of the Owned Aircraft (or Substitute Aircraft in
lieu thereof) have not been purchased by the Class D Trustee on or prior to such
date due to any reason beyond the control of Continental and not occasioned by
Continental's fault or negligence, to the earlier of (i) the date on which the
Class D Trustee purchases Equipment Notes relating to the last Owned Aircraft
(or a Substitute Aircraft in lieu thereof) and (ii) May 1, 2002. In addition, if
a labor strike occurs at Boeing prior to the scheduled expiration of the
Delivery Period, the expiration date of the Delivery Period will be extended by
the number of days that such strike continued in effect.
If delivery of any new Owned Aircraft is delayed by more than 30 days after
the month scheduled for delivery or beyond February 1, 2002, Continental has the
right to replace such Aircraft with a Substitute Aircraft, subject to certain
conditions. See "--Substitute Aircraft". If delivery of any new Owned Aircraft
is delayed beyond the Delivery Period Termination Date and Continental does not
exercise its right to replace
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such Aircraft with a Substitute Aircraft, there will be unused Deposits that
will be distributed to Class D Certificateholders together with accrued and
unpaid interest thereon but without a premium. See "Description of the Deposit
Agreement--Unused Deposits".
SUBSTITUTE AIRCRAFT
If the delivery date for any new Owned Aircraft is delayed (i) more than 30
days after the month scheduled for delivery or (ii) beyond February 1, 2002,
Continental may identify for delivery a substitute aircraft (each, together with
the substitute aircraft referred to below, a "Substitute Aircraft") therefor
meeting the following conditions:
-- A Substitute Aircraft must be a Boeing 737-800 or 737-900 aircraft
manufactured after November 28, 2000.
-- One or more Substitute Aircraft of the same or different types may be
substituted for one or more Owned Aircraft of the same or different
types so long as after giving effect thereto the maximum principal
amount of Senior Equipment Notes and Series D Equipment Notes issued
in respect of the Substitute Aircraft under the Mandatory Economic
Terms would not exceed the maximum principal amount of the Senior
Equipment Notes and Series D Equipment Notes that could have been
issued under the Mandatory Economic Terms in respect of the replaced
Owned Aircraft.
-- Continental will be obligated to obtain written confirmation from
each Rating Agency that substituting such Substitute Aircraft for the
replaced Owned Aircraft will not result in a withdrawal, suspension
or downgrading of the ratings of the Class D Certificates or any
Class of Certificates under Series 2000-2.
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DESCRIPTION OF THE EQUIPMENT NOTES
The following summary describes all material terms of the Series D
Equipment Notes and supplements (and, to the extent inconsistent therewith,
replaces) the description of the general terms and provisions relating to the
Series D Equipment Notes, the Indentures, the Participation Agreements and the
Note Purchase Agreement set forth in the Prospectus. The summaries make use of
terms defined in and are qualified in their entirety by reference to all of the
provisions of the Series D Equipment Notes, the Indentures, the Participation
Agreements and the Note Purchase Agreement. The Note Purchase Agreement and the
forms of amendments to the Participation Agreement and Owned Aircraft Indenture
providing for the issuance of the Series D Equipment Notes will be filed as an
exhibit to a Current Report on Form 8-K filed by Continental with the
Commission. The forms of Participation Agreement and Owned Aircraft Indenture
were previously filed as exhibits to Form 8-K filings. Except as otherwise
indicated, the following summaries relate to the Equipment Notes, the Indenture
and the Participation Agreement that may be applicable to each Owned Aircraft.
Continental has entered into a Participation Agreement and an Owned
Aircraft Indenture relating to the financing of each Owned Aircraft delivered
prior to the Issuance Date (each of which will be amended on the Issuance Date
to provide for the issuance of the Series D Equipment Notes), and will enter
into such agreements for each Owned Aircraft financed under the Note Purchase
Agreement after the Issuance Date.
GENERAL
The Prior Series provide for the issuance of Equipment Notes in up to three
levels of priority with respect to each Aircraft (the "Series A Equipment
Notes", the "Series B Equipment Notes" and the "Series C Equipment Notes", which
are referred to collectively as the "Senior Equipment Notes"). Pursuant to the
terms of the offering of the Class D Certificates, a fourth series of Equipment
Notes (the "Series D Equipment Notes" and, together with the Senior Equipment
Notes, the "Equipment Notes") will be issued with respect to each Owned
Aircraft. The Series D Equipment Notes with respect to each Owned Aircraft will
be issued under a separate indenture relating to the financing of such Owned
Aircraft (each, an "Owned Aircraft Indenture", and together with the other Owned
Aircraft Indentures and the Leased Aircraft Indentures, the "Indentures")
between Continental and Wilmington Trust Company, as indenture trustee
thereunder (each, an "Owned Aircraft Trustee" and, together with the other Owned
Aircraft Trustees and the indenture trustees under each of the Leased Aircraft
Indentures, the "Loan Trustees"). The Indentures will not provide for
defeasance, or discharge upon deposit of cash or certain obligations of the
United States, notwithstanding the description of defeasance in the Prospectus.
SUBORDINATION
The Indentures provide for the following subordination provisions
applicable to the Equipment Notes issued with respect to the Owned Aircraft:
-- Series A Equipment Notes issued in respect of an Aircraft will rank
senior to other Equipment Notes issued in respect of such Aircraft.
-- Series B Equipment Notes issued in respect of an Aircraft will rank
junior in right of payment to the Series A Equipment Notes issued in
respect of such Aircraft and will rank senior to the Series C
Equipment Notes and Series D Equipment Notes issued in respect of
such Aircraft.
-- Series C Equipment Notes issued in respect of an Aircraft will rank
junior to the Series A and Series B Equipment Notes issued in respect
of such Aircraft and senior to the Series D Equipment Notes issued in
respect of such Aircraft.
-- Series D Equipment Notes issued in respect to an Aircraft will rank
junior in right of payment to the Series A, B and C Equipment Notes
issued with respect to such Aircraft.
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PRINCIPAL AND INTEREST PAYMENTS
Subject to the provisions of any applicable Intercreditor Agreement,
interest paid on the Series D Equipment Notes held in the Class D Trust will be
passed through to the Certificateholders of such Trust until the final expected
Class D Regular Distribution Date. Subject to the provisions of any applicable
Intercreditor Agreement, principal paid on the Series D Equipment Notes held in
the Class D Trust will be passed through to the Certificateholders of such Trust
on the final expected Class D Regular Distribution Date.
Interest will be payable on the unpaid principal amount of each Series D
Equipment Note at the rate per annum set forth for the Class D Certificates on
the cover page of this Prospectus Supplement. Such interest is payable on June 1
and December 1 of each year, commencing on the first such date to occur after
initial issuance thereof. Such interest will be computed on the basis of a
360-day year of twelve 30-day months.
The entire principal amount of the Series D Equipment Notes is scheduled to
be paid on December 1, 2006.
If any date scheduled for a payment of principal, premium (if any) or
interest with respect to the Series D Equipment Notes is not a Business Day,
such payment will be made on the next succeeding Business Day without any
additional interest.
REDEMPTION
If an Event of Loss occurs with respect to an Owned Aircraft and such
Aircraft is not replaced by Continental under the related Owned Aircraft
Indenture, the Equipment Notes issued with respect to such Aircraft will be
redeemed, in whole, in each case at a price equal to the aggregate unpaid
principal amount thereof, together with accrued interest thereon to, but not
including, the date of redemption, but without premium, on a Special
Distribution Date. (Owned Aircraft Indentures, Section 2.10)
All of the Equipment Notes issued with respect to the Owned Aircraft may be
redeemed prior to maturity at any time at the option of Continental, in each
case at a price equal to the aggregate unpaid principal thereof, together with
accrued and unpaid interest thereon to, but not including, the date of
redemption, plus a Make-Whole Premium. (Indentures, Section 2.11)
"Make-Whole Premium" means an amount (as determined by an independent
investment bank of national standing) equal to the excess, if any, of (a) the
present value of the remaining scheduled payments of principal and interest to
maturity of such Equipment Note computed by discounting such payments on a
semiannual basis on each payment date under the applicable Indenture (assuming a
360-day year of twelve 30-day months) using a discount rate equal to the
Treasury Yield over (b) the outstanding principal amount of such Equipment Note
plus accrued interest to the date of determination.
For purposes of determining the Make-Whole Premium, "Treasury Yield" means,
at the date of determination with respect to any Equipment Note, the interest
rate (expressed as a decimal and, in the case of United States Treasury bills,
converted to a bond equivalent yield) determined to be the per annum rate equal
to the semiannual yield to maturity for United States Treasury securities
maturing on the Average Life Date of such Equipment Note and trading in the
public securities markets either as determined by interpolation between the most
recent weekly average yield to maturity for two series of United States Treasury
securities trading in the public securities markets, (A) one maturing as close
as possible to, but earlier than, the Average Life Date of such Equipment Note
and (B) the other maturing as close as possible to, but later than, the Average
Life Date of such Equipment Note, in each case as published in the most recent
H.15(519) or, if a weekly average yield to maturity for United States Treasury
securities maturing on the Average Life Date of such Equipment Note is reported
in the most recent H.15(519), such weekly average yield to maturity as published
in such H.15(519). "H.15(519)" means the weekly statistical release designated
as such, or any successor publication, published by the Board of Governors of
the Federal Reserve System. The date of determination of a Make-Whole Premium
shall be the third Business Day prior to the applicable payment or redemption
date and the "most recent H.15(519)" means the H.15(519) published prior to the
close of business on the third Business Day prior to the applicable payment or
redemption date.
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"Average Life Date" for any Equipment Note shall be the date which follows
the time of determination by a period equal to the Remaining Weighted Average
Life of such Equipment Note. "Remaining Weighted Average Life" on a given date
with respect to any Equipment Note shall be the number of days equal to the
quotient obtained by dividing (a) the sum of each of the products obtained by
multiplying (i) the amount of each then remaining scheduled payment of principal
of such Equipment Note by (ii) the number of days from and including such
determination date to but excluding the date on which such payment of principal
is scheduled to be made, by (b) the then outstanding principal amount of such
Equipment Note.
SECURITY
The Equipment Notes issued with respect to each Owned Aircraft will be
secured by:
-- A mortgage to the Owned Aircraft Trustee of such Aircraft.
-- An assignment to the Owned Aircraft Trustee of certain of
Continental's rights under its purchase agreement with the Aircraft
manufacturer.
Cash, if any, held from time to time by the Owned Aircraft Trustee with
respect to any Owned Aircraft, including funds held as the result of an Event of
Loss to such Aircraft will be invested and reinvested by such Owned Aircraft
Trustee, at the direction of Continental in investments described in the related
Indenture. (Owned Aircraft Indentures, Section 6.06)
INDENTURE DEFAULTS, NOTICE AND WAIVER
Indenture Defaults under each Owned Aircraft Indenture will include:
-- The failure by Continental to pay any interest or principal or
premium, if any, when due, under such Indenture or under any
Equipment Note issued thereunder that continues for more than ten
Business Days, in the case of principal, interest or Make-Whole
Premium, and, in all other cases, ten Business Days after Continental
receives written demand from the related Owned Aircraft Trustee or
holder of an Equipment Note.
-- Any representation or warranty made by Continental in such Indenture,
the related participation agreement (a "Participation Agreement") or
certain related documents furnished to the Owned Aircraft Trustee or
any holder of an Equipment Note pursuant thereto being false or
incorrect in any material respect when made that continues to be
material and adverse to the interests of the Owned Aircraft Trustee
or Note Holders and remains unremedied after notice and specified
cure periods.
-- Failure by Continental to perform or observe any covenant or
obligation for the benefit of the Owned Aircraft Trustee or holders
of Equipment Notes under such Indenture or certain related documents
that continues after notice and specified cure periods.
-- The registration of the related Owned Aircraft ceasing to be
effective as a result of Continental not being a citizen of the
United States, as defined in the Transportation Code (subject to a
cure period).
-- The lapse or cancellation of insurance required under the related
Owned Aircraft Indenture.
-- The occurrence of certain events of bankruptcy, reorganization or
insolvency of Continental. (Owned Aircraft Indentures, Section 5.01)
There will not be cross-default provisions in the Indentures or in the
Leases (unless otherwise agreed between an Owner Participant and Continental).
Consequently, events resulting in an Indenture Default under any particular
Indenture may or may not result in an Indenture Default occurring under any
other Indenture, and a Lease Event of Default under any particular Lease may or
may not constitute a Lease Event of Default under any other Lease.
The holders of a majority in principal amount of the outstanding Equipment
Notes issued with respect to any Owned Aircraft, by notice to the Owned Aircraft
Trustee, may on behalf of all the holders waive any existing default and its
consequences under the Indenture with respect to such Aircraft, except a default
in the
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payment of the principal of, or premium or interest on any such Equipment Notes
or a default in respect of any covenant or provision of such Indenture that
cannot be modified or amended without the consent of each holder of Equipment
Notes. (Owned Aircraft Indentures, Section 5.06)
REMEDIES
If an Indenture Default occurs and is continuing under an Owned Aircraft
Indenture, the related Owned Aircraft Trustee or the holders of a majority in
principal amount of the Equipment Notes outstanding under such Indenture may
declare the principal of all such Equipment Notes issued thereunder immediately
due and payable, together with all accrued but unpaid interest thereon, provided
that in the event of a reorganization proceeding involving Continental
instituted under Chapter 11 of the U.S. Bankruptcy Code, if no other Indenture
Default (other than the failure to pay the outstanding amount of the Equipment
Notes which by such declaration shall have become payable) exists at any time
after the consummation of such proceeding, such declaration will be
automatically rescinded without any further action on the part of any holder of
Equipment Notes. The holders of a majority in principal amount of Equipment
Notes outstanding under an Indenture may rescind any declaration of acceleration
of such Equipment Notes at any time before the judgment or decree for the
payment of the money so due shall be entered if (i) there has been paid to the
related Owned Aircraft Trustee an amount sufficient to pay all principal,
interest, and premium, if any, on any such Equipment Notes, to the extent such
amounts have become due otherwise than by such declaration of acceleration and
(ii) all other Indenture Defaults and incipient Indenture Defaults with respect
to any covenant or provision of such Indenture have been cured. (Owned Aircraft
Indentures, Section 5.02(b))
Each Indenture provides that if an Indenture Default under such Indenture
has occurred and is continuing, the related Owned Aircraft Trustee may exercise
certain rights or remedies available to it under such Indenture or under
applicable law, including one or more of the remedies under such Indenture.
If the Equipment Notes issued in respect of one Aircraft are in default,
the Equipment Notes issued in respect of the other Aircraft may not be in
default, and, if not, no remedies will be exercisable under the applicable
Indentures with respect to such other Aircraft.
In the case of Chapter 11 bankruptcy proceedings in which an air carrier is
a debtor, Section 1110 of the U.S. Bankruptcy Code ("Section 1110") provides
special rights to lessors, conditional vendors and holders of security interests
with respect to "equipment" (defined as described below). Under Section 1110,
the right of such financing parties to take possession of such equipment in
compliance with the provisions of a lease, conditional sale contract or security
agreement is not affected by any provision of the U.S. Bankruptcy Code or any
power of the bankruptcy court. Such right to take possession may not be
exercised for 60 days following the date of commencement of the reorganization
proceedings. Thereafter, such right to take possession may be exercised during
such proceedings unless, within the 60-day period or any longer period consented
to by the relevant parties, the debtor agrees to perform its future obligations
and cures all existing and future defaults on a timely basis. Defaults resulting
solely from the financial condition, bankruptcy, insolvency or reorganization of
the debtor need not be cured.
"Equipment" is defined in Section 1110, in part, as an aircraft, aircraft
engine, propeller, appliance, or spare part (as defined in Section 40102 of
Title 49 of the U.S. Code) that is subject to a security interest granted by,
leased to, or conditionally sold to a debtor that, at the time such transaction
is entered into, holds an air carrier operating certificate issued pursuant to
chapter 447 of Title 49 of the U.S. Code for aircraft capable of carrying ten or
more individuals or 6,000 pounds or more of cargo. Rights under Section 1110 are
subject to certain limitations in the case of equipment first placed in service
on or prior to October 22, 1994.
It is a condition to the Class D Trustee's obligation to purchase Series D
Equipment Notes with respect to each Owned Aircraft that outside counsel to
Continental, which is expected to be Hughes Hubbard & Reed LLP, provide its
opinion to the Class D Trustee that the Owned Aircraft Trustee will be entitled
to the benefits of Section 1110 with respect to the airframe and engines
comprising such Owned Aircraft, in each case assuming that, at the time of such
transaction, Continental holds an air carrier operating certificate issued
pursuant to chapter 447 of Title 49 of the U.S. Code for aircraft capable of
carrying ten or more individuals or
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6,000 pounds or more of cargo. For a description of certain limitations on the
Owned Aircraft Trustee's exercise of rights contained in the Indenture, see
"--Indenture Defaults, Notice and Waiver".
The opinion of Hughes Hubbard & Reed LLP will not address the possible
replacement of an Owned Aircraft after an Event of Loss in the future, the
consummation of which is conditioned upon the contemporaneous delivery of an
opinion of counsel to the effect that the related Owned Aircraft Trustee will be
entitled to Section 1110 benefits with respect to such replacement unless there
is a change in law or court interpretation that results in Section 1110 not
being available. See "--Certain Provisions Relating to the Aircraft--Events of
Loss". The opinion of Hughes Hubbard & Reed LLP will also not address the
availability of Section 1110 with respect to any possible lessee of an Owned
Aircraft if it is leased by Continental.
If an Indenture Default under any Indenture occurs and is continuing, any
sums held or received by the related Loan Trustee may be applied to reimburse
such Owned Aircraft Trustee for any tax, expense or other loss incurred by it
and to pay any other amounts due to such Owned Aircraft Trustee prior to any
payments to holders of the Equipment Notes issued under such Indenture.
(Indentures, Section 3.03)
CROSS-COLLATERALIZATION
The Series D Equipment Notes held for the Class D Trust will be
cross-collateralized. This means that proceeds available from the sale of an
Aircraft that secures such Series D Equipment Notes or from other exercise of
remedies with respect to such Aircraft, after the payment of all other Equipment
Notes issued with respect to such Aircraft, will be available to cover
shortfalls with respect to other Series D Equipment Notes issued with respect to
the same Prior Series. In the absence of any such shortfall, such excess
proceeds will be held as additional collateral for the outstanding Series D
Equipment Notes issued with respect to the same Prior Series until they have
been paid in full and, once paid in full, for the Series D Equipment Notes
issued with respect to the other Prior Series.
Such excess proceeds will be subject to the Intercreditor Agreement of the
Prior Series under which the Owned Aircraft that produced such excess proceeds
was financed. As a result, such excess proceeds will be applied to satisfy
required distributions to the Certificates of such Prior Series before any
distribution is made to the Class D Trustee. However, excess proceeds used to
pay Series D Equipment Notes of another Prior Series will not be subject to the
Intercreditor Agreement of such other Prior Series.
MODIFICATION OF INDENTURES
Without the consent of holders of a majority in principal amount of the
Equipment Notes outstanding under any Indenture, the provisions of such
Indenture and any related Participation Agreement may not be amended or
modified, except to the extent indicated below.
Any Indenture may be amended without the consent of the holders of Series D
Equipment Notes to, among other things, cure any defect or inconsistency in such
Indenture or the Series D Equipment Notes issued thereunder, provided that such
change does not adversely affect the interests of any such holder. (Owned
Aircraft Indentures, Section 10.01)
Without the consent of the Liquidity Provider of the applicable Prior
Series and the holder of each Equipment Note outstanding under any Indenture
affected thereby, no amendment or modification of such Indenture may among other
things (a) reduce the principal amount of, or premium, if any, or interest
payable on, any Equipment Notes issued under such Indenture or change the date
on which any principal, premium, if any, or interest is due and payable, (b)
permit the creation of any security interest with respect to the property
subject to the lien of such Indenture, except as provided in such Indenture, or
deprive any holder of an Equipment Note issued under such Indenture of the
benefit of the lien of such Indenture upon the property subject thereto or (c)
modify the percentage of holders of Equipment Notes issued under such Indenture
required to take or approve any action under such Indenture. (Owned Aircraft
Indentures, Section 10.01(a))
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INDEMNIFICATION
Continental will be required to indemnify each Owned Aircraft Trustee, the
Subordination Agent, the Escrow Agent and each Trustee, but not the holders of
Certificates, for certain losses, claims and other matters.
CERTAIN PROVISIONS RELATING TO THE AIRCRAFT
MAINTENANCE
Continental is obligated under each Owned Aircraft Indenture, among other
things and at its expense, to keep each Owned Aircraft duly registered and
insured, to pay all costs of operating the Owned Aircraft and to maintain,
service, repair and overhaul the Owned Aircraft so as to keep it in as good an
operating condition as when delivered to Continental, ordinary wear and tear
excepted, and in such condition as required to maintain the airworthiness
certificate for the Owned Aircraft in good standing at all times. (Owned
Aircraft Indentures, Section 4.02)
POSSESSION, LEASE AND TRANSFER
Each Owned Aircraft may be operated by Continental or, subject to certain
restrictions, by certain other persons. Normal interchange and pooling
agreements customary in the commercial airline industry with respect to any
Airframe or Engine are permitted. Leases are also permitted to U.S. air carriers
and foreign air carriers that have their principal executive office in certain
specified countries, subject to a reasonably satisfactory legal opinion that,
among other things, such country would recognize the Owned Aircraft Trustee's
security interest in respect of the applicable Aircraft. In addition, a lessee
may not be subject to insolvency or similar proceedings at the commencement of
such lease. (Owned Aircraft Indentures, Section 4.02) Permitted foreign air
carriers are not limited to those based in a country that is a party to the
Convention on the International Recognition of Rights in Aircraft (Geneva 1948)
(the "Convention"). It is uncertain to what extent the relevant Owned Aircraft
Trustee's security interest would be recognized if an Owned Aircraft is
registered or located in a jurisdiction not a party to the Convention. Moreover,
in the case of an Indenture Default, the ability of the related Owned Aircraft
Trustee to realize upon its security interest in an Owned Aircraft could be
adversely affected as a legal or practical matter if such Aircraft were
registered or located outside the United States.
REGISTRATION
Continental is required to keep each Owned Aircraft duly registered under
the Transportation Code with the FAA, and to record each Owned Aircraft
Indenture and certain other documents under the Transportation Code. (Owned
Aircraft Indentures, Section 4.02(e)) Such recordation of the Owned Aircraft
Indenture and certain other documents with respect to each Owned Aircraft will
give the relevant Owned Aircraft Trustee a first-priority, perfected security
interest in such Aircraft whenever it is located in the United States or any of
its territories and possessions. The Convention provides that such security
interest will also be recognized, with certain limited exceptions, in those
jurisdictions that have ratified or adhere to the Convention.
So long as no Indenture Default exists, Continental has the right to
register the Owned Aircraft in a country other than the United States at its own
expense in connection with a permitted lease of the Owned Aircraft to a
permitted foreign air carrier, subject to certain conditions set forth in the
related Participation Agreement. These conditions include a requirement that an
opinion of counsel be provided that the lien of the applicable Indenture will
continue as a first priority security interest in the applicable Owned Aircraft.
(Owned Aircraft Indentures, Section 4.02(e))
LIENS
Continental is required to maintain each Owned Aircraft free of any liens,
other than the rights of the relevant Owned Aircraft Trustee, the holders of the
related Equipment Notes, Continental and other than certain limited liens
permitted under such documents, including but not limited to (i) liens for taxes
either not
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yet due or being contested in good faith by appropriate proceedings; (ii)
materialmen's, mechanics' and other similar liens arising in the ordinary course
of business and securing obligations that either are not yet delinquent for more
than 60 days or are being contested in good faith by appropriate proceedings;
(iii) judgment liens so long as such judgment is discharged or vacated within 60
days or the execution of such judgment is stayed pending appeal or discharged,
vacated or reversed within 60 days after expiration of such stay; and (iv) any
other lien as to which Continental has provided a bond or other security
adequate in the reasonable opinion of the Owned Aircraft Trustee; provided that
in the case of each of the liens described in the foregoing clauses (i), (ii)
and (iii), such liens and proceedings do not involve any material risk of the
sale, forfeiture or loss of such Aircraft or the interest of the Owned Aircraft
Trustee therein or impair the lien of the relevant Owned Aircraft Indenture.
(Owned Aircraft Indentures, Section 4.01)
REPLACEMENT OF PARTS; ALTERATIONS
Continental is obligated to replace all parts at its expense that may from
time to time be incorporated or installed in or attached to any Owned Aircraft
and that may become lost, damaged beyond repair, worn out, stolen, seized,
confiscated or rendered permanently unfit for use. Continental or any permitted
lessee has the right, at its own expense, to make such alterations,
modifications and additions with respect to each Owned Aircraft as it deems
desirable in the proper conduct of its business and to remove parts which it
deems to be obsolete or no longer suitable or appropriate for use, so long as
such alteration, modification, addition or removal does not materially diminish
the fair market value, utility, condition or useful life of the related Aircraft
or Engine or invalidate the Aircraft's airworthiness certificate. (Owned
Aircraft Indentures, Section 4.04(d))
INSURANCE
Continental is required to maintain, at its expense (or at the expense of a
permitted lessee), all-risk aircraft hull insurance covering each Owned
Aircraft, at all times in an amount not less than, the aggregate outstanding
principal amount of the Equipment Notes relating to such Aircraft together with
six months of interest accrued thereon (the "Debt Balance"). However, after
giving effect to self-insurance permitted as described below, the amount payable
under such insurance may be less than such amounts payable with respect to the
Equipment Notes. In the event of a loss involving insurance proceeds in excess
of $3,500,000 per occurrence in the case of a Boeing 737-500, 737-700, 737-824
or 737-924 aircraft, $5,000,000 per occurrence in the case of a Boeing 757-224
aircraft or $7,500,000 per occurrence in the case of a Boeing 767-224, 767-
424ER or 777-224ER aircraft, such proceeds up to the Debt Balance of the
relevant Owned Aircraft will be payable to the applicable Owned Aircraft
Trustee, for so long as the relevant Owned Aircraft Indenture shall be in
effect. In the event of a loss involving insurance proceeds of up to $3,500,000
per occurrence in the case of a Boeing 737-500, 737-700, 737-824 or 737-924
aircraft, $5,000,000 per occurrence in the case of a Boeing 757-224 aircraft or
$7,500,000 per occurrence in the case of a Boeing 767-224, 767-424ER or
777-224ER aircraft, such proceeds will be payable directly to Continental so
long as an Indenture Default does not exist with respect to the Owned Aircraft
Indenture. So long as the loss does not constitute an Event of Loss, insurance
proceeds will be applied to repair or replace the property. (Owned Aircraft
Indentures, Section 4.06 and Annex B)
In addition, Continental is obligated to maintain comprehensive airline
liability insurance at its expense (or at the expense of a permitted lessee),
including, without limitation, passenger liability, baggage liability, cargo and
mail liability, hangarkeeper's liability and contractual liability insurance
with respect to each Owned Aircraft. Such liability insurance must be
underwritten by insurers of nationally or internationally recognized
responsibility. The amount of such liability insurance coverage per occurrence
may not be less than the amount of comprehensive airline liability insurance
from time to time applicable to aircraft owned or leased and operated by
Continental of the same type and operating on similar routes as such Aircraft.
(Owned Aircraft Indentures, Section 4.06 and Annex B)
Continental is also required to maintain war-risk, hijacking or allied
perils insurance if it (or any permitted lessee) operates any Owned Aircraft,
Airframe or Engine in any area of recognized hostilities or if Continental (or
any permitted lessee) maintains such insurance with respect to other aircraft
operated on the
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same international routes or areas on or in which the Aircraft is operated.
(Owned Aircraft Indentures, Section 4.06 and Annex B)
Continental may self-insure under a program applicable to all aircraft in
its fleet, but the amount of such self-insurance in the aggregate may not exceed
50% of the largest replacement value of any single aircraft in Continental's
fleet or 1 1/2% of the average aggregate insurable value (during the preceding
policy year) of all aircraft on which Continental carries insurance, whichever
is less, unless an insurance broker of national standing shall certify that the
standard among all other major U.S. airlines is a higher level of
self-insurance, in which case Continental may self-insure the Owned Aircraft to
such higher level. In addition, Continental may self-insure to the extent of any
applicable deductible per Owned Aircraft that does not exceed industry standards
for major U.S. airlines. (Owned Aircraft Indentures, Section 4.06 and Annex B)
In respect of each Owned Aircraft, Continental is required to name as
additional insured parties the relevant Owned Aircraft Trustee and holders of
the Series D Equipment Notes under all liability, hull and property and war
risk, hijacking and allied perils insurance policies required with respect to
such Aircraft. In addition, the insurance policies will be required to provide
that, in respect of the interests of such additional insured persons, the
insurance shall not be invalidated or impaired by any act or omission of
Continental, any permitted lessee or any other person. (Owned Aircraft
Indentures, Section 4.06 and Annex B)
EVENTS OF LOSS
If an Event of Loss occurs with respect to the Airframe or the Airframe and
Engines of an Owned Aircraft, Continental must elect within 45 days after such
occurrence either to make payment with respect to such Event of Loss or to
replace such Airframe and any such Engines. Not later than the first Business
Day following the earlier of (i) the 120th day following the date of occurrence
of such Event of Loss, and (ii) the fourth Business Day following the receipt of
the insurance proceeds in respect of such Event of Loss, Continental must either
(i) pay to the Owned Aircraft Trustee the outstanding principal amount of the
Equipment Notes, together with certain additional amounts, but, in any case,
without any Make-Whole Premium or (ii) unless an Indenture Default or failure to
pay principal or interest under the Owned Aircraft Indenture or certain
bankruptcy defaults shall have occurred and is continuing, substitute an
airframe (or airframe and one or more engines, as the case may be) for the
Airframe, or Airframe and Engine(s), that suffered such Event of Loss. (Owned
Aircraft Indentures, Sections 2.10 and 4.05(a))
If Continental elects to replace an Airframe (or Airframe and one or more
Engines, as the case may be) that suffered such Event of Loss, it shall, subject
such an airframe (or airframe and one or more engines) to the lien of the Owned
Aircraft Indenture, and such replacement airframe or airframe and engines must
be the same model as the Airframe or Airframe and Engines to be replaced or an
improved model, with a value, utility and remaining useful life (without regard
to hours or cycles remaining until the next regular maintenance check) at least
equal to the Airframe or Airframe and Engines to be replaced, assuming that such
Airframe and such Engines had been maintained in accordance with the related
Owned Aircraft Indenture. Continental is also required to provide to the
relevant Owned Aircraft Trustee reasonably acceptable opinions of counsel to the
effect, among other things, that (i) certain specified documents have been duly
filed under the Transportation Code and (ii) the Owned Aircraft Trustee will be
entitled to receive the benefits of Section 1110 of the U.S. Bankruptcy Code
with respect to any such replacement airframe (unless, as a result of a change
in law or court interpretation, such benefits are not then available). (Owned
Aircraft Indentures, Section 4.05(c))
If Continental elects not to replace such Airframe, or Airframe and
Engine(s), then upon payment of the outstanding principal amount of the
Equipment Notes issued with respect to such Owned Aircraft, together with all
additional amounts then due and unpaid with respect to such Aircraft, which must
be at least sufficient to pay in full as of the date of payment thereof the
aggregate unpaid principal amount under such Equipment Notes together with
accrued but unpaid interest thereon and all other amounts due and owing in
respect of such Equipment Notes, the lien of the Indenture and the obligation of
Continental thereafter to make interest and principal payments with respect
thereto shall cease. Payments made under the Owned Aircraft Indenture by
Continental shall be deposited with the applicable Owned Aircraft Trustee.
Amounts in
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excess of the amounts due and owing under the Equipment Notes issued with
respect to such Aircraft will be distributed by such Owned Aircraft Trustee to
Continental. (Owned Aircraft Indentures, Sections 2.10, 3.02 and 4.05(a)(ii))
If an Event of Loss occurs with respect to an Engine alone, Continental
will be required to replace such Engine within 60 days after the occurrence of
such Event of Loss with another engine, free and clear of all liens (other than
certain permitted liens). Such replacement engine shall be the same make and
model as the Engine to be replaced, or an improved model, suitable for
installation and use on the Airframe, and having a value, utility and remaining
useful life (without regard to hours or cycles remaining until overhaul) at
least equal to the Engine to be replaced, assuming that such Engine had been
maintained in accordance with the relevant Owned Aircraft Indenture. (Owned
Aircraft Indentures, Section 4.05)
An "Event of Loss" with respect to an Owned Aircraft, Airframe or any
Engine means any of the following events with respect to such property:
-- The destruction of such property, damage to such property beyond
economic repair or rendition of such property permanently unfit for
normal use.
-- The actual or constructive total loss of such property or any damage
to such property or requisition of title or use of such property
which results in an insurance settlement with respect to such
property on the basis of a total loss or a constructive or
compromised total loss.
-- Any theft, hijacking or disappearance of such property for a period
of 180 consecutive days or more.
-- Any seizure, condemnation, confiscation, taking or requisition of
title to such property by any governmental entity or purported
governmental entity (other than a U.S. government entity or an entity
of the country of registration of the relevant Aircraft) for a period
exceeding 180 consecutive days.
-- As a result of any law, rule, regulation, order or other action by
the FAA or any governmental entity, the use of such property in the
normal course of Continental's business of passenger air
transportation is prohibited for 180 consecutive days, unless
Continental, prior to the expiration of such 180-day period, shall
have undertaken and shall be diligently carrying forward steps which
are necessary or desirable to permit the normal use of such property
by Continental, but in any event if such use shall have been
prohibited for a period of two consecutive years, provided that no
Event of Loss shall be deemed to have occurred if such prohibition
has been applicable to Continental's entire U.S. registered fleet of
similar property and Continental, prior to the expiration of such
two-year period, shall have conformed at least one unit of such
property in its fleet to the requirements of any such law, rule,
regulation, order or other action and commenced regular commercial
use of the same and shall be diligently carrying forward, in a manner
which does not discriminate against applicable property in so
conforming such property, steps which are necessary or desirable to
permit the normal use of such property by Continental, but in any
event if such use shall have been prohibited for a period of three
years.
-- With respect to any Engine, any divestiture of title to such Engine
in connection with pooling or certain other arrangements shall be
treated as an Event of Loss. (Owned Aircraft Indentures, Annex A)
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary describes all material generally applicable U.S.
federal income tax consequences to Certificateholders of the purchase, ownership
and disposition of the Class D Certificates and in the opinion of Hughes Hubbard
& Reed LLP, special tax counsel to Continental ("Tax Counsel"), is accurate in
all material respects with respect to the matters discussed therein. This
summary supplements (and, to the extent inconsistent therewith, replaces) the
summary of U.S. federal income tax consequences set forth in the Prospectus.
Except as otherwise specified, the summary is addressed to beneficial owners of
Class D Certificates ("U.S. Certificateholders") that are citizens or residents
of the United States, corporations, partnerships or other entities created or
organized in or under the laws of the United States or any state therein,
estates the income of which is subject to U.S. federal income taxation
regardless of its source, or trusts that meet the following two tests: (a) a
U.S. court is able to exercise primary supervision over the administration of
the trust and (b) one or more U.S. fiduciaries have the authority to control all
substantial decisions of the trust ("U.S. Persons") that will hold the Class D
Certificates as capital assets. This summary does not address the tax treatment
of U.S. Certificateholders that may be subject to special tax rules, such as
banks, insurance companies, dealers in securities or commodities, holders
subject to the mark-to-market rules, tax-exempt entities, holders that will hold
Class D Certificates as part of a straddle or holders that have a "functional
currency" other than the U.S. Dollar, nor, except as specifically indicated,
does it address the tax treatment of U.S. Certificateholders that do not acquire
Class D Certificates at the public offering price as part of the initial
offering. The summary does not purport to be a comprehensive description of all
of the tax considerations that may be relevant to a decision to purchase Class D
Certificates. This summary does not describe any tax consequences arising under
the laws of any state, locality or taxing jurisdiction other than the United
States.
The summary is based upon the tax laws and practice of the United States as
in effect on the date of this Prospectus Supplement, as well as judicial and
administrative interpretations thereof (in final or proposed form) available on
or before such date. All of the foregoing is subject to change, which change
could apply retroactively. We have not sought any ruling from the U.S. Internal
Revenue Service (the "IRS") with respect to the tax consequences described
below, and we cannot assure you that the IRS will not take contrary positions.
The Class D Trust is not indemnified for any U.S. federal income taxes that may
be imposed upon it, and the imposition of any such taxes on the Class D Trust
could result in a reduction in the amounts available for distribution to the
Certificateholders of such Trust. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CLASS D
CERTIFICATES.
TAX STATUS OF THE TRUSTS
In the opinion of Tax Counsel, while there is no authority addressing the
characterization of entities that are similar to the Trusts in all material
respects, the Original Trust should be classified as a grantor trust for U.S.
federal income tax purposes. If, as may be the case, the Original Trust is not
classified as a grantor trust, it will, in the opinion of Tax Counsel, be
classified as a partnership for U.S. federal income tax purposes and will not be
classified as a publicly traded partnership taxable as a corporation provided
that at least 90% of the Original Trust's gross income for each taxable year of
its existence is "qualifying income" (which is defined to include, among other
things, interest income, gain from the sale or disposition of capital assets
held for the production of interest income, and income derived with respect to a
business of investing in securities). Tax Counsel believes that income derived
by the Original Trust from the Series D Equipment Notes will constitute
qualifying income and that the Original Trust therefore will meet the 90% test,
assuming that the Original Trust operates in accordance with the terms of the
Pass Through Trust Agreements and other agreements to which it is a party. In
the opinion of Tax Counsel, the Successor Trust will be classified as a grantor
trust.
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TAXATION OF CERTIFICATEHOLDERS GENERALLY
TRUSTS CLASSIFIED AS GRANTOR TRUSTS
Assuming that the Class D Trust is classified as a grantor trust, a U.S.
Certificateholder will be treated as owning its pro rata undivided interest in
the relevant Deposits and each of the Series D Equipment Notes, the Trust's
contractual rights and obligations under the Note Purchase Agreement, and any
other property held by the Class D Trust. Accordingly, each U.S.
Certificateholder's share of interest paid on Series D Equipment Notes will be
taxable as ordinary income, as it is paid or accrued, in accordance with such
U.S. Certificateholder's method of accounting for U.S. federal income tax
purposes, and a U.S. Certificateholder's share of premium, if any, paid on
redemption of a Series D Equipment Note will be treated as capital gain. The
Deposits will likely be subject to the original issue discount and contingent
payment rules, with the result that a U.S. Certificateholder will be required to
include interest income from a Deposit using the accrual method of accounting
regardless of its normal method and with a possible slight deferral in the
timing of income recognition as compared to holding a single debt instrument
with terms comparable to a Class D Certificate.
In the case of a subsequent purchaser of a Class D Certificate, the
purchase price for the Class D Certificate should be allocated among the
relevant Deposits and the assets held by the Class D Trust (including the Series
D Equipment Notes and the rights and obligations under the Note Purchase
Agreement with respect to Series D Equipment Notes not theretofore issued) in
accordance with their relative fair market values at the time of purchase. Any
portion of the purchase price allocable to the right and obligation under the
Note Purchase Agreement to acquire a Series D Equipment Note should be included
in the purchaser's basis in its share of the Series D Equipment Note when
issued. Although the matter is not entirely clear, in the case of a purchaser
after initial issuance of the Class D Certificates but prior to the Delivery
Period Termination Date, if the purchase price reflects a "negative value"
associated with the obligation to acquire a Series D Equipment Note pursuant to
the Note Purchase Agreement being burdensome under conditions existing at the
time of purchase (e.g., as a result of the interest rate on the unissued Series
D Equipment Notes being below market at the time of purchase of a Class D
Certificate), such negative value probably would be added to such purchaser's
basis in its interest in the Deposits and the remaining assets of the Class D
Trust and reduce such purchaser's basis in its share of the Series D Equipment
Notes when issued. The preceding two sentences do not apply to purchases of
Class D Certificates following the Delivery Period Termination Date.
A U.S. Certificateholder who is treated as purchasing an interest in a
Deposit or a Series D Equipment Note at a market discount (generally, at a cost
less than its remaining principal amount) that exceeds a statutorily defined de
minimis amount will be subject to the "market discount" rules of the Code. These
rules provide, in part, that gain on the sale or other disposition of a debt
instrument with a term of more than one year and partial principal payments
(including partial redemptions) on such a debt instrument are treated as
ordinary income to the extent of accrued but unrecognized market discount. The
market discount rules also provide for deferral of interest deductions with
respect to debt incurred to purchase or carry a debt instrument that has market
discount. A U.S. Certificateholder who purchases an interest in a Deposit or a
Series D Equipment Note at a premium may elect to amortize the premium as an
offset to interest income on the Deposit or Series D Equipment Note under rules
prescribed by the Code and Treasury regulations promulgated under the Code.
Each U.S. Certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding Trust as provided in Section 162 or 212 of the Code.
Certain fees and expenses, including fees paid to the Trustee, will be borne by
parties other than the Certificateholders. It is possible that such fees and
expenses will be treated as constructively received by the Class D Trust, in
which event a U.S. Certificateholder will be required to include in income and
will be entitled to deduct its pro rata share of such fees and expenses. If a
U.S. Certificateholder is an individual, estate or trust, the deduction for such
holder's share of such fees or expenses will be allowed only to the extent that
all of such holder's miscellaneous itemized deductions, including such holder's
share of such fees and expenses, exceed 2% of such holder's adjusted gross
income. In addition, in the case of U.S. Certificateholders
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who are individuals, certain otherwise allowable itemized deductions will be
subject generally to additional limitations on itemized deductions under
applicable provisions of the Code.
ORIGINAL TRUST CLASSIFIED AS A PARTNERSHIP
If the Original Trust is classified as a partnership (and not as a publicly
traded partnership taxable as a corporation) for U.S. federal income tax
purposes, income or loss with respect to the assets held by the Class D Trust
will be calculated at the Class D Trust level but the Class D Trust itself will
not be subject to U.S. federal income tax. A U.S. Certificateholder would be
required to report its share of the Class D Trust's items of income and
deduction on its tax return for its taxable year within which the Class D
Trust's taxable year (which should be a calendar year) ends as well as income
from its interest in the relevant Deposits. A U.S. Certificateholder's basis in
its interest in the Class D Trust would be equal to its purchase price therefor
(including its share of any funds withdrawn from the Depositary and used to
purchase Series D Equipment Notes), plus its share of the Class D Trust's net
income, minus its share of any net losses of the Class D Trust, and minus the
amount of any distributions from the Class D Trust. In the case of an original
purchaser of a Class D Certificate that is a calendar year taxpayer, income or
loss generally should be the same as it would be if the Class D Trust were
classified as a grantor trust, except that income or loss would be reported on
an accrual basis even if the U.S. Certificateholder otherwise uses the cash
method of accounting. A subsequent purchaser, however, generally would be
subject to tax on the same basis as an original holder with respect to its
interest in the Original Trust, and would not be subject to the market discount
rules or the bond premium rules during the duration of the Original Trust.
EFFECT OF REALLOCATION OF PAYMENTS UNDER THE INTERCREDITOR AGREEMENTS
In the event that the Class D Trust receives less than the full amount of
the receipts of interest, principal or premium paid with respect to the Series D
Equipment Notes held by it because of the subordination of the Class D Trust
under the Intercreditor Agreements, the owners of beneficial interests in the
Class D Certificates would probably be treated for federal income tax purposes
as if they had:
-- received as distributions their full share of interest, principal or
premium;
-- paid over to the Class A Certificateholders, the Class B
Certificateholders or the Class C Certificateholders of the
applicable Prior Series an amount equal to their share of the amount
of the shortfall; and
-- retained the right to reimbursement of the amount of the shortfall to
the extent of future amounts payable to them on account of the
shortfall.
Under this analysis:
-- Class D Certificateholders incurring a shortfall would be required to
include as current income any interest or other income of the Class D
Trust that was a component of the shortfall, even though that amount
was in fact paid to the Class A Certificateholders, the Class B
Certificateholders or the Class C Certificateholders of the
applicable Prior Series;
-- a loss would only be allowed to Class D Certificateholders when their
right to receive reimbursement of the shortfall becomes worthless;
that is, when it becomes clear that funds will not be available from
any source to reimburse the shortfall; and
-- reimbursement of the shortfall before a claim of worthlessness would
not be taxable income to the Class D Certificateholders because the
amount reimbursed would have been previously included in income.
These results should not significantly affect the inclusion of income for
Class D Certificateholders on the accrual method of accounting, but could
accelerate inclusion of income to Class D Certificateholders on the cash method
of accounting by, in effect, placing them on the accrual method.
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DISSOLUTION OF ORIGINAL TRUST AND FORMATION OF SUCCESSOR TRUST
Assuming that the Original Trust is classified as a grantor trust, the
dissolution of the Original Trust and distribution of interests in the Successor
Trust will not be a taxable event to U.S. Certificateholders, who will continue
to be treated as owning their shares of the property transferred from the
Original Trust to the Successor Trust. If the Original Trust is classified as a
partnership, a U.S. Certificateholder will be deemed to receive its share of the
Series D Equipment Notes and any other property transferred by the Original
Trust to the Successor Trust in liquidation of its interest in the Original
Trust in a non-taxable transaction. In such case, the U.S. Certificateholder's
basis in the property so received will be equal to its basis in its interest in
the Original Trust, allocated among the various assets received based upon their
bases in the hands of the Original Trust and any unrealized appreciation or
depreciation in value in such assets, and the U.S. Certificateholder's holding
period for the Series D Equipment Notes and other property will include the
Original Trust's holding period.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a Class D Certificate, a
U.S. Certificateholder generally will recognize capital gain or loss (subject to
the possible recognition of ordinary income under the market discount rules)
equal to the difference between the amount realized on the disposition (other
than any amount attributable to accrued interest which will be taxable as
ordinary income and any amount attributable to any Deposits) and the U.S.
Certificateholder's adjusted tax basis in the Note Purchase Agreement, Series D
Equipment Notes and any other property held by the Class D Trust. Any gain or
loss will be long-term capital gain or loss to the extent attributable to
property held by the Class D Trust for more than one year. In the case of
individuals, estates and trusts, the maximum rate of tax on net long-term
capital gains generally is 20%. Any gain with respect to an interest in a
Deposit likely will be treated as ordinary income. Notwithstanding the
foregoing, if the Original Trust is classified as a partnership, gain or loss
with respect to an interest in the Original Trust will be calculated and
characterized by reference to the U.S. Certificateholder's adjusted tax basis
and holding period for its interest in the Original Trust.
FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of
principal and interest on the Series D Equipment Notes to, or on behalf of, any
beneficial owner of a Class D Certificate that is not a U.S. Person will not be
subject to U.S. federal withholding tax provided that:
-- the non-U.S. Certificateholder does not actually or constructively
own 10% or more of the total combined voting power of all classes of
stock of an owner participant or Continental;
-- the non-U.S. Certificateholder is not a bank receiving interest
pursuant to a loan agreement entered into in the ordinary course of
its trade or business, or a controlled foreign corporation for U.S.
tax purposes that is related to an owner participant or Continental;
and
-- certain certification requirements (including identification of the
beneficial owner of a Class D Certificate) are complied with.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a Class D Certificate or upon receipt of premium paid on a Series
D Equipment Note by a non-U.S. Certificateholder will not be subject to U.S.
federal income or withholding taxes if (i) such gain is not effectively
connected with a U.S. trade or business of the holder and (ii) in the case of an
individual, such holder is not present in the United States for 183 days or more
in the taxable year of the sale, exchange, retirement or other disposition or
receipt.
BACKUP WITHHOLDING
Payments made on the Class D Certificates and proceeds from the sale of
Class D Certificates will not be subject to a backup withholding tax of 31%
unless, in general, the Certificateholder fails to comply with certain reporting
procedures or otherwise fails to establish an exemption from such tax under
applicable provisions of the Code.
S-77
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CERTAIN DELAWARE TAXES
The Trustee is a Delaware banking corporation with its corporate trust
office in Delaware. In the opinion of Richards, Layton & Finger, Wilmington,
Delaware, counsel to the Trustee, under currently applicable law, assuming that
the Class D Trust will not be taxable as a corporation, but, rather, will be
classified as grantor trusts under subpart E, Part I of Subchapter J of the Code
or as partnerships under Subchapter K of the Code, (i) the Class D Trust will
not be subject to any tax (including, without limitation, net or gross income,
tangible or intangible property, net worth, capital, franchise or doing business
tax), fee or other governmental charge under the laws of the State of Delaware
or any political subdivision thereof and (ii) Certificateholders that are not
residents of or otherwise subject to tax in Delaware will not be subject to any
tax (including, without limitation, net or gross income, tangible or intangible
property, net worth, capital, franchise or doing business tax), fee or other
governmental charge under the laws of the State of Delaware or any political
subdivision thereof as a result of purchasing, holding (including receiving
payments with respect to) or selling a Class D Certificate.
Neither the Class D Trust nor the Certificateholders will be indemnified
for any state or local taxes imposed on them, and the imposition of any such
taxes on the Class D Trust could result in a reduction in the amounts available
for distribution to the Certificateholders of such Class D Trust. In general,
should a Certificateholder or the Class D Trust be subject to any state or local
tax which would not be imposed if the Trustee were located in a different
jurisdiction in the United States, the Trustee will resign and a new Trustee in
such other jurisdiction will be appointed.
CERTAIN ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to Title I of
ERISA ("ERISA Plans"), and on those persons who are fiduciaries with respect to
ERISA Plans. Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including, but not limited to, the requirement of investment
prudence and diversification and the requirement that an ERISA Plan's
investments be made in accordance with the documents governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of an ERISA Plan (as well as those plans that
are not subject to ERISA but which are subject to Section 4975 of the Code, such
as individual retirement accounts (together with ERISA Plans, "Plans")) and
certain persons (referred to as "parties in interest" or "disqualified persons")
having certain relationships to such Plans, unless a statutory or administrative
exemption is applicable to the transaction. A party in interest or disqualified
person who engages in a prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code.
The Department of Labor has promulgated a regulation, 29 CFR Section
2510.3-101 (the "Plan Asset Regulation"), describing what constitutes the assets
of a Plan with respect to the Plan's investment in an entity for purposes of
ERISA and Section 4975 of the Code. Under the Plan Asset Regulation, if a Plan
invests (directly or indirectly) in a Certificate, the Plan's assets will
include both the Certificate and an undivided interest in each of the underlying
assets of the Class D Trust, including the Series D Equipment Notes held by such
Trust, unless it is established that equity participation in the Class D Trust
by benefit plan investors (including but not limited to Plans and entities whose
underlying assets include Plan assets by reason of an employee benefit plan's
investment in the entity) is not "significant" within the meaning of the Plan
Asset Regulation. In this regard, the extent to which there is equity
participation in the Class D Trust by, or on behalf of, employee benefit plans
will not be monitored. If the assets of the Class D Trust are deemed to
constitute the assets of a Plan, transactions involving the assets of such Trust
could be subject to the prohibited transaction provisions of ERISA and Section
4975 of the Code unless a statutory or administrative exemption is applicable to
the transaction.
The fiduciary of a Plan that proposes to purchase and hold any Certificates
should consider, among other things, whether such purchase and holding may
involve (i) the direct or indirect extension of credit to a party
S-78
79
in interest or a disqualified person, (ii) the sale or exchange of any property
between a Plan and a party in interest or a disqualified person, and (iii) the
transfer to, or use by or for the benefit of, a party in interest or a
disqualified person, of any Plan assets. Such parties in interest or
disqualified persons could include, without limitation, Continental and its
affiliates, the Owner Participants, the Underwriters, the Trustees, the Escrow
Agent, the Depositary and the Owner Trustees. In addition, whether or not the
assets of a Trust are deemed to be Plan assets under the Plan Asset Regulation,
if Certificates are purchased by a Plan and Certificates of a subordinate Class
are held by a party in interest or a disqualified person with respect to such
Plan, the exercise by the holder of the subordinate Class of Certificates of its
right to purchase the senior Classes of Certificates upon the occurrence and
during the continuation of a Triggering Event could be considered to constitute
a prohibited transaction unless a statutory or administrative exemption were
applicable. Depending on the identity of the Plan fiduciary making the decision
to acquire or hold Certificates on behalf of a Plan, Prohibited Transaction
Class Exemption ("PTCE") 91-38 (relating to investments by bank collective
investment funds), PTCE 84-14 (relating to transactions effected by a "qualified
professional asset manager"), PTCE 95-60 (relating to investments by an
insurance company general account), PTCE 96-23 (relating to transactions
directed by an in-house professional asset manager) or PTCE 90-1 (relating to
investments by insurance company pooled separate accounts) (collectively, the
"Class Exemptions") could provide an exemption from the prohibited transaction
provisions of ERISA and Section 4975 of the Code. However, there can be no
assurance that any of these Class Exemptions or any other exemption will be
available with respect to any particular transaction involving the Certificates.
Governmental plans and certain church plans, while not subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to
state or other federal laws that are substantially similar to the foregoing
provisions of ERISA and the Code. Fiduciaries of any such plans should consult
with their counsel before purchasing any Certificates.
Any Plan fiduciary which proposes to cause a Plan to purchase any
Certificates should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and
Section 4975 of the Code to such an investment, and to confirm that such
purchase and holding will not constitute or result in a non-exempt prohibited
transaction or any other violation of an applicable requirement of ERISA.
Each person who acquires or accepts a Certificate or an interest therein,
will be deemed by such acquisition or acceptance to have represented and
warranted that either: (i) no Plan assets have been used to purchase such
Certificate or an interest therein or (ii) the purchase and holding of such
Certificate or an interest therein are exempt from the prohibited transaction
restrictions of ERISA and the Code pursuant to one or more prohibited
transaction statutory or administrative exemptions.
S-79
80
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
among Continental and the underwriters listed below (the "Underwriters")
relating to the Class D Certificates, Continental has agreed to cause the Class
D Trust to sell to each of the Underwriters, and each of the Underwriters has
severally agreed to purchase, the respective aggregate amounts of the Class D
Certificates set forth after their names below:
PRINCIPAL AMOUNT
OF CLASS D
UNDERWRITER CERTIFICATES
----------- ----------------
Morgan Stanley & Co. Incorporated........................... $
Credit Suisse First Boston Corporation......................
------------
Total.................................................. $200,000,000
============
The underwriting agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Class D Certificates if
any Class D Certificates are purchased. If an Underwriter defaults on its
purchase commitment, the purchase commitment of the non-defaulting Underwriter
may be increased or the Offering of the Class D Certificates may be terminated.
Continental estimates that its out of pocket expenses associated with the
offer and sale of the Class D Certificates will be approximately $ .
The Underwriters propose initially to offer the Class D Certificates at the
public offering price on the cover page of this Prospectus Supplement and to
selling group members at that price less the concessions set forth below. The
Underwriters and selling group members may allow a discount to other
broker/dealers set forth below. After the initial public offering, the public
offering price and such concessions may be changed by the Underwriters.
PASS THROUGH TO SELLING GROUP DISCOUNT TO
CERTIFICATES DESIGNATION MEMBERS BROKER/DEALERS
------------------------ ---------------- --------------
2001-2D.................................................... % %
The Class D Certificates are new securities for which there currently is no
market. Continental does not intend to apply for the listing of the Class D
Certificates on a national securities exchange. One or both of the Underwriters
currently intend to make a secondary market for the Class D Certificates.
However, they are not obligated to do so and may discontinue any market making
at any time without notice. Accordingly, no assurance can be given as to the
liquidity of the trading market for the Class D Certificates.
The underwriting agreement provides that Continental will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and contribute to payments which the Underwriters may be
required to make in that respect.
Credit Suisse First Boston, New York Branch, an affiliate of Credit Suisse
First Boston Corporation, will act as the Depositary. From time to time, one or
both of the Underwriters or their affiliates perform investment banking and
advisory services for, and provide general financing and banking services to,
Continental and their affiliates. In particular, affiliates of Credit Suisse
First Boston Corporation are lenders to Continental.
It is expected that delivery of the Class D Certificates will be made
against payment therefor on or about the closing date specified on the cover
page of this Prospectus Supplement, which will be the business day
following the date of pricing of the Class D Certificates (this settlement cycle
being referred to as T+ ). Under Rule 15c6-1 of the Commission under
the Securities Exchange Act of 1934, trades in the secondary market generally
are required to settle in three business days, unless the parties to the trade
expressly agree otherwise. Accordingly, purchasers who wish to trade Class D
Certificates on the date of pricing or the next succeeding business
days will be required, by virtue of the fact that the Class D Certificates
initially will settle in T+ , to specify an alternate settlement cycle
at the time of any
S-80
81
trade to prevent a failed settlement. Purchasers of Class D Certificates who
wish to trade Class D Certificates on the date of pricing or the next
succeeding business days should consult their own advisor.
To facilitate the Offering of the Class D Certificates, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Class D Certificates. Specifically, the Underwriters may overallot
in connection with the Offering, creating a short position in the Class D
Certificates for its own account. In addition, to cover overallotments or to
stabilize the price of the Class D Certificates, the Underwriters may bid for,
and purchase, Class D Certificates in the open market. Finally, the Underwriters
may reclaim selling concessions allowed to an agent or a dealer for distributing
Class D Certificates in the offering, if the Underwriters repurchase previously
distributed Class D Certificates in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Class D Certificates above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
The validity of the Class D Certificates is being passed upon for
Continental by Hughes Hubbard & Reed LLP, New York, New York, and for the
Underwriters by Milbank, Tweed, Hadley & McCloy LLP, New York, New York.
Milbank, Tweed, Hadley & McCloy LLP will rely on the opinion of Richards, Layton
& Finger, Wilmington, Delaware, counsel for Wilmington Trust Company, as
Trustee, as to matters of Delaware law relating to the Pass Through Trust
Agreements.
EXPERTS
The consolidated financial statements (including the financial statement
schedule) of Continental Airlines, Inc. appearing in Continental Airlines,
Inc.'s Annual Report (Form 10-K) for the year ended December 31, 2000 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 incorporated herein by reference in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
The following independent appraisal and consulting firms (the "Appraisers")
prepared appraisals of the Aircraft under the Prior Series indicated below:
PRIOR SERIES FIRMS DATE OF APPRAISAL REPORT
------------ ----- ------------------------
1997-4 Aircraft Information Services, Inc. ("AISI") October 6, 1997
BK Associates, Inc. ("BK") October 6, 1997
Morten Beyer and Agnew, Inc. ("MBA") October 6, 1997
1998-1 AISI February 5 and 11, 1998
BK January 29 and February 10, 1998
MBA February 5 and 11, 1998
1998-3 AISI August 27, 1998, revised October 1, 1998
AvSolutions, Inc. ("AvS") October 1, 1998
MBA October 1, 1998
1999-1 AISI December 8, 1998
AvS December 8, 1998
MBA December 8, 1998
1999-2 AISI May 19, 1999
AvS May 19, 1999
MBA May 19, 1999
2000-1 AISI February 23, 2000
AvS February 23, 2000
MBA January 17, 2000
2000-2 AISI October 31, 2000
Avitas, Inc. October 31, 2000
MBA October 31, 2000
S-81
82
The appraisal reports prepared in connection with the offering of each
Prior Series have been filed as Exhibits to a recent Continental Current Report
on Form 8-K, filed with the Commission, and are incorporated in this Prospectus
Supplement by reference. The references to each of the Appraisers, and to their
respective appraisal reports, respectively, are included herein and incorporated
by reference herein in reliance upon the authority of each such firm as an
expert with respect to the matters contained in its appraisal report.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Reference is made to the information under "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus. In addition to the
documents listed there as incorporated by reference in the Prospectus,
Continental's Quarterly Report on Form 10-Q for the quarter ended March 31,
2001, filed with the Commission on April 16, 2001, and Continental's Current
Reports on Form 8-K, filed with the Commission on April 17, May 3, May 4, May
10, June 1, June 4, July 3, July 10, July 11 and July 13, 2001, are incorporated
by reference in this Prospectus Supplement. The July 10, 2001 Current Report
includes the pro forma financial statements relating to the proposed initial
public offering by Express, and the July 13, 2001 Current Report includes the
appraisal reports relating to the Aircraft as exhibits.
S-82
83
APPENDIX I--INDEX OF TERMS
PAGE
-------
Adjusted Expected Distributions......... S-58
Administration Expenses................. S-57
Aggregate LTV Collateral Amount......... S-59
Air France.............................. S-28
Aircraft................................ S-62
Aircraft Operative Agreements........... S-43
AISI.................................... S-81
Appraised Current Market Value.......... S-60
Appraisers.............................. S-81
Average Life Date....................... S-67
AvS..................................... S-81
Base Rate............................... S-52
Basic Agreement......................... S-29
BK...................................... S-81
Boeing.................................. S-63
Bush Intercontinental................... S-26
Business Day............................ S-35
Cash Collateral Account................. S-50
Cede.................................... S-44
Certificate Account..................... S-34
Certificate Owners...................... S-44
Certificateholders...................... S-30
Certificates............................ S-29
Class A Certificates.................... S-29
Class A common stock.................... S-26
Class A Trustee......................... S-31
Class A Trusts.......................... S-29
Class B Certificates.................... S-29
Class B common stock.................... S-27
Class B Trustee......................... S-31
Class B Trusts.......................... S-29
Class C Certificates.................... S-29
Class C Trustee......................... S-31
Class C Trusts.......................... S-29
Class D Certificates.................... S-29
Class D Pass Through Trust Agreement.... S-34
Class D Regular Distribution Dates...... S-32
Class D Trust........................... S-29
Class D Trustee......................... S-31
Class Exemptions........................ S-79
CMI..................................... S-26
Code.................................... S-40
Commission.............................. S-29
Company................................. S-26
Continental............................. S-26
Controlling Party....................... S-54
Convention.............................. S-70
CSFB.................................... S-46
Current Distribution Date............... S-56
Debt Balance............................ S-71
Delivery Period......................... S-63
Delivery Period Termination Date........ S-45
Deposit................................. S-45
Deposit Agreement....................... S-45
PAGE
-------
Depositary.............................. S-46
Deposits................................ S-45
Distribution Date....................... S-30
Downgrade Drawing....................... S-50
DTC..................................... S-44
DTC Participants........................ S-44
Equipment............................... S-68
Equipment Notes......................... S-65
ERISA................................... S-78
ERISA Plans............................. S-78
Escrow Agent............................ S-47
Escrow Agreement........................ S-47
Escrow Receipts......................... S-47
Event of Loss........................... S-73
Excusable Delay......................... S-63
Expected Distributions.................. S-56
Express................................. S-25
FAA..................................... S-22
Final Distributions..................... S-55
Final Drawing........................... S-51
Final Maturity Date..................... S-32
Gulfstream.............................. S-27
H.15(519)............................... S-66
Holdings................................ S-25
Hopkins International................... S-26
Indenture Default....................... S-36
Indentures.............................. S-65
Intercreditor Agreements................ S-54
Interest Drawings....................... S-48
IRS..................................... S-74
Issuance Date........................... S-45
Lease Event of Default.................. S-36
Leased Aircraft......................... S-36
Leased Aircraft Indenture............... S-36
Leases.................................. S-36
LIBOR................................... S-52
Liquidity Event of Default.............. S-53
Liquidity Expenses...................... S-56
Liquidity Facility...................... S-48
Liquidity Obligations................... S-56
Liquidity Provider...................... S-48
Loan Trustees........................... S-65
LTV Appraisal........................... S-60
LTV Collateral Amount................... S-59
LTV Ratio............................... S-60
Make-Whole Premium...................... S-66
Mandatory Document Terms................ S-43
Mandatory Economic Terms................ S-42
Maximum Available Commitment............ S-50
MBA..................................... S-81
Minimum Sale Price...................... S-55
Moody's................................. S-46
most recent H.15(519)................... S-66
I-1
84
APPENDIX I--INDEX OF TERMS--(CONTINUED)
PAGE
-------
New Trustee............................. S-43
Newark.................................. S-26
Non-Extension Drawing................... S-51
Non-Performing Equipment Notes.......... S-58
Northwest............................... S-26
Northwest Airlines...................... S-26
Note Holders............................ S-43
Note Purchase Agreement................. S-42
Offering................................ S-29
Original Trust.......................... S-43
Original Trustee........................ S-43
Owned Aircraft.......................... S-62
Owned Aircraft Indenture................ S-65
Owned Aircraft Trustee.................. S-65
Owner Participant....................... S-37
Owner Trustee........................... S-37
Participation Agreement................. S-67
Pass Through Trust Agreements........... S-29
Paying Agent............................ S-47
Paying Agent Account.................... S-34
Performing Equipment Note............... S-50
Plan Asset Regulation................... S-78
Plans................................... S-78
Pool Balance............................ S-35
Pool Factor............................. S-35
Prior Series............................ S-29
Prospectus.............................. S-29
PTC Event of Default.................... S-39
PTCE.................................... S-79
Rating Agencies......................... S-46
Receiptholder........................... S-47
Regular Distribution Dates.............. S-33
PAGE
-------
Remaining Weighted Average Life......... S-67
Required Amount......................... S-48
Scheduled Payments...................... S-32
Section 1110............................ S-68
Senior Equipment Notes.................. S-65
Series A Equipment Notes................ S-65
Series B Equipment Notes................ S-65
Series C Equipment Notes................ S-65
Series D Equipment Notes................ S-65
Special Distribution Date............... S-34
Special Payment......................... S-34
Special Payments Account................ S-34
Standard & Poor's....................... S-46
Stated Interest Rate.................... S-32
Subordination Agent..................... S-54
Substitute Aircraft..................... S-64
Successor Trust......................... S-43
Tax Counsel............................. S-74
Termination Notice...................... S-53
Transfer Date........................... S-43
Transportation Code..................... S-39
Treasury Yield.......................... S-66
Triggering Event........................ S-30
Trust Indenture Act..................... S-40
Trust Property.......................... S-29
Trust Supplement........................ S-29
Trustee................................. S-29
Trusts.................................. S-29
U.S. Certificateholders................. S-74
U.S. Persons............................ S-74
Underwriters............................ S-80
Virgin.................................. S-28
I-2
85
PROSPECTUS
$1,800,000,000
CONTINENTAL AIRLINES, INC.
PASS THROUGH CERTIFICATES
------------------------
This prospectus relates to pass through certificates to be issued by one or
more trusts that we will form, as creator of each pass through trust, with a
national or state bank or trust company, as trustee. The trustee will hold all
property owned by a trust for the benefit of holders of pass through
certificates issued by that trust. Each pass through certificate issued by a
trust will represent a beneficial interest in all property held by that trust.
We will describe the specific terms of any offering of pass through
certificates in a prospectus supplement to this prospectus. You should read this
prospectus and the applicable prospectus supplement carefully before you invest.
This prospectus may not be used to consummate sales of pass through
certificates unless accompanied by a prospectus supplement.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS MARCH 23, 2001.
86
TABLE OF CONTENTS
PAGE
----
WHERE YOU CAN FIND MORE INFORMATION... 1
FORWARD-LOOKING STATEMENTS............ 1
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE........................... 2
SUMMARY............................... 3
The Offering........................ 3
Certificates........................ 3
Pass Through Trusts................. 3
Equipment Notes..................... 4
THE COMPANY........................... 6
USE OF PROCEEDS....................... 6
RATIO OF EARNINGS TO FIXED CHARGES.... 7
DESCRIPTION OF THE CERTIFICATES....... 7
General............................. 7
Book-Entry Registration............. 10
Payments and Distributions.......... 13
Pool Factors........................ 13
Reports to Certificateholders....... 14
Voting of Equipment Notes........... 15
Events of Default and Certain Rights
Upon an Event of Default......... 15
Merger, Consolidation and Transfer
of Assets........................ 17
Modifications of the Basic
Agreement........................ 18
Modification of Indenture and
Related Agreements............... 19
Cross-Subordination Issues.......... 19
Termination of the Pass Through
Trusts........................... 19
Delayed Purchase of Equipment
Notes............................ 19
Liquidity Facility.................. 20
The Pass Through Trustee............ 20
PAGE
----
DESCRIPTION OF THE EQUIPMENT NOTES.... 21
General............................. 21
Principal and Interest Payments..... 21
Redemption.......................... 21
Security............................ 21
Ranking of Equipment Notes.......... 23
Payments and Limitation of
Liability........................ 23
Defeasance of the Indentures and the
Equipment Notes in Certain
Circumstances.................... 24
Assumption of Obligations by
Continental...................... 24
Liquidity Facility.................. 25
Intercreditor Issues................ 25
U.S. INCOME TAX MATTERS............... 26
General............................. 26
Tax Status of the Pass Through
Trusts........................... 26
Taxation of Certificateholders
Generally........................ 26
Effect of Subordination of
Certificateholders of
Subordinated Trusts.............. 27
Original Issue Discount............. 27
Sale or Other Disposition of the
Certificates..................... 27
Foreign Certificateholders.......... 28
Backup Withholding.................. 28
ERISA CONSIDERATIONS.................. 28
PLAN OF DISTRIBUTION.................. 28
LEGAL OPINIONS........................ 30
EXPERTS............................... 30
i
87
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934. You may read
and copy this information at the following locations of the SEC:
Judiciary Plaza Seven World Trade Center Citicorp Center
450 Fifth Street, N.W. 13th Floor 500 West Madison Street, Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
You may also obtain copies of this information by mail from the Public
Reference Room of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. You may obtain information on the operation of the Public
Reference Room by calling the SEC at (800) SEC-0330.
The SEC also maintains an internet world wide web site that contains
reports, proxy statements and other information about issuers, like us, who file
reports electronically with the SEC. The address of that site is
http://www.sec.gov.
You may also inspect reports, proxy statements and other information about
us at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005.
We have filed with the SEC a registration statement on Form S-3, which
registers the securities that we may offer under this prospectus. The
registration statement, including the attached exhibits and schedules, contains
additional relevant information about us and the securities offered. The rules
and regulations of the SEC allow us to omit certain information included in the
registration statement from this prospectus.
FORWARD-LOOKING STATEMENTS
This prospectus, any prospectus supplement delivered with this prospectus
and the documents we incorporate by reference may contain statements that
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include any statements that predict, forecast,
indicate or imply future results, performance or achievements, and may contain
the words "believe," "anticipate," "expect," "estimate," "project," "will be,"
"will continue," "will result," or words or phrases of similar meaning.
Any such forward-looking statements are not assurances of future
performance and involve risks and uncertainties. Actual results may vary
materially from anticipated results for a number of reasons, including those
stated in our SEC reports incorporated in this prospectus by reference or as
stated in a prospectus supplement to this prospectus under the caption "Risk
Factors".
All forward-looking statements attributable to us are expressly qualified
in their entirety by the cautionary statements above.
1
88
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this prospectus, except
for any information that is superseded by subsequent incorporated documents or
by information that is included directly in this prospectus or any prospectus
supplement.
This prospectus includes by reference the documents listed below that we
previously have filed with the SEC and that are not delivered with this
document. They contain important information about our company and its financial
condition.
FILING DATE FILED
------ ----------------
Annual Report on Form 10-K for the year ended December 31,
2000...................................................... February 6, 2001
Current Report on Form 8-K.................................. January 19, 2001
Current Report on Form 8-K.................................. February 5, 2001
Current Report on Form 8-K.................................. March 8, 2001
Current Report on Form 8-K.................................. March 20, 2001
Our SEC file number is 0-9781.
We incorporate by reference additional documents that we may file with the
SEC between the date of this prospectus and the termination of the offering of
securities under this prospectus. These documents include our periodic reports,
such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as our proxy statements.
You may obtain any of these incorporated documents from us without charge,
excluding any exhibits to those documents unless the exhibit is specifically
incorporated by reference in such document. You may obtain documents
incorporated by reference in this prospectus by requesting them from us in
writing or by telephone at the following address:
Continental Airlines, Inc.
1600 Smith Street, Dept. HQSEO
Houston, Texas 77002
Attention: Secretary
(713) 324-2950.
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SUMMARY
THE OFFERING
This prospectus describes the pass through certificates that we may offer
from time to time after the date of this prospectus. The proceeds of these
offerings will be used to provide funds for the financing or refinancing of our
aircraft. For convenience, throughout this prospectus, the words we, us, ours or
similar words refer to Continental Airlines, Inc.
This prospectus describes the general terms of the pass through
certificates. The actual terms of any offering of pass through certificates will
be described in a supplement to this prospectus. To the extent that any
provision in any prospectus supplement is inconsistent with any provision in
this prospectus, the provision of the prospectus supplement will control.
CERTIFICATES
Pass through certificates are securities that evidence an ownership
interest in a pass through trust. The holders of the certificates issued by a
pass through trust will be the beneficiaries of that trust. For convenience, we
may refer to pass through certificates as "certificates" and refer to the holder
of a pass through certificate as a "certificateholder."
The beneficial interest in a pass through trust represented by a
certificate will be a percentage interest in the property of that trust equal to
the original face amount of such certificate divided by the original face amount
of all of the certificates issued by that trust. Each certificate will represent
a beneficial interest only in the property of the pass through trust that issued
the certificate. Multiple series of certificates may be issued. If more than one
series of certificates is issued, each series of certificates will be issued by
a separate pass through trust.
The property that will be held by each pass through trust will include
equipment notes secured by aircraft that we own or lease. Payments of principal
and interest on the equipment notes owned by a pass through trust will be passed
through to holders of certificates issued by that trust in accordance with the
terms of the pass through trust agreement pursuant to which the trust was
formed.
If certificates of any series are entitled to the benefits of a liquidity
facility or other form of credit enhancement, the prospectus supplement relating
to that series will describe the terms of the liquidity facility or other form
of credit enhancement. A liquidity facility is a revolving credit agreement,
letter of credit, bank guarantee, insurance policy or other instrument or
agreement under which another person agrees to make certain payments in respect
of the certificates if there is a shortfall in amounts otherwise available for
distribution. While a liquidity facility is designed to increase the likelihood
of the timely payment of certain amounts due under certificates, it is not a
guarantee of timely or ultimate payment.
The rights of a pass through trustee to receive monies payable under
equipment notes held for that pass through trustee may be subject to the effect
of subordination provisions contained in an intercreditor agreement described in
the prospectus supplement for a series of certificates. An intercreditor
agreement will set forth the terms and conditions upon which payments made under
the equipment notes and payments made under any liquidity facility will be
received, shared and distributed among the several pass through trustees and the
liquidity provider.
We may offer and sell up to $1,800,000,000 of aggregate initial offering
price of certificates pursuant to this prospectus and related prospectus
supplements in one or more offerings of certificates. The initial offering price
may be denominated in U.S. dollars or foreign currencies based on the applicable
exchange rate at the time of sale.
PASS THROUGH TRUSTS
We will form a separate pass through trust to issue each series of
certificates. Each pass through trust will be formed by us, as creator of each
pass through trust, and a national or state bank or trust company, as
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trustee. Unless otherwise stated in a prospectus supplement, Wilmington Trust
Company will be the trustee of each pass through trust. For convenience, we may
refer to the pass through trustee as the trustee.
Each pass through trust will be governed by a trust instrument that creates
the trust and sets forth the powers of the trustee and the rights of the
beneficiaries. The beneficiaries of a pass through trust will be the holders of
certificates issued by that trust. The trust instrument for each pass through
trust will consist of a basic pass through trust agreement between us and the
pass through trustee, which we refer to as the "Basic Agreement", and a
supplement to that basic agreement, which we refer to as a "pass through trust
supplement."
When a pass through trust supplement is signed and delivered, the pass
through trustee, on behalf of the related pass through trust, will enter into
one or more purchase or refunding agreements, referred to as "note purchase
agreements," under which it will agree to purchase one or more promissory notes
secured by aircraft described in the applicable prospectus supplement. These
secured promissory notes are referred to as "equipment notes."
Under the applicable note purchase agreement, the pass through trustee, on
behalf of the related pass through trust, will purchase one or more equipment
notes. The equipment notes that are the property of a pass through trust will
have:
-- identical interest rates, in each case equal to the rate applicable
to the certificates issued by such pass through trust; and
-- identical priority of payment relative to each of the other equipment
notes held for such pass through trust.
If any portion of the proceeds of an offering of a series of certificates
is not used to purchase equipment notes on the date the certificates are
originally issued, those proceeds will be held for the benefit of the
certificateholders. If any of the proceeds are not later used to purchase
equipment notes by the date specified in the applicable prospectus supplement,
the proceeds will be returned to the certificateholders.
EQUIPMENT NOTES
The equipment notes owned by a pass through trust may consist of any
combination of:
-- Equipment notes issued by an owner trustee and secured by an aircraft
owned by that trustee and leased to us. We refer to these equipment
notes as "leased aircraft notes."
-- Equipment notes issued by us and secured by an aircraft owned by us.
We refer to these equipment notes as "owned aircraft notes."
LEASED AIRCRAFT NOTES. Except as specified in a prospectus supplement,
leased aircraft notes will be issued by a bank, trust company, financial
institution or other entity solely in its capacity as owner trustee in a
leveraged lease transaction. In a leveraged lease transaction, one or more
persons will form an owner trust to acquire an aircraft and then that owner
trust will lease the aircraft to us. The investors that are the beneficiaries of
the owner trusts are typically referred to as owner participants. Each owner
participant will contribute a portion of the purchase price of the aircraft to
the owner trust, and the remainder of the purchase price of the aircraft will be
financed, or "leveraged", through the issuance of leased aircraft notes. Leased
aircraft notes may also be issued to refinance an aircraft previously financed
in a leveraged lease transaction or otherwise.
The leased aircraft notes will be issued pursuant to a separate indenture
between the owner trustee and a bank, trust company, financial institution or
other entity, as loan trustee. The indenture entered into in connection with the
issuance of leased aircraft notes will be referred to as a "leased aircraft
indenture." The loan trustee under a leased aircraft indenture will act as a
trustee for the holders of the leased aircraft notes issued under that leased
aircraft indenture.
In a leveraged lease transaction, we will pay or advance rent and other
amounts to the owner trustee in its capacity as lessor under the lease. The
owner trustee will use the rent payments and certain other amounts
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received by it to make payments of principal and interest on the leased aircraft
notes. The owner trustee also will assign its rights to receive basic rent and
certain other payments to a loan trustee as security for the owner trustee's
obligations to pay principal of, premium, if any, and interest on the leased
aircraft notes.
Payments or advances required to be made under a lease and related
agreements will at all times be sufficient to make scheduled payments of
principal of, and interest on, the leased aircraft notes issued to finance the
aircraft subject to that lease. However, we will not have any direct obligation
to pay principal of, or interest on, the leased aircraft notes. No owner
participant or owner trustee will be personally liable for any amount payable
under a leased aircraft indenture or the leased aircraft notes issued under that
indenture.
OWNED AIRCRAFT NOTES. We may finance or refinance aircraft that we own
through the issuance of owned aircraft notes. Owned aircraft notes relating to
an owned aircraft will be issued under a separate indenture relating to that
owned aircraft. Each separate indenture relating to owned aircraft notes will be
between us and a bank, trust company, financial institution or other entity, as
loan trustee. The indenture entered into in connection with the issuance of
owned aircraft notes will be referred to as an "owned aircraft indenture."
Because we often refer to owned aircraft indentures and leased aircraft
indentures together, we sometimes refer to them collectively as the
"indentures". The loan trustee under an owned aircraft indenture will act as a
trustee for the holders of the owned aircraft notes issued under that owned
aircraft indenture.
Unlike the leased aircraft notes, we will have a direct obligation to pay
the principal of, and interest on, the owned aircraft notes.
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THE COMPANY
We are a major United States air carrier engaged in the business of
transporting passengers, cargo and mail. We are the fifth largest U.S. airline,
as measured by revenue passenger miles in 2000, and, together with our wholly
owned subsidiaries, Continental Express, Inc. and Continental Micronesia, Inc.,
serve 230 airports worldwide. As of January 19, 2001, we flew to 136 domestic
and 94 international destinations and offered additional connecting service
through alliances with domestic and foreign air carriers. We directly serve 16
European cities, 7 South American cities, Tel Aviv and Tokyo and are one of the
leading airlines providing service to Mexico and Central America, serving more
destinations there than any other U.S. airline. Continental Micronesia provides
extensive service in the western Pacific, including service to more Japanese
cities than any other U.S. carrier.
We operate our route system primarily through domestic hubs at Newark
International Airport, George Bush Intercontinental Airport in Houston, Hopkins
International Airport in Cleveland, and a Pacific hub on the island of Guam. We
are the primary carrier at each of these hubs, accounting for 55%, 78%, 50% and
68% of average daily jet departures, respectively, as of January 19, 2001 (in
each case excluding regional jets). Each of our domestic hubs is located in a
large business and population center, contributing to a high volume of "origin
and destination" traffic. The Guam hub is strategically located to provide
service from Japanese and other Asian cities to popular resort destinations in
the western Pacific.
We are a Delaware corporation, with executive offices located at 1600 Smith
Street, Houston, Texas 77002. Our telephone number is (713) 324-2950.
USE OF PROCEEDS
Except as set forth in a prospectus supplement for a specific offering of
certificates, the certificates will be issued in order to provide funds for:
-- the financing or refinancing of the debt portion and, in certain
cases, the refinancing of some of the equity portion of one or more
separate leveraged lease transactions entered into by us, as lessee,
with respect to the leased aircraft as described in the applicable
prospectus supplement; and
-- the financing or refinancing of debt to be issued, or the purchase of
debt previously issued, by us in respect of the owned aircraft as
described in the applicable prospectus supplement.
Except as set forth in a prospectus supplement for a specific offering of
certificates, the proceeds from the sale of the certificates will be used by the
pass through trustee on behalf of the applicable pass through trust or pass
through trusts to purchase either:
-- leased aircraft notes issued by one or more owner trustees to finance
or refinance, as specified in the applicable prospectus supplement,
the related leased aircraft; or
-- owned aircraft notes issued by us to finance or refinance, as
specified in the applicable prospectus supplement, the related owned
aircraft.
If any portion of the proceeds of an offering of a series of certificates is not
used to purchase equipment notes on the date the certificates are issued, those
proceeds will be held for the benefit of the certificateholders. If any of the
proceeds are not later used to purchase equipment notes by the date specified in
the applicable prospectus supplement, the proceeds will be returned to the
certificateholders. See "Description of Certificates--Delayed Purchase of
Equipment Notes".
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RATIO OF EARNINGS TO FIXED CHARGES
The ratios of our "earnings" to our "fixed charges" for each of the years
1996 through 2000 were:
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
1.81 2.07 1.94 1.80 1.51
The ratios of earnings to fixed charges are based on continuing operations.
For purposes of the ratios, "earnings" means the sum of:
-- our pre-tax income; and
-- our fixed charges, net of interest capitalized.
"Fixed charges" represent:
-- the interest we pay on borrowed funds;
-- the amount we amortize for debt discount, premium and issuance
expense and interest previously capitalized; and
-- that portion of rentals considered to be representative of the
interest factor.
DESCRIPTION OF THE CERTIFICATES
The following description is a summary of the terms of the certificates
that we expect will be common to all series of certificates. We will describe
the financial terms and other specific terms of any series of certificates in a
prospectus supplement. To the extent that any provision in any prospectus
supplement is inconsistent with any provision in this prospectus, the provision
of the prospectus supplement will control.
Because the following description is a summary, it does not describe every
aspect of the certificates, and it is subject to and qualified in its entirety
by reference to all the provisions of the pass through trust agreement and the
applicable supplements to the pass through trust agreement. For convenience, we
will refer to the pass through trust agreement between the pass through trustee
and us as the "Basic Agreement," and to the Basic Agreement as supplemented by a
supplement as a "pass through trust agreement." The form of Basic Agreement has
been filed as an exhibit to the registration statement of which this prospectus
is a part. The supplement to the Basic Agreement relating to each series of
certificates and the forms of the other agreements described in this prospectus
and the applicable prospectus supplement will be filed as exhibits to a
post-effective amendment to the registration statement of which this prospectus
is a part, a Current Report on Form 8-K, a Quarterly Report on Form 10-Q or an
Annual Report on Form 10-K, as applicable, filed by us with the SEC.
GENERAL
Except as amended by a supplement to the Basic Agreement, the terms of the
Basic Agreement generally will apply to all of the pass through trusts that we
form to issue certificates. We will create a separate pass through trust for
each series of certificates by entering into a separate supplement to the Basic
Agreement. Each supplement to the Basic Agreement will contain the additional
terms governing the specific pass through trust to which it relates and, to the
extent inconsistent with the Basic Agreement, will supersede the Basic
Agreement.
Certificates for a pass through trust will be issued pursuant to the pass
through trust agreement applicable to such pass through trust. Unless otherwise
stated in the applicable prospectus supplement, each pass through certificate
will be issued in a minimum denomination of $1,000 or a multiple of $1,000,
except that one certificate of each series may be issued in a different
denomination.
Each certificate will represent a fractional undivided interest in the
property of the pass through trust that issued the certificate. All payments and
distributions made with respect to a certificate will be made only from
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the property owned by the pass through trust that issued the certificate. The
certificates do not represent an interest in or obligation of Continental, the
pass through trustee, any of the owner trustees or loan trustees, in their
individual capacities, or any owner participant. Each certificateholder by its
acceptance of a certificate agrees to look solely to the income and proceeds
from the property of the applicable pass through trust as provided in the pass
through trust agreement.
The property of each pass through trust for which a series of certificates
will be issued will include:
-- the equipment notes held for the pass through trust;
-- all monies at any time paid under the equipment notes held for the
pass through trust;
-- the rights of such pass through trust to acquire equipment notes;
-- funds from time to time deposited with the pass through trustee in
accounts relating to that pass through trust; and
-- if so specified in the relevant prospectus supplement, rights under
intercreditor agreements relating to cross-subordination arrangements
and monies receivable under a liquidity facility.
The rights of a pass through trustee to receive monies payable under
equipment notes held for that pass through trustee may be subject to the effect
of subordination provisions contained in an intercreditor agreement described in
the prospectus supplement for a series of certificates. An intercreditor
agreement refers to an agreement among the pass through trustees and, if
applicable, a liquidity provider under a liquidity facility, as creditors of the
issuers of the equipment notes owned by the pass through trustees. An
intercreditor agreement will set forth the terms and conditions upon which
payments made under the equipment notes and payments made under any liquidity
facility will be received, shared and distributed among the several pass through
trustees and the liquidity provider. In addition, the intercreditor agreement
will set forth agreements among the pass through trustees and the liquidity
provider relating to the exercise of remedies under the equipment notes and the
indentures.
Cross-subordination refers to an agreement under which payments on a junior
class of equipment notes issued under an indenture are distributed to a pass
through trustee that holds a senior class of equipment notes issued under a
different indenture on which all required payments were not made. The effect of
this distribution mechanism is that holders of certificates of a pass through
trust that owns a junior class of equipment notes will not receive payments made
on that junior class of equipment notes until certain distributions are made on
the certificates of the pass through trust that owns a senior class of equipment
notes.
Equipment notes owned by a pass through trust may be leased aircraft notes,
owned aircraft notes or a combination of leased aircraft notes and owned
aircraft notes.
Leased aircraft notes will be issued in connection with the leveraged lease
of an aircraft to us. Except as set forth in the applicable prospectus
supplement, each leased aircraft will be leased to us under a lease between us,
as lessee, and an owner trustee, as lessor. Each owner trustee will issue leased
aircraft notes on a non-recourse basis under a separate leased aircraft
indenture between it and the applicable loan trustee. The owner trustee will use
the proceeds of the sale of the leased aircraft notes to finance or refinance a
portion of the purchase price paid or to be paid by the owner trustee for the
applicable leased aircraft. The owner trustee will obtain the remainder of the
funding for the leased aircraft from an equity contribution from the owner
participant that is the beneficiary of the owner trust and, to the extent set
forth in the applicable prospectus supplement, additional debt secured by the
applicable leased aircraft or other sources. A leased aircraft also may be
subject to other financing arrangements.
Generally, neither the owner trustee nor the owner participant will be
personally liable for any principal or interest payable under any leased
aircraft indenture or any leased aircraft notes. In some cases, an owner
participant may be required to make payments to an owner trustee that are to be
used by the owner trustee to pay principal of, and interest on, the equipment
notes. If an owner participant is required to make payments to be used by an
owner trustee to pay principal of, and interest on, the equipment notes and the
owner participant fails to make the payment, we will be required to provide the
owner trustee with funds sufficient to make the
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payment. We will be obligated to make payments or advances under a lease and the
related documents sufficient to pay when due all scheduled principal and
interest payments on the leased aircraft notes issued to finance the aircraft
subject to that lease.
We will issue owned aircraft notes under separate owned aircraft
indentures. Owned aircraft notes will be issued in connection with the financing
or refinancing of an aircraft that we own. Owned aircraft notes will be
obligations that have recourse to us and the related aircraft. Any owned
aircraft may secure additional debt or be subject to other financing
arrangements.
An indenture may provide for the issuance of multiple classes of equipment
notes. If an indenture provides for multiple classes of equipment notes, it may
also provide for differing priority of payments among the different classes.
Equipment notes issued under an indenture may be held in more than one pass
through trust, and one pass through trust may hold equipment notes issued under
more than one indenture. Unless otherwise provided in a prospectus supplement,
only equipment notes having the same priority of payment may be held for the
same pass through trust.
Except as set forth in the prospectus supplement for any series of
certificates, interest payments on the equipment notes held for a pass through
trust will be passed through to the registered holders of certificates of that
pass through trust at the annual rate shown on the cover page of the prospectus
supplement for the certificates issued by that pass through trust. The
certificateholders' right to receive payments made in respect of the equipment
notes is subject to the effect of any cross-subordination provisions described
in the prospectus supplement for a series of certificates.
We refer you to the prospectus supplement that accompanies this prospectus
for a description of the specific series of certificates being offered by this
prospectus and the applicable prospectus supplement, including:
-- the specific designation, title and amount of the certificates;
-- amounts payable on and distribution dates for the certificates;
-- the currency or currencies, including currency units, in which the
certificates may be denominated;
-- the specific form of the certificates, including whether or not the
certificates are to be issued in accordance with a book-entry system;
-- a description of the equipment notes to be purchased by the pass
through trust issuing that series of certificates, including:
-- the period or periods within which, the price or prices at which,
and the terms and conditions upon which the equipment notes may or
must be redeemed or defeased in whole or in part, by us or an
owner trustee;
-- the payment priority of the equipment notes in relation to any
other equipment notes issued with respect to the related aircraft;
and
-- any intercreditor or other rights or limitations between or among
the holders of equipment notes of different priorities issued with
respect to the same aircraft;
-- a description of the aircraft to be financed with the proceeds of the
issuance of the equipment notes;
-- a description of the note purchase agreement setting forth the terms
and conditions upon which that pass through trust will purchase
equipment notes;
-- a description of the indentures under which the equipment notes to be
purchased for that pass through trust will be issued;
-- a description of the events of default, the remedies exercisable upon
the occurrence of events of default and any limitations on the
exercise of those remedies under the indentures pursuant to which the
equipment notes to be purchased for that pass through trust will be
issued;
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-- if the certificates relate to leased aircraft, a description of the
leases to be entered into by the owner trustees and us;
-- if the certificates relate to leased aircraft, a description of the
provisions of the leased aircraft indentures governing:
-- the rights of the related owner trustee and/or owner participant
to cure our failure to pay rent under the leases; and
-- any limitations on the exercise of remedies with respect to the
leased aircraft notes;
-- if the certificates relate to leased aircraft, a description of the
participation agreements that will set forth the terms and conditions
upon which the owner participant, the owner trustee, the pass through
trustees, the loan trustee and we agree to enter into a leveraged
lease transaction;
-- if the certificates relate to an owned aircraft, a description of the
participation agreements that will set forth the terms and conditions
upon which the applicable pass through trustees, the loan trustee and
we agree to enter into a financing transaction for the owned
aircraft;
-- a description of the limitations, if any, on amendments to leases,
indentures, pass through trust agreements, participation agreements
and other material agreements entered into in connection with the
issuance of equipment notes;
-- a description of any cross-default provisions in the indentures;
-- a description of any cross-collateralization provisions in the
indentures;
-- a description of any agreement among the holders of equipment notes
and any liquidity provider governing the receipt and distribution of
monies with respect to the equipment notes and the enforcement of
remedies under the indentures, including a description of any
applicable intercreditor and cross-subordination arrangements;
-- a description of any liquidity facility or other credit enhancement
relating to the certificates;
-- if the certificates relate to aircraft that have not yet been
delivered or financed, a description of any deposit or escrow
agreement or other arrangement providing for the deposit and
investment of funds pending the purchase of equipment notes and the
financing of an owned aircraft or leased aircraft; and
-- any other special terms pertaining to the certificates.
The concept of cross-default mentioned above refers to a situation where a
default under one indenture or lease results in a default under other indentures
or leases. We currently do not expect any indentures or leases to contain
cross-default provisions. The concept of cross-collateralization mentioned above
refers to the situation where collateral that secures obligations incurred under
one indenture also serves as collateral for obligations under one or more other
indentures. We currently do not expect any indentures to be cross-
collateralized.
BOOK-ENTRY REGISTRATION
GENERAL
If specified in the applicable prospectus supplement, the certificates will
be subject to the procedures and provisions described below.
Upon issuance, each series of certificates will be represented by one or
more fully registered global certificates. Each global certificate will be
deposited with, or on behalf of, The Depository Trust Company, referred to as
DTC, and registered in the name of Cede & Co., the nominee of DTC. No purchaser
of a certificate will be entitled to receive a physical certificate representing
an interest in the global certificates, except as set forth below under
"--Physical Certificates". For convenience, we refer to such purchasers as
"certificate owners". Unless and until physical certificates are issued under
the limited circumstances described below, all references in this prospectus and
any prospectus supplement to actions by
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certificateholders will refer to actions taken by DTC upon instructions from DTC
participants, and all references to distributions, notices, reports and
statements to certificateholders will refer, as the case may be, to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the certificates, or to DTC participants for distribution to
certificateholders in accordance with DTC procedures.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934.
Under the New York Uniform Commercial Code, a "clearing corporation" is
defined as:
-- a person that is registered as a "clearing agency" under the federal
securities laws;
-- a federal reserve bank; or
-- any other person that provides clearance or settlement services with
respect to financial assets that would require it to register as a
clearing agency under the federal securities laws but for an
exclusion or exemption from the registration requirement, if its
activities as a clearing corporation, including promulgation of
rules, are subject to regulation by a federal or state governmental
authority.
A "clearing agency" is an organization established for the execution of
trades by transferring funds, assigning deliveries and guaranteeing the
performance of the obligations of parties to trades.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between DTC participants
through electronic book-entry changes in the accounts of DTC participants. The
ability to execute transactions through book-entry changes in accounts
eliminates the need for transfer of physical certificates. DTC is owned by a
number of DTC participants and by the New York Stock Exchange, the American
Stock Exchange, and the National Association of Securities Dealers. DTC
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Banks, brokers, dealers,
trust companies and other entities that clear through or maintain a custodial
relationship with a DTC participant, either directly or indirectly, are indirect
participants in the DTC system.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of the certificates
among DTC participants on whose behalf it acts with respect to the certificates
and to receive and transmit distributions of principal, premium, if any, and
interest with respect to the certificates. DTC participants and indirect DTC
participants with which certificate owners have accounts similarly are required
to make book-entry transfers and receive and transmit the payments on behalf of
their respective customers. Certificate owners that are not DTC participants or
indirect DTC participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, the certificates may do so only through DTC
participants and indirect DTC participants. In addition, certificate owners will
receive all distributions of principal, premium, if any, and interest from the
pass through trustee through DTC participants or indirect DTC participants, as
the case may be.
Under a book-entry format, certificate owners may experience some delay in
their receipt of payments, because payments with respect to the certificates
will be forwarded by the pass through trustee to Cede, as nominee for DTC. DTC
will forward payments in same-day funds to each DTC participant who is credited
with ownership of the certificates in an amount proportionate to the principal
amount of that DTC participant's holdings of beneficial interests in the
certificates, as shown on the records of DTC or its nominee. Each such DTC
participant will forward payments to its indirect DTC participants in accordance
with standing instructions and customary industry practices. DTC participants
and indirect DTC participants will be responsible for forwarding distributions
to certificate owners for whom they act. Accordingly, although certificate
owners will not possess physical certificates, DTC's rules provide a mechanism
by which certificate owners will receive payments on the certificates and will
be able to transfer their interests.
Unless and until physical certificates are issued under the limited
circumstances described below, the only physical certificateholder will be Cede,
as nominee of DTC. Certificate owners will not be recognized by
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the pass through trustee as registered owners of certificates under the pass
through trust agreement. Certificate owners will be permitted to exercise their
rights under the pass through trust agreement only indirectly through DTC. DTC
will take any action permitted to be taken by a certificateholder under the pass
through trust agreement only at the direction of one or more DTC participants to
whose accounts with DTC the certificates are credited. In the event any action
requires approval by certificateholders of a certain percentage of the
beneficial interests in a pass through trust, DTC will take action only at the
direction of and on behalf of DTC participants whose holdings include undivided
interests that satisfy the required percentage. DTC may take conflicting actions
with respect to other undivided interests to the extent that the actions are
taken on behalf of DTC participants whose holdings include those undivided
interests. DTC will convey notices and other communications to DTC participants,
and DTC participants will convey notices and other communications to indirect
DTC participants in accordance with arrangements among them. Arrangements among
DTC and its direct and indirect participants are subject to any statutory or
regulatory requirements as may be in effect from time to time. DTC's rules
applicable to itself and DTC participants are on file with the SEC.
A certificate owner's ability to pledge the certificates to persons or
entities that do not participate in the DTC system, or otherwise to act with
respect to the certificates, may be limited due to the lack of a physical
certificate to evidence ownership of the certificates, and because DTC can only
act on behalf of DTC participants, who in turn act on behalf of indirect DTC
participants.
Neither we nor the pass through trustee will have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the certificates held by Cede, as nominee for DTC, for
maintaining, supervising or reviewing any records relating to the beneficial
ownership interests or for the performance by DTC, any DTC participant or any
indirect DTC participant of their respective obligations under the rules and
procedures governing their obligations.
The applicable prospectus supplement will specify any additional book-entry
registration procedures applicable to certificates denominated in a currency
other than U.S. dollars.
SAME-DAY SETTLEMENT AND PAYMENT
As long as the certificates are registered in the name of DTC or its
nominee, we will make all payments to the loan trustee under any lease or any
owned aircraft indenture in immediately available funds. The pass through
trustee will pass through to DTC in immediately available funds all payments
received from us, including the final distribution of principal with respect to
the certificates of any pass through trust.
Any certificates registered in the name of DTC or its nominee will trade in
DTC's Same-Day Funds Settlement System until maturity. DTC will require
secondary market trading activity in the certificates to settle in immediately
available funds. We cannot give any assurance as to the effect, if any, of
settlement in same-day funds on trading activity in the certificates.
PHYSICAL CERTIFICATES
Physical certificates will be issued in paper form to certificateholders or
their nominees, rather than to DTC or its nominee, only if:
-- we advise the pass through trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as
depository with respect to the certificates and we are unable to
locate a qualified successor;
-- we elect to terminate the book-entry system through DTC; or
-- after the occurrence of certain events of default or other events
specified in the related prospectus supplement, certificateholders
owning at least a majority in interest in a pass through trust advise
the applicable pass through trustee, us and DTC through DTC
participants that the continuation of a book-entry system through DTC
or a successor to DTC is no longer in the certificate owners' best
interest.
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Upon the occurrence of any of the events described in the three
subparagraphs above, the applicable pass through trustee will notify all
certificate owners through DTC participants of the availability of physical
certificates. Upon surrender by DTC of the global certificates and receipt of
instructions for re-registration, the pass through trustee will reissue the
certificates as physical certificates to certificate owners.
After physical certificates are issued, the pass through trustee or a
paying agent will make distributions of principal, premium, if any, and interest
with respect to certificates directly to holders in whose names the physical
certificates were registered at the close of business on the applicable record
date. Except for the final payment to be made with respect to a certificate, the
pass through trustee or a paying agent will make distributions by check mailed
to the addresses of the registered holders as they appear on the register
maintained by the pass through trustee. The pass through trustee or a paying
agent will make the final payment with respect to any pass through certificate
only upon presentation and surrender of the applicable pass through certificate
at the office or agency specified in the notice of final distribution to
certificateholders.
Physical certificates will be freely transferable and exchangeable at the
office of the pass through trustee upon compliance with the requirements set
forth in the pass through trust agreement. Neither the pass through trustee nor
any transfer or exchange agent will impose a service charge for any registration
of transfer or exchange. However, the pass through trustee or transfer or
exchange agent will require payment of a sum sufficient to cover any tax or
other governmental charge attributable to a transfer or exchange.
PAYMENTS AND DISTRIBUTIONS
Subject to the effect of any cross-subordination provisions set forth in
the prospectus supplement for a series of certificates:
-- Payments of principal, premium, if any, and interest with respect to
the equipment notes held for each pass through trust will be
distributed by the pass through trustee, upon receipt, to
certificateholders of that trust on the dates and in the currency
specified in the applicable prospectus supplement, except in certain
cases when some or all of the equipment notes are in default as
described in the applicable prospectus supplement. Payments of
principal of, and interest on, the unpaid principal amount of the
equipment notes held in each pass through trust will be scheduled to
be received by the pass through trustee on the dates specified in the
applicable prospectus supplement.
-- Each certificateholder of a pass through trust will be entitled to
receive a pro rata share of any distribution in respect of scheduled
payments of principal and interest made on the equipment notes held
for such pass through trust.
If we elect or are required to redeem equipment notes relating to one or
more aircraft prior to their scheduled maturity date, payments of principal,
premium (if any) and interest received by the pass through trustee as a result
of the early redemption will be distributed on a special distribution date
determined as described in the applicable prospectus supplement. Payments
received by the pass through trustee following a default under the equipment
notes held for a pass through trust will also be distributed on a special
distribution date determined in the same way. However, if following such a
default the pass through trustee receives any scheduled payments on equipment
notes on a regular distribution date or within five days thereafter, the pass
through trustee will distribute those payments on the date they are received. In
addition, if following a default under equipment notes the pass through trustee
receives payments on the equipment notes on a regular distribution date by
making a drawing under any liquidity facility, as described in the applicable
prospectus supplement, those payments will be distributed to certificateholders
on the regular distribution date. The pass through trustee will mail notice to
the certificateholders of record of the applicable pass through trust stating
the anticipated special distribution date.
POOL FACTORS
Unless otherwise described in the applicable prospectus supplement, the
"pool balance" for each pass through trust or for the certificates issued by any
pass through trust indicates, as of any date, the portion of the original
aggregate face amount of the certificates issued by that pass through trust that
has not been
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distributed to certificateholders (excluding any payments of interest or
premium). The pool balance for each pass through trust as of any distribution
date will be computed after giving effect to any distribution to
certificateholders to be made on that date.
Unless otherwise described in the applicable prospectus supplement, the
"pool factor" for a pass through trust as of any distribution date for that
trust is the quotient (rounded to the seventh decimal place) computed by
dividing (a) the pool balance by (b) the aggregate original face amount of the
certificates issued by that pass through trust. The pool factor for a pass
through trust as of any distribution date will be computed after giving effect
to the payment of principal, if any, on the equipment notes held for that pass
through trust and distribution to certificateholders of the payment of principal
to be made on that date. Each pass through trust will have a separate pool
factor.
The pool factor for a pass through trust initially will be 1.0000000. The
pool factor for a pass through trust will decline as described in this
prospectus and the related prospectus supplement to reflect reductions in the
pool balance of that pass through trust. As of any distribution date for a pass
through trust, a certificate will represent a share of the pool balance of that
pass through trust equal to the product obtained by multiplying the original
face amount of the certificate by the pool factor for the pass through trust
that issued such certificate. The pool factor and pool balance of each past
through trust will be mailed to the certificateholders of the pass through trust
on each distribution date.
The pool factor for each pass through trust will decline in proportion to
the scheduled repayments of principal on the equipment notes held by that pass
through trust, unless there is an early redemption or purchase of equipment
notes held by a pass through trust or if a default occurs in the repayment of
equipment notes held by a pass through trust. In the event of a redemption,
purchase or default, the pool factor and the pool balance of each pass through
trust affected by the redemption, purchase or default will be recomputed, and a
notice will be mailed to the certificateholders of the pass through trust.
REPORTS TO CERTIFICATEHOLDERS
The pass through trustee will include with each distribution of a payment
to certificateholders a statement setting forth the following information:
-- the amount of the distribution allocable to principal and the amount
allocable to premium, if any;
-- the amount of the distribution allocable to interest; and
-- the pool balance and the pool factor for the pass through trust after
giving effect to the distribution.
As long as the certificates are registered in the name of DTC or its
nominee, on the record date prior to each distribution date, the pass through
trustee will request from DTC a securities position listing setting forth the
names of all DTC participants reflected on DTC's books as holding interests in
the certificates on that record date. On each distribution date, the applicable
pass through trustee will mail to each DTC participant holding certificates the
statement described above and will make available additional copies as requested
by the DTC participants for forwarding to certificate owners.
After the end of each calendar year, each pass through trustee will prepare
a report for each person that was a holder of one or more of its pass through
certificates at any time during the preceding calendar year. This report will
contain the sum of the amount of distributions allocable to principal, premium
and interest with respect to that pass through trust for the preceding calendar
year or, if the person was a holder of a pass through certificate during only a
portion of the preceding calendar year, for the applicable portion of the
preceding calendar year. In addition, each pass through trustee will prepare for
each person that was a holder of one or more of its pass through certificates at
any time during the preceding calendar year any other information that are
readily available to the pass through trustee and which a certificateholder
reasonably requests as necessary for the purpose of preparing its federal income
tax returns. The reports and other items described in this section will be
prepared on the basis of information supplied to the pass through trustee by DTC
participants and will be delivered by the pass through trustee to DTC
participants to be available for forwarding by DTC participants to certificate
owners in the manner described above.
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If the certificates of a pass through trust are issued in the form of
physical certificates, the pass through trustee of that pass through trust will
prepare and deliver the information described above to each record holder of a
pass through certificate issued by that pass through trust as the name and
period of ownership of the holder appears on the records of the registrar of the
certificates.
VOTING OF EQUIPMENT NOTES
A pass through trustee has the right to vote and give consents and waivers
with respect to the equipment notes held by that pass through trust. However,
the pass through trustee's right to vote and give consents or waivers may be
restricted or may be exercisable by another person in accordance with the terms
of an intercreditor agreement, as described in the applicable prospectus
supplement. The pass through trust agreement will set forth:
-- the circumstances in which a pass through trustee may direct any
action or cast any vote with respect to the equipment notes held for
its pass through trust at its own discretion;
-- the circumstances in which a pass through trustee will seek
instructions from its certificateholders; and
-- if applicable, the percentage of certificateholders required to
direct the pass through trustee to take action.
If the holders of certificates are entitled to the benefits of a liquidity
facility, and the liquidity facility is used to make any payments to
certificateholders, the provider of the liquidity facility may be entitled to
exercise rights to vote or give consents and waivers with respect to the
equipment notes held for the pass through trust that issued the certificates, as
described in the applicable prospectus supplement.
EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
The prospectus supplement will specify the events of default that can occur
under the pass through trust agreement and under the indentures relating to the
equipment notes held for the related pass through trust. In the case of a leased
aircraft indenture, an indenture default will include events of default under
the related lease. In the case of any equipment notes that are supported by a
liquidity facility, a default may include events of default under that liquidity
facility.
Unless otherwise provided in a prospectus supplement, all of the equipment
notes issued under the same indenture will relate to a specific aircraft and
there will be no cross-collateralization or cross-default provisions in the
indentures. As a result, events resulting in a default under any particular
indenture will not necessarily result in an a default under any other indenture.
If a default occurs in fewer than all of the indentures, payments of principal
and interest on the equipment notes issued under the indentures with respect to
which a default has not occurred will continue to be made as originally
scheduled.
As described below under "--Cross-Subordination Issues", a prospectus
supplement may describe the terms of any cross-subordination provisions among
certificateholders of separate pass through trusts. If cross-subordination is
provided, payments made pursuant to an indenture under which a default has not
occurred may be distributed first to the holders of the certificates issued
under the pass through trust which holds the most senior equipment notes issued
under all of the indentures.
The ability of the applicable owner trustee or owner participant under a
leased aircraft indenture to cure a default under the indenture, including a
default that results from the occurrence of a default under the related lease,
will be described in the prospectus supplement. Unless otherwise provided in a
prospectus supplement, with respect to any pass through certificates or
equipment notes entitled to the benefits of a liquidity facility, a drawing
under the liquidity facility for the purpose of making a payment of interest as
a result of our failure to have made a corresponding payment will not cure a
default related to our failure.
The prospectus supplement related to a series of pass through certificates
will describe the circumstances under which the pass through trustee of the
related pass through trust may vote some or all of the equipment notes held in
the pass through trust. The prospectus supplement also will set forth the
percentage of
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certificateholders of the pass through trust entitled to direct the pass through
trustee to take any action with respect to the equipment notes. If the equipment
notes outstanding under an indenture are held by more than one pass through
trust, then the ability of the certificateholders issued with respect to any one
pass through trust to cause the loan trustee with respect to any equipment notes
held in the pass through trust to accelerate the equipment notes under the
applicable indenture or to direct the exercise of remedies by the loan trustee
under the applicable indenture will depend, in part, upon the proportion of the
aggregate principal amount of the equipment notes outstanding under that
indenture and held in that pass through trust to the aggregate principal amount
of all equipment notes outstanding under that indenture.
In addition, if cross-subordination provisions are applicable to any series
of certificates, then the ability of the certificateholders of any one pass
through trust holding equipment notes issued under an indenture to cause the
loan trustee with respect to any equipment notes held in that pass through trust
to accelerate the equipment notes under that indenture or to direct the exercise
of remedies by the loan trustee under that indenture will depend, in part, upon
the class of equipment notes held in the pass through trust. If the equipment
notes outstanding under an indenture are held by more than one pass through
trust, then each pass through trust will hold equipment notes with different
terms from the equipment notes held in the other pass through trusts and
therefore the certificateholders of each pass through trust may have divergent
or conflicting interests from those of the certificateholders of the other pass
through trusts holding equipment notes issued under the same indenture. In
addition, so long as the same institution acts as pass through trustee of each
pass through trust, in the absence of instructions from the certificateholders
of any pass through trust, the pass through trustee for the pass through trust
could for the same reason be faced with a potential conflict of interest upon a
default under an indenture. In that event, the pass through trustee has
indicated that it would resign as pass through trustee of one or all the pass
through trusts, and a successor trustee would be appointed in accordance with
the terms of the Basic Agreement.
The prospectus supplement for a series of certificates will specify whether
and under what circumstances the pass through trustee may sell for cash to any
person all or part of the equipment notes held in the related pass through
trust. Any proceeds received by the pass through trustee upon a sale will be
deposited in an account established by the pass through trustee for the benefit
of the certificateholders of the pass through trust for the deposit of the
special payments and will be distributed to the certificateholders of the pass
through trust on a special distribution date.
The market for equipment notes in default may be very limited, and we
cannot assure you that they could be sold for a reasonable price. Furthermore,
so long as the same institution acts as pass through trustee of multiple pass
through trusts, it may be faced with a conflict in deciding from which pass
through trust to sell equipment notes to available buyers. If the pass through
trustee sells any equipment notes with respect to which a default under an
indenture exists for less than their outstanding principal amount, the
certificateholders of that pass through trust will receive a smaller amount of
principal distributions than anticipated and will not have any claim for the
shortfall against us, any owner trustee, owner participant or the pass through
trustee. Furthermore, neither the pass through trustee nor the
certificateholders of that pass through trust could take any action with respect
to any remaining equipment notes held in that pass through trust so long as no
default under an indenture exists.
Any amount, other than scheduled payments received on a regular
distribution date, distributed to the pass through trustee of any pass through
trust by the loan trustee under any indenture on account of the equipment notes
held in that pass through trust following a default under such indenture will be
deposited in the special payments account for that pass through trust and will
be distributed to the certificateholders of that pass through trust on a special
distribution date. In addition, if a prospectus supplement provides that the
applicable owner trustee may, under circumstances specified in the prospectus
supplement, redeem or purchase the outstanding equipment notes issued under the
applicable indenture, the price paid by the owner trustee to the pass through
trustee of any pass through trust for the equipment notes issued under that
indenture and held in that pass through trust will be deposited in the special
payments account for the pass through trust and will be distributed to the
certificateholders of the pass through trust on a special distribution date.
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Any funds representing payments received with respect to any equipment
notes in default held in a pass through trust, or the proceeds from the sale by
the pass through trustee of any of those equipment notes, held by the pass
through trustee in the special payments account for that pass through trust
will, to the extent practicable, be invested and reinvested by the pass through
trustee in permitted investments pending the distribution of the funds on a
special distribution date. Permitted investments will be specified in the
related prospectus supplement.
The Basic Agreement provides that the pass through trustee of each pass
through trust will give to the certificateholders of that pass through trust
notice of all uncured or unwaived defaults known to it with respect to that pass
through trust. The Basic Agreement requires the pass through trustee to provide
the notice of default within 90 days after the occurrence of the default.
However, except in the case of default in the payment of principal, premium, if
any, or interest on any of the equipment notes held for a pass through trust,
the pass through trustee will be protected in withholding a notice of default if
it in good faith determines that withholding the notice is in the interest of
the certificateholders of such pass through trust. The term "default" as used in
this paragraph means only the occurrence of a default under an indenture with
respect to equipment notes held in a pass through trust as described above,
except that in determining whether any default under an indenture has occurred,
any related grace period or notice will be disregarded.
The Basic Agreement requires the pass through trustee to act with a
specified standard of care while a default is continuing under an indenture. In
addition, the Basic Agreement contains a provision entitling the pass through
trustee to require reasonable security or indemnification by the
certificateholders of the pass through trust before proceeding to exercise any
right or power under the Basic Agreement at the request of those
certificateholders.
The prospectus supplement for a series of certificates will specify the
percentage of certificateholders entitled to waive, or to instruct the pass
through trustee to waive, any past default with respect to the related pass
through trust and its consequences. The prospectus supplement for a series of
certificates also will specify the percentage of certificateholders entitled to
waive, or to instruct the pass through trustee or the loan trustee to waive, any
past default under an indenture.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
We will be prohibited from consolidating with or merging into any other
corporation or transferring substantially all of our assets as an entirety to
any other corporation unless the surviving, successor or transferee corporation:
-- is validly existing under the laws of the United States or any of its
states;
-- is a citizen of the United States, as defined in Title 49 of the U.S.
Code relating to aviation, referred to as the "Transportation Code,"
holding an air carrier operating certificate issued pursuant to
Chapter 447 of Title 49, U.S. Code, if, and so long as, that status
is a condition of entitlement to the benefits of Section 1110 of the
U.S. Bankruptcy Code relating to the rights of creditors of an
airline in the event of the airline's bankruptcy; and
-- expressly assumes all of our obligations contained in the Basic
Agreement and any pass through trust supplement, the note purchase
agreements, any indentures, any participation agreements and, with
respect to aircraft leased by us, the applicable leases.
In addition, we will be required to deliver a certificate and an opinion or
opinions of counsel indicating that the transaction, in effect, complies with
these conditions.
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MODIFICATIONS OF THE BASIC AGREEMENT
The Basic Agreement contains provisions permitting us and the pass through
trustee of each pass through trust to enter into a supplemental trust agreement,
without the consent of the holders of any of the certificates issued by such
pass through trust, in order to do the following, among other things:
-- to provide for the formation of such pass through trust and the
issuance of a series of certificates and to set forth the terms of
the certificates;
-- to evidence the succession of another corporation to us and the
assumption by that corporation of our obligations under the Basic
Agreement and the pass through trust agreements;
-- to add to our covenants for the benefit of holders of such
certificates, or to surrender any right or power in the Basic
Agreement conferred upon us;
-- to cure any ambiguity or correct or supplement any defective or
inconsistent provision of the Basic Agreement or any pass through
trust agreement, so long as those changes will not materially
adversely affect the interests of the holders of such certificates,
or to cure any ambiguity or correct any mistake or, to give effect to
or provide for replacement liquidity facilities, if applicable, to
such certificates;
-- to comply with any requirement of the SEC, any applicable law, rules
or regulations of any exchange or quotation system on which any
certificates may be listed or of any regulatory body;
-- to modify, eliminate or add to the provisions of the Basic Agreement
to the extent necessary to continue the qualification of the pass
through trust agreement under the Trust Indenture Act of 1939, and to
add to the Basic Agreement other provisions as may be expressly
permitted by the Trust Indenture Act;
-- to provide for a successor pass through trustee or to add to or
change any provision of the Basic Agreement as necessary to
facilitate the administration of the pass through trusts created
under the pass through trust agreement by more than one pass through
trustee; and
-- to make any other amendments or modifications to the Basic Agreement
so long as those amendments or modifications apply only to
certificates of a series issued after the date of the amendment or
modification.
No pass through trust supplement may be made that will adversely affect the
status of any pass through trust as a grantor trust for U.S. federal income tax
purposes.
The Basic Agreement also contains provisions permitting us and the pass
through trustee of each pass through trust, with the consent of a majority in
interest of the certificateholders of the pass through trust, to execute
supplemental trust agreements adding any provisions to or changing or
eliminating any of the provisions of the Basic Agreement, to the extent relating
to that pass through trust, and the applicable pass through trust supplement, or
modifying the rights of the certificateholders, except that no supplement may,
without the consent of each affected certificateholder:
-- reduce in any manner the amount of, or delay the timing of, any
receipt by the pass through trustee of payments on the equipment
notes held in the pass through trust or distributions in respect of
any pass through certificate issued by the pass through trust;
-- change the date or place of any payment in respect of any pass
through certificate, or make distributions payable in currency other
than that provided for in the certificates, or impair the right of
any certificateholder to institute suit for the enforcement of any
payment when due;
-- permit the disposition of any equipment note held in the pass through
trust, except as provided in the pass through trust agreement, or
otherwise deprive any certificateholder of the benefit of the
ownership of the applicable equipment note;
-- reduce the percentage of the aggregate fractional undivided interests
of the pass through trust that is required in order for any
supplement or waiver to be approved;
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-- modify any of the provisions relating to the rights of the
certificateholders in respect of the waiver of events of default or
receipt of payment;
-- alter the priority of distributions described in any applicable
intercreditor agreement, in a manner materially adverse to the
interests of the certificateholders of such pass through trust; or
-- adversely affect the status of any pass through trust as a grantor
trust for U.S. federal income tax purposes.
MODIFICATION OF INDENTURE AND RELATED AGREEMENTS
The prospectus supplement will specify the pass through trustee's
obligations if a pass through trustee, as the holder of any equipment notes held
for a pass through trust, receives a request for its consent to any amendment,
modification or waiver under the indenture under which the equipment notes were
issued, under the lease relating to the aircraft leased by us that was financed
with the proceeds of the equipment notes or under any liquidity facility.
CROSS-SUBORDINATION ISSUES
The equipment notes issued under an indenture may be held in more than one
pass through trust, and one pass through trust may hold equipment notes issued
under more than one indenture. Unless otherwise provided in a prospectus
supplement, only equipment notes having the same priority for distributions
under the applicable indenture may be held in the same pass through trust. In
that event, payments made on account of a subordinate class of certificates
issued under a prospectus supplement may be subordinated, under circumstances
described in the prospectus supplement, to the prior payment of all amounts
owing to certificateholders of a pass through trust which holds senior equipment
notes issued under the applicable indentures. The prospectus supplement related
to an issuance of certificates will describe the "cross-subordination"
provisions and any related terms, including the percentage of certificateholders
under any pass through trust which are permitted to:
-- grant waivers of defaults under any applicable indenture;
-- consent to the amendment or modification of any applicable indenture;
or
-- direct the exercise of remedial actions under any applicable
indenture.
TERMINATION OF THE PASS THROUGH TRUSTS
Our obligations and those of the pass through trustee with respect to a
pass through trust will terminate upon the distribution to certificateholders of
the pass through trust of all amounts required to be distributed to them
pursuant to the applicable pass through trust agreement and the disposition of
all property held in the pass through trust. In no event will any pass through
trust continue beyond 110 years following the date of the execution of the
applicable pass through trust supplement, or any other final expiration date as
may be specified in the pass through trust supplement. The pass through trustee
will send to each certificateholder of record of the pass through trust notice
of the termination of the pass through trust, the amount of the proposed final
payment and the proposed date for the distribution of the final payment for the
pass through trust. The final distribution to any certificateholder of the pass
through trust will be made only upon surrender of that certificateholder's
certificates at the office or agency of the pass through trustee specified in
the notice of termination.
DELAYED PURCHASE OF EQUIPMENT NOTES
On the issuance date of any certificates, if all of the proceeds from the
sale of the certificates are not used to purchase the equipment notes
contemplated to be held in the related pass through trust, the equipment notes
may be purchased by the pass through trustee at any time on or prior to the date
specified in the applicable prospectus supplement. In that event, the proceeds
from the sale of the certificates not used to purchase equipment notes will be
held under an arrangement described in the applicable prospectus
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supplement pending the purchase of equipment notes. The arrangements with
respect to the payment of interest on funds so held will be described in the
applicable prospectus supplement. If any proceeds are not used to purchase
equipment notes by the date specified in the applicable prospectus supplement,
the proceeds will be returned to the certificateholders.
LIQUIDITY FACILITY
The related prospectus supplement may provide that one or more payments of
interest on the certificates of one or more series will be supported by a
liquidity facility issued by an institution identified in the related prospectus
supplement. The provider of the liquidity facility may have a claim on money and
property belonging to a pass through trust that is senior to the
certificateholders' as specified in the related prospectus supplement.
THE PASS THROUGH TRUSTEE
Unless otherwise provided in the prospectus supplement for any series of
certificates, the pass through trustee for each series of certificates will be
Wilmington Trust Company. With certain exceptions, the pass through trustee
makes no representations as to the validity or sufficiency of the Basic
Agreement, the pass through trust supplements, the certificates, the equipment
notes, the indentures, the leases or other related documents. The pass through
trustee will not be liable with respect to any series of certificates for any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the holders of a majority in principal amount of outstanding
certificates of that series issued under the Basic Agreement. Subject to those
provisions, the pass through trustee will be under no obligation to exercise any
of its rights or powers under the Basic Agreement at the request of any holders
of certificates issued under that agreement unless they will have offered to the
pass through trustee indemnity satisfactory to it. The Basic Agreement provides
that the pass through trustee in its individual or any other capacity may
acquire and hold certificates and, subject to certain conditions, may otherwise
deal with us and, with respect to the leased aircraft, with any owner trustee
with the same rights it would have if it were not the pass through trustee.
The pass through trustee may resign with respect to any or all of the pass
through trusts at any time, in which event we will be obligated to appoint a
successor trustee. If the pass through trustee ceases to be eligible to continue
as pass through trustee with respect to a pass through trust or becomes
incapable of acting as pass through trustee or becomes insolvent, we may remove
the pass through trustee, or any certificateholder of the pass through trust for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the pass through
trustee and the appointment of a successor trustee. Any resignation or removal
of the pass through trustee with respect to a pass through trust and appointment
of a successor trustee for the pass through trust does not become effective
until acceptance of the appointment by the successor trustee. Pursuant to the
resignation and successor trustee provisions, it is possible that a different
trustee could be appointed to act as the successor trustee with respect to each
pass through trust. All references in this prospectus to the pass through
trustee should be read to take into account the possibility that the pass
through trusts could have different successor trustees in the event of a
resignation or removal.
The Basic Agreement provides that we will pay the pass through trustee's
fees and expenses and indemnify the pass through trustee against certain
liabilities.
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DESCRIPTION OF THE EQUIPMENT NOTES
The statements made under this caption are summaries, and we refer you to
the entire prospectus and detailed information appearing in the applicable
prospectus supplement. Where no distinction is made between the leased aircraft
notes and the owned aircraft notes or between their respective indentures, those
statements refer to any equipment notes and any indenture.
To the extent that any provision in any prospectus supplement is
inconsistent with any provision in this summary, the provision of the prospectus
supplement will control.
GENERAL
The equipment notes will be issued under indentures. Equipment notes
secured by an aircraft that is leased to us will be issued under an indenture
between an owner trustee and a loan trustee. Equipment notes secured by an
aircraft that is owned by us will be issued under an indenture between a loan
trustee and us.
The leased aircraft notes will be non-recourse obligations of the
applicable owner trustee. All of the leased aircraft notes issued under the same
indenture will relate to and will be secured by one or more specific aircraft
leased to us. Unless otherwise specified in the applicable prospectus
supplement, leased aircraft notes will not be secured by any other aircraft.
We will be the issuer of owned aircraft notes. The owned aircraft notes
will be our direct recourse obligations. All of the owned aircraft notes issued
under the same indenture will relate to, and will be secured by, one or more
specific aircraft that we own. Unless otherwise specified in the applicable
prospectus supplement, the owned aircraft notes will not be secured by any other
aircraft.
PRINCIPAL AND INTEREST PAYMENTS
Interest received by the pass through trustee on the equipment notes held
in a pass through trust will be passed through to the certificateholders of that
pass through trust on the dates and at the annual rate set forth in the
applicable prospectus supplement until the final distribution for that pass
through trust. Principal payments received by the pass through trustee on the
equipment notes held in a pass through trust will be passed through to the
certificateholders of that pass through trust in scheduled amounts on the dates
set forth in the applicable prospectus supplement until the final distribution
date for that pass through trust.
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to the equipment notes is not a business day, the payment
will be made on the next succeeding business day without any additional
interest.
REDEMPTION
The applicable prospectus supplement will describe the circumstances,
whether voluntary or involuntary, under which the equipment notes may be
redeemed or purchased prior to their stated maturity date, in whole or in part.
The prospectus supplement will also describe the premium, if any, applicable
upon redemptions or purchases and other terms applying to the redemptions or
purchases of the equipment notes.
SECURITY
The leased aircraft notes will be secured by:
-- an assignment by the related owner trustee to the related loan
trustee of the owner trustee's rights, except for certain rights
described below, under the lease or leases with respect to the
related aircraft, including the right to receive payments of rent
under those leases; and
-- a mortgage granted to the loan trustee on the aircraft, subject to
our rights under the lease or leases.
Under the terms of each lease, our obligations in respect of each leased
aircraft will be those of a lessee under a "net lease". Accordingly, we will be
obligated, among other things and at our expense, to cause each leased aircraft
to be duly registered, to pay all costs of operating the aircraft and to
maintain, service, repair
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and overhaul the aircraft or cause it to be maintained, serviced, repaired and
overhauled. With respect to the leased aircraft, the assignment by the related
owner trustee to the related loan trustee of its rights under the related lease
will exclude, among other things:
-- rights of the owner trustee and the related owner participant
relating to indemnification by us for certain matters;
-- insurance proceeds payable to the owner trustee in its individual
capacity and to the owner participant under liability insurance
maintained by us pursuant to the lease or by the owner trustee or the
owner participant;
-- insurance proceeds payable to the owner trustee in its individual
capacity or to the owner participant under certain casualty insurance
maintained by the owner trustee or the owner participant pursuant to
the lease; and
-- any rights of the owner participant or the owner trustee to enforce
payment of the foregoing amounts and their respective rights to the
proceeds of the foregoing.
The owned aircraft notes will be secured by a mortgage granted to the
related loan trustee of all of our right, title and interest in and to the owned
aircraft. Under the terms of each owned aircraft indenture, we will be
obligated, among other things and at our expense, to cause each owned aircraft
to be duly registered, to pay all costs of operating the aircraft and to
maintain, service, repair and overhaul the aircraft or cause it to be
maintained, serviced, repaired and overhauled.
We will be required, except under certain circumstances, to keep each
aircraft registered under the Transportation Code, and to record the indenture
and the lease, if applicable, among other documents, with respect to each
aircraft under the Transportation Code. Recordation of the indenture, the lease,
if applicable, and other documents with respect to each aircraft will give the
related loan trustee a perfected security interest in the related aircraft
whenever it is located in the United States or any of its territories and
possessions. The Convention on the International Recognition of Rights in
Aircraft, referred to as the "Convention," provides that this security interest
will also be recognized, with certain limited exceptions, in those jurisdictions
that have ratified or adhere to the Convention.
We will have the right, subject to certain conditions, at our own expense
to register each aircraft in countries other than the United States. Each
aircraft may also be operated by us or under lease, sublease or interchange
arrangements in countries that are not parties to the Convention. The extent to
which the related loan trustee's security interest would be recognized in an
aircraft located in a country that is not a party to the Convention, and the
extent to which the security interest would be recognized in a jurisdiction
adhering to the Convention if the aircraft is registered in a jurisdiction not a
party to the Convention, is uncertain. Moreover, in the case of a default under
an indenture, the ability of the related loan trustee to realize upon its
security interest in an aircraft could be adversely affected as a legal or
practical matter if the aircraft were registered or located outside the United
States.
Unless otherwise specified in the applicable prospectus supplement, the
equipment notes will not be cross-collateralized. Consequently, the equipment
notes issued in respect of any one aircraft will not be secured by any other
aircraft. Unless and until a default under an indenture with respect to a leased
aircraft has occurred and is continuing, the related loan trustee may exercise
only limited rights of the related owner trustee under the related lease.
The loan trustee will invest and reinvest funds, if any, held by it from
time to time under an indenture. The loan trustee will, at our direction, invest
and reinvest funds in certain investments described in the applicable indenture.
We will not be entitled to direct the loan trustee to invest and reinvest funds
with respect to a leased aircraft in the case of a default under the applicable
lease or, with respect to an owned aircraft, in the case of a default under the
applicable indenture. We will pay the net amount of any loss resulting from
these investments.
In the case of Chapter 11 bankruptcy proceedings involving a holder of
"equipment" (defined as described below), Section 1110 of the U.S. Bankruptcy
Code provides special rights to lessors, conditional
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vendors and holders of security interests with respect to such equipment. Under
Section 1110, the right of such financing parties to take possession of such
equipment in compliance with the provisions of a lease, conditional sale
contract or security agreement is not affected by any provision of the U.S.
Bankruptcy Code or any power of the bankruptcy court. Ordinarily, such right
would be limited by the "automatic stay" under the Bankruptcy Code. Such right
to take possession may not be exercised for 60 days following the date of
commencement of the reorganization proceedings. Thereafter, such right to take
possession may be exercised during such proceedings unless, within the 60-day
period or any longer period consented to by the relevant parties, the debtor
agrees to perform its obligations that become due on or after that date and
cures all defaults on a timely basis. Defaults resulting solely from the
financial condition, bankruptcy, insolvency or reorganization of the debtor need
not be cured.
"Equipment" is defined in Section 1110 of the U.S. Bankruptcy Code, in
part, as an aircraft, aircraft engine, propeller, appliance, or spare part (as
defined in Section 40102 of Title 49 of the U.S. Code) that is subject to a
security interest granted by, leased to, or conditionally sold to a debtor that,
at the time such transaction is entered into, holds an air carrier operating
certificate issued pursuant to chapter 447 of title 49 of the U.S. Code for
aircraft capable of carrying 10 or more individuals or 6,000 pounds of more of
cargo (subject to certain limitations in the case of equipment first placed in
service on or prior to October 22, 1994).
In connection with any issuance of certificates under this prospectus and
the applicable prospectus supplement, it will be a condition to the pass through
trustee's obligation to purchase equipment notes with respect to each aircraft
that our outside counsel provide its opinion (which may assume that we hold, at
the time of the lease or mortgage, as the case may be, an air carrier operating
certificate issued pursuant to chapter 447 of title 49 of the U.S. Code for
aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of
cargo) to the Pass Through Trustee that:
-- if the aircraft is a leased aircraft, the owner trustee, as lessor
under the lease for the aircraft, and the loan trustee, as assignee
of the owner trustee's rights under the lease pursuant to the
applicable indenture, will be entitled to the benefits of Section
1110 of the U.S. Bankruptcy Code with respect to the airframe and
engines comprising the aircraft; or
-- if the aircraft is an owned aircraft, the loan trustee will be
entitled to the benefits of Section 1110 with respect to the airframe
and engines comprising the owned aircraft.
The opinion will not address the possible replacement of an aircraft after
an "Event of Loss", as defined in the applicable indenture, in the future.
RANKING OF EQUIPMENT NOTES
Some of the equipment notes related to one or more aircraft, as described
in the related prospectus supplement, may be subordinated and junior in right of
payment to other equipment notes related to the same aircraft. The terms of the
subordination, if any, will be described in the related prospectus supplement.
PAYMENTS AND LIMITATION OF LIABILITY
We will lease each leased aircraft from an owner trustee for a term
commencing on the delivery date of the aircraft to the owner trustee and
expiring on a date no earlier than the latest maturity date of the related
leased aircraft notes, unless previously terminated as permitted by the terms of
the related lease. We will make basic rent and other payments under each lease
to an owner trustee, as lessor. The owner trustee will assign these payments
under the applicable indenture to the related loan trustee to provide the funds
necessary to pay principal of, premium, if any, and interest due from the owner
trustee on the leased aircraft notes issued under the indenture. Each lease will
provide that under no circumstances will our rent payments be less than the
scheduled payments on the related leased aircraft notes. The balance of any
basic rent payment under each lease, after payment of amounts due on the leased
aircraft notes issued under the indenture corresponding to the lease, will be
paid over to the applicable owner trustee. Our obligation to pay rent and to
cause other payments to be made under each lease will be our direct obligation.
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Except in circumstances in which we purchase a leased aircraft and assume
the related leased aircraft notes, the leased aircraft notes will not be our
direct obligation. None of the owner trustees, the owner participants or the
loan trustees will be personally liable to any holder of leased aircraft notes
for amounts payable under the leased aircraft notes. Except as provided in the
indentures relating to the leased aircraft notes, no owner trustee or loan
trustee will be liable for or incur any liability under the indentures. Except
in the circumstances described above, all amounts payable under any leased
aircraft notes, other than payments made in connection with an optional
redemption or purchase by the related owner trustee or the related owner
participant, will be made only from:
-- the assets subject to the lien of the applicable indenture with
respect to the aircraft or the income and proceeds received by the
related loan trustee from that aircraft, including rent payable by us
under the related lease; or
-- if so provided in the related prospectus supplement, the applicable
liquidity facility.
With respect to the leased aircraft notes, except as otherwise provided in
the applicable indenture, no owner trustee will be personally liable for any
amount payable or for any statements, representations, warranties, agreements or
obligations under any indenture or under any leased aircraft notes. None of the
owner participants will have any duty or responsibility under the leased
aircraft indentures or under the leased aircraft notes to the related loan
trustee or to any holder of any leased aircraft note.
Our obligations under each owned aircraft indenture and under the owned
aircraft notes will be our direct obligations.
DEFEASANCE OF THE INDENTURES AND THE EQUIPMENT NOTES IN CERTAIN CIRCUMSTANCES
Unless otherwise specified in the applicable prospectus supplement, an
indenture may provide that the obligations of the related loan trustee, the
related owner trustee or us, as the case may be, under that indenture will be
deemed to have been discharged and paid in full on the 91st day after the date
that money or certain United States government securities, in an aggregate
amount sufficient to pay when due (including as a consequence of redemption in
respect of which notice is given on or prior to the date of the deposit)
principal, premium, if any, and interest on all equipment notes issued under
that indenture, are irrevocably deposited with the related loan trustee. The
discharge may occur only if, among other things, there has been published by the
IRS a ruling to the effect that holders of the equipment notes will not
recognize income, gain or loss for federal income tax purposes as a result of
the deposit, defeasance and discharge and will be subject to federal income tax
on the same amount and in the same manner and at the same time as would have
been the case if the deposit, defeasance and discharge had not occurred.
Upon defeasance of the equipment notes, or upon payment in full of the
principal of, premium, if any, and interest on all equipment notes issued under
any indenture on the applicable maturity date, or upon deposit with the
applicable loan trustee of sufficient money no earlier than one year prior to
the date of maturity, the holders of the equipment notes will have no beneficial
interest in or other rights with respect to the related aircraft or other assets
subject to the lien of the indenture and the lien will terminate.
ASSUMPTION OF OBLIGATIONS BY CONTINENTAL
Unless otherwise specified in the applicable prospectus supplement, upon
our purchase of any leased aircraft prior to the end of the applicable term, we
may assume on a full recourse basis all of the obligations of the owner trustee,
other than its obligations in its individual capacity, under the indenture and
the leased aircraft notes relating to that lease. If we assume leased aircraft
notes, provisions relating to maintenance, possession and use of the related
aircraft, liens and insurance will be incorporated into the indenture. If we
assume leased aircraft notes in connection with our purchase of a leased
aircraft, leased aircraft notes issued under the indenture will not be redeemed
and will continue to be secured by the aircraft.
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LIQUIDITY FACILITY
The related prospectus supplement may provide that one or more payments of
interest on the related equipment notes of one or more series will be supported
by a liquidity facility issued by an institution identified in the related
prospectus supplement. Unless otherwise provided in the related prospectus
supplement, the provider of the liquidity facility will have a claim upon the
assets securing the equipment notes senior to the claim of the pass through
trustee, as owner of the equipment notes.
INTERCREDITOR ISSUES
Equipment notes may be issued in different classes, which means that the
equipment notes may have different payment priorities even though they are
issued by the same borrower and relate to the same aircraft. If multiple classes
of equipment notes are issued, the related prospectus supplement will describe
the priority of distributions among the equipment notes, any liquidity
facilities, the ability of any class to exercise and/or enforce any or all
remedies with respect to the related aircraft, and, if the equipment notes are
leased aircraft notes, the related lease, and certain other intercreditor terms
and provisions.
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U.S. INCOME TAX MATTERS
GENERAL
Unless otherwise indicated in the applicable prospectus supplement, the
following summary describes all material generally applicable U.S. federal
income tax consequences to certificateholders of the purchase, ownership and
disposition of the certificates offered by this prospectus, and in the opinion
of Hughes Hubbard & Reed LLP, our special tax counsel, is accurate in all
material respects with respect to the matters discussed in this prospectus.
Except as otherwise specified, the summary is addressed to beneficial owners of
certificates that are citizens or residents of the United States, corporations,
partnerships or other entities created or organized in or under the laws of the
United States or any state therein, or estates or trusts the income of which is
subject to U.S. federal income taxation regardless of its source, and that will
hold the certificates as capital assets.
This summary does not address the tax treatment of U.S. certificateholders
that may be subject to special tax rules, such as banks, insurance companies,
dealers in securities or commodities, tax-exempt entities, holders that will
hold certificates as part of a straddle or holders that have a "functional
currency" other than the U.S. dollar, nor, except as specifically indicated,
does it address the tax treatment of U.S. certificateholders that do not acquire
certificates at the public offering price as part of the initial offering. The
summary is not a comprehensive description of all of the tax considerations that
may be relevant to a decision to purchase certificates. This summary does not
describe any tax consequences arising under the laws of any state, locality or
taxing jurisdiction other than the United States.
The summary is based upon the tax laws and practice of the United States as
in effect on the date of this prospectus, as well as judicial and administrative
interpretations, in final or proposed form, available on or before that date.
Changes to the existing laws could apply retroactively and could alter the tax
consequences discussed below. We have not sought any ruling from the IRS with
respect to the federal income tax consequences, discussed below, and we cannot
assure you that the IRS will not take contrary positions. The pass through
trusts are not indemnified for any federal income taxes that may be imposed upon
them, and the imposition of any such taxes on a pass through trust could result
in a reduction in the amounts available for distribution to the
certificateholders of that pass through trust. Prospective investors should
consult their own tax advisors with respect to the federal, state, local and
foreign tax consequences to them of the purchase, ownership and disposition of
the certificates.
TAX STATUS OF THE PASS THROUGH TRUSTS
In the opinion of our special tax counsel, each pass through trust will be
classified as a grantor trust for U.S. federal income tax purposes.
TAXATION OF CERTIFICATEHOLDERS GENERALLY
A U.S. certificateholder will be treated as owning its pro rata undivided
interest in each of the equipment notes and any other property held by the
related pass through trust. Accordingly, each U.S. certificateholder's share of
interest paid on the equipment notes will be taxable as ordinary income, as it
is paid or accrued, in accordance with such U.S. certificateholder's method of
accounting, and a U.S. certificateholder's share of any premium paid on
redemption of an equipment note will be treated as capital gain. If a pass
through trust is supported by a liquidity facility, any amounts received by the
pass through trust under the liquidity facility with respect to unpaid interest
will be treated for U.S. federal income tax purposes as having the same
characteristics as the payments they replace. If we assume an owner trust's
obligations under leased aircraft notes, the assumption would be treated for
federal income tax purposes as a taxable exchange of the leased aircraft notes,
resulting in recognition of gain or loss by the U.S. certificateholder.
Each U.S. certificateholder will be entitled to deduct, consistent with its
method of accounting, its pro rata share of fees and expenses paid or incurred
by the corresponding pass through trust as provided in Section 162 or 212 of the
Internal Revenue Code of 1986, as amended, referred to herein as the "Code".
Certain fees and expenses, including fees paid to the pass through trustee and
the provider of the liquidity
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facility, if applicable, will be paid by parties other than the
certificateholders. These fees and expenses could be treated as constructively
received by the pass through trust, in which event a U.S. certificateholder will
be required to include in income and will be entitled to deduct its pro rata
share of the fees and expenses. If a U.S. certificateholder is an individual,
estate or trust, the deduction for the certificateholder's share of fees or
expenses will be allowed only to the extent that all of the certificateholder's
miscellaneous itemized deductions, including the certificateholder's share of
fees and expenses, exceed 2% of the certificateholder's adjusted gross income.
In addition, in the case of U.S. certificateholders who are individuals, certain
otherwise allowable itemized deductions will be subject generally to additional
limitations on itemized deductions under applicable provisions of the Code.
EFFECT OF SUBORDINATION OF CERTIFICATEHOLDERS OF SUBORDINATED TRUSTS
If any pass through trust is subordinated in right of payment to any other
pass through trust and the subordinated trust receives less than the full amount
of the interest, principal or premium paid with respect to the equipment notes
held by it because of the subordination of such pass through trust, the
certificateholders of the subordinated trust would probably be treated for
federal income tax purposes as if they had:
-- received as distributions their full share of interest, principal, or
premium;
-- paid over to the preferred class of certificateholders an amount
equal to their share of the amount of the shortfall; and
-- retained the right to reimbursement of the amount of the shortfall to
the extent of future amounts payable to the certificateholders of the
subordinated trust on account of the shortfall.
Under this analysis:
-- subordinated certificateholders incurring a shortfall would be
required to include as current income any interest or other income of
the subordinated trust that was a component of the shortfall, even
though that amount was in fact paid to a preferred class of
certificateholders;
-- a loss would only be allowed to subordinated certificateholders when
their right to receive reimbursement of the shortfall becomes
worthless; that is, when it becomes clear that funds will not be
available from any source to reimburse the shortfall; and
-- reimbursement of the shortfall before a claim of worthlessness would
not be taxable income to certificateholders because the amount
reimbursed would have been previously included in income.
These results should not significantly affect the inclusion of income for
certificateholders on the accrual method of accounting, but could accelerate
inclusion of income to certificateholders on the cash method of accounting by,
in effect, placing them on the accrual method.
ORIGINAL ISSUE DISCOUNT
The equipment notes may be issued with original issue discount, referred to
as OID. The prospectus supplement will state whether any equipment notes to be
held by the related pass through trust will be issued with OID. Generally, a
holder of a debt instrument issued with OID that is not negligible must include
the OID in income for federal income tax purposes as it accrues, in advance of
the receipt of the cash attributable to such income, under a method that takes
into account the compounding of interest.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a certificate, a U.S.
certificateholder generally will recognize capital gain or loss equal to the
difference between the amount realized on the disposition, other than any amount
attributable to accrued interest which will be taxable as ordinary income, and
the U.S. certificateholder's adjusted tax basis in the related equipment notes
and any other property held by the corresponding pass through trust. Any gain or
loss will be long-term capital gain or loss to the extent
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attributable to property held by the pass through trust for more than one year.
In the case of individuals, estates, and trusts, the maximum rate of tax on net
long-term capital gains generally is 20%.
FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of
principal and interest (including any OID) on the equipment notes to, or on
behalf of, any beneficial owner of a certificate that is not a U.S. person will
not be subject to U.S. federal withholding tax provided that:
-- the non-U.S. certificateholder does not actually or constructively
own 10% or more of the total combined voting power of all classes of
stock of an owner participant or us;
-- the non-U.S. certificateholder is not a bank receiving interest
pursuant to a loan agreement entered into in the ordinary course of
its trade or business, or a controlled foreign corporation for U.S.
tax purposes that is related to an owner participant or us; and
-- certain certification requirements (including identification of the
beneficial owner of the certificate) are complied with.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a certificate or upon receipt of premium paid on an equipment
note by a non-U.S. certificateholder will not be subject to U.S. federal income
or withholding taxes if (i) such gain is not effectively connected with a U.S.
trade or business of the non-U.S. certificateholder and (ii) in the case of an
individual, such non-U.S. certificateholder is not present in the United States
for 183 days or more in the taxable year of the sale, exchange, retirement or
other disposition or receipt.
BACKUP WITHHOLDING
Payments made on the certificates will not be subject to a backup
withholding tax of 31% unless, in general, the certificateholder fails to comply
with certain reporting procedures or otherwise fails to establish an exemption
from such tax under applicable provisions of the Code.
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable prospectus supplement, the
certificates may, subject to certain legal restrictions, be purchased and held
by an employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended, referred to as "ERISA," or an individual
retirement account or an employee benefit plan subject to section 4975 of the
Code. A fiduciary of an employee benefit plan must determine that the purchase
and holding of a certificate is consistent with its fiduciary duties under ERISA
and does not result in a non-exempt prohibited transaction as defined in section
406 of ERISA or section 4975 of the Code. Employee benefit plans which are
governmental plans, as defined in section 3(32) of ERISA, and certain church
plans, as defined in section 3(33) of ERISA, are not subject to Title I of ERISA
or section 4975 of the Code. The certificates may, subject to certain legal
restrictions, be purchased and held by such plans.
PLAN OF DISTRIBUTION
Certificates may be sold to one or more underwriters for public offering
and resale by them. Certificates may also be sold to investors or other persons
directly or through one or more dealers or agents. Any underwriter, dealer or
agent involved in the offer and sale of the certificates will be named in an
applicable prospectus supplement.
The certificates may be sold:
-- at a fixed price or prices, which may be changed;
-- at market prices prevailing at the time of sale;
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-- at prices related to prevailing market prices; or
-- at negotiated prices.
Dealer trading may take place in certain of the certificates, including
certificates not listed on any securities exchange. We do not intend to apply
for listing of the certificates on a national securities exchange. From time to
time, we also may authorize underwriters acting as our agents to offer and sell
the certificates upon the terms and conditions as will be set forth in any
prospectus supplement.
In connection with the sale of certificates, underwriters may be deemed to
have received compensation from us in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of certificates for
whom they may act as agent. Underwriters may sell certificates to or through
dealers, and those dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions, which may
be changed from time to time, from the purchasers for whom they may act as
agent.
If a dealer is used directly by us in the sale of certificates in respect
of which this prospectus is delivered, we will sell the certificates to the
dealer, as principal. The dealer may then resell the certificates to the public
at varying prices to be determined by the dealer at the time of resale. The
dealer will be named in, and the terms of the sale, will be set forth in the
applicable prospectus supplement.
Certificates may be offered and sold through agents designated by us from
time to time. The agent involved in the offer or sale of the certificates will
be named in, and any commissions payable by us to the agent will be set forth
in, the applicable prospectus supplement. Unless otherwise indicated in the
applicable prospectus supplement, the agent will be acting on a best efforts
basis for the period of its appointment.
We may solicit directly offers to purchase certificates, and certificates
may be sold directly to institutional investors or others who may be deemed to
be underwriters within the meaning of the Securities Act with respect to any
resale. The terms of these sales will be described in the applicable prospectus
supplement. Except as set forth in the applicable prospectus supplement, no
director, officer or employee of ours will solicit or receive a commission in
connection with direct sales by us of the certificates, although those persons
may respond to inquiries by potential purchasers and perform ministerial and
clerical work in connection with our direct sales.
Any underwriting compensation that we pay to underwriters, dealers or
agents in connection with the offering of certificates, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable prospectus supplement.
Underwriters, dealers and agents participating in the distribution of the
certificates may be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of the certificates
may be deemed to be underwriting discounts and commissions under the Securities
Act. Underwriters, dealers and agents may be entitled under agreements with us
to indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act, and to reimbursement by us for
certain expenses.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us and our subsidiaries in the ordinary course of
business.
If so indicated in an applicable prospectus supplement and subject to
existing market conditions, we will authorize dealers acting as our agents to
solicit offers by certain institutions to purchase certificates from us at the
public offering price set forth in the applicable prospectus supplement pursuant
to delayed delivery contracts. These contracts will provide for payment and
delivery on the date or dates stated in the applicable prospectus supplement.
Each contract will be for an amount not less than, and the aggregate principal
amount of certificates sold pursuant to these contracts will not be less nor
more than, the respective amounts stated in the applicable prospectus
supplement. Institutions with whom these contracts, when authorized, may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and other
institutions, but will in all cases be subject to our approval. These contracts
will not be subject to any conditions, except for the condition that the
purchase by an
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institution of the certificates not be prohibited at the time of delivery under
the laws of any jurisdiction in the United States to which the institution is
subject. A commission set forth in the applicable prospectus supplement will be
granted to underwriters and agents soliciting purchases of certificates pursuant
to contracts accepted by us. Agents and underwriters will have no responsibility
in respect of the delivery or performance of these contracts.
If an underwriter or underwriters is used in the sale of any certificates,
the applicable prospectus supplement will state the intention, if any, of the
underwriters at the date of the prospectus supplement to make a market in the
certificates. We cannot assure you that there will be a market for the
certificates.
The place and time of delivery for the certificates in respect of which
this prospectus is delivered will be set forth in the applicable prospectus
supplement.
LEGAL OPINIONS
Unless otherwise indicated in the applicable prospectus supplement, our
counsel, Hughes Hubbard & Reed LLP, New York, New York, will render an opinion
with respect to the validity of the certificates being offered by such
prospectus supplement. Unless otherwise indicated in the applicable prospectus
supplement, Hughes Hubbard & Reed LLP will rely on the opinion of counsel for
the pass through trustee as to certain matters relating to the authorization,
execution and delivery of the certificates by, and the valid and binding effect
on, the pass through trustee.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K for
the year ended December 31, 2000, as set forth in their reports, which are
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule are, and audited consolidated
financial statements to be included in subsequently filed documents will be,
incorporated by reference in reliance on Ernst & Young LLP's reports pertaining
to such financial statements, to the extent covered by consents filed with the
SEC, given on their authority as experts in auditing and accounting.
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