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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
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[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Continental Airlines, Inc.
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(Name of Registrant as Specified inIn Its Charter)
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[CONTINENTAL AIRLINES LOGO]
April 4, 20003, 2001
To Our Stockholders:
On behalf of the Board of Directors, we are pleased to invite you to attend
the Continental Airlines, Inc. 20002001 Annual Meeting of Stockholders. As indicated
in the attached notice, the meeting will be held at The Hyatt Regency, 1200
Louisiana Street, Houston, Texas on Tuesday, May 23, 2000,15, 2001, at 10:00 a.m., local
time. At the meeting, in addition to acting on the matters described in the
attached proxy statement, there will be an opportunity to discuss other matters
of interest to you as a stockholder.
Please authorize your proxy or direct your vote by internet or telephone as
described in the enclosed proxy statement, even if you plan to attend the
meeting in person. Alternatively, you can date, sign and mail the enclosed proxy
card in the envelope provided, even if you plan to attend the meeting in person. You can also vote
your shares through the internet or by telephone, as described in the enclosed
proxy statement.provided. We look forward to seeing you in Houston.
Cordially,
/S//s/ GORDON BETHUNE
Gordon Bethune
Chairman of the Board and Chief
Executive Officer
/S//s/ GREG BRENNEMANBRENNMAN
Greg Brenneman
President and Chief Operating
Officer
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CONTINENTAL AIRLINES, INC.
1600 SMITH STREET, DEPT. HQSEO
HOUSTON, TEXAS 77002
---------------------
NOTICE OF 20002001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 200015, 2001
---------------------
NOTICE IS HEREBY GIVEN that the 2000 Annual MeetingThe 2001 annual meeting of Stockholdersstockholders of Continental Airlines, Inc., a Delaware corporation (the "Company" or
"Continental"), will
be held at The Hyatt Regency, 1200 Louisiana Street, Houston, Texas on Tuesday,
May 23, 2000,15, 2001, at 10:00 a.m., local time, for the following purposes:
1. To elect thirteen directors to serve until the next annual meeting
of stockholders;
2. To consider and act upon a proposal to approveamend the Company's
Incentive Plan 2000;company's 1997
Employee Stock Purchase Plan;
3. To consider and act upon a proposal to ratify the appointment of
Ernst & Young LLP as independent auditors of the Companycompany and its
subsidiaries for 2000;2001; and
4. To consider and act upon any other matters that may properly come
before the Annual Meetingannual meeting or any adjournment or adjournments thereof.
The holders of record of the Company'scompany's common stock at the close of
business on March 24, 200023, 2001 are entitled to notice of and to vote at the Annual
Meeting.
By Ordermeeting.
A list of the Boardstockholders entitled to vote at the meeting will be available for
examination, during ordinary business hours, for ten days before the meeting at
our principal place of Directors,business, 1600 Smith Street, Houston, Texas.
/s/Jeffery A. Smisek
Jeffery A. Smisek
Secretary
Houston, Texas
April 4, 20003, 2001
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY BY MAIL IN
THE ENCLOSED ENVELOPE, OR AUTHORIZE YOUR PROXY OR DIRECT YOUR VOTE BY INTERNET OR TELEPHONE AS
DESCRIBED IN THE ENCLOSED PROXY STATEMENT, WHETHER OR NOTEVEN IF YOU PLAN TO ATTEND THE
MEETING IN PERSON. ALTERNATIVELY, YOU MAY DATE, SIGN AND MAIL THE ENCLOSED PROXY
AND RETURN IT PROMPTLY BY MAIL IN THE ENVELOPE PROVIDED. IF YOU MAIL THE ENCLOSED PROXY
CARD, NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. IF YOU DO ATTEND
THE MEETING IN PERSON AND DESIREWANT TO WITHDRAW YOUR PROXY, YOU MAY DO SO IN THE MANNERAS
DESCRIBED IN THE ENCLOSED PROXY STATEMENT AND VOTE PERSONALLYIN PERSON ON ALL MATTERS
PROPERLY BROUGHT BEFORE THE MEETING.
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CONTINENTAL AIRLINES, INC.
1600 SMITH STREET, DEPT. HQSEO
HOUSTON, TEXAS 77002
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PROXY STATEMENT
20002001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 200015, 2001
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ThisTHE MEETING
PURPOSE, PLACE, DATE AND TIME
We are providing this proxy statement is furnishedto you in connection with the
solicitation by
and on behalf of the BoardContinental's board of Directors of Continental Airlines, Inc., a
Delaware corporation (the "Company" or "Continental"),directors of proxies to be
voted at the 2000 Annual Meeting of Stockholders of the Companycompany's 2001 annual stockholders meeting or any postponement or
adjournment or
adjournments thereof (the "Meeting"), toof that meeting. The meeting will be held at The Hyatt Regency, 1200
Louisiana Street, Houston, Texas on Tuesday, May 23, 2000,15, 2001, at 10:00 a.m., local
time, for the purposes set forth in the accompanying Notice of 20002001 Annual
Meeting of Stockholders. This proxy statement and the accompanying proxy, together withwhich
are accompanied or preceded by a copy of the Company's 1999Continental's 2000 Annual Report, are
being first mailed or otherwise delivered to stockholders on or about April 4, 2000.
THE PROXY3,
2001.
RECORD DATE; STOCKHOLDERS ENTITLED TO VOTE; QUORUM; VOTE REQUIRED
Stockholders giving proxies may revoke themof record at the close of business on March 23, 2001, the
record date, are entitled to notice of and to vote at the meeting and at any
time before they are
voted by notifying the Secretarypostponement or adjournment of the Company in writingmeeting. At the close of business on the
record date, Continental had outstanding 53,616,893 shares of Class B common
stock. Subject to certain limitations on voting by non-U.S. citizens, as
described below, each share of Class B common stock is entitled to one vote per
share.
Under U.S. law, no more than 25% of the voting stock of a U.S. air carrier
such revocationas Continental may be owned or controlled, directly or indirectly, by
delivering to the Secretary a duly executed proxy bearing a later date. To be
effective, any such revocation or subsequent proxypersons who are not U.S. citizens and Continental itself must be received priora U.S. citizen.
For these purposes, a "U.S. citizen" means:
- an individual who is a citizen of the United States;
- a partnership each of whose partners is an individual who is a citizen of
the United States; or
- a corporation or association organized under the laws of the United
States or a state, the District of Columbia, or a territory or possession
of the United States, of which the president and at least two-thirds of
the board of directors and other managing officers are citizens of the
United States, and in which at least 75% of the voting interest is owned
or controlled by persons who are citizens of the United States.
In addition, the U.S. Department of Transportation has broad authority to
determine on a case-by-case basis whether an air carrier is effectively owned
and controlled by citizens of the commencementUnited States, and has indicated that the
ownership of less than 50% of an air carrier's total equity securities by
non-citizens of the United States, taken alone, is not indicative of foreign
control of the air carrier.
In order to comply with these rules, our certificate of incorporation
provides that persons who are not U.S. citizens may not vote shares of our
capital stock unless the shares are registered on a separate stock record
maintained by us. We will not register shares on this record if the amount
registered would cause us to violate the foreign ownership rules or adversely
affect our operating certificates or authorities. Registration on this record is
made in chronological order based on the date we receive a written request for
registration. An
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affiliate of AXA Financial, Inc. has requested that all shares beneficially
owned by AXA Financial, Inc. and its affiliates be included on our foreign stock
record. See "Voting Rights and Principal Stockholders." Because of the number of
shares currently held by AXA Financial, Inc. and its affiliates, the
registration on our foreign stock record, and thus the voting, of shares owned
by any other Continental stockholders that are not U.S. citizens is currently
precluded.
A quorum of stockholders is necessary for a valid meeting. The required
quorum for the transaction of business at the Meeting. Revocationannual meeting is a majority of
internetthe total outstanding shares of stock entitled to vote at the meeting, either
present in person or telephonic
proxiesrepresented by proxy. Abstentions will be included in
determining the number of shares present at the meeting for the purpose of
determining the presence of a quorum, as would broker non-votes. A broker
non-vote occurs under stock exchange rules when a broker is accomplished automatically by grantingnot permitted to
vote on a new proxy bymatter without instructions from the beneficial owner of the shares
and no instruction is given. However, the nature of the proposals to be
considered at the meeting allows brokers discretionary voting in the absence of
timely instructions from beneficial owners, so there should not be any broker
non-votes in connection with the meeting.
Abstentions are treated as votes cast and thus will have the same means
prior to the deadlines described below. Ifeffect as
a proxy is properly signed (or, in
the case of internet or telephonic voting, properly authenticated)vote against a proposal. Directors are elected by a holder
of common stock and is not revoked, it will be voted at the Meeting in the
manner specified on the proxy (or instructed by internet or telephone) or, if no
manner is specified or instructed, it will be voted "FOR" the election of
directors nominated by the Board of Directorsplurality of the Company (the "Board of
Directors" orvotes
cast for directors, while the "Board"), "FOR" approvalamendment of the Incentivecompany's 1997 Employee Stock
Purchase Plan 2000 and the ratification of the appointment of the Company'sindependent auditors
and, with respect to
other matters that may properly come before the Meeting, in the discretioneach requires approval by a majority of the proxies.
The Company will bearvotes cast on the costs of the solicitation of proxies. In addition
to the solicitation of proxies by mail, proxies may also be solicited by
internet, telephone, telegram, fax and in person by regular employees and
directors of the Company, none of whom will receive additional compensation
therefor, and by Morrow & Co., Inc., which the Company has retained to assist in
the solicitation of proxies for a fee estimated not to exceed $6,000 plus
reasonable out-of-pocket expenses. Arrangements will be made with brokerage
houses and with other custodians, nominees and fiduciaries to forward proxy
soliciting materials to beneficial owners, and the Company will reimburse such
persons for their reasonable out-of-pocket expenses incurred in connection
therewith.
INTERNET OR TELEPHONICapplicable
proposal.
VOTING OF PROXIES
Although you may return the proxy card or voting form that accompanies this
proxy statement in the enclosed postage-paid envelope, provided therefor, please consider
the following alternatives as well.we ask that you vote
instead by internet or telephone. Internet and telephonic proxies save the
Companyus money.
Please note that certain of the internet and telephonic voting procedures described below mayare not be
available for shares held by Foreigners
(as defined below).non-U.S. citizens.
Shares heldHeld by youYou of record.Record. Stockholders with shares registered in their
names with Harris Trust and Savings Bank ("Harris"), the Company'sMellon Investor Services LLC, Continental's transfer agent and
registrar, may authorize a proxy by internet at the following internet address:
www.harrisbank.com/wproxyhttp://www.proxyvoting.com/cal or telephonically by calling HarrisMellon Investor
Services at (888) 515-8274.1-800-840-1208. Proxies 5 submitted through HarrisMellon Investor Services
by internet or telephone must be received by midnight
(EDT)4:00 p.m. east coast time on May
21, 2000.14, 2001. The giving of such proxy will not affect your right to vote in person
shouldif you decide to attend the Meeting.meeting.
Shares heldHeld in a bankBank or brokerage account.Brokerage Account. A number of banks and
brokerage firms participate in a program that also permits stockholders to
direct their vote by internet or telephone. This option is separate from that
offered by HarrisMellon Investor Services and will be reflected on the voting form
from a bank or brokerage firm that accompanies this proxy statement. If your
shares are held in an account at a bank or brokerage that participates in such a
program, you may direct the vote of those shares by internet or telephone by
following the instructions on their enclosed voting form. Votes directed by
internet or telephone through such a program must be received by midnight (EDT)11:59 p.m. east
coast time on May 22, 2000. The directing14, 2001. Directing the voting of such voteyour shares will not affect
your right to vote in person shouldif you decide to attend the Meeting;meeting; however, you
must first request a legal proxy either on the internet or the voting form that
accompanies this proxy statement. Requesting a legal proxy prior to the
deadlines described above will automatically cancel any voting directions you
have previously given by internet or by telephone with respect to suchyour shares.
The internet and telephone proxy procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their proxy instructions
and to confirm that suchthose instructions have been properly recorded. Counsel has
advised the Company that the foregoing internet and telephone proxy procedures
are consistent with applicable legal requirements. Stockholders
authorizing proxies or directing the voting of shares by internet should
bear in mind the
possibilityunderstand that there may be costs associated with electronic access, such as
usage charges from internet access providers and telephone companies, that must
be borne by the stockholder.
RECORD DATE AND VOTING SECURITIES
The Board of Directors fixed the close of business on March 24, 2000 as the
record date for the determination of stockholders entitled to notice of and to
vote2
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REVOCATION OF PROXIES
You can revoke your proxy before it is exercised at the Meeting. Atmeeting in any of
three ways:
- by submitting written notice to our Secretary before the closemeeting that you
have revoked your proxy;
- by timely submitting another proxy by telephone, via the internet or by
mail that is later dated and, if by mail, that is properly signed; or
- by voting in person at the meeting.
EXPENSES OF SOLICITATION
In addition to the solicitation of businessproxies by mail, proxies may also be
solicited by internet, telephone, telegram, fax or in person by regular
employees and directors of Continental, none of whom will receive additional
compensation for that solicitation. In addition, we have retained Mellon
Investor Services to assist in the solicitation of proxies for a fee estimated
not to exceed $6,000 plus reasonable out-of-pocket expenses. Arrangements will
be made with brokerage houses and with other custodians, nominees and
fiduciaries to forward proxy soliciting materials to beneficial owners, and we
will reimburse them for their reasonable out-of-pocket expenses incurred in
doing so.
OTHER MATTERS TO BE ACTED ON AT THE ANNUAL MEETING
We will not act on any matters at the meeting other than those indicated on
the record date,accompanying Notice and procedural matters related to the Company
had outstanding 11,233,349 shares of Class A common stock, par value $.01 per
share, and 51,079,124 shares of Class B common stock, par value $.01 per share.
Continental's Restated Certificate of Incorporation ("Charter") authorizes
the issuance of up to 10 million shares of preferred stock, 50 million shares
each of Class A common stock and Class D common stock, and 200 million shares of
Class B common stock. No shares of Class D common stock have been issued, and no
preferred stock is outstanding. Subject to certain limitations on voting by
non-U.S. citizens, each share of Class A common stock is entitled to ten votes
per share and each share of Class B common stock is entitled to one vote per
share. Shares of Class A common stock may be converted at any time into shares
of Class B common stock. The holders of shares representing a majority of the
aggregate voting power of the outstanding voting securities entitled to vote at
the Meeting, present or represented by proxy, will constitute a quorum for the
transaction of business at the Meeting.
In establishing the presence of a quorum, abstentions and broker non-votes
(if any) will be included in the determination of the number of shares
represented at the Meeting. Abstentions are treated as votes cast and thus will
have the same effect as a vote against a proposal. As to a specific proposal,
however, broker non-votes are not treated as votes cast or shares entitled to
vote with respect to such matter and thus will not affect the election of
directors (who will be elected by a plurality of the votes cast for directors)
or the outcome of the proposals to approve the Company's Incentive Plan 2000 or
ratify the appointment of independent auditors (each of which requires approval
by a majority of the votes cast on the applicable proposal).meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS
CONTAINED IN THIS PROXY STATEMENT.
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LIMITATION ON VOTING BY FOREIGN OWNERS
The Charter defines "Foreign Ownership Restrictions" as "applicable
statutory, regulatory and interpretive restrictions regarding foreign ownership
or control of U.S. air carriers (as amended or modified from time to time)."
Such restrictions currently require that no more than 25% of the voting stock of
the Company be owned or controlled, directly or indirectly, by persons who are
not U.S. Citizens ("Foreigners") for purposes of the Foreign Ownership
Restrictions, and that the Company's president and at least two-thirds of its
directors or other managing officers be U.S. Citizens. For purposes of the
Charter, "U.S. Citizen" means (i) an individual who is a citizen of the United
States; (ii) a partnership each of whose partners is an individual who is a
citizen of the United States; or (iii) a corporation or association organized
under the laws of the United States or a State, the District of Columbia, or a
territory or possession of the United States, of which the president and at
least two-thirds of the board of directors and other managing officers are
citizens of the United States, and in which at least 75% of the voting interest
is owned or controlled by persons who are citizens of the United States. The
Charter provides that no shares of capital stock may be voted by or at the
direction of Foreigners, unless such shares are registered on a separate stock
record (the "Foreign Stock Record") maintained by the Company for the
registration of ownership of voting stock by Foreigners. The Company's bylaws
("Bylaws") further provide that no shares will be registered on the Foreign
Stock Record if the amount so registered would cause the Company to violate the
Foreign Ownership Restrictions or adversely affect the Company's operating
certificates or authorities. Registration on the Foreign Stock Record is made in
chronological order based on the date the Company receives a written request for
registration, except that shares acquired by Air Partners, L.P., a Texas limited
partnership ("Air Partners"), in connection with its original investment in the
Company that are subsequently transferred to any Foreigner are entitled to be
registered prior to, and to the exclusion of, other shares.
VOTING RIGHTS AND PRINCIPAL STOCKHOLDERS
Northwest Airlines, Inc. (through an affiliate referred to hereafter
together with Northwest Airlines, Inc. as "Northwest") holds 8,661,224 shares of
the Class A common stock of the Company and holds a limited proxy to vote an
additional 842,913 such shares in certain circumstances. As of March 24, 2000,
the shares held by Northwest represented approximately 14% of the common equity
interest and approximately 50.3% of the fully-diluted voting power of the
Company. Together with its limited proxy, Northwest held the power to control
approximately 55.2% of the Company's fully diluted voting power under certain
limited circumstances at that date.
The Companycompany has a corporate governance agreement with certain affiliates of
Northwest (the "Northwest Parties") designed to assure the independence of the
Company's Board and management during the six-year term of the governance
agreement through November 20, 2004. Under the governance agreement, as amended,
the Northwest Parties have agreed not to beneficially own voting securities of
the Company in excess of 50.1% of the fully diluted voting power of the
Company's voting securities, subject to certain exceptions, including
third-party acquisitions or tender offers for 15% or more of the voting power of
the Company's voting securities and increases in voting power caused by
repurchasesone class of common stock by Continental. The Northwest Parties have deposited
all voting securities of the Company beneficially owned by them (other than the
shares for which they hold only a limited proxy) in a voting trust with an
independent voting trustee requiring that such securities be voted (i) on all
matters other than the election of directors, in the same proportion as the
votes cast by other holders of voting securities, and (ii) in the election of
directors, for the election of Independent Directors (as defined) (who must
constitute a majority of the Board) nominated by the Board of Directors.
However, in the event of a merger or similar business combination or a
recapitalization, liquidation or similar transaction, a sale of all or
substantially all of the Company's assets, an issuance of voting securities that
would represent more than 20% of the voting power of the Company prior to
issuance, or any amendment of the Company's charter or bylaws that would
materially and adversely affect Northwest (each, an "Extraordinary
Transaction"), the shares may be voted as directed by the Northwest Party owning
such shares, and if a third party is soliciting proxies in an election of
directors, the shares may be voted at the option of such Northwest Party either
as recommended by the Company's Board of Directors or in the same proportion as
the votes cast by the other holders of voting securities.
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The Northwest Parties have also agreed to certain restrictions on the
transfer of voting securities owned by them, have agreed not to seek to affect
or influence the Company's Board of Directors or the control of the management
of the Company or the business, operations, affairs, financial matters or
policies of the Company or to take certain other actions, and have agreed to
take all actions necessary to cause Independent Directors to at all times
constitute at least a majority of the Company's Board of Directors. The Company
has granted preemptive rights to a Northwest Party with respect to issuances of
Class A common stock and certain issuances of Class B common stock. The
Northwest Parties have agreed that certain specified actions, together with any
material transactions between the Company and Northwest or its affiliates,
including any modifications or waivers of the governance agreement or the
Company's alliance agreement with Northwest, may not be taken without the prior
approval of a majority of the Board of Directors, including the affirmative vote
of a majority of the Independent Directors.
The governance agreement also required the Company to adopt a shareholder
rights plan with reasonably customary terms and conditions, with an acquiring
person threshold of 15% of the outstanding, voting power and with appropriate
exceptions for the Northwest Parties for actions permitted by and taken in
compliance with the governance agreement. A rights plan meeting these
requirements was adopted effective November 20, 1998, and was subsequently
amended to permit an acquiring person threshold of 20% for an Institutional
Investor (as defined therein).
In addition to the governance agreement, which is scheduled to expire on
November 20, 2004, or if earlier, upon the date that the Northwest Parties cease
to beneficially own voting securities representing at least 10% of the fully
diluted voting power of the Company's voting securities, the Company has a
supplemental agreement with the Northwest Parties that extends the effect of a
number of the provisions of the governance agreement for an additional four
years. For instance, the Northwest Parties must act to ensure that a majority of
the Company's Board is comprised of Independent Directors, and certain specified
actions, together with material transactions between the Company and Northwest
or its affiliates, including any modifications or waivers of the supplemental
agreement or the alliance agreement, may not be taken without the prior approval
of a majority of the Board of Directors, including the affirmative vote of a
majority of the Independent Directors. The Northwest Parties will continue to
have the right to vote Company stock in their discretion on any Extraordinary
Transaction during the supplemental period, but also will be permitted to vote
in their discretion on other matters up to 20% of the outstanding voting power
(their remaining votes to be cast neutrally, except in a proxy contest, as
contemplated in the governance agreement), subject to their obligation set forth
in the previous sentence. If, during the term of the supplemental agreement, the
Company's rights plan were amended to allow certain parties to acquire more
shares than is currently permitted, or if the rights issued thereunder were
redeemed, the Northwest Parties could vote all of their shares in their
discretion. Certain transfer limitations are imposed on the Northwest Parties
during the supplemental period. The Company has granted preemptive rights to a
Northwest Party with respect to issuances of Class A common stock and certain
issuances ofcalled Class B
common stock, that occur during such period. The Company has
agreedwhich is entitled to certainone vote per share, subject to the
limitations upon its ability to amend its charter, bylaws,
executive committee charter and rights plan during the term of the supplemental
agreement. Following the supplemental period, the supplemental agreement
requires the Northwest Parties to take all actions necessary to cause
Continental's Board to have at least five independent directors, a majority of
whom will be required to approve material transactions between Continental and
Northwest or its affiliates, including the amendment, modification or waiver of
any provisions of the supplemental agreement or the alliance agreement.on voting by non-U.S. citizens described above. The following table
sets forth, as of March 24, 200023, 2001 (except as otherwise set forth below), certain
information with respect to persons owning beneficially (to the knowledge of the Company)our knowledge) more
than five percent of any class of the Company'sour voting securities. The table also sets
forth the respective general voting power of such persons. Informationthose persons, which may vary from the
percentage of shares held due to the restrictions on foreign voting. These
restrictions may decrease the voting power of non-U.S. citizens, effectively
increasing the voting power of U.S. citizens. Unless otherwise noted,
information in the table is based on reports that have been filed with the
Securities and 4
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Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and information furnished to the Companyus by such holders.
AMOUNT
AND NATURE GENERALBENEFICIAL
OWNERSHIP OF
NAME AND ADDRESS OF BENEFICIALCLASS B PERCENT VOTING
OF BENEFICIAL HOLDER TITLE OF CLASS OWNERSHIPCOMMON STOCK OF CLASS POWER(1)
-------------------- -------------- -------------- ------------------- ------------ -------- --------
Northwest Airlines
Corporation Class A common stock 9,504,137(2) 84.6% 58.2%
2700 Lone Oak Parkway
Eagan, MN 55121
1998 CAI Partners, L.P.(3) Class A common stock 613,403 5.5% 3.8%
1992 Air, Inc.(3) Class A common stock 826,513 7.4% 5.1%
David Bonderman(3) Class A common stock 842,913 7.5% 5.2%
AXA Financial, Inc. Class B common stock 25,068,161(4) 49.1% 15.3%........................................ 20,707,085(2) 38.6% 25.0%
1290 Avenue of the Americas
New York, NY 10104
Wellington Management Company, LLP.......................... 3,618,300(3) 6.8% 8.4%
75 State Street
Boston, MA 02109
- ---------------
(1) Each shareAs described above under "Stockholders Entitled to Vote," voting by persons
who are not U.S. citizens is limited by statute to 25% of Class AContinental's
voting power, and our certificate of incorporation and bylaws restrict
voting of our stock to ensure compliance with these laws. Also as described
above, an affiliate of AXA Financial, Inc. has requested that all of the
shares beneficially owned by AXA Financial, Inc. and its affiliates be
included on our foreign stock record, thus currently precluding inclusion on
that record
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(and voting) of our common stock is entitledby any of our other stockholders that are
not U.S. citizens. If an appropriate regulatory or judicial authority
determined that the voting by AXA Financial, Inc. or its affiliates of all
their shares would not violate the statutory restrictions, then the current
voting limitations would no longer be in effect with respect to ten votes,those
shares, and each sharethe voting power of Class B common stock is entitledshares held by all of Continental's
stockholders would be proportional to one vote. General Voting Power
includes the combined total of the votes attributable to Class A common
stock and Class B common stock outstanding at March 24, 2000. Shares of
Class A common stock may be converted at any time into sharestheir beneficial ownership of Class B
common stock.
Because the Class A common stock has ten votes per share and
the Class B common stock has one vote per share, such conversions
effectively increase the relative voting power of those Class A stockholders
who do not convert.
(2) As described above and based on reports filed with the SEC pursuantAccording to the
Exchange Act and information providedan amendment to the Company, Northwest Airlines
Corporation (for purposes of this footnote, individually "Northwest") shares
voting and dispositive power as to all such shares. Northwest beneficially
owns 8,661,224 shares of Class A common stock, and has the right to vote in
certain circumstances under a limited proxy granted to it an additional
842,913 shares. The 8,661,224 owned shares have been placed in a voting
trust, for which Wilmington Trust Company acts as trustee. Wilmington
Trust's address is Rodney Square North, 1100 North Market Street,
Wilmington, DE 19890, and the manner in which it is permitted to vote is
described above. Of the shares subject to a limited proxy, 613,403 are held
by 1998 CAI Partners, L.P., a Texas limited partnership ("CAIP"), 213,110
are beneficially owned by 1992 Air, Inc. and 16,400 are beneficially owned
by Bonderman Family Limited Partnership ("BFLP"). See also note 3 below.
(3) The principal business address of each such party is 201 Main Street, Suite
2420, Fort Worth, TX 76102. 1992 Air GP is the general partner of CAIP and
thus could be deemed to be the beneficial owner of the shares held by CAIP.
1992 Air, Inc., as the majority general partner of 1992 Air GP and because
of its direct ownership of 213,110 shares of Class A common stock, may be
deemed to be the beneficial owner of an aggregate of 826,513 shares of Class
A common stock. David Bonderman, as the controlling shareholder of 1992 Air,
Inc. and the sole general partner of BFLP, may be deemed to be the
beneficial owner of 842,913 shares of Class A common stock. The aggregate
number of shares of Class A common stock that BFLP may be deemed to own is
33,504, comprised of the 16,400 shares it owns directly and 17,104 shares it
may be deemed to own beneficially because of its position as a limited
partner of CAIP, and on the basis of certain provisions of the Limited
Partnership Agreement of CAIP. David Bonderman and Donald Sturm, each a
director of the Company, are also limited partners of CAIP. Not included in
the amounts shown are 180,483 shares of Class B common stock owned by Mr.
Bonderman, 26,000 shares of Class B common stock subject to outside director
stock options held by Mr. Bonderman, and 682,450 shares of Class B common
stock beneficially owned by BFLP, which Mr. Bonderman may be deemed to
beneficially own.
(4) As of December 31, 1999, based on a reportSchedule 13G filed with the SEC pursuant to the
Exchange Act in March 2001, the AXA Parties may be deemed to have owned as
of February 2000 by28, 2001, for purposes of Regulation 13D-G, up to 20,707,085
shares of Class B common stock. The AXA Financial, Inc. (formerly The
Equitable Companies Incorporated),Parties are comprised of (i) AXA, (which beneficially owns a
majority
interest in AXA Financial, Inc.French company ("AXA"), and a group of French mutual insurance
5
9
companies (AXA(ii) AXA Conseil Vie Assurance Mutuelle, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, and AXA CourageCourtage
Assurance Mutuelle)(which beneficially ownMutuelle, each a majority interest in AXA). The shares
shown represent beneficial ownership by registered broker-dealer or
investment advisor subsidiariesFrench mutual insurance company (collectively
referred to as "Mutuelles AXA"), (iii) AXA Financial, Inc., a Delaware
corporation, and (iv) a subsidiary of AXA Financial, Inc., Alliance Capital
Management L.P. AXA and Mutuelles AXA have disclaimed beneficial ownership
of the securities held by AXA Financial, Inc. and its subsidiaries for
purposes of Regulation 13D-G, and AXA Financial, Inc. has not admitted that
the shares beneficially owned by its affiliates are owned by non-U.S.
citizens for purposes of U.S. federal aviation statutes or Continental's
certificate of incorporation or bylaws. As to the amounts shown in the
table, the AXA Parties may be deemed to have the following power over the
shares: sole voting power (5,727,757), sole dispositive power (20,703,840),
shared voting power (8,720,695) and shared dispositive power (3,245).
According to such
report, the following such subsidiaries have13G amendment, only Alliance Capital Management L.P., 1345
Avenue of the Americas, New York, NY 10105, had an interest in the reported
securities representing greater than 5% of the Class B common stock:
Alliance Capitalstock.
(3) According to a Schedule 13G filed with the SEC pursuant to the Exchange Act
in February 2001, Wellington Management L.P. (21,735,261 shares)Company, LLP as investment adviser
for various clients, may be deemed to have owned as of December 31, 2000 for
purposes of Regulation 13D-G 3,618,300 shares of Class B common stock.
Wellington reported that it had shared power to vote 295,700 of those shares
and Equitable Life
Assurance Societyshared power to dispose of all of those shares. It also reported that
none of its clients, other than Vanguard Windsor Funds, was known by it to
own more than five percent of the United States (3,332,600 shares). AXA Financial,
Inc.Class B common stock. Representatives of
those funds have advised us that the Vanguard Windsor Funds-Windsor Fund,
P.O. Box 2600, V37, Valley Forge, PA 19482, may be deemed to have owned as
of February 28, 2001 for purposes of Regulation 13D-G 3,457,800 shares of
Class B common stock. The fund may be deemed to have sole voting power with respect to 8,832,404
shares, shared voting power with respect to 13,087,540 shares, sole
dispositive power with respect to 25,063,821 shares and
shared dispositive power with respect to 4,340over all of those shares.
4
8
BENEFICIAL OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
The following table shows, as of March 24, 2000,23, 2001, the number of shares of
Class B common stock beneficially owned by each of theour current directors, theour
executive officers named below in the Summary Compensation Table, and all
executive officers and directors as a group. Also reflected in the amounts shown
are shares of Class A common stock, which are convertible into an equal number
of shares of Class B common stock and are set forth in the footnotes to the
table. See also "Voting Rights and Principal Stockholders."
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNERS OWNERSHIP(1) OF CLASS
- ------------------------- ------------ --------
Thomas J. Barrack, Jr. .............................. 26,000(2)..................................... 31,000(2) *
Gordon M. Bethune.................................... 572,694(3) 1.1%Bethune........................................... 393,777(3) *
David Bonderman...................................... 1,731,846(4) 3.3%Bonderman............................................. 1,959,531(4) 3.7%
Gregory D. Brenneman................................. 413,711(5)Brenneman........................................ 337,816(5) *
Kirbyjon H. Caldwell................................. 5,288(6)Caldwell........................................ 10,288(6) *
Patrick Foley........................................ 26,000(7)Foley............................................... 31,000(7) *
Lawrence W. Kellner.................................. 209,651(8)Kellner......................................... 173,081(8) *
Douglas H. McCorkindale.............................. 26,000(7)McCorkindale..................................... 31,000(7) *
C.D. McLean.......................................... 215,769(9)McLean................................................. 147,625(9) *
George G. C. Parker.................................. 21,400(10)Parker......................................... 26,400(10) *
Richard W. Pogue..................................... 14,600(11)Pogue............................................ 20,240(11) *
William S. Price III................................. 24,929(10)III........................................ 29,929(10) *
Jeffery A. Smisek.................................... 201,000(12)Smisek........................................... 152,245(12) *
Donald L. Sturm...................................... 531,947(13) 1.0%Sturm............................................. 208,219(13) *
Karen Hastie Williams................................ 20,000(7)Williams....................................... 25,000(7) *
Charles A. Yamarone.................................. 31,000(14)Yamarone......................................... 36,000(14) *
All executive officers and directors as a group...... 5,356,381(15) 10.3%group............. 4,347,356(15) 7.8%
- ---------------
* Less than 1%
(1) The persons listed have the sole power to vote and dispose of the shares
beneficially owned by them except as otherwise indicated.
See also the
previous table and text under the caption "Voting Rights and Principal
Stockholders."
(2) Includes 23,00028,000 shares subject to vested director stock options and 3,000
shares held in trust for the benefit of Mr. Barrack's children, as to which
shares Mr. Barrack disclaims beneficial ownership.
(3) Includes 570,000362,500 shares subject to vested options, or vesting within 60
days after March 24, 2000.23, 2001, and 30,000 restricted shares scheduled to vest
in 33 1/3% increments on each of July 25, 2001, 2002 and 2003.
(4) Includes 842,913 shares of Class A common stock described in note 3 to the
previous table, 26,00031,000 shares subject to vested director stock options, 762,645
shares held by 1998 CAI Partners, L.P. ("CAIP"), 704,098 shares held by
Bonderman Family Limited Partnership ("BFLP") and 682,450281,305 shares beneficiallyheld by
1992 Air, Inc. 1992 Air GP is the general partner of CAIP and thus could be
deemed to be the beneficial owner of the shares held by CAIP. 1992 Air,
Inc. is the majority general partner of 1992 Air GP and thus could be
deemed to be the beneficial owner of the shares attributable to 1992 Air
GP. David Bonderman is the controlling shareholder of 1992 Air, Inc. and
the sole general partner of BFLP and thus could be deemed to be the
beneficial owner of the shares owned by and attributable to 1992 Air, Inc.
and the shares owned by BFLP.
(5) Includes 411,500305,000 shares subject to vested options, or vesting within 60
days after March 24, 2000.23, 2001, and 30,000 restricted shares scheduled to vest
in 33 1/3% increments on each of July 25, 2001, 2002 and 2003.
(6) Includes 5,00010,000 shares subject to vested director stock options.
(7) Represents shares subject to vested director stock options.
6
10
(8) Includes 207,500140,000 shares subject to vested options, or vesting within 60
days after March 24, 2000,23, 2001, 30,000 restricted shares scheduled to vest in
33 1/3% increments on each of July 25, 2001, 2002 and 2003, and 200 shares
owned by a relative of Mr. Kellner, as to which shares Mr. Kellner shares
dispositive power but disclaims beneficial ownership.
5
9
(9) Includes 213,750115,000 shares subject to vested options, or vesting within 60
days after March 24, 2000.23, 2001, and 30,000 restricted shares scheduled to vest
in 33 1/3% increments on each of July 25, 2001, 2002 and 2003.
(10) Includes 20,00025,000 shares subject to vested director stock options.
(11) Includes 10,00015,000 shares subject to vested director stock options and 2,000
shares of Class A common stock.options.
(12) Includes 195,000115,000 shares subject to vested options, or vesting within 60
days after March 24, 2000,23, 2001, and 2,00030,000 restricted shares scheduled to vest
in 33 1/3% increments on each of Class A common stock.July 25, 2001, 2002 and 2003.
(13) Includes 26,00031,000 shares subject to vested director stock options and 30,200
shares held in trust for the benefit of one of Mr. Sturm's children and
130,200 shares held in a charitable trust for which Mr. Sturm acts as
Trustee.children. Also
includes 147,019 shares of Class A common stock representing Mr. Sturm's proportionate interest in
Class A common stock beneficially
owned by CAIP.CAIP; Mr. Sturm is a limited partner of CAIP and as such, may be deemed to share
voting and dispositive power with respect to the shares
beneficially owned by CAIP that are attributable to such limited
partnership interest.these shares.
(14) Includes 23,00028,000 shares subject to vested director stock options.
(15) Includes 3,073,4392,137,725 shares subject to vested options, or vesting within 60
days after March 24, 2000,23, 2001, which are held by executive officers and
non-employee directors of Continental, and 150,000 restricted shares
reflected in the Company, and 848,113 shares of Class A common
stock. See also notes 4 and 13.foregoing footnotes.
GENERAL INFORMATION
BOARD OF DIRECTORS MEETINGS
Regular meetings of the Boardour board of Directorsdirectors are generally held four times
per year, and special meetings are scheduled when required. The Boardboard held fourseven
meetings in 1999.2000.
STANDING COMMITTEES OF THE BOARD
The Audit Committee has the authority and power to act on behalf of the
Boardboard of Directorsdirectors with respect to the appointment of our independent auditors for
the Company
and with respect to authorizing any special audit or audit-related activities
which, in itsthe committee's discretion, are deemed necessary to perform its
functions. The committee monitors the audit activities of the CompanyContinental and its
subsidiaries to assure that they have implemented proper internal accounting
controls and reviews and discusses the Company'scompany's audited financial statements
with management and the independent auditors. See "Report of the Audit
Committee" below. The committee consists of three non-employee directors and met
fourfive times in 1999.2000.
The Executive Committee exercises certain powers of the Boardboard of Directorsdirectors
between Boardboard meetings. The committee, which consists of two non-employee
directors and one officer-director of the Company,company, held no formal meetings in
1999,2000, but took several actionsdid take action by unanimous written consent.
The Finance and Strategy Committee reviews the Company'sour annual budget, itsour short and
long-term strategic plans and itsour capital expenditure plans, for raising capital and
increasing liquidity, and makes
recommendations to the Boardboard of Directorsdirectors regarding implementation of those
plans as the committee deems appropriate. The committee, which consists of two
officer-directors and three non-employee directors, met once in 1999.2000.
The Human Resources Committee has the authority and power to act on behalf
of the Boardboard of Directorsdirectors with respect to all matters relating to the employment
of senior officers by the CompanyContinental and its subsidiaries, including but not
limited to approval of
compensation, benefits, incentives and employment contracts. The committee
administers the Company'sour stock option, employee stock purchase and profit sharing plans, the
executive bonus program and other incentive programs. The committee consists of
four non-employee directors and met foursix times in 1999.
7
112000.
The Independent Directors Committee reviewsreviewed compliance by Northwest
Airlines Corporation and its affiliates with the provisions of the former
governance agreement as amended,between Northwest and Continental and other related
agreements to assure that the standstill, voting, transfer, conduct, board
composition, approval and other requirements, restrictions, terms and conditions
of suchthose agreements arewere adhered to and that the benefits thereunder for
the CompanyContinental and its stockholders arewere fully protected. The Committee consistscommittee consisted
of eight non-employee directors and met one timefive times in 1999.
The Company does2000. As a result of our
purchase of most of our Class A
6
10
common stock from Northwest and an affiliate and the termination of the
governance and related agreements in January 2001, the Independent Directors
Committee will be dissolved.
We do not have a nominating committee.
During 1999,2000, each director of the Company attended at least 75% of the sum of the total
number of meetings of the Boardboard and each committee of which he or she was a
member.
COMPENSATION OF DIRECTORS
Members of the Boardour board of Directorsdirectors who are not our full-time employees
of the
Company are paidreceive:
- $35,000 per year,year;
- $2,000 (or $3,000 for the chairperson) for each Boardboard and committee
meeting physically attended,attended;
- $1,000 for each Boardboard meeting attended by telephone, andtelephone;
- $500 for each committee meeting attended by telephone. Directors who conduct Company business in their capacities as
directors on behalf of the Company at the request of the Board or the Chairman
of the Board are paid (i) for telephone participation in Board and Committee
meetings as if they were physically present, if their conducting Company
business makes it reasonably impracticable for them to attend the meeting in
person, and (ii) $3,000 per day spent outside the United States while conducting
such Company business. Stock options relating to 5,000 shares of Class B commontelephone;
- stock are granted to non-employee directors following each annual meeting of
stockholders and bear exercise prices equal to the fair market value of such
stock on such date. A grant of options to purchase 5,000 shares of Class B common stock is also madeat the
grant date fair market value following each annual stockholders meeting
and upon election to directors whothe board if they are first elected to the Boardboard
other than at an annual meeting of stockholders. In addition, each non-employee
director receivesstockholders meeting; and
- lifetime flight benefits, comprised of space-available personal and
family flight passes, a travel card permitting positive space travel by
the director, the director's family and certain other individuals (which
is taxable to the director, subject to the reimbursement of certain of
such taxes by the Company)company), a frequent flyer card and an airport lounge
card.
In addition, directors who conduct Continental business in their capacities as
directors on Continental's behalf at the request of the board or the Chairman of
the Board are paid (i) for telephone participation in board and committee
meetings as if they were physically present, if their conducting that business
makes it impractical for them to attend the meeting in person, and (ii) $3,000
per day spent outside the United States while conducting that business.
During 1999,2000, the value we imputed by the Company to the use of suchthe flight benefits by the Company's non-employee directors,shown
above, including theour reimbursement of related taxes, by the Company, varied by director, but did
not exceed $11,200$12,450 for any of the outside directors.
Full-timeOur full-time employees of the Company who serve as directors receive reimbursement of
expenses incurred in attending meetings, in addition to flight and other
benefits provided in their employment agreements or shared generally by our
other employees of the Company.employees.
7
11
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company'sour current
executive officers:
NAME, AGE AND POSITION TERM OF OFFICE AND BUSINESS EXPERIENCE
---------------------- --------------------------------------
GORDON M. BETHUNE, age 58....................59....................... Chairman of the Board and Chief Executive Officer
Chairman of the Board and Chief Executive since September 1996. Director since August 1994;
Officer President and Chief Executive Officer (November
1994-September 1996); President and Chief Operating
Officer (February 1994-November 1994); various
positions with The Boeing Company commencing in
1988, including Vice President and General Manager
of the Commercial Airplane Group Renton Division,
Vice President and General Manager of the Customer
Services Division and Vice President of Airline
Logistics Support; Director of: Sysco Corporation;
Honeywell
International Inc.
8
12
NAME, AGE AND POSITION TERM OF OFFICE AND BUSINESS EXPERIENCE
---------------------- --------------------------------------
; ANC Rental Corporation.
GREGORY D. BRENNEMAN, age 38.................39.................... President, and Chief Operating Officer since September
President, Chief Operating Officer and September 1996. Director since June 1995; Chief Operating
Director Operating Officer (May 1995- September1995-September 1996); Consultant to
the Companycompany (February-April 1995); various
positions, including Vice President, with Bain &
Company, Inc. (consulting firm) commencing in 1987;
Director ofof: J. Crew Group, Inc.; The Home Depot,
Inc.
LAWRENCE W. KELLNER, age 41..................42..................... Executive Vice President and Chief Financial
Executive Vice President and Chief Financial Officer Executive Vice President and Chief since November 1996. Senior Vice President
Officer and Chief
Financial Officer Financial Officer (June 1995-November
1996);
Executive Vice President and Chief Financial Officer
of American Savings Bank, F.A. (November 1992-May
1995); Director of Belden & Blake Corporation.
C.D. McLEAN, age 58..........................59............................. Executive Vice President -- Operations since
Executive Vice President -- Operations November 1996. Senior Vice President -- Operations
(April 1994-November 1996).
JEFFERY A. SMISEK, age 45....................46....................... Executive Vice President, General Counsel and
Executive Vice President, General Counsel and Secretary since November 1996. Senior Vice
and
Secretary President, General Counsel and Secretary (April
1995-November 1996); Director of Tuboscope,Varco
International, Inc.
MICHAEL H. CAMPBELL, age 51..................52..................... Senior Vice President -- Human Resources and Labor
Senior Vice President -- Human Resources and Relations since January 1997. Partner, Ford &
and
Labor Relations Harrison LLP (law firm) (1978-1997).
JAMES COMPTON, age 45........................... Senior Vice President -- Pricing and Revenue
Senior Vice President -- Pricing and Revenue Management since February 2001. Vice
Management President -- Pricing and Revenue Management (August
1999-February 2001); Vice President -- Pricing
(January 1998-August 1999); Staff Vice President
-- Pricing (January 1996-January 1998).
MARK A. ERWIN, age 44........................45........................... Senior Vice President -- Airport Services since
Senior Vice President -- Airport Services April 1995.
J. DAVID GRIZZLE, age 45.....................46........................ Senior Vice President -- Corporate Development
Senior Vice President -- Corporate Development since Senior Vice President -- Corporate November 1996. Vice President -- Alliance
Development Development (April 1995-November 1996).
GLEN W. HAUENSTEIN, age 40...................... Senior Vice President -- Scheduling since February
Senior Vice President -- Scheduling 2001. Vice President Scheduling (January
1998-February 2001); Staff Vice President --
Scheduling (January 1996-January 1998).
8
12
NAME, AGE AND POSITION TERM OF OFFICE AND BUSINESS EXPERIENCE
---------------------- --------------------------------------
GERALD LADERMAN, age 42......................43......................... Senior Vice President -- Finance since January
2000.
Senior Vice President -- Finance 2000. Vice President -- Corporate Finance (June
1995-December 1999); Vice President -- Aircraft
Programs (May 1993-June 1995).
GEORGE L. MASON, age 53......................54......................... Senior Vice President -- Technical Operations since
Senior Vice President -- Technical Operations November 1996. Vice President -- Technical
Operations
Operations (March 1994-November 1996).
DEBORAH L. McCOY, age 45.....................46........................ Senior Vice President -- Flight Operations since
Senior Vice President -- Flight Operations September 1999. Vice President -- Flight Training
and Inflight (April 1997-September 1999); Staff
Vice President -- Standards Training and
Performance (May 1996-April 1997); Senior
Director -- Operational Performance (December
1994-May 1996); Nominee for
Director of Eaton Corp.
JAMES B. REAM, age 44........................45........................... President of Continental Express, Inc. since
October
President of Continental Express, Inc. October 1999. Senior Vice President -- Asia of
Continental Airlines, Inc. (March 1998-October
1999); President and Chief Operating Officer of
Continental Micronesia, Inc. ("CMI") (October 1996-April
1998); Executive Vice President and Chief Operating
Officer of CMIContinental Micronesia, Inc. (June
1996-October 1996); Vice President -- Finance of
Continental Airlines, Inc. (December 1994-June
1996).
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13
NAME, AGE AND POSITION TERM OF OFFICE AND BUSINESS EXPERIENCE
---------------------- --------------------------------------
BONNIE S. REITZ, age 47......................48......................... Senior Vice President -- Sales and Distribution
Senior Vice President -- Sales and since November 1996. Vice President -- Marketing
Distribution and
Distribution Sales (August 1994-November 1996).
BARRY P. SIMON, age 57.......................58.......................... Senior Vice President -- International since
Senior Vice President November 1996. Senior Vice President -- Europe
(June 1995-November 1996); Senior Vice
President -- Strategic Business Units (April
1995-June 1995).
KUNIAKI (JUN) TSURUTA, age 64................65................... Senior Vice President -- Purchasing and Materials
Senior Vice President -- Purchasing and Services since November 1996. Vice
Materials Services President -- Purchasing (April 1994-November 1996).
JOHN E. (NED) WALKER, age 48.................49.................... Senior Vice President -- Worldwide Corporate
Senior Vice President -- Worldwide Communi- cationsCorporate Communications since March 2000; Vice Corporate Communications President --
Communications Corporate Communications (November 1994-March
2000).
JANET P. WEJMAN, age 42......................43......................... Senior Vice President and Chief Information Officer
Senior Vice President and Chief Information since November 1996. Vice President and Chief
Officer Information Officer (February 1996-November 1996);
Assistant Vice President of System Technology and
User Training, Chicago & North Western Railroad
(August 1992-November 1996)1995).
There is no family relationship between any of the executive officers. All
officers are appointed by the Boardboard of Directorsdirectors to serve until their
resignation, death or removal.
COMPENSATION OF EXECUTIVE OFFICERS
The following tables set forth (i) the aggregate amount of remuneration we
paid by the Company during 2000, 1999 1998 and 19971998 to the chief executive officer and theour four
other most highly compensated executive officers in 2000, (ii) the number of
shares of Class B common stock subject to options granted to them during 2000
and the Company in
1999 and (ii)Black-Scholes value of those options, (iii) information regarding stock
options they exercised in 19992000 and the value of the options they held by such individuals at the end
of 1999. None of the
top five executive officers of the Company received an option grant2000, and (iv) information regarding long-term incentive awards made to them
during 1999.2000.
9
13
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-------------------------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ----------------------- ---------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDSAWARDS(3) OPTIONS PAYOUTS COMPENSATION
- --------------------------- ---- -------- ---------- --------------- ---------- ---------- --------------- ------------
Gordon M. Bethune.......... 1999 $860,840 $6,390,500 $6,012 $0 0 $0Bethune......... 2000 $966,879 $2,145,540 $3,830 $1,620,000 75,000 $781,875 $0
Chairman of the Board and 1999 860,840 6,390,500 6,012 0 0 0 0
Chief Executive Officer 1998 765,000 1,381,500 2,941 0 650,000 0 0
Chief Executive Officer 1997 755,750 937,500 2,005 0 150,000 0 0
Gregory D. Brenneman....... 1999 $658,376 $4,412,500 $6,692 $0 0 $0Brenneman...... 2000 $723,730 $1,527,608 $4,534 $1,620,000 63,500 $511,313 $0
President and Chief 1999 658,376 4,412,500 6,692 0 0 0 0
Operating Officer 1998 586,508 1,018,752 6,316 0 550,000 0 0
Operating Officer 1997 583,410 718,749 9,011 0 90,000 0 0
Lawrence W. Kellner........ 1999 $476,310 $2,387,500 $7,872 $0 0 $0Kellner....... 2000 $580,781 $1,095,710 $8,833 $1,620,000 30,000 $390,094 $0
Executive Vice President 1999 476,310 2,387,500 7,872 0 0 0 0
and Chief Financial 1998 428,400 675,000 11,716 0 250,000 0 0
and Chief Financial
Officer
1997 427,172 525,000 7,279 0 60,000 0 0
C.D. McLean................ 1999 $435,815 $2,337,500 $1,152 $0 0 $0McLean............... 2000 $459,820 $ 871,093 $1,091 $1,620,000 30,000 $253,969 $0
Executive Vice President 1999 435,815 2,337,500 1,152 0 0 0 0
-- Operations 1998 383,100 618,752 5,427 0 200,000 0 0
-- Operations 1997 381,600 468,752 3,511 0 60,000 0 0
Jeffery A. Smisek.......... 1999 $404,919 $2,300,000 $7,445 $0 0 $0Smisek......... 2000 $427,172 $ 831,250 $7,020 $1,620,000 30,000 $236,250 $0
Executive Vice President, 1999 404,919 2,300,000 7,445 0 0 0 0
General Counsel and 1998 356,996 587,500 8,783 0 200,000 0 0
General Counsel and 1997 355,992 437,500 9,561 0 60,000 0 0
Secretary
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14
- ---------------
(1) 1999 and 1998 includeEach year shown includes stay bonus amounts paid in connection with Northwest'sthe
acquisition by Northwest Airlines Corporation and its affiliates of certain
of the Company'sour capital stock in November 1998. The Companycompany also agreed to make
charitable contributions in the executives' names, including to the We Care
Trust (the employee assistance charitable fund of Continental), over those
same periods in the amount of $340,000 in the case of Mr. Bethune,
$1,000,000 in the case of Mr. Brenneman, $250,000 in the case of Mr.
Kellner, $250,000 in the case of Mr. McLean and $250,000 in the case of Mr.each of
Messrs. Kellner, McLean and Smisek.
(2) Represents a tax adjustment relating to certain travel benefits we provided
to the executives.
(3) Determined based on the closing price of the Class B common stock on the
date the restricted shares were granted. At the end of 2000, each of the
named officers held 30,000 shares of restricted stock valued at $1,548,750
based on the December 29, 2000 closing price of the Class B common stock of
$51.625. The shares held by each of the Company.named officers vest in 33 1/3%
increments on each of July 25, 2001, July 25, 2002 and July 25, 2003.
Although we have paid no dividends on our common stock, any dividends would
be payable upon both vested and non-vested shares.
10
14
OPTION GRANTS DURING 2000
INDIVIDUAL GRANTS
-----------------------------------------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE GRANT DATE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE VALUE(2)
- ---- ---------- --------------- --------- ---------- ----------
Gordon M. Bethune.................. 75,000 5.1% $42.0625 5/23/05 $1,321,733
Gregory D. Brenneman............... 63,500 4.4% $42.0625 5/23/05 1,119,067
Lawrence W. Kellner................ 30,000 2.1% $42.0625 5/23/05 528,693
C.D. McLean........................ 30,000 2.1% $42.0625 5/23/05 528,693
Jeffery A. Smisek.................. 30,000 2.1% $42.0625 5/23/05 528,693
- ---------------
(1) The options vest in annual 25% increments commencing May 23, 2001.
(2) Estimated using the Black-Scholes option pricing model, which requires the
input of highly subjective assumptions, including expected stock price
volatility. The model was developed for use in estimating the fair value of
traded options, which have no vesting restrictions and are fully
transferable, unlike our employee stock options. These differences and
changes in the subjective input assumptions can materially affect the
estimated values shown. Consequently, the model does not necessarily provide
a reliable estimate of the options' value. The estimated values shown are
based on the following input assumptions: risk-free interest rate of 6.5%;
dividend yield of 0%; volatility factor of the expected market price of our
common stock of 47%; and a weighted average expected life of the options of
3.6 years.
AGGREGATED OPTION EXERCISES IN 19992000 AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
Gordon M. Bethune...... 137,500 $5,628,125 532,500 487,500 $7,768,750 $3,515,625Bethune....... 370,000 $8,245,968 325,000 400,000 $4,156,250 $4,873,438
Gregory D. Brenneman... 137,500 5,371,094 381,500 412,500 5,289,063 3,023,438Brenneman.... 244,000 5,454,398 275,000 338,500 3,574,375 4,181,594
Lawrence W. Kellner.... 37,500 1,441,406 192,500 187,500 2,752,813 1,335,938Kellner..... 130,000 2,912,869 125,000 155,000 1,579,375 1,866,250
C.D. McLean............ 18,750 732,422 198,750 150,000 3,317,656 984,375McLean............. 148,750 3,538,499 100,000 130,000 1,163,750 1,450,625
Jeffery A. Smisek...... 37,500 1,549,219 180,000 150,000 2,635,625 984,375Smisek....... 130,000 2,912,718 100,000 130,000 1,163,750 1,450,625
- ---------------
(1) Determined based on the closing price of the Class B common stock on
December 29, 2000 of $51.625.
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LONG TERM INCENTIVE PLANS -- AWARDS IN 2000
The following table sets forth awards granted under our Long Term Incentive
Performance Award Program (or LTIP) and our Officer Retention and Incentive
Award Program (or Retention Program), each of which has been implemented under
our Incentive Plan 2000.
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR UNDER NON-STOCK
NUMBER OF SHARES, OTHER PERIOD PRICE-BASED PLANS
UNITS OR UNTIL MATURATION ------------------------------------
NAME OTHER RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
- ---- ----------------- ---------------- ---------- ---------- ----------
Gordon M. Bethune...... LTIP Awards(1) (1) $3,713,906 $4,691,250 $6,645,938
37,500 PARs(2) (2) (2) (2) (2)
Gregory D. Brenneman... LTIP Awards(1) (1) $2,650,688 $3,261,938 $4,637,251
25,000 PARs(2) (2) (2) (2) (2)
Lawrence W. Kellner.... LTIP Awards(1) (1) $1,690,407 $2,340,562 $2,990,719
12,500 PARs(2) (2) (2) (2) (2)
C.D. McLean............ LTIP Awards(1) (1) $1,425,844 $2,011,782 $2,597,719
12,500 PARs(2) (2) (2) (2) (2)
Jeffery A. Smisek...... LTIP Awards(1) (1) $1,361,250 $1,923,750 $2,486,250
12,500 PARs(2) (2) (2) (2) (2)
- ---------------
(1) Amounts set forth in the table represent potential payout of awards under
the LTIP based on awards made in 2000, and include target amounts actually
paid out as set forth in the Summary Compensation Table above. Payouts are
based on Continental's achievement of number 1, 2 or 3 in EBITDAR margin
ranking compared to an industry group. Payout is also contingent upon our
achievement of a minimum average annual operating income hurdle over the
performance period (initially $300 million) and in no event may the LTIP pay
out, with respect to a performance period, more than 5% of our actual
average annual operating income over the performance period. The LTIP was
phased in with (i) a one-year performance period (January 1, 2000 to
December 31, 19992000) with actual payout as set forth in the Summary
Compensation Table above, (ii) a two-year performance period (January 1,
2000 to December 31, 2001) with potential payout estimated based on the
individual's current base salary, and (iii) a three-year performance period
(January 1, 2000 to December 31, 2002) with potential payout estimated based
on the individual's current base salary.
(2) During 2000, we made 13 awards of $44.375.PARs (each in the amount set forth in the
table) to each of the above named executive officers relating to 13
investments in 8 enterprises. Each PAR is a right, which generally vests
quarterly over a four-year period, to receive a cash payment measured by a
portion of the gain and profits associated with an equity holding of
Continental or a subsidiary in an e-commerce or internet-based business over
the deemed initial base values. The PARs awarded in 2000 to Messrs. Bethune,
Brenneman, Kellner, McLean and Smisek in each case relate to 3.75%, 2.5%,
1.25%, 1.25%, and 1.25%, respectively, of the potential total gain
attributable to each equity holding for which PARs were awarded. The Human
Resources Committee has determined that the base values assigned to PARs
relating to each of the investments, for purposes of the program, reflect
fair market value of the related investment at the date of grant of the
respective awards. The aggregate base values of all 13 investments were
approximately $23 million. The payout of the PARs will generally not occur
until and unless Continental realizes a gain on the applicable equity
investment. We are unable to estimate future payouts of the Retention
Program awards.
EMPLOYMENT AGREEMENTS
Agreements with Mr. Bethune and Mr. Brenneman. Continental hasWe have entered into
employment agreements with each of Mr. Bethune and Mr. Brenneman, effective July
25, 2000, relating to his service as an officer and director of the Company.Continental. The
agreements provide for
(i)for:
- an annual base salary of not less than $850,000$1,042,500 for Mr. Bethune and
$650,000$757,500 for Mr. Brenneman;
(ii)- one-time grants in 2000 of 30,000 restricted shares of Class B common
stock that vest in annual one-third increments;
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- participation in any Company cash bonus program we adopt at the maximum level
available to any executive (and not less than the Bonus Percentage
defined below)0% to 125% of base
salary paid or payable under our current executive bonus performance
award program);
(iii)- a supplemental executive retirement plan ("SERP")(or SERP, as explained below),
disability benefits and life insurance;
(iv)- flight benefits substantially identical to those currently provided to
non-employee directors ("Flight(referred to below as "Flight Benefits"); and
(v)- perquisites and other matters.
Each agreement may be terminated at any time by either party, with or
without cause. Each agreement is in effect until July 25, 2005 and is
automatically extended for an additional five-year period on each successive
fifth anniversary of such date, unless earlier terminated or not extended by
either party. If the executive's employment agreement is not extended by the
executive, or is terminated by Continental for cause (as described in the
agreement) or by the executive without good cause (as described in the
agreement), the executive will receive:
- a lump-sum payment of approximately $5.1 million (for Mr. Bethune) or
$3.9 million (for Mr. Brenneman), the amount to which he would have been
entitled under his previous employment agreement if he had left our
employ following the purchase in 1998 by Northwest Airlines Corporation
and its affiliates of a majority of our voting power;
- the SERP benefit; and
- Flight Benefits and other perquisites (together with the SERP and
lump-sum payments, the "Base Benefits").
If we terminate his employment for reasons other than death, disability or
cause, or if we do not extend his employment agreement, or if the executive
terminates his employment agreement for good cause, then we must, in addition to
providing the Base Benefits:
- cause all options, shares of restricted stock, LTIP awards, Retention
Program awards and similar incentives awarded to the executive to vest;
- make a lump-sum cash severance payment to the executive (calculated as
described below, the "Termination Payment");
- provide the executive with out-placement, office and other perquisites
for certain specified periods; and
- provide the executive and his eligible dependents with certain insurance
benefits.
In addition to these benefits, if we terminate the executive's employment due to
death or disability, in lieu of out-placement services and the Termination
Payment, certain life insurance or disability payments, as appropriate, would be
made.
The "Bonus Percentage""Termination Payment" referred to above is equal to three times the sum
of (a) the executive's then current annual percentage of base salary (i.e., 0%and (b) the amount of
such salary times 125%.
We are required to 125%) paidmaintain life insurance on the executive's behalf in an
amount not less than the Termination Payment. Each executive is indemnified by
the company for his tax obligations with respect to payments or payableother benefits
under the Company's executive bonus program.agreement or otherwise to the extent that such payments or other
benefits are subject to an excise or other special additional tax that would not
have been imposed absent such payments or other benefits.
Pursuant to the SERP, each executive receives a base retirement benefit in
the form of an annual straight life annuity in an amount equal to the product of
(x) 2.5% times (y) the number of his credited years of service (as defined,
which include additional credited years of service for each of the next fivefour
years to induce
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the executive to remain in theour employ, of the Company, with the executive receiving up to an
additional three23 years in the case of Mr. Bethune and 19 years in the case of Mr.
Brenneman of credited service if he receives a Termination Payment (as defined below) under his
employment agreement) times (z) his final average compensation. Final average
compensation (includingincludes salary and cash bonuses -- other than bonuses paid prior
to April 1, 1995, certain stay bonus amounts described elsewhere in this proxy statement, and cash bonusesthe Summary
Compensation Table, amounts paid under the LTIP or similar program or the
Retention Program, proceeds to the executive from any long-termawards under any option,
stock incentive plans or programs adopted by the Company).similar plan, and any Termination Payment or certain similar
payments. Amounts payable under the
Company's Retirement PlanContinental's general retirement plan are offset
against the SERP benefit.
Each agreement may be terminated at any time by either party, with or
without cause. Each agreement is in effect until November 20, 2003 and is
automatically extended for an additional five-year period on each successive
fifth anniversary of such date, unless earlier terminated or not extended by
either party. If the executive's employment agreement is not extended by the
executive, or is terminated by the Company for cause (as described in the
agreement) or by the executive without good cause (as described in the
agreement), the Company will provide him with (i) a lump-sum payment of
approximately $5.1 million (for Mr. Bethune) or $3.9 million (for Mr.
Brenneman), the amount to which he would have been entitled under his previous
employment agreement if he had left the employ of the Company following the
purchase in 1998 by Northwest of certain of the Company's capital stock (the
"Existing Severance"), (ii) the SERP benefit and (iii) Flight Benefits
(together, the "Base Benefits"). If his employment is terminated by the Company
for
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reasons other than death, disability or cause, or if the Company does not extend
his employment agreement, or if the executive terminates his employment
agreement for good cause, then the Company shall, in addition to providing the
Base Benefits, (i) cause all options and any shares of restricted stock awarded
to the executive to vest, (ii) make a lump-sum cash severance payment to the
executive (calculated as described below, the "Termination Payment"), (iii)
provide the executive with out-placement, office and other perquisites for
certain specified periods, and (iv) provide the executive and his eligible
dependents with certain insurance benefits. Alternatively, if the Company
terminates the executive's employment due to death or disability, the Company
shall provide the Base Benefits and cause all options and any shares of
restricted stock awarded to the executive to vest, and the executive, or his
beneficiaries, will receive life insurance benefits or, upon the cessation of
long-term disability payments prior to the executive's attainment of age 65
while disabled, a Company payment, in an amount equal to the Termination
Payment. The "Termination Payment" referred to above is equal to three times the
sum of (a) the executive's then current annual base salary and (b) a deemed
annual bonus equal to the Bonus Percentage (with respect to the most recently
ended fiscal year) of such salary.
The Company is required to maintain life insurance on the executive's
behalf in an amount not less than the Termination Payment. Each executive is
indemnified by the Company for his tax obligations with respect to payments or
other benefits under the agreement or otherwise to the extent that such payments
or other benefits are subject to an excise or other special additional tax that
would not have been imposed absent such payments or other benefits.
Agreements with Other Named Executives. Continental hasWe have also entered into
employment agreements, effective July 25, 2000, with each of Messrs. Kellner,
McLean and Smisek, which
agreements contain substantially identical terms. The agreements provide for an annual base salary of not less than
$470,000, $430,000$693,500, $451,500 and $400,000,
respectively,$420,000, respectively. The agreements also provide for
participation in any Company cash bonus program we implement at the maximum level
available to any executive, a SERP with terms similar to Mr. Bethune'sthose of Messrs.
Bethune and Brenneman and based on the executive's compensation, Flight
Benefits, perquisites and other matters. Each of the agreements may be
terminated at any time by either party, with or without cause. Each agreement is
for a two-yearfive-year term of employment ending in November 2000. IfJuly 2005 and is otherwise
substantially identical to those of Messrs. Bethune and Brenneman. However, the
applicable executive's employment is terminated
by expirationTermination Payments of the employment agreement, the executive will receive (i) Flight
Benefits, (ii) the applicable SERP benefit, (iii) vesting of all optionsMessrs. Kellner, McLean and any
shares of restricted stock awardedSmisek are limited to him, and (iv) office and other perquisites
for certain specified periods. If the Company terminates the executive's
employment for reasons other than death, disability or cause (as described in
the agreement), the executive will receive, in addition to the benefits he would
receive had the agreement expired, a severance payment (as described below),
certain out-placement services and certain insurance benefits for himself and
his eligible dependents. If the executive terminates his employment for any
reason, he will be entitled to Flight Benefits and the applicable SERP benefit.
Additionally, if the executive terminates his employment for good cause (as
described in the agreement), then the Company shall (i) make a severance payment
to the executive, (ii) provide the executive with out-placement services and
office and other perquisites, and (iii) provide the executive and his eligible
dependents with certain insurance benefits. The severance payment referenced
above is equal to the product of (A)two
times the sum of (1)(a) the executive's then current annual base salary and (2) a deemed annual bonus equal to(b) the
Bonus Percentage
(with respect to the most recently ended fiscal year)amount of such salary multiplied
by (B) a fraction, the numerator of which is the number of months in the
severance period (described below) and the denominator of which is 12. If the
executive's employment is terminatedtimes 125% unless their termination occurs within two
years afterfollowing a Changechange of control, and there is no lump-sum payment included
in Control
(as defined in the Company's 1998 Stock Incentive Plan) or, if such termination
occurs prior to November 21, 2000, the severance period means the period
commencing on the date of termination and continuing for 36 months. If the
executive's employment is terminated prior to a Change in Control or after the
date which is two years after a Change in Control, the severance period means
the period commencing on the date of termination and continuing for 24 months.
Each of the executives is indemnified by the Company for his tax obligations
with respect to payments or other benefits under his agreement or otherwise to
the extent that such payments or other benefits are subject to an excise or
other special additional tax that would not have been imposed absent such
payments or other benefits.
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16their Base Benefits.
RETIREMENT PLAN
The Continental Airlines Retirement Plan, (the "Retirement Plan"), adopted in 1988, is a
noncontributory, defined benefit pension plan. Substantially all
employees of Continental and certain designated affiliates are eligible to
participate in the Retirement Plan. The following table represents
the estimated annual benefits payable in the form of a single life annuity to
participants in specified service and compensation categories under the Retirement Planplan as
it pertains to non-pilots. Under the Retirement Plan,plan, final average compensation means the
average of the participant's highest five consecutive years of compensation
during the last ten calendar years with Continental and its affiliates for
participating employees other than pilots. For pilots, final average
compensation means the average of the participant's highest 60 consecutive
months of compensation during the last 120 months with Continental and its
designated affiliates (with shorter averaging periods applying prior to January
1, 2003). Final average compensation includes regular pay and shift
differential, and generally excludes bonuses, severance pay, incentive and other
special forms of pay. Regulations under the Internal Revenue Code of 1986, as
amended (the "Code"), currently limit the compensation covered by the Retirement
Plan to $170,000 for plan years beginning in 2000. This limit is indexed and is
increased from time to time in accordance with IRS regulations. The table
reflects benefit amounts calculated using the compensation limit and average
social security wage base in effect for participants who reach age 65 in 2000.2002.
PENSION PLAN TABLE
YEARS OF SERVICE
---------------------------------------------------------
FINAL AVERAGE COMPENSATION 5 10 15 20 25 30
- -------------------------- ------- ------- ------- ------- ------- -------
$100,000....................$100,000............................ $ 7,456 $14,912 $22,368 $29,825 $37,281 $44,737
$125,000.................... 9,506 19,012 28,518 38,025 47,531 57,037
$150,000.................... 11,556 23,112 34,668 46,225 57,781 69,337
$170,000.................... 13,196 26,392 39,588 52,785 65,981 79,1777,410 $14,821 $22,231 $29,641 $37,051 $44,462
$125,000............................ 9,460 18,921 28,381 37,841 47,301 56,762
$150,000............................ 11,510 23,021 34,531 46,041 57,551 69,062
$170,000............................ 13,150 26,301 39,451 52,601 65,751 78,902
Messrs. Bethune and McLean are estimated to have sixseven credited years of
service under the plan and Messrs. Brenneman, Kellner and Smisek are estimated
to have five such years.six years of service. In addition, each such officer'sof their employment agreementagreements
provides for certain supplemental retirement benefits, which benefits will be
offset by amounts received under the Retirement Plan.retirement plan. Under the Retirement Plan,plan, a retired
participant's annual benefit commencing at or after the normal retirement age of
65 (60 in the case of pilots) is equal to 1.19% of the participant's final
average compensation plus 0.45% of the participant's final average compensation
(or a variable
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percentage in the case of pilots) in excess of the average Social Security wage
base, multiplied by the participant's years of participation up to the
applicable maximum years of participation. Special rules also apply for certain
of our other work groupsgroups. During the second quarter of this year, Continental is
offering eligible employees a one-time opportunity to retire with a supplemental
benefit equal to $1,000 multiplied by the Company.
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17retiree's years of service, up to a
maximum of 30 years.
PERFORMANCE GRAPH
The following graph compares the cumulative total return on theour Class B
common stock (the more widely traded of the Company's common stocks) with the cumulative total returns (assuming reinvestment of
dividends) on the Standard & Poor's Airline Index and the Standard & Poor's 500
Stock Index as if $100 were invested in the Class B common stock and each such indexof
those indices on December 31, 1994.29, 1995.
[PERFORMANCE CHART]
CONTINENTAL AIRLINES S&P AIRLINE INDEX S&P 500 INDEX
-------------------- ----------------- -------------
12/30/94 100.00 100.00 100.00
12/29/95 470.27 145.86 137.58
12/31/96 610.81 159.72 169.17
12/31/97 1040.54 268.81 225.61
12/31/98 724.32 260.01 290.09
12/31/99 959.46 238.49 351.13
12/30/94
12/29/95 12/31/96 12/31/97 12/31/98 12/31/99 12/29/00
-------- -------- -------- ----------------- -------- --------
Continental Airlines................... $100.00 $470.27 $610.81 $1,040.54 $724.32 $959.46$129.89 $221.26 $154.02 $204.02 $237.36
S&P Airline Index...................... $100.00 $145.86 $159.72 $ 268.81 $260.01 $238.49$109.51 $184.30 $178.26 $176.79 $263.42
S&P 500 Index.......................... $100.00 $137.58 $169.17 $ 225.61 $290.09 $351.13$122.96 $163.98 $210.85 $255.22 $231.98
EXECUTIVE COMPENSATION REPORT OF THE HUMAN RESOURCES COMMITTEE
General Compensation Strategy
In 1999,2000, the Board's Human Resources Committee (the "Committee")of the board of directors continued
its prior compensation strategy, which is to:
- Develop an appropriate linkage between compensation levels and the
creation of stockholder value
- Provide that the total compensation program will be able to attract,
motivate and retain employees of outstanding talent
- Achieve competitiveness of total compensation
- Focus on variable pay to provide incentive to improve performance
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In considering appropriate executive compensation levels, the Committeecommittee
applies these factors to available marketplace compensation data for U.S.
airlines of comparable size, including industry peer airlines shown in the
performance graph, as well as available marketplace compensation data for certain
non-airline companies with historical revenue, stock appreciation, stock
volatility and other characteristics deemed by the committee to be comparable to
ours and also for U.S. airlines of comparable size, including industry peer
airlines shown in the Company by the
Committee.performance graph. The elements of compensation included
in the competitive analysis generally are base salaries, annual incentives and
long-term incentives. Having announcedBecause we compete for executive talent principally with
companies other than airlines, the committee emphasizes compensation data from
non-airline companies in September 1997 its intention to bringanalysis of competitive compensation packages.
In July 2000, we completed a three-year program bringing all employees to
industry standard wages overand also announced and began to implement a three-year period,phased plan
to bring employee benefits to industry standard levels for all employees by
2003. The plan provides for increases in vacation, paid holidays, increased
401(k) matching contributions by the Company continued raising
the salariescompany and wagesadditional past service
retirement credit for most senior employees. Nearly all of certain non-executive employees
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during 1999. Nearly allour employees other
than officers and other senior managers of the Company are incentivized through the Company'scompany's
profit sharing plan and on-time arrival bonus structure, and all employees are
able to participate in the Company'sour success through participation in the employee stock
purchase plan. As discussed elsewhere in this proxy statement, we propose that
the employee stock purchase plan be amended to extend its term and to increase
the number of shares that may be issued under the plan to keep this valuable
incentive tool available for all employees. Executives' incentives are linked to
the Company'sContinental's performance through the executive bonus performance award program,
through the award of stock options and through a new
long term incentive performance
award program implemented underin 2000. The company also implemented in 2000 its
officer retention and incentive award program to retain officers and encourage
the Incentive
Plancompany's participation in more cost-effective distribution and marketing
channels. Our Chief Executive Officer and the four other officers named above in
the Summary Compensation Table were also awarded restricted shares of Class B
common stock in 2000 submittedin connection with renewals or modifications of their
employment agreements, in recognition of Continental's performance and as
additional incentive during the three-year vesting period for stockholder approval at the Meeting.such shares. Other
officers and
senior managersalso participate in an annual bonus program and are also awarded
stock options, and certain of such officers participate in the new long term incentive performance award program.program
and, together with senior managers, are awarded stock options.
In conducting the programs applicable to executives, the Committeecommittee
considers the effects of Sectionsection 162(m) of the Internal Revenue Code, which
denies publicly held companies a tax deduction for annual compensation in excess
of one million dollars paid to their chief executive officer or any of their
four other most highly compensated executive officers who are employed on the
last day of a given year, unless their compensation is based on performance
criteria that are established by a committee of outside directors and approved,
as to their material terms, by suchthat company's stockholders. Certain of the
Company'sour
current compensation plans, such as itsour stock option plans, the executive bonus
performance award program, the long term incentive performance award program and
the programs implemented to date under the Incentive Plan 2000 proposed for
stockholder approval in this proxy statement,officer retention and incentive award program, are designed to qualify as
performance-based compensation under Section 162(m). However, the salary of our
Chief Executive Officer in excess of one million dollars and other awards, such
as cash payments from stay bonuses and restricted stock grants, do not so
qualify and are subject to the limitation on deductibility. Although certain
amounts recorded as compensation by the Companycompany to certain of the most highly
compensated officers of the Companycompany with respect to 19992000 were limited by Sectionsection
162(m), suchthat limitation did not result in the payment of increased federal
income taxes by the Companycompany in 19992000 due to the Company'sits significant net operating loss
carryforwards.
Base Salaries. The Committeecommittee believes it is crucial to provide salaries
within a competitive market range in order to attract and retain highly talented
employees. The specific competitive markets considered depend on the nature and
level of the positions in question, the labor markets from which qualified
individuals are recruited, and the companies and industries competing for the
services of the Company'sour executives. Base salary levels are also dependent on the
performance of each individual employee over time. Thus, employees who sustain
higher levels of performance over time will have correspondingly higher
salaries. Salary adjustments are based on competitive market salaries and
general levels of market increases in salaries, individual performance, overall
financial results and changes in job duties and responsibilities. All base
salary increases are based on a philosophy of relative salary equity, market
demand and pay-for-performance.
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20
Incentive Compensation. The Committeecommittee believes that appropriate base
salaries must be coupled with incentive compensation that not only attracts and
retains qualified employees, but also rewards them for increased performance.
Compensation linked to the performance of the Company'sour common stock is one of the best
incentives to align employees' interests with those of stockholders and to
enhance performance. In addition, through the adoption last year of the
Incentive Plan 2000, proposed
for stockholder approval in this proxy statement, the Committeecommittee has sought to define performance criteria
relative to the Company'sour competitors, mitigate the dilutive effect of relying solely on
common stock-based awards as incentive compensation, and develop programs
designed to retain management in the face of significant employment
opportunities and recruiting efforts from other companies. The Company maintainsWe have implemented
stock option plans for itsour executive officers and other senior managers, and an
employee stock purchase plan open to all employees of the Company,our employees, each of which is
designed to encourage employees, including the Company'sour executive officers and key
employees, to identify their interests with those of stockholders and enhance
the Company'sContinental's performance. In addition, the Company maintainswe implemented a profit sharing plan,
under which 15% of the Company'scompany's pre-tax earnings (before unusual or
nonrecurring items) is distributed to substantially all non-management employees of the Company
(other than employees whose collective bargaining agreement provides otherwise
or limits participation or who participate in profit sharing arrangements
required by local law) each year on a pro rata basis according to specified
earnings. Finally, the Company maintainswe have implemented an executive bonus performance award
program, a long term incentive performance award program, an officer retention
and incentive award program, a management bonus program and a non-management
on-time performance bonus to focus employees on common goals and to encourage
them to work together to achieve profitability. The Committeecommittee believes that
these incentives play a significant part in the Company's continuing improvementContinental's continued performance
and success.
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19992000 Executive Compensation
Base Salaries. In early 2000, the first quarterbase salaries of 1999, salaries for substantially all
the Company'sour executive officers, were increased,
including the Chief Executive Officer. None of the executive officers whose salariesOfficer, were increased in 1999
had receivedline with general
salary increases of our middle level management. Subsequently, in 1998. The adjustments resulted fromconnection
with the Committee's reviewrenewal or modification of competitiveemployment agreements of our senior
executives in mid-2000, the base salaries atof certain of our senior executives
listed in the timeSummary Compensation Table above, including our Chief Executive
Officer, were increased to make them more competitive. In early 2001, the base
salaries of certain of our senior executives listed in the Summary Compensation
Table (excluding our Chief Executive Officer and the executives'
performance.another senior officer whose
base salary was adjusted in mid-2000) were increased to make them more
competitive.
Stock Incentives. Consistent with itsour compensation strategy, the Company
awarded stock options
were awarded to certain officers and key employees during 1999. Options
granted during 19992000. These options
bear five-year terms and vest ratably over four years. However, noSignificantly fewer
options were grantedawarded to officers than in prior annual grants as the five most highly compensated officers
as they hadalso received larger than normal grantsawards under the long term incentive performance award program,
which was designed, in 1998 as discussedpart, to reduce the company's reliance on equity-based
compensation. As noted above, the Chief Executive Officer and the four other
officers named above in last
year's proxy statement. In addition, nonethe Summary Compensation Table were also awarded
restricted shares of Class B common stock in 2000 in connection with the Company's other executive
officers received option grants in 1999. The Company also made no restricted
stock grants in 1999.renewal
or modification of their employment agreements.
Other Plans and Programs. The Company's executive bonus performance award program
which
terminated on April 1, 2000, made the Company'smakes our executive officers and certain additional officers recommended by the
Chief Executive Officer and approved by the Committeecommittee eligible to receive on a
fiscal quarterly basis a cash bonus of up to 125% of their salary for suchthat
quarter based on the Company'sContinental's cumulative net income earned through suchthat quarter
as compared to the cumulative net income targeted through suchthat quarter in the Company's
annual financial plan approved by the Boardboard and adopted by the Committee.committee. The
program also provides an alternate target for bonus payments of achievement of
number 1, 2 or 3 in EBITDAR margin ranking by Continental as compared to an
industry group, together with achievement of an operating income hurdle. In
1999, the Companycompany also implemented a deferred compensation plan in which
directors and officers of the Companycompany may participate. The plan had been
previously recommended by the Committeecommittee and approved by the Board.board.
As previously reported to stockholders, each of Messrs. Bethune, Brenneman,
Kellner, McLean and Smisek received monthly payments during 1999 pursuant tothe first two months of
2000, which were the final payments under the stay bonus agreements with the Company entered into
in 1998. These bonuses were
designed1998 to encourage the officers to remain with Continental following the
Company following
Northwest's17
21
purchase of certain capitala majority of Continental's voting stock of the Companyby Northwest Airlines and
were payable
through February 2000.its affiliates. The Companycompany also agreed to make charitable contributions in each
such executive's name, including to the We Care Trust (the employee assistance
charitable fund of Continental), during the same period. Also as previously
reported, certain other officers, including executive officers, received stay
bonus payments during the same period.
As discussed elsewhere in this proxy statement, the Committee recommended
and the BoardIn addition, we adopted the Company's Incentive Plan 2000, providing for the award
of cash and stock-based incentives, including long-term incentive awards, to
non-employee directors, officers and key employees. The plan is designed to
align participants' interests with those of stockholders and to reduce the
Company's historic dependence solely on stock options to achieve its goal of
attracting, retaining and incentivizing qualified personnel. The Committee has
adopted, subject to stockholder approval oflast year under the Incentive Plan 2000 threethe officer
retention and incentive programs under the Incentive Plan 2000. The firstaward program. This program the
Executive Bonus Performance Award Program, is similar to (and will replace) the
Company's recently terminated executive bonus program, but also provides an
alternate target for bonus payments of achievement of number 1, 2 or 3 in
EBITDAR margin ranking by the Company as compared to an industry group, together
with an operating income hurdle. The second program, the Long Term Incentive
Performance Award Program ("LTIP"), provides for cash incentive payments
determined by the Company's achievement over multi-year performance periods of
targeted EBITDAR margin rankings compared with an industry group, together with
an operating income hurdle. If the Incentive Plan 2000 is approved by
stockholders, the Committee anticipates reducing the size of future annual
option grants by approximately one-half to executives who participate in the
LTIP. The third program, the Officer Retention and Incentive Award Program
("Retention Program"), iswas designed to retain
executives in light of significant employment opportunities for such executives
in other businesses, including the e-commerce and internet industries, and to
incentivize the Company'sour executives to grow the value of the Company'sContinental's investments in
e-commerce and internet businesses, including more cost effective distribution
and marketing channels for the Company.channels. This program permits executives to receive a cash paymentpayments
measured by a portion of the gain and profits associated with the Company'sContinental's
investments in e-commerce or internet businesses. The Committeecommittee believes that
the Retention Program will actretention program acts as a powerful retention tool for Company management, and will benefit
the Companycompany from the direct incentive to foster investment in and growth of
e-commerce and internet businesses 16
20
strategic for theits growth and development, of the Company,
including through cost savings generated by more efficient means of distribution
and marketing of the
Company's services.
1999marketing.
2000 CEO Compensation
Mr. Bethune's salary was increased in the first quartermid-2000 in connection with a
modification of 1999his employment agreement, as a result of the Committee'scommittee's review
of competitive salaries at the time and his performance as Chief Executive
Officer. Along with other executive officers, of
the Company, Mr. Bethune received certain bonus amounts
in 1999 reflecting the
Company's success2000 under the executive bonus program.performance award program reflecting
Continental's success, and received stock options, restricted stock, awards
under the long term incentive award program and awards under our officer
retention and incentive award program as incentives for continued performance.
In addition, as described elsewhere in this proxy statement, Mr. Bethune
received monthlytwo final payments during 19992000 pursuant to a stay bonus agreement
with the Company entered into in 1998 to
encourage him to remain with the Company following Northwest's purchase of
certain capital stock of the Company. Mr. Bethune did not receive any stock
options in 1999.1998.
Respectfully submitted,
Human Resources Committee
Thomas J. Barrack, Jr., Chairman
Kirbyjon H. Caldwell
George G. C. Parker
Charles A. Yamarone
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company'sOur executive compensation programs are administered by the Human Resources
Committee of the Boardboard of Directors.directors. The committee is currently composed of four
independent, non-employee directors, and no member of the committee has been an
officer or employee of the CompanyContinental or any of its subsidiaries.
CERTAIN TRANSACTIONS
The CompanyIn December 2000, we sold to America West Holdings Corporation for
approximately $10.8 million our right of first refusal on certain stock of
America West Holdings Corporation held by an affiliate of David Bonderman, one
of our directors and stockholders, together with our remaining investment in
America West Holdings Corporation. Mr. Bonderman holds a significant interest in
America West Holdings Corporation. In 1994, we entered into a series of
agreements with America West Airlines, Inc. ("America West"), a subsidiary of America West
Holdings Corporation, in which David Bonderman holds a
significant interest, entered into a series of agreements during 1994 related to code-sharing and ground handling that have
created substantial benefits for both airlines. Mr. Bonderman is a director and stockholder of the Company. The services provided are
considered normal to the daily operations of both airlines. As a result of these
agreements, during 1999 Continentalwe paid America West $25Airlines $28 million in 2000, and America Westthey paid Continental $31us
$33 million.
In November 2000, we entered into a number of agreements with Northwest
Airlines Corporation and some of its affiliates under which we repurchased in
January 2001 most of our Class A common stock owned by Northwest for $450
million. In November 1998, the Company andwe began implementing with Northwest a significant stockholder of
the Company, began implementingAirlines, Inc. a
long-term global alliance involving extensive code-sharing, frequent flyer
reciprocity and other cooperative
18
22
activities. In
addition, Northwest and Continental provide otherThe services to each otherprovided are considered normal to the daily operations
of both airlines. As a result of these
latter arrangements, during 1999, Continentalthis alliance, we paid Northwest $7Airlines, Inc.
$10 million in 2000 and they paid us $14 million in 2000.
Also in November 2000, we entered into an agreement to pay 1992 Air, Inc.
$10 million in cash for its sale to us of its right of first offer to purchase
the shares of Class A common stock that we purchased from Northwest paid Continental $9 million.Airlines
Corporation and an affiliate. This transaction was consummated in January 2001.
1992 Air, Inc. is an affiliate of David Bonderman, one of our directors.
Karen Hastie Williams, one of our directors, is a partner of Crowell &
Moring LLP, a law firm that has provided services to the Companyus and itsour subsidiaries for
many years. The
Company'sOur fee arrangement with Crowell & Moring LLP is negotiated on the
same basis as the Company'sour arrangements with its other outside legal counsel and is subject
to the same terms and conditions. The fees we paid by the Company to Crowell & Moring LLP are
comparable to those it payswe pay to other law firms for similar services.
17REPORT OF THE AUDIT COMMITTEE
The Audit Committee is comprised of three non-employee members of the board
of directors. Each year, directors being considered for inclusion on the
committee provide a written statement to the full board detailing any
relationships they have with the company, directly or indirectly, that might
affect their independence from the company. Based in part on these
representations, the board elects the committee members if it determines that
(1) all such members are "independent" as that concept is defined in rules
promulgated by the New York Stock Exchange and the Securities and Exchange
Commission, (2) all such members are financially literate and (3) at least one
of such members has accounting or related financial management expertise.
The board of directors has elected the undersigned as members of the
committee and adopted a charter setting forth the procedures and
responsibilities of the Audit Committee. The committee reviews the charter
annually and reports to the board on its adequacy in light of applicable New
York Stock Exchange rules. The board then considers and approves the charter
consistent with those rules, and the company furnishes a written affirmation to
the New York Stock Exchange relating to clauses 1-3 of the foregoing paragraph
and the adequacy of the Audit Committee charter. A copy of the current charter
of the Audit Committee is attached to this proxy statement as Appendix A.
Among other responsibilities enumerated in Appendix A, the committee's
charter requires the committee to:
(a) obtain annually from the independent auditors a written
communication delineating all relationships between such auditors and the
company as required by Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees";
(b) discuss with the independent auditors the nature and scope of any
disclosed relationships and professional services and take, or recommend
the board take, appropriate action to ensure the continuing independence of
the auditors;
(c) review the annual financial statements of the company, and the
related management's discussion and analysis of financial condition and
results of operations, prior to the filing thereof with the Securities and
Exchange Commission;
(d) based on the review and discussion of the audited financial
statements with management and the independent auditors, recommend to the
board whether to include the audited financial statements in the company's
annual report on Form 10-K; and
(e) discuss with the independent auditors any matters required to be
communicated to the Audit Committee, including those matters required by
Statement on Auditing Standards No. 61, "Communication with Audit
Committees".
19
2123
The Audit Committee fulfilled the foregoing responsibilities during the
past year. Based on its reviews and discussions as set forth above, the
committee recommended to the board of directors the inclusion of the audited
financial statements of the company and its subsidiaries in the company's annual
report on Form 10-K for the year ended December 31, 2000.
Respectfully submitted,
Audit Committee
Karen Hastie Williams, Chairperson
Patrick Foley
Donald L. Sturm
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24
PROPOSAL 1:
ELECTION OF DIRECTORS
It is the intention of the persons named in the enclosed form of proxy,
unless otherwise instructed, to vote duly executed proxies for the election of
each nominee for director listed below. Pursuant to the Company's Bylaws,our bylaws, directors will
be elected by a plurality of the votes duly cast at the Meeting.stockholders meeting. If
elected, sucheach nominee will hold office until the next annual meeting of
stockholders and until his or her respective successor has been duly elected and
has qualified. Management doesWe do not contemplate thatexpect any of the nominees will
becometo be unavailable to serve
for any reason, but if that should occur before the Meeting,meeting, we anticipate that
proxies will be voted for another nominee or nominees to be selected by the
Boardboard of Directors.
Air Partners, through which Northwest holds the majoritydirectors.
Our board of its Class A
common stock, has the limited right, in certain circumstances, to convert its
Class A common stock into Class D common stock. No person may hold or own Class
D common stock other than Air Partners and certain of its affiliates. The Class
D common stock, if issued, would permit Air Partners to elect one-third of the
directors to the Company's Board. To date, no shares of Class D common stock
have been issued.
Continental's Board of Directors currently consists of thirteen persons.
Pursuant to the governance agreement described under "Voting Rights and
Principal Stockholders", the Company and the Northwest Parties agreed to take
all actions necessary to cause Independent Directors (as therein defined) to
constitute at least a majority of the Board of Directors. Ms. Williams and
Messrs. Caldwell, Foley, McCorkindale, Parker, Pogue, Sturm and Yamarone are
"Independent Directors" as defined by the governance agreement. Since the shares
owned by the Northwest Parties represented more than 50% of the outstanding
voting power at March 24, 2000, the foregoing Independent Directors are assured
of election at the Meeting. There is no
family relationship between any of the nominees for director or between any
nominee and any executive officer.
The following table shows, with respect to each nominee, (i) such person'sthe nominee's
name and age, (ii) the period for which such personthe nominee has served as a director, of
the Company,
(iii) all positions and offices with the CompanyContinental currently held by the nominee
and his or her principal occupation and business experience during the last five
years, (iv) other directorships held by the nominee and (v) the standing
committees of the Boardboard of Directorsdirectors of which he or she is a member. Each of the
nominees is currently a director of the Company.on our board.
NAME, AGE, POSITION
AND COMMITTEE MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
------------------------- --------------------------------------
THOMAS J. BARRACK, JR., age 52.......................53....................... Director since August 1994. Chairman and Chief
(Human Resources Committee) Executive Officer of Colony Capital, Inc.LLC and
Colony Advisors, Inc. (real estate
investments) since 1991; Director of: Public
Storage, Inc; Kennedy-Wilson, Inc.
GORDON M. BETHUNE, age 58............................59............................ Director since August 1994. Chairman of the Board and
Chairman of the Board and Chief Executive Officer Board and Chief Executive Officer since September 1996.
(Executive Committee, Finance and Strategy September 1996. President and Chief Executive Officer
Committee) Officer (November 1994-September 1996); President and
Chief Operating Officer (February
1994-November 1994); various positions with
The Boeing Company commencing in 1988,
including Vice President and General Manager
of the Commercial Airplane Group Renton
Division, Vice President and General Manager
of the Customer Services Division and Vice
President of Airline Logistics Support;
Director of Sysco Corporation;of: Honeywell International Inc.; ANC
Rental Corporation.
DAVID BONDERMAN, age 58.............................. Director since 1993. Chairman of the Board
(Executive Committee, Finance and Strategy (May 1993-September 1996); Managing Partner of
Committee) Texas Pacific Group (a private investment
firm) since 1992; Director of: Bell & Howell
Company, Inc.; Co-Star Realty Information,
Inc.; Denbury Resources, Inc.; Ducati Motor
Holding S.p.A.; J. Crew Group, Inc.; Magellan
Health Services, Inc.; ON Semiconductor
Corporation; Oxford Health Plans, Inc.;
Paradyne Networks, Inc.; Ryanair, Ltd.;
Seagate Technology, Inc.; and Washington
Mutual, Inc.
1821
2225
NAME, AGE, POSITION
AND COMMITTEE MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
------------------------- --------------------------------------
DAVID BONDERMAN, age 57.............................. Director since April 1993. Chairman of the
(Executive Committee, Finance and Strategy Board (May 1993-September 1996); Managing
Committee) Partner of Texas Pacific Group since 1992;
Director of: Bell & Howell Company, Inc.;
Beringer Wine Estates; Co-Star Realty
Information, Inc.; Denbury Resources, Inc.;
Ducati Motor Holding S.p.A.; Oxford Health
Plans, Inc.; Paradyne Networks, Inc.; Ryanair,
Ltd; and Washington Mutual, Inc.
GREGORY D. BRENNEMAN, age 38.........................39......................... Director since June 1995. President and Chief
President and Chief Operating Officer (Finance and Operating Officer since September 1996. Chief
Strategy Committee) Operating Officer (May 1995-September 1996);
Consultant to the Companycompany (February-April
1995); various positions, including Vice
President, with Bain & Company, Inc.
(consulting firm) commencing in 1987; Director
ofof: J. Crew Group, Inc.; The Home Depot, Inc.
KIRBYJON H. CALDWELL, age 46.........................47......................... Director since May 1999. Senior Pastor of The
(Human Resources Committee, Independent Directors Windsor Village-St. John's UnitedVillage-United Methodist Church,
Committee) Church, Houston, Texas since 1982. Director of: Chase
Bank of Texas National Association; Chase Bank
of Texas -- Houston Region; Memorial Hermann
Healthcare System; the Greater Houston
Partnership.
PATRICK FOLEY, age 68................................69................................ Director since April 1993. Former Chairman of the
(Audit Committee, Independent Directors Committee) the Board, President and Chief Executive Officer
of DHL Airways, Inc. (1988-1999); Director of:
Foundation Health Systems, Inc.; Glenborough
Realty Trust, Inc.; Flextronics International
Ltd.; Del Monte Foods Company.
DOUGLAS H. McCORKINDALE, age 60......................61...................... Director since April 1993. Vice Chairman, President and
(Independent Directors Committee) PresidentCEO of Gannett Co., Inc. ("Gannett") (a
nationwide diversified communications company)
since September 1997;February 2001; Vice Chairman, President
and CEO of Gannett (June 2000-February 2001);
Vice Chairman and President of Gannett
(1997-2000); Vice Chairman and Chief Financial
and Administrative Officer of Gannett Co.,
Inc. (1984-1997); Director of: a group of
Prudential Mutual Funds; Global Crossing Ltd.
GEORGE G. C. PARKER, age 61..........................62.......................... Director since June 1996. Associate Dean for
(Finance and Strategy Committee, Human Resources Academic Affairs and Director of MBA Program
Committee, Independent Directors Committee) since 1993; Dean Witter Professor of Finance
and Management (since 1996) and Professor of
Management (1973-1996) at the Graduate School
of Business, Stanford University; Director of:
Affinity Group International, Inc.; BGI Mutual
Funds; Dresdner/RCM Global Mutual Funds;
Tejon Ranch Company.
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23
NAME, AGE, POSITION
AND COMMITTEE MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
------------------------- --------------------------------------
RICHARD W. POGUE, age 71.............................72............................. Director since April 1993. Senior Advisor of Dix &
(Executive Committee, Independent Directors Dix & Eaton Incorporated (a public relations firm)
Committee) firm) since 1994; Senior Partner (1993-1994) and
Managing Partner (1984-1992) of Jones, Day,
Reavis & Pogue (law firm); Director of: Derlan Industries, Ltd.; Dix &
Eaton Incorporated; M.A. Hanna Co.; IT Group; Rotek
Incorporated; TRW Inc.
WILLIAM S. PRICE III, age 43.........................44......................... Director since April 1993. Managing Partner of Texas
(Finance and Strategy Committee) Texas Pacific Group (a private investment firm)
since 1992; Director of
AerFi Group plc;of: Belden & Blake
Corporation;
Beringer Wine Estates; Del Monte Foods Company; Denbury
Resources, Inc.; Favorite
Brands,Gemplus International, S.A.;
Verado Holdings, Inc.; VIVRA Inc.; Zilog, Inc.and several private
companies.
22
26
NAME, AGE, POSITION
AND COMMITTEE MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
------------------------- --------------------------------------
DONALD L. STURM, age 68..............................69.............................. Director since 1993. Chairman of the Board and
(Audit Committee, Independent Directors Committee) Chief Executive Officer of: The Sturm Group, Inc.
(private equity investment managers) since
1991; Sturm Banks of Colorado, Inc. (which
owns four banks) since 1993; Sturm Banks of
Wyoming, Inc. (which owns four banks) since
1993; Sturm Banks of Kansas City, Inc. (which
owns one bank) since 1996; Chairman of the
Board of FirstWorld Communications,Verado Holdings, Inc. since January
1998 and MD Network LLC since 1996; Director
of: HarvardNet (a DSL provider in the
northeast U.S.); Kaptech (a French telecom company);
Advantag-eHostmark Limited (European web hosting
company); iVention group (an internet start-up
incubator company)Group LLC (a technology
incubator); Castle Rock Development Company.
KAREN HASTIE WILLIAMS, age 55........................56........................ Director since April 1993. Partner of Crowell &
(Audit Committee, Independent Directors Committee) & Moring LLP (law firm) since 1982; Director of:
Crestar FinancialThe Chubb Corporation; Gannett Co., Inc.;
Charles E. Smith Residential Realty Co.;
SunTrust-MidAtlantic Bank; and Washington Gas
Light Company.
CHARLES A. YAMARONE, age 41..........................42.......................... Director since January 1995. Executive Vice President
(Human Resources Committee, Independent Directors President of U.S. Bancorp Libra (an institutional
Committee) broker-dealer), a division of
Committee) U.S. Bancorp
Investments, Inc., since January 1999;
Executive Vice President and Research Director
of Libra Investments, Inc. (July 1994-January
1999); Director of El Paso Electric Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
NAMED ABOVE, WHICH IS DESIGNATED AS PROPOSAL NO. 1 ON THE ENCLOSED PROXY.
2023
2427
PROPOSAL 2:
APPROVAL OF AMENDMENT TO THE
INCENTIVE1997 EMPLOYEE STOCK PURCHASE PLAN
2000
GENERAL
As described above in its report,Subject to the approval of stockholders, the Board of Directors, on the
recommendation of the Human Resources Committee, has sought
to mitigate the dilutive effect of relying solely on stock options as the only
long-term means for incentivizing management's performance and aligning its
interests with those of stockholders by adopting other long-term incentive
programs underamended the Continental
Airlines, Inc. Incentive Plan 2000 (as amended
and restated,1997 Employee Stock Purchase Plan. The proposed amendment
increases the "Incentive Plan 2000") being submitted for stockholder
approval at the Meeting. Nevertheless, the Committee believes that appropriate
stock-based compensation should remain an important partnumber of management's
compensation, and the Incentive Plan 2000 provides for up to 3,000,000 shares of Class B common stock (subjectcovered by the plan by
2,500,000 shares (from 1,750,000 to adjustment as described below)4,250,000 shares) and extends the term of
the plan from December 31, 2001 to be issuedDecember 31, 2010.
Substantially all of the 1,750,000 shares originally authorized under the
plan. The Company's other stock-based incentive plans, other than the
Company's stock purchase plan which is open to all employees, have been largely
depleted. To permit both stock-based and other performance-based incentive
programs, the Committee recommended and the Board of Directors adopted the
Incentive Plan 2000, subject to approval of the Incentive Plan 2000purchased by the
stockholders of the Company at the Meeting.
If stockholders do not approve the Incentive Plan 2000 at the Meeting, the
Company will not have sufficient shares authorized under stock-based incentive
plans to make appropriately competitive stock option grants to its officers,
including its executive officers, and other management, will not have an
executive bonus program (the Company's current program having terminated on
April 1, 2000), will not have a long term incentive program and will not have an
executive retention program.employees. The purpose of the Incentive Plan 2000proposed amendment is
to enable the Company and its
subsidiariescontinue providing a valuable incentive to attract and retain capable personsour employees to serve as directors and
employees and to provide a means wherebyidentify their
interests with those individuals upon whom the
responsibilities of the successful administration and management of the Company
and its subsidiaries rest, and whose present and potential contributions to the
welfare of the Company and its subsidiaries are of importance, can acquire and
maintain stock ownership, thereby strengthening their concern for the welfare of
the Company and its subsidiaries. A further purpose of the Incentive Plan 2000
is to provide such individuals with additional non-stock-based incentive and
reward opportunities designed to attract and retain those individuals and
enhance the profitable growth of the Company and its subsidiaries.other stockholders.
SUMMARY OF THE INCENTIVE PLAN 2000 AND ASSOCIATED PROGRAMS
The following summary provides a general description of certain features of
the Incentive Plan 2000, and the programs adopted by the Committee to implement
the Incentive Plan 2000.plan. Copies of the Incentive Plan 2000 and the programs
adopted thereunderplan are on file and publicly available at the
SECSecurities and Exchange Commission and are also available on the Company'sour website at
www.continental.com. Capitalized terms not otherwise defined hereinbelow have the
meanings ascribed to them in the Incentive
Plan 2000plan.
Participation. An eligible employee may elect to participate in the plan
for any calendar quarter (an "Option Period") during the period from July 1,
1997 to December 31, 2001, or December 31, 2010 if stockholders approve the
amendment to the plan, by designating a percentage of the employee's Eligible
Compensation to be deducted from compensation for each pay period and paid into
the plan for the employee's account. The designated percentage may not be less
than 1% nor more than 10%. An eligible employee may participate in the plan only
by means of payroll deduction. No employee will be granted an option under the
plan that permits such programs.
The Incentive Plan 2000 provides that the Company may grant Optionsemployee's rights to purchase shares of Class B common stock Restricted Stock Awards, Performance
Awards, Incentive Awards and Retention Awards to
certain employees or directors.
The terms applicable to these various typesaccrue at a rate that exceeds $25,000 of Awards, including those terms
that may be established by the Administrator when making or administering
particular Awards, are set forth in detail in the Incentive Plan 2000. The
Administrator may make Awards under the Incentive Plan 2000 until October 3,
2009. The Incentive Plan 2000 will remain in effect (at least for the purposefair market value of governing outstanding Awards) until all Option Awards granted under the
Incentive Plan 2000 have been exercised or expired, all restrictions imposed
upon Restricted Stock Awards granted under the Incentive Plan 2000 have been
eliminated or the Restricted Stock Awards have been forfeited, and all
Performance Awards, Incentive Awards and Retention Awards granted under the
Incentive Plan 2000 have been satisfied or have terminated.
Eligibility. Awards may be granted only to persons who,such stock
(determined at the time of
grant,such option is granted) for the calendar year in which
the option is outstanding. Unless an employee's payroll deductions are directors ofwithdrawn
(as described below), the Company or employees of the Company or one of its
subsidiaries. Awards may be granted on more than one
21
25
occasionaggregate payroll deductions credited to the
same person, and Awards may consist of any combination of
Options, Restricted Stock Awards, Performance Awards, Incentive Awards and
Retention Awards, as is best suited to the circumstances of the particular
person. As of March 24, 2000, 11 non-employee directors were eligible to receive
Awards under the Incentive Plan 2000, and it is anticipated that approximately
530 employees (substantially all of the Company's management-level employees)
will receive Awards under the Incentive Plan 2000. The Company does not
anticipate that non-employee directors will receive Awards under the Incentive
Plan 2000 or programs adopted thereunder, other than normal stock option grants
as described under "General Information -- Compensation of Directors" above.
Stock Options. The Administrator may grant options that entitle the
recipientemployee's account are used to purchase shares of Class B common stock at the
end of the Option Period; provided that the maximum number of shares that an
employee may purchase in any Option Period is 2,500 (subject to certain
adjustments contained in the plan). The per share purchase price of the stock is
85% of the lesser of the fair market value of the stock on the Date of Grant
(the first day of the Option Period) or on the Date of Exercise (the last day of
the Option Period). For all purposes under the plan, the fair market value of a
priceshare of stock on a particular date is equal to or
greater than the Market Value per Share on the date of grant. The Market Value
per Share of Class B common stock was $40.625 on March 24, 2000, which was the closing price of the Class B
common stock on the New York Stock Exchange on that date. An Option shall be exercisable in whole or in such installments and at
such timesdate as determinedreported by the Administrator. The option price is payable in
fullWall
Street Journal in the manner specified byNew York Stock Exchange Composite Transactions (or, if no
shares of stock have been traded on that date, on the Administrator. The holdernext regular business date
on which shares of an Optionthe Class B common stock are so traded). Payroll deductions
are included in the general funds of the company, free of any trust or other
arrangement and may be used for any corporate purpose. No interest is entitledpaid or
credited to privileges and rightsany Participant.
Shares Available under the Plan; Adjustments. Subject to adjustment as
provided in the plan, the number of a stockholder only with respect to shares of Class B common stock that
currently may be purchased by participating employees under the Option and for which certificates
representing such shares are registeredplan may not in
the Holder's name.
Options grantedaggregate exceed 1,750,000 shares, which may be originally issued or
reacquired shares, including shares bought on the market or otherwise for
purposes of the plan. If stockholders approve the amendment to the plan, an
additional 2,500,000 shares will be available under the Incentive Plan 2000 may be Options that are
intendedplan, subject to
qualifyadjustment as "incentive stock options" withinprovided in the meaning of Section
422 of the Code or Options that are not intended to so qualify. An Incentive
Stock Option will be treated as a Non-Qualified Optionplan. Shares subject to the extent thatplan are adjusted in
the aggregate Market Value per Share (determined atevent of a change in the time of grant) of Class B common stock with respectby reason of a stock dividend
or by reason of a subdivision, stock split, reverse stock split,
recapitalization, reorganization, combination, reclassification of shares or
other similar change. Upon any such event, the maximum number of shares that may
be subject to which Incentive Stock Options are first exercisable
by an individual during any calendar yearoption, and the number and purchase price of shares subject to
options outstanding under all incentive stock option plansthe plan, will also be adjusted accordingly.
24
28
Eligibility. All employees of the Company (andcompany and its parentParticipating Companies
(currently Continental Express, Inc. and subsidiary corporations) exceeds $100,000. An
Incentive Stock OptionContinental Micronesia, Inc.) as of a
Date of Grant are eligible to participate in the plan, but no eligible employee
may only be granted to an individual who is anparticipate if the employee at the time the Option is granted. No Incentive Stock Option may be granted to
an individual if, at the time the Option is granted, such individual owns stock
possessingwould own (directly or indirectly) 5% or more than 10% of
the total combined voting power of all classes of stock of Continental or a
subsidiary, taking into account options to purchase stock and stock that may be
purchased under the Company (or of its parent or subsidiary corporation, within the
meaning of Section 422(b)(6)plan. No employee of the Code), unless (i)company would currently be
prevented from participating by reason of this limitation. Approximately 55,000
employees are currently eligible to participate in the plan.
Changes in and Withdrawal of Payroll Deductions. A Participant may elect
to decrease, suspend or resume payroll deductions during a relevant Option
Period by delivering to the company a new payroll deduction authorization in the
manner specified by the company. A Participant may withdraw in whole from the
plan, but not in part, at any time prior to the time suchDate of Exercise relating to a
particular Option is
grantedPeriod by timely delivering to the option price is at least 110%company a notice of
withdrawal in the manner specified by the company. The company will promptly
refund to the Participant the amount of the Market Value per ShareParticipant's payroll deductions
under the plan that have not been otherwise returned or used upon exercise of
options, and thereafter the Participant's payroll deduction authorization and
interest in unexercised options under the plan will terminate.
Delivery of Shares; Restrictions on Transfer. As soon as practicable after
each Date of Exercise, the company delivers to a custodian one or more
certificates representing (or otherwise causes to be credited to the account of
the Class B common stock subject tocustodian) the Option and (ii) such Option by its terms is
not exercisable after the expiration of five years from the date of grant.
An Option Grant Document may provide for the payment of the option price,
in whole or in part, by delivery of aaggregate number of shares of Class B common stock
(plus cash if necessary) having a Market Value per Share equal to such option
price. Moreover, an Option Grant Document may provide for a "cashless exercise"
of the Option by establishing procedures satisfactory to the Administrator with
respect thereto. The terms and conditions of the respective Option Grant
Documents need not be identical.
The Administrator (concurrently with the grant of an Option or subsequent
to such grant) may, in its sole discretion, grant stock appreciation rights
("SARs") to any Holder of an Option. SARs may give the Holder of an Option the
right to surrender any exercisable Option or portion thereof in exchange for
cash, whole shares of Class B common stock
orrespecting options exercised on that Date of Exercise (for both whole and
fractional shares) of all of the participating eligible employees under the
plan. Any remaining amount representing a combination thereof,fractional share is not certificated
(or otherwise credited) and is carried forward to the next Date of Exercise for
certification (or credit) as determinedpart of a whole share. The custodian keeps the
records of the beneficial interests of each Participant in shares held by the
Committee,custodian by means of Participant accounts under the plan, and provides each
Participant with periodic statements of their accounts. A Participant may not
generally transfer or otherwise dispose of the shares for a value equalperiod of six months
from the Date of Exercise. During this six-month period, the company (or the
custodian) retains custody of the shares.
Termination of Employment; Leaves of Absence. Except as described below,
if the employment of a Participant terminates for any reason, then the
Participant's participation in the plan ceases and the company refunds the
amount of the Participant's payroll deductions under the plan that have not yet
been otherwise returned or used upon exercise of options. If the employment of a
Participant terminates, due to retirement, death or disability, the Participant,
or the Participant's personal representative, as applicable, may elect either to
(i) withdraw all of the accumulated unused payroll deductions and Class B common
stock credited to the excess ofParticipant's account or (ii) exercise the Market
Value per Share, as ofParticipant's
option for the date of such request, of one sharepurchase of Class B common stock over the Option price for such share multiplied by the number of shares
covered by the Option or portion thereof to be surrendered. Any SAR granted in
connection with an Incentive Stock Option is exercisable only when the Market
Value per Share of the Class B common stock exceeds the price specified in the
Option (or the portion of the Option to be surrendered). Upon exercise of any
SAR granted under the Incentive Plan 2000, the number of shares reserved for
issuance under the Incentive Plan 2000 will be reduced only to the extent that
shares of Class B common stock are actually issued in connection with the SAR
exercise. The Administrator may prescribe additional terms and conditions
governing any SARs.
Options and SARs may be granted under the Incentive Plan 2000 in
substitution for stock options held by individuals employed by corporations who
become employees as a result of a merger or consolidation or other business
combination of the employing corporation with the Company or any subsidiary.
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Restricted Stock. A grant of Restricted Stock pursuant to a Restricted
Stock Award constitutes an immediate transfer to the recipient of record and
beneficial ownership of the shares of Restricted Stock in consideration of the
performance of services by the recipient (or other consideration determined by
the Administrator). The recipient is entitled immediately to voting and other
ownership rights in the shares, subject to restrictions referred to in the
Incentive Plan 2000 or contained in the related Grant Document. The transfer may
be made without additional consideration or in consideration of a payment by the
recipient that is less than the market value of the shares on the date of grant.
Each grant may, in the discretion of the Administrator, limit the recipient's
dividend rights during the period in which the shares are subject to a
substantial risk of forfeiture and restrictions on transfer. The terms and
conditions of the respective Restricted Stock Grant Documents need not be
identical.
Restricted Stock must be subject, for a period or periods determined by the
Administrator at the date of grant, to one or more restrictions, including,
without limitation, a restriction that constitutes a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code and applicable
interpretive authority thereunder. For example, an Award could provide that the
Restricted Stock would be forfeited if the Holder ceased to serve the Company as
an employee during a specified period. In order to enforce these forfeiture
provisions, the transferability of Restricted Stock during the period or periods
during which such restrictions are to continue will be prohibited or restricted
in a manner and to the extent prescribed by the Administrator at the date of
grant. The Incentive Plan 2000 provides for a shorter period during which the
forfeiture provisions are to apply in the event of a Change in Control of the
Company.
The Committee has resolved that all Restricted Stock Awards under the
Company's stock incentive plans (including the Incentive Plan 2000) shall vest
over at least a three-year period, or over at least a one-year period if vesting
is performance-based (or as otherwise provided in the applicable plan or award
agreement, such as upon a Change in Control).
Performance Awards. The Administrator shall establish, with respect to and
at the time of each Performance Award, a performance period over which the
performance applicable to the Performance Award shall be measured. A Performance
Award shall be awarded to a Holder contingent upon future performance of the
Company or any subsidiary, division, or department thereof. The Administrator
shall establish the performance measures applicable to such performance within
the applicable time period permitted by Section 162(m) of the Code, with such
adjustments thereto as may be determined by the Administrator. The performance
measures may be absolute, relative to one or more other companies, relative to
one or more indexes, or measured by reference to the Company alone or the
Company together with its consolidated subsidiaries. The performance measures
established by the Administrator may be based upon (i) the price of a share of
Class B common stock, (ii) operating income or operating income margin, (iii)
earnings before interest, income taxes, depreciation, amortization and aircraft
rent ("EBITDAR") or EBITDAR margin, (iv) net income or net income margin, (v)
cash flow, (vi) total stockholder return, or (vii) a combination of any of the
foregoing, including any average, weighted average, minimum, hurdle, rate of
increase or other measure of any or any combination thereof. The Administrator,
in its sole discretion, may provide for an adjustable Performance Award value
based upon the level of achievement of performance measures.
In determining the value of Performance Awards, the Administrator shall
take into account a Holder's responsibility level, performance, potential, other
Awards, and such other considerations as it deems appropriate. The
Administrator, in its sole discretion, may provide for a reduction in the value
of a Holder's Performance Award during the performance period, if permitted by
the applicable Grant Document.
Following the end of the performance period,Option Period.
Any excess cash in the Holder of a Performance
Award shallParticipant's account would be entitledreturned to receive payment of an amount not exceeding the
maximum value of the Performance Award, based on the achievement of the
performance measures forParticipant or such performance period, as determinedpersonal representative. If no such election is timely
received by the Administratorcompany, the Participant or personal representative will
automatically be deemed to have elected the second alternative. Each Participant
may designate a beneficiary to make any election and certifiedreceive any amount of cash
or stock distributable under such plan after the Participant's death.
During a paid leave of absence approved by the Committee as required by Section 162(m)company and meeting Internal
Revenue Service regulations, a Participant's elected payroll deductions
continue. A Participant may not contribute to the plan during an unpaid leave of
the Code. Paymentabsence. If a Participant takes an unpaid leave of a Performance Award may be made in cash, shares of Class B
common stock (valued at the Market Value per Share), or a combination thereof,
as determinedabsence that is approved by
the Administrator. Payment shall be made in a lump sum, except
as otherwise set forth in the applicable Grant Document.
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A Performance Award will terminate if the Holder does not remain
continuously employed or in service as a director of the Company or a subsidiary
at all times during the applicable performance period, except as otherwise set
forth in the applicable Grant Document. The Company does not anticipate that
non-employee directors will receive Performance Awards.
Long Term Incentive Performance Award Program. To implement in part the
Performance Award provisions described above, the Committee has adopted the
Continental Airlines, Inc. Long Term Incentive Performance Award Program
("LTIP") as a method to attract, motivatecompany, meets Internal Revenue Service regulations, and retain key employees to assist in
the development and growth of the Company and its subsidiaries. Initial Awards
have been made thereunder. See "New Plan Benefits". The LTIP and Awards
thereunder are subject to the terms and limitations of the Incentive Plan 2000.
The LTIP is effective January 1, 2000, subject to approval of the Incentive Plan
2000 at the Meeting. If stockholders do not approve the Incentive Plan 2000, all
Awards under the LTIP will be void and the LTIP will terminate. The LTIP program
is designed to reduce the Company's reliance on stock options as the sole form
of long-term incentive compensation. The target pay-out of Awards under the LTIP
is designed to replace approximately one-half of the value of annual option
grants. The Committee anticipates that option grants during the next three years
will be one-half the size of prior grant levels (assuming approval of the
Incentive Plan 2000 by the stockholders, which will permit the Company to make
such option grants), after which time the Committee will re-examine the mix of
long-term incentive compensation.
Eligible participants in the LTIP program will be all officers of the
Company of Staff Vice President or more senior rank, all officers of
subsidiaries of Vice President or more senior rank, and any other officers
determined by the Administrator. Each individual who is an eligible participant
as of the first day of a Performance Period (described below) is automatically a
participant and will receive an Award with respect to such Performance Period
unless otherwise determined by the Administrator prior to the first day of the
relevant Performance Period. An individual who becomes an eligible participant
after the first day of a Performance Period will be a participant and receive an
Award for such Performance Period only if selected by the Administratorbegins within 90
days prior to the last day of the Performance Period.
The LTIP is structured with three-year rolling performance periods (each, a
"Performance Period") beginning January 1, 2000, with a new three-year period
beginning each year. Notwithstanding the foregoing, the LTIP is phased in with
(i) a one-year Performancean Option Period, (January 1, 2000 to December 31, 2000) and
(ii) a two-year Performancethen such Participant's payroll
deductions for such Option Period (January 1, 2000 to December 31, 2001), which
will pay one-third and two-thirds of the pay-out for a full Performance Period,
respectively (assuming achievement of relevant performance targets). Pay-out of
Awards under the LTIP will be contingent upon achievement of the following two
performance targets: (i) the Company must place first, second or third in
EBITDAR margin comparedthat were made prior to the Industry Group and (ii) the Company must achieve
a minimum average annual operating income hurdle over the Performance Period. If
the performance targets are not met, no pay-out is made. The initial annual
operating income hurdle for Performance Periods beginning January 1, 2000 is
$300 million, which amountleave may be adjusted by the Committee for Performance
Periods beginning after January 1, 2000. In no event may the LTIP program pay
out, with respect to any Performance Period, more than 5% of the Company's
actual average annual operating income for such Performance Period. Such
calculations are subject to adjustments for LTIP accruals and one time gains and
losses.
The EBITDAR margin with respect to each companyremain
in the Industry Groupplan and each Performance Period is the cumulative EBITDAR for such company for such
Performance Period divided by such company's cumulative revenues over such
Performance Period. The Industry Group initially consists of the Company, AMR
Corporation, Delta Air Lines, Inc., Northwest Airlines Corporation, Trans World
Airlines, Inc., UAL Corporation, and US Airways Group, Inc. For Performance
Periods beginning after January 1, 2000, the Committee may (within 90 days after
the beginning of such Performance Period) add any US certificated scheduled
mainline air carrierbe used to or remove any such company (other than the Company) from
the Industry Group. In addition, a company will be automatically removed from
the Industry Group during a Performance Period upon the occurrence of certain
extraordinary events with respect to such company, and if a company provides
publicly available statements of operations with respect to its airline business
separately from its other businesses, then that company's EBITDAR and EBITDAR
margin will be calculated based solely upon the separately provided airline
business statement of operations.
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The amount of any pay-out of an LTIP Award will be based on a percentage of
the recipient's cash compensation (which consists of the recipient's salary at
the end of the Performance Period plus a deemed bonus of either 125% or 37.5% of
salary) and will vary depending upon the recipient's officer ranking and the
Company's EBITDAR margin ranking (first, second or third). See "New Plan
Benefits" for a description of initial Awards under the LTIP.
After the end of each Performance Period, the Committee will determine
whether the Company has satisfied the performance targets (i.e., EBITDAR margin
ranking and operating income hurdle) for the Performance Period and whether any
other material terms relating to the payment of an LTIP Award have been
satisfied. Upon receipt by the Company of the Committee's written certification
that the performance targets and any other material terms have been satisfied,
each participant who received an Award for the Performance Period and remained
continuously employed by the Company from the date of the Award through the last
day of the Performance Period will be entitled to the payment amount applicable
to the Award. All payments under the LTIP will be lump sum cash payments unless
the Committee determines to make payment in shares ofpurchase Class B common stock or a
combinationon the Date of cash and Class B common stock. Subject to certain exceptions, the
Committee also has the authority at any time prior to the last day of a
Performance Period to cancel all or a portion of a participant's LTIP Award and
substitute an Option for the Award, or portion thereof, so canceled.
Executive Bonus Performance Award Program. To further implement the
Performance Award provisions of the Incentive Plan 2000, the Committee adopted
the Continental Airlines, Inc. Executive Bonus Performance Award Program
("Executive Performance Program") to replace the executive bonus program
approved by stockholders in 1996, which terminated on April 1, 2000. Initial
Awards have been made thereunder. See "New Plan Benefits". The new program
retains most features of the old program, but adds an alternative EBITDAR margin
performance target and a new operating income hurdle. The Executive Performance
Program and participation therein are subject to the terms and limitations of
the Incentive Plan 2000. Assuming approval by stockholders of the Incentive Plan
2000 at the Meeting, the Executive Performance Program is effective as of April
1, 2000. If stockholders do not approve the Incentive Plan 2000, the Executive
Performance Program will automatically terminate, no bonuses will be paid
thereunder and the Company will not have an executive bonus program.
The Chief Executive Officer, the Chief Operating Officer, each Executive
Vice President and each Senior Vice President of the Company will automatically
participate in the Executive Performance Program for each fiscal year. Upon
recommendation by the Chief Executive Officer, the Committee may designate
additional officers of the Company or its subsidiaries to participate in the
program with respect to a particular fiscal year. The Chief Executive Officer
may terminate any individual's participation in the Executive Performance
Program upon written notice and subject to Committee ratification. Non-employee
directors do not participate in this program.
Prior to each fiscal year beginning on or after January 1, 2000, the
Committee will establish a Budget for purposes of the Executive Performance
Program. The Budget consists of cumulative quarterly net income targets for the
fiscal year. Beginning with the fiscal quarter commenced April 1, 2000, each
participant in the Executive Performance Program who remains continuously
employed throughout the entire fiscal quarter with respect to which the bonus is
to be paid, will receive a cash bonus ("Quarterly Bonus") equal to the greater
of the Net Income Quarterly Bonus or the EBITDAR Margin Quarterly Bonus for such
quarter. A participant's "Net Income Quarterly Bonus" for a fiscal quarter is
calculated by multiplying the participant's cumulative base salary through such
quarter by either (x) 100% plus the percentage positive variance (up to 25%)
between the Company's actual cumulative net income through such quarter and the
cumulative net income target with respectExercise
relating to such quarter or (y) 100% lessOption Period. If a Participant takes a leave of absence not
described above, then the percentage negative variance betweenParticipant is considered to have withdrawn from the
Company's actual cumulative net income
through such quarter and the cumulative net income target with respect to such
quarter, less any Quarterly Bonuses received with respect to prior quarters in
the fiscal year. If the negative variance is greater than 25%, then no Net
Income Quarterly Bonus will be paid with respect to such quarter. A
participant's "EBITDAR Margin Quarterly Bonus" for a fiscal quarter is
calculated by multiplying the participant's cumulative base salary through such
quarter by either (x) 125%, if the Company ranks first, second or third when
comparing the cumulative EBITDAR margins through such quarter for all companies
in
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the Industry Group and the Company achieves the operating income hurdle for such
quarter or (y) 0%, if the Company fails to achieve the ranking and operating
income hurdle referenced in the prior clause, less any Quarterly Bonuses
received with respect to prior quarters in the fiscal year. The annual operating
income hurdle is the same as that established under the LTIP program for the
relevant period, and the quarterly operating income hurdles are determined as
cumulative quarterly percentagesplan.
Restriction Upon Assignment of the annual amount as follows: (1) 19% with
respect to the first fiscal quarter; (2) 52.8% with respect to the second fiscal
quarter, (3) 83.6% with respect to the third fiscal quarter and (4) 100% with
respect to the fourth fiscal quarter. The definition of the Industry Group is
the same as used in the LTIP program, and EBITDAR and EBITDAR margins are
identically calculated as in the LTIP for the relevant periods.
Incentive Awards. Incentive Awards are rights to receive shares of Class B
common stock (or the Market Value per Share thereof), or rights to receive an
amount equal to any appreciation or increase in the Market Value per Share of
Class B common stock over a specified period of time, which vest over a period
of time as established by the Administrator, without satisfaction of any
performance criteria or objectives. The Administrator may, in its discretion,
require payment or other conditions of the Holder respecting any Incentive
Award.
The Administrator shall establish, with respect to and at the time of each
Incentive Award, a period over which the Award shall vest with respect to the
Holder. In determining the value of Incentive Awards, the Committee shall take
into account a Holder's responsibility level, performance, potential, other
Awards, and such other considerations as it deems appropriate.
Following the end of the vesting period for an Incentive Award (or at such
other time as the applicable Grant Document may provide), the Holder of an
Incentive Award shall be entitled to receive payment of an amount, not exceeding
the maximum value of the Incentive Award, based on the then vested value of the
Award. Payment of an Incentive Award may be made in cash, shares of Class B
common stock (valued at the Market Value per Share), or a combination thereof as
determined by the Administrator. Payment shall be made in a lump sum, except as
otherwise set forth in the applicable Grant Document. Cash dividend equivalents
may be paid during or after the vesting period with respect to an Incentive
Award, as determined by the Administrator.Option. An Incentive Award will terminate if the Holder does not remain
continuously employed or in service as a director of the Company or a subsidiary
at all times during the applicable vesting period, except as otherwise set forth
in the applicable Grant Document. The Committee has not implemented any program
under the Incentive Awards provisions of the Incentive Plan 2000.
Retention Awards. A Retention Award is a right, which vests over a period
of time as established by the Committee, to receive a cash payment measured by a
portion of the gain and profits associated with an equity holding of the Company
or a subsidiary in an e-commerce or internet-based business. The portion of any
gain and profit is measured to the date the Retention Award (or portion thereof,
as applicable) is deemed surrendered for payment in accordance with its terms.
The Committee will designate each such equity holding and establish, within the
applicable time period permitted by Section 162(m) of the Code, the portion of
the gain and profits (not exceeding 3.75% for any individual holder nor 25% in
the aggregate for all holders) in such equity holding used to measure cash
payments to the holder of such Retention Award. The terms and conditions of the
respective Retention Award Grant Documents need not be identical.
In determining the Retention Awards to beoption granted under the Incentive Plan
2000, the Committee shall take into account a Holder's responsibility level,
performance, potential, other Awards, and such other considerations as it deems
appropriate. The Committee, in its sole discretion, may provide for a reduction
in the value of a Holder's Retention Award during the period such Award is
outstanding if permitted by the applicable Grant Document.
Following the vesting of a Retention Award in whole or in part (or at such
other times and subject to such other restrictions as the applicable Grant
Document may provide), the Holder of a Retention Award shall be entitled to
receive payment of an amount, not exceeding the maximum amount otherwise
permitted under the Incentive Plan 2000, based on such Holder's vested interest
in such Retention Award and the gain and profit
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in the underlying equity holding, as certified by the Committee as required by
Section 162(m) of the Code. Payment will be made in cash and in a lump sum,
except as otherwise set forth in the applicable Grant Document. In no event
shall a Retention Award grant a Holder an interest in the equity holding, the
gain and profit in which is used to measure cash payments under such Award.
A Retention Award will terminate if the Holder does not remain continuously
employed or in service as a director of the Company or a subsidiary at all times
during the applicable vesting period, except as otherwise set forth in the
applicable Grant Document. The Company does not anticipate that non-employee
directors will receive Retention Awards.
Officer Retention and Incentive Award Program. The Committee adopted the
Continental Airlines, Inc. Officer Retention and Incentive Award Program
("Retention Program") to implement the Retention Award provisions of the
Incentive Plan 2000. The Retention Program and Retention Awards are subject to
the terms and limitations in the Incentive Plan 2000. Initial grants of
Retention Awards under the program have been made, subject to stockholder
approval of the Incentive Plan 2000. See "New Plan Benefits" below. If
stockholders do not approve the Incentive Plan 2000, the Retention Program will
automatically terminate and all Awards made thereunder will be void.
All officers of the Company at the level of Staff Vice President or more
senior rank, all officers of subsidiaries of Vice President or more senior rank,
and other employees of the Company or a subsidiary designated by the Committee
are eligible to participate in the program. There are currently 61 officers of
the Company and its subsidiaries who have received Awards under the Retention
Program.
The Retention Program is designed to retain the services of officers and
other employees of the Company and its subsidiaries designated by the Committee
by offering them an economic benefit measured by a portion of the gains and
profits associated with the equity holdings of the Company and its subsidiaries
in e-commerce or internet-based businesses, and to incentivize those officers to
grow the value of those investments. The Investments, the gain and profit from
which are to be used to measure payments under the program, will be selected by
the Committee for inclusion in the program and are expected to be principally in
businesses focused on distribution and marketing channels with a lower cost to
the Company than traditional distribution and marketing channels. Investments
will include additional equity holdings in or related to the business in which
an Investment is made that are acquired by the Company or a subsidiary based on
the satisfaction of performance targets, vesting provisions, or other terms and
conditions of agreements entered into by the Company or a subsidiary in
connection with the original Investment ("Follow-up Investments").
For purposes of measurement under the program, each such Investment
generally will be divided into one million Phantom Units, and a Retention Award
will consist of rights ("PARs") to receive the difference, if any, between the
Market Value of a Phantom Unit (generally, fair market value of an Investment
divided by one million) and the Base Value of a Phantom Unit (generally, for
Awards granted concurrently with the acquisition of the Investment, the
out-of-pocket cost of the Investment paid to the issuer or seller thereof (but
not less than $100,000) divided by one million). The fair market value of
Distributions received with respect to Investments (including interest thereon
at 7% with respect to Distributions received in cash) will be included in Market
Value. The Committee shall determine both Market Value and Base Value, and may
(subject to certain limitations) determine that Base Value is greater than that
described above. If the date of grant of an Award is after the date of
acquisition of an Investment, then the Base Value of a Phantom Unit relating to
that Award will equal the value of such Phantom Unit as of such date of grant as
determined by the Committee in any manner that it deems appropriate. The total
number of PARs that may be subject to Awards granted with respect to a
particular Investment may not, for any individual participant, exceed 3.75% of
the number of Phantom Units into which the Investment has been divided, or with
respect to all participants, 25% of the number of Phantom Units into which the
Investment has been divided. Awards will vest quarterly over a four-year period,
or as otherwise determined by the Committee, and vesting of Follow-up
Investments will relate back to the original Investment for a participant
holding an Award with respect to such original Investment. Upon termination of
employment, a participant will retain the vested portions of his Awards under
the Retention Program, unless such termination is for cause, in which event all
of such participant's Awards will be canceled.
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Generally, vested Awards will be redeemed at the time the Company or a
subsidiary disposes of an Investment (including by way of a distribution to
stockholders), and the Company will make payments of remaining unpaid amounts as
related Awards vest (together with interest on the unpaid amounts at 7% from the
date of sale or other disposition). If the Investment is liquid (defined
generally to mean that the Company is permitted to sell all or substantially all
of the Investment under Rule 144 of the Securities Act, pursuant to an effective
registration statement or otherwise, there is not contractual or legal
prohibition on such sale, such sale or certain other transactions will not
result in short-swing profit liability to the Company under Section 16(b) of the
Securities Exchange Act, and there is an established trading market for the
applicable securities which can be used to reasonably determine fair market
value), a participant may redeem his vested Awards relating thereto at the end
of four window periods a year, subject to 10% of the Redemption Amount being
forfeited to the Company if the Committee determines such forfeiture to be
appropriate when initially making the grant of the Award. At the tenth
anniversary of the first date of grant of an Award to any individual under the
Retention Program related to a particular Investment, the Company will value
such Investment and all related Follow-up Investments and redeem all related
outstanding vested Awards. Before payment of any Redemption Amount, the
Committee must certify in writing that the related performance goal has been met
(that is, that the Market Value of a Phantom Unit subject to the Award exceeds
the Base Value of the Phantom Unit as of the date the Redemption Amount is
determined, and that the value of the Investment to which the Award relates and
the value of Investments in different equity holdings of the same entity,
together with the value of all Follow-up Investments with respect to such
Investments, exceeds the aggregate out-of-pocket cost of such Investments and
Follow-up Investments to the Company and its subsidiaries paid to the issuer or
seller thereof).
Awards under the Retention Program do not create any interest in an
Investment (or constitute a sale, transfer, assignment, pledge or other
disposition thereof or of any interest therein), create an escrow or trust fund,
create any fiduciary relationship of the Company or any subsidiary or any
officer, director, employee or agent thereof with respect to any Investment or
any participant, or restrict or affect in any way the acquisition, holding,
voting, disposition or the taking of any action with respect to any Investment
by the Company or any subsidiary.
The Committee may amend or terminate the Retention Program at any time,
provided that no amendment or termination will adversely affect the rights of
holders of outstanding Awards or the right to receive Awards (or the Base Value)
with respect to Follow-up Investments.
Shares Subject to the Incentive Plan 2000; Award Limitations. Subject to
adjustment as provided in the Incentive Plan 2000, the aggregate number of
shares of Class B common stock that may be issued under the Incentive Plan 2000
shall not exceed 3,000,000 shares. There currently remain only approximately
935,000 shares of Class B common stock available to be issued under the
Company's other stock incentive plans. Shares shall be deemed to have been
issued under the Incentive Plan 2000 only to the extent actually issued and
delivered pursuant to an Award. To the extent that an Award lapses, the rights
of its Holder terminate, or an Award is paid in cash or is settled in a manner
such that all or some of the shares of Class B common stock covered by the Award
are not issued to the Holder, any shares of Class B common stock then subject to
such Award will again be available for the grant of an Award under the Incentive
Plan 2000. The maximum (i) number of shares of Class B common stock that may be
subject to Awards granted to any one individual during any calendar year may not
exceed 750,000 shares, (ii) number of shares of Class B common stock that may be
granted as Restricted Stock Awards may not exceed 250,000 shares, (iii) amount
of compensation that may be paid under all Performance Awards denominated in
cash (including the fair market value of any shares of Class B common stock paid
in satisfaction of such Performance Awards) granted to any one individual during
any calendar year may not exceed $10 million and any payment due with respect to
a Performance Award shall be paid no later than 10 years after the date of grant
of such Performance Award, and (iv) amount of compensation that may be paid
under all Retention Awards granted to any one individual during any calendar
year may not exceed 1% of the aggregate gross revenues of the Company and its
consolidated subsidiaries for the fiscal year of the Company that ends on
December 31, 2000, and any payment due with respect to a Retention Award shall
be paid no later than 11 years after the date of grant of such Retention Award
(in the case of clauses (i) and (ii), subject to adjustment as provided in the
Incentive
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Plan 2000). The limitations set forth in clauses (i), (iii) and (iv) of the
preceding sentence shall be applied in a manner which will permit compensation
generated under the Incentive Plan 2000 which is intended to constitute
"performance-based" compensation for purposes of Section 162(m) of the Code to
be treated as such "performance-based" compensation.
Change in Control. As used in the Incentive Plan 2000 (except as otherwise
provided in an applicable Grant Document), the term "Change in Control" shall
mean: (a) any person is or becomes the beneficial owner of securities
representing the greater of (i) 25% of the combined voting power of the
Company's outstanding securities and (ii) the proportion of the combined voting
power of the Company's outstanding securities beneficially owned by Northwest
Airlines Corporation ("Northwest") and any person controlling, controlled by or
under common control with Northwest; (b) individuals who constituted the Board
as of February 26, 1998 cease for any reason to constitute at least a majority
of the Board (unless such individual's election is approved by a vote of a
majority of the incumbent board or such individual was nominated by an Excluded
Person, as described below); (c) any merger, consolidation or other
reorganization or similar transaction in which the Company is not the
"Controlling Corporation" (as described below); or (d) any sale of all or
substantially all of the Company's assets, other than to Excluded Persons, or
any sale of all or substantially all of the Company's assets to Northwest or any
person controlling, controlled by or under common control with Northwest.
Beneficial ownership as described in clause (a) above does not include
beneficial ownership by (1) the Company or any subsidiary of the Company, (2)
any employee benefit plan of the Company (with certain exceptions), (3)
Northwest or any person controlling, controlled by or under common control with
Northwest (unless Northwest is controlled by or under common control with Delta
Air Lines, Inc.), or (4) certain persons, and certain affiliates of such
persons, controlling Air Partners prior to the acquisition of Air Partners by
Northwest (persons referred to in clauses (1) through (4) above are referred to
as "Excluded Persons"). The persons in clause (3) of the previous sentence are
not deemed to be Excluded Persons if Northwest (together with any person
controlling, controlled by or under common control with Northwest) ceases to
beneficially own at least 25% of the combined voting power of the Company's
outstanding securities for 30 consecutive calendar days. The exclusion described
in clause (4) of the second preceding sentence will cease to have any effect
(and the persons described therein will cease to be Excluded Persons) if the
person acquiring beneficial ownership is not controlled by David Bonderman or
James Coulter or the person acquiring beneficial ownership (together with any
person controlling, controlled by or under common control with such person)
ceases to beneficially own at least 25% of the combined voting power of the
Company's outstanding securities for 30 consecutive calendar days.
For purposes of clause (c) above, the Company will generally be considered
the "Controlling Corporation" in any merger, consolidation, reorganization or
similar transaction unless either (1) the Company's stockholders immediately
prior to such transaction (excluding the other party to the transaction and
persons acting in concert with such other party) would not, immediately after
such transaction, beneficially own securities of the resulting entity that would
entitle them to elect a majority of the board of the resulting entity, or (2)
those persons constituting the Company's board of directors immediately prior to
such transaction would not, immediately after such transaction, constitute a
majority of the directors of the resulting entity.
Upon the occurrence of a Change in Control, with respect to each recipient
of an Award, (AA) all Options granted to such recipient and outstanding at such
time shall immediately vest and become exercisable in full, whether or not
otherwise exercisable (but subject, in the case of Incentive Stock Options, to
certain limitations) and, except as required by law, all restrictions on the
transfer of shares acquired pursuant to such Options shall terminate, (BB) all
restrictions applicable to such recipient's Restricted Stock and Incentive
Awards that are outstanding at such time shall be deemed to have been satisfied
and such Restricted Stock and Incentive Awards shall immediately vest in full,
and (CC) all Retention Awards granted to such recipient and outstanding at such
time shall immediately vest in full.
With respect to Awards under the LTIP program, the performance targets for
each Performance Period that began prior to the date of the Change in Control
and which has not yet ended as of such date will be deemed satisfied and the
Company will be deemed to have achieved a first place EBITDAR margin ranking
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33
for each such Performance Period. Additionally, the LTIP program, the Executive
Performance Program, and an individual's participation in such programs
may not be amended or terminated in contemplation of or in connection with a Change in
Control, unless there is adequate provision for making all payments otherwise
payable thereunder.
If a Change in Control occurs and thereafter (or in connection therewith or
in contemplation thereof) during the year in which such Change in Control occurs
(a "Change Year"), a participant in the Executive Performance Program suffers a
Qualifying Event (as defined below), then such participant will receive an
amount in cash equal to (x) the aggregate Quarterly Bonuses such participant
would have received under the Executive Performance Program if the Company
achieved a cumulative number 1, 2 or 3 ranking with respect to each quarter
during the Change Year, less (y) the aggregate of the Quarterly Bonuses paid to
such participant pursuant to the Executive Performance Program during the Change
Year through the date immediately prior to the occurrence of the Qualifying
Event (with respect to the Company's 2000 fiscal year only, quarterly bonuses
paid under the Company's prior executive bonus program to persons who are
participants under the Executive Performance Program with respect to fiscal
quarters in 2000 ending prior to the quarter during which Stockholder Approval
is obtained shall be deducted for purposes of clause (y) of this sentence), and
such participant shall not be entitled to any additional Quarterly Bonuses with
respect to such Change Year. The term "Qualifying Event" with respect to a
participant means (i) the termination of such participant's participation in the
Executive Performance Program, (ii) the assignment to such participant of duties
materially inconsistent with the duties associated with his position as such
duties are constituted as of the first day of the Change Year, (iii) a material
diminution in the nature or scope of such participant's authority,
responsibilities, or title from those applicable to him as of the first day of
the Change Year, (iv) the occurrence of material acts or conduct on the part of
the Company or its officers or representatives which prevent such participant
from performing his duties and responsibilities as they existed on the first day
of the Change Year, (v) the Company requiring such participant to be permanently
based anywhere outside a major urban center in the state (or, if applicable,
foreign country, U.S. territory or other applicable sovereign entity) in which
he was based as of the first day of the Change Year, or (vi) the taking of any
action by the Company that would materially adversely affect the corporate
amenities enjoyed by such participant on the first day of the Change Year,
except in each case if such participant's employment with the Company and its
subsidiaries is terminated (a) upon such participant's death, (b) upon
disability entitling him or her to benefits under the Company's group long-term
disability plan, (c) for cause, which for purposes hereof shall mean (1) in the
case of a participant with an employment agreement with the Company or a
subsidiary, the involuntary termination by the Company (or, if applicable, a
subsidiary) of such participant's employment under circumstances that do not
require the Company (or such subsidiary) to pay to such participant a
"Termination Payment" or "Monthly Severance Amount", as such terms are defined
in such participant's employment agreement, and (2) in the case of a participant
who does not have an employment agreement with the Company or a subsidiary, the
involuntary termination by the Company (or, if applicable, a subsidiary) of such
participant's employment based upon a determination by the Committee or an
authorized officer of the Company (or such subsidiary) that such participant has
engaged in gross negligence or willful misconduct in the performance of, or such
participant has abused alcohol or drugs rendering him or her unable to perform,
the material duties and services required of him or her in his or her
employment, or (d) upon the voluntary resignation from employment of such
participant (other than in connection with circumstances which would permit such
participant to receive severance benefits pursuant to any contract of employment
between such participant and the Company or any of its subsidiaries).
Provision is made for payment under the Incentive Plan 2000 (except as
otherwise provided in the applicable Grant Document) of (i) any excise taxes due
under Section 4999 of the Code with respect to amounts that are vested and/or
payable due to a Change in Control plus (ii) any taxes due on the payment of
such excise taxes described in clause (i).
Transferability. No Awards (other than Incentive Stock Options) are
transferable by the recipient except (i) by will or the laws of descent and
distribution, (ii) pursuant to a qualified domestic relations order or (iii)
with respect to Awards of Non-Qualified Options, with the consent of the
Administrator. An Incentive Stock Option is not transferabletransferred other than by will or the laws of descent and
distribution anddistribution. However, the plan permits an employee to designate a beneficiary
who may not be
30
34
exercisedexercise an option under the plan after the employee's death. Subject to
certain limited exceptions, each option is exercisable, during the Holder'semployee's
lifetime, exceptonly by the Holder or the Holder's
guardian or Personal Representative.
In the discretion of the Administrator as set forth in an applicable Grant
Document, a percentage of the aggregate shares of Class B common stock obtained
from exercise of an Option shall not be transferable prioremployee to the earliest to
occur of (x) termination of the relevant Option term, (y) the Holder's
retirement, death or disability or (z) termination of the Holder's employment
with the Company and its subsidiaries.
Adjustments. The maximum number of shares that may be issued under the
Incentive Plan 2000, as well as the number or type of shares or other property
subject to outstanding Awards and the applicable option or purchase prices per
share shall be adjusted appropriately in the event of stock dividends, spin-offs
of assets or other extraordinary dividends, stock splits, combinations of
shares, recapitalizations, mergers, consolidations, reorganizations,
liquidations, issuances of rights or warrants, and similar transactions or
events. The Retention Program contains a similar adjustment provision relating
to adjustment of Retention Awards in the case of similar events with respect to
Investments, in the case of capital contributions or exercise of options or
warrants by the Company or a subsidiary relating to an Investment, or under
other appropriate circumstances.whom granted.
25
29
Administration and Amendments. The Incentive Plan 2000 provides that a
committee comprised solely of two or more "outside directors" (as defined by
Section 162(m) of the Code and applicable interpretive authority thereunder and
within the meaning of the term "Non-Employee Director" as defined by Rule 16b-3
under the Exchange Act) serves as the Administrator of Awards under the
Incentive Plan 2000 with respect to persons subject to Section 16 of the
Exchange Act. Until otherwise determined by the Board, the Human Resources
Committee serves as such committee under the Incentive Plan 2000. The Committee
or the Chief Executive Officer of the Company serves as Administrator with
respect to any person not subject to Section 16 of the Exchange Act, unless the
Incentive Plan 2000 specifies that the Committee shall take specific action (in
which case such action may only be taken by the Committee) or the Committee
specifies that it shall serve as Administrator.
The Committee serves as Administrator of the Executive Performance Program
and the Retention Program, and as Administrator with respect to persons subject
to Section 16 of the Exchange Act with respect to grants of Options and LTIP
Awards.
Subject to limitations described above regarding outstanding Awards, the
Board in its discretion may terminate the Incentive Plan 2000 at any time. The
Board has the right to amend the Incentive Plan 2000 or any part thereof from
time to time, and the Administrator may amend any Award (and its related Grant
Document) at any time, except as otherwise specifically provided in such Grant
Document or to the extent restricted by Section 162(m) of the Code with respect
to an Award whichplan is intended to constitute "performance-based" compensation for
purposes of such section. Notwithstanding the foregoing, no change in any Award
theretofore granted may be made which would impair the rights of the Holder
thereof without the consent of such Holder. Without stockholder approval, the
Board may not amend the Incentive Plan 2000 to (a) increase the maximum
aggregate number of shares that may be issued under the Incentive Plan 2000 or
(b) change the class of individuals eligible to receive Awards under the
Incentive Plan 2000.
NEW PLAN BENEFITS
The Company anticipates that a portion of the shares of Class B common
stock available for grants of Awards under the Incentive Plan 2000 will be
awarded to eligible employees in the form of stock options during 2000, promptly
following the determinationadministered by the Human
Resources Committee of the size and
termsBoard. In connection with its administration of stock option grants. Althoughthe
plan, the Committee is authorized to interpret the plan.
The plan may be amended from time to time by the Board or the Human
Resources Committee, hasbut no change in any option theretofore granted may be made
that would impair the rights of a Participant without the consent of that
Participant.
The benefits and amounts to be received by any Participant under the plan
are not yet
determinedcurrently determinable as they depend entirely upon the sizelevel of
participation elected by an eligible employee and termsthe price of those stock options, it currently anticipates
that they will be approximately one-half the size of normal annual grants for
officers, including the Company's executive officers, who participate in the
LTIP program. In addition, the Company anticipates that Options to purchase
5,000 shares of Class B
common stock will be awarded under the Incentive Plan
2000 to each of the Company's non-employee directors elected at the Meeting if
the Incentive Plan 2000 is approved by the Company's stockholders, or options
will be granted to such directors under the Company's existing stock incentive
plans. See "General Information."
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35
The following table sets forth Awards that have been granted under the LTIP
program, the Executive Performance Program and the Retention Program, subject to
stockholder approval of the Incentive Plan 2000 at the Meeting.
LTIP(1) EXECUTIVE PERFORMANCE PROGRAM(2)
------------------------------------------------ -----------------------------------------------
EBITDAR MARGIN RANKING
------------------------------------------------
NAME AND POSITION NOS. 4-7 NO. 3 NO. 2 NO. 1 75% OF TARGET 100% OF TARGET 125% OF TARGET
----------------- -------- ---------- ---------- ----------- ------------- -------------- --------------
Gordon M. Bethune...... $0 $1,506,094 $2,008,125 $ 3,012,188 $ 669,375 $ 892,500 $1,115,625
Chairman of the Board
and Chief Executive
Officer
Gregory D. Brenneman... $0 $1,074,938 $1,382,063 $ 2,073,094 $ 511,875 $ 682,500 $ 853,125
President and Chief
Operating Officer
Lawrence W. Kellner.... $0 $ 555,188 $ 832,781 $ 1,110,375 $ 370,125 $ 493,500 $ 616,875
Executive Vice
President and Chief
Financial Officer
C.D. McLean............ $0 $ 507,938 $ 761,906 $ 1,015,875 $ 338,625 $ 451,500 $ 564,375
Executive Vice
President -- Operations
Jeffery A. Smisek...... $0 $ 472,500 $ 708,750 $ 945,000 $ 315,000 $ 420,000 $ 525,000
Executive Vice
President and General
Counsel
All current executive
officers as a
group................ $0 $6,643,856 $9,905,625 $14,053,331 $5,013,000 $6,684,000 $8,355,000
All current directors
(other than executive
officers) as a
group................ $0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
All employees (other
than executive
officers) as a
group................ $0 $3,139,344 $4,483,813 $ 6,745,406 $1,436,250 $1,915,000 $2,393,750
PARS
AWARDED
UNDER
RETENTION
NAME AND POSITION PROGRAM(3)
----------------- ----------
Gordon M. Bethune...... 37,500
Chairman of the Board
and Chief Executive
Officer
Gregory D. Brenneman... 25,000
President and Chief
Operating Officer
Lawrence W. Kellner.... 12,500
Executive Vice
President and Chief
Financial Officer
C.D. McLean............ 12,500
Executive Vice
President -- Operations
Jeffery A. Smisek...... 12,500
Executive Vice
President and General
Counsel
All current executive
officers as a
group................ 171,880
All current directors
(other than executive
officers) as a
group................ 0
All employees (other
than executive
officers) as a
group................ 78,111
- ---------------
(1) Amounts set forth in the table represent potential pay-out of Awards under
the LTIP based on the individuals' current base salaries and a full
three-year Performance Period beginning January 1, 2000 and ending December
31, 2003. As described above, the LTIP is phased in with (i) a one-year
Performance Period (January 1, 2000 to December 31, 2000) with potential
pay-out equal to one-third of the amounts set forth in the table and (ii) a
two-year Performance Period (January 1, 2000 to December 31, 2001) with
potential pay-out equal to two-thirds of the amounts set forth in the table.
In addition to the requirement that the Company achieve a number 1, 2 or 3
EBITDAR margin ranking, pay-out is also contingent upon achievement of a
minimum average annual operating income hurdle over the Performance Period
(initially $300 million) and in no event may the LTIP program pay out, with
respect to a Performance Period, more than 5% of the Company's actual
average annual operating income over such Performance Period.
(2) Amounts shown represent potential annual benefits under the Executive
Performance Program based on the individuals' current base salaries and
contingent upon achievement of quarterly net income targets (or in the case
of 125% pay-out, in the alternative the achievement of number 1, 2 or 3
EBITDAR margin ranking and achievement of minimum operating income hurdles).
With respect to the first quarter of 2000, the amount of bonus, if any,
would be determined and paid pursuant to the Company's prior executive bonus
program, which terminated April 1, 2000.
(3) The Company has made seven Awards of PARs (each in the amount set forth in
the table) to each of the above named executive officers, the Company's
other executive officers and other officers who currently participate in the
Retention Program (61 persons) relating to seven Investments in six
entities. The aggregate out-of-pocket cost of the Company's Investments in
those entities paid to the issuer or seller thereof is less than $8 million.
The Committee has determined that the Base Values assigned to Phantom
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36
Units relating to each of the Investments, for purposes of the program,
reflect fair market value of the related Investment at the date of grant of
the respective Awards.stock.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the U.S. federal income tax
consequences of certain transactions under the Incentive Plan 2000plan based on federal income tax
laws in effect on January 1, 2000.2001. This summary applies to the Incentive Plan 2000plan as normally
operated and is not intended to provide or supplement tax advice to eligible
employees or directors.employees. The summary contains general statements based on current U.S. federal
income tax statutes, regulations and currently available interpretations
thereof. This summary is not intended to be exhaustive and does not describe
state, local or foreign tax consequences or the effect, if any, of gift, estate
and inheritance taxes. The plan is not qualified under Section 401(a) of the
Code.
Tax Consequences to Recipients
Non-qualified Stock Options. In general: (i) no income will be recognized
by an optionee at the time a non-qualified stock option is granted; (ii) at the
time of exercise of a non-qualified stock option, ordinary income will be
recognized by the optionee in an amount equalParticipants. A Participant's payroll deductions to
the difference between the
option price paid for the shares and the fair market value of the shares if they
are nonrestricted on the date of exercise; and (iii) at the time of sale of
shares acquired pursuant to the exercise of a non-qualified stock option, any
appreciation (or depreciation) in the value of the shares after the date of
exercise will be treated as a capital gain (or loss).
The total number of shares ofpurchase Class B common stock subject to Awards
granted to any one recipient during any calendar yearare made on an after-tax basis. There is limited under the
Incentive Plan 2000 for the purpose of qualifying any compensation realized upon
exercise of options that are granted by the Human Resources Committee as
"performance-based compensation" as defined in Section 162(m) of the Code in
order to preserveno tax
deductions by the Company with respect to any such
compensation in excess of one million dollars paid to "Covered Employees" (i.e.,
the Company's Chief Executive Officer and the four highest compensated officers
of the Company or those individuals deemed to be executive officers of the
Company (other than the Chief Executive Officer) and who are officers of the
Company on the last day of the year in question). Options granted by the Chief
Executive Officer will not qualify as "performance-based compensation" and will
be subjectliability to the limitation on deductibility under Section 162(m) of the Code;
however, it is not anticipated that the Chief Executive Officer would have the
authority to make grants to Covered Employees.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an Incentive Stock Option. However, upon
exercise, the difference between the fair market value and the exercise price
may be subject to the alternative minimum tax. IfParticipant when shares of Class B common stock are issued to an optioneepurchased
pursuant to the exerciseplan. However, the Participant may incur tax liability upon
disposition (including by way of an Incentive Stock Option
and nogift) of the shares acquired under the plan.
The Participant's U.S. federal income tax liability will depend on whether the
disposition is a qualifying disposition or a disqualifying disposition as
described below.
If a qualifying disposition of the shares is made by the optionee withinParticipant (i.e.,
a disposition that occurs more than two years after the datefirst day of grantthe Option
Period in which the shares were purchased), or within onein the event of death (whenever
occurring) while owning the shares, the Participant will recognize in the year
afterof disposition (or, if earlier, the transferyear of the Participant's death) ordinary
income in an amount equal to the lesser of (i) the excess of the fair market
value of the shares toat the optionee, then upontime of disposition (or death) over the amount paid
for the shares (the "Option Price") or (ii) 15% of the fair market value of the
shares at the Date of Grant (the beginning of the Option Period). Upon the sale
of the shares, any amount realized in excess of the option priceordinary income recognized
by the Participant will be taxed to the optioneeParticipant as a long-term capital gain and
any loss sustainedgain.
If the shares are sold at less than the Option Price, then there will be no
ordinary income, but there will be a capital loss.
If shares of Class B common stock acquired upon the exercise of Incentive
Stock Options are disposed of priorloss equal to the expirationdifference
between the sales price and the Option Price.
If a disqualifying disposition of either holding period
described above, the optioneeshares is made (i.e., a disposition
(other than by reason of death) within two years after the first day of the
Option Period in which the shares were purchased) the Participant generally will
recognize ordinary income in the year of disposition in an amount equal to any
excess of the fair market value of the shares at the timeDate of exercise (or,Exercise over the
Option Price for the shares (even if less, the amountno gain is realized on the disposition of the shares in a sale or exchange) over the option price paid for
the shares.if a
gratuitous transfer is made). Any further gain (or loss) realized by the
optioneeParticipant generally will be taxed as ashort-term or long-term capital gain (or
loss).
As described above with respect to non-qualified stock options, the
Incentive Plan 2000 has been designed to qualify any ordinary compensation
income recognized by optionees with respect to Incentive Stock Options granted
by the Human Resources Committee as "performance-based compensation" as defined
in Section 162(m) of the Code.
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37
Restricted Stock. A recipient of Restricted Stock generally will be subject
to tax at ordinary income tax rates on the fair market value of the Restricted
Stock reduced by any amount paid by the recipient at such time as the shares are
no longer subject either to a risk of forfeiture or restrictions on transfer for
purposes of Section 83 of the Code. However, a recipient who so elects under
Section 83(b) of the Code within 30 days of the date of transfer of the shares
will have taxable ordinary income on the date of transfer of the shares equal to
the excess of the fair market value of the shares (determined without regard to
the risk of forfeiture or restrictions on transfer) over any purchase price paid
for the shares. If a Section 83(b) election is made and the shares are
subsequently forfeited, the recipient will not be allowed to take a deduction
for the value of the forfeited shares. If a Section 83(b) election has not been
made, any dividends received with respect to Restricted Stock that are subject
at that time to a risk of forfeiture or restrictions on transfer generally will
be treated as compensation that is taxable as ordinary income to the recipient;
otherwise the dividends will be treated as dividends. Awards of Restricted Stock
to Covered Employees will not qualify as "performance-based compensation" and
the Company will be subject to the limitation on deductibility under Section
162(m) of the Code.
Performance and Incentive Awards. An individual who has been granted a
Performance Award or an Incentive Award generally will not realize taxable
income at the time of grant. Whether a Performance Award or an Incentive Award
is paid in cash or shares of Class B common stock, the recipient will have
ordinary compensation income in the amount of (i) any cash paid at the time of
such payment and (ii) the fair market value of any shares of Class B common
stock either at the time the Performance or Incentive Award is paid in such
shares or at the time any restrictions on the shares (including restrictions
under Section 16(b) of the Exchange Act) subsequently lapse, depending on the nature, if any, of the restrictions imposed and whether the recipient elects
under Section 83(b) of the Code to be taxed without regard to any such
restrictions. Any dividend equivalents paid with respect to an Incentive Award
prior to the actual issuance of shares under the award will be compensation
income to the recipient. Incentive Awards will not qualify as "performance-based
compensation" and the Company will be subject to the limitation on deductibility
under Section 162(m) of the Code. The Incentive Plan 2000 has been designed to
qualify any ordinary compensation income recognized by Covered Employees with
respect to Performance Awards granted by the Human Resources Committee as
"performance-based compensation" as defined in Section 162(m) of the Code.
Performance Awards granted by the Chief Executive Officer will not qualify as
"performance-based compensation" and will be subject to the limitation on
deductibility under Section 162(m) of the Code; however, it is not anticipated
that the Chief Executive Officer would have the authority to make grants to
Covered Employees.
Retention Awards. An individual who has been granted a Retention Award
generally will not realize taxable income at the time of grant. The recipient of
a Retention Award will have ordinary compensation income in the amount of any
cash paid with respect to such award at the time of such payment. All Retention
Awards under the Retention Award Program must be granted by the Human Resources
Committee, and the Incentive Plan 2000 has been designed to qualify any ordinary
compensation income recognized by Covered Employees with respect to Retention
Awards as "performance-based compensation" as defined in Section 162(m) of the
Code.holding period.
Tax Consequences to the Company or Subsidiary
Section 162(m) ofParticipating Company. The company, or
the Code limits the ability of theParticipating Company to deduct
compensation paid during a fiscal year to a Covered Employee in excess of one
million dollars, unless such compensation is based on performance criteria
established by the Human Resources Committee or meets another exception
specified in Section 162(m) of the Code. Certain Awards described above will not
qualify as "performance-based compensation" or meet any other exception under
Section 162(m) of the Code and, therefore, the Company's deductions with respect
to such Awards will be subject to the limitations imposed by such section. To
the extent a recipient recognizes ordinary income in the circumstances described
above, the Company or subsidiary for which the recipienta Participant performs services, will be
entitled to a corresponding deduction only if the Participant makes a disqualifying
disposition of any shares purchased under the plan. In such a case, the company
or such Participating Company can deduct as a compensation expense the amount
that is ordinary income to the Participant provided that, among other things,
(i) the incomeamount meets the test of reasonableness, is an ordinary and necessary
business expense and is not an "excess parachute payment" within the meaning of
Section 280G of the Code, (ii) any applicable reporting obligations are
satisfied and (ii) either the compensation is "performance-based"
within the meaning of Section 162(m) of the Code
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38
or(iii) the one million dollar limitation of Section 162(m) of the
Code is not exceeded.
No deduction will26
30
NEW PLAN BENEFITS
Although the number of shares that may be availablepurchased under the plan by an
employee is subject to the Company or any subsidiary for
any amount paiddiscretion of that employee (subject to the plan
limits), the following table sets forth the number of shares purchased by the
specified individuals and groups under the Incentive Plan 2000 with respect to (i) any excise
taxes due under Section 4999plan during 2000. The dollar value of
the Code with respect to amounts that are vested
and/or payable due to a Changeshares set forth in Control and (ii) any taxes due on the paymenttable will depend upon the future market prices of
such excise taxes described in clause (i).our stock.
1997 EMPLOYEE STOCK PURCHASE PLAN BENEFITS
SHARES
PURCHASED
DURING
NAME AND POSITION 2000
- ----------------- ---------
Gordon M. Bethune........................................... 611
Chairman of the Board and Chief Executive Officer
Gregory D. Brenneman........................................ 604
President and Chief Operating Officer
Lawrence W. Kellner......................................... 606
Executive Vice President and Chief Financial Officer
C.D. McLean................................................. 605
Executive Vice President -- Operations
Jeffery A. Smisek........................................... 604
Executive Vice President, General Counsel and Secretary
All current executive officers as a group................... 6,636
All current directors (other than executive officers) as a
group..................................................... 0
All employees (other than executive officers) as a group.... 439,051
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE INCENTIVEAMENDMENT TO
THE 1997 EMPLOYEE STOCK PURCHASE PLAN, 2000, WHICH IS DESIGNATED AS PROPOSAL NO. 2 ON
THE ENCLOSED PROXY.
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31
PROPOSAL 3:
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP has been the Company'sour independent auditors since 1993,
and the Boardboard of Directorsdirectors desires to continue to engage the services of this
firm for the fiscal year ending December 31, 2000.2001. Accordingly, the Boardboard of
Directors,directors, upon the recommendation of the Audit Committee, has reappointed Ernst
& Young LLP to audit the financial statements of the CompanyContinental and its
subsidiaries for fiscal 20002001 and report thereon.on those financial statements.
Stockholders are being asked to vote upon the ratification of suchthe appointment.
The fees Ernst & Young LLP charged us for the last fiscal year were: Annual
Audit -- $822,000, Financial Information Systems Design and Implementation
services -- $793,000, and All Other services -- $3,589,000 (including $2,289,000
of Audit Related services). Financial Information Systems Design and
Implementation services consist entirely of fees billed by the Ernst & Young
consulting group prior to its sale on May 27, 2000, to Cap Gemini, a separate
French public company. If stockholders do not ratify suchthe appointment of Ernst &
Young LLP, the Audit Committee and Boardboard will reconsider suchtheir appointment.
Representatives of Ernst & Young LLP will be present at the Meetingstockholders
meeting and will be available to respond to appropriate questions and make a
statement should they so desire.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF THE INDEPENDENT AUDITORS, WHICH IS DESIGNATED AS PROPOSAL NO. 3
ON THE ENCLOSED PROXY.
28
32
OTHER MATTERS
Management knowsWe have not received notice as required under our bylaws of no businessany other
matters to be presented for actionproposed at the Meeting
other than thatmeeting. Consequently, the only matters to be
acted on at the meeting are those described in this proxy statement. Ifstatement, along with
any necessary procedural matters related to the meeting. As to procedural
matters, or any other matters shouldthat were determined to be properly comebrought before
the Meetingmeeting calling for a vote of the stockholders, it is the intention of the
persons named in the accompanying proxy, unless otherwise directed in suchthat
proxy, to vote on suchthose matters in accordance with their best judgment.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each director, executive officer (and, for a specified period, certain
former directors and executive officers) and each holder of greater than ten
percent of a class of the Company's equity securities is required to report to
the SEC his or her pertinent position or relationship, as well as transactions
in such securities, by certain specified dates. During 1999, the initial report
for Deborah McCoy, an executive officer of the Company, was filed late.
35
39
20012002 ANNUAL MEETING
Any stockholder who desireswants to present proposalsa proposal at the 20012002 annual meeting
of stockholders and to have such proposalsthat proposal set forth in the proxy statement and
form of proxy mailed in conjunction with suchthat annual meeting must submit such
proposalsthat
proposal in writing to the Secretary of the Companycompany no later than December 5,
2000. The Company's Bylaws4,
2001. Our bylaws require that for nominations of persons for election to the
Boardboard of Directors of the Companydirectors or the proposal of business to be considered by the
stockholders at an annual meeting, a stockholder must give timely written notice
thereof. To be timely for the 20012002 annual meeting of stockholders, suchthat notice
must be delivered to the Secretary of the Companycompany at theour principal executive
offices of the Company not less than 70 days norand not more than 90 days prior to May 23, 2001, provided, that15, 2002.
However, if the 20012002 annual meeting of stockholders is advanced by more than 20
days, or delayed by more than 70 days, from May 23, 2001, such15, 2002, then the notice must
be delivered not earlier than the ninetieth day prior to the 20012002 annual meeting
and not later than the close of business on the later of (a) the seventieth day
prior to the 20012002 annual meeting or (b) the tenth day following the day on which
public announcement of the date of the 20012002 annual meeting is first made. The
stockholder's notice must contain and be accompanied by certain information as
specified in the Bylaws. It is recommendedbylaws. We recommend that any stockholder desiring to make a
nomination or submit a proposal for consideration obtain a copy of the Company's Bylaws,our bylaws,
which may be obtained without charge from the Secretary of the Companycompany upon
written request addressed to the Secretary at the Company'sour principal executive offices.
EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND MAIL PROMPTLY
THE ENCLOSED PROXY OR VOTE BY INTERNET OR
TELEPHONE AS DESCRIBED ABOVE IN THE PROXY STATEMENT.
By Order of the Board of Directors,
/s/JEFFERYSTATEMENT, OR SIGN, DATE AND MAIL
PROMPTLY THE ENCLOSED PROXY.
CONTINENTAL'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
2000, INCLUDING EXHIBITS, IS AVAILABLE ON THE COMPANY'S WEBSITE AT
WWW.CONTINENTAL.COM. WE WILL FURNISH A SMISEK
Jeffery A. Smisek
Secretary
Houston, Texas
April 4, 2000COPY OF THE COMPANY WILL FURNISH10-K TO INTERESTED SECURITY
HOLDERS WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1999. THE COMPANYREQUEST. WE WILL ALSO FURNISH ANY EXHIBIT
TO SUCH
REPORT, UPON WRITTEN REQUEST, TO ANY SECURITY HOLDER REQUESTING SUCH REPORT UPONTHE 10-K, IF REQUESTED IN WRITING AND ACCOMPANIED BY PAYMENT OF REASONABLE
FEES RELATING TO THE COMPANY'SOUR FURNISHING SUCHTHE EXHIBIT. REQUESTS FOR COPIES SHOULD BE
ADDRESSED TO THE SECRETARY OF THE COMPANYCONTINENTAL AT THE COMPANY'S HEADQUARTERS: 1600
SMITH, DEPT. HQSEO, HOUSTON, TEXAS 77002.
29
33
APPENDIX A
CHARTER OF THE COMPANY'S FORM 10-K, INCLUDING EXHIBITS, IS ALSO AVAILABLE ONAUDIT COMMITTEE
OF THE COMPANY'S
WEBSITE AT WWW.CONTINENTAL.COM.
36
40
COMMON STOCK
PROXYBOARD OF DIRECTORS OF
CONTINENTAL AIRLINES, INC.
Annual Meeting of Stockholders - May 23, 2000
This Proxy is Solicited on BehalfESTABLISHMENT
1. The Audit Committee (the "Committee") of the Board of Directors (the
"Board") of Continental Airlines, Inc., a Delaware corporation (the "Company"),
has been established, and this Charter approved and adopted, as amended, by the
resolution of the Board adopted on May 23, 2000 pursuant to Article III of the
Bylaws of the Company.
2. As of May 23, 2000, the Committee is comprised of three directors. The
Committee shall at all times consist of at least three directors, and may
consist of such greater number of directors as the Board appoints to the
Committee from time to time by resolution of the Board. Each member of the
Committee shall be a person who qualifies to be a member of an audit committee
pursuant to Paragraph 303.00 of the New York Stock Exchange Listed Company
Manual. The Committee shall be comprised of directors who are independent of
management and the Company. "Independence" shall be defined to conform to the
rules promulgated from time to time by the Securities and Exchange Commission
("SEC") and the New York Stock Exchange ("NYSE") and such determination shall be
confirmed by the Board of Directors. All Audit Committee members must be
financially literate, and at least one member must have accounting or related
financial management expertise. The qualifications of financial literacy and
expertise will be determined and confirmed by the Board of Directors.
3. The members of the Committee shall be appointed or reappointed at the
meeting of the Board immediately following each annual meeting of stockholders
of the Company. Each member of the Committee shall continue as a member thereof
until his or her successor is appointed or until his or her earlier death,
resignation, removal or cessation as a director of the Company.
PROCESS
4. The Chairman of the Board or, if the Chairman of the Board shall fail to
do so, the members of the Committee, shall appoint a Chair of the Committee from
among the members of the Committee. If the Chair of the Committee is not present
at any meeting of the Committee, the members of the Committee shall appoint an
acting Chair for such meeting. The Secretary of the Company, or any Assistant
Secretary of the Company, shall attend each meeting of the Committee and shall
act as secretary of such meeting.
5. The time and place of meetings of the Committee and the procedures to be
followed at such meetings shall be determined from time to time by the members
of the Committee; provided that:
(a) a quorum for meetings shall be a majority of the members, present
in person or by telephone or other telecommunications device permitting all
persons participating in the meeting to speak to and hear each other;
(b) the affirmative vote of a majority of the members of the Committee
shall be the act of the Committee;
(c) the Committee may act by unanimous written consent signed by each
member of the Committee;
(d) the Committee shall keep minutes of its proceedings and shall
deliver the same (and reports and recommendations to the Board) to the
Secretary of the Company;
(e) all minutes of meetings of the Committee, and all unanimous
written consents of the Committee, shall be filed with the records of
meetings of the Committee:
A-1
34
(f) the Chair, or any member of the Committee, or the Secretary of the
Company at the direction of the Chair of the Committee, the Chairman of the
Board or the Chief Executive Officer of the Company, shall have the
authority to call meetings of the Committee; and
(g) notice of the time and place of every regular meeting of the
Committee (which meeting shall be deemed a regular meeting if it occurs on
the same date as a meeting of the Board of Directors) shall be given in
writing or by facsimile transmission to each member of the Committee at
least five days before any such regular meeting, and notice of the time and
place of every special meeting of the Committee shall be given in writing
or by facsimile transmission to each member of the Committee not later than
the close of business on the second day next preceding the day of the
meeting; provided that in each case a member may waive notice of any
meeting.
AUDIT RELATED DUTIES
6. The Committee shall review and assess at least annually the adequacy of
this Charter in light of applicable law and the rules of the SEC and NYSE. A
copy of this Charter as it may be amended from time to time shall be included in
the Company's proxy statement relating to its annual meeting of stockholders at
least once every three years.
7. The Committee shall review at least annually the internal audit
procedures of the Company and advise and make recommendations to the Board on
auditing practices and procedures.
8. The Committee shall meet at least annually with the Company's
independent auditors, review any report and recommendations of such auditors,
and review the scope of such auditors' proposed audit and audit procedures to be
realized.
9. The Committee shall review at least annually with management and the
Company's independent auditors the effectiveness of the accounting and financial
controls of the Company and its subsidiaries and the implementation of
additional or improved internal control procedures.
10. The Committee shall recommend annually to the Board the appointment or
reappointment of independent auditors for the Company and its subsidiaries and
the remuneration of such auditors, and shall provide the Board with such
information relating thereto, and the reasons for any change in independent
auditors (including the response thereto of the incumbent auditors), as the
Board may request. The independent auditors are ultimately accountable to the
Committee and the Board of Directors, which have ultimate authority in deciding
to engage, evaluate and, if appropriate, terminate their services.
11. The Committee shall obtain annually from the independent auditors a
written communication delineating all relationships between such auditors and
the Company as required by Independence Standards Board No. 1, "Independence
Discussions with Audit Committees." In addition, the Committee shall review with
the independent auditors the nature and scope of any disclosed relationships or
professional services and take, or recommend the Board take, appropriate action
to ensure the continuing independence of the auditors.
12. The Committee shall review the annual financial statements of the
Company, and the related management's discussion and analysis of financial
condition and results of operations, prior to the filing thereof with the
Securities and Exchange Commission. Based on the review and discussion of the
audited financial statements with management and the independent auditors, the
Committee will recommend to the Board whether to include the audited financial
statements in the Company's annual report on Form 10-K.
13. The Committee shall review the Company's quarterly financial statements
with management and the independent auditors prior to their filing with the SEC
to determine that the independent auditors do not take exception to the
disclosure and content of the financial statements, and discuss any other
matters required to be communicated to the Committee by the auditors, including
those matters required by Statement on Auditing Standards No. 61, "Communication
with Audit Committees." The Chair of the Committee may represent the entire
Committee for purposes of this review.
14. The Committee shall, to the extent it determines appropriate, review
from time to time the expenses of the senior officers (and, if it so desires,
any other officers) of the Company charged to the Company or any
A-2
35
of its subsidiaries, and any transactions between the Company or any of its
subsidiaries and any affiliate of the Company.
15. The Committee shall review any material foreign currency risk
management strategies, jet fuel hedging strategies and other material usage by
the Company or any of its subsidiaries of hedges, options, futures, swaps or
other derivative products or securities.
16. The Committee shall review with management and the Company's
independent auditors any material changes in accounting policies or practices
and the impact thereof on the Company's financial statements, and shall review
any material components of the Company's financial statements involving
management's judgment or estimates. The Committee shall also review with the
independent auditors their judgments about the quality of accounting principles
and the clarity of financial disclosure practices used or proposed to be used
and any other matters as may be required by Statement on Auditing Standards No.
61, "Communication with Audit Committees," as applicable and as may be modified
from time to time.
17. The Committee shall prepare or cause to be prepared on its behalf a
report to be included in the Company's proxy statement relating to its annual
meeting of stockholders and addressing the matters required to be included
therein by the rules of the SEC and/or NYSE as then in effect.
18. The Committee shall provide sufficient opportunity (at least annually)
for the internal and independent auditors to meet with the members of the
Committee without members of management present.
ENVIRONMENTAL RELATED DUTIES
19. The Committee shall review the Company's environmental policies,
programs, standards, reporting and accountability in the context of competitive,
legal and operational circumstances.
20. The Committee shall review such reports as it may request from
management or environmental consultants or advisors regarding environmental
risks or liabilities and the nature and extent of the Company's compliance with
environmental laws, rules and regulations, the nature and extent of any
noncompliance and the reasons therefor, and the Company's plans to correct or
remedy any such noncompliance.
21. The Committee shall review periodically with management and legal
counsel any material environmental proceedings, claims or other contingencies
involving the Company or any of its subsidiaries.
22. The Committee shall review such other environmental matters affecting
the Company or any of its subsidiaries as the Committee shall from time to time
determine appropriate or as the Board may specifically direct.
MISCELLANEOUS
23. The Committee shall fulfill such other duties and responsibilities as
assigned to the Committee from time to time by the Board.
24. The Committee shall report on its activities to the Board.
A-3
36
PLEASE MARK
YOUR VOTES AS [X]
INDICATED IN
THIS EXAMPLE
1. Election of Directors:
FOR AGAINST ABSTAIN
FOR ALL NOMINEES WITHHOLD 2. Approval of Amendment to 1997
LISTED BELOW AUTHORITY Employee Stock Purchase Plan: [ ] [ ] [ ]
(EXCEPT AS MARKED TO VOTE FOR ALL NOMINEES
TO THE CONTRARY) LISTED BELOW 3. Ratification of Independent
Auditors: [ ] [ ] [ ]
[ ] [ ]
01 Thomas J. Barrack, Jr., 02 Gordon M. Bethune, 03 David Bonderman, Please mark this box ONLY if stock owned of record [ ]
04 Gregory D. Brenneman, 05 Kirbyjon H. Caldwell, 06 Patrick Foley, or beneficially by you is owned or controlled by
07 Douglas H. McCorkindale, 08 George G. C. Parker, 09 Richard W. persons who are not U.S. citizens (as defined in the
Pogue, 10 William S. Price III, 11 Donald L. Sturm, 12 Karen Hastie Proxy Statement) and indicate the number and class so
Williams, 13 Charles A. Yamarone. owned or controlled by persons who are not U.S.
citizens.
(Instruction: To withhold authority to vote for any nominee, write
that nominee's name on the line below.)
- -------------------------------------------------------------------- Please disregard if you have previously
provided your consent decision. [ ]
By checking the box to the right, I consent
to future delivery of annual reports, proxy
statements, prospectuses and other materials
and stockholder communications electronically
via the internet at a webpage which will be
disclosed to me. I understand that the Company
may no longer distribute printed materials to me
for any future stockholder meeting until
such consent is revoked. I understand that I
may revoke my consent at any time by contacting
the Company's transfer agent, Mellon
Investor Services, LLC, Ridgefield Park,
NJ and that costs normally associated with
electronic delivery, such as usage and
telephone charges as well as any costs I
may incur in printing documents, will be my
responsibility.
SIGNATURE OF STOCKHOLDER(S) _________________________ TITLE (IF APPLICABLE) ________________________ DATE _______________________
Note: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
[COMPUTER LOGO] VOTE BY INTERNET OR TELEPHONE [TELEPHONE LOGO]
QUICK *** EASY *** IMMEDIATE
YOUR VOTE IS IMPORTANT! - YOU CAN VOTE IN ONE OF THREE WAYS:
1. VOTE BY INTERNET: Follow the instructions at our Website Address:
http://www.proxyvoting.com/cal
OR
2. VOTE BY PHONE: CALL TOLL-FREE 1-800-840-1208 ON A TOUCH-TONE PHONE
24 hours a day-7 days a week
THERE IS NO CHARGE TO YOU FOR THIS CALL. - HAVE YOUR PROXY CARD IN HAND.
YOU WILL BE ASKED TO ENTER A CONTROL NUMBER, WHICH IS LOCATED IN THE BOX IN THE
LOWER RIGHT HAND CORNER OF THIS FORM
OPTION 1: To vote as the Board of Directors recommends press 1.
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
OPTION 2: If you choose to vote against or abstain, press 0
Proposal 1 - To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
TELEPHONE VOTING IS UNAVAILABLE FOR SHARES NOT HELD BY U.S. CITIZENS (AS
DEFINED IN THE PROXY STATEMENT).
OR
3. VOTE BY PROXY: Mark, sign and date your proxy card and return promptly in
the enclosed envelope.
NOTE: IF YOU VOTE BY INTERNET OR TELEPHONE, THERE IS NO NEED TO MAIL BACK YOUR
PROXY CARD. THANK YOU FOR VOTING.
37
CONTINENTAL AIRLINES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 15, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby authorizes Gordon M. Bethune, Jeffery A. Smisek and
Scott R. Peterson, and each of them, with full power of substitution, to
represent and vote the stock of the undersigned in Continental Airlines, Inc. as
directed and, in their sole discretion, on all other matters that may properly
come before the Annual Meeting of Stockholders to be held on May 23, 2000,15, 2001, and
at any adjournment or adjournments thereof, as if the undersigned were present
and voting thereat. The undersigned acknowledges receipt of the notice of annual
meeting and proxy statement with respect to such Annual Meetingannual meeting and certifies
that, to the knowledge of the undersigned, all equity securities of the CompanyContinental
Airlines, Inc. owned of record or beneficially by the undersigned are owned and
controlled only by U.S. Citizenscitizens (as defined in the proxy statement), except as
indicated on the reverse side hereof.
Whether or not you expect to attend the Annual Meeting, please execute and
return this proxy, which may be revoked at any time prior to its use.
Nominees for Director:
Thomas J. Barrack, Jr. 01 Gordon M. Bethune 02
David Bonderman 03 Gregory D. Brenneman 04
Kirbyjon H. Caldwell 05 Patrick Foley 06
Douglas H. McCorkindale 07 George G. C. Parker 08
Richard W. Pogue 09 William S. Price III 10
Donald L. Sturm 11 Karen Hastie Williams 12
Charles A. Yamarone 13WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE VOTE YOUR
SHARES. AS EXPLAINED ON THE OTHER SIDE OF THIS PROXY, YOU MAY VOTE BY INTERNET
OR BY TELEPHONE, OR YOU MAY EXECUTE AND RETURN THIS PROXY, WHICH MAY BE
REVOKED AT ANY TIME PRIOR TO ITS USE.
This proxy, when properly executed,will be voted in the manner directed
by the undersigned stockholder(s). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE ELECTION OF DIRECTORS NOMINATED BYNAMED ON THE BOARDOTHER SIDE OF DIRECTORSTHIS PROXY
(PROPOSAL 1) AND "FOR" PROPOSALS 2 AND 3.
The(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
38
AMENDMENT TO
CONTINENTAL AIRLINES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
This Amendment (this "Amendment") to Continental Airlines, Inc. 1997
Employee Stock Purchase Plan (the "Plan") is dated as of February 6, 2001, and
has been approved by the Board of Directors Recommends a Vote "FOR" Proposals 1, 2,of Continental Airlines, Inc. on
February 6, 2001, subject to approval of this Amendment by the stockholders of
the Company within 12 months of the date hereof as required by the Internal
Revenue Code of 1986, as amended:
Pursuant to paragraph 15 of the Plan, the Plan is hereby amended as follows:
1. The first sentence of paragraph 5 of the Plan is hereby amended to
substitute the phrase "4,250,000 shares" in the place of the phrase
"1,750,000 shares" therein.
2. The last sentence of paragraph 14 of the Plan is hereby amended to
substitute the phrase "December 31, 2010" in the place of the phrase
"December 31, 2001" therein.
3. The Plan, as amended by this Amendment, shall continue in full force and
3.
THIS FORM OF PROXY RELATES TO BOTH CLASS A AND CLASS B COMMON STOCK. IF YOU
RECEIVED TWO PROXY CARDS, PLEASE EXECUTE AND RETURN EACH.
SEE REVERSE4. Capitalized terms used in this Amendment without definition are defined in
the Plan and are used in this Amendment with the same meanings as in the
Plan.
IN WITNESS WHEREOF, the undersigned has executed this Amendment on behalf
of the Company as of February 6, 2001.
CONTINENTAL AIRLINES, INC.
Please mark vote in oval in the following manner using dark ink only. [ ]
1. Election of Directors: For Withhold For All
See Reverse Side. All Except
For, except vote withheld from the [ ] [ ] [ ]
following nominee(s):
41
- ----------------------------------------------
For Against Abstain
2. Approval of Incentive Plan 2000. [ ] [ ] [ ]
For Against Abstain
3. Ratification of Appointment of [ ] [ ] [ ]
Independent Auditors.
Please mark this box ONLY if any Class A or For
Class B common stock owned of record or [ ]
beneficially by you is owned or controlled by
Foreigners (as defined in the proxy
statement),By:
------------------------------
Jeffery A. Smisek
Executive Vice President and
indicate the number and class
so owned or controlled by Foreigners.
Class A
------------------------------------
Class B
-------------------------------------
Dated: , 2000
--------------------------------
Signature(s)
--------------------------------
- ------------------------------------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
42
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
99.1 Incentive plan 2000 as amended and restated effective as of
March 27, 2000.
General Counsel