1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c)Rule 14a-11(c) or sec. 240.14a-12Rule 14a-12
Continental Airlines, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in itsIts Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other thanOther Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(5) Total fee paid:
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Formform or Schedule and the date of its filing.
(1) Amount Previously Paid:
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(3) Filing Party:
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(4) Date Filed:
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
2
[CONTINENTAL AIRLINES LOGO]
April 6, 19994, 2000
To Our Stockholders:
On behalf of the Board of Directors, we are pleased to invite you to attend
the Continental Airlines, Inc. 19992000 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 18, 1999,23, 2000, at 9:3010:00 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 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 by telephone or through the internet or by telephone, as described in the enclosed
proxy statement. 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 BRENNEMAN
Greg Brenneman
President and Chief Operating
Officer
3
CONTINENTAL AIRLINES, INC.
1600 SMITH STREET, DEPT. HQSEO
HOUSTON, TEXAS 77002
---------------------
NOTICE OF 19992000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 199923, 2000
---------------------
NOTICE IS HEREBY GIVEN that the 19992000 Annual Meeting of Stockholders 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 18, 1999,23, 2000, at 9:3010:00 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 approve the Company's
Incentive Plan 2000;
3. To consider and act upon a proposal to ratify the appointment of
Ernst & Young LLP as independent auditors of the Company and its
subsidiaries for 1999;2000; and
3.4. To consider and act upon any other matters that may properly come
before the Annual Meeting or any adjournment or adjournments thereof.
The holders of record of the Company's common stock at the close of
business on March 23, 199924, 2000 are entitled to notice of and to vote at the Annual
Meeting.
By Order of the Board of Directors,
/s/ JEFFERYJeffery A. SMISEKSmisek
Jeffery A. Smisek
Secretary
Houston, Texas
April 6, 19994, 2000
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 TELEPHONEINTERNET
OR INTERNETTELEPHONE AS DESCRIBED IN THE ENCLOSED PROXY STATEMENT, WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING IN PERSON. IF YOU MAIL THE ENCLOSED PROXY, NO POSTAGE
IS REQUIRED IF MAILED IN THE UNITED STATES. IF YOU DO ATTEND THE MEETING IN
PERSON AND DESIRE TO WITHDRAW YOUR PROXY, YOU MAY DO SO IN THE MANNER DESCRIBED
IN THE ENCLOSED PROXY STATEMENT AND VOTE PERSONALLY ON ALL MATTERS PROPERLY
BROUGHT BEFORE THE MEETING.
4
CONTINENTAL AIRLINES, INC.
1600 SMITH STREET, DEPT. HQSEO
HOUSTON, TEXAS 77002
---------------------
PROXY STATEMENT
19992000 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 199923, 2000
---------------------
This proxy statement is furnished in connection with the solicitation by
and on behalf of the Board of Directors of Continental Airlines, Inc., a
Delaware corporation (the "Company" or "Continental"), of proxies to be voted at
the 19992000 Annual Meeting of Stockholders of the Company or any adjournment or
adjournments thereof (the "Meeting"), to be held at The Hyatt Regency, 1200
Louisiana Street, Houston, Texas on Tuesday, May 18, 1999,23, 2000, at 9:3010:00 a.m., local
time, for the purposes set forth in the accompanying Notice of 19992000 Annual
Meeting of Stockholders. This proxy statement and the accompanying proxy,
together with a copy of the Company's 19981999 Annual Report, are being first mailed
or otherwise delivered to stockholders on or about April 6, 1999.4, 2000.
THE PROXY
Stockholders giving proxies may revoke them at any time before they are
voted by notifying the Secretary of the Company in writing of such revocation or
by delivering to suchthe Secretary a duly executed proxy bearing a later date. To be
effective, any such revocation or subsequent proxy must be received prior to the
commencement of voting at the Meeting. Revocation of telephonicinternet or internettelephonic
proxies is accomplished automatically by granting a new proxy by suchthe same means
prior to the deadlines described below. If a proxy is properly signed (or, in
the case of internet or telephonic voting, properly authenticated) 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 Directors of the Company (the "Board of
Directors" or the "Board") and, "FOR" approval of the Incentive Plan 2000 and
ratification of the appointment of Ernst & Young LLP as independentthe Company's auditors, and, with respect to
other matters that may properly come before the Meeting, in the discretion of
the Company and its
subsidiaries for 1999.proxies.
The Company will bear 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.
TELEPHONICINTERNET OR INTERNETTELEPHONIC PROXIES
Although you may return the proxy or voting form that accompanies this
proxy statement in the postage-paid envelope provided therefor, please consider
the following alternatives as well. Internet and telephonic proxies save the
Company money. Please note that certain of the internet and telephonic
procedures described below cannotmay not be usedavailable for shares held by Foreigners
(as defined on page 3)below).
Shares held by you of record. Stockholders with shares registered in their
names with Harris Trust and Savings Bank ("Harris"), the Company's transfer
agent and registrar, may authorize a proxy telephonically by calling Harris at
(888)515-8274, or by internet at the following address:
www.harrisbank.com/wproxy.wproxy or telephonically by calling Harris at (888) 515-8274.
Proxies
5
submitted through Harris by telephoneinternet or internettelephone must be received by midnight
(EDT) on May 16, 1999.21, 2000. The giving of such proxy will not affect your right to
vote in person should you decide to attend the Meeting.
Shares held in a bank or brokerage account. A number of banks and brokerage
firms participate in a program that also permits stockholders to direct their
vote by telephoneinternet or internet.telephone. This option is separate from that offered by
Harris and will be reflected on the voting form from such banksa bank or brokerage firmsfirm
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 telephoneinternet or internettelephone by following the instructions on their
enclosed voting form. Votes directed by telephoneinternet or internettelephone through such a
program must be received by midnight (EDT) on May 17,
1999.22, 2000. The directing of
such vote will not affect your right to vote in person should you decide to
attend the 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 will automatically cancel any voting directions you have previously
given by internet or by telephone with respect to such shares.
The telephoneinternet and internettelephone proxy procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their proxy instructions
and to confirm that such instructions have been properly recorded. Counsel has
advised the Company that the foregoing telephoneinternet and internettelephone proxy procedures
are consistent with applicable legal requirements. Stockholders authorizing
proxies or directing the voting of shares by internet should bear in mind the
possibility 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 23, 199924, 2000 as the
record date for the determination of stockholders entitled to notice of and to
vote at the Meeting. At the close of business on the record date, the Company
had outstanding 11,406,73211,233,349 shares of Class A common stock, par value $.01 per
share, and 57,078,21251,079,124 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 ratificationoutcome of the proposals to approve the Company's Incentive Plan 2000 or
ratify the appointment of independent auditors (which(each of which requires approval
by a majority of the votes cast)cast on the applicable proposal).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS
CONTAINED IN THIS PROXY STATEMENT.
2
6
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.
NORTHWEST TRANSACTION
On November 20, 1998, an affiliate ofVOTING RIGHTS AND PRINCIPAL STOCKHOLDERS
Northwest Airlines, Inc. (which(through an affiliate is referred to hereafter
together with Northwest Airlines, Inc. as "Northwest") completed its acquisition of certain equity of the Company held by
Air Partners and its affiliates, together with certain Class A common stock of
the Company held by certain other investors, totalingholds 8,661,224 shares of
the Class A common stock (the "Air Partners Transaction"). In connection with the
Air Partners Transaction,of the Company announced that it had entered intoand holds a long-term global alliance with Northwest (the "Northwest Alliance").limited proxy to vote an
additional 842,913 such shares in certain circumstances. As of March 23, 1999,24, 2000,
the shares held by Northwest heldrepresented approximately 12.7%14% of the common equity
interest and 45.8%approximately 50.3% of the fully-diluted voting power of the
Company. In
addition, Northwest holds aTogether with its limited proxy, to vote certain additional shares ofNorthwest held the Company's common stock under certain circumstances that would raise its
voting power to control
approximately 50.3%55.2% of the Company's fully diluted voting power.
In connection with the Air Partners Transaction, thepower under certain
limited circumstances at that date.
The Company entered intohas 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.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 a limited
exception permitting a one-time ownershipincreases in voting power caused by
repurchases of approximately 50.4% of the fully
diluted voting power.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, or 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
3
7 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.
3
7
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.
The1998, 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, willwhich 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. However, in response to concerns raised by the
Department of Justice ("DOJ") in its antitrust review of the Northwest Alliance,
the Air Partners Transaction and the related governance agreement betweensecurities, the Company andhas a
supplemental agreement with the Northwest Parties (collectively, the "Northwest Transaction"), a
supplemental agreement was adopted, which extendedthat 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 of Class B common stock that occur during such period. The Company has
agreed to certain 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.
4
8
VOTING RIGHTS AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 23, 199924, 2000 (except as otherwise
set forth below), certain information with respect to persons owning
beneficially (to the knowledge of the Company) more than five percent of any
class of the Company's voting securities. The table also sets forth the
respective general voting power of such persons. Information in the table is
based on reports that have been filed with the Securities and
4
8
Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and information furnished to the Company by
such holders.
AMOUNT
AND NATURE GENERAL
NAME AND ADDRESS OF BENEFICIAL PERCENT VOTING
OF BENEFICIAL HOLDER TITLE OF CLASS OWNERSHIP OF CLASS POWER(1)
-------------------- -------------- ------------- -------- --------
Northwest Airlines
Corporation Class A common stock 9,514,868(2) 83.4% 55.6%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 624,134613,403 5.5% 3.7%3.8%
1992 Air, Inc.(3) Class A common stock 837,244 7.3% 4.9%826,513 7.4% 5.1%
David Bonderman(3) Class A common stock 853,644842,913 7.5% 5.0%
The Equitable Companies Incorporated5.2%
AXA Financial, Inc. Class B common stock 18,148,429(4) 31.8% 10.6%25,068,161(4) 49.1% 15.3%
1290 Avenue of the Americas
New York, NY 10104
Neuberger Berman, LLC Class B common stock 4,638,257(5) 8.1% 2.7%
605 Third Ave.
New York, NY 10158-3698
Wellington Management Company, LLP Class B common stock 3,043,184(6) 5.3% 1.8%
75 State Street
Boston, MA 02109
Vanguard/Windsor Funds Inc. Class B common stock 2,862,250(7) 5.0% 1.7%
P.O. Box 2600, V37
Valley Forge, PA 19482
- ---------------
(1) Each share of Class A common stock is entitled to ten votes, and each share
of Class B common stock is entitled 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 23, 1999.24, 2000. Shares of
Class A common stock may be converted at any time into shares 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 under "Northwest Transaction," and based on reports filed with the SEC pursuant to the
Exchange Act and information provided 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
853,644 such842,913 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 under "Northwest Transaction."above. Of the shares subject to a limited proxy, 624,134613,403 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.
David Bonderman and Donald Sturm, each a director of the Company, and BFLP
5
9
are limited partners of CAIP. 1992 Air, Inc,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 837,244826,513 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 853,644842,913 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 the 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. Does not includeDavid 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, 21,000 such26,000 shares of Class B common stock subject to outside director
stock options orheld by Mr. Bonderman, and 682,450 such shares of Class B common
stock beneficially owned by BFLP, which Mr. Bonderman may be deemed to
beneficially own.
(4) As of December 31, 1998,1999, based on a report filed with the SEC pursuant to
the Exchange Act in February 19982000 by AXA Financial, Inc. (formerly The
Equitable Companies Incorporated
("Equitable"Incorporated), AXA (which beneficially owns a majority
interest in AXA Financial, Inc.), as parent holding company for AXAand a group of French mutual insurance
5
9
companies (AXA Conseil Vie Assurance Mutuelle, AXA Assurances I.A.R.D.
Mutuelle, AXA Assurances Vie Mutuelle, and AXA Courage Assurance
Mutuelle (as a group, Mutuelle)(which beneficially own a majority interest in AXA), and their subsidiaries.. The shares
shown represent beneficial ownership by registered broker-dealer or
investment advisor subsidiaries of Equitable.AXA Financial, Inc. According to such
report, none ofthe following such subsidiaries hashave an interest in the reported
securities representing greater than 5% of the Class B common stock other thanstock:
Alliance Capital Management L.P. (14,376,832(21,735,261 shares) and Equitable Life
Assurance Society of the United States (3,770,597(3,332,600 shares). EquitableAXA Financial,
Inc. may be deemed to have sole voting power with respect to 7,326,3378,832,404
shares, shared voting power with respect to 8,255,30013,087,540 shares, sole
dispositive power with respect to 18,148,02925,063,821 shares and shared dispositive
power with respect to 4004,340 shares.
(5) Based on a report filed with the SEC under the Exchange Act in February
1999, the shares reported represent the aggregated beneficial ownership of
Neuberger Berman, LLC and Neuberger Berman Management Inc. The filing
persons reported the amounts as a registered broker dealer, investment
advisor and investment company. The reporting persons may be deemed to have
sole voting power with respect to 1,399,857 shares, shared voting power with
respect to 3,235,000 shares, sole dispositive power with respect to no
shares and shared dispositive power with respect to 4,638,257 shares.
(6) As of December 31, 1998, based on a report filed with the SEC pursuant to
the Exchange Act in January 1999, Wellington shared dispositive power, but
had no voting power with respect to of the referenced shares, which were
held by investment advisory clients of Wellington. According to the report,
the sole client known to Wellington to have in excess of five percent of the
Class B common stock was the Vanguard Windsor Fund.
(7) Based on a report filed with the SEC in February 1999, the Vanguard Windsor
Fund -- Windsor Fund has sole voting power and shared dispositive power for
all the shares shown.
6
10
BENEFICIAL OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
The following table shows, as of March 23, 1999,24, 2000, the number of shares of
Class B common stock beneficially owned by each of the current directors, the
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................................ 21,000(2) *
Lloyd M. Bentsen, Jr................................. 24,160(3)Jr. .............................. 26,000(2) *
Gordon M. Bethune.................................... 547,029(4) 1.0%572,694(3) 1.1%
David Bonderman...................................... 1,737,577(5) 3.0%1,731,846(4) 3.3%
Gregory D. Brenneman................................. 439,370(6)413,711(5) *
Kirbyjon H. Caldwell................................. 5,288(6) *
Patrick Foley........................................ 21,000(7)26,000(7) *
Lawrence W. Kellner.................................. 201,722(8)209,651(8) *
Douglas H. McCorkindale.............................. 21,000(7)26,000(7) *
C.D. McLean.......................................... 184,300(9)215,769(9) *
George G. C. Parker.................................. 16,400(3)21,400(10) *
Richard W. Pogue..................................... 8,500(10)14,600(11) *
William S. Price III................................. 15,000(7)24,929(10) *
Jeffery A. Smisek.................................... 187,830(11)201,000(12) *
Donald L. Sturm...................................... 557,147(12)531,947(13) 1.0%
Karen Hastie Williams................................ 21,000(7)20,000(7) *
Charles A. Yamarone.................................. 26,000(13)31,000(14) *
All executive officers and directors as a group...... 4,973,965(14) 7.0%5,356,381(15) 10.3%
- ---------------
* 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 18,00023,000 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 15,000 shares subject to vested director stock options.
(4) Includes 545,000570,000 shares subject to vested options, or vesting within 60
days after March 23, 1999.
(5)24, 2000.
(4) Includes 853,644842,913 shares of Class A common stock described in note 3 to the
previous table, 21,00026,000 shares subject to vested director stock options and
682,450 shares beneficially owned by BFLP.
(6)(5) Includes 411,500 shares subject to vested options, or vesting within 60
days after March 23, 1999.24, 2000.
(6) Includes 5,000 shares subject to vested director stock options.
(7) Represents shares subject to vested director stock options.
6
10
(8) Includes 182,500207,500 shares subject to vested options, or vesting within 60
days after March 23, 1999,24, 2000, and 200 shares owned by a relative of Mr.
Kellner, as to which shares Mr. Kellner shares dispositive power but
disclaims beneficial ownership.
(9) Includes 182,500213,750 shares subject to vested options, or vesting within 60
days after March 23, 1999.24, 2000.
(10) Includes 5,00020,000 shares subject to vested director stock options.
(11) Includes 10,000 shares subject to vested director stock options and 2,000
shares of Class A common stock.
(11)(12) Includes 182,500195,000 shares subject to vested options, or vesting within 60
days after March 23, 1999,24, 2000, and 2,000 shares of Class A common stock.
7
11
(12)(13) Includes 21,00026,000 shares subject to vested director stock options, 60,40030,200
shares held in truststrust 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. 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. 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.
(13)(14) Includes 18,00023,000 shares subject to vested director stock options.
(14)(15) Includes 2,704,2643,073,439 shares subject to vested options, or vesting within 60
days after March 23, 1999,24, 2000, which are held by executive officers and
non-employee directors of the Company, and 858,844848,113 shares of Class A common
stock. See also notes 54 and 12.13.
GENERAL INFORMATION
BOARD OF DIRECTORS MEETINGS
Regular meetings of the Board of Directors are generally held four times
per year, and special meetings are scheduled when required. The Board held eightfour
meetings in 1998.1999.
STANDING COMMITTEES OF THE BOARD
The Audit Committee has the authority and power to act on behalf of the
Board of Directors with respect to the appointment of independent auditors for
the Company and with respect to authorizing any special audit or audit-related
activities which, in its discretion, are deemed necessary to perform its
functions. The committee monitors the audit activities of the Company and its
subsidiaries to assure that they have implemented proper internal accounting
controls.controls and reviews and discusses the Company's audited financial statements
with management and the independent auditors. The committee consists of fourthree
non-employee directors and met threefour times in 1998.1999.
The Executive Committee exercises certain powers of the Board of Directors
between Board meetings. The committee, which consists of two non-employee
directors and one officer-director of the Company, held no formal meetings in
1998,1999, but took numerousseveral actions by unanimous written consent.
The Finance and Strategy Committee reviews the Company's annual budget, its
short and long-term strategic plans and its plans for raising capital and
increasing liquidity, and makes recommendations to the Board of Directors
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 1998.1999.
The Human Resources Committee has the authority and power to act on behalf
of the Board of Directors with respect to all matters relating to the employment
of senior officers by the Company and its subsidiaries, including but not
limited to approval of compensation, benefits, incentives and employment
contracts. The committee administers the Company's stock option, employee stock
purchase and profit sharing plans, the executive bonus program and the Executive Bonus Program.other
incentive programs. The committee consists of four non-employee directors and
met sevenfour times in 1998.1999.
7
11
The Independent Directors Committee reviews compliance by Northwest and its
affiliates with the provisions of the governance agreement, as amended, and
related agreements to assure that the standstill, voting, transfer, conduct,
board composition, approval and other requirements, restrictions, terms and
conditions of such agreements are adhered to and that the benefits thereunder
for the Company and its stockholders are fully protected. The Committee consists
of eight non-employee directors and met one time in 1999.
The Company does not have a nominating committee.
During 1998,1999, each director of the Company other than Mr. Bentsen attended overat least 75% of the sum
of the total number of meetings of the Board and each committee of which he or
she was a member.
COMPENSATION OF DIRECTORS
Effective January 1, 1999, membersMembers of the Board of Directors who are not full-time employees of the
Company are paid $35,000 per year, $2,000 (or $3,000 for the chairperson) for
each Board and committee meeting physically attended, $1,000 for each Board
meeting attended by telephone, and $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 8
12
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. The Board authorized compensation for
members of a special committee formed to review the Air Partners Transaction and
related matters in the amount of $2,000 for each meeting attended personally or
by telephone and a one-time fee of $25,000 for the chairman of the committee in
recognition of the substantial demands placed on his time while serving as such
chair. The committee, which was comprised of Messrs. Bentsen, McCorkindale,
Parker (Chairman), Pogue and Yamarone, met twice in 1998. Stock options relating to 5,000 shares of Class B common
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 made to directors who are first elected to the Board other
than at an annual meeting of stockholders. In addition, each non-employee
director receives 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 paymentreimbursement of certain of
such taxes by the Company during Board service)Company), a frequent flyer card and an airport lounge card.
During 1998,1999, the value imputed by the Company to the use of such flight benefits
by the Company's non-employee directors, including the paymentreimbursement of related
taxes by the Company, varied by director, but did not exceed $18,500$11,200 for any of
the directors.
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 other employees of the Company.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's current executive officers:
NAME, AGE AND POSITION TERM OF OFFICE AND BUSINESS EXPERIENCE
---------------------- --------------------------------------
GORDON M. BETHUNE, age 57.....................58.................... Chairman of the Board and Chief Executive Officer
Chairman of the Board and OfficerChief Executive since September 1996. Director since Chief Executive Officer 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 Gen-
eralGeneral 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 ofof: Sysco Corporation, and nominee for
director ofCorporation;
Honeywell International Inc.
8
12
NAME, AGE AND POSITION TERM OF OFFICE AND BUSINESS EXPERIENCE
---------------------- --------------------------------------
GREGORY D. BRENNEMAN, age 37..................38................. President and Chief Operating Officer since
President, Chief Operating Officer and September 1996. Director since June 1995; andChief
Director Chief Operating Officer (May 1995-September1995- September 1996);
Consultant to the Company (February-April 1995);
various positions, including Vice President, with
Bain & Com-
pany,Company, Inc. (consulting firm) for more than
five years;commencing in
1987; Director of Browning-Ferris
Industries, Inc.; J. Crew Group Inc.
9
13
NAME, AGE AND POSITION TERM OF OFFICE AND BUSINESS EXPERIENCE
---------------------- --------------------------------------
LAWRENCE W. KELLNER, age 40...................41.................. Executive Vice President and Chief Financial Officer
Executive Vice President and OfficerChief since November 1996. Senior Vice President and Chief
Financial Officer President and Chief 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 57...........................58.......................... Executive Vice President -- Operations since
Executive Vice President -- Operations November 1996. Senior Vice President -- Operations
(April 1994-November 1996).
JEFFERY A. SMISEK, age 44.....................45.................... Executive Vice President, General Counsel and
Executive Vice President, General Counsel Secretary since November 1996. Senior Vice
General Counsel and Secretary President, General Counsel and Secretary (April
1995-November 1996); General Counsel since March 1995;
Partner, Vinson & Elkins L.L.P. (law firm)
prior to March 1995 for more than five years; Director of Tuboscope, Inc.
MICHAEL H. CAMPBELL, age 50...................51.................. Senior Vice President -- Human Resources and Labor
Senior Vice President -- Human LaborResources Relations since January 1997. Partner, ResourcesFord &
and Labor Relations Ford & Harrison LLP (law firm) (1978-1997).
MARK A. ERWIN, age 43......................... Senior Vice President -- Airport Services44........................ Senior Vice President -- Airport Services since
April 1995.Senior Vice President -- Newark Hub
(1994-1995).Airport Services April 1995.
J. DAVID GRIZZLE, age 44......................45..................... Senior Vice President -- Corporate Development since
Senior Vice President -- Corporate since November 1996. Vice
Development President -- Alliance
Development Development (April 1995-November 1996).
GERALD LADERMAN, age 42...................... Senior Vice President -- Finance since January 2000.
Senior Vice President -- Finance Vice President -- Corporate Finance (June
1995-December 1999); Vice President -- Asia
and Pacific DevelopmentAircraft
Programs (May 1993-April1993-June 1995).
GEORGE L. MASON, age 52.......................53...................... Senior Vice President -- Technical Operations since
Senior Vice President -- Technical since November 1996. Vice
Operations President -- Technical
Operations Operations (March 1994-November 1996).
DEBORAH L. McCOY, age 45..................... 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 43.........................44........................ President of Continental Express, Inc. since October
President of Continental Express, Inc. 1999. Senior Vice President -- Asia since March
Senior Vice President -- Asia 1998;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 CMI (June 1996-October 1996); Vice
President -- Finance of Continental Airlines, Inc.
(December 1994-June 1996); Managing Direc-
tor -- Financial Planning of American
Airlines, Inc. (1992-1994).
BONNIE S. REITZ, age 46....................... Senior Vice President -- Sales and
Senior Vice President -- Sales and Distribution since November 1996. Vice
Distribution President -- Marketing and Sales (August
1994-November 1996); Vice Presi-
dent -- Marketing and Sales of System One
Information Management, Inc. (1989-1994).
109
1413
NAME, AGE AND POSITION TERM OF OFFICE AND BUSINESS EXPERIENCE
---------------------- --------------------------------------
BONNIE S. REITZ, age 47...................... Senior Vice President -- Sales and Distribution
Senior Vice President -- Sales and since November 1996. Vice President -- Marketing and
Distribution Sales (August 1994-November 1996).
BARRY P. SIMON, age 56........................57....................... Senior Vice President -- International since
Senior Vice President -- International November 1996. Senior Vice President -- Europe (June
1995-November 1996); Senior Vice
Presi-
dentPresident -- Strategic Business Units (April
1995-
June1995-June 1995); Senior Vice President -- Widebody
Division (August 1994-April 1995); Senior Vice
President and General Counsel (June
1990-August 1994), except Senior Vice
President, General Counsel and Director, GAF
Corporation (January-March 1993).
KUNIAKI (JUN) TSURUTA, age 63.......................64................ Senior Vice President -- Purchasing and Materials
Senior Vice President -- Purchasing and Materials Services since November 1996. Vice
Materials Services President -- Purchasing (April 1994-November 1996).
JOHN E. (NED) WALKER, age 48................. Senior Vice President -- Worldwide Corporate
Senior Vice President -- Worldwide Communi- cations since March 2000; Vice
Corporate Communications President -- Corporate Communications (November
1994-March 2000).
JANET P. WEJMAN, age 41.......................42...................... Senior Vice President and Chief Information Officer
Senior Vice President and Chief OfficerInformation since November 1996. Vice President Information Officer and Chief
Officer Information Officer (February 1996-November 1996);
President, North Western
Aviation, Inc. (flight school in Chicago,
Illinois) (since August 1995); independent
consultant (August 1995-February 1996); Assis-
tantAssistant Vice President of System Technology and
User Training, Chicago & North Western Railroad
(August 1992-August 1995)1992-November 1996).
There is no family relationship between any of the executive officers. All
officers are appointed by the Board of Directors to serve until their
resignation, death or removal.
11
15
COMPENSATION OF EXECUTIVE OFFICERS
The following tables set forth (i) the aggregate amount of remuneration
paid by the Company during 1999, 1998 1997 and 19961997 to the chief executive officer
and the four other most highly compensated executive officers of the Company in
1998,1999 and (ii) the number of shares of Class B common stock subject to options
granted to such individuals during 1998 and the Black-Scholes value thereof and
(iii) information regarding stock options exercised in 19981999 and the
value of the options held by such individuals at the end of 1998.1999. None of the
top five executive officers of the Company received an option grant during 1999.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
AWARDS---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ----------------------- ----------------------------------------------
OTHER RESTRICTED SECURITIES ALL OTHER
OTHER
ANNUAL STOCK UNDERLYING ANNUALLTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS OPTIONS PAYOUTS COMPENSATION
- --------------------------- ---- -------- ---------- --------------- ---------- ---------- ------- ------------
Gordon M. Bethune................. 1998 $765,000 $1,381,500 $ 2,941Bethune.......... 1999 $860,840 $6,390,500 $6,012 $0 650,000 $ 0 $0 $0
Chairman of the Board and 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 Chief Executive Officer 1996 604,755 882,292 1,052 0 220,000 1,572,500(3)
Gregory D. Brenneman.............. 1998 $586,508 $1,018,752 $ 6,316Brenneman....... 1999 $658,376 $4,412,500 $6,692 $0 550,000 $ 0 $0 $0
President and Chief 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 Officer 1996 535,500 787,502 5,957 0 154,000 776,563(3)
Lawrence W. Kellner............... 1998 $428,400 $ 675,000 $11,716Kellner........ 1999 $476,310 $2,387,500 $7,872 $0 250,000 $ 0 $0 $0
Executive Vice President 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 and Chief Financial Officer 1996 390,172 569,128 7,106 0 70,000 0
C.D. McLean....................... 1998 $383,100 $ 618,752 $ 5,427McLean................ 1999 $435,815 $2,337,500 $1,152 $0 200,000 $ 0 $0 $0
Executive Vice President 1998 383,100 618,752 5,427 0 200,000 0 0
-- Operations 1997 381,600 468,752 3,511 0 60,000 0 -- Operations 1996 321,625 473,438 3,586 0 70,000 0
Jeffery A. Smisek................. 1998 $356,996 $ 587,500 $ 8,783Smisek.......... 1999 $404,919 $2,300,000 $7,445 $0 200,000 $ 0 $0 $0
Executive Vice President, 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 General Counsel and Secretary 1996 316,415 465,625 4,766 0
70,000 0Secretary
10
14
- ---------------
(1) 1999 and 1998 includesinclude stay bonus.bonus amounts paid in connection with Northwest's
acquisition of certain of the Company's capital stock in November 1998. The
Company also agreed to make charitable contributions in the executives'
names, including to the We Care Trust (the employee assistance charitable
fund of Continental), 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 $250,000 in the case of Mr.
Smisek.
(2) Represents a tax adjustment relating to certain travel benefits provided by
the Company.
(3) Represents payments made to Messrs. Bethune and Brenneman in 1996 in
connection with the waiver of certain rights under their respective
employment agreements.
OPTION GRANTS DURING 1998
INDIVIDUAL GRANTS
-----------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE GRANT DATE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE VALUE(2)
---- ---------- --------------- --------- ---------- ----------
Gordon M. Bethune......... 150,000 2.3% $56.8125 05/21/03 $2,765,040
500,000 7.8 35.0000 11/23/03 5,453,213
Gregory D. Brenneman...... 120,000 1.9 56.8125 05/21/03 2,212,032
430,000 6.7 35.0000 11/23/03 4,689,763
Lawrence W. Kellner....... 60,000 0.9 56.8125 05/21/03 1,106,016
190,000 3.0 35.0000 11/23/03 2,072,221
C.D. McLean............... 60,000 0.9 56.8125 05/21/03 1,106,016
140,000 2.2 35.0000 11/23/03 1,526,900
Jeffery A. Smisek......... 60,000 0.9 56.8125 05/21/03 1,106,016
140,000 2.2 35.0000 11/23/03 1,526,900
- ---------------
(1) The options vest in annual 25% increments commencing May 21, 1999 and
November 23, 1999, respectively.
12
16
(2) Estimated using the Black-Scholes option pricing model. Such model 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 the Company's employee stock options. These
differences, and changes in the subjective input assumptions, can materially
affect the estimated values shown. Consequently, such 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 4.9%; dividend yield of 0%; volatility factor of the
expected market price of the Company's common stock of 40%; and a weighted
average expected life of the options of 3.0 years.
AGGREGATED OPTION EXERCISES IN 19981999 AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
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............. 0 0 507,500 650,000 $6,336,406 $0Bethune...... 137,500 $5,628,125 532,500 487,500 $7,768,750 $3,515,625
Gregory D. Brenneman.......... 0 0Brenneman... 137,500 5,371,094 381,500 550,000 5,134,000 0412,500 5,289,063 3,023,438
Lawrence W. Kellner........... 0 0 167,500 250,000 1,826,563 0Kellner.... 37,500 1,441,406 192,500 187,500 2,752,813 1,335,938
C.D. McLean................... 0 0 167,500 200,000 1,850,000 0McLean............ 18,750 732,422 198,750 150,000 3,317,656 984,375
Jeffery A. Smisek............. 0 0 167,500 200,000 1,934,375 0Smisek...... 37,500 1,549,219 180,000 150,000 2,635,625 984,375
- ---------------
(1) Determined based on the closing price of the Class B common stock on
December 31, 19981999 of $33.50.$44.375.
EMPLOYMENT AGREEMENTS
Agreements with Mr. Bethune and Mr. Brenneman. In connection with the
closing of the Air Partners Transaction, Continental has entered into
a new
employment agreementagreements with each of Mr. Bethune and Mr. Brenneman relating to his
service as an officer and director of the Company. The agreements provide for
(i) an annual base salary of not less than $750,000$850,000 for Mr. Bethune and $575,000$650,000
for Mr. Brenneman; (ii) participation in any Company cash bonus program at the
maximum level available to any executive (and not less than the Bonus Percentage
defined below); (iii) a supplemental executive retirement plan ("SERP"),
disability benefits and life insurance; (iv) flight benefits substantially
identical to those currently provided to non-employee directors ("Flight
Benefits"); and (v) perquisites and other matters. The "Bonus Percentage" is
equal to the annual percentage of base salary (i.e., 0% to 125%) paid or payable
under the Company's Executive Bonus Program.executive bonus program.
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) 1.6%2.5% times (y) the number of his credited years of service (with(as defined,
which include additional credited years of service for each of the next five
years to induce the executive to remain in the employ of the Company, with the
executive receiving an additional three years of credited service if he receives
a Termination Payment (as defined below) under his employment agreement) times
(z) his final average compensation (including salary and cash bonuses, other
than bonuses paid prior to April 1, 1995, andcertain stay bonus amounts receiveddescribed
elsewhere in connection withthis proxy statement, and cash bonuses paid under any long-term
incentive plans or programs adopted by the Air Partners Transaction)Company). Amounts payable under the
Company's 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
Air
Partners Transactionpurchase 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 13
17
Benefits"). If his employment is terminated by the Company
for
11
15
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.
See also
"Certain Transactions."
Agreements with Other Named Executives. Continental has entered into
employment agreements with each of Messrs. Kellner, McLean and Smisek, which
agreements were amended in connection with the Air Partners Transaction and
contain substantially identical terms. The agreements provide for an
annual base salary of not less than $420,000, $375,000$470,000, $430,000 and $350,000,$400,000,
respectively, participation in any Company cash bonus program at the maximum
level available to any executive, a SERP with terms similar to Mr. Bethune's 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-year term of employment
ending in November 2000. If the applicable executive's employment is terminated
by expiration of the employment agreement, the executive will receive (i) Flight
Benefits, (ii) the applicable SERP benefit, (iii) vesting of all options and any
shares of restricted stock awarded 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) the sum of (1) the executive's then current
annual base salary and (2) a deemed annual bonus equal to the Bonus Percentage
(with respect to the most recently ended fiscal year) 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 terminated within two years after a Change in Control
(as defined in the Company's 1998 Stock Incentive Plan) or, if such termination
occurs within two years of the Air Partners Transaction,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.
See also"Certain Transactions."
1412
1816
RETIREMENT PLAN
The Continental Airlines Inc. 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 Plan as it
pertains to non-pilots. Under the Retirement 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 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
$160,000.$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 1999.2000.
PENSION PLAN TABLE
YEARS OF SERVICE
---------------------------------------------------------
FINAL AVERAGE COMPENSATION 5 10 15 20 25 30
- -------------------------- ------- ------- ------- ------- ------- -------
$100,000.................... $ 7,500 $14,999 $22,499 $29,998 $37,498 $44,9987,456 $14,912 $22,368 $29,825 $37,281 $44,737
$125,000.................... 9,550 19,099 28,649 38,198 47,748 57,2989,506 19,012 28,518 38,025 47,531 57,037
$150,000.................... 11,600 23,199 34,799 46,398 57,998 69,598
$160,000.................... 12,420 24,839 37,259 49,678 62,098 74,51811,556 23,112 34,668 46,225 57,781 69,337
$170,000.................... 13,196 26,392 39,588 52,785 65,981 79,177
TheMessrs. Bethune and McLean are estimated to have six credited years of
service forunder the plan and Messrs. Bethune, Brenneman, Kellner McLean and Smisek are estimated
to have five years, four years, four years, five years
and four years, respectively.such years. In addition, each such officer's employment agreement
provides for certain supplemental retirement benefits, which benefits will be
offset by amounts received under the Retirement Plan. Under the Retirement 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 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 athe applicable maximum years of 30 years.
15participation. Special
rules also apply for certain other work groups of the Company.
13
1917
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the 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 index on December 31, 1993.1994.
[PERFORMANCE GRAPH]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
12/31/9396 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
-------- -------- -------- ----------------- -------- --------
Continental Airlines........................ $100 $ 45.12 $212.20 $275.61 $469.51 $326.83Airlines................... $100.00 $470.27 $610.81 $1,040.54 $724.32 $959.46
S&P Airline Index........................... $100Index...................... $100.00 $145.86 $159.72 $ 69.69 $101.65 $111.31 $187.33 $181.20268.81 $260.01 $238.49
S&P 500 Index............................... $100 $101.32 $139.40 $171.40 $228.59 $293.92Index.......................... $100.00 $137.58 $169.17 $ 225.61 $290.09 $351.13
EXECUTIVE COMPENSATION REPORT OF THE HUMAN RESOURCES COMMITTEE
General Compensation Strategy
In 1998,1999, the Board's Human Resources Committee of the Board of Directors of
Continental Airlines, Inc. (the "Committee") 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
In considering appropriate executive compensation levels, the Committee
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 16
20
companies with historical revenue, stock appreciation, stock
volatility and other characteristics deemed comparable to the Company by the
Committee. The elements of compensation included in the competitive analysis
generally are base salaries, annual incentives and long-term incentives.
Having announced in September 1997 its intention to bring all employees to
industry standard wages over a three-year period, the Company raisedcontinued raising
the salaries and wages of certain non-executive employees
14
18
during 1998.1999. Nearly all employees other than officers and other senior managers
of the Company are incentivized through the Company's profit sharing plan and
on-time arrival bonus structure, and all employees are able to participate in
the Company's success through participation in the employee stock purchase plan approved by stockholders in
1997.plan.
Executives' incentives are linked to the Company's performance through the
quarterly Executive Bonus Program andexecutive bonus program, through the award of stock options.options and through a new
long term incentive performance award program implemented under the Incentive
Plan 2000 submitted for stockholder approval at the Meeting. Other officers and
senior managers participate in an annual bonus program and are also awarded
stock options. No sharesoptions, and certain of restricted stock were awardedsuch officers participate in 1998.the new long term
incentive performance award program.
In conducting the programs applicable to executives, the Committee
considers the effects of Section 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 such company's stockholders. Certain of the
Company's current compensation plans, such as its stock option plans, and the
programs implemented to date under the Incentive Plan 2000 proposed for
stockholder approval in this proxy statement, are designed to qualify as
performance-based compensation under Section 162(m). However, 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 Company to certain of the most highly
compensated officers of the Company with respect to 19981999 were limited by Section
162(m), such limitation did not result in the payment of increased federal
income taxes by the Company in 19981999 due to the Company's significant net
operating loss carryforwards.
Base Salaries. The Committee 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's executives. In addition to their retention elements,
baseBase 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 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.
Incentive Compensation. The Committee believes that appropriate base
salaries must be coupled with incentive compensation that not only attracts and
retains qualified employees, but rewards them for increased performance.
Compensation linked to the performance of the Company's common stock is one of
the best incentives to align employees' interests with those of stockholders and
to enhance performance. In addition, through the Incentive Plan 2000 proposed
for stockholder approval in this proxy statement, the Committee has sought to
define performance criteria relative to the Company's 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 from other companies. The Company maintains
stock option plans for its executive officers and other senior managers, and an
employee stock purchase plan open to all employees of the Company, each of which
is designed to encourage employees, including the Company's executive officers
and key employees, to identify their interests with those of stockholders and
enhance the Company's performance. In addition, the Company maintains a profit
sharing plan, under which 15% of the Company'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 base salary.specified earnings. Finally, the Company maintains an Executive Bonus Program,executive
bonus 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 Committee believes that these
incentives play a significant part in the Company's continuing improvement and
success.
1715
21
199819
1999 Executive Compensation
Base Salaries. None of the Company's executive officers received salary
increases in 1998. Salary adjustments had been made in late 1996 for certain
officers and in 1997 for others. In the first quarter of 1999, salary
adjustments were madesalaries for substantially all
the Company's executive officers were increased, including the Chief Executive
Officer. None of the executive officers whose salaries were increased in 1999
had received salary increases in 1998. The adjustments resulted from the
Committee's review of competitive salaries at the time and the executives'
performance.
Stock Incentives. Consistent with its compensation strategy, the Company
awarded stock options to executivecertain officers and key employees during 1998.1999. Options
granted during 1999 bear five-year terms and vest ratably over four years.
However, no options were granted to the five most highly compensated officers,
as wellthey had received larger than normal grants in 1998 as stock
option exercises by those individuals, are describeddiscussed in the Summary Compensation
and other tables included above. Options granted during 1998 bear five-year
terms and vest ratably over four years. The grants made to officerslast
year's proxy statement. In addition, none of the Company in 1998, including the Company's other executive
officers were larger thanreceived option grants in previous years, since all of the options granted to the Company's officers prior
to January 25, 1998 vested fully upon consummation of the Northwest Transaction.
Consistent with the compensation strategy outlined above, the Committee deemed
it appropriate to provide significant grants (in addition to normal annual
grants) vesting over a four-year period to induce the Company's officers to
remain in the employ of the1999. The Company after the Northwest Transaction and to tie
their incentives to stock price performance. The Companyalso made no restricted
stock grants in 1998.1999.
Other Plans.Plans and Programs. The Company's Executive Bonus Program makesexecutive bonus program, which
terminated on April 1, 2000, made the Company's executive officers and certain
additional officers recommended by the Chief Executive Officer and approved by
the Committee eligible to receive on a fiscal quarterly basis a cash bonus of up
to 125% of their salary for such quarter based on the Company's cumulative net
income earned through such quarter as compared to the cumulative net income
targeted through such quarter in the Company's annual financial plan approved by
the Board. TheBoard and adopted by the Committee. In 1999, the Company maintained a
separate annual bonus program for other officers and management employees
throughout 1998. In 1998, the Committee recommended and the Board adoptedimplemented a
deferred compensation plan in which directors and officers of the Company may
participate beginning in 1999.participate. The plan had been previously recommended by the Committee and
approved by the Board.
As previously reported to stockholders, each of Messrs. Bethune, Brenneman,
Kellner, McLean and Smisek entered into areceived monthly payments during 1999 pursuant to
stay bonus agreementagreements with the Company entered into in 1998, pursuant1998. These bonuses were
designed to whichencourage the officers to remain with the Company agreed to pay stay bonuses to those
executive officers in equal monthly installments over the fifteen-month period
following
the closingNorthwest's purchase of the Northwest Transaction; provided that the applicable
executive remains in the employcertain capital stock of the Company during the month in which the
payment is made or, if the executive's employment is terminated by the Company,
such termination is not for cause.and were payable
through February 2000. The Company 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), in equal monthly
installments overduring the same period and subject to the same provisos. The Company
also entered into new or amended employment agreements with each of such
executives, and with other executive officers of the Company, upon consummation
of the Northwest Transaction, to further incentivize such officers to remain in
the employ of the Company.period. Also as
previously reported, the Company entered into stay bonus agreements
in 1998 with certain of its other officers, including executive officers,
callingreceived stay bonus payments during the same period.
As discussed elsewhere in this proxy statement, the Committee recommended
and the Board adopted the Company's Incentive Plan 2000, providing for paymentthe award
of stay bonuses over a fifteen-month period followingcash 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
closingCompany'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 of the Northwest Transaction, and implemented a severanceIncentive Plan 2000, three
incentive programs under the Incentive Plan 2000. The first 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 respectan 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 certain officers and other managersexecutives who participate in the
LTIP. The third program, the Officer Retention and Incentive Award Program
("Retention Program"), is 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's stock optionexecutives
to grow the value of the Company's investments in e-commerce and internet
businesses, including distribution and marketing channels for the Company. This
program but who do not have employment agreementspermits executives to receive a cash payment measured by a portion of
the gain and profits associated with the Company's investments in e-commerce or
internet businesses. The Committee believes that the Retention Program will act
as a powerful retention tool for Company asmanagement, and will benefit the
Company from the direct incentive to foster investment in and growth of
e-commerce and internet businesses
16
20
strategic for the growth and development of the dateCompany, including through cost
savings generated by more efficient means of a Change in Control (as defined).
1998distribution and marketing of the
Company's services.
1999 CEO Compensation
Mr. Bethune did not receive a base salary increase in 1998. Although the
Company continued to exceed its financial goals, the Committee believed that Mr.
Bethune's base salary remained competitive in 1998 at the time of the
Committee's review in early 1998. Mr. Bethune's salary was subsequently increased in the first quarter of 1999 as a result
of the Committee'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 18
22
bonus amounts in 19981999 reflecting the
Company's success under the Executive Bonus
Program and received a significant grant of stock options (in addition to his
normal annual grant) to incentivize him to remain with the Company after the
closing of the Northwest Transaction and to tie his incentives to stock price
performance.executive bonus program. In addition, as described
elsewhere in this proxy statement, in
1998 Mr. Bethune entered intoreceived monthly payments during
1999 pursuant to a stay bonus agreement with the Company entered into in 1998 to
encourage him to remain with the Company following the Northwest Transaction,
and entered into a new employment agreement withNorthwest's purchase of
certain capital stock of the Company. Mr. Bethune did not receive any stock
options in 1999.
Respectfully submitted,
Human Resources Committee
Thomas J. Barrack, Jr., Chairman
DouglasKirbyjon H. McCorkindaleCaldwell
George G. C. Parker
Charles A. Yamarone
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's executive compensation programs are administered by the Human
Resources Committee of the Board of 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 Company or any of its
subsidiaries.
CERTAIN TRANSACTIONS
The Company and 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 of the Company and holds a significant
interest instockholder of the Company. The
services provided are considered normal to the daily operations of both
airlines. As a result of these agreements, during 19981999 Continental paid America
West $15$25 million and America West paid Continental $27$31 million.
In November 1998, the Company and Northwest, a significant stockholder of
the Company, began implementing a long-term global alliance involving extensive
code-sharing, frequent flyer reciprocity and other cooperative activities. In
addition, Northwest and Continental provide other services to each other
considered normal to the daily operations of both airlines. As a result of these
latter agreements,arrangements, during 1998,1999, Continental paid Northwest $3.4$7 million and
Northwest paid Continental $3.5$9 million.
Karen Hastie Williams is a partner of Crowell & Moring LLP, a law firm that
has provided services to the Company and its subsidiaries for many years. The
Company's fee arrangement with Crowell & Moring LLP is negotiated on the same
basis as the Company's arrangements with its other outside legal counsel and is
subject to the same terms and conditions. The fees paid by the Company to
Crowell & Moring LLP are comparable to those it pays to other law firms for
similar services.
During 1998 in connection with the Air Partners Transaction, each of
Messrs. Bethune, Brenneman, Kellner, McLean and Smisek entered into a Stay Bonus
Agreement with the Company, pursuant to which the Company has agreed to pay a
stay bonus of $6.66 million in the case of Mr. Bethune, $4.5 million in the case
of Mr. Brenneman, and $2.25 million in the case of each of Messrs. Kellner,
McLean and Smisek, payable in equal monthly installments over the fifteen-month
period following the closing of the Air Partners Transaction; provided that the
applicable executive remains in the employ of the Company during the month in
which the payment is made or, if the executive's employment is terminated by the
Company, such termination is not for cause. In addition, the Company agreed to
make charitable contributions in the executive's name, including to the We Care
Trust (the employee assistance charitable fund of Continental), in the amount of
$340,000 in the case of Mr. Bethune, $1,000,000 in the case of Mr. Brenneman,
and $250,000 in the case of each of Messrs. Kellner, McLean and Smisek, in equal
monthly installments over the same period and subject
1917
23
to the same provisos. Also during 1998 in connection with the Air Partners
Transaction, the Company entered into stay bonus agreements with certain of its
other officers calling for payment of up to an aggregate of $9.5 million over a
fifteen-month period following the closing of the Air Partners Transaction.21
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,
directors will be elected by a plurality of the votes duly cast at the Meeting.
If elected, such 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 does not contemplate that any of the nominees will
become unavailable to serve for any reason, but if that should occur before the
Meeting, proxies will be voted for another nominee or nominees to be selected by
the Board of Directors.
Air Partners, through which Northwest holds the majority 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.
In the Air Partners Transaction, the Northwest Parties
acquired Air Partners and could exercise Air Partners' rights under this
provision, subject to the terms of the governance agreement described above
under the caption "Northwest Transaction".
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 following the closing of the Air Partners
Transaction to cause Independent Directors (as therein defined) to
constitute at least a majority of the Board of Directors. Ms. Williams and
Messrs. Bentsen,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 23, 1999,24, 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's
name and age, (ii) the period for which such person has served as a director of
the Company, (iii) all positions and offices with the Company 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 Board of Directors of which he or she is a member.
Each of the nominees is currently a director of the Company.
NAME, AGE, POSITION
AND COMMITTEE MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
------------------------- --------------------------------------
THOMAS J. BARRACK, JR., age 51.............52....................... Director since August 1994. Chairman and Chief Executive
(Human Resources Committee) Executive Officer of Colony Capital, Inc. and
Colony Advisors, Inc. (real estate
investments) since 1991; Officer of Keystone, Inc. (a
private investment firm) (1987-1991);
Director of: Public
Storage, Inc; Kennedy-
Wilson,Kennedy-Wilson, Inc.; Harvey's Acquisition Corp.
LLOYD M. BENTSEN, JR., age 78.............. Director since September 1996. Retired.
(Audit Committee) Shareholder of Verner, Liipfert, Bernhard,
McPherson and Hand (law firm) (1995-1999);
United States Secretary of the Treasury
(1993-1995); Member of the United States
Senate (1971-1993).
20
24
NAME, AGE, POSITION
AND COMMITTEE MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
------------------------- --------------------------------------
GORDON M. BETHUNE, age 57..................58............................ Director since August 1994. Chairman of the
Chairman of the Board and Chief Executive Officer Board and Chief Executive Officer since
Officer (Executive Committee, Finance and Strategy September 1996. President and Chief StrategyExecutive
Committee) 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, and nomi-
nee for director ofCorporation; Honeywell
International Inc.
18
22
NAME, AGE, POSITION
AND COMMITTEE MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
------------------------- --------------------------------------
DAVID BONDERMAN, age 56....................57.............................. Director since April 1993. Chairman of the
(Executive Committee, Finance and Strategy Board (May 1993-September 1996); Managing
Strategy
Committee) Partner of Texas Pacific Group since 1992;
Director of: Bell & Howell Holdings
Company;Company, Inc.;
Beringer Wine Estates; Co-Star Realty
Information, Inc.; Denbury Resources, Inc.;
Realty Information Group,
L.P.Ducati Motor Holding S.p.A.; Oxford Health
Plans, Inc.; Paradyne Networks, Inc.; Ryanair,
Ltd; and Washington Mutual, Inc.
GREGORY D. BRENNEMAN, age 37...............38......................... Director since June 1995. President and Chief
President and Chief Operating Officer Chief(Finance and Operating Officer since September (Finance and1996. Chief
Strategy Committee) 1996. Chief Operating Officer (May 1995-September 1996);
Consultant to the Company (February-April
1995); various positions, including Vice
President, with Bain & Company, Inc.
(consulting firm) for
more than five years;commencing in 1987; Director
of Brown-
ing-Ferris Industries, Inc.; J. Crew Group Inc.
KIRBYJON H. CALDWELL, age 46......................... Director since May 1999. Senior Pastor of The
(Human Resources Committee, Independent Directors Windsor Village-St. John's United Methodist
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 67......................68................................ Director since April 1993. Former Chairman of
the
(Audit Committee, Independent Directors Committee) the Board, President and Chief Executive
Officer of DHL Airways, Inc. since 1988;(1988-1999);
Director of: Foundation Health Systems, Inc.;
Glenborough Realty Trust, Inc.; Flextronics
International Ltd.; Del Monte Foods Company.
DOUGLAS H. McCORKINDALE, age 59............60...................... Director since April 1993. Vice Chairman (Human Resourcesand
(Independent Directors Committee) and President of Gannett Co., Inc. (a nationwide
diversified communications company) since
September 1997; Vice Chairman and Chief
Financial and Administrative Officer of
Gannett Co., Inc. (1984-1997); Director of: a
group of Prudential Mutual Funds; Frontier
Corporation.Global
Crossing Ltd.
GEORGE G. C. PARKER, age 60................61.......................... Director since June 1996. Associate Dean for
(Finance and Strategy Committee, Human forResources Academic Affairs and Director of MBA ResourcesProgram
Committee, Independent Directors Committee) Program 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:
California
CasualtyAffinity Group of Insurance Companies; Bai-
lard, Biehl, and Kaiser,International, Inc.; RCM/DresdnerBGI Mutual
Funds; Dresdner/RCM Global Mutual Funds; H. Warshow & Sons,
Inc.; Community First Banking Group.Tejon
Ranch Company.
2119
2523
NAME, AGE, POSITION
AND COMMITTEE MEMBERSHIPS TERM OF OFFICE AND BUSINESS EXPERIENCE
------------------------- --------------------------------------
RICHARD W. POGUE, age 70...................71............................. Director since April 1993. Senior Advisor of
(Executive Committee) ofCommittee, Independent Directors Dix & Eaton Incorporated (a public relations
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; KeyCorp; LAI Associates, Inc.; Rotek
Incorporated; TRW Inc.
WILLIAM S. PRICE III, age 42...............43......................... Director since April 1993. Managing Partner of
(Finance and Strategy Committee) of Texas Pacific Group since 1992; Director of
AerFi Group plc; Belden & Blake Corporation;
Beringer Wine Estates; Del Monte Foods
Company; Denbury Resources, Inc.; Favorite
Brands, Inc.; VIVRA Inc.; Zilog, Inc.
DONALD L. STURM, age 67....................68.............................. Director since April 1993. Chairman of the (Audit Committee) Board and
(Audit Committee, Independent Directors Committee) Chief Executive Officer of: The Sturm Group
(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, Inc. (local telephone exchange carrier) since
January 1998.1998 and MD Network since 1996;
Director of: HarvardNet (a DSL provider in the
northeast U.S.); Kaptech (a French telecom
company); Advantag-e (European web hosting
company); iVention group (an internet start-up
incubator company); Castle Rock Development
Company.
KAREN HASTIE WILLIAMS, age 54..............55........................ Director since April 1993. Partner of Crowell
(Audit Committee, Independent Directors Committee) Crowell & Moring LLP (law firm) since 1982; Director
of: Federal National Mortgage
Association; Crestar Financial Corporation; Gannett
Co., Inc.; and Washington Gas Light Company.
CHARLES A. YAMARONE, age 40................41.......................... Director since January 1995. Executive Vice
(Human Resources Committee)Committee, Independent Directors President of U.S. Bancorp Libra, 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); Senior Vice
President and General Counsel of Libra
Investments, Inc. (1991-1994); 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.
20
24
PROPOSAL 2:
APPROVAL OF THE
INCENTIVE PLAN 2000
GENERAL
As described above in its report, 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 under the Continental Airlines, Inc. Incentive Plan 2000 (as amended
and restated, 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 part of management's
compensation, and the Incentive Plan 2000 provides for up to 3,000,000 shares of
Class B common stock (subject to adjustment as described below) to be issued
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 2000 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.
The purpose of the Incentive Plan 2000 is to enable the Company and its
subsidiaries to attract and retain capable persons to serve as directors and
employees and to provide a means whereby 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.
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. Copies of the Incentive Plan 2000 and the programs
adopted thereunder are on file and publicly available at the SEC and are also
available on the Company's website at www.continental.com. Capitalized terms not
otherwise defined herein have the meanings ascribed to them in the Incentive
Plan 2000 or such programs.
The Incentive Plan 2000 provides that the Company may grant Options 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 types 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 purpose 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, at the time of
grant, are directors of the Company or employees of the Company or one of its
subsidiaries. Awards may be granted on more than one
21
25
occasion 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
recipient to purchase shares of Class B common stock at a price 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 times as determined by the Administrator. The option price is payable in
full in the manner specified by the Administrator. The holder of an Option is
entitled to privileges and rights of a stockholder only with respect to shares
of Class B common stock purchased under the Option and for which certificates
representing such shares are registered in the Holder's name.
Options granted under the Incentive Plan 2000 may be Options that are
intended to qualify as "incentive stock options" within 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 Option to the extent that the
aggregate Market Value per Share (determined at the time of grant) of Class B
common stock with respect to which Incentive Stock Options are first exercisable
by an individual during any calendar year under all incentive stock option plans
of the Company (and its parent and subsidiary corporations) exceeds $100,000. An
Incentive Stock Option may only be granted to an individual who is an 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
possessing more than 10% of the total combined voting power of all classes of
stock of the Company (or of its parent or subsidiary corporation, within the
meaning of Section 422(b)(6) of the Code), unless (i) at the time such Option is
granted the option price is at least 110% of the Market Value per Share of the
Class B common stock subject to 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 a 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, or a combination thereof, as
determined by the Committee, with a value equal to the excess of the Market
Value per Share, as of the date of such request, of one share 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.
22
26
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, the Holder of a Performance
Award shall be entitled to receive payment of an amount not exceeding the
maximum value of the Performance Award, based on the achievement of the
performance measures for such performance period, as determined by the
Administrator and certified by the Committee as required by Section 162(m) of
the Code. Payment 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 determined by the Administrator. Payment shall be made in a lump sum, except
as otherwise set forth in the applicable Grant Document.
23
27
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, motivate 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 Administrator 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 Performance Period (January 1, 2000 to December 31, 2000) and
(ii) a two-year Performance 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 compared 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 amount 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 company in the Industry Group 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 carrier 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.
24
28
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 of Class B common stock or a
combination 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 respect to such quarter or (y) 100% less the
percentage negative variance between 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
25
29
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 percentages 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.
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 be 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
26
30
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.
27
31
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
28
32
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
29
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 transferable other than by will
or the laws of descent and distribution and may not be
30
34
exercised during the Holder's lifetime except 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 prior 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.
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 which 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 determination by the Human Resources Committee of the size and
terms of stock option grants. Although the Human Resources Committee has not yet
determined the size and terms 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."
31
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
32
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.
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 2000 based on
federal income tax laws in effect on January 1, 2000. This summary applies to
the Incentive Plan 2000 as normally operated and is not intended to provide or
supplement tax advice to eligible employees or directors. 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.
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 equal 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 of Class B common stock subject to Awards
granted to any one recipient during any calendar year 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 preserve 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 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.
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. If shares of Class B common stock
are issued to an optionee pursuant to the exercise of an Incentive Stock Option
and no disqualifying disposition of the shares is made by the optionee within
two years after the date of grant or within one year after the transfer of the
shares to the optionee, then upon the sale of the shares any amount realized in
excess of the option price will be taxed to the optionee as a capital gain and
any loss sustained will be a capital loss.
If shares of Class B common stock acquired upon the exercise of Incentive
Stock Options are disposed of prior to the expiration of either holding period
described above, the optionee 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 time of exercise (or, if less, the amount realized on the
disposition of the shares in a sale or exchange) over the option price paid for
the shares. Any further gain (or loss) realized by the optionee generally will
be taxed as a 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.
33
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.
Tax Consequences to the Company or Subsidiary
Section 162(m) of the Code limits the ability of the 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 recipient performs services will
be entitled to a corresponding deduction provided that, among other things, (i)
the income 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 and (ii) either the compensation is "performance-based"
within the meaning of Section 162(m) of the Code
34
38
or the one million dollar limitation of Section 162(m) of the Code is not
exceeded. No deduction will be available to the Company or any subsidiary for
any amount paid under the Incentive Plan 2000 with respect to (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 and (ii) any taxes due on the payment
of such excise taxes described in clause (i).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE INCENTIVE
PLAN 2000, WHICH IS DESIGNATED AS PROPOSAL 2:NO. 2 ON THE ENCLOSED PROXY.
PROPOSAL 3:
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP has been the Company's independent auditors
since 1993, and the Board of Directors desires to continue to engage the
services of this firm for the fiscal year ending December 31, 1999.2000. Accordingly,
the Board of Directors, upon the recommendation of the Audit Committee, has
reappointed Ernst & Young LLP to audit the financial statements of the Company
and its subsidiaries for fiscal 19992000 and report thereon. Stockholders are being
asked to vote upon the ratification of such appointment. If stockholders do not
ratify such appointment, the Audit Committee and Board will reconsider such
appointment.
Representatives of Ernst & Young LLP will be present at the 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. 23
ON THE ENCLOSED PROXY.
OTHER MATTERS
Management knows of no business to be presented for action at the Meeting
other than that described in this proxy statement. If any other matters should
properly come before the Meeting calling for a vote of the stockholders, it is
the intention of the persons named in the accompanying proxy, unless otherwise
directed in such proxy, to vote on such 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 1998, David Grizzle,1999, the initial report
for Deborah McCoy, an executive officer of the Company, was filed a report three days late relating to a
charitable contribution of shares of the Company's Class A common stock.
23late.
35
27
200039
2001 ANNUAL MEETING
Any stockholder who desires to present proposals at the 20002001 annual meeting
of stockholders and to have such proposals set forth in the proxy statement and
form of proxy mailed in conjunction with such annual meeting must submit such
proposals in writing to the Secretary of the Company no later than December 8,
1999.5,
2000. The Company's Bylaws require that for nominations of persons for election
to the Board of Directors of the Company 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 19992001 annual meeting of
stockholders, such notice must be delivered to the Secretary of the Company at
the principal executive offices of the Company not less than 70 days nor more
than 90 days prior to May 18, 2000,23, 2001, provided, that if the 20002001 annual meeting of
stockholders is advanced by more than 20 days, or delayed by more than 70 days,
from May 18, 2000,23, 2001, such notice must be delivered not earlier than the ninetieth
day prior to the 20002001 annual meeting and not later than the close of business on
the later of (a) the seventieth day prior to the 20002001 annual meeting or (b) the
tenth day following the day on which public announcement of the date of the 20002001
annual meeting is first made. The stockholder's notice must contain and be
accompanied by certain information as specified in the Bylaws. It is recommended
that any stockholder desiring to make a nomination or submit a proposal for
consideration obtain a copy of the Company's Bylaws, which may be obtained
without charge from the Secretary of the Company upon written request addressed
to the Secretary at the Company's principal executive offices.
EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND MAIL PROMPTLY
THE ENCLOSED PROXY OR VOTE BY TELEPHONEINTERNET OR INTERNETTELEPHONE AS DESCRIBED ABOVE IN THE
PROXY STATEMENT.
By Order of the Board of Directors,
/s/ JEFFREY A.JEFFERY A SMISEK
Jeffery A. Smisek
Secretary
Houston, Texas
April 6, 19994, 2000
THE COMPANY WILL FURNISH 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, 1998.1999. THE COMPANY WILL FURNISH ANY EXHIBIT TO SUCH
REPORT, UPON WRITTEN REQUEST, TO ANY SECURITY HOLDER REQUESTING SUCH REPORT UPON
PAYMENT OF REASONABLE FEES RELATING TO THE COMPANY'S FURNISHING SUCH EXHIBIT.
REQUESTS FOR COPIES SHOULD BE ADDRESSED TO THE SECRETARY OF THE COMPANY AT THE
COMPANY'S HEADQUARTERS: 1600 SMITH, DEPT. HQSEO, HOUSTON, TEXAS 77002. 24THE
COMPANY'S FORM 10-K, INCLUDING EXHIBITS, IS ALSO AVAILABLE ON THE COMPANY'S
WEBSITE AT WWW.CONTINENTAL.COM.
36
28
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
1. Election40
COMMON STOCK
PROXY
CONTINENTAL AIRLINES, INC.
Annual Meeting of Directors.
See Reverse Side. / / / / / /
For, except vote withheld from the
following nominees:
__________________________________
FOR AGAINST ABSTAIN
2. RatificationStockholders - May 23, 2000
This Proxy is Solicited on Behalf of Appointment of
Independent Auditors. / / / / / /
Please mark this box ONLY if any Class / /
A or Class B common stock owned of
record or beneficially by you is
owned or controlled by Foreigners (as
defined in the proxy statement), and
indicate the number and class so
owned or controlled by Foreigners.
Class A ___________________________
Class B ___________________________
Dated: _____________________ , 1999
Signatures: _______________________
___________________________________
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.
- --------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
CONTROL NUMBER
- -------------- [CONTINENTAL AIRLINES LOGO]
- --------------
VOTE BY TELEPHONE OR INTERNET
24 HOURS A DAY 7 DAYS A WEEK
Continental encourages you to take advantage of the new and convenient ways to
vote your shares. If voting by proxy, this year you may vote by mail, or choose
one of the two methods described below. Your telephone or Internet vote
authorizes the named proxies to vote your shares in the same manner as if you
marked, signed, and returned your proxy card. To vote by telephone or Internet,
read the accompanying proxy statement and then follow these easy steps:
TO VOTE BY PHONE _____________________________________________________________
Call toll free 1-888-515-8274 in the United States or
Canada any time on a touch tone telephone. There is NO
CHARGE to you for the call.
Enter the 6-digit Control Number located above.
Option #1: To vote as the Board of Directors recommends on
ALL proposals: Press 1.
When asked, please confirm your vote by
pressing 1
Option #2: If you choose to vote on each proposal
separately, please press 0 and follow
the simple recorded instructions.
________________________________________________________________________________
TO VOTE BY INTERNET ___________________________________________________________
Go to the following website:
www.harrisbank.com/wproxy
Enter the information requested on your computer screen,
including your 6-digit CONTROL NUMBER located above.
Follow the simple instructions on the screen.
___________________________________________________________
If you vote by telephone or the Internet, DO NOT mail back the proxy card.
THANK YOU FOR VOTING!
________________________________________________________________________________
29
CONTINENTAL AIRLINES, INC.
ANNUAL MEETING OF STOCKHOLDERS -- MAY 18, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby authorizes Gordon M. Bethune, Jeffery A. Smisek and
P Scott
R. Peterson, and each of them, with full power of substitution, to represent and
vote the stock of the undersigned in Continental Airlines,
R 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 O May 18, 1999,23, 2000, and at any
adjournment or adjournments thereof, as if the undersigned were present and
voting thereat. The undersigned acknowledges
X receipt of the notice of annual
meeting and proxy statement with respect to such Annual Meeting and certifies
that, to the knowledge of the
Y undersigned, all equity securities of the Company
owned of record or beneficially by the undersigned are owned and controlled only
by U.S. Citizens (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.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 Lloyd M. Bentsen, Jr. 02
Gordon M. Bethune 0302
David Bonderman 0403 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 13
================================================
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.
================================================
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 BY THE BOARD OF DIRECTORS (PROPOSAL 1)
AND "FOR" PROPOSAL 2.
THE BOARDPROPOSALS 2 AND 3.
The Board of Directors Recommends a Vote "FOR" Proposals 1, 2, and 3.
THIS FORM OF DIRECTORS RECOMMENDSPROXY RELATES TO BOTH CLASS A VOTE "FOR" PROPOSALS 1 AND 2.
=============CLASS B COMMON STOCK. IF YOU
RECEIVED TWO PROXY CARDS, PLEASE EXECUTE AND RETURN EACH.
SEE REVERSE
=============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), 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.