EXHIBIT 10.16

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT

("Agreement") is made by and between CONTINENTAL AIRLINES, INC., a Delaware
corporation ("Company" or "Continental"), and LAWRENCE W. KELLNER ("Executive"),
and is dated and effective as of April 14, 2004 (the "Effective Date").

W I T N E S S E T H:

WHEREAS,

Company and Executive are parties to that certain Employment Agreement dated as
of July 25, 2000, as amended by letter agreements dated September 26, 2001,
April 9, 2002, and March 12, 2004, respectively, and as amended by that certain
Compensation Cap Agreement dated as of May 19, 2003, between the Company and
Executive (as so amended, the "Existing Agreement"); and

WHEREAS

, the Human Resources Committee of the Board of Directors of Company ("HR
Committee") has deemed it advisable and in the best interests of Company and its
stockholders to assure management continuity for Company in light of the planned
retirement of Company's current Chairman of the Board and Chief Executive
Officer and, consistent therewith, has authorized the execution, delivery and
performance by Company of this Agreement;

WHEREAS,

in connection therewith, the parties desire to enter into this Agreement to
replace and supersede the Existing Agreement in its entirety, effective as of
the Effective Date;

NOW, THEREFORE,

for and in consideration of the mutual promises, covenants and obligations
contained herein, Company and Executive agree as follows:

ARTICLE 1: EMPLOYMENT AND DUTIES

1.1 Employment; Effective Date. Company agrees to employ Executive and Executive
agrees to be employed by Company, beginning as of the Effective Date and
continuing for the period of time set forth in Article 2 of this Agreement,
subject to the terms and conditions of this Agreement.

1.2 Positions. From and after the Effective Date until the close of business on
the last date that Gordon M. Bethune serves as Chairman of the Board and Chief
Executive Officer of the Company (the "Retirement Date"), which Retirement Date
shall be no later than December 30, 2004, Company shall employ Executive in the
positions of President and Chief Operating Officer (or in such other positions
as the parties mutually may agree). From and after the date immediately
following the Retirement Date, Company shall employ Executive in the positions
of Chairman of the Board and Chief Executive Officer of Company, or in such
other positions as the parties mutually may agree. Company shall, for the full
term of Executive's employment hereunder, cause Executive to be nominated for
election as a director of Company and use its best efforts to secure such
election.

1.3 Duties and Services. Executive agrees to serve in the positions referred to
in paragraph 1.2 and, if elected, as a director of Company and to perform
diligently and to the best of his abilities the duties and services appertaining
to such offices as set forth in the Bylaws of Company in effect on the Effective
Date, as well as such additional duties and services appropriate to such offices
which the parties mutually may agree upon from time to time.

 

ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT

2.1 Term. Unless sooner terminated pursuant to other provisions hereof, Company
agrees to employ Executive for a five-year period beginning on the Effective
Date. Said term of employment shall be extended automatically for an additional
successive five-year period as of the fifth anniversary of the Effective Date
and as of the last day of each successive five-year period of time thereafter
that this Agreement is in effect; provided, however, that if, prior to the date
which is six months before the last day of any such five-year term of
employment, either party shall give written notice to the other that no such
automatic extension shall occur, then Executive's employment shall terminate on
the last day of the five-year term of employment during which such notice is
given.

2.2 Company's Right to Terminate. Notwithstanding the provisions of paragraph
2.1, Company, acting pursuant to an express resolution of the Board of Directors
of Company (the "Board of Directors"), shall have the right to terminate
Executive's employment under this Agreement at any time for any of the following
reasons:

(i) upon Executive's death;

(ii) upon Executive's becoming incapacitated for a period of at least 180 days
by accident, sickness or other circumstance which renders him mentally or
physically incapable of performing the material duties and services required of
him hereunder on a full-time basis during such period;

(iii) if, in carrying out his duties hereunder, Executive engages in conduct
that constitutes willful gross neglect or willful gross misconduct resulting in
material economic harm to Company;

(iv) upon the conviction of Executive for a felony or any crime involving moral
turpitude; or

(v) for any other reason whatsoever, in the sole discretion of the Board of
Directors.

2.3 Executive's Right to Terminate. Notwithstanding the provisions of paragraph
2.1, Executive shall have the right to terminate his employment under this
Agreement at any time for any of the following reasons:

(i) the assignment to Executive by the Board of Directors or other officers or
representatives of Company of duties materially inconsistent with the duties
associated with the positions described in paragraph 1.2 as such duties are
constituted as of the Effective Date, or the failure to elect or reelect
Executive to any of the positions described in paragraph 1.2 or the removal of
him from any such positions;

(ii) a material diminution in the nature or scope of Executive's authority,
responsibilities, or titles from those applicable to him as of the Effective
Date, including a change in the reporting structure so that Executive reports to
someone other than the Board of Directors;

(iii) the occurrence of acts or conduct on the part of Company, its Board of
Directors, or its officers, representatives or stockholders which prevent
Executive from, or substantively hinder Executive in, performing his duties or
responsibilities pursuant to this Agreement;

(iv) Company requiring Executive to be permanently based anywhere outside a
major urban center in Texas;

(v) the taking of any action by Company that would materially adversely affect
the corporate amenities enjoyed by Executive on the Effective Date;

(vi) a material breach by Company of any provision of this Agreement which, if
correctable, remains uncorrected for 30 days following written notice of such
breach by Executive to Company, it being agreed that any reduction in (a)
Executive's then current annual base salary, or (b) Executive's annual cash
bonus opportunity as a percentage of such base salary from that percentage in
effect on the Effective Date (i.e., an annual cash bonus opportunity of 0%, if
entry level goal is not met, and if entry level goal is met, between 50% and
150% of annual base salary, depending on achievement of entry, target and
stretch goals), or (c) Executive's long-term incentive compensation opportunity
as compared to that opportunity in effect on the Effective Date (i.e., annual
long-term compensation awards in amounts that have compensation potential at
least as great as that in effect on the Effective Date, and subsequently taking
into account grant size applicable to Executive in his capacity as Chairman of
the Board and Chief Executive Officer), shall in each case constitute a material
breach by Company of this Agreement; or

(vii) for any other reason whatsoever, in the sole discretion of Executive.

2.4 Notice of Termination. If Company or Executive desires to terminate
Executive's employment hereunder at any time prior to expiration of the term of
employment as provided in paragraph 2.1, it or he shall do so by giving written
notice to the other party that it or he has elected to terminate Executive's
employment hereunder and stating the effective date and reason for such
termination, provided that no such action shall alter or amend any other
provisions hereof or rights arising hereunder.

 

ARTICLE 3: COMPENSATION AND BENEFITS

3.1 Base Salary. During the period of this Agreement, Executive shall receive a
minimum annual base salary equal to the greater of (i) $950,000 or (ii) such
amount as the parties mutually may agree upon from time to time. Executive's
annual base salary shall be paid in equal installments in accordance with
Company's standard policy regarding payment of compensation to executives but no
less frequently than semimonthly.

3.2 Bonus Program and Long Term Incentive Program. (a) Cash Bonus Programs.
Executive shall participate in each cash bonus program maintained by Company on
and after the Effective Date (including, without limitation, any such program
maintained for the year during which the Effective Date occurs) at a level which
is not less than the highest participation level made available to any Company
executive (other than, with respect to fiscal year 2004 only, Company's Chairman
of the Board and Chief Executive Officer in office immediately prior to the
Retirement Date); provided that Company shall at all times maintain Executive's
annual cash bonus opportunity as a percentage of his annual base salary in an
amount that is at least as great as that in effect on the Effective Date (i.e.,
an annual cash bonus opportunity of 0%, if entry level goal is not met, and if
entry level goal is met, between 50% and 150% of annual base salary, depending
on achievement of entry, target and stretch goals).

(b) Long-Term Incentive Programs. Executive shall participate in each long-term
incentive program maintained by Company on and after the Effective Date
(including, without limitation, any such program maintained for the year during
which the Effective Date occurs) at a level which is not less than the highest
participation level made available to any Company executive (other than, with
respect to grants or awards made in fiscal year 2004 only, Company's Chairman of
the Board and Chief Executive Officer in office immediately prior to the
Retirement Date); provided that Company shall at all times maintain Executive's
long-term incentive compensation opportunity in an amount that is at least as
great as that in effect on the Effective Date (i.e., annual long-term
compensation awards in amounts that have compensation potential at least as
great as that in effect on the Effective Date, and subsequently taking into
account grant size applicable to Executive in his capacity as Chairman of the
Board and Chief Executive Officer).

3.3 Life Insurance. During the period of this Agreement, Company shall maintain
one or more policies of life insurance on the life of Executive providing an
aggregate death benefit in an amount not less than the Termination Payment (as
such term is defined in paragraph 4.7). Executive shall have the right to
designate the beneficiary or beneficiaries of the death benefit payable pursuant
to such policy or policies up to an aggregate death benefit in an amount equal
to the Termination Payment, and may transfer ownership of such policy or
policies (and any rights of Executive under this paragraph 3.3) to any life
insurance trust, family trust or other trust. To the extent that Company's
purchase of, or payment of premiums with respect to, such policy or policies
results in compensation income to Executive, Company shall pay to Executive an
additional payment (the "Policy Payment") in an amount such that after payment
by Executive of all taxes imposed on Executive with respect to the Policy
Payment, Executive retains an amount of the Policy Payment equal to the taxes
imposed upon Executive with respect to such purchase or the payment of such
premiums. If for any reason Company fails to maintain the full amount of life
insurance coverage required pursuant to the preceding provisions of this
paragraph 3.3, Company shall, in the event of the death of Executive while
employed by Company, pay Executive's designated beneficiary or beneficiaries an
amount equal to the sum of (1) the difference between the Termination Payment
and any death benefit payable to Executive's designated beneficiary or
beneficiaries under the policy or policies maintained by Company and (2) such
additional amount as shall be required to hold Executive's estate, heirs, and
such beneficiary or beneficiaries harmless from any additional tax liability
resulting from the failure by Company to maintain the full amount of such
required coverage.

3.4 Vacation and Sick Leave. During each year of his employment, Executive shall
be entitled to vacation and sick leave benefits equal to the maximum available
to any Company executive, determined without regard to the period of service
that might otherwise be necessary to entitle Executive to such vacation or sick
leave under standard Company policy.

3.5 Supplemental Executive Retirement Plan.

(i) Base Benefit. Company agrees to pay Executive the deferred compensation
benefits set forth in this paragraph 3.5 as a supplemental retirement plan (the
"Plan"). The base retirement benefit under the Plan (the "Base Benefit") shall
be in the form of an annual straight life annuity in an amount equal to the
product of (a) 2.5% times (b) the number of Executive's credited years of
service (as defined below) under the Plan (but not in excess of 30 years) times
(c) the Executive's final average compensation (as defined below). For purposes
hereof, Executive's credited years of service under the Plan shall be equal to
the sum of (1) the number of Executive's years of benefit service with Company,
calculated as set forth in the Continental Retirement Plan (the "CARP")
beginning at January 1, 1995 ("Actual Years of Service"), (2) an additional two
years of service for each one year of service credited to Executive pursuant to
clause (1) of this sentence for the period beginning on January 1, 2000 and
ending on December 31, 2004, and (3) if the Termination Payment becomes payable
to Executive under this Agreement or if Executive's employment is terminated for
a reason encompassed by paragraphs 2.2(i) or 2.2(ii), that number of additional
years of service as is equal to (X) 18 years minus (Y) three times the number of
full calendar years which have occurred during the period beginning January 1,
2000 and ending on the earlier of (i) the date that the Termination Payment
under this Agreement first becomes payable to Executive or (ii) December 31,
2004. For purposes hereof, Executive's final average compensation shall be equal
to the greater of (A) $950,000 or (B) the average of the five highest annual
cash compensation amounts paid to Executive by Company during the consecutive
ten calendar years immediately preceding Executive's termination of employment
at retirement or otherwise. For purposes hereof, cash compensation shall include
base salary plus cash bonuses (including any amounts deferred (other than Stay
Bonus amounts described below) pursuant to any deferred compensation plan of the
Company), but shall exclude (i) any cash bonus paid on or prior to March 31,
1995, (ii) any Stay Bonus paid to Executive pursuant to that certain Stay Bonus
Agreement between Company and Executive dated as of April 14, 1998, (iii) any
Termination Payment paid to Executive under this Agreement, (iv) any payments
received by Executive under Company's Officer Retention and Incentive Award
Program, (v) any proceeds to Executive from any awards under any option, stock
incentive or similar plan of Company (including RSUs awarded under Company's
Long Term Incentive and RSU Program), (vi) any cash bonus paid under a long term
incentive plan or program adopted by Company, and (vii) the amount paid to
Executive pursuant to subparagraph 3.8(d) hereof. Executive shall be vested
immediately with respect to benefits due under the Plan.

(ii) Offset for CARP or Other Benefit. Any provisions of the Plan to the
contrary notwithstanding, the Base Benefit shall be reduced by the actuarial
equivalent (as defined below) of the pension benefit, if any, paid or payable to
Executive from the CARP or from any other defined benefit nonqualified
supplemental retirement plan provided to Executive by Company. In making such
reduction, the Base Benefit and the benefit paid or payable under the CARP or
any such other defined benefit nonqualified supplemental retirement plan shall
be determined under the provisions of each plan as if payable in the form of an
annual straight life annuity beginning on the Retirement Date (as defined
below). The net benefit payable under this Plan shall then be actuarially
adjusted based on the actuarial assumptions set forth in paragraph 3.5(vii) for
the actual time and form of payments.

(iii) Normal and Early Retirement Benefits. Executive's benefit under the Plan
shall be payable in equal monthly installments beginning on the first day of the
month following the Retirement Date (the "Normal Retirement Benefit") or, at
Executive's written election made not less than 15 days prior to the Retirement
Date, in a lump-sum on the first day of such month in an amount equal to the
Lump-Sum Payment less 10% of such sum (provided, however, that the HR Committee
may, in its sole and absolute discretion, waive all or any part of such 10%
reduction). For purposes hereof, "Retirement Date" is defined as the later of
(a) the date on which Executive attains (or in the event of Executive's earlier
death, would have attained) age 60 or (b) the date of Executive's retirement
from employment with Company. Notwithstanding the foregoing, if Executive's
employment with Company is terminated, for a reason other than death, on or
after the date Executive attains age 55 or is credited with 10 Actual Years of
Service and prior to the Retirement Date, then Executive shall be entitled to
elect to receive the Lump-Sum Payment or commence to receive Executive's monthly
installment benefit under the Plan, in either case as of the first day of any
month coinciding with or next following Executive's termination of employment,
or as the first day of any subsequent month preceding the Retirement Date (an
"Early Retirement Benefit"); provided, however, that (1) written notice of such
election must be received by Company not less than 15 days prior to the proposed
date of commencement of the monthly installment benefit (or the date of payment,
in the case of a Lump-Sum Payment), (2) each monthly installment payment under
an Early Retirement Benefit, or the amount of the Lump-Sum Payment, as the case
may be, shall be reduced to the extent necessary to cause the value of such
Early Retirement Benefit (determined without regard to clause (3) of this
proviso) to be the actuarial equivalent of the value of the Normal Retirement
Benefit (in each case based on the actuarial assumptions set forth in paragraph
3.5(vii) and adjusted for the actual time and form of payments), and (3) each
monthly installment payment under an Early Retirement Benefit that is made prior
to the Retirement Date, or the Lump-Sum Payment, as the case may be, shall be
reduced by an additional 10% of the amount of such payment as initially
determined pursuant to clause (2) of this proviso. The HR Committee may, in its
sole and absolute discretion, waive all or any part of the reductions
contemplated in clauses (2) and/or (3) of the proviso of the preceding sentence.
As used herein, "Lump-Sum Payment" shall mean the lump-sum actuarial equivalent
of the value of the Normal Retirement Benefit, based on the actuarial
assumptions set forth in paragraph 3.5(vii) and adjusted for the actual time of
payment.

(iv) Form of Retirement Benefit. If Executive is not married on the date
Executive's benefit under paragraph 3.5(iii) commences, then benefits under the
Plan will be paid to Executive in the form of a single life annuity for the life
of Executive (unless Executive elects a Lump-Sum Payment, in which case benefits
under the Plan will be paid in cash in a lump-sum). If Executive is married on
the date Executive's benefit under paragraph 3.5(iii) commences, then benefits
under the Plan will be paid to Executive (unless Executive has elected a
Lump-Sum Payment), at the written election of Executive made at least 15 days
prior to the first payment of benefits under the Plan, in either (1) the form of
a single life annuity for the life of Executive, or (2) the form of a joint and
survivor annuity that is actuarially equivalent to the benefit that would have
been payable under the Plan to Executive if Executive was not married on such
date, with Executive's spouse as of the date benefit payments commence being
entitled during such spouse's lifetime after Executive's death to a benefit
equal to 50% of the benefit payable to Executive during their joint lifetimes.
If Executive fails to make such election and does not make an election to
receive a Lump-Sum Payment, Executive will be deemed to have elected a joint and
survivor annuity.

(v) Death Benefit. Except as provided in this paragraph 3.5(v), no benefits
shall be paid under the Plan if Executive dies prior to the date Executive's
benefit commences pursuant to paragraph 3.5(iii). In the event of Executive's
death prior to the commencement of Executive's benefit pursuant to paragraph
3.5(iii), Executive's surviving spouse, if Executive is married on the date of
Executive's death, will receive, at such spouse's written election made within
90 days after Executive's death, either (A) a single life annuity consisting of
monthly payments for the life of such surviving spouse determined as follows:
(a) if Executive dies on or before reaching the Retirement Date, the death
benefit such spouse would have received had Executive terminated employment on
the earlier of Executive's actual date of termination of employment or
Executive's date of death, survived until the Retirement Date, elected a joint
and survivor annuity and began to receive Executive's Plan benefit beginning
immediately at the Retirement Date, and died on the day after the Retirement
Date; or (b) if Executive dies after reaching the Retirement Date, the death
benefit such spouse would have received had Executive elected a joint and
survivor annuity and begun to receive Executive's Plan benefit beginning on the
day prior to Executive's death, or (B) a Spousal Lump-Sum Payment less 10% of
such sum (provided, however, that the HR Committee may, in its sole and absolute
discretion, waive all or any part of such 10% reduction), which shall be paid as
a lump-sum in cash on the date that the first payment of the single life annuity
described in clause (A) of this sentence would have been paid if the surviving
spouse had elected to receive such single life annuity. As used herein, "Spousal
Lump-Sum Payment" shall mean the lump-sum actuarial equivalent of the value of
the single life annuity described in clause (A) of the foregoing sentence, based
on the actuarial assumptions set forth in paragraph 3.5(vii) and adjusted for
the actual time of payment. Payment of such survivor annuity, if so elected,
shall begin on the first day of the month following the later of (1) Executive's
date of death or (2) the Retirement Date; provided, however, that if Executive
was eligible to elect an Early Retirement Benefit as of the date of Executive's
death, then Executive's surviving spouse shall be entitled to elect to receive
the Spousal Lump-Sum Payment or commence to receive such survivor annuity as of
the first day of the month next following the date of Executive's death, or as
the first day of any subsequent month preceding the Retirement Date. Notice of
such election must be received by Company not less than 15 days prior to the
proposed date of commencement of the benefit or payment of the Spousal Lump-Sum
Payment, as the case may be, and each payment of such survivor annuity, or the
amount of the Spousal Lump-Sum Payment, as the case may be, shall be reduced
based on the principles used for the reductions described in clauses (2) and (3)
of the proviso to the third sentence of paragraph 3.5(iii). If such surviving
spouse fails to make an election to receive a Spousal Lump-Sum Payment, the
surviving spouse will be deemed to have elected to receive the survivor annuity.

(vi) Unfunded Benefit. The Plan is intended to constitute an unfunded, unsecured
plan of deferred compensation. Further, it is the intention of Company that the
Plan be unfunded for purposes of the Internal Revenue Code of 1986, as amended,
and Title I of the Employee Retirement Income Security Act of 1974, as amended.
The Plan constitutes a mere promise by Company to make benefit payments in the
future. Plan benefits hereunder provided are to be paid out of Company's general
assets, and Executive shall have the status of, and shall have no better status
than, a general unsecured creditor of Company. Executive understands that he
must rely upon the general credit of Company for payment of benefits under the
Plan. Company shall establish a "rabbi" trust to assist Company in meeting its
obligations under the Plan. The trustee of such trust shall be a
nationally-recognized and solvent bank or trust company that is not affiliated
with Company. Company shall transfer to the trustee money and/or other property
determined in the sole discretion of the HR Committee based on the advice of the
Actuary (as defined below) on an as-needed basis in order to assure that the
benefit payable under the Plan is at all times fully funded. The trustee shall
pay Plan benefits to Executive and/or Executive's spouse out of the trust assets
if such benefits are not paid by Company. Company shall remain the owner of all
assets in the trust, and the assets shall be subject to the claims of Company
creditors in the event (and only in the event) Company ever becomes insolvent.
Neither Executive nor any beneficiary of Executive shall have any preferred
claim to, any security interest in, or any beneficial ownership interest in any
assets of the trust. Company has not and will not in the future set aside assets
for security or enter into any other arrangement which will cause the obligation
created to be other than a general corporate obligation of Company or will cause
Executive to be more than a general creditor of Company.

(vii) Actuarial Equivalent. For purposes of the Plan, the terms "actuarial
equivalent", or "actuarially equivalent" when used with respect to a specified
benefit shall mean the amount of benefit of the referenced different type or
payable at the referenced different age that can be provided at the same cost as
such specified benefit, as computed by the Actuary and certified to Executive
(or, in the case of Executive's death, to his spouse) by the Actuary. The
actuarial assumptions used under the Plan to determine equivalencies between
different forms and times of payment shall be the same as the actuarial
assumptions then used in determining benefits payable under the CARP; provided,
however, that with respect to the discount rate used to calculate a Lump-Sum
Payment or a Spousal Lump-Sum Payment, the discount rate shall be the Aa
Corporate Bond Rate. The term "Actuary" shall mean the individual actuary or
actuarial firm selected by Company to service its pension plans generally or if
no such individual or firm has been selected, an individual actuary or actuarial
firm appointed by Company and reasonably satisfactory to Executive and/or
Executive's spouse. The term "Aa Corporate Bond Rate" shall mean the average of
the Moody's daily long-term corporate bond yield averages for Aa-rated corporate
bonds published by Moody's Investors Service, for the three-month period ending
on the last day of the second month preceding the date of the applicable
election to receive a Lump-Sum Payment or a Spousal Lump-Sum Payment, as
determined by the Actuary (or, if such yield information is no longer so
published, then the average of the daily corporate bond yields for a comparable
sample of Aa-rated corporate bonds of comparable tenor determined in good faith
by the Actuary). Upon request, Company shall cause the Actuary to compute the Aa
Corporate Bond Rate for a specified period and the amount of the applicable
annuity, Lump-Sum Payment or Spousal Lump-Sum Payment for Executive (or, in the
case of Executive's death, his spouse) and shall deliver such information to
Executive or such spouse.

(viii) Medicare Payroll Taxes. Company shall indemnify Executive on a fully
grossed-up, after-tax basis for any Medicare payroll taxes (plus any income
taxes on such indemnity payments) incurred by Executive in connection with the
accrual and/or payment of benefits under the Plan.

3.6 Additional Disability Benefit. If Executive shall begin to receive long-term
disability insurance benefits pursuant to a plan maintained by Company and if
such benefits cease prior to Executive's attainment of age 65 and while
Executive remains disabled, then Company shall immediately pay Executive upon
the cessation of such benefits a lump-sum, cash payment in an amount equal to
the Termination Payment. If Executive receives payment of a Termination Payment
pursuant to the provisions of Article 4, then the provisions of this paragraph
3.6 shall terminate. If Executive shall be disabled at the time his employment
with Company terminates and if Executive shall not be entitled to the payment of
a Termination Payment pursuant to the provisions of Article 4 upon such
termination, then Executive's right to receive the payment upon the occurrence
of the circumstances described in this paragraph 3.6 shall be deemed to have
accrued as of the date of such termination and shall survive the termination of
this Agreement.

3.7 Other Perquisites. During his employment hereunder, Executive shall be
afforded the following benefits as incidences of his employment:

(i) Automobile - Company will provide an automobile (including replacements
therefor) of Executive's choice for Executive's use on the same terms as its
current practices relating to the choice and use of automobiles by its Chief
Executive Officer. If the automobile is leased, Company agrees to take such
actions as may be necessary to permit Executive, at his option, to acquire title
to any automobile subject to such a lease at the completion of the lease term by
Executive paying the residual payment then owing under the lease. If Executive's
employment terminates (other than as a result of the reasons encompassed by
paragraphs 2.2 (iii) or (iv)), then Company (1) if the automobile is leased,
will continue to make all payments under the lease and permit Executive (or
Executive's estate, as applicable) to use the automobile during the remainder of
such lease and will, at the conclusion of the lease, cause the title to the
automobile to be transferred to Executive (or Executive's estate) without cost
to Executive (or Executive's estate), or (2) if the automobile is owned by
Company, transfer title to the automobile to Executive (or Executive's estate,
as applicable), without cost to Executive (or Executive's estate).

(ii) Business and Entertainment Expenses - Subject to Company's standard
policies and procedures with respect to expense reimbursement as applied to its
executive employees generally, Company shall reimburse Executive for, or pay on
behalf of Executive, reasonable and appropriate expenses incurred by Executive
for business related purposes, including dues and fees to industry and
professional organizations, costs of entertainment and business development, and
costs reasonably incurred as a result of Executive's spouse accompanying
Executive on business travel. Company shall also pay on behalf of Executive the
expenses of one athletic club selected by Executive.

(iii) Parking - Company shall provide at no expense to Executive a reserved
parking place convenient to Executive's headquarters office and a reserved
parking place at George Bush Intercontinental Airport in Houston, Texas
consistent with past practice.

(iv) Other Company Benefits - Executive and, to the extent applicable,
Executive's family, dependents and beneficiaries, shall be allowed to
participate in all benefits, plans and programs, including improvements or
modifications of the same, which are now, or may hereafter be, available to
similarly-situated Company employees. Such benefits, plans and programs may
include, without limitation, profit sharing plan, thrift plan, annual physical
examinations, health insurance or health care plan, life insurance, disability
insurance, pension plan, pass privileges on Continental Airlines, Flight
Benefits and the like. Company shall not, however, by reason of this paragraph
be obligated to institute, maintain, or refrain from changing, amending or
discontinuing, any such benefit plan or program, so long as such changes are
similarly applicable to executive employees generally; provided, however, that
Company shall not change, amend or discontinue Executive's Flight Benefits
without his consent.

 

3.8 Covenant Not to Compete and Related Matters. (a) Company shall, during the
term of this Agreement, disclose or entrust Company trade secrets or
confidential information to Executive, shall provide Executive the opportunity
to develop Company's business good will, or shall disclose or entrust Company's
business opportunities to Executive.

In consideration for the payment referred to in subparagraph (d) below to be
paid to Executive hereunder, and in keeping with Executive= s duties as a
fiduciary, and to protect the trade secrets and confidential information of
Company that have been or will be disclosed to Executive, the business good will
of Company that has been or will be developed in Executive, or the business
opportunities that have been or will be disclosed or entrusted to Executive by
Company, Company and Executive agree to the non-competition provisions of this
subparagraph (b). Executive agrees that during the period of Executive= s
non-competition obligations hereunder, Executive will not, directly or
indirectly for Executive or others, in any State, territory or protectorate of
the United States in which Company is qualified to do business or in any foreign
country in which Company has an office, station or branch as of the date of
termination of Executive= s employment with the Company, engage in an executive,
advisory or consulting capacity for any passenger air carrier; provided,
however, that Executive shall not be restricted, after his termination of
employment with Company, from being employed by, or advising or consulting to, a
business engaged in providing advice or consulting services to a broad range of
companies, including passenger air carriers, as long as Executive, during the
period of Executive's non-competition obligations hereunder, does not involve
himself in the rendering of executive, advisory or consulting services to any
passenger air carrier. Executive may obtain upon written request to Company a
list of locations where his post-termination business activities are so limited.
The non-competition obligations described in subparagraph (b) above shall
survive the termination of this Agreement and extend from the date of
Executive's termination of employment with Company through the date that is 24
months after such termination of employment; provided, however, that such
non-competition obligations shall terminate and be inapplicable if Executive= s
employment with the Company is terminated (A) by Company pursuant to
subparagraph 2.2 (ii) or 2.2(v), (B) by Executive pursuant to subparagraphs
2.3(i), (ii), (iii), (iv), (v), or (vi). In consideration for Executive's
agreement set forth in this paragraph 3.8, Company shall pay to Executive in
cash, upon the date of execution of this Agreement, the sum of $2,850,000.

ARTICLE 4: EFFECT OF TERMINATION ON COMPENSATION

4.1 By Expiration. If Executive's employment hereunder shall terminate upon
expiration of the term provided in paragraph 2.1 hereof, then all compensation
and all benefits to Executive hereunder shall terminate contemporaneously with
termination of his employment, except that (A) the benefits described in
paragraph 3.5 shall continue to be payable, Executive shall be provided Flight
Benefits (as such term is defined in paragraph 4.7) for the remainder of
Executive's lifetime, Executive and his eligible dependents shall be provided
Continuation Coverage (as such term is defined in paragraph 4.7) for the
remainder of Executive's lifetime, and Company shall perform its obligations
with respect to the automobile then used by Executive as provided in
subparagraph 3.7(i) and (B) if such termination shall result from Company's
delivery of the written notice described in paragraph 2.1, then Company shall
(i) cause all options and shares of restricted stock awarded to Executive to
vest immediately upon such termination and, with respect to options, be
exercisable in full for 30 days after such termination, (ii) cause all Awards
made to Executive under Company's Officer Retention and Incentive Award Program
("Retention Program") to vest immediately upon such termination, (iii) cause
Company to pay to Executive, at the same time as other Payment Amounts with
respect to Awards are paid to other participants under Company's Long Term
Incentive Performance Award Program ("LTIP") and Long Term Incentive and RSU
Program ("NLTIP/RSU Program"), as the case may be, all Payment Amounts with
respect to Awards made to Executive under the LTIP or the NLTIP/RSU Program
having a Performance Period that has not been completed as of the date of
Executive's termination, as if Executive had remained employed by Company in his
current position through the end of each such Performance Period (calculated
using the Base Amount of Executive in effect on the day immediately preceding
such termination), less any amounts paid to Executive under the LTIP or the
NLTIP/RSU Program, as the case may be, upon the occurrence of a Qualifying Event
with respect to Executive in connection with a Change in Control (such
capitalized terms to have the meanings ascribed thereto in the LTIP or in the
NLTIP/RSU Program, as may be applicable to the relevant Awards), (iv) pay
Executive on or before the effective date of such termination a lump-sum, cash
payment in an amount equal to the Termination Payment, (v) provide Executive
with Outplacement, Office and Related Services (as such term is defined in
paragraph 4.7 and for the time periods described therein), and (vi) pay any
amounts owed but unpaid to Executive under any plan, policy or program of
Company as of the date of termination at the time provided by, and in accordance
with the terms of, such plan, policy or program.

4.2 By Company. If Executive's employment hereunder shall be terminated by
Company prior to expiration of the term provided in paragraph 2.1 hereof then,
upon such termination, regardless of the reason therefor, all compensation and
all benefits to Executive hereunder shall terminate contemporaneously with the
termination of such employment, except that the benefits described in paragraph
3.5 shall continue to be payable, Executive shall be provided Flight Benefits
for the remainder of Executive's lifetime, Executive and his eligible dependents
shall be provided Continuation Coverage for the remainder of Executive's
lifetime, and:

(i) if such termination shall be for any reason other than those encompassed by
paragraphs 2.2(i), (ii), (iii) or (iv), then Company shall provide Executive
with the payments and benefits described in clauses (i) through (vi) of
paragraph 4.1, and Company shall perform its obligations with respect to the
automobile then used by Executive as provided in subparagraph 3.7(i); and

(ii) if such termination shall be for a reason encompassed by paragraphs 2.2(i)
or (ii), then Company shall (1) cause all options and shares of restricted stock
awarded to Executive to vest immediately upon such termination and, with respect
to options, be exercisable in full for 30 days (or such longer period as
provided for under the circumstances in applicable option awards) after such
termination, (2) cause all Awards made to Executive under the Retention Program
to vest immediately upon such termination, (3) cause Company to pay to Executive
(or Executive's estate), at the same time as Payment Amounts with respect to
Awards are paid to other participants under the LTIP or the NLTIP/RSU Program,
as the case may be, all Payment Amounts with respect to Awards made to Executive
under the LTIP or the NLTIP/RSU Program having a Performance Period that has not
been completed as of the date of Executive's termination, as if Executive had
remained employed by Company in his current position through the end of each
such Performance Period (calculated using the Base Amount of Executive in effect
on the day immediately preceding such termination), less any amounts paid to
Executive under the LTIP or the NLTIP/RSU Program upon the occurrence of
Executive's death or Disability after a Change in Control (such capitalized
terms to have the meanings ascribed thereto in the LTIP or in the NLTIP/RSU
Program, as may be applicable to the relevant Awards), (4) provide Executive (or
his designated beneficiary or beneficiaries) with the benefits contemplated
under paragraph 3.3 or paragraph 3.6, as applicable, and (5) perform its
obligations with respect to the automobile then used by Executive as provided in
subparagraph 3.7(i).

4.3 By Executive. If Executive's employment hereunder shall be terminated by
Executive prior to expiration of the term provided in paragraph 2.1 hereof then,
upon such termination, regardless of the reason therefor, all compensation and
benefits to Executive hereunder shall terminate contemporaneously with the
termination of such employment, except that the benefits described in paragraph
3.5 shall continue to be payable, Executive shall be provided Flight Benefits
for the remainder of Executive's lifetime, Executive and his eligible dependents
shall be provided Continuation Coverage for the remainder of Executive's
lifetime, Company shall perform its obligations with respect to the automobile
then used by Executive as provided in subparagraph 3.7(i) and, if such
termination shall be pursuant to paragraphs 2.3(i), (ii), (iii), (iv), (v), or
(vi), then Company shall provide Executive with the payments and benefits
described in clauses (i) through (vi) of paragraph 4.1.

4.4 Certain Additional Payments by Company. Notwithstanding anything to the
contrary in this Agreement, if any payment, distribution or provision of a
benefit by Company to or for the benefit of Executive, whether paid or payable,
distributed or distributable or provided or to be provided pursuant to the terms
of this Agreement or otherwise (a "Payment"), would be subject to an excise or
other special additional tax that would not have been imposed absent such
Payment (including, without limitation, any excise tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended), or any interest or penalties
with respect to such excise or other additional tax (such excise or other
additional tax, together with any such interest or penalties, are hereinafter
collectively referred to as the "Excise Tax"), Company shall pay to Executive an
additional payment (a "Gross-up Payment") in an amount such that after payment
by Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any income taxes and Excise Taxes imposed on
any Gross-up Payment, Executive retains an amount of the Gross-up Payment
(taking into account any similar gross-up payments to Executive under any stock
incentive or other benefit plan or program of Company) equal to the Excise Tax
imposed upon the Payments. Company and Executive shall make an initial
determination as to whether a Gross-up Payment is required and the amount of any
such Gross-up Payment. Executive shall notify Company in writing of any claim by
the Internal Revenue Service which, if successful, would require Company to make
a Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially
determined by Company and Executive) within ten business days after the receipt
of such claim. Company shall notify Executive in writing at least ten business
days prior to the due date of any response required with respect to such claim
if it plans to contest the claim. If Company decides to contest such claim,
Executive shall cooperate fully with Company in such action; provided, however,
Company shall bear and pay directly or indirectly all costs and expenses
(including additional interest and penalties) incurred in connection with such
action and shall indemnify and hold Executive harmless, on an after-tax basis,
for any Excise Tax or income tax, including interest and penalties with respect
thereto, imposed as a result of Company's action. If, as a result of Company's
action with respect to a claim, Executive receives a refund of any amount paid
by Company with respect to such claim, Executive shall promptly pay such refund
to Company. If Company fails to timely notify Executive whether it will contest
such claim or Company determines not to contest such claim, then Company shall
immediately pay to Executive the portion of such claim, if any, which it has not
previously paid to Executive.

4.5 Payment Obligations Absolute. Company's obligation to pay Executive the
amounts and to make the arrangements provided in this Article 4 shall be
absolute and unconditional and shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim, recoupment, defense or
other right which Company (including its subsidiaries and affiliates) may have
against him or anyone else. All amounts payable by Company shall be paid without
notice or demand. Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any provision of
this Article 4, and, except as provided in paragraph 4.7 with respect to
Continuation Coverage, the obtaining of any such other employment (or the
engagement in any endeavor as an independent contractor, sole proprietor,
partner, or joint venturer) shall in no event effect any reduction of Company's
obligations to make (or cause to be made) the payments and arrangements required
to be made under this Article 4.

4.6 Liquidated Damages. In light of the difficulties in estimating the damages
upon termination of this Agreement, Company and Executive hereby agree that the
payments and benefits, if any, to be received by Executive pursuant to this
Article 4 shall be received by Executive as liquidated damages. Payment of the
Termination Payment pursuant to paragraphs 4.1, 4.2 or 4.3 shall be in lieu of
any severance benefit Executive may be entitled to under any severance plan or
policy maintained by Company.

4.7 Certain Definitions and Additional Terms. As used herein, the following
capitalized terms shall have the meanings assigned below:

(i) "Continuation Coverage" shall mean the continued coverage of Executive and
his eligible dependents under Company's welfare benefit plans available to
executives of Company who have not terminated employment (or the provision of
equivalent benefits), including, without limitation, medical, health, dental,
life insurance, vision care, accidental death and dismemberment, and
prescription drug (but excluding disability), at no greater cost to Executive
than that applicable to a similarly situated Company executive who has not
terminated employment; provided, however, that the coverage to Executive (or the
receipt of equivalent benefits) shall be provided under one or more insurance
policies so that reimbursement or payment of benefits to Executive thereunder
shall not result in taxable income to Executive (or, if any such reimbursement
or payment of benefits is taxable, then Company shall pay to Executive an amount
as shall be required to hold Executive harmless from any additional tax
liability resulting from the failure by Company to so provide insurance policies
so that reimbursement or payment of benefits to Executive thereunder shall not
result in taxable income to Executive), and provided further that the coverage
to Executive under a particular welfare benefit plan (or the receipt of
equivalent benefits) shall be suspended during any period that Executive
receives comparable benefits from a subsequent employer, and shall be reinstated
upon Executive ceasing to so receive comparable benefits and notifying Company
thereof;

(iii) "Flight Benefits" shall mean flight benefits on each airline operated by
the Company or any of its affiliates or any successor or successors thereto (the
"CO system"), consisting of the highest priority space available flight passes
for Executive and Executive's eligible family members (as such eligibility is in
effect on the Effective Date), a Universal Air Travel Plan (UATP) card (or, in
the event of discontinuance of the UATP program, a similar charge card
permitting the purchase of air travel through direct billing to the Company or
any successor or successors thereto (a "Similar Card")) in Executive's name for
charging on an annual basis up to the applicable Annual Travel Limit (as
hereinafter defined) with respect to such year in value (valued identically to
the calculation of imputed income resulting from such flight benefits described
below) of flights (in any fare class) on the CO system for Executive,
Executive's spouse, Executive's family and significant others as determined by
Executive, lifetime Platinum Elite OnePass Cards (or similar highest category
successor frequent flyer cards) in Executive's and Executive's spouse's and
children's names for use on the CO system, lifetime memberships for Executive
and Executive's spouse and children (subject to the terms and conditions of
membership, including minimum age requirements) in the Company's President's
Club (or any successor program maintained in the CO system) and payment by the
Company to Executive of an annual amount (not to exceed in any year the Annual
Gross Up Limit (as hereinafter defined) with respect to such year) sufficient to
pay, on an after tax basis (i.e., after the payment by Executive of all taxes on
such amount), the U.S. federal, state and local income taxes on imputed income
resulting from such flights (such imputed income to be calculated during the
term of such Flight Benefits consistently with the methodology being used by the
Company at the Effective Date or at the lowest published or unpublished fare
(i.e., 21 day advance purchase coach fare, lowest negotiated consolidator net
fare, or other lowest available fare) for the applicable itinerary (or similar
flights on or around the date of such flight), regardless of the actual fare
class booked or flown, or as otherwise required by law) or resulting from any
other flight benefits extended to Executive as a result of Executive's service
as an executive of the Company;

"Outplacement, Office and Related Services" shall mean (1) outplacement
services, at Company's cost and for a period of twelve months beginning on the
date of Executive's termination of employment, to be rendered by an agency
selected by Executive and approved by the Board of Directors (with such approval
not to be unreasonably withheld), (2) appropriate and suitable office space at
the Company's headquarters (although not on its executive office floor) or at a
comparable location in downtown Houston for use by Executive, together with
appropriate and suitable secretarial assistance, at Company's cost and for a
period of ten years beginning on the date of Executive's termination of
employment, (3) a reserved parking place convenient to the office so provided
and a reserved parking place at George Bush Intercontinental Airport in Houston,
Texas consistent with past practice, at Company's cost and for as long as
Executive retains a residence in Houston, Texas, and (4) other incidental
perquisites (such as free or discount air travel, car rental, phone or similar
service cards) currently enjoyed by Executive as a result of his position, to
the extent then available for use by Executive, for Executive's lifetime or a
shorter period if such perquisites become unavailable to the Company for use by
Executive; and

"Termination Payment" shall mean an amount equal to three times the sum of (1)
Executive's annual base salary pursuant to paragraph 3.1 in effect immediately
prior to Executive's termination of employment hereunder and (2) an amount equal
to 150% of the amount described in the foregoing clause (1).

As used for purposes of Flight Benefits, with respect to any year, the term
"Annual Travel Limit" shall mean an amount (initially $66,500), which amount
shall be adjusted (i) annually (beginning with the year 2004) by multiplying
such amount by a fraction, the numerator of which shall be the Company's average
fare per revenue passenger for its jet operations (excluding regional jets) with
respect to the applicable year as reported in its Annual Report on Form 10-K
(or, if not so reported, as determined by the Company's independent auditors)
(the "Average Fare") for such year, and the denominator of which shall be the
Average Fare for the prior year, (ii) annually to add thereto any portion of
such amount unused since the year 2004, and (iii) after adjustments described in
clauses (i) and (ii) above (and after adding thereto, on a one-time basis on the
Effective Date of this Agreement, the unused balance of Executive's Annual
Travel Limit under his Existing Agreement at the Effective Date), automatically
upon any change in the valuation methodology for imputed income from flights (as
compared with the valuation methodology for calculation of imputed income
resulting from flights used by the Company as of the Effective Date), so as to
preserve the benefit of $66,500 annually (adjusted in accordance with clauses
(i) and (ii) above) of flights relative to the valuations resulting from the
valuation methodology used by the Company as of the Effective Date (e.g., if a
change in the valuation methodology results, on average, in such flights being
valued 15% higher than the valuation that would result using the valuation
methodology used by the Company as of the Effective Date, then the Annual Travel
Limit would be increased by 15% to $76,475, assuming no other adjustments
pursuant to clauses (i) and (ii) above and ignoring for this example the unused
balance of Executive's Annual Travel Limit under his Existing Agreement at the
Effective Date). In determining any adjustment pursuant to clause (iii) above,
the Company shall be entitled to rely on a good faith calculation performed by
its independent auditors based on a statistically significant random sampling of
flight valuations compared with the applicable prior valuations of identical
flights, which calculation (and the basis for any adjustments pursuant to
clauses (i) or (ii) above) will be provided to Executive upon request. The
Company will promptly notify Executive in writing of any adjustments to the
Annual Travel Limit described in this paragraph.

As used for purposes of Flight Benefits, with respect to any year, the term
"Annual Gross Up Limit" shall mean an amount (initially $13,300), which amount
shall be adjusted (i) annually (beginning with the year 2004) by multiplying
such amount by a fraction, the numerator of which shall be the Average Fare for
such year, and the denominator of which shall be the Average Fare for the prior
year, (ii) annually to add thereto any portion of such amount unused since the
year 2004, and (iii) after adjustments described in clauses (i) and (ii) above
(and after adding thereto, on a one-time basis on the Effective Date of this
Agreement, the unused balance of Executive's Annual Gross Up Limit under his
Existing Agreement at the Effective Date), automatically upon any change in the
valuation methodology for imputed income from flights (as compared with the
valuation methodology for calculation of imputed income resulting from flights
used by the Company as of the Effective Date), so as to preserve the benefit of
$13,300 annually (adjusted in accordance with clauses (i) and (ii) above) of tax
gross up relative to the valuations resulting from the valuation methodology
used by the Company as of the Effective Date (e.g., if a change in the valuation
methodology results, on average, in flights being valued 15% higher than the
valuation that would result using the valuation methodology used by the Company
as of the Effective Date, then the Annual Gross Up Limit would be increased by
15% to $15,295, assuming no other adjustments pursuant to clauses (i) and (ii)
above and ignoring for this example the unused balance of Executive's Annual
Gross Up Limit under his Existing Agreement at the Effective Date). In
determining any adjustment pursuant to clause (iii) above, the Company shall be
entitled to rely on a good faith calculation performed by its independent
auditors based on a statistically significant random sampling of flight
valuations compared with the applicable prior valuations of identical flights,
which calculation (and the basis for any adjustments pursuant to clauses (i) or
(ii) above) will be provided to Executive upon request. The Company will
promptly notify Executive in writing of any adjustments to the Annual Gross Up
Limit described in this paragraph.

As used for purposes of Flight Benefits, a year may consist of twelve
consecutive months other than a calendar year, it being the Company's practice
as of the Effective Date for purposes of Flight Benefits for a year to commence
on November 1 and end on the following October 31 (for example, the twelve-month
period from November 1, 2003 to October 31, 2004 is considered the year 2004 for
purposes of Flight Benefits); provided that all calculations for purposes of
clause (i) in the prior two paragraphs shall be with respect to fiscal years of
the Company.

As used for purposes of Flight Benefits, the term "affiliates" of the Company
means any entity controlled by, controlling, or under common control with the
Company, it being understood that control of an entity shall require the direct
or indirect ownership of a majority of the outstanding capital stock of such
entity.

No tickets issued on the CO system in connection with the Flight Benefits may be
purchased other than directly from the Company or its successor or successors
(i.e., no travel agent or other fee or commission based distributor may be
used), nor may any such tickets be sold or transferred by Executive or any other
person, nor may any such tickets be used by any person other than the person in
whose name the ticket is issued. Executive agrees that, after receipt of an
invoice or other accounting statement therefor, he will promptly (and in any
event within 45 days after receipt of such invoice or other accounting
statement) reimburse the Company for all charges on his UATP card (or Similar
Card) which are not for flights on the CO system and which are not otherwise
reimbursable to Executive under the provisions of paragraph 3.7(ii) hereof, or
which are for tickets in excess of the applicable Annual Travel Limit. Executive
agrees that the credit availability under Executive's UATP card (or Similar
Card) may be suspended if Executive does not timely reimburse the Company as
described in the foregoing sentence or if Executive exceeds the applicable
Annual Travel Limit with respect to a year; provided, that, immediately upon the
Company's receipt of Executive's reimbursement in full (or, in the case of
exceeding the applicable Annual Travel Limit, beginning the next following year
and after such reimbursement), the credit availability under Executive's UATP
card (or Similar Card) will be restored.

The sole cost to Executive of flights on the CO system pursuant to use of
Executive's Flight Benefits will be the imputed income with respect to flights
on the CO system charged on Executive's UATP card (or Similar Card), calculated
throughout the term of Executive's Flight Benefits consistently with the
methodology being used by the Company as of the Effective Date or at the lowest
published or unpublished fare (i.e., 21 day advance purchase coach fare, lowest
negotiated consolidator net fare or other lowest available fare) for the
applicable itinerary (or similar flights on or around the date of such flight),
regardless of the actual fare class booked or flown, or as otherwise required by
law, and reported to Executive as required by applicable law. With respect to
any period for which the Company is obligated to provide the tax gross up
described above, Executive will provide to the Company, upon request, a
calculation or other evidence of Executive's marginal tax rate sufficient to
permit the Company to calculate accurately the amount to be paid to Executive.

Executive will be issued a UATP card (or Similar Card), lifetime Platinum Elite
OnePass Cards (or similar highest category successor frequent flyer cards) in
Executive's, Executive spouse's and Executive's children's names, lifetime
membership cards in the Company's Presidents Club (or any successor program
maintained in the CO system) for Executive, Executive's spouse and Executive's
children (subject to the terms and conditions of membership, including minimum
age requirements), and an appropriate flight pass identification card, each
valid at all times during the term of Executive's Flight Benefits.

Executive agrees that his Flight Benefits are intended to be used principally
for personal reasons and may not be used for business purposes (other than
business purposes on behalf of the Company, and other than business usage that
is incidental or de minimus, defined as amounting to less than 10% of the total
value (valued as the usage of the Annual Travel Limit is calculated) of flights
on the CO System charged to Executive's UATP card (or any Similar Card) during
any year), and that credit availability on Executive's UATP card (or any Similar
Card) may be suspended if Executive's UATP card (or any Similar Card) is used
for business purposes other than as described above and, after receiving written
notice from the Company to cease such usage, Executive continues to use his UATP
card (or any Similar Card) for such business purposes.

Upon Executive's death, his surviving spouse and children will be permitted, in
the aggregate, to continue to use (in the proportions specified in Executive's
last will and testament or, if not so specified or if Executive dies intestate,
in equal proportions) Executive's Flight Benefits on the CO system (out of any
amounts unused by Executive at the date of his death) for up to a total amount
of the unused balance of Executive's Annual Travel Limit at the date of his
death (which unused balance, and the unused balance of Executive's Annual Gross
Up Limit, shall be fixed at the date of Executive's death and shall not be
adjusted except as provided below in this paragraph) in value of flights (in any
fare class) on the CO system, valued identically to the valuation of flights for
purposes of Flight Benefits as described in this Agreement, which unused balance
of Executive's Annual Travel Limit (and unused Annual Gross Up Limit) at the
date of his death shall adjust automatically upon any change in the valuation
methodology, from and after the date of Executive's death, for imputed income
from flights (as compared with the valuation methodology for calculation of
imputed income resulting from flights used by the Company as of the date of
Executive's death), so as to preserve the benefit of such unused balance of
Executive's Annual Travel Limit (and unused Annual Gross Up Limit) relative to
the valuations resulting from the valuation methodology used by the Company as
of the date of Executive's death (e.g., if a change in the valuation methodology
results, on average, in such flights being valued 10% higher than the valuation
that would result using the valuation methodology used by the Company as of the
date of Executive's death, then the then-unused Annual Travel Limit (and
then-unused Annual Gross Up Limit) would be increased by 10%). Upon their
request, the Company will promptly notify each of Executive's surviving spouse
and children in writing of the amount of the unused balance of Executive's
Annual Travel Limit (and the unused balance of Executive's Annual Gross Up
Limit) at the date of his death and of any subsequent adjustment thereto. All
restrictions, duties and obligations of Executive, and all rights of the
Company, relating to Executive's usage of his Flight Benefits contained in this
Agreement shall be applicable to usage of Executive's Flight Benefits by
Executive's surviving spouse and children, and the provision of such Flight
Benefits to Executive's surviving spouse and children shall be conditioned upon
written acknowledgement of and agreement thereto by Executive's surviving spouse
and children. In connection therewith, after the death of Executive, each of
Executive's surviving spouse and children will be issued a UATP card (or Similar
Card), subject to the limitations of usage thereof described herein.

ARTICLE 5: MISCELLANEOUS

5.1 Interest and Indemnification. If any payment to Executive provided for in
this Agreement is not made by Company when due, Company shall pay to Executive
interest on the amount payable from the date that such payment should have been
made until such payment is made, which interest shall be calculated at 3% plus
the prime or base rate of interest announced by JPMorgan Chase Bank (or any
successor thereto) at its principal office in Houston, Texas (but not in excess
of the highest lawful rate), and such interest rate shall change when and as any
such change in such prime or base rate shall be announced by such bank. If
Executive shall obtain any money judgment or otherwise prevail with respect to
any litigation brought by Executive or Company to enforce or interpret any
provision contained herein, Company, to the fullest extent permitted by
applicable law, hereby indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby agrees (i) to pay in
full all such fees and disbursements and (ii) to pay prejudgment interest on any
money judgment obtained by Executive from the earliest date that payment to him
should have been made under this Agreement until such judgment shall have been
paid in full, which interest shall be calculated at the rate set forth in the
preceding sentence.

5.2 Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:

If to Company to :

Continental Airlines, Inc.

1600 Smith, Dept. HQSEO

Houston, Texas 77002

Attention: General Counsel

If to Executive to :

Mr. Lawrence W. Kellner

10915 Pifer Way

Houston, Texas 77024

or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.

5.3 Applicable Law. This contract is entered into under, and shall be governed
for all purposes by, the laws of the State of Texas.

5.4 No Waiver. No failure by either party hereto at any time to give notice of
any breach by the other party of, or to require compliance with, any condition
or provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.

5.5 Severability. If a court of competent jurisdiction determines that any
provision of this Agreement is invalid or unenforceable, then the invalidity or
unenforceability of that provision shall not affect the validity or
enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.

5.6 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.

5.7 Withholding of Taxes and Other Employee Deductions. Company may withhold
from any benefits and payments made pursuant to this Agreement all federal,
state, city and other taxes as may be required pursuant to any law or
governmental regulation or ruling and all other normal employee deductions made
with respect to Company's employees generally.

5.8 Headings. The paragraph headings have been inserted for purposes of
convenience and shall not be used for interpretive purposes.

5.9 Gender and Plurals. Wherever the context so requires, the masculine gender
includes the feminine or neuter, and the singular number includes the plural and
conversely.

5.10 Successors. This Agreement shall be binding upon and inure to the benefit
of Company and any successor of the Company, including without limitation any
person, association, or entity which may hereafter acquire or succeed to all or
substantially all of the business or assets of Company by any means whether
direct or indirect, by purchase, merger, consolidation, or otherwise. Except as
provided in the preceding sentence or in paragraph 3.3 (regarding assignment of
life insurance benefits), this Agreement, and the rights and obligations of the
parties hereunder, are personal and neither this Agreement, nor any right,
benefit or obligation of either party hereto, shall be subject to voluntary or
involuntary assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party. The parties
intend that the provisions of this Agreement benefiting Executive's estate or
his surviving spouse and children shall be enforceable by them.

5.11 Term. This Agreement has a term co-extensive with the term of employment as
set forth in paragraph 2.1. Termination shall not affect any right or obligation
of any party which is accrued or vested prior to or upon such termination.

5.12 Entire Agreement. Except as provided in (i) the benefits, plans, and
programs referenced in paragraph 3.7(iv) and any awards under the Company's
stock incentive plans or programs, LTIP, Retention Program, Annual Executive
Bonus Program, NLTIP/RSU Program or similar plans or programs, (ii) that certain
Compensation Cap Agreement dated as of May 19, 2003, between the Company and
Executive, and (iii) separate agreements governing Executive's flight benefits
relating to other airlines, this Agreement, as of the Effective Date, will
constitute the entire agreement of the parties with regard to the subject matter
hereof, and will contain all the covenants, promises, representations,
warranties and agreements between the parties with respect to employment of
Executive by Company. Effective as of the Effective Date, the Existing Agreement
shall automatically terminate and no longer be of any force or effect, and
neither party shall have any rights or obligations thereunder. Any modification
of this Agreement shall be effective only if it is in writing and signed by the
party to be charged.

Deemed Resignations

. Any termination of Executive's employment shall constitute an automatic
resignation of Executive as an officer of Company and each affiliate of Company,
and an automatic resignation of Executive from the Board of Directors and from
the board of directors of any affiliate of Company, and from the board of
directors or similar governing body of any corporation, limited liability
company or other entity in which Company or any affiliate holds an equity
interest and with respect to which board or similar governing body Executive
serves as Company's or such affiliate's designee or other representative.

 

 

 

 

 

 

*******

IN WITNESS WHEREOF,

the parties hereto have executed this Agreement on and to be effective as of the
Effective Date.

 

CONTINENTAL AIRLINES, INC.

 

 

By: /s/ Michael H. Campbell

Name:

Michael H. Campbell

Title:

Senior Vice President -

Human Resources and

Labor Relations

"EXECUTIVE"

 

 

/s/ Lawrence W. Kellner

LAWRENCE W. KELLNER

 

APPROVED:

 

_/s/ Charles Yamarone

__

Charles Yamarone

Chair, Human Resources Committee