EXHIBIT 10.7

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT

("Agreement") is made by and between CONTINENTAL AIRLINES, INC., a Delaware
corporation ("Company"), and Mark Erwin ("Executive"), and is dated and
effective as of August 12, 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 September 10, 2002, as amended by letter agreement dated March 12, 2004 (as
so amended, the "Existing Agreement"); and

WHEREAS

, the Human Resources Committee of the Board of Directors of Company ("HR
Committee") 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 Position. Company shall employ Executive in the position of Senior Vice
President Asia/Pacific and Corporate Development, or in such other position or
positions as the parties mutually may agree.

1.3 Duties and Services. Executive agrees to serve in the position referred to
in paragraph 1.2 and to perform diligently and to the best of Executive's
abilities the duties and services appertaining to such office 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 office 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 three-year period beginning on the Effective Date. Said
term of employment shall be extended automatically for an additional successive
three-year period as of the third anniversary of the Effective Date and as of
the last day of each successive three-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 three-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
three-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") or the HR Committee, 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 that renders Executive mentally or
physically incapable of performing the material duties and services required of
Executive hereunder on a full-time basis during such period;

(iii) for cause, which for purposes of this Agreement shall mean Executive's
gross negligence or willful misconduct in the performance of, or Executive's
abuse of alcohol or drugs rendering Executive unable to perform, the material
duties and services required of Executive pursuant to this Agreement;

(iv) for Executive's material breach of any provision of this Agreement which,
if correctable, remains uncorrected for 30 days following written notice to
Executive by Company of such breach; or

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

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

(i) the assignment to Executive by the Board of Directors or HR Committee or
other officers or representatives of Company of duties materially inconsistent
with the duties associated with the position described in paragraph 1.2 as such
duties are constituted as of the Effective Date (excluding any duties associated
with a subsidiary of Company, which Company may eliminate in its sole
discretion);

(ii) a material diminution in the nature or scope of Executive's authority,
responsibilities, or title from those applicable to Executive as of the
Effective Date (excluding any authority, responsibilities or title associated
with a subsidiary of Company, which Company may eliminate in its sole
discretion);

(iii) the occurrence of material acts or conduct on the part of Company or its
officers or representatives that prevent Executive from performing Executive's
duties and 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; 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 Executive shall do so by giving
written notice to the other party that it or Executive 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) $400,000 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 Programs. Executive shall participate in each cash bonus program
maintained by Company on and after the Effective Date at a level which is not
less than the maximum participation level made available to any other executive
of Company at substantially the same title or level of Executive (determined
without regard to period of service or other criteria that might otherwise be
necessary to entitle Executive to such level of participation).

3.3 Vacation and Sick Leave. During each year of Executive's 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.

3.4 Other Perquisites. During Executive's employment hereunder, Executive shall
be afforded the following benefits as incidences of Executive's employment:

(i) 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.

(ii) Parking - Company shall provide at no expense to Executive a parking place
convenient to Executive's office and a parking place at Intercontinental Airport
in Houston, Texas. Notwithstanding the foregoing, Executive acknowledges that
she has agreed that Company may charge Executive for parking at Company's
headquarters building garage.

(iii) 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 Executive's prior written consent.

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 24 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, 2000 ("Actual Years of Service"), (2) an additional one
year 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) three additional years of service if
Executive is paid the Termination Payment under this Agreement. For purposes
hereof, Executive's final average compensation shall be equal to the greater of
(A) $315,000 or (B) the average of the five highest annual cash compensation
amounts (or, if Executive has been employed less than five years by Company, the
average over the full years employed by Company) 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),
and (vi) any cash bonus paid under a long term incentive plan or program adopted
by Company. 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 Human
Resources Committee of the board of directors of Company (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
Executive 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 Executive's 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, Executive's 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 Relocation Matters. Executive shall promptly relocate to Houston, Texas.
Company shall pay the reasonable cost and expenses of relocating Executive's
household effects from Guam and Hawaii to Houston, Texas

 

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 Executive's 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 Executive's eligible dependents shall be
provided Continuation Coverage (as such term is defined in paragraph 4.7) for
the remainder of Executive's lifetime, 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) pay
Executive on or before the effective date of such termination a lump-sum, cash
payment in an amount equal to the Termination Payment, (iii) provide Executive
with Outplacement Services (as such term is defined in paragraph 4.7), and (iv)
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 the benefits described in paragraph 3.5
shall continue to be payable, Executive and Executive's eligible dependents
shall be provided Continuation Coverage for the remainder of Executive's
lifetime, and

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 (iv) of
paragraph 4.1, and

Executive shall be provided Flight Benefits (as such term is defined in
paragraph 4.7) for the remainder of Executive's lifetime; and

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, and (2) if such termination shall be for a reason encompassed by
paragraph 2.2(ii),

provide Flight Benefits (as such term is defined in paragraph 4.7) to Executive
for the remainder of Executive's lifetime.

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
employment, except Executive shall be provided Flight Benefits (as such term is
defined in paragraph 4.7) for the remainder of Executive's lifetime, Executive
and Executive's eligible dependents shall be provided Continuation Coverage for
the remainder of Executive's lifetime, the benefits described in paragraph 3.5
shall continue to be payable, 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 (iv)
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 Executive 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) "Annualized Compensation"

shall mean an amount equal to 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 125% of the amount described
in the foregoing clause (1);

(ii) "Change in Control" shall have the meaning assigned to such term in
Company's Incentive Plan 2000 in effect on the date hereof;

(iii) "Continuation Coverage" shall mean the continued coverage of Executive and
Executive's 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 at the senior
vice president level 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, 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;

(iv) "Flight Benefits" shall mean flight benefits on each airline operated by
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 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, Executive's spouse and
Executive's childrens' names for use on the CO system, lifetime membership
(subject to the terms and conditions of membership, including minimum age
requirements) for Executive, Executive's spouse and children in the Company's
President's Club (or any successor program maintained in the CO system) and
payment by 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 used
by Company at the Effective Date

(which methodology Company may change from time to time in its sole discretion),
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
Company;

"Outplacement Services"

shall mean 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 or HR Committee (with such approval not to be unreasonably withheld);

(vi) "Severance Period" shall mean:

(1) in the case of a termination of Executive's employment with Company that
occurs within two years after the date upon which a Change in Control occurs, a
period commencing on the date of such termination and continuing for thirty-six
months; or

(2) in the case of a termination of Executive's employment with Company that
occurs prior to a Change in Control or after the date which is two years after a
Change in Control occurs, a period commencing on the date of such termination
and continuing for twenty-four months; and

(vii) "Termination Payment" shall mean an amount equal to Executive's Annualized
Compensation multiplied by a fraction, the numerator of which is the number of
months in the Severance Period and the denominator of which is twelve.

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, automatically upon any change in the valuation
methodology for imputed income from flights (as compared with the valuation
methodology for imputed income 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). 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. Notwithstanding the foregoing, any amounts of
Executive's prior Annual Travel Limit (as in effect prior to August 12, 2004)
unused and carried forward from years prior to 2004 shall continue to be
available for usage by Executive.

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,
automatically upon any change in the valuation methodology for imputed income
from flights (as compared with the valuation methodology for imputed income 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). 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.
Notwithstanding the foregoing, any amounts of Executive's prior Annual Gross Up
Limit (as in effect prior to August 12, 2004) unused and carried forward from
years prior to 2004 shall continue to be available for usage by Executive.

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 Company means
any entity controlled by, controlling, or under common control with 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 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, Executive will promptly (and in any event
within 45 days after receipt of such invoice or other accounting statement)
reimburse Company for all charges on Executive's 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 3.4(i) 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 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
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 (calculated as described
above) with respect to flights on the CO system charged on Executive's UATP card
(or Similar Card), or as otherwise required by law, and reported to Executive as
required by applicable law. With respect to any period for which Company is
obligated to provide the tax gross up described above, Executive will provide to
Company, upon request, a calculation or other evidence of Executive's marginal
tax rate sufficient to permit 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's spouse's and Executive's childrens' names, lifetime
membership cards in 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 (or, with
respect to such OnePass and Presidents Club cards, during the lifetime of the
holder).

Upon Executive's death, Executive's 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 Executive's death) for up
to a total amount of $50,000 in value of flights (in any fare class) on the CO
system, valued identically to the valuation of flights for purposes of
Executive's Flight Benefits described herein, which amount shall adjust
automatically upon any change in the valuation methodology, from and after the
date hereof, for imputed income from flights (as compared with the valuation
methodology for imputed income from flights used by Company as of the date
hereof), so as to preserve the benefit of $50,000 of flights relative to the
valuations resulting from the valuation methodology used by Company as of the
Effective Date(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 Company as of the Effective Date,
then such amount would be increased by 10% to $55,000). Company will promptly
notify Executive in writing of any adjustments to such amount.

Executive agrees that Executive's 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 Company), and other than business
usage that is incidental or de minimus, defined as amounting to less than 10% of
the total value (valued in accordance with the valuation methodology described
above) 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 such UATP card (or any Similar
Card) is used for business purposes other than as described above and, after
receiving written notice from Company to cease such usage, Executive continues
to use Executive's UATP card (or any Similar Card) for such business purposes.

 

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 J.P. Morgan 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 Executive's 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 Executive 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: President

If to Executive to:

Mark Erwin

Houston, Texas

 

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, 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.

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 that 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 3.4(iii) and any awards under the Company's
stock incentive plans or programs, Long Term Incentive Performance Award
Program, Officer Retention and Incentive Award Program, Long Term Incentive and
RSU Program, Annual Executive Bonus Program or similar plans or programs, and
(ii) separate agreements, if any, 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 is hereby
terminated and without any further force or effect. Any modification of this
Agreement shall be effective only if it is in writing and signed by the party to
be charged.

5.13 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 of Company 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 as of the Effective Date.

CONTINENTAL AIRLINES, INC.

 

By:_

/s/ Michael H. Campbell___________________

Michael H. Campbell Senior Vice President

Human Resources and Labor Relations

 

"EXECUTIVE"

 

_

/s/ Mark Erwin________________________

Mark Erwin