1
CONTINENTAL AIRLINES, INC.
0000 XXXXX XXXXXXX, XXXXX 0000
XXXXXXX, XXXXX 00000
November 22, 1996
In-Flight Phone Corporation
Xxx Xxxxx Xxxx
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Attention: Chief Executive Officer
MCI Telecommunications Corporation
0000 Xxxxxxxxxxxx Xxxxxx, X.X.
Washington, D.C. 20006
Attention: General Counsel
Ladies and Gentlemen:
This letter agreement shall amend the Telecommunications System Agreement
dated as of June 7, 1994 by and between In-Flight Phone Corporation, a Delaware
corporation ("IFPC"), and Continental Airlines, Inc., a Delaware corporation
("Continental"), as amended by letter agreement dated March 29, 1995 and by
letter agreement dated as of April 5, 1996 (as so amended, the "Agreement"), as
specified below. This letter agreement is executed below by MCI
Telecommunications Corporation, a Delaware corporation ("MCI"), solely to agree
to the provisions of Sections 4 and 5 below, and to acknowledge and consent to
the modifications to and amendments of the Agreement evidenced hereby.
Capitalized terms used herein without definition are defined in the Agreement
and are used herein with the meanings ascribed thereto in the Agreement.
Notwithstanding anything to the contrary contained in the Agreement or in any
ancillary documents related thereto, the parties hereto agree as follows:
1. If (i) IFPC does not receive by January 1, 1997 (and deliver a copy
thereof to Continental) a firm written commitment from a nationally recognized
investment banking firm or commercial bank, or other institution reasonably
acceptable to Continental, for financing of IFPC on terms reasonably acceptable
to Continental in an amount of not less than $50 million of net proceeds to
IFPC, of which $25 million of such net proceeds are to be used by IFPC solely
for the procurement and installation of, and of which $5 million of such net
proceeds are to be used by IFPC solely for the maintenance and direct operating
costs of, air-to-ground telecommunications and information equipment on
Continental's jet aircraft fleet in accordance with the Agreement (the
"Financing Commitment"), or (ii) IFPC does so receive the Financing Commitment,
but the closing of such financing contemplated thereby (including receipt of
the funds by IFPC in an amount of not less than $50 million with no
restrictions on the use of $25 million of the net proceeds thereof for the
procurement and installation of, and no restrictions on the use of $5 million
of the net proceeds thereof for the maintenance and direct operating costs of,
air-to-ground telecommunications and information equipment on Continental's jet
aircraft fleet in accordance with the Agreement) (the "Closing") is not
consummated by January 31, 1997, then Continental
2
shall have the right to install air-to-ground telecommunications and
information systems in any or all of its aircraft (whether currently operated
or to be operated in the future) on which the Equipment is not installed on
January 1, 1997, if the Financing Commitment is not received by then, or
January 31, 1997, if the Financing Commitment is so received but the Closing
has not occurred by January 31, 1997 ("Other Aircraft"), and IFPC shall have no
right to install any such equipment, or any other form of telecommunications,
information or (except as specified in clauses (A) and (B) of Section 3 below)
entertainment equipment, on the Other Aircraft, and all of IFPC's rights and
obligations (and all of Continental's rights and obligations) with respect
thereto shall terminate and be of no force and effect. Pending receipt by IFPC
of the Financing Commitment and the occurrence of the Closing, Continental
shall have the right to solicit and contract (subject to (i) IFPC not receiving
the Financing Commitment by January 1, 1997 or the Closing not occurring by
January 31, 1997, and (ii) IFPC's rights pursuant to clauses (A) and (B) of
Section 3 below) with other providers of air-to-ground telecommunications and
information systems (as to Other Aircraft and any aircraft on which IFPC
telecommunications and information systems equipment is, in the future,
removed), and with other providers of entertainment systems (as to all
aircraft), to provide such systems with respect to the applicable aircraft.
If the Closing occurs by January 31, 1997, IFPC covenants to use sufficient
proceeds therefrom solely for the procurement and installation of air-to-ground
telecommunications and information equipment on Continental's jet aircraft
fleet in accordance with the installation schedule attached hereto as Appendix
1 (which, if the Closing occurs by January 31, 1997, shall be deemed to replace
Exhibit D to the Agreement from and after such date) and in accordance with the
Agreement, and to segregate at all times on its books and records and use
solely for the procurement, installation, maintenance and direct operating
costs of air-to-ground telecommunications and information equipment on
Continental's jet aircraft fleet in accordance with the Agreement an amount
equal to $30 million segregated into $25 million for procurement and
installation and $5 million for maintenance and direct operating costs as
described above) less amounts expended for such procurement, installation,
maintenance and direct operating costs from and after the date of Closing (it
being understood that, if IFPC timely completes all installations set forth on
Appendix 1 as being completed by September 30, 1997, then IFPC may use any
funds then remaining from such $30 million for its general corporate purposes,
except for an aggregate of $2 million which shall remain segregated on its
books and records and used solely for the procurement and installation of
air-to-ground telecommunications and information equipment on Continental's jet
aircraft fleet in accordance with the Agreement during the fourth quarter of
1997); provided that IFPC shall have no right or obligation to install
air-to-ground telecommunications or information equipment or entertainment
equipment on (i) any of Continental's DC 10-10 and DC 10-30 aircraft, any
Boeing 757 aircraft with BusinessFirst configuration, and any other of
Continental's aircraft which are used primarily in international routes and
(ii) any Embraer 145 aircraft operated by Continental or Continental Express,
Inc. (collectively, the "Excluded Aircraft"), and in each case Continental
shall have the right, without liability or obligation to IFPC, to have
installed on the Excluded Aircraft any air-to-ground telecommunications or
information equipment and any entertainment systems which Continental selects
in its sole discretion.
2
3
Continental and IFPC agree that the provisions of the Agreement relating to
the provisions by IFPC of SATCOM services are hereby terminated and shall be of
no force and effect.
If the Closing occurs by January 31, 1997, then from and after December 31,
1997, IFPC shall procure, or have cash segregated on its books at all times in
an amount sufficient (and to be used solely) to procure (and, on a monthly
basis with respect to applicable aircraft, certify to Continental in writing,
signed by a senior officer of IFPC, such procurement or cash segregation and
compliance with this paragraph), sufficient air to ground telecommunications
and information equipment to satisfy at all times the next following three
months' installations of such equipment on the jet aircraft of Continental
(other than the Excluded Aircraft) to be delivered to Continental under its
then current new aircraft delivery orders. Continental will promptly notify
IFPC in writing of any changes in anticipated new jet aircraft delivery dates
(other than with respect to Excluded Aircraft), and IFPC shall have the later
of (x) three months from the date of delivery by Continental of notice of such
change in anticipated delivery dates and (y) the three months prior to delivery
of the affected aircraft to comply with the foregoing provisions of this
paragraph with respect to such aircraft. If IFPC fails to so timely procure
such equipment (or so segregate cash) and certify thereto as described above,
then Continental shall notify IFPC of such failure in writing and provide IFPC
a five day period in which to cure such failure. If such failure continues
after such five day cure period then, from and after the expiration of such
five day cure period, IFPC shall have no right to install any such equipment,
or any other form of telecommunications, information or (except as specified in
clauses (A) and (B) of Section 3 below) entertainment equipment, on any of
Continental's jet aircraft fleet to be delivered after the date of such notice
for which, at the conclusion of such five day cure period, IFPC has not
procured such equipment (or so segregated cash), and all of IFPC's rights and
obligations (and all of Continental's rights and obligations) with respect
thereto shall terminate and be of no force and effect. IFPC shall thereafter
continue to maintain and operate the Equipment on the Continental aircraft on
which the Equipment is installed on the date of expiration of such five day
cure period, and continue to maintain and operate the ATG System and ATG
Services, in accordance with the provisions of the Agreement throughout the
term of the Agreement, shall timely pay to Continental all commissions and
other revenues under the Agreement with respect thereto (including guaranteed
minimum Commissions set forth in Section 4.2(c) of the Agreement), and shall
duly perform all its other obligations under the Agreement (as amended hereby).
2. If the Financing Commitment is not received by January 1, 1997, or if the
Financing Commitment is so received but the Closing does not occur by January
31, 1997, IFPC shall continue to maintain and operate the Equipment on the
Continental aircraft on which the Equipment is installed on January 1, 1997, if
the Financing Commitment is not received by then, or January 31, 1997, if the
Financing Commitment is so received but the Closing has not occurred by January
31, 1997 ("Current Aircraft"), and continue to maintain and operate the ATG
System and ATG Services, in accordance with the provisions of the Agreement
throughout the term of the Agreement, shall timely pay to Continental all
commissions and other revenues under the Agreement with respect thereto
(including guaranteed minimum Commissions set forth in Section 4.2(c) of the
Agreement), and shall duly perform all its other obligations under the
Agreement (as amended hereby).
3
4
3. Whether or not the Financing Commitment is timely received or the Closing
timely occurs, (A) IFPC shall have the right at its sole cost and expense, to
install in accordance with the Agreement live video on the Current Aircraft
(other than any Excluded Aircraft) in accordance with an installation
schedule to be mutually agreed upon which installations shall commence no
later than July 31, 1997 and be completed no later than December 31, 1998, and
(B) IFPC shall also have the right during the period between July 31, 1997 and
December 31, 1998, at its sole cost and expense to install live video on Other
Aircraft (other than Excluded Aircraft) in accordance with an installation
schedule to be mutually agreed upon, subject to (i) in the case of clause (B),
negotiation and timely payment by IFPC to Continental of mutually agreed upon
commissions and minimum commissions with respect thereto which minimum
commissions shall be unconditionally guaranteed by either MCI or Xxxxxx
Corporation. (ii) in the case of both clause (A) and clause (B),
which live video being integrated (in a manner reasonably satisfactory to
Continental) with whatever in-flight entertainment systems are then installed
or to be installed in the applicable aircraft, and (iii) in the case of both
clause (A) and clause (B), satisfaction by IFPC of the operational, safety,
regulatory and other requirements applicable to live video systems under the
Agreement and applicable law. It is also agreed (whether or not the Financing
Commitment is timely received or the Closing timely occurs) that live video may
not be installed by IFPC on aircraft specifically identified by Continental if
Continental advises IFPC that, in Continental's determination, the incremental
weight of the live video system would cause a payload or range limitation which
would prevent Continental from operating such aircraft with full payloads on
the routes that Continental determines will or may be flown by such aircraft,
and live video may not be installed on any aircraft unless the manufacturer of
such aircraft has no reasonable major technical objection with respect to the
antenna design or installation for such live video.
The parties further agree that the last sentence of the third paragraph of
Section 3.1(a) of the Agreement is amended to read as follows: "In addition to
such procedures, if such ATG System Equipment is not installed on a replacement
aircraft in accordance with Section 8.2(c) below due to Continental failing to
locate and make available for installation a suitable replacement aircraft or
fleet of aircraft on which to install such ATG System Equipment, then
Continental shall make a payment to IFPC in an amount necessary to satisfy the
pro-rata portion of IFPC's remaining financing obligations owed by IFPC with
respect to the acquisition and installation of such ATG System Equipment, where
such pro-rata portion is calculated by dividing the number of months remaining
in the three year period after the relevant aircraft is taken out of regular
service by 36; provided that the Closing (as defined in that letter agreement
between Continental and IFPC dated November 22, 1996, and joined in by MCI) has
occurred by January 31, 1997."
Notwithstanding the foregoing or any provision of the Agreement to the
contrary, IFPC shall not be obligated to install live video on any of
Continental's aircraft (except, as to any individual aircraft, if IFPC has
commenced the installation of live video on such aircraft, in which case IFPC
shall be obligated to complete such installation), and Continental shall be
free to install in its aircraft any in-flight entertainment systems it selects,
without any liability or obligation to IFPC whatsoever (including any right of
first refusal, right to match or similar right), and Sections 3.8, 4.2(c) and
8.2(e) of the Agreement are deemed to be amended accordingly (including the
elimination of the projected Commissions with respect to 3.8(b) Aircraft, as
defined in the Agreement); provided, however, that with respect only to aircraft
(other than Excluded Aircraft) which, but for the foregoing, would have been
3.8(b) Aircraft, as defined in the Agreement) and with respect to which (x)
live video has been installed by IFPC prior to the installation thereon of an
alternative entertainment system, and (y) such live video has produced average
actual monthly Commissions of at least 250% of the average Value Added Services
component (i.e., the 9.5%x(BxC) component) of the Guaranteed Monthly
Non-Telephone Commission formula in Exhibit I to the Agreement (or, if such
live video is installed on Other Aircraft, at least 250% of the applicable
negotiated monthly guaranteed minimum commission) during the period beginning
on the date of installation in such aircraft of live video and ending on the
date of installation of such alternative entertainment system ("Eligible
Competitive Aircraft"), Continental shall compensate IFPC, on an annual basis
(commencing on the June 30 first following the installation of an alternative
entertainment system on such Eligible Competitive Aircraft), in an amount equal
to the difference between the applicable average annual live video Net Receipts
per aircraft actually received by IFPC (net of Commissions payable to
Continetal) from other aircraft of the same fleet type in Continental's fleet
which have IFPC live video installed but no alternative entertainment system
installed, and the applicable actual average annual live video Net Receipts
received by IFPC (net of Commissions payable to Continental) from such
Eligible Competitive Aircraft.
4
5
4. IFPC shall (i) concurrently with its execution and delivery hereof, wire
transfer in immediately available funds to an account of Continental designated
by Continental the sum of $633,098.50, which sum represents (x) the $750,000
owed to Continental pursuant to paragraph 5 of the letter agreement between
Continental and IFPC dated as of April 5, 1996, less (y) $116,901.50, which the
parties agree constitutes the total amount owed by Continental to IFPC with
respect to the invoices from IFPC to Continental and the other matters
described on Appendix 2 hereto, and payment of which shall be satisfied by the
netting of such $116,901.50 against the $750,000 described above, and (ii) on
the earlier of the Closing or January 31, 1997, wire transfer in immediately
available funds to an account of Continental the sum of $252,500.00,
representing the agreed Guaranteed Annual Commission owed by IFPC to
Continental for the Contract Year ended April 1, 1996.
5. (a) Upon the execution and delivery hereof by the parties hereto,
Continental shall take a non-suit to dismiss without prejudice that certain
Cause styled Continental Airlines v. In-Flight Phone Corporation, in the
District Court of Xxxxxx County, Texas, 269th Judicial District (No. 96-54448).
(b) Continental, for itself and all persons claiming by, through or under
it, hereby fully, finally and forever releases, discharges, quitclaims, and
covenants not to sue on any claim or cause of action, whether known or unknown,
against IFPC or MCI, or any of their respective officers, directors, agents,
employees, representatives, subsidiaries, affiliates or successors in interest,
that exists or has ever existed prior to the date hereof, that Continental now
has or may have and that is based on or relates to the timeliness (or lack
thereof) of installation
5
6
of equipment by IFPC pursuant to the Agreement or any of the ancillary
agreements or any related costs, expenses or damages; provided, however, that
nothing in the foregoing or elsewhere in this letter agreement shall in any way
release or affect any party's obligations under this letter agreement or under
the Agreement and the ancillary agreements, as amended hereby, from and after
the date hereof.
(c) Each of IFPC and MCI, for itself and all persons claiming by, through
or under it, hereby fully, finally and forever releases, discharges,
quitclaims, and covenants not to sue on any claim or cause of action, whether
known or unknown, against Continental, or any of its officers, directors,
agents, employees, representatives, subsidiaries, affiliates or successors in
interest, that exists or has ever existed prior to the date hereof, that IFPC
or MCI now have or may have and that is based on or relates to the timeliness
(or lack thereof) of installation of equipment by IFPC pursuant to the
Agreement or any of the ancillary agreements or any related costs, expenses or
damages; provided, however, that nothing in the foregoing or elsewhere in this
letter agreement shall in any way release or affect any party's obligations
under this letter agreement or under the Agreement and the ancillary
agreements, as amended hereby, from and after the date hereof.
(d) None of the parties hereto may institute any legal proceedings, suit
or other action against any other party hereto relating in any way to the
Agreement or any of the ancillary agreements on or prior to February 3, 1997,
unless the same is filed in the Texas state courts in Xxxxxx County, Texas,
which shall be the exclusive forum for any litigation between or among the
parties hereto relating in any way to the Agreement or the ancillary agreements
and filed on or prior to February 3, 1997.
Continental and IFPC agree that the Agreement is deemed modified and amended
by the provisions of this letter agreement (whether or not such provisions
specifically amend one or more provisions of the Agreement), and that if any of
the provisions hereof conflict with any provision of the Agreement (prior to
its amendment hereby), the terms of this letter agreement shall govern. MCI
acknowledges and consents to the modifications to and amendments of the
Agreement evidenced hereby. The Agreement, as amended and modified hereby,
remains in full force and effect, and Continental hereby withdraws and
terminates any and all notices of default with respect to the Agreement given
by Continental.
Please confirm your agreement to the foregoing by executing the enclosed
copy of this letter agreement as indicated below and returning a copy to our
attention at the above address. MCI is executing this letter agreement solely
to agree to the provisions of Sections 4 and 5 hereof and to acknowledge and
consent to the modifications to and amendments of the Agreement evidenced
hereby.
6
7
Very truly yours,
CONTINENTAL AIRLINES, INC.
By: /s/ Xxxxxxxx X. Xxxxxxx
------------------------
Xxxxxxxx X. Xxxxxxx
Senior Vice President
Accepted and agreed to:
IN-FLIGHT PHONE CORPORATION
By: /s/ Xxxxxx X. Xxxxx
---------------------
Xxxxxx X. Xxxxx
President and Chief Executive Officer
Executed solely to agree to the provisions of Sections 4 and 5 above and to
acknowledge and consent to the modifications to and amendments of the Agreement
evidenced hereby:
MCI TELECOMMUNICATIONS CORPORATION
By: /s/ Xxxxxxx X. Xxxxx
--------------------
Name: Xxxxxxx X. Xxxxx
Title: Executive Vice President
7
