INTERCREDITOR AGREEMENT

EXECUTION VERSION

 

INTERCREDITOR AGREEMENT

(2005-ERJ1)

Dated as of

September 22, 2005

AMONG

WILMINGTON TRUST COMPANY,

not in its individual capacity

but solely as Trustee under the

Continental Airlines Pass Through Trust 2005-ERJ1

 

 

LANDESBANK BADEN-WÜRTTEMBERG

 

as Liquidity Provider

 

AND

WILMINGTON TRUST COMPANY,

not in its individual capacity except

as expressly set forth herein but

solely as Subordination Agent and trustee

 

 

TABLE OF CONTENTS

 

INTERCREDITOR AGREEMENT (2005-ERJ1)

INTERCREDITOR AGREEMENT (2005-ERJ1) dated as of September 22, 2005 (this " Agreement "), among WILMINGTON TRUST COMPANY, a Delaware corporation (" WTC "), not in its individual capacity but solely as Trustee of the Trust (as defined below), LANDESBANK BADEN-WÜRTTEMBERG, a bank established in Germany as a public law institution with legal capacity ( Rechtfähige Anstalt des Öffentlichen Rechts ) (" LBBW "), as Liquidity Provider, and WILMINGTON TRUST COMPANY, not in its individual capacity except as expressly set forth herein, but solely as Subordination Agent and trustee hereunder (in such capacity, together with any successor appointed pursuant to Article VIII hereof, the " Subordination Agent ").

WHEREAS, all capitalized terms used herein shall have the respective meanings referred to in Article I hereof;

WHEREAS, pursuant to each Indenture, the related Owner Trustee proposes to issue on a non-recourse basis one series of Equipment Notes to finance the debt portion of the purchase price of the Aircraft referred to in such Indenture which will be leased to Continental pursuant to the related Lease;

WHEREAS, pursuant to the Financing Agreements, the Trust will acquire the Equipment Notes;

WHEREAS, pursuant to the Trust Agreement, the Trust proposes to issue Certificates bearing the interest rate and having the final distribution date described in the Trust Agreement on the terms and subject to the conditions set forth therein;

WHEREAS, pursuant to the Underwriting Agreement, the Underwriter proposes to purchase Certificates issued by the Trust in the aggregate face amount set forth on Schedule I thereto on the terms and subject to the conditions set forth therein;

WHEREAS, the Liquidity Provider proposes to enter into a Liquidity Facility with the Subordination Agent, as agent for the Trustee, for the benefit of the Certificateholders;

WHEREAS, it is a condition precedent to the obligations of the Underwriter under the Underwriting Agreement that the Subordination Agent, the Trustee and the Liquidity Provider agree to the terms of subordination set forth in this Agreement in respect of the Certificates, and the Subordination Agent, the Trustee and the Liquidity Provider, by entering into this Agreement, hereby acknowledge and agree to such terms of subordination and the other provisions of this Agreement.

NOW, THEREFORE, in consideration of the mutual agreements herein contained, and of other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.1   Definitions . For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

" Acceleration " means, with respect to the amounts payable in respect of the Equipment Notes issued under any Indenture, such amounts becoming immediately due and payable by declaration or otherwise. " Accelerate ", " Accelerated " and " Accelerating " have meanings correlative to the foregoing.

" Advance ", means any Advances as defined in the Liquidity Facility.

" Affiliate " means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person. For the purposes of this definition, "control" means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person whether through the ownership of voting securities or by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

" Agreement " has the meaning assigned to such term in the first paragraph of this Agreement.

" Aircraft " means, with respect to each Indenture, the "Aircraft" referred to therein.

" Appraisal " has the meaning assigned to such term in Section 4.1(a)(iii).

" Appraisers " means Aviation Specialists Group, Inc., BACK Aviation Solutions and BK Associates, Inc. or any other nationally recognized appraiser reasonably selected by the Subordination Agent or the Controlling Party.

" Available Amount " means, on any drawing date, subject to the proviso contained in the first sentence of Section 3.6(g) hereof, an amount equal to (a) the Stated Amount at such

time, less (b) the aggregate amount of each Interest Drawing honored by the Liquidity Provider under the Liquidity Facility on or prior to such date which has not been reimbursed or reinstated as of such date; provided that, following a Downgrade Drawing, a Special Termination Drawing, an Early Termination Drawing or a Final Drawing under the Liquidity Facility, the Available Amount of the Liquidity Facility shall be zero.

" Basic Agreement " means the Pass Through Trust Agreement dated as of September 25, 1997 between Continental and WTC, not in its individual capacity, except as otherwise expressly provided therein, but solely as trustee.

" Business Day " means any day other than a Saturday or Sunday or a day on which commercial banks are required or authorized to close in Houston, Texas, New York, New York, or, so long as any Certificate is outstanding, the city and state in which the Trustee, the Subordination Agent or any Loan Trustee maintains its Corporate Trust Office or receives and disburses funds, and that, solely with respect to draws under the Liquidity Facility, also is a "Business Day" as defined in the Liquidity Facility.

" Cash Collateral Account " means an Eligible Deposit Account in the name of the Subordination Agent maintained at an Eligible Institution, which shall be the Subordination Agent if it shall so qualify, into which all amounts drawn under the Liquidity Facility pursuant to Section 3.6(c), 3.6(d), 3.6(i), or 3.6(k) shall be deposited.

" Certificates " means the certificates issued by the Trust, substantially in the form of Exhibit A to the Trust Agreement, and authenticated by the Trustee, representing fractional undivided interests in the Trust, and any certificates issued in exchange therefor or replacement thereof pursuant to the terms of the Trust Agreement.

" Certificateholder " means, at any time, any holder of one or more Certificates.

" Closing Date " means September 22, 2005.

" Code " means the Internal Revenue Code of 1986, as amended from time to time, and the Treasury Regulations promulgated thereunder.

" Collection Account " means the Eligible Deposit Account established by the Subordination Agent pursuant to Section 2.2 which the Subordination Agent shall make deposits in and withdrawals from in accordance with this Agreement.

" Continental " means Continental Airlines, Inc., a Delaware corporation, and its successors and assigns.

" Continental Bankruptcy Event " means the occurrence and continuation of any of the following:

" Continental Provisions " has the meaning specified in Section 9.1(a).

" Controlling Party " means the Person entitled to act as such pursuant to the terms of Section 2.6.

" Corporate Trust Office " means, with respect to the Trustee, the Subordination Agent or any Loan Trustee, the office of such Person in the city at which, at any particular time, its corporate trust business shall be principally administered.

" Current Distribution Date " means a Distribution Date specified as a reference date for calculating the Expected Distributions or the Triggering Event Distributions with respect to the Certificates as of such Distribution Date.

" Delivery Period Expiry Date " means the earlier of (a) May 31, 2006, or, if the

Equipment Notes relating to all of the Aircraft (or Substitute Aircraft in lieu thereof) have not been purchased by the Trustee on or prior to such date due to any reason beyond the control of Continental and not occasioned by Continental's fault or negligence, August 31, 2006 and (b) the date on which Equipment Notes with respect to all Aircraft (or Substitute Aircraft in lieu thereof) have been purchased by the Trustee in accordance with the Note Purchase Agreement.

 

" Deposit Agreement " shall mean the Deposit Agreement dated as of the date hereof between the Escrow Agent and the Depositary, as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof.

" Depositary " means Citibank, N.A.

" Deposits " has the meaning set forth in the Deposit Agreement.

" Designated Representatives " means the Subordination Agent Representatives, the Trustee Representatives and the LP Representatives identified under Section 2.5.

" Distribution Date " means a Regular Distribution Date or a Special Distribution Date.

" Dollars " or " $ " means United States dollars.

" Downgrade Drawing " has the meaning assigned to such term in Section 3.6(c).

" Downgrade Event " has the meaning assigned to such term in the Liquidity Facility.

" Downgraded Facility " has the meaning assigned to such term in Section 3.6(c).

" Drawing " means an Interest Drawing, a Final Drawing, a Special Termination Drawing, an Early Termination Drawing or a Downgrade Drawing, as the case may be.

" DTC " means the Depository Trust Company, a New York corporation.

" Early Terminated Facility " has the meaning assigned to such term in Section 3.6(d).

" Early Termination Drawing " has the meaning assigned to such term in Section 3.6(d).

" Early Termination Date " means the date specified in an Early Termination Notice delivered by the Liquidity Provider to the Subordination Agent in accordance with Section 3.6(d), which date shall not be earlier than the 25 ^th day following the receipt by the Subordination Agent of such Early Termination Notice.

" Eligible Deposit Account " means either (a) a segregated account with an Eligible Institution or (b) a segregated trust account with the corporate trust department of a depository institution organized under the laws of the United States of America or any one of the states

thereof or the District of Columbia (or any U.S. branch of a foreign bank), having corporate trust powers and acting as trustee for funds deposited in such account, so long as any of the securities of such depository institution has a long-term unsecured debt rating of at least A3 from Moody's and an issuer credit rating of at least A- from Standard & Poor's. An Eligible Deposit Account may be maintained with the Liquidity Provider so long as the Liquidity Provider is an Eligible Institution; provided that the Liquidity Provider shall have waived all rights of set-off and counterclaim with respect to such account.

 

" Eligible Institution " means (a) the corporate trust department of the Subordination Agent or the Trustee, as applicable, or (b) a depository institution organized under the laws of the United States of America or any one of the states thereof or the District of Columbia (or any U.S. branch of a foreign bank), which has a long-term unsecured debt rating of at least A3 from Moody's and an issuer credit rating of at least A- from Standard & Poor's.

" Eligible Investments " means (a) investments in obligations of, or guaranteed by, the United States Government having maturities no later than 30 days following the date of such investment, (b) investments in open market commercial paper of any corporation incorporated under the laws of the United States of America or any state thereof with a short-term unsecured debt rating issued by Moody's and Standard & Poor's of at least P-1 and A-1, respectively, having maturities no later than 30 days following the date of such investment or (c) investments in negotiable certificates of deposit, time deposits, banker's acceptances, commercial paper or other direct obligations of, or obligations guaranteed by, commercial banks organized under the laws of the United States or of any political subdivision thereof (or any U.S. branch of a foreign bank) with issuer ratings of at least B/C by Thomson Bankwatch, having maturities no later than 30 days following the date of such investment; provided , however , that (x) all Eligible Investments that are bank obligations shall be denominated in U.S. dollars; and (y) the aggregate amount of Eligible Investments at any one time that are bank obligations issued by any one bank shall not be in excess of 5% of such bank's capital surplus; provided   further that any investment of the types described in clauses (a), (b) and (c) above may be made through a repurchase agreement in commercially reasonable form with a bank or other financial institution qualifying as an Eligible Institution so long as such investment is held by a third party custodian also qualifying as an Eligible Institution; provided   further , however , that in the case of any Eligible Investment issued by a domestic branch of a foreign bank, the income from such investment shall be from sources within the United States for purposes of the Code. Notwithstanding the foregoing, no investment of the types described in clause (b) above which is issued or guaranteed by Continental or any of its Affiliates, and no investment in the obligations of any one bank in excess of $10,000,000 shall be an Eligible Investment, unless written confirmation shall have been received from each Rating Agency that the making of such investment will not result in a withdrawal or downgrading of the ratings of the Certificates.

" Embraer " means Embraer-Empresa Brasileira de Aeronáutica S.A., a company organized under the laws of Brazil, and its successors and assigns.

" Equipment Notes " means the 9.798% Equipment Notes issued pursuant to any Indenture by the related Owner Trustee and authenticated by the Loan Trustee thereunder, and any such Equipment Notes issued in exchange therefor or replacement thereof pursuant to the

terms of such Indenture.

" Escrow Agent " means Wells Fargo Bank Northwest, National Association, as escrow agent under each Escrow and Paying Agent Agreement, together with its successors in such capacity.

" Escrow and Paying Agent Agreement " shall mean the Escrow and Paying Agent Agreement dated as of the date hereof among the Escrow Agent, the Underwriter, the Trustee and the Paying Agent, as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof.

" Expected Distributions " means, on any Current Distribution Date, the sum of (x) accrued and unpaid interest on the Certificates (excluding interest, if any, payable with respect to any Deposits) and (y) the difference between (A) the Pool Balance as of the immediately preceding Distribution Date (or, if the Current Distribution Date is the first Distribution Date, the original aggregate face amount of the Certificates), and (B) the Pool Balance as of the Current Distribution Date calculated on the basis that (i) the principal of the Equipment Notes has been paid when due (whether at stated maturity, upon redemption, prepayment, purchase, Acceleration or otherwise) and such payments have been distributed to the Certificateholders and (ii) the principal of any Equipment Notes formerly held in the Trust that have been sold pursuant to the terms hereof has been paid in full and such payments have been distributed to the Certificateholders, but without giving effect to any reduction in the Pool Balance as a result of any distribution attributable to Deposits occurring after the immediately preceding Distribution Date (or, if the Current Distribution Date is the first Distribution Date, occurring after the initial issuance of the Certificates). For purposes of calculating Expected Distributions, any premium paid on the Equipment Notes that has not been distributed to the Certificateholders (other than such premium or a portion thereof applied to the payment of interest on the Certificates or the reduction of the Pool Balance) shall be added to the amount of such Expected Distributions.

" Expiry Date " has the meaning set forth in the Liquidity Facility.

" Fee Letters " means, collectively, the Fee Letter dated the date hereof among LBBW, Embraer, Continental and the Subordination Agent with respect to the initial Liquidity Facility and any fee letter entered into between the Subordination Agent, Embraer, Continental and any Replacement Liquidity Provider in respect of the Liquidity Facility.

" Final Drawing " has the meaning assigned to such term in Section 3.6(i).

" Final Legal Distribution Date " means October 1, 2022.

" Financing Agreements " means each of the Participation Agreements and the Note Purchase Agreement.

" Indenture " means each of the Trust Indentures entered into by the Loan Trustee and the Owner Trustee pursuant to the Note Purchase Agreement, in each case as the same may be amended, supplemented or otherwise modified from time to time in accordance with its terms.

" Indenture Default " means, with respect to any Indenture, any Event of Default (as such term is defined in such Indenture) thereunder.

" Interest Drawing " has the meaning assigned to such term in Section 3.6(a).

" Interest Payment Date " means each date on which interest is due and payable under the Liquidity Facility on a Downgrade Drawing, a Special Termination Drawing, an Early Termination Drawing or Final Drawing thereunder, other than any such date on which interest is due and payable under the Liquidity Facility only on an Applied Provider Advance (as such term is defined in the Liquidity Facility).

" Investment Earnings " means investment earnings on funds on deposit in the Trust Accounts net of losses and investment expenses of the Subordination Agent in making such investments.

" LBBW " has the meaning assigned to such term in the recital of parties to this Agreement.

" Lease " means, with respect to each Indenture, the "Lease" referred to therein.

" Lending Office " means, with respect to the Liquidity Facility of the initial Liquidity Provider, the lending office of the Liquidity Provider presently located at Stuttgart, Germany, or such other lending office as such Liquidity Provider from time to time shall notify the Trustee as its lending office under such Liquidity Facility; provided that such Liquidity Provider shall not change its Lending Office to a Lending Office outside Germany or the United States of America except in accordance with any such Liquidity Facility.

" Lien " means any mortgage, pledge, lien, charge, claim, disposition of title, encumbrance, lease, sublease, sub-sublease or security interest of any kind, including, without limitation, any thereof arising under any conditional sales or other title retention agreement.

" Liquidity Event of Default ", has the meaning assigned to such term in the Liquidity Facility.

" Liquidity Expenses " means all Liquidity Obligations other than (i) the principal amount of any Drawings under the Liquidity Facility and (ii) any interest accrued on any Liquidity Obligations.

" Liquidity Facility " means, initially, the Revolving Credit Agreement, dated as of the date hereof, between the Subordination Agent, as agent and trustee for the Trust, and the initial Liquidity Provider, and, from and after the replacement of such Revolving Credit Agreement pursuant hereto, the Replacement Liquidity Facility therefor, if any, in each case as amended, supplemented or otherwise modified from time to time in accordance with its terms.

" Liquidity Obligations " means all principal, interest, fees and other amounts owing to the Liquidity Provider under the Liquidity Facility, Section 9.1 of the Participation Agreements or the Fee Letter.

" Liquidity Provider " means LBBW, together with any Replacement Liquidity Provider which has issued a Replacement Liquidity Facility to replace the Liquidity Facility pursuant to Section 3.6(e).

" Loan Trustee " means, with respect to any Indenture, the mortgagee thereunder.

" LP Incumbency Certificate " has the meaning assigned to such term in Section 2.5(c).

" LP Representatives " has the meaning assigned to such term in Section 2.5(c).

" Moody's " means Moody's Investors Service, Inc.

" Non-Controlling Party " means, at any time, the Trustee or the Liquidity Provider, if such person is not the Controlling Party at such time.

" Non-Performing Equipment Note " means an Equipment Note issued pursuant to an Indenture that is not a Performing Equipment Note.

" Note Purchase Agreement " means the Note Purchase Agreement dated as of the date hereof, among Continental, the Trustee, the Escrow Agent, the Subordination Agent and the Paying Agent, as amended, supplemented or otherwise modified from time to time in accordance with its terms.

" Officer's Certificate " of any Person means a certification signed by a Responsible Officer of such Person.

" Operative Agreements " means this Agreement, the Liquidity Facility, the Underwriting Agreement, the Indentures, the Trust Agreement, the Leases, the Financing Agreements, the Fee Letter, the Equipment Notes and the Certificates, together with all exhibits and schedules included with any of the foregoing.

" Outstanding " means, when used with respect to the Certificates, as of the date of determination, all Certificates theretofore authenticated and delivered under the Trust Agreement, except:

" Overdue Scheduled Payment " means any Scheduled Payment which is not in fact received by the Subordination Agent within five days after the Scheduled Payment Date relating thereto.

" Owner Participant " means, with respect to any Participation Agreement, the owner participant thereunder.

" Owner Trustee " means, with respect to any Indenture, the Owner Trustee (as defined therein) not in its individual capacity but solely as trustee under the related owner trust agreement, together with any successor trustee appointed pursuant to such owner trust agreement.

" Participation Agreement " means, with respect to each Indenture, the "Participation Agreement" referred to therein.

" Payee " has the meaning assigned to such term in Section 2.4(e).

" Paying Agent " means Wilmington Trust Company, as paying agent under the Escrow and Paying Agent Agreement, together with its successors in such capacity.

" Performing Equipment Note " means an Equipment Note with respect to which no payment default has occurred and is continuing (without giving effect to any Acceleration); provided that in the event of a bankruptcy proceeding under Title 11 of the United States Code (the " Bankruptcy Code ") in which Continental is a debtor any payment default existing during the 60-day period under Section 1110(a)(2)(A) of the Bankruptcy Code (or such longer period as may apply under Section 1110(b) of the Bankruptcy Code or as may apply for the cure of such payment default under Section 1110(a)(2)(B) of the Bankruptcy Code) shall not be taken into consideration until the expiration of the applicable period.

" Performing Note Deficiency " means any time that less than 65% of the then aggregate outstanding principal amount of all Equipment Notes are Performing Equipment Notes.

" Person " means any individual, corporation, partnership, joint venture,

association, limited liability company, joint-stock company, trust, trustee, unincorporated organization or government or any agency or political subdivision thereof.

" Pool Balance " means, as of any date, (i) the original aggregate face amount of the Certificates less (ii) the aggregate amount of all payments made in respect of the Certificates or in respect of Deposits other than payments made in respect of interest or premium thereon or reimbursement of any costs and expenses in connection therewith. The Pool Balance as of any Distribution Date shall be computed after giving effect to any special distribution with respect to unused Deposits, payment of principal of the Equipment Notes or payment with respect to other Trust Property and the distribution thereof to be made on that date.

" Proceeding " means any suit in equity, action at law or other judicial or administrative proceeding.

" PTC Event of Default " means the failure to pay within 10 Business Days of the due date thereof: (i) the outstanding Pool Balance of the Certificates on the Final Legal Distribution Date or (ii) interest due on the Certificates on any Distribution Date (unless the Subordination Agent shall have made an Interest Drawing, or a withdrawal from the Cash Collateral Account, with respect thereto in an aggregate amount sufficient to pay such interest and shall have distributed such amount to the Trustee).

" Rating Agencies " means, collectively, at any time, each nationally recognized rating agency which shall have been requested to rate the Certificates and which shall then be rating the Certificates. The initial Rating Agencies will be Moody's and Standard & Poor's.

" Ratings Confirmation " means, with respect to any action proposed to be taken, a written confirmation from each of the Rating Agencies that such action would not result in (i) a reduction of the rating for the Certificates below the then current rating for the Certificates or (ii) a withdrawal or suspension of the rating of the Certificates.

" Regular Distribution Dates " means the 1 ^st day of each month, commencing on October 1, 2005; provided , however , that, if any such day shall not be a Business Day, the related distribution shall be made on the next succeeding Business Day.

" Replacement Liquidity Facility " means an irrevocable revolving credit agreement (or agreements) in substantially the form of the replaced Liquidity Facility, including reinstatement provisions, or in such other form or forms (which may include a letter of credit, surety bond, financial insurance policy or guaranty) as shall permit the Rating Agencies to confirm in writing their respective ratings then in effect for the Certificates (before downgrading of such ratings, if any, as a result of the downgrading of the Liquidity Provider), in a face amount (or in an aggregate face amount) equal to the amount of interest payable on the Certificates (at the Stated Interest Rate and without regard to expected future principal payments) on the 18 Regular Distribution Dates following the date of replacement of the Liquidity Facility and issued by a Person (or Persons) having an unsecured short-term debt rating and a short-term issuer credit rating, as the case may be, issued by both Rating Agencies which are equal to or higher than the Threshold Rating or such other ratings and qualifications as shall permit the Rating

Agencies to confirm in writing their respective ratings then in effect for the Certificates (before the downgrading of such ratings, if any, as a result of the downgrading of the replaced Liquidity Provider).

" Replacement Liquidity Provider " means a Person (or Persons) who issues a Replacement Liquidity Facility.

" Required Amount " means with respect to the Liquidity Facility or the Cash Collateral Account, for any day, the sum of the aggregate amount of interest, calculated at the rate per annum equal to the Stated Interest Rate, that would be payable on the Certificates on each of the eighteen successive Regular Distribution Dates immediately following such day or, if such day is a Regular Distribution Date, on such day and the succeeding seventeen Regular Distribution Dates, in each case calculated on the basis of the Pool Balance on such date and without regard to expected future payments of principal on the Certificates; provided that, for any date, the Pool Balance for determining the Required Amount shall, in the event of (A) the disposition of any Aircraft pursuant to the exercise of remedies under an Indenture on or prior to such date, be deemed to be reduced by an amount equal to the outstanding principal amount of the Equipment Note secured by such Aircraft that remains unpaid after giving effect to the application under such Indenture of proceeds from the disposition of such Aircraft and any amounts otherwise received from Continental in connection with such disposition at or prior to the time of such disposition or (B) the sale of any Equipment Note pursuant to the Intercreditor Agreement on or prior to such date, be deemed to be reduced by an amount equal to the excess of (x) the outstanding amount of principal as of the date of sale of such Equipment Note over (y) the excess of (A) the net purchase price received with respect to the sale of such Equipment Note over (B) the outstanding amount of interest accrued and payable under such Equipment Note as of the date of sale of such Equipment Note.

" Reserve Account " means the Eligible Deposit Account established by the Subordination Agent pursuant to Section 2.2(a)(iii) from which the Subordination Agent shall make withdrawals to fund the Appraisals in accordance with Section 4.1 hereof.

" Reserve Amount " means $75,000.

" Responsible Officer " means (i) with respect to the Subordination Agent and the Trustee, any officer in the corporate trust administration department of the Subordination Agent or the Trustee or any other officer customarily performing functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his knowledge of and familiarity with a particular subject, and (ii) with respect to the Liquidity Provider, two authorized signatories of such Liquidity Provider.

" Scheduled Payment " means, with respect to any Equipment Note, (i) any payment of principal or interest on such Equipment Note (other than an Overdue Scheduled Payment) due from the obligor thereon, which payment represents the installment of principal at the stated maturity of such installment of principal on such Equipment Note, the payment of regularly scheduled interest accrued on the unpaid principal amount of such Equipment Note, or both, or (ii) any payment of interest on the Certificates with funds drawn under the Liquidity

Facility or the Cash Collateral Account; provided that any payment of principal of, premium, if any, or interest resulting from the redemption or purchase of any Equipment Note shall not constitute a Scheduled Payment.

" Scheduled Payment Date " means, with respect to any Scheduled Payment, the date on which such Scheduled Payment is scheduled to be made.

" Section 2.4(b) Fraction " has the meaning assigned to such term in Section 2.4(b).

" Special Distribution Date " has the meaning assigned to such term in Section 2.4(a).

" Special Payment " means any payment (other than a Scheduled Payment) in respect of, or any proceeds of, any Equipment Note or Trust Indenture Estate (as defined in each Indenture).

" Special Payments Account " means the Eligible Deposit Account created pursuant to Section 2.2 as a sub-account to the Collection Account.

" Special Termination Drawing " has the meaning assigned to such term in Section 3.6(k).

" Special Termination Notice " has the meaning assigned to such term in the Liquidity Facility.

" Standard & Poor's " means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc.

" Stated Amount " means the Maximum Commitment (as defined in the Liquidity Facility) of the Liquidity Provider.

" Stated Interest Rate " means 9.798% per annum.

" Subordination Agent " has the meaning assigned to it in the preliminary statements to this Agreement.

" Subordination Agent Incumbency Certificate " has the meaning assigned to such term in Section 2.5(a).

" Subordination Agent Representatives " has the meaning assigned to such term in Section 2.5(a).

" Substitute Aircraft " has the meaning set forth in the Note Purchase Agreement.

" Tax " and " Taxes " mean any and all taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind (together with any and all interest, penalties, loss, damage, liability, expense, additions to tax and additional amounts or costs incurred or imposed with respect thereto) imposed or otherwise assessed by the United States of America or by any state, local or

foreign government (or any subdivision or agency thereof) or other taxing authority, including, without limitation: taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation or net worth and similar charges; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value added, taxes on goods and services, gains taxes, license, registration and documentation fees, customs duties, tariffs and similar charges.

" Termination Notice " has the meaning assigned to such term in the Liquidity Facility.

" Threshold Rating " means the short-term unsecured debt rating of P-1 by Moody's and short-term issuer credit rating of A-1 by Standard & Poor's.

" Treasury Regulations " means regulations, including proposed or temporary regulations, promulgated under the Code. References herein to specific provisions of proposed or temporary regulations shall include analogous provisions of final Treasury Regulations or other successor Treasury Regulations.

" Triggering Event " means (x) the occurrence of an Indenture Default under all of the Indentures resulting in a PTC Event of Default, (y) the Acceleration of all of the outstanding Equipment Notes ( provided that, with respect to the period prior to the Delivery Period Expiry Date, the aggregate principal balance of such Equipment Notes is in excess of $195 million) or (z) the occurrence of a Continental Bankruptcy Event.

" Triggering Event Distributions " means, on any Current Distribution Date, the sum of (x) the aggregate amount of all accrued and unpaid interest on the Certificates (excluding interest, if any, payable with respect to the Deposits) and (y) the Pool Balance as of the immediately preceding Distribution Date (or, if the Current Distribution Date is the first Distribution Date, the original aggregate face amount of the Certificates) (less the amount of the Deposits as of such preceding Distribution Date (or, if the Current Distribution Date is the first Distribution Date, the Closing Date) other than any portion of such Deposits thereafter used to acquire Equipment Notes pursuant to the Note Purchase Agreement). For purposes of calculating the Triggering Event Distributions, any premium paid on the Equipment Notes that has not been distributed to the Certificateholders (other than such premium or a portion thereof applied to the payment of interest on the Certificates or the reduction of the Pool Balance) shall be added to the amount of the Triggering Event Distributions.

" Trust " means the Continental Airlines Pass Through Trust 2005-ERJ1 created and administered pursuant to the Trust Agreement.

" Trust Accounts " has the meaning assigned to such term in Section 2.2(a).

" Trust Agreement " means the Basic Agreement, as supplemented by the Trust Supplement No. 2005-ERJ1 thereto, dated the date hereof, governing the creation and administration of the Pass Through Trust 2005-ERJ1 and the issuance of the Certificates, as the

same may be amended, supplemented or otherwise modified from time to time in accordance with its terms.

" Trustee " means WTC, not in its individual capacity except as expressly set forth in the Trust Agreement, but solely as trustee under the Trust Agreement, together with any successor trustee appointed pursuant thereto.

" Trustee Incumbency Certificate " has the meaning assigned to such term in Section 2.5(b).

" Trustee Representatives " has the meaning assigned to such term in Section 2.5(b).

" Trust Indenture Estate " with respect to any Indenture, has the meaning assigned to such term in such Indenture.

" Trust Property " has the meaning set forth in the Trust Agreement.

" Unapplied Provider Advance " has the meaning specified in the Liquidity Facility.

" Underwriter " means Citigroup Global Markets Inc.

" Underwriting Agreement " means the Underwriting Agreement dated September 14, 2005 among the Underwriter, the Depositary, Embraer and Continental, relating to the purchase of the Certificates by the Underwriter, as the same may be amended, supplemented or otherwise modified from time to time in accordance with its terms.

" Written Notice " means, from the Subordination Agent, the Trustee or the Liquidity Provider, a written instrument executed by the Designated Representative of such Person. An invoice delivered by the Liquidity Provider pursuant to Section 3.1 in accordance with its normal invoicing procedures shall constitute Written Notice under such Section.

" WTC " has the meaning assigned to such term in the recital of parties to this Agreement.

ARTICLE II

TRUST ACCOUNTS; CONTROLLING PARTY

SECTION 2.1   Agreement to Terms of Subordination; Payments from Monies Received Only . (a) The Trustee hereby acknowledges and agrees to the terms of subordination and distribution set forth in this Agreement in respect of the Certificates and agrees to enforce such provisions and cause all payments in respect of the Equipment Notes and the Liquidity Facility to be applied in accordance with the terms of this Agreement. In addition, the Trustee hereby agrees to cause the Equipment Notes purchased by the Trust to be registered in the name of the Subordination Agent or its nominee, as agent and trustee for the Trustee, to be held in trust

by the Subordination Agent solely for the purpose of facilitating the enforcement of the subordination and other provisions of this Agreement.

(b)   Except as otherwise expressly provided in the next succeeding sentence of this Section 2.1(b), all payments to be made by the Subordination Agent hereunder shall be made only from amounts received by it that constitute Scheduled Payments, Special Payments or payments under Section 9.1 of the Participation Agreements or payments under Section 6 of the Note Purchase Agreement, and only to the extent that the Subordination Agent shall have received sufficient income or proceeds therefrom to enable it to make such payments in accordance with the terms hereof. The Trustee and the Subordination Agent hereby agree and, as provided in the Trust Agreement, each Certificateholder, by its acceptance of a Certificate, and the Liquidity Provider, by entering into the Liquidity Facility to which it is a party, have agreed to look solely to such amounts to the extent available for distribution to it as provided in this Agreement and to the relevant Deposits and that none of the Owner Trustees, Loan Trustees, Owner Participants nor the Trustee or the Subordination Agent is personally liable to any of them for any amounts payable or any liability under this Agreement, the Trust Agreement, the Liquidity Facility or such Certificate, except (in the case of the Subordination Agent) as expressly provided herein or (in the case of the Trustee) as expressly provided in the Trust Agreement or (in the case of the Owner Trustees and the Loan Trustees) as expressly provided in any Operative Agreement.

SECTION 2.2   Trust Accounts . (a) Upon the execution of this Agreement, the Subordination Agent shall establish and maintain in its name (i) the Collection Account as an Eligible Deposit Account, bearing a designation clearly indicating that the funds deposited therein are held in trust for the benefit of the Trustee, the Certificateholders and the Liquidity Provider, (ii) as a sub-account in the Collection Account, the Special Payments Account as an Eligible Deposit Account, bearing a designation clearly indicating that the funds deposited therein are held in trust for the benefit of the Trustee, the Certificateholders and the Liquidity Provider and (iii) the Reserve Account as an Eligible Deposit Account, bearing a designation clearly indicating that the funds deposited therein are held in trust for the benefit of the Trustee, the Liquidity Provider and the Certificateholders. The Subordination Agent shall establish and maintain the Cash Collateral Account and shall operate such Cash Collateral Account in accordance with Section 3.6(f) hereof. Upon such establishment and maintenance, the Cash Collateral Account shall, together with the Collection Account, constitute the " Trust Accounts " hereunder.

(b)   Funds on deposit in the Trust Accounts shall be invested and reinvested by the Subordination Agent in Eligible Investments selected by the Subordination Agent if such investments are reasonably available and have maturities no later than the earlier of (i) 30 days following the date of such investment and (ii) the Business Day immediately preceding the Regular Distribution Date or the date of the related distribution pursuant to Section 2.4 hereof, as the case may be, next following the date of such investment; provided , however , that following the making of a Downgrade Drawing, a Special Termination Drawing or an Early Termination Drawing under the Liquidity Facility, the Subordination Agent shall invest and reinvest such amounts in Eligible Investments at the direction of Continental; provided   further , however , that upon the occurrence and during the continuation of a Triggering Event, the Subordination Agent

shall invest and reinvest such amounts in accordance with the written instructions of the Controlling Party. Unless otherwise expressly provided in this Agreement (including, without limitation, with respect to Investment Earnings on amounts on deposit in the Cash Collateral Account, Section 3.6(f) hereof), any Investment Earnings shall be deposited in the Collection Account when received by the Subordination Agent and shall be applied by the Subordination Agent in the same manner as the other amounts on deposit in the Collection Account are to be applied and any losses shall be charged against the principal amount invested, in each case net of the Subordination Agent's reasonable fees and expenses in making such investments. The Subordination Agent shall not be liable for any loss resulting from any investment, reinvestment or liquidation required to be made under this Agreement other than by reason of its willful misconduct or gross negligence. Eligible Investments and any other investment required to be made hereunder shall be held to their maturities except that any such investment may be sold (without regard to its maturity) by the Subordination Agent without instructions whenever such sale is necessary to make a distribution required under this Agreement. Uninvested funds held hereunder shall not earn or accrue interest.

(c)   The Subordination Agent shall possess all right, title and interest in all funds on deposit from time to time in the Trust Accounts and in all proceeds thereof (including all income thereon, except as otherwise expressly provided in Section 3.4(b) with respect to Investment Earnings). The Trust Accounts shall be held in trust by the Subordination Agent under the sole dominion and control of the Subordination Agent for the benefit of the Trustee, the Certificateholders and the Liquidity Provider, as the case may be. If, at any time, any of the Trust Accounts or the Reserve Account ceases to be an Eligible Deposit Account, the Subordination Agent shall within 10 Business Days (or such longer period, not to exceed 30 calendar days, for which a Ratings Confirmation shall have been obtained) establish a new Collection Account, Special Payments Account, Reserve Account or Cash Collateral Account, as the case may be, as an Eligible Deposit Account and shall transfer any cash and/or any investments to such new Collection Account, Special Payments Account, Reserve Account or Cash Collateral Account, as the case may be. So long as WTC is an Eligible Institution, the Trust Accounts and the Reserve Account shall be maintained with it as Eligible Deposit Accounts.

(d)   The Subordination Agent shall possess all right, title and interest in all funds on deposit from time to time in the Reserve Account. The Reserve Account shall be used by the Subordination Agent solely to fund the Appraisals when required to be obtained pursuant to Section 4.1 hereof.

SECTION 2.3  Deposits to the Collection Account and Special Payments Account . (a) The Subordination Agent shall, upon receipt thereof, deposit in the Collection Account all Scheduled Payments received by it.

(b)   The Subordination Agent shall, on each date when one or more Special Payments are made to the Subordination Agent as holder of the Equipment Notes, deposit in the Special Payments Account the aggregate amount of such Special Payments.

SECTION 2.4   Distributions of Special Payments . (a)   Notice of Special Payment . Except as provided in Section 2.4(e) below, upon receipt by the Subordination Agent, as registered holder of the Equipment Notes, of any notice of a Special Payment (or, in the absence of any such notice, upon receipt by the Subordination Agent of a Special Payment), the Subordination Agent shall promptly give notice thereof to the Trustee and the Liquidity Provider. The Subordination Agent shall promptly calculate the amount of the redemption or purchase of Equipment Notes or the amount of any Overdue Scheduled Payment, as the case may be, comprising such Special Payment under the applicable Indenture or Indentures and shall promptly send to the Trustee a Written Notice of such amount. Such Written Notice shall also set the distribution date for such Special Payment (a " Special Distribution Date "), which shall be the Business Day which immediately follows the later to occur of (x) the 15th day after the date of such Written Notice or (y) the date the Subordination Agent has received or expects to receive such Special Payment. Amounts on deposit in the Special Payments Account shall be distributed in accordance with Sections 2.4(b) and 2.4(c) hereof, as applicable.

(b)   Redemptions and Purchases of Equipment Notes . (i) So long as no Triggering Event shall have occurred (whether or not continuing), the Subordination Agent shall make distributions pursuant to this Section 2.4(b) of amounts on deposit in the Special Payments Account on account of the redemption, purchase (including, without limitation, a purchase resulting from a sale of the Equipment Notes permitted by Article IV hereof) or prepayment of all of the Equipment Notes issued pursuant to an Indenture on the Special Distribution Date for such Special Payment in the following order of priority:

For the purposes of this Section 2.4(b)(i), clause (x) of the definition of "Expected Distributions" shall be deemed to read as follows: "(x) accrued, due and unpaid interest on the Certificates together with (without duplication) accrued and unpaid interest on a portion of the Certificates equal to the outstanding principal amount of the Equipment Notes held in the Trust and being redeemed, purchased or prepaid (immediately prior to such redemption, purchase or prepayment), in each case excluding interest, if any, payable with respect to the Deposits".

(ii)   Upon the occurrence of a Triggering Event (whether or not continuing), the Subordination Agent shall make distributions pursuant to this Section 2.4(b) of amounts on deposit in the Special Payments Account on account of the redemption or purchase of all of the Equipment Notes issued pursuant to an Indenture on the Special Distribution Date for such Special Payment in accordance with Section 3.3 hereof.

(c)   Other Special Payments . Except as provided in clause (e) below, any amounts on deposit in the Special Payments Account other than amounts to be distributed pursuant to Section 2.4(b) shall be distributed on the Special Distribution Date therefor in accordance with Article III hereof.

(d)   Investment of Amounts in Special Payments Account . Any amounts on deposit in the Special Payments Account prior to the distribution thereof pursuant to Section 2.4(b) or (c) shall be invested in accordance with Section 2.2(b). Investment Earnings on such investments shall be distributed in accordance with Section 2.4(b) or (c), as the case may be.

(e)   Certain Payments . Except for amounts constituting Liquidity Obligations which shall be distributed as provided in Section 2.4(b), 3.2 or 3.3 (as the case may be), the Subordination Agent will distribute promptly upon receipt thereof (i) any indemnity payment

received by it from the Owner Part