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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 20, 1996
TRANS WORLD AIRLINES, INC.
(Exact Name of Registrant as Specified in its Charter)
-----------------------
DELAWARE 1-7815 43-1145889
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
One City Centre
515 N. 6th Street
St. Louis, Missouri 63101
(314) 589-3000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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ITEM 5.
In connection with the 1992 bankruptcy proceedings of Trans World
Airlines, Inc. (the "Company" or "TWA"), the Company entered into certain $200
million Loan and Note Agreements (the "Icahn Loans") with Karabu Corp.
("Karabu"), an entity affiliated with Mr. Carl C. Icahn ("Icahn"), the former
chairman and controlling shareholder of the Company. The Icahn Loans are
secured by substantially all of the receivables and certain flight equipment of
the Company pursuant to, among other agreements, a Security Agreement - Trust
Deed, dated as of January 5, 1993, between the Company and State Street Bank
and Trust Company of Connecticut, National Association, as Trustee (the "Icahn
Security Agreement"). As of January 1995, the total principal amount of
indebtedness to Karabu under the Icahn Loans approximated $190 million. In
1995, Icahn advised the Company that as part of the Company's financial
restructuring Karabu would be willing to extend the maturity of the loans if,
among other things, TWA would grant to certain affiliates of Icahn the right
to sell certain discounted tickets for travel on TWA. Following extended
negotiations, on June 14, 1995, the Company, Icahn, Karabu and another
affiliate of Mr. Icahn entered into (i) an Extension, Refinancing and Consent
Agreement, which, among other things, extended the maturity of the Icahn Loans
to January 8, 2001 and (ii) the Karabu Ticket Program Agreement (the "Ticket
Agreement") whereby, the Company granted to Karabu, Icahn and certain
affiliates of Icahn the limited right to sell certain types of discounted
tickets for travel on TWA to certain specified customers. Tickets sold by the
Company to Karabu under the Ticket Agreement are priced at levels intended to
approximate current competitive discount fares available in the airline
industry. The Company believes under applicable provisions of the Ticket
Agreement, Karabu may not market or sell such tickets to the general public
through travel agents. Karabu and certain other Icahn affiliates, however,
have been marketing tickets to the general public through travel agents. In
December 1995, based upon these actions TWA filed a lawsuit against Karabu,
Icahn and certain affiliated companies seeking damages and to enjoin the
defendants from further violations of the Ticket Agreement. Icahn countered by
threatening to file his own lawsuit and to declare a default under the Icahn
Loans based upon a variety of claims related to his interpretation of
provisions of the Icahn Security Agreement as well as alleged violations by the
Company under the Ticket Agreement. On or about December 15, 1995, the parties
entered into a standstill agreement whereby TWA agreed to withdraw its
compliant against Icahn and the Icahn affiliated entities and to seek to
negotiate a settlement of their differences and respective claims. After
several extensions the standstill agreement expired on March 20, 1996.
On March 20, 1996, TWA was named as a defendant in a complaint (a copy
of which (without exhibits) is filed as Exhibit 99.1 to, and forms a part of
this current report, (the "Icahn Complaint")) filed in the United States
District Court for the Southern District of New York by Global Discount Travel
Services LLC, Global Travel Services, Inc. and Karabu Corp, each affiliates of
Icahn (the "Icahn Entities"), alleging, among other things, that the Company has
violated certain federal antitrust laws, breached the Ticket Agreement and
interfered with certain existing and prospective commercial relations of the
Icahn Entities. The Icahn Complaint is based upon Icahn's interpretation that
the Ticket Agreement permits the sale of tickets thereunder to the general
public through travel agents and upon certain actions taken by the Company to
mitigate the adverse effects
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of the Icahn Entities' ongoing marketing and sales of tickets to the general
public through travel agents. The Icahn Complaint seeks injunctive relief and
actual and punitive monetary damages, as well as the Icahn Entities' costs of
litigation. The Company believes that it has meritorious defenses to the
allegations contained in the Icahn Complaint and intends to vigorously defend
itself against such allegations. There can, however, be no assurance as to the
ultimate outcome with respect to the allegations contained in the Icahn
Complaint. If the Company were not to prevail on one or more of the counts
alleged in the Icahn Complaint and a substantial monetary judgment or
injunctive relief were entered against the Company, such judgment or relief
could have a material adverse effect upon the financial condition and
operations of the Company.
Also on March 20, 1996, the Company filed a Petition (a copy of which
(without exhibits) is filed as Exhibit 99.2 to, and forms a part of this
current report (the "TWA Petition")) in the Circuit Court of the City of St.
Louis, State of Missouri, against Icahn, Karabu, Global Discount Travel,
L.L.C., Global Travel Services, Inc. and ACF Industries, Incorporated, each of
the entities being affiliates of Icahn (collectively, the "Icahn Defendants"),
alleging the Icahn Defendants are violating the Ticket Agreement and otherwise
tortiously interfering with the Company's business expectancy and contractual
relationships as the result of, among other things, the Icahn Defendants
continuing marketing and sale of tickets purchased under the Ticket Agreement
to the general public through travel agents in violation of the Ticket
Agreement. The Petition seeks a declaratory judgment finding that the Icahn
Defendants have violated the Ticket Agreement, and seeks liquidated,
compensatory and punitive damages, as well as the Company's costs and attorneys
fees. The Company believes the allegations contained in the TWA Petition are
meritorious and that the Company should ultimately prevail on its claims. If,
however, the Company were not to ultimately prevail on its claims before the
court or otherwise, and the Company did not otherwise take appropriate action
to mitigate the effect of the sale of tickets to the general public by the
Icahn Defendants, the Company could suffer significant loss of revenue so as to
reduce overall passenger yields on a continuing basis during the term of the
Ticket Program.
In addition, TWA is also seeking from the court in Delaware which
supervised TWA's 1992-93 reorganization proceedings a restraining order against
Karabu. The purpose of the restraining order being sought is to prevent Mr.
Icahn or Karabu from issuing or causing to be issued under the Icahn Loans
any default notice based upon Icahn's interpretation of the loan documents
which he contends gives Karabu a right of prior approval of any changes to
TWA's maintenance program with respect to certain of its flight equipment. The
Delaware Bankruptcy Court retained jurisdiction from TWA's '92-93
reorganization case for the purpose of, among other things, interpreting
certain documents issued in connection with that case and the plan of
reorganization. Icahn has also alleged other violations of the Icahn Loans,
including, among other things, that the Company has not been maintaining, as
required by the terms of the Icahn Loans, certain aircraft which have been
retired from service and stored and which are pledged as security for the Icahn
Loans. To endeavor to eliminate this issue from the various dispute with Icahn
and the Icahn Entities, the Company has deposited an amount equal to the
appraised fair market value of such aircraft with the security trustee and
requested the release of the liens on such aircraft. To date the trustee has
not released such liens. The Company believes that no default exists under
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the Icahn Security Agreement. However, there can be no assurance that the
Delaware bankruptcy court will grant the relief sought by the Company or that
the Company's position with respect to any other claims of Icahn or the Icahn
Entities will ultimately be held to be correct. An Event of Default (as
defined in the Icahn Security Agreement) under the Icahn Security Agreement
would constitute a default under the instruments governing the Company's
outstanding debt and equity securities and leases of certain of the Company's
flight equipment.
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EXHIBITS
99.1 Complaint, filed with the United States District Court for the
Southern District of New York on March 20, 1996, in the matter of
Global Discount Travel Services LLC, Global Discount Travel Marketing
Services, Inc. and Karabu Marketing, Inc., Plaintiffs, vs. Trans World
Airlines, Inc., Defendant (96 CIV 2030).
99.2 Petition, filed in the Circuit Court of the City of St. Louis, State
of Missouri on March 20, 1996, in the matter of Trans World Airlines,
Inc., Plaimntiff vs. Carl Icahn, Karabu Corp., Global Discount Travel
Services L.L.C., Global Discount Travel Marketing Services, Inc. and
ACF Industries, Incorporated, Defendants.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRANS WORLD AIRLINES, INC.
Date: March 21, 1996 By: /s/ Richard P. Magurno
---------------------------------
Richard P. Magurno
Senior Vice President and General
Counsel
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EXHIBIT 99.1
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Theodore Altman, Esq.
(TA-8368)
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10034
(212) 626-0800
- and -
Mitchell Blumenthal, Esq.
(MB-1494)
Alexander Anolik
ALEXANDER ANOLIK
A Professional Law Corporation
693 Sutter Street, Sixth Floor
San Francisco, California 94102
(415) 673-3333
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- ---------------------------------)
GLOBAL DISCOUNT TRAVEL SERVICES )
LLC, GLOBAL TRAVEL MARKETING )
SERVICES, INC. AND KARABU )
MARKETING CORP., ) 96 Civ. _____________
)
Plaintiffs )
)
- against - )
)
TRANS WORLD AIRLINES, INC., )
)
Defendants. )
___________________________ )
COMPLAINT
Plaintiffs, Global Discount Travel Services LLC ("Global Discount"),
Global Travel Marketing Services, Inc. ("Global Travel" and together with
Global Discount, "Global") and Karabu
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Corp. ("Karabu"), by the undersigned attorneys, allege upon knowledge as to
themselves, and otherwise upon information and belief, as follows:
SUMMARY OF THE ACTION
---------------------
1. Plaintiffs are owned or controlled by Carl C. Icahn and are
sometimes referred to herein as the "Icahn Companies". Defendant Trans World
Airlines, Inc. ("TWA") and the Icahn Companies are parties to various
agreements, including the Karabu Ticket Program Agreement (the "Ticket
Agreement") and loan agreements pursuant to which the Icahn Companies extended
$200 million in loans to TWA and on which there remains an outstanding balance
of approximately $190 million (the "Karabu Loans" or the "Loan Agreements").
TWA and the Icahn Companies are also parties to a standstill agreement which is
expired (the "Standstill Agreement"). TWA has breached and continues to breach
the Ticket Agreement and repeatedly breached the Standstill Agreement. TWA's
misconduct concerning the Ticket Agreement includes a pattern of interference
with and harassment of Global designed to cripple Global and its business. In
furtherance of that goal, TWA has engaged in, and continues to engage in,
monopolistic and anti-competitive practices in violation of federal anti-trust
laws.
2. TWA's predatory practices include, but are not limited to: seizure
of and threats to seize the TWA ticket imprinting plate from Travel Agents (as
defined in the Ticket Agreement) who deal with Global, and other attempts to
coerce Travel Agents to cease marketing Global tickets to the general public.
3. TWA's actions (a) provide a basis for the Icahn Companies to
obtain $10 million in liquidated damages under the Ticket Agreement, (b) lead
to defaults by TWA on the $190 million balance of the Karabu Loans, (c) give
rise to attendant consequences to TWA, including
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potential cross-defaults on other TWA debt, which likely exceed $1 billion, and
(d) entitle plaintiffs to the entry of an injunction against TWA to prevent
ongoing and irreparable harm to plaintiffs' operations and business
relationships
4. TWA's destructive actions are not based on any good faith belief
in the soundness of its position. Rather, they result from internecine
fighting among warring camps in TWA's headquarters where those who favored the
Global relationship lost out to those who wished to eliminate it.
5. The Ticket Agreement provides for the purchase and resale by the
Icahn Companies of discounted TWA air travel tickets. The Ticket Agreement was
part of the inducement offered by TWA to obtain the Icahn Companies'
forgiveness for TWA's default for failure to pay $190 million due and owing on
the Karabu Loans. The Ticket Agreement was designed to and did provide an
alternate source of repayment of the Karabu Loans. Absent the Icahn Companies'
agreement to extend and refinance the Karabu Loans, the TWA plan of
reorganization, proposed and approved by the bankruptcy court in or about
September 1995, would not have been feasible.
6. TWA has engaged and is engaged in a deliberate campaign to
dishonor and avoid the Ticket Agreement and is engaged in a brazen attempt to
rewrite the Ticket Agreement, all with the purpose and intent of disrupting and
destroying Global's ticket business.
JURISDICTION AND VENUE
----------------------
7. This proceeding is brought pursuant to the provisions of Section 4
of the Clayton act (15 U.S.C. Section 15), for violations of Sections 1 and 2
of the Sherman Act (15 U.S.C. Section Section 1, 2), and under principles of
supplemental and pendent jurisdiction (14 U.S.C. Section 1367) for breach of
contract and intentional interference with existing and prospective contractual
relations.
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8. Jurisdiction is conferred upon this Court pursuant to 28 U.S.C.
Section Section 1331, 1337 and Section 2201; Section 4 of the Clayton Act (15
U.S.C. Section 15); and under principles of supplemental and pendent
jurisdiction of claims arising under state law, pursuant to 28 U.S.C. Section
1367.
9. Venue is proper within this judicial district pursuant to 28
U.S.C. Section 1391(a) and pursuant to the Judicial Improvements Act of 1990,
104 Stat. 5114. Commerce between this judicial district and other states of
the United States has been directly restrained by the offenses hereinafter
stated.
10. All of the parties are engaged in interstate commerce and offenses
hereinafter stated as violations of the Sherman Act have occurred in interstate
commerce, and have either affected or directly restrained interstate commerce.
PARTIES
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11. Plaintiff Global Discount is a Nevada limited liability company
engaged in the sale of discounted TWA airline tickets and operation of a
reservation center established to facilitate the distribution of discounted TWA
airline tickets.
12. Plaintiff Global Travel is a Nevada corporation with its principal
place of business in New York, New York. It is a travel marketing service
company which markets the sale of air transportation with discounted TWA
airline tickets obtained by and distributed through Global Discount pursuant to
the Ticket Agreement.
13. Plaintiff Karabu is a Delaware corporation, with its principal
place of business in Mount Kisco, New York, and an affiliate of Global Discount
and Global Travel.
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14. Defendant Trans World Airlines, Inc. ("TWA") is a Delaware
Corporation licensed to do business and doing business in New York, New York.
15. Various other corporations, individuals and other entities not
named as defendants in this action performed acts and made statements in
furtherance of the illegal conspiracy and other offenses alleged in this
Complaint. Plaintiffs are not fully aware at this time of the identity of
other members of the conspiracy who actively participated in certain of the
offenses hereinafter alleged, nor the extent, if any, to which the defendant or
others not presently name, were subjected to undue influence, pressure, duress,
or coercion to join in the offenses hereinafter alleged. Plaintiffs will seek
leave of court to amend this Complaint if the circumstances warrant.
BACKGROUND AND CHARGING ALLEGATIONS
-----------------------------------
16. TWA and the Icahn Companies are parties to (a) a loan agreement
and related security agreement (collectively referred to herein as the
"Receivables Agreement"), a note agreement and related security agreement-trust
deed (collectively referred to herein as the "Asset Agreements"), (b) the
Ticket Agreement and (c) a standstill agreement (the "Standstill Agreement"),
an agreement entered into so that the parties may attempt to negotiate a means
for receiving their disputes under the Ticket Agreement. The Receivables
Agreements and the Asset Agreements collectively constitute the "Karabu Loans"
or the "Loan Agreements".
17. The Karabu Loans were entered into on or about January 5, 1993.
The parties to the Receivables Agreements are TWA and Karabu. Loans made by
Karabu to TWA under the Receivables Agreement are secured by TWA accounts
receivable. The parties to the Asset Agreements are Karabu, TWA and State
Street Bank & Trust Company of Connecticut, National Association, as Security
Trustee. Loans made by Karabu to TWA pursuant to the Asset
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Agreements are secured by TWA aircraft and engines. Karabu's loans to TWA
pursuant to the Karabu Loans totaled $200 million and were due in January 1995.
Karabu's loans to TWA provided TWA with financing without which its could not
have successfully achieved its first reorganization under the Bankruptcy Act in
1993.
18. On or about March 28, 1994, TWA and Karabu amended and
supplemented the Loan Agreements, among other things, to cross-collateralize
and cross-default the Karabu Loans.
19. By the end of 1994, TWA again was suffering severe financial
problems. Accordingly, TWA again found it necessary to contemplate filing for
protection under the Bankruptcy Act in order to reorganize and continue its
business. As a part of its overall plan to reorganize its more than $2 billion
in debt, TWA requested that Karabu forgive its default and agree to amend and
supplement the Loan Agreements to provide, among other things, for the
extension of maturity of the Karabu Loans. TWA and Karabu thereupon entered
into negotiations which resulted in agreements described in paragraph 20 below.
Upon obtaining these agreements from Karabu, TWA filed a consensual plan and
for the second time in two years reorganized under the Bankruptcy Act.
20. On or about June 14, 1995, TWA and Karabu entered into an
Extension, Refinancing Consent Agreement (the "Extension Agreement") which,
among other things, extended the maturity of the Karabu Loans. In connection
with and in consideration of the Extension Agreement, on or about June 14,
1995, TWA and Karabu entered into the Ticket Agreement, pursuant to which
Karabu obtains and sells discounted TWA airline tickets, including tickets on
all regularly scheduled TWA flights (except to an from St. Louis, Missouri) at
a price equal to 55% of the published fares ("System Tickets"). Under the
Ticket Agreement, System Tickets
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may be sold through various means, including specifically through Travel
Agents. The Ticket Agreement, by its terms, is governed by New York Law.
21. Upon execution of these agreements, the Icahn Companies, including
Global, engaged in a major capital spending program and devoted millions of
dollars to establish a reservations center and a marketing and distribution
network to conduct the business contemplated by the Ticket Agreement. On or
about August 14, 1995, Global Discount, through the execution of a Joinder
Agreement, elected to be joined as a party to the Ticket Agreement as if an
original signatory thereto.
22. Shortly after execution of the Ticket Agreement, warring camps
developed within TWA and those who favored the Global relationship lost out to
those who wished to eliminate it. Thereupon, TWA commenced and vigorously
pursued, both in the open and secretly, a pattern of devious misconduct and
breaches of the Ticket Agreement designed to disrupt and destroy Global's
business and Global's current and prospective business relationships. TWA's
tactics have had their intended impact in that, among other things, the
financial uncertainties they have caused for Global are a major roadblock to
Global's conduct and expansion of its business.
23. At first, TWA secretly sought out and punished Travel Agents who
would, did and continue to do business with Global. For example, during 1995,
TWA had been operating under, and agreed to renew for 1996, its bulk ticket
sales agreement with WTI, a Minneapolis-based Travel Agent which does business
world-wide as Hobbit Travel and Trilogy Tours. In or about November 1995,
however, TWA informed WTI that TWA revoked its decision to renew its "Domestic
48" agreement with WTI because WTI was doing so much business in that area with
Global.
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24. TWA has also, more openly and in clear defiance of the Ticket
Agreement discriminated against and harassed Global and travel agencies that do
business with Global and has wrongfully asserted and repeated its claim that
Global may not sell System Tickets through Travel Agents to the general public
but only to corporate customers.
25. Global has and continues to seek to overcome the roadblocks TWA
improperly has thrown in its path, including TWA's specious claim that Global's
sales of Systems Tickets through Travel Agents to the general public are not
permitted under the Ticket Agreement. TWA has engaged in an unconscionable
attempt to rewrite the Ticket Agreement to materially curtail the business
opportunities contemplated by the Ticket Agreement.
26. Through the remainder of 1995, the disputes between TWA and Global
continued to escalate, and in December 1995 TWA filed a lawsuit against Global
and Global served a notice of breach of the Ticket Agreement on TWA. In an
effort to resolve their differences, the parties, on or about December 15,
1995, entered into the Standstill Agreement pursuant to which TWA withdrew its
lawsuit and Global simultaneously withdrew its default notice. Each such
withdrawal was without prejudice to the rights of any party.
27. The Standstill Agreement prohibited assertion of claims concerning
the Ticket Agreement during the Standstill period. Each party agreed that it
would "not initiate any action to commence suit ... in any local, state or
federal court against the other or transmit any notification of breach or
default to the other with respect to the Ticket Agreement or any provisions
thereof ... [during the Standstill period]." The Standstill Agreement also
prohibited press statements except for the press release agreed to by the
parties. The Standstill Agreement was scheduled to terminate 12:01 a.m. of
March 20, 1996 unless sooner terminated.
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28. Following entry into the Standstill Agreement, TWA continued its
breaches of the Ticket Agreement and repeatedly breached the Standstill
Agreement. TWA's predatory practices in breach of the Ticket Agreement
include, but are not limited to: TWA's seizure of Colpitts World Travel's
("Colpitts") TWA ticket imprinting plate; TWA's seizure of Hobbit Travel's
("Hobbitt") TWA ticket imprinting plate; TWA's seizure of Mr. Cheap's Travel's
TWA ticket imprinting plate; TWA's restoration of Colpitts' TWA ticket
imprinting plate upon Colpitts' acceding to TWA's demands regarding doing
business with Global; TWA's restoration of Hobbit's TWA ticket imprinting plate
upon Hobbit's acceding to TWA's demands regarding doing business with Global;
each threat by TWA to a Travel Agent that TWA would seize its TWA ticket
imprinting plate unless the Travel Agent acceded to TWA's demands regarding
doing business with Global; TWA's attempts to cause Omega World Travel to cease
marketing Global Tickets to the general public; TWA's attempts to cause The
Travel Company to cease marketing Global Tickets to the general public; TWA's
dissemination of misleading information concerning the applicability to Global
tickets of TWA's requirement that any Travel Agent which issues or reissues a
ticket prior to departure involving TWA published airfares be the same agency
that created the booking; and TWA's anti- competitive and monopolistic
practices, and unlawful restraint of trade. Such conduct by TWA has precluded,
interfered with or threatened (a) Global's business and relations with Travel
Agents and consumers, (b) Karabu's relations with its creditors, (c) Global's
financing of its operations, and (d) Global's expansion of its operations.
29. As a result of TWA's harassment of Global and its employees and
persons who do business with Global, TWA has (a) committed and engaged in
conduct constituting breaches of
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the Ticket Agreement which have caused and are reasonably expected to cause
material damage to plaintiffs or to deprive plaintiffs of material benefit
intended to be provided under the Ticket Agreement, (b) has engaged and
continues to engage in a series of related actions, inactions or omissions
which taken together, either have caused or are reasonably likely to cause
material damage to plaintiffs, and (c) has materially interfered and continues
to materially interfere with plaintiffs' ability to market and sell Tickets (as
defined in the Ticket Agreement) as contemplated by the Ticket Agreement.
30. TWA has attempted and continues to attempt, in writing and
otherwise, to pressure Global into ceasing sales of System Tickets to
non-corporate customers of Travel Agents.
31. Under any reading of the Ticket Agreement, passengers of all kinds
(End Users) may buy System tickets from plaintiffs or from Travel Agents.
TWA's attempts to disrupt and preclude Global's sales of Systems Tickets
through Travel Agents to such passengers are in flagrant defiance of the Ticket
Agreement.
32. TWA's repeated and continuing breaches of the Ticket Agreement
caused Global to serve TWA with Default Notices under the Ticket Agreement.
Said Notices are attached hereto as Exhibit A and incorporated herein by
reference.
33. All of the foregoing constitute a further breach by TWA of the
Ticket Agreement's implied duty of fair dealing. This breach of the implied
duty of fair dealing is evidenced by all of the foregoing conduct of TWA and is
continuing to date.
34. TWA's breaches of the Standstill Agreement include (1) a series of
letter which it labeled "notice of breach" and in which it wrongfully claimed
that Global violated the Ticket
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Agreement and (2) misstatements to the press concerning the Ticket Agreement
when the Standstill Agreement prohibited it from making any statements at all.
RELEVANT MARKET AND MARKET POWER
--------------------------------
35. The relevant geographic market consists of the United States. TWA
flies into and out of most major cities within the United States, and has its
hub at SouthTrust. Louis, Missouri. Alternatively, the United States
constitutes a separate and distinct relevant sub-market of an international
market, in that TWA exercises substantial market power in the relevant product
markets described below both in the United States and in the international
market for the provision of airline carrier service.
36. Defendant TWA controls 100% of the market for its own travel
vouchers, including those travel vouchers issued to Karabu. In addition,
defendant controls 100% of the market for 600,000 vouchers and the sale of new
tickets with accompanying special incentives, each described immediately below.
TWA exercises a substantial market power in these markets by virtue of its
predominate market share in the relevant product market and by virtue of the
conduct alleged more specifically herein.
37. TWA exercises substantial market power in the relevant product
market for the provision of airline carrier services on TWA individual carrier
stock. This market includes the Global tickets at issue in this litigation.
In direct competition with the tickets offered by Global Discount and Global
Travel, TWA issued discount vouchers for travel on TWA in a relevant product
subclass of 600,000 Ticket Vouchers, each with a face value of $50, which may
be used for up to 50% discount off the cost of a TWA airline ticket for
transportation on TWA flights. In addition, on February 29, 1996, Maureen
Manget, the director of travel agency marketing for
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TWA, sent to all Airlines Reporting Corporation ("ARC") Travel Agents within
the United States (approximately 30,000 in number) special certificates for
immediate discounts that any agent could pass along to its clients when a
flight was booked originating from any of 21 domestic U.S. cities listed on
such certificates, with a value of anywhere from $50 to $100 off the price of a
qualifying round-trip TWA ticket purchased through the agency. Moreover, the
certificates could be used to any one of 100 TWA destinations worldwide. (A
copy of such letter and sample certificate is attached hereto as Exhibit B.)
These new travel vouchers and certificates were designed to directly compete
and interfere with Global's relationships.
38. TWA also exercises substantial market power in the distinct
relevant market for TWA-issued travel vouchers by currently taking the position
that any Travel Agent dealing with Global is subject to immediate termination
as a TWA- appointed agency. TWA has not imposed any such restriction on any
Travel Agent in connection with the sale of the $600,000 numbered travel
vouchers described above, nor in the issuance and sale of travel on TWA with
any travel voucher issued per the Manget letter of February 29, 1996.
Plaintiffs have no alternative market for the tickets obtained pursuant to the
Ticket Agreement in that they are good for transportation on TWA only.
Competition in this market has been further restrained by TWA's illegal
termination and threats to terminate Travel Agents dealing or attempting to
deal with Global, while no restriction is placed on the issuance of otherwise
valid TWA travel discount vouchers issued by TWA. In addition to the relevant
product market described above, a distinct relevant sub-market exists,
consisting of special agreement between TWA and large-volume travel agencies
and corporations, whereby TWA promises to give such travel agency or
corporation an
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excess override commission over and above the industry-standard 10% commission
for the extensive promotion of TWA- originating flights.
39. The tickets and services provided in the above-described markets
and sub-markets associated with TWA-issued ticket stock are not reasonably
interchangeable with analogous goods and services associated with any other
airline, in that these tickets are good for travel on TWA only. As more
specifically described above, these Global tickets were issued, in part, to
enable TWA to retire its debt to Karabu. Once a customer has purchased these
tickets from Global, due to the restrictions imposed by TWA in the issuance and
sale of the tickets, these tickets are nonrefundable and nonexchangeable, and,
accordingly, the customer is committed to use TWA in this regard competition
from other carriers is no longer relevant or practicable.
COUNT I
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(Violation of Sections 1 and 2 of the Sherman Act)
--------------------------------------------------
40. Within the past four years, and continuing to the present,
defendant has been engaged in a prolonged series of attempts to monopolize, and
has acquired and maintained a monopoly of the relevant markets as defined
above, and has contracted, combined and conspired to restrain and monopolize
interstate commerce in the relevant markets in violation of Sections 1 and 2 of
the Sherman Act (15 U.S.C. Section 1,2).
41. The aforesaid attempts to monopolize, and the monopolization,
combination and conspiracy to monopolize and restrain trade, have as their
purpose and effect the elimination of competition in the relevant markets; the
ability to control which defendant's tickets may be sold and to whom
defendant's tickets may be sold and to whom defendant's tickets may be sold;
the adoption of and imposition of unreasonably restrictive rules in the
purchase and sale of
20
<PAGE> 15
defendant's tickets in the primary and secondary markets; the damage to or
elimination of competition in the relevant market; the denial of entry channels
to new competitors in the market; the denial of access to defendant's tickets
in the primary and secondary markets through the implementation of purported
rules prohibiting the sale of TWA tickets by plaintiffs and others similarly
situated; the illegal tying of defendant's booking and ticketing rules in the
primary and secondary markets; the imposition of double penalties on Travel
Agents booking Global tickets, even when issued by Global, by virtue of the
posting and implementation on February 14, 1996 by TWA of an anti-competitive
and illegal rule purportedly governing such ticket issuance; and, as recently
as March 13, 1996, the termination of the ability of Travel Agents to book
Global tickets, in violation of federal and state law.
42. TWA has done those things which have been heretofore stated and it
conspired and combined to do, and pursuant to the monopolization, conspiracy
and restraining of trade did take the actions against plaintiffs alleged in
paragraphs 1 through 39, above.
43. The intended effects of TWA's violations of Sections 1 and 2 of
the Sherman Act were to create a monopoly and to permit defendant to exercise
monopoly power over the total aspects of the relevant markets, as defined
above, by eliminating the competition of plaintiffs and other similarly
situated. Defendant, both singularly and in tandem, has attempted to
monopolize, and did monopolize, and did conspire to enact overly restrictive
rules regarding the purchase of its tickets, and encored such rules only
against plaintiffs and those in contract with plaintiffs. Such overly
restrictive policies, enacted solely upon TWA's pure whim, caprice, favoritism
and/or devious maneuvering, will have the intended effect of driving plaintiffs
out of business unless the actions of TWA are restrained and enjoined.
21
<PAGE> 16
EFFECT ON COMPETITION
---------------------
44. The offenses herein alleged have directly caused injury to
competition in the relevant markets. By illegally raising plaintiffs' cost of
doing business and restricting plaintiffs' ability to freely compete, TWA has
restrained competition, which plaintiffs would otherwise provide, to the grand
detriment of purchasers of plaintiffs' products and services. Defendant's
offenses have restricted product availability and increased prices in the
relevant markets by, inter alia, restraining plaintiffs' ability to sell
tickets obtained from defendant unless plaintiffs terminate their contracts
with Travel Agents nationwide, and preventing plaintiffs from selling lower
priced tickets to the public through Travel Agents as provided by the Ticket
Agreement. Such restraints have had the purpose and effect of creating a
monopoly in the relevant markets to the injury of purchasers in those markets
by denying them the price, ticket availability and quality and services which
would be provided by an unrestrained, competitive market. Such restraints have
foreclosed a substantial volume of interstate commerce. Plaintiffs' customers
and potential customers throughout the United States have been damaged by
defendant's violations.
45. In addition, the offenses herein alleged have directly caused
injury to plaintiffs by denying them access to or the liberty to operate in a
competitive market-place on competitive markets. But for the combination of
the defendant, with others presently unnamed and unknown, plaintiffs would have
enjoyed the fruits of their labor in expanding their ongoing business. TWA's
actions against plaintiffs have interfered with the operation of a competitive
market, and as a result, plaintiffs are in danger of losing their business in
its entirety unless the actions of TWA are restrained and enjoined.
22
<PAGE> 17
46. Plaintiffs would not have made the substantial capital
expenditures to expand their business, or suffered the substantial losses from
the operation of the business, had the restraints currently imposed by TWA
existed from the outset. But for the offenses herein alleged, plaintiffs would
today be a successful travel marketing company, and would be worth millions of
dollars as an ongoing, viable business entity.
47. To further injure plaintiffs, defendant has engaged in
discriminatory pricing tactics against plaintiffs; has refused to honor
contracts of Travel Agents appointed by TWA to represent it, which Travel
Agents purchased tickets from plaintiffs; has illegally tied the booking and
sale of Global tickets; and has threatened to terminate and did terminate
Travel Agents otherwise dealing with plaintiffs on competitive merits. As part
and parcel of its anti- competitive scheme to drive plaintiffs and others
acting as plaintiffs' agents out of the relevant market, TWA has illegally
pegged and stabilized prices, and has further engaged in acts detrimental to
plaintiffs.
COUNT II
--------
(Breach of Contract)
--------------------
48. Plaintiffs repeat and reallege the allegations contained in
Paragraphs 1 through 47 as if fully set forth herein.
49. By virtue of its conduct described in Paragraphs 1 through 47
above, TWA is in breach of the express provisions of the Ticket Agreement and
the Standstill Agreement.
50. TWA's conduct also constitutes a breach of TWA's obligations of
good and fair dealing under the Ticket Agreement and the Standstill Agreement.
23
<PAGE> 18
51. As a result of TWA's conduct described above, plaintiffs have been
damaged and will continue to be damaged in an amount to be determined at trial.
COUNT III
---------
(Interference with Existing and
Prospective Commercial Relations)
---------------------------------
52. Plaintiffs repeat and reallege the allegations contained in
paragraphs 1 through 51 as if fully set forth herein.
53. By virtue of its conduct described in paragraphs 1 through 51
above, TWA has unlawfully interfered with plaintiffs' current business and
current and prospective business relations.
54. As a direct and proximate result of TWA's conduct described above,
plaintiffs have been and continue to be damaged in an amount to be proven at
trial.
55. TWA had no privilege or justification to interfere with
plaintiffs' business and prospective business. Moreover, the aforementioned
conduct of TWA has done with malice and with a reckless disregard for
plaintiffs' rights, entitling plaintiffs to exemplary or punitive damages.
COUNT IV
--------
(Injunction)
------------
56. Plaintiffs repeat and reallege the allegations contained in
paragraphs 1 through 55 as if fully set forth herein.
57. By virtue of TWA's conduct described in Paragraphs 1 through 55
above, plaintiffs' current business and current and prospective business
relations are being harmed irreparably and in a manner which cannot be
adequately compensated by an award of money damages.
24
<PAGE> 19
58. By virtue of TWA's conduct described above, plaintiffs are
entitled to a preliminary and permanent injunction barring TWA from continuing
to interfere with, disrupt and harass plaintiffs, plaintiffs' current business
and plaintiffs' current and prospective business relations.
JURY TRIAL DEMAND
-----------------
Pursuant to Federal Rule of Civil Procedure 38(b), plaintiffs demand a
trial by jury on all issues so triable.
WHEREFORE, plaintiffs request judgment as follows:
1) That the Court decree that defendant has violated Sections 1 and 2 of
the Sherman Act, and that these offenses have proximately caused damage to
plaintiff;
2) That the Court decree that defendant has interfered with plaintiffs'
existing and prospective business advantage, that it has breached its
obligation owing to plaintiffs, and that it has committed other unfair
practices against plaintiffs in violation of New York law;
3) For punitive and exemplary damages, trebled as required by Section 4
of the Clayton Act (15 U.S.C. Section 15);
4) For costs of litigation, including reasonable attorney's fees as
required by Section 4 of the Clayton Act;
5) For an order enjoining
defendant, preliminarily and permanently, from engaging in further
anti-competitive and other damaging acts toward plaintiffs; and
6) For such other and further relief as the Court deems just, proper,
fair and equitable under the circumstances.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
/s/ Theodore Altman
-------------------
25
<PAGE> 20
Theodore Altman, Esq.
(TA-8368)
114 West 47th Street
New York, NY 10036
(212) 626-0800
Mitchell Blumenthal
(MB-1494)
/s/ Alexander Anolik
--------------------
Alexander Anolik
ALEXANDER ANOLIK
A Professional Law Corporation
693 Sutter Street, Sixth Floor
San Francisco, CA 94102
(415) 673-3333
Attorneys for Plaintiffs
26
<PAGE> 1
EXHIBIT 99.2
27
<PAGE> 2
IN THE CIRCUIT COURT OF THE CITY OF ST. LOUIS
STATE OF MISSOURI
TRANS WORLD AIRLINES, INC., )
a corporation, )
)
Plaintiff, )
)
v. )
)
CARL ICAHN, )
)
Serve at: 100 S. Bedford Road )
Mount Kisco, NY 10549 )
) Cause No.
KARABU CORP., )
) Div. No.
Serve at: Richard T. Buonato )
100 S. Bedford Road ) IN EQUITY
Mount Kisco, NY 10549 )
)
GLOBAL DISCOUNT TRAVEL SERVICES. L.L.C., )
)
Serve at: Gordon Silver & Beesley Ltd. )
300 Howard Hughes Parkway )
14th Fl. )
Las Vegas, NV 89101 )
)
GLOBAL TRAVEL MARKETING SERVICES, INC., )
)
Serve at: Gordon Silver & Beesley Ltd. )
300 Howard Hughes Parkway )
14th Fl. )
Las Vegas, NV 89101 )
)
ACF INDUSTRIES, INCORPORATED, )
)
Serve at: Janet A. Kniffen )
3301 Rider Trail South )
Earth City, MO 63045 )
)
Defendants. )
PETITION FOR DECLARATORY JUDGMENT AND OTHER RELIEF
COMES NOW plaintiff Trans World Airlines, Inc. ("TWA") and for its
Petition and cause of action against defendants states:
28
<PAGE> 3
1. THE PARTIES
1. Plaintiff TWA is a Delaware corporation with its corporate
headquarters in the City of St. Louis, Missouri. TWA operates an airline
providing domestic and international air travel to the public.
2. Defendant Carl Icahn ("Icahn") is an individual residing in
New York. He is a wealthy, private investor, specializing in corporate
takeovers.
3. Defendant Karabu Corporation ("Karabu") is a Delaware
corporation with offices located in Mt. Kisco, New York. Karabu is a secured
creditor of TWA. Its collateral includes TWA accounts receivable and aircraft.
Karabu is a party to a contract with TWA known as the Karabu Ticket Program
Agreement (the "Ticket Agreement").
4. Defendant Global Discount Travel Services L.L.C. ("Global
Discount") is a Nevada limited liability company with offices located in Las
Vegas, Nevada. Global Discount operates a reservation center established by
Icahn and Karabu to distribute discounted TWA airline tickets pursuant to the
Ticket Agreement. Global Discount, through execution of a Joinder Agreement,
agreed to be bound by all of the terms, conditions and restrictions of the
Ticket Agreement.
5. Defendant Global Travel Marketing Services, Inc. ("Global
Travel") is a Nevada corporation with its offices located in Las Vegas, Nevada.
Global Travel is a travel marketing service company established by Icahn and
Karabu to offer programs for the sale of discounted TWA airline tickets
distributed by Global Discount through the Ticket Agreement.
6. Defendant ACF Industries, Incorporated ("ACF") is a New Jersey
corporate with offices located in St. Louis County, Missouri. ACF is
qualified to do business in Missouri. Upon information and belief, ACF and its
officers, employees and agents are actively involved with Icahn, Karabu, Global
Discount and Global Travel in the acquisition and distribution of discounted
TWA airline tickets pursuant to the Ticket Agreement.
29
<PAGE> 4
7. Defendant Icahn, personally and through affiliated entities,
owns or controls Karabu, Global Discount, Global Travel and ACF. Defendants
Icahn, Karabu, Global Discount, Global Travel and ACF are collectively referred
to herein as the "Icahn Defendants."
8. Each of the defendants, in person or through other defendants
acting as agents, has transacted business and committed tortious acts within
the State of Missouri, as described herein. Service may be obtained pursuant
to RSMo Section 506.500 and Missouri Rule of Civil Procedure 54.06. The
causes of action asserted in this Amended Petition accrued in the City of St.
Louis, Missouri.
2. BACKGROUND
A. EVENTS LEADING UP TO THE TICKET AGREEMENT
9. In 1986, defendant Icahn obtained majority control of TWA and
became Chairman of the Board. Icahn took the Company private in 1988. After
assuming control, Icahn caused TWA to incur large amounts of debt. As a
result, in January 1992, TWA was forced to file for bankruptcy under Chapter 11
of the Bankruptcy Code. One year later, Icahn was forced to relinquish control
and ownership of the Company.
10. In connection with the 1992 bankruptcy proceeding, Icahn's
affiliate, defendant Karabu, became a secured creditor of TWA under Loan and
Note Agreements and related Security Agreements executed on or about January 5,
1993. TWA's total indebtedness to Karabu under such agreements was
approximately $190 million, due and owing in January 1995.
11. As the due date on the Karabu loans approached, Icahn advised
TWA that he would be willing to extend the maturity date of the loans if TWA
gave him the right to sell discounted TWA airline tickets. TWA required the
extension of the maturity date and other Icahn consents as part of an overall
financial restructuring that TWA was negotiating with its creditors, to be
presented as a "prepackaged" bankruptcy plan for approval by the bankruptcy
court in St. Louis in the summer
30
<PAGE> 5
of 1995. During the negotiations, Icahn threatened to enforce Karabu's
security interest in accounts receivable and aircraft, which would cut off all
cash for TWA operations.
12. After ten moths of negotiations, on or about June 14, 1995,
TWA entered into two related agreements with Karabu, Icahn and related
entities: (a) the Ticket Agreement, attached hereto as Exhibit A, and (b) an
Extension and Consent Agreement, attached hereto as Exhibit B. In broad terms,
the agreements give Karabu, Icahn and their affiliates the limited right to
sell certain types of discounted TWA airline tickets to specified customers.
In exchange, Karabu and Icahn agreed to extend the maturity date of the Karabu
loans. TWA, Karabu and Icahn also agreed that the amounts owed by Karabu to
TWA for the discounted tickets could be applied to reduce the balance due on
the Karabu loans and, at Karabu's option, to be used to satisfy Karabu's
minimum funding obligations to the Pension Benefit Guaranty Corporation arising
out of the 1992 bankruptcy.
B. THE TICKET AGREEMENT
13. The Ticket Agreement was primarily designed to reduce TWA's
debt obligations to Karabu through incremental ticket sales. In order to
accomplish this objective, the parties agreed to substantial restrictions on
Karabu and Icahn's rights to sell discounted TWA airline tickets. These
restrictions were established so as to prevent Karabu and Icahn from
undercutting TWA's own ticket sales and to ensure TWA's continued viability as
an airline. At the same time, sales by Icahn and Karabu of discounted fares
would generate incremental revenue for TWA, which could be credited as
prepayments against the outstanding balance of TWA's debt obligations to Icahn
and Karabu, or be paid over by Karabu for TWA's account as prepayments of
certain pension related obligations under a 1993 settlement with the Pension
Benefit Guaranty Corporation.
14. The Ticket Agreement permits Karabu and Icahn to sell two
principal categories of tickets: (a) Domestic Consolidator Fares and (b)
System Fares.
31
<PAGE> 6
15. Consolidator fares are deeply discounted bulk fare rates,
subject to a number of limitations, that are made available for sale to the
general public by business entities known as consolidators who have entered
into specific agreements with TWA allowing for the sale of such tickets. The
Domestic Consolidator Fares which are set out in the Ticket Agreement have been
discounted by 60% from specific categories of published fares and are made
available for sale to the general public subject to limitations on the total
amount which may be sold and the travel points between which they may be sold.
Karabu and Icahn were limited to selling $610 million of Domestic Consolidator
Fares over the approximately 8 year term of the Ticket Agreement (Ticket
Agreement, Paragraphs 2(i) and (ii)) and they could only sell tickets for
domestic travel to and from 12 cities in which TWA has relatively small market
shares (Ticket Agreement, Paragraph 3(e) and Exhibits A and B). The purpose of
these limitations was to assist TWA in obtaining new incremental sales in these
markets, and to prevent Karabu and Icahn from undercutting TWA in its stronger
markets. The Domestic Consolidator Fares are not the subject of dispute in
this litigation.
16. System Fare tickets are tickets discounted by 45% from all
published fares which TWA offers for sale and are available for sale on all of
TWA's domestic and international flights. Although the Ticket Agreement does
not limit the total value or geographic scope of Karabu's or Icahn's sales of
System Fare tickets, the Ticket Agreement provides that such tickets can only
be sold to certain End Users -- corporate accounts, as described below. Again,
the primary purpose of the End User limitation was to assist TWA in developing
new, incremental business.
C. THE TICKET AGREEMENT'S RESTRICTION
ON THE SALE OF SYSTEM FARE TICKETS
17. Under the Ticket Agreement Karabu and Icahn can only sell
System Fare tickets to corporate accounts -- accounts used by business entities
for business travel. TWA itself has numerous similar discount ticket sales
programs with corporations and businesses throughout the country.
32
<PAGE> 7
18. Paragraph 8 of the Ticket Agreement restricts Karabu's and
Icahn's distribution of Icahn System Fare tickets to the "End User." Karabu
and Icahn have contended that "End User" includes members of the general public
and that therefore they have the right to sell System Fare tickets not just
through agreements with corporations and businesses but to any person and in
direct competition with TWA's own sales to the general public. That
interpretation would nullify the restrictions in the Ticket Agreement on the
sale and distribution of System Fare tickets and would render many of its key
provisions meaningless.
19. For example, Paragraph 8 of the Ticket Agreement establishes
the exclusive mechanism for the payment of System Fare tickets sold by Karabu
and Icahn. System Fare tickets may only be sold through Universal Air Travel
Plan accounts ("UATP Accounts"). A UATP account is an account established with
TWA for the exclusive purpose of purchasing airline tickets. TWA issues
"credit cards" against the UATP account to be used by corporations and their
employees to purchase TWA tickets. Paragraph 8 specifically provides, with
respect to System Fare tickets, that such UATP Accounts may only be established
for Karabu and Icahn with sub-accounts for corporate users. (Under the Ticket
Agreement, Karabu holds the master UATP account; the corporate End Users hold
sub-accounts.) Paragraph 8 also specifically excludes travel agents from
eligibility to hold UATP Accounts. System Fare tickets may not be purchased by
any means other than through the Karabu UATP account or an End User
sub-account. There is no provision anywhere in the Ticket Agreement for the
use of either the Karabu master UATP account or any corporate sub-account for
the sale of System Fare tickets to the general public.
20. Paragraph 12 of the Ticket Agreement sets out the remedies for
misuse of the UATP credit card accounts. Paragraph 12 (page 18) provides that
it would be a breach of the Ticket Agreement if a travel agent or Icahn or
Karabu were to sell System Fare tickets to a person "other than the UATP
cardholder or employees of the UATP cardholder. . ." (emphasis added). The
clear
33
<PAGE> 8
intent of this provision was that the End Users described in Paragraph 8, which
are synonymous with the UATP cardholders in Paragraph 12, were businesses with
employees, not members of the general public.
21. Furthermore, that provision of Paragraph 8 which limits
Karabu's and Icahn's sale of System Fare tickets to the "End User" specifically
excludes Consolidator Fares, which are in fact available for sale to the
general public. If the term "End User" meant "member of the general public,"
as Karabu and Icahn suggest, the exclusion of Consolidator Fares from the
limitation in Paragraph 8 would be meaningless.
D. DEFENDANTS' SALES OF SYSTEM FARE TICKETS
IN VIOLATION OF THE TICKET AGREEMENT
22. Karabu and Icahn, through their affiliated companies,
defendants Global Discount, Global Travel and ACF, have breached the Ticket
Agreement by selling System Fare tickets to the general public, directly and
through travel agents and by offering System Fare tickets for sale through
consolidators. Defendants' breach has injured TWA by diverting its customers
and interfering with TWA's prospective economic relationships with those
customers.
23. The Icahn Defendants have no right to market or sell System
Fare tickets to travel agents or consolidators. Paragraph 8 of the Ticket
Agreement specifically provides that System Fare Tickets may not be marketed or
sold to travel agents or consolidators. The Icahn Defendants are promoting the
sale of System Fare tickets to the general public through travel agents. For
example, they are distributing brochures, attached hereto as Exhibit C, which
offer System Fare tickets to the general public through travel agents.
Defendants are offering these tickets throughout the United States and Canada,
including the State of Missouri.
24. The "Individual Program" outlined in one brochure provides
that an "individual customer," who is identified as the "Travel Agent's
customer," will receive on the "designated airline" a 25% discount on all
"published airfares," a range of fares that goes beyond the limited
34
<PAGE> 9
Domestic or other Consolidator Fares. Although the brochure does not identify
TWA by name, the Icahn Defendants do not have access to the tickets of any
other carrier.
25. Through these brochures, the Icahn Defendants are solicitating
travel agents to sign Agreements with Global Discount, which provide, in part,
for the payment of a 10% commission upon the resale of System Fare tickets.
The Icahn Defendants have solicited and entered into such arrangements with
travel agents in Missouri and elsewhere. Attached hereto as Exhibit D are
copies of forms of two travel agency agreements entered into by Global Discount
with travel agents: an Independent Travel Agency Agreement and a Travel Agency
Agreement for Associations. These agreements provide for the sale of the
System Fare tickets to the general public in violation of the Ticket Agreement.
26. The Icahn Defendants are also promoting the sale of System
Fare tickets to airline ticket "networks" that market and sell tickets on a
bulk basis to travel agents. These networks are advertising the System Fare
tickets on a national basis and throughout Canada. Attached hereto as Exhibit
E is a copy of promotional materials sent to travel agents by Global Travel
Network describing its promotional campaign for the sale of System Fare
tickets.
27. During the period from August 1, 1995 through January 22,
1996, through the dissemination of the aforesaid brochure and otherwise, the
Icahn Defendants have sold tickets with an approximate total retail value of
$24,435,340. Virtually all of these tickets were System Fare tickets sold in
violation of the Ticket Agreement.
28. TWA has put the Icahn Defendants on notice that sales of
System Fare tickets to the general public violates paragraph 8 of the Ticket
Agreement. Attached as Exhibit F are seven letters from TWA, dated September
22, 1995, October 24, 1995, November 29, 1995, January 5, 1996, January 9,
1996, January 11, 1996 and January 18, 1996 to the Icahn Defendants. These
letters notify the Icahn Defendants that: (a) the sale of System Fare tickets
by an Icahn Defendant or a
35
<PAGE> 10
travel agent to members of the general public is a breach of the Ticket
Agreement; (b) individual passengers are not "End Users" under paragraph 8 of
the Ticket Agreement; (c) sales of System Fare tickets to travel agents who
then resell them to the public "would clearly violate the Karabu Ticket
Agreement"; and (d) the sale of System Fare tickets by an Icahn Defendant to
consolidators violates the Ticket Agreement.
29. Despite their receipt of TWA's notices, the Icahn Defendants
have continued to breach the express terms of the Ticket Agreement, and to
injure TWA's business and its prospective economic relationships with its
customers.
30. On or about December 7, 1995, TWA filed a Petition against the
Icahn Defendants in this Court seeking a declaratory judgment of TWA's rights
and remedies as to System Fare ticket sales under the Ticket Agreement. By
letter dated December 8, 1995, Karabu claimed that TWA's action constituted a
breach of the exclusive remedies provision of the Ticket Agreement and claimed
a default. On or about December 15, 1995, TWA and Karabu entered into a
Standstill Agreement, pursuant to which TWA withdrew its lawsuit without
prejudice to refile and Karabu withdrew the default letter, in contemplation of
negotiations between the parties to resolve their dispute. Copies of the
letters establishing the Standstill Agreement and extending it until February
6, 1996 are attached hereto as Exhibit G. The Icahn Defendants have claimed
that TWA has breached the Standstill Agreement in its conduct since execution
of the Standstill Agreement, including the issuing of notices of violation of
the Ticket Agreement, which TWA denies. The erroneous allegations by the Icahn
Defendnats have created a genuine dispute which is appropriate for
determination by the Court. The Standstill Agreement expired on February 6,
1996, and, in light of the failure of the discussions between the parties, TWA
has now reinstituted its action against the Icahn Defendants.
E. THE ICAHN DEFENDANTS' ADDITIONAL
VIOLATIONS OF THE TICKET AGREEMENT
36
<PAGE> 11
31. In addition to the violations of the Ticket Agreement by the
Icahn Defendants alleged above, the Icahn Defendants have breached the Ticket
Agreement in additional ways as set forth below.
32. Karabu and Global Discount have issued or caused to be issued
"back-to-back" tickets in violation of Paragraph 3(a) of the Ticket Agreement.
Paragraph 3(a) provides, in part, that all tickets sold under the Ticket
Agreement are subject to the terms and conditions required by TWA on the sales
of tickets generally. "Back-to-Back" ticketing is a scheme used by travel
agents and others to avoid certain conditions applicable to discount fares that
require a Saturday night "stay-over" or a stay of a minimum number of days.
The passenger is booked and ticketed on separate itineraries on flights which
allow the passenger to travel at the discounted fare without satisfying the
fare condition. The passenger purchases two sets of round-trip tickets that
meet the stay requirement if the passenger traveled as booked. Instead, the
passenger takes the outbound flight on one ticket and the inbound flight on the
other ticket, thus avoiding the stay requirements. This practice causes TWA to
lose revenue because the passenger avoids paying the higher fare applicable to
the intended itinerary.
33. On December 27, 1995, TWA notified Karabu and Global Discount
that Global Discount had issued back-to- back tickets in breach of Paragraph
3(a) of the Ticket Agreement. Karabu and Icahn have conceded that such
back-to-back tickets have been issued but deny that such ticketing practices
violate the Ticket Agreement.
34. Karabu and Global have also made false reservations on TWA
flights in order to block space that would otherwise be available for sale by
TWA itself. The flight reservations are ostensibly made by Karabu and Global
Discount for "test" purposes but are not thereafter canceled. On January 8,
1996, TWA notified Karabu and Global Discount that such practices breached the
37
<PAGE> 12
Ticket Agreement. On January 12, 1996, Icahn acknowledged that Global Discount
had denied that it had breached the Ticket Agreement.
35. Karabu and Global Discount have also bartered or exchanged
tickets for value in breach of the Ticket Agreement. Global Discount has
issued tickets to the Time Warner Company, payment for which was ostensibly
charged to a Time Warner barter account with Global Discount. The tickets were
in fact purchased from TWA by use of the Global Discount UATP sub-account
established for Global Discount's employee travel. TWA notified Karabu and
Icahn on January 9, 1996, that such practices are in contravention of the
accounting procedures established in the Ticket Agreement and have caused
material damage to TWA in violation of Paragraph 12(a)(i). On January 12,
1996, Icahn denied that this barter account violated the Ticket Agreement.
36. Other breaches by the Icahn Defendants of the Ticket Agreement
include the following: (a) Global Discount has issued System Fare tickets in
violation of various fare rules, in response to which TWA has sent several
default notices; (b) Karabu and Global Discount have sold System Fare tickets
to travel agents in violation of Paragraph 8; and (c) Global Discount has
marketed System Fare tickets to travel agents by offering a fare advantage for
its clients against TWA's own fares in violation of Paragraph 12(a)(i). TWA
has notified the Icahn Defendants of these breaches in a series of letters
commencing in September 1995 and continuing to the date of this action.
F. THE ICAHN DEFENDANTS' ALLEGATIONS OF BREACHES BY TWA
37. The Icahn Defendants have not only breached the Ticket
Agreement, but, in respect to TWA's notifications and prior Petition, have
erroneously alleged that TWA has breached the Ticket Agreement. These
allegations have created a genuine dispute concerning these matters which is
appropriate for determination by this Court.
38
<PAGE> 13
38. Karabu and Global Discount claim that, in breach of its
obligations under the Ticket Agreement, TWA has discriminated against Global
Discount by refusing to allow Global Discount to hire TWA employees on a
part-time basis. TWA has a standing policy against allowing its employees to
work for travel agencies, which has been waived in the past on a case-by-case
basis under appropriate circumstances. The type of dual employment
contemplated by Global Discount presents an inherent conflict of interest,
which is heightened by the disputes between the parties as to interpretation of
the Ticket Agreement. Defendants' claim of discrimination under these
circumstances has no merit.
39. Karabu and Global Discount claim that, in breach of its
obligations under the Ticket Agreement, TWA has discriminated against Global
Discount by refusing to afford Global Discount and its customers the same
services available to other travel agents and their customers. In particular,
Karabu and Global Discount have claimed that TWA refused to waive advance
purchase fare requirements. The Ticket Agreement clearly states that all fare
rules and restrictions are applicable to the tickets sold except for the
bargained for waiver of refund conditions which is set out in Paragraph 3(a).
The waiver of other restrictions is not part of the bargained-for exchange
reflected in the Ticket Agreement and this claim has no basis.
40. Karabu and Global Discount claim that TWA has failed to
reschedule customers holding tickets purchased through Global Discount when
their flights have been canceled due to inclement weather. Global Discount
customers have not been treated disparately and TWA arranged for the customers
in question to be booked on other airlines, in accordance with industry policy
pertaining to canceled flights. Again, this allegation has no merit.
G. KARABU'S AND GLOBAL DISCOUNT'S VIOLATIONS OF THE ARC
AGREEMENT
41. In connection with its operations under the Ticket Agreement,
Global Discount has been appointed as a travel agent by the Airline Reporting
Corporation ("ARC"), a clearinghouse for
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airline ticket and other travel documents issued by or for travel on various
airlines. Appointed travel agents sign, and are bound by, a contract with ARC
(the "ARC Agreement") that sets terms and conditions on the sale of airline
tickets. As an accommodation to Karabu in the interim period between execution
of the Ticket Agreement and Global Discount's appointment as an ARC travel
agent, TWA and Karabu entered into a side letter agreement effective June 14,
1995 (the "Interim Agreement"), by which Karabu agreed to comply with, among
other things, the ARC rules for appointed travel agents, including the ARC
Agreement. Pursuant to the Interim Agreement, TWA extended certain
accommodations to Karabu, such as providing use of TWA ticketing equipment, use
of its computer support personnel and service contracts, and training for
Global Discount's agents, which enable Global Discount to operate during the
interim period pending its receipt of ARC approval as a travel agent. The
Interim Agreement ended upon Global Discount's receipt of its ARC approval.
TWA has in all respects complied with its obligations under the Interim
Agreement. By virtue of the Interim Agreement and its appointment as an
ARC-approved travel agent, Karabu and Global Discount are bound by the terms of
the ARC Agreement.
42. In pertinent part, the ARC Agreement permits appointed travel
agents to sell tickets to their customers at prices and on terms authorized by
TWA. The ARC Agreement further requires travel agents to comply with all
instructions of TWA with respect to the sale of TWA tickets.
43. TWA is a shareholder of ARC, the ARC Agreement was made on
behalf of TWA, and TWA is entitled to assert claims directly against Karabu and
Global for their conduct involving sale or transfer of TWA tickets in violation
of the ARC Agreement.
44. The marketing and sales of System Fare tickets by Global and
Karabu as described herein violate the ARC Agreement.
COUNT I
-------
(AS AGAINST ALL DEFENDANTS)
---------------------------
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DECLARATORY JUDGMENT
45. TWA incorporates by reference paragraphs 1 through 44 above.
46. There exists a justiciable controversy between TWA and the
defendants concerning the interpretation of the Ticket Agreement and the
permissible conduct thereunder by the Icahn Defendants.
47. In addition, the Icahn Defendants have breached the Ticket
Agreement as alleged in paragraphs 22 through 36 above.
48. TWA has a legally protectable interest under the Ticket
Agreement in precluding the sale of System Fare tickets to the general public
by the Icahn Defendants or by other travel agents. TWA has an interest in
maintaining control over fares for travel on TWA and protecting its prospective
economic relationships with customers.
49. Without resolution of this controversy, TWA will be deprived
of material benefits contemplated by the Ticket Agreement. TWA has no adequate
remedy at law.
50. Due to the continuing conduct of the defendants, after notice
or constructive notice of TWA's position, this controversy is ripe for judicial
decision.
51. Defendants have or may claim an interest which may be affected
by the declaration of rights and other relief sought herein by TWA.
52. TWA seeks an interpretation of the Ticket Agreement consistent
with the allegations in this Amended Petition and a declaration of the
respective rights of the parties.
53. TWA is entitled to a judgment declaring that: (a) defendants'
sale of System Fare tickets to the general public, directly or through travel
agents, violates the Ticket Agreement; (b) sales of System Fare tickets to
individual customers are not permissible sales to an "End User" under the
Ticket Agreement; (c) System Fare tickets may be sold only to UATP Account
holders; (d) System Fare tickets may not be marketed and/or sold to travel
agents or consolidators; (e) the
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following conduct of the Icahn Defendants violates the Ticket Agreement: (i)
the issuance of back-to-back tickets, (ii) the use of barter or exchange as
compensation for tickets, (iii) the issuance of tickets in violation of TWA's
fare restrictions and rules, (iv) the selling of System Fare tickets to travel
agents, and (v) the marketing of System Fare tickets to travel agents for sale
to the general public.
54. TWA is entitled to a judgment declaring that: (a) TWA has not
breached the Ticket Agreement by refusing to allow Global Discount to hire TWA
employees on a part-time basis; (b) TWA has not breached the Ticket Agreement
nor discriminated against Global Discount by refusing to waive TWA fare
restrictions and rules applicable to System Fare tickets; (c) TWA has not
discriminated against customers of Global Discount, or any other travel agent,
who have purchased System Fare tickets and has treated these customers in
accordance with TWA and industry policies; and (d) TWA has not breached the
Standstill Agreement.
55. The sale of System Fare tickets by the defendants, and the
continuing marketing and sales efforts by defendants, involve numerous and
complicated transactions which require an accounting to determine the harm to
TWA and the benefits obtained by defendants from such wrongful conduct. TWA
has no adequate remedy at law.
COUNT II
--------
(AS AGAINST ALL DEFENDANTS)
BREACH OF THE TICKET AGREEMENT
------------------------------
56. TWA incorporates by reference paragraphs 1 through 55 above.
57. The Icahn Defendants have materially breached the Ticket
Agreement, as described in paragraphs 22 through 30 and paragraphs 31 through
36 above.
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58. As a direct result of these breaches of the Ticket Agreement,
TWA has been damaged and will continue to be damaged. TWA is entitled to
damages in addition to declaratory relief and an accounting.
COUNT III
---------
(AS AGAINST ALL DEFENDANTS)
CONVERSION
----------
59. TWA incorporates by reference paragraphs 1 through 44 above.
60. At all times relevant, TWA had rights of immediate possession
of the seats on TWA flights such that they were available for sale to the
general public at published fares.
61. Defendants have sold tickets for seats on TWA flights at fares
priced below TWA's published fares.
62. Defendants have made use of available seats on TWA flights to
the exclusion of TWA's right to sell tickets for those seats to the general
public at published fares.
63. Defendants' intentional interference with TWA's rights and use
of available seats on TWA flights constitutes conversion of personal property
to defendants' use and benefit.
64. The value of the property rights converted by defendants is
the amount of the published fares for tickets to the seats on TWA flights sold
by defendants.
65. TWA has been damaged by defendants' conversion and TWA is
entitled to compensatory and punitive damages for such conversion.
COUNT IV
--------
(AS AGAINST ALL DEFENDANTS)
TORTIOUS INTERFERENCE WITH BUSINESS EXPECTANCY
----------------------------------------------
66. TWA incorporates by reference paragraphs 1 through 44 set
forth above.
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67. TWA has existing and prospective economic relationships with
its customers that constitute a valid business expectancy that such customers
will purchase tickets for air travel on TWA at published fares, providing
significant revenues to TWA.
68. With knowledge of this business expectancy, and without
justification under the Ticket Agreement, defendants intentionally interfered
and continue to intentionally interfere with TWA's business expectancy through
efforts to sell System Fare tickets other than to UATP Account holders in the
manner set forth above.
69. Such interference is intended to cause injury to TWA and will
cause damage to TWA by diverting customers away from the purchase of tickets
from TWA at published fares.
70. As a direct and proximate result of defendants' intentional
and tortious conduct, TWA has suffered and will continue to suffer economic
damages and lose revenues it otherwise would have obtained from the sale of
tickets to customers.
71. TWA is entitled to compensatory and punitive damages and an
accounting from each of the defendants to determine the extent of harm to TWA.
COUNT V
-------
(AS AGAINST ALL DEFENDANTS)
TORTIOUS INTERFERENCE WITH CONTRACTUAL RELATIONS
------------------------------------------------
72. TWA incorporates by reference the allegations of paragraphs
1 through 44 above.
73. The Icahn Defendants have intentionally interfered with
TWA's valid contractual relations with travel agents who are parties to the ARC
Agreement, by inducing these travel agents to breach their duties under the ARC
Agreement. Such inducement caused the travel agents to breach duties they owed
to TWA under the ARC Agreement. As a result of the Icahn Defendants' conduct,
TWA has suffered and continues to suffer economic damages and loss revenues it
would have obtained from its contractual relations with ARC-approved travel
agents.
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74 . TWA is entitled to compensatory and punitive damages and an
accounting from the Icahn Defendants to determine the extent of harm to TWA.
COUNT VI
(AS AGAINST ALL DEFENDANTS)
LIQUIDATED DAMAGES
75. TWA incorporates by reference the allegations of paragraphs 1
through 44 above.
76. The Ticket Agreement provides for liquidated damages in the
amount of Ten Million dollars ($10,000,000.00) following a judgment declaring
breach where the conduct is not discontinued or the breach not cured within the
time periods set forth therein.
77. TWA is entitled to liquidated damages in the amount of Ten
Million Dollars ($10,000,000.00) for each and every uncured breach of the
Ticket Agreement by the Icahn Defendants.
COUNT VII
(AS AGAINST KARABU AND GLOBAL DISCOUNT)
BREACH OF THE ARC AGREEMENT
78. TWA incorporates by reference the allegations of paragraphs 1
through 44 above.
79. The conduct of Karabu and its affiliated travel agency, Global
Discount, constitutes a breach of the ARC Agreement.
80. TWA, and ARC on behalf of TWA, have fully performed all
conditions precedent to performance by Karabu and Global Discount under the ARC
Agreement.
81. As a direct result of Karabu's and Global Discount's
continuing breach, TWA has been harmed and will continue to be harmed.
82. TWA is entitled to declaratory relief against and an
accounting from Karabu and Global Discount to determine the extent of harm to
TWA.
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COUNT VIII
(AS AGAINST KARABU AND GLOBAL DISCOUNT)
UNJUST ENRICHMENT
83. TWA incorporates by reference the allegations of paragraphs 1
through 44 above.
84. Karabu and Global Discount have been unjustly enriched by
their wrongful and unauthorized conduct described herein above.
85. TWA is entitled to restitution or disgorgement of all revenues
gained by Karabu and Global Discount from the sale or marketing of System Fares
and to an accounting for all such revenues.
WHEREFORE, TWA requests judgment against each of the defendants as
follows:
1. as against all defendants, a declaration of the rights and
other legal relations between the parties in accordance with Counts I and II
hereof;
2. as against Karabu and Global Discount, a judgment declaring
them to be in breach of the ARC Agreement;
3. as against the all defendants, liquidated damages pursuant to
Count VI;
4. for restitution and disgorgement of all revenues gained by
Karabu and Global Discount and denied to TWA by their conduct described herein
above;
5. as against all defendants, an accounting to TWA of all
revenues generated by each defendant as a result of its sales or marketing of
TWA tickets in violation of their agreements and obligations to TWA;
6. as against all defendants, damages, both compensatory and
punitive, with interest as allowed by law;
7. as against all defendants, for an award of TWA's costs and
attorneys' fees; and
8. for such other and further relief as this Count deems just and
proper.
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BRYAN CAVE LLP
By /s/ Thomas E. Wack
----------------------------
Thomas E. Wack Mo. Bar #21849
Kevin M. Abel Mo. Bar #39568
One Metropolitan Square
211 North Broadway
Suite 3600
St. Louis, Missouri 63102
Telephone: (314) 259-2000
Facsimile: (314) 259-2020
Attorneys for Plaintiff
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