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Filed Pursuant to Rule 424(b)(4)
Registration Number 333-04977
PROSPECTUS
TRANS WORLD AIRLINES, INC.
3,869,000 SHARES OF 8% CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
(PAR VALUE $.01 PER SHARE)
$193,450,000 PRINCIPAL AMOUNT OF
8% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006
9,544,823 SHARES OF COMMON STOCK
(PAR VALUE $.01 PER SHARE)
This Prospectus relates to the 3,869,000 shares of the 8% Cumulative
Convertible Exchangeable Preferred Stock, par value $.01 per share (the
"Preferred Stock"), of Trans World Airlines, Inc., a Delaware corporation ("TWA"
or the "Company"), the $193,450,000 aggregate principal amount of the Company's
8% Convertible Subordinated Debentures due 2006 (the "Debentures") issuable upon
exchange of the Preferred Stock and the 9,544,823 shares of the Company's Common
Stock, $.01 par value per share (the "Common Stock"), issuable upon conversion
of the Preferred Stock or the Debentures, subject to adjustment under certain
circumstances.
The Preferred Stock was initially issued and sold on March 22 and 29, 1996
(the "Original Offering"), in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
to persons reasonably believed by the Initial Purchasers (as defined herein) of
the Preferred Stock to be "qualified institutional buyers" (as defined by Rule
144A under the Securities Act ("Rule 144A")), or in transactions complying with
the provisions of Regulation S under the Securities Act ("Regulation S"). The
Preferred Stock, along with the Debentures issuable upon exchange of the
Preferred Stock and the Common Stock issuable upon conversion of the Preferred
Stock or the Debentures, may be offered and sold from time to time by the
holders named herein or by their transferees, pledgees, donees, or their
successors (collectively, the "Selling Holders") pursuant to this Prospectus.
The Registration Statement on Form S-3 of which this Prospectus is a part (the
"Registration Statement") has been filed with the Securities and Exchange
Commission (the "SEC" or the "Commission") pursuant to the Company's obligations
under a registration rights agreement dated as of March 22, 1996 (the
"Registration Rights Agreement") among the Company and the Initial Purchasers,
which was entered into in connection with the Original Offering.
Dividends on the Preferred Stock are cumulative from the date of original
issuance and payable quarterly in arrears commencing June 15, 1996 at an annual
rate of 8% (equivalent to $4.00 per share per annum). The Preferred Stock has a
liquidation preference of $50.00 per share, plus accrued and unpaid dividends.
Each share of the Preferred Stock (or, if issued, each $50.00 principal
amount of Debentures) may be converted at any time at the option of the holder,
unless previously redeemed or exchanged, into shares of Common Stock at a
conversion price of $20.269 per share or $50.00 principal amount (equivalent to
a conversion rate of approximately 2.467 shares of Common Stock for each share
of Preferred Stock or $50.00 principal amount of Debentures), subject to
adjustment in certain circumstances. The number of shares of Common Stock
issuable upon conversion of the Preferred Stock or the Debentures is subject to
possible adjustment under certain circumstances. Therefore, the number of shares
of Common Stock registered hereunder may increase or decrease. See "Description
of Preferred Stock -- Conversion Rights."
(Continued on next page)
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER MATTERS DISCUSSED UNDER THE
CAPTION "RISK FACTORS" ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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THE DATE OF THIS PROSPECTUS IS AUGUST 16, 1996.
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(Continued from cover page)
The Preferred Stock may be exchanged, in whole but not in part, at the
option of the Company, for the Debentures on any dividend date beginning on
March 15, 1998 at the rate of $50.00 principal amount of Debentures for each
share of Preferred Stock outstanding at the time of exchange; provided, that all
accrued and unpaid dividends on the Preferred Stock to the date of exchange,
whether or not earned or declared, have been paid or set aside for payment and
certain other conditions are met. The Debentures, if issued, will bear interest
payable semiannually and will have the terms and conditions set forth elsewhere
in this Prospectus. As of June 30, 1996, the amount of the Company's Senior
Indebtedness (as defined herein) aggregated approximately $1,195 million, and
the amount of the trade payables and other indebtedness of the Company's
subsidiaries was immaterial in amount. If issued, the Debentures will be
effectively subordinated to all rights of third party creditors of the Company's
subsidiaries. The Company and its subsidiaries expect from time to time to incur
additional indebtedness, including, but not limited to, Senior Indebtedness. The
Indenture will not prohibit or limit the incurrence of such additional
indebtedness. All other obligations would rank pari passu to the Debentures,
including obligations under noncancellable operating leases, advance ticket
sales, and trade payables, among others, which obligations were approximately
$1,942 million, $384 million and $121 million, respectively, at June 30, 1996.
See "Description of Preferred Stock -- Exchange Provisions."
The Preferred Stock may not be redeemed prior to March 15, 1999. On or
after March 15, 1999, the Preferred Stock may be redeemed, in whole or in part,
at the option of the Company, at the redemption prices set forth elsewhere in
this Prospectus plus accrued and unpaid dividends thereon to the date fixed for
redemption. See "Description of Preferred Stock -- Optional Redemption by the
Company."
Upon the occurrence of a Change in Control (as defined herein), the
conversion price of the Preferred Stock will be reduced for a limited period of
time in the event that the Market Value (as defined herein) of the Common Stock
is less than the then prevailing conversion price, but in no event will the
conversion price be lower than $11.75, subject to certain adjustments as set
forth herein.
The Preferred Stock, the Debentures and the shares of Common Stock issuable
upon conversion of the Preferred Stock or Debentures may be sold by the Selling
Holders from time to time directly to purchasers or through agents, underwriters
or dealers. See "Plan of Distribution." If required, the names of any agents or
underwriters involved in the sale of the securities in respect of which this
Prospectus is being delivered, along with any applicable agent's commission,
dealer's purchase price or underwriter's discount, will be set forth in an
accompanying supplement to this Prospectus (the "Prospectus Supplement").
Furthermore, information concerning Selling Holders set forth herein may change
from time to time, and the changes will be set forth in such a Prospectus
Supplement.
The Selling Holders will receive all of the net proceeds from the sale of
the Preferred Stock, the Debentures and the shares of Common Stock issuable upon
conversion of the Preferred Stock or Debentures and will pay any and all
underwriting discounts and selling commissions applicable to the sale of such
securities. The Company is responsible for payment of all other expenses
incident to the registration of the securities registered hereunder.
The Selling Holders and any broker-dealers, agents or underwriters which
participate in the distribution of the securities offered hereby may be deemed
to be "underwriters" within the meaning of the Securities Act, and any
commission received by them or purchases by them of such securities at a price
less than the initial price to the public may be deemed to be underwriting
commission for discounts under the Securities Act.
Pursuant to the Registration Rights Agreement, the Company has also agreed
to pay certain fees and expenses incident to the registration of the Preferred
Stock, the Debentures and the shares of Common Stock issuable upon conversion of
the Preferred Stock or Debentures. It is estimated that the aggregate amount of
fees and expenses payable by the Company in connection with the registration of
the securities offered hereby will be approximately $267,000. The Company
intends to keep the Registration Statement effective for a period of three years
following the initial issuance of shares of Preferred Stock on March 22, 1996,
unless the three-year holding required by Rule 144 under the Securities Act
("Rule 144") is shortened, in which case the Registration Statement will be kept
effective for such shorter period.
The Company has listed the Common Stock into which the Preferred Stock is
convertible with the American Stock Exchange ("AMEX"). There has not previously
been any public market for the Preferred Stock, and there can be no assurance
that an active public trading market will ever develop for the Preferred Stock,
or, if issued, the Debentures. The Common Stock is listed on AMEX under the
symbol "TWA." On August 5, 1996, the closing sale price on AMEX for one share of
the Common Stock was $10.50 per share.
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No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offer of
securities made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by any underwriter, dealer or agent. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
those to which it relates. Neither the delivery of this Prospectus nor any sale
of, or offer to sell, the securities offered hereby shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to its date.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company with the Commission pursuant to the informational requirements of the
Exchange Act can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
NW, Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Northeast Regional Office, 7 World Trade Center, Suite 1300, New
York City, New York 10048 and Midwest Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained upon written request addressed to the Securities
and Exchange Commission, Public Reference Section, Room 1024, 450 Fifth Street,
NW, Washington, D.C. 20549 at prescribed rates. Such reports, proxy statements
and other information can also be inspected at the offices of the American Stock
Exchange, 86 Trinity Place, New York City, New York 10006-1881, on which the
Common Stock of the Company is listed and the Company has made application to
list the Preferred Stock. In addition, the Company has agreed, for so long as
any of the securities offered hereby remain outstanding, to make available to
any prospective purchaser or beneficial holder of such securities in connection
with any sale thereof, the information required by subsection (d) of Rule 144A
under the Securities Act ("Rule 144A"), until such time as the holders thereof
have disposed of such securities pursuant to an effective registration statement
filed by the Company.
This Prospectus contains summaries believed to be accurate and complete in
all material respects of material terms of certain agreements; however, in each
such case, reference is made to the actual agreements (copies of which will be
made available upon request to the Company) for complete information with
respect thereto.
This Prospectus forms a part of the Registration Statement, including all
amendments (including post-effective amendments) and exhibits thereto, which the
Company has filed under the Securities Act with respect to the securities
offered hereby. This Prospectus does not contain all the information otherwise
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement and the exhibits
filed as part thereof. The Registration Statement may be inspected at the public
reference facilities maintained by the Commission at the addresses set forth in
the preceding paragraph. Statements contained herein concerning any document
filed as an exhibit are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1995 and
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June
30, 1996; (ii) the Company's Amendment to its Annual Report on Form 10-K for the
year ended December 31, 1995, as filed on Form 10-K/A; (iii) the Company's
Amendment to its Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, as filed on Form 10-Q/A; (iv) the
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Company's Amendments No. 1 and 2 to its Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, as filed on Form 10-Q/A; (v) the description of the
Common Stock contained in the Company's Form 8-A dated August 1, 1995 filed
under the Exchange Act, including any amendment or reports filed for the purpose
of updating such description; (vi) the Company's Current Report on Form 8-K
filed on March 20, 1996; (vii) the Company's Current Report on Form 8-K filed on
March 21, 1996; and (viii) the Company's Proxy Statement and Notice of Meeting
relating to the Annual Stockholders to be held on May 21, 1996, each of which
has been filed with the Commission pursuant to the requirements of the Exchange
Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the securities offered hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to furnish without charge to each person to
whom a copy of this Prospectus has been delivered, upon written or oral request
of such person, a copy of any and all documents incorporated herein by reference
(not including exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed to
the Corporate Secretary of Trans World Airlines, Inc., One City Centre, 515 N.
Sixth Street, St. Louis, Missouri 63101, telephone (314) 589-3000.
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PROSPECTUS SUMMARY
This summary does not purport to be complete and is qualified in its
entirety by reference to the detailed information and consolidated financial
statements appearing elsewhere in this Prospectus or incorporated by reference
herein. Terms not defined in this summary are defined elsewhere herein.
TWA is the seventh largest U.S. air carrier (based on 1995 revenue
passenger miles ("RPMs") and available seat miles ("ASMs")), whose primary
business is transporting passengers, cargo and mail. During 1995, the Company
carried more than 21.7 million passengers and flew approximately 25.1 billion
RPMs. As of June 30, 1996, TWA provided regularly scheduled jet service to 90
cities in the United States, Mexico, Europe, the Middle East, Canada and the
Caribbean and operated a fleet of 187 jet aircraft.
TWA's North American operations have a primarily domestic hub in St. Louis
at Lambert International Airport ("St. Louis") and a domestic-international hub
at New York's John F. Kennedy International Airport ("JFK"). TWA is the
predominant carrier at St. Louis, with approximately 360 scheduled daily
departures and an approximately 71% share of airline passenger enplanements in
St. Louis in 1995. Given its location in the center of the U.S., St. Louis is
well-suited to function as an omni-directional hub for both north-south and
east-west transcontinental traffic. Therefore, TWA believes it can offer more
frequencies and connecting opportunities to many travelers in its key Midwestern
markets than competing airlines.
TWA's international operations are concentrated at JFK, where TWA has a hub
system designed to provide domestic feed traffic for its transatlantic service.
JFK is the industry's largest international gateway from North America. The
Company focuses its international operations on business markets that it
believes can support non-stop service.
In addition, the Company operates Getaway Vacations, a tour packager
offering leisure travel products and services. The Company also provides
contract maintenance services to a number of other companies, principally
airlines and aircraft lessors, as well as the U.S. Government. Substantially all
airframe and engine maintenance on the Company's fleet is performed by TWA
employees at TWA facilities.
In March 1996, the Company issued and sold the Preferred Stock in the
Original Offering. After deducting discounts, commissions and estimated
expenses, the net proceeds of the Original Offering were approximately $186.2
million. The Company has used a portion of such proceeds to exercise its option
to redeem the Company's outstanding 12% Cumulative Preferred Stock, $.01 par
value per share (the "12% Preferred Stock"). On April 26, 1996 (the "Redemption
Date"), the Company made payment of an aggregate redemption amount of $84.9
million at the offices of American Stock Transfer & Trust Company ("AST"), the
stock transfer agent for the 12% Preferred Stock. Upon proper presentation and
surrender of certificates evidencing shares of 12% Preferred Stock, AST will pay
record holders of 12% Preferred Stock a redemption price per share equal to
$75.00, plus $2.8667 in accrued dividends to and including the Redemption Date.
Since the Redemption Date, the 12% Preferred Stock has been deemed to be no
longer outstanding, and holders of 12% Preferred Stock have no rights as
stockholders of the Company (except the right to receive from the Company any
monies payable upon redemption without interest thereon).
On June 20, 1996, the Company announced the separation of Messrs. Robert A.
Peiser and Mark J. Coleman from employment by the Company as Executive Vice
President -- Finance and Chief Financial Officer and Senior Vice
President -- Marketing, respectively. Messrs. Peiser and Coleman differed with
the determination of the Board of Directors, as expressed by its unanimous vote,
to continue the management approach of the Company's President and Chief
Executive Officer in implementing the next phase of the Company's rebuilding
process. The Company is in the process of interviewing candidates to fill the
positions vacated by Messrs. Peiser and Coleman, and expects to fill such
positions in the near future. Until such positions are filled, other members of
senior management are performing the day-to-day tasks formerly handled by
Messrs. Peiser and Coleman.
On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK
en route to Paris, France. There were no survivors among the 230 passengers and
crew members aboard the Boeing 747 aircraft. The Company is cooperating fully
with all federal, state and local regulatory and investigatory agencies to
ascertain the cause of the crash. TWA is unable to predict the amount of claims,
if any, relating to the crash which may
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ultimately be made against the Company and how those claims might be resolved.
TWA maintains substantial insurance coverage and, at this time, management has
no reason to believe that such insurance coverage will not be sufficient to
cover any claims arising from the crash. Therefore, TWA believes that the
resolution of any claims will not have a material adverse effect on its
financial condition or results of operations. The Company is unable to predict
the existence or extent of any adverse impact on its revenues, yields or results
of operations which may result from the traveling public's reaction to the crash
of Flight 800, including any impact which may result from the determination of
the cause of such crash. Due to, among other things, management's need to devote
its attention to providing assistance to the families of passengers and crew
members of Flight 800, as well as cooperating in the investigation of the crash,
the Company has decided to delay its proposed offering of 8,000,000 shares of
Common Stock pursuant to a Registration Statement on Form S-3 (Reg. No.
333-05691) previously filed with the Commission on June 11, 1996.
TWA is a Delaware corporation organized in 1978 and is the successor to the
business of its predecessor corporation, Transcontinental & Western Air, Inc.,
originally formed in 1934. The Company's principal executive offices are located
at One City Centre, 515 N. Sixth Street, St. Louis, Missouri 63101 and its
telephone number is (314) 589-3000.
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating the Company and
its business before purchasing any of the securities offered hereby.
Certain statements made in this Prospectus relating to plans, conditions,
objectives and economic performance go beyond historical information and may
provide an indication of future results. To that extent, they are
forward-looking statements within the meaning of Section 21E of the Exchange
Act, and each of them is therefore subject to risks, uncertainties, and
assumptions that could cause actual results to differ from those in the
forward-looking statement. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may very materially from those anticipated, estimated or projected. Some of the
uncertainties that might adversely impact TWA's future results of operations
include, but are not limited to, the "Risk Factors" described below.
COMPANY RELATED CONSIDERATIONS
Substantial Indebtedness; Future Capital Requirements; Liquidity
During the period from 1992 through 1995, TWA underwent two separate
Chapter 11 reorganizations, the first in 1992-93 (the " '93 Reorganization") and
the second in 1995 (the " '95 Reorganization"). Pursuant to the '95
Reorganization, the Company improved its financial condition and operating
performance by, among other things, reducing labor and other operating and
financing costs, rescheduling debt payments, recapitalizing the Company's equity
securities and certain of its debt, revising the Company's route structure to
capitalize further on its strength in St. Louis and developing enhanced
marketing systems. As a result of the '95 Reorganization, the Company eliminated
approximately $500 million in face amount (approximately $300 million book
value) of debt from its balance sheet. In addition, the maturity of the
Company's indebtedness with certain entities affiliated with Mr. Carl C. Icahn
was extended from January 8, 1995 to January 8, 2001, and the Company negotiated
an aggregate of approximately $91 million of aircraft lease and conditional sale
agreement deferrals for various periods of time, with a weighted average life of
approximately two years.
Notwithstanding the Company's '93 and '95 Reorganizations, the Company
remains highly leveraged and has and will continue to have significant debt
service obligations. See Note 7 to the Company's 1995 consolidated financial
statements incorporated by reference in this Prospectus (including the notes
thereto, the "1995 Consolidated Financial Statements") and the Company's
condensed consolidated financial statements for the three months and six months
ended June 30, 1996 (including the notes thereto the "1996 Interim Consolidated
Financial Statements") incorporated by reference herein, together referred to
herein as the "Consolidated Financial Statements." As of June 30, 1996, the
Company's ratio of long-term debt and capital leases (including current
maturities) to shareholders' equity was 2.3 to 1. As of June 30, 1996, the
Company's total long-term debt and capital leases (including current maturities)
was $1,076 million. In addition, at December 31, 1995 (as adjusted to reflect
new leases entered into through June 30, 1996), TWA's estimated minimum payment
obligations under noncancellable operating leases were approximately $222
million for 1996 and approximately $1,720 million for periods thereafter.
The degree to which the Company is leveraged could have important
consequences to holders of the securities offered hereby, including the
following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired; (ii) a substantial portion
of the Company's cash flow from operations must be dedicated to the payment of
principal and interest on the Company's indebtedness, thereby reducing the funds
available to the Company for its operations and to pay dividends on its equity
securities; and (iii) such indebtedness contains restrictive and other
covenants, which, if not complied with, may result in an event of default which,
if not cured or waived, could have a material adverse effect on the Company. See
"-- Uncertainties Related to Icahn Loans" for a description of an alleged
default under a loan agreement of the Company which could result in a
cross-default under substantially all of the Company's other indebtedness and
leases and which would otherwise have a material adverse effect on the Company.
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TWA's 1996 capital expenditures are currently anticipated to total
approximately $120 million, including approximately $75 million for flight
equipment related expenditures (e.g., progress payments for aircraft and the
purchase of aircraft engines and parts). In February 1996, TWA executed
definitive agreements providing for the operating lease of 10 new Boeing 757
aircraft to be delivered in 1996 and 1997. Although individual aircraft rentals
escalate over the terms of the leases, annual aggregate rental obligations are
estimated to average approximately $51 million over the lease terms after all 10
aircraft have been delivered. These aircraft have an initial lease term of 10
years. The Company took delivery of the first Boeing 757 aircraft on July 22,
1996. The Company also entered into an agreement in February 1996, with The
Boeing Company ("Boeing"), for the purchase of 10 new Boeing 757 aircraft with
deliveries in February 1997 through May 1999. The Company also acquired the
right, subject to certain conditions, to purchase up to 20 additional Boeing 757
aircraft. The estimated purchase price for the firm order aircraft and related
spare parts and equipment is $550 million, including an estimate for the price
escalation factor. The Company has secured financing commitments from engine and
airframe manufacturers for approximately $420 million of the purchase price of
the aircraft and related spare parts and equipment. In addition, in July 1996,
the Company entered an agreement providing for the lease of five new MD-83
aircraft to be delivered to TWA between July and November 1997 with initial
lease terms of 18 years. The Company also received the right (subject to prior
sale and exercise by December 31, 1996) to lease up to 10 additional MD-83
aircraft in two blocks of five aircraft each, with delivery dates for the 10
additional aircraft over an 11-month period commencing June 1998.
For certain information regarding other aircraft purchase agreements, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" incorporated herein by reference. In addition, the Company is
currently negotiating, but has not concluded, an agreement to extend the leases
on 28 DC-9-30 aircraft operated by the Company and to increase the rent payable
thereunder to finance the acquisition at an aggregate cost of approximately $49
million of hush-kits for installation on such aircraft to enable them to meet
the Stage 3 noise requirements of the Airport Noise and Capacity Act of 1990
(the "Noise Act"). The Noise Act provides, with certain exceptions, that no
person may operate large civilian turbo-jet aircraft in the U.S. after December
31, 1999 that do not comply with Stage 3 noise levels. Stage 3 is a designation
of the Federal Aviation Administration (the "FAA") for the quietest commercial
aircraft. As of June 30, 1996, the Company had purchased thirteen hush-kits at a
cost of $22.1 million with internal funds. There is another agreement providing
for the financing of the hushkitting of an additional 14 DC-9-30 and DC-9-50
aircraft currently leased by TWA. The aggregate additional cost of such hushkits
would approximate $27 million.
TWA's consolidated cash and cash equivalents approximated $304.4 million at
June 30, 1996. TWA has no unused credit lines and must satisfy all of its
working capital and capital expenditure requirements from cash provided by
operating activities, from external capital sources or from the sale of assets.
Substantially all of TWA's strategic assets, including its owned aircraft,
ground equipment, slots and overhaul facilities, have been pledged to secure
various issues of outstanding indebtedness of the Company. Sales of such assets
which are not replaced would, under the terms of applicable financing
agreements, generally require payment of the indebtedness secured thereby, which
indebtedness in many cases would likely exceed the immediately realizable value
of such assets. TWA has relatively few non-strategic assets which it could
monetize, substantially all of such assets being subject to various liens and
security interests which would restrict and/or limit the ability of TWA to
realize any significant proceeds from the sale thereof. To the extent that the
Company's access to capital is constrained, the Company may not be able to make
certain capital expenditures or implement certain other aspects of its strategic
plan, and the Company may therefore be unable to achieve the full benefits
expected therefrom.
Based on recent analyses, the Company presently estimates that it has, for
federal income tax purposes, net operating loss carryforwards ("NOLs") amounting
to approximately $400 million, which expire in 2008 through 2010 if not utilized
before then to offset taxable income. The determination of the amount of such
NOLs involves numerous complex issues which may be subject to differing
interpretations. Such NOLs are subject to examination by the Internal Revenue
Service (the "IRS") and thus are subject to adjustment or disallowance resulting
from any such IRS examination. Section 382 of the Internal Revenue Code of 1986,
as amended, and regulations issued thereunder (the "Code") imposes limitations
on the ability of corporations to use NOLs, if the corporation experiences a
more than 50% change in ownership during certain periods. As a
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result of such a change in ownership caused by the '95 Reorganization, the
Company's use of its NOLs will, depending upon certain elections to be made by
the Company, either be substantially restricted (to approximately $14 million
annually) or reduced (by approximately $45 million) in future periods. Any
future ownership change may result in the imposition of a significantly lower
annual limitation on the Company's utilization of NOLs and extend the period
over which any benefits are realized therefrom. Moreover, if the Company elects
to reduce its NOLs rather than to apply the $14 million annual limitation
described above and if another ownership change were to occur during the
two-year period following the '95 Reorganization, the annual limitation on the
Company's use of its existing NOLs would be reduced to zero. The Company
believes that no ownership change will occur as a result of this offering. There
can be no assurance, however, that this offering will not be a contributing
factor to an ownership change or that an unrelated ownership change will not
occur in the future. For the foregoing reasons, prospective purchasers of the
shares of Preferred Stock offered hereby should not assume the amount of or
unrestricted availability of the Company's currently existing NOLs, if any, in
making their investment decisions. For financial reporting purposes, the tax
benefits from substantially all of the tax net operating loss carryforwards
will, to the extent realized in future periods, have no impact on the Company's
operating results, but instead be applied to reduce reorganization value in
excess of amounts allocable to identifiable assets.
The Company's long-term viability as well as its ability to meet its
existing debt and lease obligations and future capital commitments, as well as
to make scheduled dividend payments to the holders of the Preferred Stock (or
interest payments to the holders of the Debentures, if issued), depend upon the
Company's financial and operating performance, which in turn are subject to,
among other things, prevailing economic conditions and to certain other
financial, business and other factors beyond the Company's control. Although the
Company's cash flow from its operations subsequent to the '95 Reorganization is
anticipated to be sufficient in the foreseeable future to meet the Company's
debt service and lease obligations and to pay dividends on the Preferred Stock
(or interest on the Debentures, if issued), there can be no assurance that the
Company's operating results will continue to be sufficient to do so.
Prior Operating Losses and Future Uncertainties Relating to Results of
Operations
As with other companies, TWA's long-term viability depends on its ability
to achieve and maintain profitable operations. The airline industry and the
Company have both experienced significant losses in recent periods. For example,
for the combined 12-month period ended December 31, 1993 and the year ended
December 31, 1994, the Company experienced net losses totaling $451.8 million
and $435.8 million, respectively (excluding extraordinary gains related to the
'93 Reorganization), and operating losses totaling $284.0 million and $279.5
million, respectively (including special and nonrecurring charges of $175.1
million in 1994). The Company reported a net loss of $368.4 million for the
combined 12-month period ended December 31, 1995 (excluding extraordinary gains
related to the '95 Reorganization), while reporting an operating profit of $25.1
million (including $58.0 million of non-cash expense relating to the
distribution of stock to employees as part of the '95 Reorganization),
representing the Company's first operating profit since 1989. The Company also
reported a net loss of $11.8 million for the first six months of 1996,
representing an $105.8 million improvement over the same period of 1995, and a
$29.7 million improvement in its operating income in the first six months of
1996 ($7.8 million) as compared to the prior year. The Company has taken a
number of actions intended to continue to improve future profitability, although
there can be no assurance that the Company's future operations will be
profitable.
TWA has historically experienced significant variations in annual operating
revenues and operating expenses and expects such variations to continue. While
numerous uncertainties concerning the level of revenues and expenses always
exist, the nature of such uncertainties is constantly changing, and the Company
is unable to predict the potential impact of any of such uncertainties upon its
results of operations. Among the uncertainties that might adversely impact TWA's
future results of operations are: (i) competitive pricing and scheduling
initiatives; (ii) competitive flights added by competing airlines; (iii)
increases in operating costs, including the cost of fuel; (iv) reduced levels of
air passenger traffic resulting from war, threat of war, international terrorism
or changes in the economy; (v) governmental limitations on the ability of TWA to
service certain airports and/or foreign markets as a result of noise abatement
practices or regulations imposed
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on carriers operating at such airports; (vi) current and future regulatory
requirements requiring additional capital expenditures with respect to, among
other things, noise abatement; and (vii) the possible reduction in yield due to
a discount ticket program entered into between the Company and Karabu
Corporation ("Karabu"), a Delaware corporation controlled by Mr. Carl C. Icahn,
in connection with the '95 Reorganization. See "-- Uncertainties Related to
Icahn Loans."
Uncertainties Related to Icahn Loans
The Company and Karabu are parties to an eight-year Karabu Ticket Program
Agreement (the "Ticket Agreement"). Tickets sold by the Company to Karabu
pursuant to the Ticket Agreement are priced at levels intended to approximate
current competitive discount fares available in the airline industry. TWA
believes that applicable provisions of the Ticket Agreement do not allow Karabu
to market or sell such tickets through travel agents to the general public.
Karabu, however, has been marketing tickets through travel agents. TWA has
demanded that Karabu cease doing so, and Karabu has stated that it disagrees
with the Company's interpretation concerning sales through travel agents. In
December 1995, the Company filed a lawsuit against Karabu, Mr. Icahn and certain
affiliated companies seeking damages and to enjoin further violations of the
Ticket Agreement. The parties negotiated a series of standstill agreements,
pursuant to which TWA's original lawsuit was withdrawn, while the Company and
Mr. Icahn endeavored to negotiate a settlement of their differences and
respective claims. The final extension of such a standstill expired on March 20,
1996.
On March 20, 1996, the Company filed a Petition (the "TWA Petition")
commencing a lawsuit against Mr. Icahn, Karabu and certain other entities
affiliated with Icahn (collectively, the "Icahn Defendants"). The TWA Petition,
which is pending in the Circuit Court for St. Louis County, Missouri, alleges
that the Icahn Defendants are violating the Ticket Agreement and otherwise
tortiously interfering with the Company's business expectancy and contractual
relationships by, among other things, marketing and selling tickets purchased
under the Ticket Agreement to the general public through travel agents. The TWA
Petition seeks a declaratory judgment finding that the Icahn Defendants have
violated the Ticket Agreement, and also seeks liquidated, compensatory and
punitive damages, in addition to the Company's costs and attorneys fees. The
Company believes the allegations contained in the TWA Petition are meritorious.
Mr. Icahn countered by threatening to file his own lawsuit and to declare a
default on the financing of up to $200 million provided to TWA by Karabu in
connection with the '93 Reorganization (the "Icahn Loans"), which financing is
secured by receivables and certain flight equipment pledged under a security
agreement (the "Karabu Security Agreement") with State Street Bank and Trust
Company of Connecticut N.A., as security trustee (the "Security Trustee"). Mr.
Icahn's position was based upon a variety of claims related to his
interpretations of the Karabu Security Agreement as well as certain alleged
violations of the Ticket Agreement by the Company. A violation of the Ticket
Agreement by the Company could result in a cross-default under the Icahn Loans.
An Event of Default (as defined in the Icahn Loans), if resulting in an
acceleration of the indebtedness due thereunder, would constitute a default
under the instruments governing the Company's other indebtedness and certain
leases and would have a material adverse effect on the Company. Mr. Icahn has
also alleged independent violations of the Icahn Loans, including, among other
things, that the Company has not been maintaining, in accordance with the terms
of the Karabu Security Agreement, certain aircraft which TWA has retired from
service and stored and which are pledged as security for the Icahn Loans. To
endeavor to eliminate this issue from the various disputes with Mr. Icahn and
his affiliates, 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 Security Trustee has not
released such liens. In addition, Mr. Icahn has asserted that the approval of
the Security Trustee is required for any modification to the FAA-approved
maintenance program affecting aircraft pledged as security under the Karabu
Security Agreement.
Also on March 20, 1996, TWA was named as a defendant in a complaint (the
"Icahn Complaint") filed by Karabu and certain other affiliates of Mr. Icahn
(the "Icahn Entities"). The Icahn Complaint alleged, among other things, that
the Company had 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 an
interpretation by Mr. Icahn and the Icahn Entities that the Ticket
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Agreement permits sales of tickets to the general public through travel agents
and upon certain actions the Company has taken to mitigate the adverse effects
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. On June 13, 1996, following TWA's filing of a motion to dismiss the
Icahn Complaint, the Icahn Entities amended the Icahn Complaint to delete the
federal antitrust claims and to add new allegations and theories with respect to
claimed violations of the federal antitrust laws and the Lanham Act (the
"Amended Icahn Complaint"). The Company believes it has meritorious defenses to
the allegations contained in the Amended Icahn Complaint and intends to defend
itself vigorously against such allegations.
On June 6, 1996, Karabu forwarded a letter to TWA advising the Company of
Karabu's possible intention to instruct the Pension Benefit and Guaranty
Corporation (the "PBGC") to require the Security Trustee to give a 30 day
default notice to TWA in respect of certain alleged instances of non-compliance
by TWA with the provisions of the Karabu Security Agreement relating to, among
other things, four Boeing 727-100 aircraft which are no longer being flown by
TWA in active service and changes by TWA to the FAA-approved scheduled
maintenance of such aircraft and other aircraft pledged under the Karabu
Security Agreement without obtaining approval of the Security Trustee. Karabu
also forwarded with such letter a draft of a proposed complaint which it
threatened to file for a declaratory judgment that Karabu would be entitled to
instruct the PBGC to require the Security Trustee to give TWA such notice of
default. The complaint was filed in a New York state court and was served on TWA
on June 28, 1996 and was voluntarily discontinued with prejudice on July 18,
1996.
On June 26, 1996, Karabu formally requested the PBGC to instruct the
Security Trustee to give TWA a notice of default under the Karabu Security
Agreement. On June 27, 1996, the PBGC declined to so instruct the Security
Trustee, advising Karabu that the PBGC did not believe TWA was in default and,
even if a default were determined to exist, any such default would be technical
only and Karabu would not be harmed by any such default.
On June 28, 1996, Karabu brought an action against the PBGC in the United
States District Court for the Southern District of New York, seeking a
declaratory judgment for the purpose of determining Karabu's rights with respect
to the Karabu Security Agreement.
Although the Company intends to press its claims vigorously and believes
its defenses to Mr. Icahn's claims are meritorious, it is possible that Karabu's
interpretation of the Ticket Agreements regarding discount ticket sales by the
Icahn Defendants to the general public through travel agents could be
determined, either by a court or otherwise, to be correct. In such event, unless
the Company took appropriate action to mitigate the effect of such sales, the
Company could suffer significant loss of revenue that could reduce overall
passenger yields on a continuing basis during the term of the Ticket Agreement.
In addition, although the Company believes that no default exists under the
Karabu Security Agreement, any default by the Company under the Ticket Agreement
or directly on the Icahn Loans which resulted in an acceleration of the Icahn
Loans could result in a cross-default to substantially all of the Company's
other indebtedness and leases and otherwise have a material adverse effect on
the Company. As of June 30, 1996, an aggregate principal amount of $162 million
was outstanding under the Icahn Loans (excluding approximately $6.7 million in
accrued and unpaid interest).
As of June 30, 1996, $77.8 million of tickets (representing proceeds of
$40.8 million to TWA) had been sold by the Icahn Entities under the Ticket
Program. At June 30, 1996, approximately $27.3 million of such proceeds had been
applied to the principal balance of the Icahn Loans. The impact of future ticket
sales by Icahn affiliates on the Company's results of operations, being
dependent upon, among other things, the timing and volume thereof, cannot be
predicted at this time.
Age of Fleet; Noise
At June 30, 1996, the average age of TWA's aircraft fleet was 18.9 years,
making TWA's fleet one of the oldest of U.S. air carriers. As a result, TWA
incurs increased overall operating costs due to the higher maintenance and other
operating costs associated with older aircraft. The Company is in the process of
acquiring a number of new and later model aircraft and, based upon current
delivery schedules for firmly
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committed aircraft, TWA's composite fleet age should be reduced to slightly
under 18 years at December 31, 1996. As of December 31, 1995, TWA's fleet
included 101 aircraft which did not meet the noise reduction requirements under
the Noise Act and must therefore be retired or substantially modified by the end
of 1999. Although the Company has plans to meet the Noise Act's noise reduction
requirement, there can be no assurance that such plans will be achieved. In
addition, in 1990 the FAA issued several Airworthiness Directives ("ADs")
mandating changes to maintenance programs for older aircraft to ensure that the
oldest portion of the nation's fleet remains airworthy. Most of the Company's
aircraft are currently affected by these aging aircraft ADs. During 1994 and
1995, TWA spent approximately $8.3 million to comply with aging aircraft
maintenance requirements. Based on current information, TWA estimates that costs
associated with complying with these aging aircraft maintenance requirements
will aggregate approximately $13.0 million through the year 2000. These
estimates assume that newer aircraft will replace certain of TWA's existing
aircraft and that as a result, the average age of TWA's fleet will be reduced.
There can be no assurance that TWA will be able to implement fully its fleet
plan or that the cost of complying with aging aircraft maintenance requirements
will not be significantly increased.
Potential Dilution; Corporate Governance Provisions; Special Voting
Arrangements
In connection with and as a precondition to the '95 Reorganization, in
August and September of 1994, the Company entered into agreements amending the
Company's existing collective bargaining agreements with the three unions
representing an aggregate of approximately 84% of the Company's employees (the
" '94 Labor Agreements"). In exchange for the concessions received in the '94
Labor Agreements, the Company, among other things, adopted an employee stock
incentive program (the "ESIP") designed to permit TWA's employees to increase
their level of ownership, through grants by the Company to its employees of
additional shares of a special class of preferred stock (the "Employee Preferred
Stock") issued to the Company's union employees and Common Stock, by up to 8% of
the then outstanding Common Stock and Common Stock equivalents over a five year
period commencing in July 1997 if the Common Stock is trading at certain target
levels in each such year. In addition, under the ESIP the Company agreed to
permit such employees to purchase, beginning in July 1997, additional shares in
an aggregate amount of up to 2% of then outstanding Common Stock and Common
Stock equivalents at a discount of 20% to the then market price of the Common
Stock. The ESIP provides for a limited acceleration of the stock grants and
purchase program in the event of a merger, consolidation or sale of all or
substantially all the Company's assets or upon certain issuances of Common Stock
by the Company. The ESIP will result in significant future dilution to other
holders of the Common Stock.
In 1994, the Board of Directors of the Company (the "Board of Directors" or
the "Board") adopted the Company's 1994 Key Employee Stock Incentive Plan (the
"KESIP") to motivate, attract and retain the services of certain key employees
of the Company. The KESIP provides for the award of incentive and nonqualified
stock options for up to 7% of Common Stock and Employee Preferred Stock
outstanding as of December 16, 1995, subject to certain adjustments. As of May
1, 1996, 59 employees had been granted options to purchase shares of Common
Stock or Employee Preferred Stock at prices ranging from $4.64 to $18.37 per
share. All options granted under the KESIP have a five year life and vest at a
rate of 34%, 33% and 33% on the first three anniversaries of the award date of
such options. The KESIP provides for certain accelerated vesting rights in the
event the recipient dies or becomes disabled or upon a change in control (as
therein defined).
In addition, as a result of provisions of the '94 Labor Agreements, the
Company's Third Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and Amended and Restated By-laws (the "By-laws")
contain provisions which allow certain corporate actions requiring board
approval, including mergers, consolidations and sale of all or substantially all
the assets of the Company, to be blocked by a vote of six (four union elected
directors and two other directors) of the Company's fifteen directors.
Anti-Takeover Provisions in Certificate of Incorporation and By-laws
The Certificate of Incorporation and By-laws contain provisions which
authorize the Board of Directors to issue preferred stock without stockholder
approval, prohibit action by written consent of the stockholders,
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authorize only the chairman of the Board of Directors or a majority of the Board
of Directors to call special meetings of the stockholders and require advance
notice for director nominations. These provisions of the Certificate of
Incorporation and By-laws, as well as federal laws limiting foreign ownership of
U.S. flag carriers and the prohibition on certain business combinations
contained in Section 203 of the Delaware General Corporation Law (the "DGCL"),
could have the effect of delaying, deferring or preventing a change in control
or the removal of existing management. See "Certain Provisions of the
Certificate of Incorporation; the By-laws and Delaware Law."
Certain Potential Future Earnings Charges
There are a number of uncertainties relating to agreements with employees
of the Company, the resolution of which could result in significant non-cash
charges to TWA's future operating results. Shares granted or purchased at a
discount under the ESIP will generally result in a charge equal to the fair
value of shares granted and the discount for shares purchased at the time when
such shares are earned. If the ESIP's target prices for the Common Stock are
realized, the minimum aggregate charge for the years 1997 to 2002 would be
approximately $60 million based upon such target prices and the number of shares
of Common Stock and Employee Preferred Stock outstanding at December 31, 1995.
The charge for any year, however, could be substantially higher if the then
market price of the Common Stock exceeds the target price for such year ($11.00,
$12.10, $13.31, $14.64, $16.11 and $17.72 for the years 1997 to 2002).
Additionally, the allocation of approximately 1.1 million shares of Employee
Preferred Stock issued to a trust for employees represented by the Air Line
Pilots Association International ("ALPA") pursuant to the '95 Reorganization
will, when allocated to individual employees so represented, result in a charge
equal to the fair market value of the shares on the dates allocated. Finally,
the International Association of Machinists and Aerospace Workers (the "IAM")
has indicated that it does not agree with the Company's method of computing
certain amounts owed to IAM represented employees relating to overtime "bonus"
claims under the Company's 1992 concession agreements with its unions (the "'92
Labor Agreements"). The Company estimates its obligation to be approximately
$26.3 million, and the IAM has, while not specifying an amount, indicated they
believe the amount owed is significantly greater. See Notes 11 and 14 to the
1995 Consolidated Financial Statements incorporated herein by reference.
Fresh Start Reporting
In connection with the '95 Reorganization, the Company adopted fresh start
reporting in accordance with the American Institute of Certified Public
Accountants' Statement of Position 90-7 " -- Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). The fresh start
reporting common equity value of the Company was determined by the Company, with
the assistance of its financial advisors, to be approximately $270.0 million
based, in part, on assumptions as to future results of operations. The carrying
value of the Company's assets does not reflect historical cost but rather
reflects current values determined by the Company as of the August 23, 1995
effective date of the '95 Reorganization (including values for intangible assets
such as routes, gates and slots of approximately $458.4 million). The difference
between (i) the equity valuation of the Company plus the estimated fair market
value of the Company's liabilities and (ii) the estimated fair market value of
its identifiable assets was allocated to "reorganization value in excess of
amounts allocable to identifiable assets" in the amount of approximately $839.1
million. In future periods, these intangible assets will be evaluated for
recoverability based upon estimated future cash flows. If expectations are not
substantially achieved, charges to future operations for impairment of these
assets might be required and such charges could be material. Due to the
significant adjustments relating to the '95 Reorganization and the adoption of
fresh start reporting, the pre-reorganization Consolidated Financial Statements
incorporated by reference in this Prospectus are not comparable to the
post-reorganization Consolidated Financial Statements. A vertical black line is
shown in the Consolidated Financial Statements incorporated by reference and
selected financial data presented herein to separate TWA's post-reorganization
Consolidated Financial Statements from its pre-'95 Reorganization Consolidated
Financial Statements since they have not been prepared on a consistent basis of
accounting. Similarly, the Company's Consolidated Financial Statements for the
periods prior to the '93 Reorganization are not consistent with periods
following
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the '93 Reorganization. See Note 17 to the 1995 Consolidated Financial
Statements incorporated herein by reference.
Absence of Trading Markets; Restrictions on Transfer
Prior to the Original Offering, there was no trading market for the
Preferred Stock or the Debentures, and there can be no assurance that a trading
market will develop or, if one does develop, of its liquidity or whether it will
be maintained. The Preferred Stock, the Debentures and the Common Stock issuable
upon conversion of the Preferred Stock and the Debentures have been designated
as eligible for trading in the National Association of Securities Dealers, Inc.
Private Offerings, Resales and Trading through Automated Linkages ("PORTAL")
market. PaineWebber Incorporated and Alex. Brown & Sons Incorporated (the
"Initial Purchasers") have made a market in the Preferred Stock and have
informed the Company that they presently intend to make a market in the
Debentures, if issued; however, they are not obligated to do so, and any such
market making activity may be terminated at any time without notice. In
addition, such market making activity will be subject to the limits of the
Securities Act. Accordingly, the Preferred Stock (or the Debentures, if issued),
and the Common Stock issuable upon conversion thereof may only be resold,
pledged or transferred in accordance with the conditions set forth herein, and
only (a) to the Company, (b) pursuant to a registration statement that has been
declared effective under the Securities Act, (c) to a person the transferor
reasonably believes is a "qualified institutional buyer" as defined in Rule 144A
that purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) pursuant to offers and sales to non-U.S. persons that
occur outside the United States within the meaning of Regulation S, (e) to an
institutional "accredited investor" within the meaning of subparagraph (a) (1),
(2), (3) or (7) of Rule 501 under the Securities Act or (f) pursuant to another
available exemption from the registration requirements of the Securities Act.
Pursuant to the Registration Rights Agreement, the Company is required to
file the Registration Statement with the Commission within 90 days of the
original issuance of the Preferred Stock to register resales of the Preferred
Stock, the Debentures and the underlying shares of Common Stock issuable upon
conversion thereof. In addition, the Company must use its reasonable best
efforts to cause the Registration Statement to become effective within 150 days
from the date of such original issuance of the Preferred Stock and to keep the
Registration Statement effective until three years after the date of original
issuance of the Preferred Stock or, if the holding period specified in Rule 144
for such securities is shortened, such shorter period. The Company will be
required to pay Liquidated Damages (as defined herein) to holders of the
Preferred Stock, the Debentures or the underlying Common Stock, as applicable,
under circumstances where the Registration Statement is not filed or declared
effective or otherwise does not remain effective as herein provided. See
"Registration Rights Agreement."
INDUSTRY RELATED CONSIDERATIONS
Competition
The airline industry is highly competitive both domestically and
internationally. TWA competes with one or more major airlines on most of its
routes (including on all routes between major cities,) and with all forms of
surface transportation. Airline profit levels are highly sensitive to, and
during recent years have been adversely affected by, among other things, changes
in fuel costs, fare levels and passenger demand. Vigorous price competition
exists, and TWA and its competitors have frequently offered sharply reduced
discount fares in many markets. Airlines, including TWA, use discount fares and
other promotions to stimulate traffic during normally slack travel periods, to
generate cash flow and to increase relative market share in selected markets.
TWA has often elected to initiate or match discount or promotional fares in
certain markets in order to compete vigorously in those discounted markets or to
stimulate traffic. Passenger demand and fare levels have also been affected
adversely by, among other factors, the state of the economy and international
events.
The growth of the operations of low cost, low fare carriers in domestic
markets represents an intense competitive challenge for the Company, which has
higher operating costs than many of such low fare carriers and fewer financial
resources than many of its major competitors. Many of the traditional carriers
that
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compete with TWA have implemented, or are in the process of implementing,
measures to reduce their operating costs. In addition, the Company is more
highly leveraged and has significantly less liquidity than certain of its
competitors, several of whom have available lines of credit, significant
unencumbered assets and/or greater access to public capital markets.
Accordingly, TWA may be less able than certain of its competitors to withstand a
prolonged recession in the airline industry or prolonged periods of competitive
pressure.
Demand for air transportation has historically tended to mirror general
economic conditions. During the most recent economic recession in the United
States, the change in industry capacity failed to mirror the reduction in demand
for domestic air transportation due primarily to continued delivery of new
aircraft. While industry capacity has leveled off and the general economy has
improved, TWA expects that the airline industry will remain extremely
competitive for the foreseeable future.
Aircraft Fuel
Since fuel costs constitute a significant portion of the Company's
operating costs (approximately 13.9% in 1995), significant increases in fuel
costs would materially and adversely affect the Company's operating results.
Fuel prices continue to be susceptible to, among other factors, political events
and market factors beyond the Company's control, and the Company cannot predict
near or longer-term fuel prices. In the event of a fuel supply shortage
resulting from a disruption of oil imports or otherwise, higher fuel prices or
curtailment of scheduled service could result. During the first quarter of 1996,
the Company's per gallon cost of fuel increased approximately 21.8%, from $0.55
per gallon to $0.67 per gallon, over the same period in the prior year. During
the second quarter of 1996, fuel prices decreased slightly. A one cent change in
the cost per gallon of fuel (based on 1995 consumption) impacts operating
expense by approximately $700,000 per month. Increases in fuel prices may have a
greater proportionate and more immediate impact on TWA than many of its
competitors because of the composition of its fleet and because the Company does
not presently maintain substantial reserves of fuel required for its operations
or otherwise hedge the cost of anticipated purchases of fuel.
In August 1993, the United States increased taxes on fuel, including
aircraft fuel, by 4.3c per gallon. Airlines were exempted from this tax increase
until October 1995. Pending legislation in Congress would continue the exemption
through September 30, 1997, subject to termination of the exemption on September
30, 1996 if excise taxes relating to certain aviation trust funds are not
extended. These excise taxes expired on December 31, 1995 and had not, as of
July 1, 1996, been extended. There can be no assurance that the continuation of
the fuel tax exemption will be enacted, or of the terms under and the period for
which the exemption will, if enacted, be effective. The additional fuel tax is
currently being collected. The expiration of the exemption in October increased
the Company's quarterly operating expenses in each of the fourth quarter of 1995
and the first quarter of 1996 by approximately $7 million. Based on TWA's 1995
fuel consumption levels, non-extension of the fuel tax exemption would increase
the Company's future annual operating expenses by an estimated $28 million.
Regulatory Matters
The airline industry is subject to extensive federal and international
government regulations relating to airline safety, security and scheduling, as
well as to local, state, federal, and international environmental laws. Adoption
of newly proposed regulations relating to these matters could increase the
Company's cost of compliance with governmental regulations, and could therefore
increase operating expenses and in some cases restrict the operations of
airlines, including TWA, thereby adversely affecting TWA's results of
operations.
During the last several years, the FAA has issued a number of maintenance
directives and other regulations relating to, among other things, collision
avoidance systems, airborne windshear avoidance systems, noise abatement and
increased inspection requirements, including added requirements for aging
aircraft. TWA believes, based on its current fleet, that it will incur
substantial capital expenditures to comply with the aging aircraft and noise
abatement regulations. The Company assumes that a number of aircraft will be
retired before major aging aircraft modifications and noise compliance will be
required, and required capital
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expenditures will vary depending upon changes in TWA's planned fleet
composition. Management expects that the cost of compliance will be funded
through a combination of internally generated funds and utilization of cost
sharing and/or funding provisions under certain lease agreements and loan
agreements. See "-- Company Related Considerations -- Substantial Indebtedness;
Future Capital Requirements; Liquidity."
Additional laws and regulations have been proposed from time to time which
could significantly increase the cost of airline operations by, for instance,
imposing additional requirements or restrictions on operations. Laws and
regulations have also been considered from time to time that would prohibit or
restrict the ownership and/or transfer of airline routes or takeoff and landing
slots. Also, the award of international routes to U.S. carriers (and their
retention) is regulated by treaties and related agreements between the United
States and foreign governments which are amended from time to time. The Company
cannot predict what laws and regulations will be adopted or what changes to
international air transportation treaties will be effected, if any, or how they
will affect TWA.
Management believes that the Company has benefitted from the expiration on
December 31, 1995 of the aviation trust fund tax (the "Ticket Tax"), which
imposed certain taxes including a 10% air passenger tax on tickets for domestic
flights, a 6.25% air cargo tax and a $6 per person international departure tax.
Although the net amount of any such benefit directly resulting from the
expiration of the Ticket Tax cannot readily be determined, reinstatement of the
Ticket Tax would result in higher costs to the Company and/or, if passed on to
consumers in the form of increased ticket prices, could have an adverse effect
on passenger traffic, revenue and/or margins. The Company is unable to predict
when or in what form the Ticket Tax may be reenacted.
USE OF PROCEEDS
The Selling Holders will receive all of the net proceeds from any sale of
the Preferred Stock, the Debentures issuable upon exchange of the Preferred
Stock and the shares of Common Stock issuable upon conversion of the Preferred
Stock or Debentures, and, accordingly, the Company will receive none of the
proceeds from the sales thereof.
16
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected financial data presented below relate to periods in the five
year period ended December 31, 1995 and the six months ended June 30, 1995 and
1996. This data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements incorporated herein by reference. The consolidated
financial data for the periods in the five year period ended December 31, 1995
were derived from the audited consolidated financial statements of the Company.
Certain amounts have been reclassified to conform with presentations adopted in
1996.
During the period from 1992 through 1995, TWA underwent two separate
Chapter 11 reorganizations, the first in 1992-93 and the second in 1995. In
connection with the '95 Reorganization, TWA has applied fresh start reporting in
accordance with SOP 90-7, which has resulted in the creation of a new reporting
entity for accounting purposes and the Company's assets and liabilities being
adjusted to reflect fair values on August 23, 1995, the effective date of the
'95 Reorganization. A description of the adjustments to the financial statements
arising from the consummation of the '95 Reorganization and the application of
fresh start reporting is contained in Note 17 to the 1995 Consolidated Financial
Statements. For accounting purposes, the effective date of the '95
Reorganization is deemed to be September 1, 1995. Because of the application of
fresh start reporting, the financial statements for periods after the '95
Reorganization are not comparable in all respects to the financial statements
for periods prior to the reorganization. Similarly, the Consolidated Financial
Statements for the periods prior to the '93 Reorganization are not consistent
with periods subsequent to the '93 Reorganization. Accordingly, a vertical black
line separates these periods. Preferred Stock dividend requirements and earnings
per share of the predecessor companies have not been presented as the amounts
are not meaningful.
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR REORGANIZED
PRIOR PREDECESSOR COMPANY PREDECESSOR COMPANY COMPANY COMPANY COMPANY
---------------------------------- -------------------------------------- ------------ ----------- -----------
EIGHT
YEAR ENDED TEN MONTHS TWO MONTHS MONTHS FOUR MONTHS SIX MONTHS ENDED
DECEMBER 31, ENDED ENDED YEAR ENDED ENDED ENDED JUNE 30
---------------------- OCTOBER DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, ------------------------
1991 1992 31, 1993 1993 1994 1995 1995 1995 1996
---------- ---------- ---------- ------------ ------------ ---------- ------------ ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating
revenues... $3,651,380 $3,618,661 $2,633,937 $520,821 $3,407,702 $2,218,355 $1,098,474 $ 1,552,826 $ 1,748,241
Operating
income
(loss)
(1)....... (362,090) (420,432) (255,729) (58,251) (279,494) 14,642 10,446 (21,879) 7,837
Loss before
income
taxes and
extraordinary
items(2)... (513) (314,292) (362,620) (88,140) (432,869) (338,309) (32,268) (117,702) (28,227)
Provision
(credit)
for income
taxes..... 10,259 3,361 1,312 (248) 960 (96) 1,370 (75) (16,382)
Loss before
extraordinary
items..... (10,772) (317,653) (363,932) (87,892) (433,829) (338,213) (33,638) (117,627) (11,845)
Extraordinary
items(3)... 45,323 -- 1,075,581 -- (2,005) 140,898 3,500 -- --
Net income
(loss).... 34,551 (317,653) 711,649 (87,892) (435,834) (197,315) (30,138) (117,627) (11,845)
Preferred
stock
dividend
requirements... 4,751 7,737 28,812
Loss
applicable
to common
shares.... (34,889) (125,364) (40,657)
Per share
amounts(4):
Loss before
extraordinary
items and
special
dividend
requirement... $ (1.15) $ (.49)
Extraordinary
item...... .10 --
Special
dividend
requirement --
redemption
of 12%
Preferred
Stock(5)... -- (.47)
Net
loss.... (1.05) (.96)
Ratio of
earnings
to
combined
fixed
charges
and
preferred
stock
dividends(6)... -- -- -- -- -- -- -- -- --
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
REORGANIZED
PRIOR PREDECESSOR COMPANY PREDECESSOR COMPANY COMPANY
------------------------- ------------------------- -------------------------
DECEMBER 31, DECEMBER 31, JUNE 30,
----------------------------------------------------- ------------ ----------
1991 1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 260,874 $ 67,885 $ 187,717 $ 138,531 $ 304,340 $ 304,379
Current assets.............................. 940,761 602,007 706,462 584,765 728,523 875,746
Net working capital (deficiency)............ (1,629,612) (316,165) (150,744) (1,279,457) (111,570) (177,797)
Flight equipment, net....................... 1,100,601 827,747 660,797 508,625 455,434 479,443
Total property and equipment, net........... 1,444,829 1,114,345 886,116 693,045 600,066 647,920
Intangible assets, net...................... -- -- 1,024,846 921,659 1,275,995 1,243,721
Total assets................................ 2,709,533 2,158,143 2,958,862 2,512,435 2,868,211 3,073,198
Current maturities of long-term debt and
capital leases(7)......................... 1,446,523 327,251 108,345 1,149,739 110,401 119,730
Liabilities subject to Chapter 11
reorganization proceedings(8)............. -- 2,026,895 -- -- -- --
Long-term debt, less current
maturities(7)............................. -- -- 1,053,644 -- 764,031 718,029
Long-term obligations under capital leases,
less current maturities................... 692,292 -- 376,646 339,895 259,630 238,715
Shareholder's equity (deficiency)(9)........ (797,899) (1,149,733) 18,358 (417,476) 302,855 466,334
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
AIRLINE ONLY OPERATING DATA(10):
Revenue passenger miles (millions)(11)............................... 22,664 24,906 24,902 11,610 12,879
Available seat miles (millions)(12).................................. 35,678 39,191 37,905 18,007 19,258
Passenger load factor(13)............................................ 63.5% 63.5% 65.7% 64.5% 66.9%
Passenger yield (cents)(14).......................................... 11.35c 11.31c 11.39c 11.38c 11.78
Passenger revenue per available seat mile (cents)(15)................ 7.21c 7.19c 7.48c 7.34c 7.88c
Operating cost per available seat mile (cents)(16)................... 8.89c 8.27c 8.12c 8.34c 8.76c
</TABLE>
- ---------------
(1) Includes special charges of $138.8 million in 1994 and $1.7 million in the
eight months ended August 31, 1995. For a discussion of these and other
non-recurring items, see Notes 14 and 18 to the 1995 Consolidated Financial
Statements.
(2) The 1991 and 1992 results include non-recurring gains of $681.7 million and
$254.6 million, respectively, from the disposition of assets. The ten
months ended October 31, 1993 includes a charge of $342.4 million related
to the settlement of pension obligations and income of $268.1 million
related to reorganization items. The eight months ended August 31, 1995
includes charges of $242.2 million related to reorganization items.
(3) The extraordinary items in 1991 include a net gain of $27.9 million
resulting from the early extinguishment of debt, and a tax benefit of $17.4
million from the utilization of a portion of the Company's net operating
loss carryforward for financial reporting purposes. The extraordinary item
in 1993 represents the gain on discharge of indebtedness pursuant to the
consummation of the '93 Reorganization. The extraordinary item in 1994
represents the charge for a prepayment premium related to the sale and
leaseback of four McDonnell Douglas MD-80 aircraft. The extraordinary item
in the eight months ended August 31, 1995 represents the gain on the
discharge of indebtedness pursuant to the consummation of the '95
Reorganization, while the extraordinary item in the four months ended
December 31, 1995 was the result of the settlement of a debt of a
subsidiary.
(4) No effect has been given to stock options, warrants or potential issuances
of additional Employee Preferred Stock as the impact would have been
anti-dilutive.
(5) On March 22, 1996, the Company called for redemption of its outstanding 12%
Preferred Stock which resulted in a special preferred stock dividend
requirement in the six months ended June 30, 1996 of $20.0 million,
representing the excess of the early redemption price over the carrying
value of the 12% Preferred Stock.
(6) For purposes of determining the ratio of earnings to combined fixed charges
and preferred stock dividends, "earnings" consist of earnings before income
taxes, extraordinary items and fixed charges (excluding capitalized
interest), "fixed charges" consist of interest (including capitalized
interest) on all debt and that portion of rental expenses that management
believes to be representative of interest, and "preferred stock dividends"
consist of preferred stock dividend requirements divided by a fraction
equal to one less the effective income tax rate for the period. Earnings
were not sufficient to cover "combined fixed charges and preferred stock
dividends" as follows (in millions): for the six months ended June 30, 1996
and 1995, $44.6 and $130.4, respectively; for the four months ended
December 31, 1995, $40.1; for the eight months ended August 31, 1995,
$357.3; for the year ended December 31, 1994, $459.6; for the two months
ended December 31, 1993, $92.4; for the ten months ended October 31, 1993,
$481.3; and for the years ended December 31, 1992 and 1991, $457.3 and
$143.8, respectively.
(7) Long-term debt in 1994 was reclassified to current maturities as a result
of certain alleged defaults and payment defaults. See Note 7 to the 1995
Consolidated Financial Statements.
(8) For periods after January 31, 1992 and before November 3, 1993, the
effective date of the '93 Reorganization, certain prepetition liabilities,
which were subject to compromise pursuant to the '93 Reorganization, were
classified as liabilities subject to Chapter 11
18
<PAGE> 19
reorganization proceedings, and the accrual of interest was discontinued on
prepetition debt that was unsecured or estimated to be undersecured.
(9) No dividends were paid on the Company's outstanding common stock during the
periods presented above.
(10) TWA's passenger traffic data for scheduled passengers only and excluding
Trans World Express.
(11) The number of scheduled miles flown by revenue passengers.
(12) The number of seats available for passengers multiplied by the number of
scheduled miles those seats are flown.
(13) Revenue passenger miles divided by available seat miles.
(14) Passenger revenue per revenue passenger mile.
(15) Passenger revenue divided by available seat miles.
(16) Operating expenses, excluding special charges, earned stock compensation
and other nonrecurring charges, divided by available seat miles.
SELLING HOLDERS
The Preferred Stock was issued and sold in March 1996 pursuant to the
Original Offering in transactions exempt from the registration requirements of
the Securities Act to persons reasonably believed by the Initial Purchasers to
be "qualified institutional buyers" (as defined by Rule 144A) or in transactions
complying with the provisions of Regulation S. The Preferred Stock, along with
the Debentures issuable upon exchange of the Preferred Stock and the shares of
Common Stock issuable upon conversion of the Preferred Stock or the Debentures,
may be offered and sold from time to time by the Selling Holders pursuant to
this Prospectus. The Registration Statement of which this Prospectus is a part
has been filed with the SEC pursuant to the Registration Rights Agreement.
The Registration Statement has been filed pursuant to Rule 415 under the
Securities Act to afford the holders of the securities offered hereby the
opportunity to sell such securities in a public transaction rather than pursuant
to an exemption from the registration and prospectus delivery requirements of
the Securities Act. In order for a Selling Holder to avail himself of that
opportunity, such holder must notify the Company in writing of his intention to
sell securities and request the Company to file a supplement to this Prospectus
or an amendment to the Registration Statement, if required, identifying such
holder as a Selling Holder and disclosing such other information concerning the
Selling Holder and the securities to be sold as may then be required by the
Securities Act and the rules of the Commission. No offer or sale pursuant to
this Prospectus may be made by any holder until such a request has been made and
until any such supplement has been filed or any such amendment has become
effective. The holders of securities who have made such a request and as to
which any such required supplement or amendment has been filed or become
effective are referred to herein as "Selling Holders."
As of the date of this Prospectus, no holder of securities has made such a
request and, accordingly, no Selling Holders are named herein. The Company will
from time to time supplement or amend this Prospectus to reflect the required
information concerning any Selling Holder.
19
<PAGE> 20
DESCRIPTION OF THE PREFERRED STOCK
The following description of certain provisions of the Certificate of
Designations, Preferences and Rights Relating to the Preferred Stock (the
"Certificate of Designations") is intended only as a summary of the material
terms thereof and is qualified in its entirety by reference to the Certificate
of Designations, including the definitions in that document of certain terms.
GENERAL
The outstanding shares of Preferred Stock have been duly and validly
issued, fully paid and nonassessable, and the holders thereof have no preemptive
rights in connection therewith. The Preferred Stock is not subject to any
sinking fund or other obligation of the Company to redeem or retire such stock.
Unless converted, redeemed or exchanged, the Preferred Stock will remain
outstanding indefinitely. Any share of Preferred Stock converted, redeemed,
exchanged or otherwise acquired by the Company will be retired and canceled and
will upon cancellation be restored to the status of authorized but unissued
preferred stock, subject to reissuance by the Board of Directors as Preferred
Stock or as shares of preferred stock of any one or more other series. The
Preferred Stock ranks senior to the Common Stock, the Series A Preferred Stock,
if issued, and the Employee Preferred Stock, and on a parity with all other
preferred stock and any other class or series of stock of the Company, the terms
of which expressly provide that it ranks on a parity with the Preferred Stock,
with respect to the payment of dividends and amounts payable upon any
liquidation, dissolution or winding up of the Company ("Liquidation"). No class
or series of stock may be created that is senior to the Preferred Stock with
respect to the payment of dividends and amounts payable upon any liquidation of
the Company without the approval of the holders of at least a majority of shares
of the Preferred Stock then outstanding.
DIVIDENDS
Holders of the Preferred Stock are entitled to receive, when, as and if
declared by the Board of Directors out of the funds of the Company legally
available therefor, a cash dividend at the annual rate of 8% (equivalent to
$4.00 per share per annum). Dividends and Liquidated Damages, if any, with
respect to the Preferred Stock are payable quarterly in arrears on March 15,
June 15, September 15 and December 15 of each year, commencing June 15, 1996
(and, in the case of any accrued but unpaid dividends, at such additional times
and for such interim periods, if any, as determined by the Board of Directors).
Dividends on the Preferred Stock are cumulative and will accrue without interest
from the date of original issuance. Dividends and Liquidated Damages, if any,
will be payable to the holders of record as they appear on the stock books of
the transfer agent for the Company on such record dates, which shall be not more
than 30 days nor less than 10 days preceding the payment dates, as fixed by the
Board of Directors, provided that holders of shares of Preferred Stock called
for redemption on a redemption date falling between a dividend payment record
date and the dividend payment date shall, in lieu of receiving such dividend
payment and Liquidated Damages, if any, on the dividend payment date fixed
therefor, receive such dividend payment together with all other accrued and
unpaid dividends and Liquidated Damages, if any, on the date fixed for
redemption (unless such holders convert such shares in accordance with the
Certificate of Designations, in which case such holders will receive such
payment on the corresponding dividend payment date). See "-- Conversion Rights"
below. Dividends payable on the Preferred Stock for the initial dividend period
and dividends payable for any period shorter or longer than a full dividend
period will be computed on the basis of a 360-day year consisting of twelve
30-day months.
If dividends are not paid in full upon the Preferred Stock and any other
preferred stock ranking on a parity as to dividends with the Preferred Stock,
all dividends declared upon shares of Preferred Stock and such other preferred
stock ranking on a parity as to dividends with the Preferred Stock will be
declared pro rata so that in all cases the amount of dividends declared per
share on the Preferred Stock and such other preferred stock bear to each other
the same ratio that accrued and unpaid dividends per share on the shares of the
Preferred Stock and such other preferred stock bear to each other. Except as set
forth above, unless full cumulative dividends on the Preferred Stock have been
paid and funds set aside, and all Liquidated Damages, if any, paid, dividends
(other than dividends paid solely in Common Stock or other stock ranking junior
as to
20
<PAGE> 21
dividends and liquidation preference to the Preferred Stock and rights to
acquire the foregoing) may not be paid or declared and set aside for payment and
other distributions may not be made upon the Common Stock or on any other stock
of the Company ranking junior to or on a parity with the Preferred Stock as to
dividends and liquidation preference, nor may any Common Stock or any other
stock of the Company ranking junior to or on a parity with the Preferred Stock
as to dividends and liquidation preference be redeemed, purchased, or otherwise
acquired for any consideration by the Company (except for repurchases from
employees under employee benefit plans in effect on the date of this Prospectus
and by conversion into or exchange for stock of the Company ranking junior to
the Preferred Stock as to dividends and liquidation preference).
Under Delaware law, the Company may declare and pay dividends or make other
distributions on its capital stock only out of surplus, as defined in the DGCL
or, in the case there is no surplus, out of its net profits for the fiscal year
in which the dividend or distribution is declared and/or the prior fiscal year.
No dividend or distribution may be declared, paid or made if the Company is or
would be rendered insolvent by virtue of such dividend or distribution, or if
such declaration, payment or distribution would contravene the Certificate of
Incorporation.
CONVERSION RIGHTS
Each share of Preferred Stock may be converted at any time at the option of
the holder, unless previously redeemed or exchanged, into fully paid,
nonassessable shares of Common Stock at an initial conversion price of $20.269
per share of Common Stock (equivalent to a conversion rate of approximately
2.467 shares of Common Stock for each share of Preferred Stock), subject to
adjustment in certain circumstances. The right to convert Preferred Stock called
for redemption will expire at the close of business on the fifth business day
prior to the redemption date (the "Conversion Termination Date"). For
information as to notices of redemption, see "-- Optional Redemption by the
Company." Whenever the Company issues shares of Common Stock upon conversion of
Preferred Stock, the Company will, subject to certain conditions, issue,
together with each share of Common Stock, one Right, entitling the holder to
purchase one one-hundredth of a share of Series A Preferred Stock under certain
circumstances. See "Description of Capital Stock -- Rights Plan."
Holders of shares of Preferred Stock at the close of business on a dividend
payment record date shall be entitled to receive the dividends and Liquidated
Damages, if any, payable on such shares on the corresponding dividend payment
date notwithstanding the conversion thereof following the close of business on
such dividend payment record date and prior to the close of business on such
dividend payment date. However, shares of Preferred Stock surrendered for
conversion during the period between the close of business on any dividend
payment record date and the close of business on the corresponding dividend
payment date (except shares of Preferred Stock called for redemption or exchange
on a redemption date or exchange date or with a Conversion Termination Date
during such period) must be accompanied by payment of an amount equal to the
dividend payment and Liquidated Damages, if any, to be received on such dividend
payment date with respect to such shares of Preferred Stock presented for
conversion; provided, however, that no such payment need be made if, at the time
of conversion, dividends payable on the shares of Preferred Stock outstanding
shall be in arrears for more than 30 days beyond the previous dividend payment
date. Except as provided above, the Company shall make no payment or allowance
for unpaid dividends, whether or not in arrears, on converted shares or for
dividends on the shares of Common Stock issued upon such conversion.
No fractional shares of Common Stock will be issued upon conversion but, in
lieu thereof, an appropriate amount will be paid in cash based on the Closing
Price (as defined in the Certificate of Designations) on the last trading day
before the conversion date.
The conversion price is subject to adjustment upon the occurrence of
certain events, including (i) the issuance of shares of Common Stock as a
dividend or distribution on the Common Stock, (ii) the subdivision or
combination of the outstanding Common Stock, (iii) the issuance to all or
substantially all holders of Common Stock of warrants, options or other rights
to subscribe for or purchase Common Stock (or securities convertible into Common
Stock) at a price per share less than the then Average Current Market Price (as
defined in the Certificate of Designations), (iv) the distribution to all or
substantially all holders of Common
21
<PAGE> 22
Stock of shares of capital stock of the Company (other than shares of Series A
Preferred Stock upon exercise of a Right), evidences of indebtedness, or other
non-cash assets (including securities of any company other than the Company),
(v) the distribution to all or substantially all holders of Common Stock of
warrants, options or other rights to subscribe for its securities (other than
those referred to in (iii) above), and (vi) the distribution to all or
substantially all holders of Common Stock of cash in an aggregate amount that
(together with all other cash distributions to all or substantially all holders
of Common Stock made within the preceding 12 months not triggering a conversion
price adjustment) exceeds an amount equal to 20% of the Average Current Market
Price on the business day immediately preceding the day on which the Company
declares such distribution multiplied by the number of shares of Common Stock
outstanding on such date (excluding shares held in treasury of the Company).
Issuances of options and securities convertible into Common Stock are deemed to
be issuances of the underlying Common Stock for purposes of adjustments to the
conversion price. Whenever the conversion price is adjusted, the Company will
promptly mail to holders of Preferred Stock a notice of adjustment briefly
stating the facts requiring the adjustment and the manner of computing it. No
adjustment of the conversion price will be required to be made in any case until
cumulative adjustments amount to a change in the conversion price of 1% or more,
but any such adjustment that would otherwise be required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under the Certificate of Designations will be made either to the
nearest cent or the nearest 1/100 of a share.
Subject to the applicable right of the holders of shares of Preferred Stock
upon a Change in Control, if the Company reclassifies or changes its outstanding
Common Stock, or consolidates with or merges into or sells or conveys all or
substantially all of the assets of the Company as an entirety to any person, or
is a party to a merger or share exchange that reclassifies or changes its
outstanding Common Stock, shares of Preferred Stock will become convertible into
the kind and amount of shares of stock and other securities and property
(including cash) that the holders of shares of Preferred Stock would have owned
immediately after the transaction if the holders had converted such shares of
Preferred Stock into Common Stock immediately before the effective date of the
transaction. If in connection with any such reclassification, consolidation,
merger, sale, transfer, or share exchange each holder of shares of Common Stock
is entitled to elect to receive either securities, cash or other assets upon
completion of such transaction, the Company will provide or cause to be provided
to each holder of Preferred Stock the right to elect to receive the securities,
cash or other assets into which the Preferred Stock held by such holder will be
convertible after completion of any such transaction on the same terms and
subject to the same conditions applicable to holders of the Common Stock
(including, without limitation, notice of the right to elect, limitations on the
period in which such election will be made and the effect of failing to exercise
the election). The above will similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
The Company will reserve and at all times keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Preferred Stock, such number of shares of its duly authorized Common Stock
as will from time to time be sufficient to effect the conversion of all
outstanding Preferred Stock.
OPTIONAL REDEMPTION BY THE COMPANY
The Preferred Stock may not be redeemed prior to March 15, 1999. On and
after such date, shares of Preferred Stock may be redeemed at the option of the
Company, in whole or in part (in any integral number of shares), upon not less
than 30 nor more than 60 days' prior notice to each holder of record of the
shares to be redeemed, by first-class mail at the redemption prices set forth
below during the twelve-month periods
22
<PAGE> 23
beginning on March 15 of the years shown below, plus in each case an amount
equal to accrued and unpaid dividends, if any, whether or not earned or
declared, and Liquidated Damages, if any, to the redemption date.
<TABLE>
<CAPTION>
REDEMPTION
PRICE PER
YEAR SHARE
-------------------------------------------------------------- ----------
<S> <C>
1999.......................................................... $52.80
2000.......................................................... 52.40
2001.......................................................... 52.00
2002.......................................................... 51.60
2003.......................................................... 51.20
2004.......................................................... 50.80
2005.......................................................... 50.40
2006 and thereafter........................................... 50.00
</TABLE>
If fewer than all of the shares of Preferred Stock are to be redeemed, the
shares to be redeemed shall be selected by lot or pro rata or by any other
equitable manner determined by the Board of Directors in its sole discretion. In
the event that the Company has failed to pay accrued and unpaid dividends on,
and Liquidated Damages, if any, with respect to, the Preferred Stock, it may not
redeem any of the then outstanding shares of the Preferred Stock until all such
accrued and unpaid dividends and Liquidated Damages (including accrued and
unpaid dividends, if any, whether or not earned or declared, and Liquidated
Damages, if any, from the most recent dividend payment date to and including the
redemption date) have been paid in full. On and after the date fixed for
redemption, provided that the redemption price (including any accrued and unpaid
dividends and Liquidated Damages, if any, to and including the date fixed for
redemption) has been duly paid or provided for, dividends shall cease to accrue
on the Preferred Stock called for redemption, such shares shall no longer be
deemed to be outstanding and all rights of the holders of such shares as
stockholders of the Company shall cease, except the right to receive the monies
payable upon such redemption, without interest thereon, upon surrender of the
certificates evidencing such shares.
SPECIAL CONVERSION RIGHTS UPON A CHANGE IN CONTROL
The Preferred Stock has a special conversion right that becomes effective
upon the occurrence of certain types of significant transactions affecting
corporate control or ownership of the Company or the market for the Common
Stock. The purpose of the special conversion right is to provide, as applicable,
partial loss protection to holders of the Preferred Stock upon the occurrence of
a Change in Control at a time when the Market Value (as defined below) of the
Common Stock is less than the then prevailing conversion price. In such
situations, the special conversion right would, for a limited period, reduce the
then prevailing conversion price to the Market Value of the Common Stock, except
that the conversion price will not be reduced to less than a minimum conversion
price of $11.75 per share of Common Stock (which is 66 2/3% of the closing price
of the Common Stock on the date of this Prospectus, and which is subject to
adjustment as described below). Consequently, to the extent that the Market
Value of the Common Stock is less than the minimum conversion price, a holder
will not be fully protected from loss upon exercise of the special conversion
right.
Under the Certificate of Designations, a "Change in Control" means the
occurrence of any of the following events: (i) any person (including any entity
or group deemed to be a "person" under Section 13 (d) (3) or Section 14 (d) (2)
of the Exchange Act) is or becomes the direct or indirect beneficial owner (as
determined in accordance with Rule 13d-3 under the Exchange Act) of shares of
the Company's capital stock representing greater than 50% of the total voting
power of all shares of capital stock of the Company entitled to vote in the
election of directors under ordinary circumstances or to elect a majority of the
Board of Directors, (ii) the Company sells, transfers or otherwise disposes of
all or substantially all of the assets of the Company, (iii) when, during any
period of 12 consecutive months after the date of original issuance of the
Preferred Stock, individuals who at the beginning of any such 12-month period
constituted the Board of Directors (together with any new directors whose
election by such Board or whose nomination for election by the stockholders of
the Company was approved by a vote of a majority of the directors still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so
23
<PAGE> 24
approved), cease for any reason to constitute a majority of the Board of
Directors then in office or (iv) the date of the consummation of the merger or
consolidation of the Company with another corporation where the stockholders of
the Company, immediately prior to the merger or consolidation, would not
beneficially own, immediately after the merger or consolidation, shares
entitling such stockholders to 50% or more of all votes (without consideration
of the rights of any class of stock to elect directors by a separate class vote)
to which all stockholders of the corporation issuing cash or securities in the
merger or consolidation would be entitled in the election of directors or where
members of the Board of Directors, immediately prior to the merger or
consolidation, would not immediately after the merger or consolidation,
constitute a majority of the board of directors of the corporation issuing cash
or securities in the merger or consolidation.
As used herein, "Market Value" of a share of the Common Stock will be the
average of the Closing Prices of the Common Stock for the five trading days
ending on the last trading day preceding the date of the Change in Control.
As used herein, "Special Conversion Price" will mean the higher of the
Market Value of the Common Stock or $11.75 per share (which amount will, each
time the conversion price is adjusted, be adjusted so that the ratio of such
amount to the conversion price, after giving effect to such adjustment, shall
always be the same as the ratio of $11.75 to the initial conversion price
without giving effect to any such adjustment).
If a Change in Control occurs, a holder exercising a special conversion
right will receive Common Stock or such other securities, property or cash as
may be issuable upon conversion as provided in the Certificate of Designations;
provided, however, the Company or its successor may, at its option, elect to
provide the holder with cash equal to the Market Value of the number of shares
of Common Stock into which the holder's Preferred Stock is convertible at the
Special Conversion Price. Preferred Stock that is not converted pursuant to a
special conversion right will continue to be convertible pursuant to the general
conversion rights described under the caption "-- Conversion Rights" above.
LIQUIDATION RIGHTS
In the event of any Liquidation of the Company, and after provision is made
for any preferential amounts to which the holders of any preferred stock ranking
senior to the Preferred Stock as to distributions of assets upon Liquidation may
be entitled, holders of Preferred Stock will be entitled to receive from the
Company's assets available for distribution to stockholders a liquidation
preference in the amount of $50.00 per share, plus all accrued and unpaid
dividends, whether or not declared, and Liquidated Damages, if any, with respect
thereto, to the date of Liquidation. Holders of Preferred Stock will be entitled
to receive such amount before any distribution is made on the Common Stock,
Employee Preferred Stock, Series A Preferred Stock or any other series or class
of stock hereinafter issued that ranks junior as to distribution upon
Liquidation to the Preferred Stock and will be entitled to such amount on a
parity with every other series of the Company's preferred stock that ranks on a
parity with the Preferred Stock as to distributions upon Liquidation. If the
Company's assets are insufficient to make the required payment to holders of
Preferred Stock and to the holders of all other series of then outstanding
preferred stock which rank on a parity as to distribution upon Liquidation with
the Preferred Stock, the Company's assets so available shall be distributed on a
pro rata basis among the holders of the respective series of the parity
preferred in proportion to the amount payable if the assets had been sufficient.
The Preferred Stock ranked junior as to distribution upon Liquidation to the 12%
Preferred Stock. Neither a consolidation or merger of the Company with another
corporation nor a sale or transfer of all or substantially all of the Company's
assets for cash, securities or other property will be considered a Liquidation
of the Company for these purposes.
VOTING RIGHTS
Except as otherwise required by law, holders of Preferred Stock will have
no voting rights. If at any time the equivalent of six quarterly dividends
payable on the Preferred Stock are accrued and unpaid (whether or not
consecutive and whether or not earned or declared), the holders of all
outstanding shares of Preferred Stock and any stock ranking on a parity as to
dividends with the shares of Preferred Stock and having similar voting rights
then exercisable, voting separately as a class without regard to series, will be
entitled to elect at
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<PAGE> 25
the next annual meeting of the stockholders of the Company two directors to
serve until all dividends accumulated and unpaid have been paid or declared and
funds set aside to provide for payment in full. In exercising any such vote,
each outstanding share of Preferred Stock will be entitled to one vote,
excluding shares held by the Company or any entity controlled by the Company,
which shares shall have no vote.
In addition, without the vote or consent of the holders of at least a
majority of shares of the Preferred Stock then outstanding, the Company may not
(a) create or issue or increase the authorized number of shares of any class or
series of stock ranking senior to the Preferred Stock either as to dividends or
upon Liquidation, or any security convertible into or exercisable or
exchangeable for such stock, (b) amend, alter or repeal any of the provisions of
the Certificate of Designations or any other provision of the Certificate of
Incorporation so as to affect adversely any right, preference, privilege or
voting power of the Preferred Stock or the holders thereof, including, without
limitation, the right of the holders of the Preferred Stock to receive
Debentures upon the exercise of the option of the Company to exchange the
Preferred Stock for Debentures as described below under "-- Exchange Provisions"
or (c) authorize any reclassification of the Preferred Stock by merger or
otherwise; provided, however, that any increase in the amount of authorized
shares of such series or of any other series of preferred stock, in each case
ranking on a parity with or junior to the Preferred Stock as to dividends and
the distribution of assets upon Liquidation, will not be deemed to affect
adversely such rights, preferences or voting powers.
EXCHANGE PROVISIONS
The Preferred Stock may be exchanged, in whole but not in part, at the
option of the Company, for Debentures on any dividend payment date beginning on
March 15, 1998 at the rate of $50.00 principal amount of Debentures for each
share of Preferred Stock outstanding at the time of exchange provided that all
accrued and unpaid dividends on, and Liquidated Damages, if any, with respect
to, the Preferred Stock through the date of exchange have been paid or set aside
for payment and certain other conditions are met. See "Description of the
Debentures." The Debentures will be issuable in denominations of $1,000 and
integral multiples thereof. If the exchange results in an amount of Debentures
that is not an integral multiple of $1,000, the amount in excess of the closest
integral multiple of $1,000 will be paid in cash by the Company. The Company
will mail written notice of its intention to exchange to each holder of record
of the Preferred Stock not less than 30 nor more than 60 days prior to the date
fixed for exchange.
Upon the date fixed for exchange of the Preferred Stock for Debentures (the
"Exchange Date"), the rights of holders of Preferred Stock as stockholders of
the Company shall cease (except the right to receive accrued and unpaid
dividends and Liquidated Damages, if any, to the Exchange Date) and their shares
of Preferred Stock no longer will be deemed outstanding and will represent only
the right to receive the Debentures and any accrued dividends on, and any
Liquidated Damages with respect to, the Preferred Stock. If full cumulative
dividends on, and Liquidated Damages, if any, with respect to, the Preferred
Stock through the Exchange Date have not been paid in full, or if funds have not
been set aside to provide for payment in full of such dividends and Liquidated
Damages, if any, the Company, may not exercise its option to exchange the
Preferred Stock for the Debentures. The exchange of the Preferred Stock for the
Debentures will be a taxable event and, therefore, may result in a tax liability
for the holder exchanging such stock without any correlative cash payment to
such holder.
In the event that the Company elects to exchange the Preferred Stock for
the Debentures, the Company will endeavor to comply with all federal and state
securities laws regulating the offer and delivery of the Debentures upon
exchange of the Preferred Stock, including compliance with the Trust Indenture
Act of 1939 (the "Trust Indenture Act").
REGISTRATION RIGHTS AGREEMENT
At the initial closing of the sale (the "Initial Closing") of the Preferred
Stock to the Initial Purchasers, the Company and the Initial Purchasers entered
into the Registration Rights Agreement providing for the registration of resales
of the Transfer Restricted Securities (as defined herein). See "Registration
Rights Agreement."
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<PAGE> 26
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
American Stock Transfer & Trust Company acts as transfer agent and
registrar for the Common Stock and as transfer agent, registrar and dividend
disbursing agent for the Preferred Stock.
DESCRIPTION OF THE DEBENTURES
If the Company elects to exchange the Preferred Stock for the Debentures,
the Company will issue the Debentures under an indenture (the "Indenture") to be
entered into between the Company and a trustee selected by the Company
reasonably satisfactory to the Initial Purchasers (together with any successor
trustee, the "Trustee"), at a rate of $50.00 principal amount of Debentures for
each share of Preferred Stock so exchanged. The terms of the Debentures include
those set forth in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act as in effect on the date of the Indenture.
The Debentures are subject to all such terms. Copies of the proposed form of the
Indenture can be obtained from the Initial Purchasers upon request. The
following description of the material provisions of the Indenture and the
Debentures is intended as a summary only and is qualified in its entirety by
reference to the Indenture and the Debentures, including the definitions in
those documents of the material terms thereof. Whenever particular articles,
sections or defined terms of the Debentures, the Indenture or the Registration
Rights Agreement are referred to, it is intended that those articles, sections
or defined terms are to be incorporated by reference into this Prospectus.
GENERAL
The Debentures will be unsecured, subordinated obligations of the Company,
will be limited to an aggregate principal amount equal to the aggregate
liquidation preference of the Preferred Stock and will mature on March 15, 2006.
The Debentures will bear interest at the annual rate of 8%, which is equal to
the annual rate of dividends payable on the Preferred Stock, from the date of
issuance, or from the most recent interest payment date to which interest has
been paid or provided for, payable semiannually in arrears on March 15 and
September 15 of each year, commencing with the first of such dates to occur
after the Exchange Date, to the person in whose name the Debenture is registered
at the close of business on the preceding March 1 and September 1, as the case
may be. Interest and Liquidated Damages, if any, will be payable to the holders
of record as they appear on the register of the Company kept by the Registrar on
such record dates, provided that holders of Debentures called for redemption on
a redemption date falling between an interest payment record date and the
interest payment date shall, in lieu of receiving such interest and Liquidated
Damages, if any, on the interest payment date fixed therefor, receive such
interest payment together with all other accrued and unpaid interest and
Liquidated Damages, if any, on the date fixed for redemption (unless such
holders convert such Debentures in accordance with the Indenture, in which case
such holders will receive such payment on the corresponding interest payment
date). Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Debentures will not be subject to any sinking fund. Principal of and
premium, if any, and interest on, and Liquidated Damages, if any, with respect
to, the Debentures will be payable, and the transfer of the Debentures will be
registrable, at the office or agency of the Company maintained for such
purposes. In addition, payment of interest and Liquidated Damages, if any, may,
at the option of the Company, be made by check mailed to the address of the
person entitled thereto as it appears in the register of the holders of
Debentures.
The Debentures will be issued only in fully registered form, without
coupons, in denominations of $1,000 and integral multiples of $1,000. No service
charge will be made for any registration of transfer or exchange of the
Debentures, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection with any such
transaction.
The Indenture does not contain any restriction on the payment of dividends
or the repurchase of securities of the Company (except in the case of an event
of default under the Indenture) or any financial covenants. The covenants and
provisions contained in the Debentures and the Indenture would not necessarily
afford the holders of the Debentures protection in the event of a highly
leveraged transaction involving the Company.
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<PAGE> 27
SUBORDINATION
The payment of principal of and premium, if any, and interest on, and
Liquidated Damages, if any, with respect to, the Debentures will, to the extent
set forth in the Indenture, be subordinated and subject in right of payment to
the prior payment in full of all Senior Indebtedness of the Company (as defined
below), whether outstanding at the date of the Indenture or later incurred. In
the event of any default in the payment of the principal of, or interest on, any
Senior Indebtedness or any default permitting the acceleration of Senior
Indebtedness, where notice of such default has been given to the Company, no
payment with respect to the payment of principal of and premium, if any, and
interest on, and Liquidated Damages, if any, with respect to, the Debentures
(including repurchases of the Debentures at the option of the holder) may be
made by the Company unless and until such default has been cured or waived;
provided that nothing in the above-described provision will prevent the making
of any payment in respect of the Debentures for a period of more than 89 days
after the date such written notice of default is given unless the maturity of
the Senior Indebtedness has been accelerated, in which case no payment on the
Debentures may be made until such acceleration has been waived or such Senior
Indebtedness has been paid in full. Upon any payment or distribution of the
Company's assets to creditors upon any dissolution, winding up, liquidation,
reorganization, bankruptcy, insolvency, receivership or other proceedings
relating to the Company, whether voluntary or involuntary, the holders of Senior
Indebtedness will first be entitled to receive payment in full of all amounts
due thereon before the holders of the Debentures will be entitled to receive any
payment upon the principal of, premium, if any, and interest on, and Liquidated
Damages, if any, with respect to, the Debentures.
By reason of such subordination, in the event of the insolvency of the
Company, holders of Debentures may recover less ratably than holders of Senior
Indebtedness and other creditors of the Company.
"Senior Indebtedness" is defined in the Indenture as the principal of,
premium, if any, and interest on (a) any and all other indebtedness and
obligations of the Company (including indebtedness of others guaranteed by the
Company) other than the Debentures, whether or not contingent and whether
outstanding on the date of the Indenture or thereafter created, incurred or
assumed, which (i) is for money borrowed; (ii) is evidenced by any bond, note,
debenture or similar instrument; (iii) represents the unpaid balance on the
purchase price of any property, business, or asset of any kind; (iv) is an
obligation of the Company as lessee under any and all leases of property,
equipment or other assets required to be capitalized on the balance sheet of the
lessee under generally accepted accounting principles; (v) is a reimbursement
obligation of the Company with respect to letters of credit; (vi) is an
obligation of the Company with respect to interest swap obligations and foreign
exchange agreements or (vii) is an obligation of others secured by a lien to
which any of the properties or assets (including, without limitation, leasehold
interests and any other tangible or intangible property rights) of the Company
are subject, whether or not the obligations secured thereby shall have been
assumed by the Company or shall otherwise be the Company's legal liability, and
(b) any deferrals, amendments, renewals, extensions, modifications and
refundings of any indebtedness or obligations of the types referred to above;
provided that Senior Indebtedness shall not include (i) the Debentures; (ii) any
indebtedness or obligation of the Company which, by its terms or the terms of
the instrument creating or evidencing it, is both subordinated to any other
indebtedness or obligations of the Company and is not superior in right of
payment to the Debentures; (iii) any indebtedness or obligation of the Company
to any of its subsidiaries and (iv) any indebtedness or obligation which is both
incurred by the Company in connection with the purchase of assets, materials or
services in the ordinary course of business and constitutes an unsecured trade
payable.
As of June 30, 1996, the amount of the Company's Senior Indebtedness
aggregated approximately $1,195 million, and the amount of the trade payables
and other indebtedness of the Company's subsidiaries was immaterial in amount.
If issued, the Debentures will be effectively subordinated to all rights of
third party creditors of the Company's subsidiaries. The Company and its
subsidiaries expect from time to time to incur additional indebtedness,
including, but not limited to, Senior Indebtedness. The Indenture will not
prohibit or limit the incurrence of such additional indebtedness. All other
obligations would rank pari passu to the Debentures, including obligations under
noncancellable operating leases, advance ticket sales, and trade payables, among
others, which obligations were approximately $1,942 million, $384 million and
$121 million, respectively, at June 30, 1996.
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<PAGE> 28
CONVERSION RIGHTS
The Debentures may be converted in denominations of $1,000 or integral
multiples thereof at any time prior to maturity at the option of the holder into
fully paid, nonassessable shares of Common Stock at a conversion price equal to
the initial conversion price with respect to the Preferred Stock set forth on
the cover page of this Prospectus, as subsequently adjusted. The right to
convert Debentures called for redemption will expire at the close of business on
the fifth business day prior to the redemption date (the "Conversion Termination
Date") (unless the Company shall default in making the redemption payment when
due, in which case the conversion right shall terminate at the close of business
on the date such default is cured and such Debenture is redeemed). In the case
of redemption at the option of the holder as a result of a Change in Control,
such right will terminate upon receipt by the Company of a written notice of the
exercise of such option (unless the Company shall default in making the
repurchase payment when due, in which case the conversion right shall terminate
at the close of business on the date such default is cured and, such Debenture
is repurchased). For information as to notices of redemption, see "-- Optional
Redemption by the Company." Whenever the Company issues shares of Common Stock
upon conversion of the Debentures, the Company will, subject to certain
conditions, issue, together with each share of Common Stock, one Right,
entitling the holder to purchase one one-hundredth of a share of Series A
Preferred Stock under certain circumstances. See "Description of Capital
Stock -- Rights Plan."
Holders of Debentures at the close of business on an interest payment
record date shall be entitled to receive the interest and Liquidated Damages, if
any, payable on the corresponding interest payment date notwithstanding the
conversion thereof following the close of business on such interest payment
record date and prior to the close of business on such interest payment date.
However, Debentures surrendered for conversion during the period between the
close of business on any interest payment record date and the close of business
on the corresponding interest payment date (except Debentures called for
redemption on a redemption date or with a Conversion Termination Date during
such period) must be accompanied by payment of an amount equal to the interest
payment and Liquidated Damages, if any, to be received on such interest payment
date with respect to such Debentures presented for conversion. Except as
provided above, the Company shall make no payment or allowance for unpaid
interest on converted Debentures or for dividends on the shares of Common Stock
issued upon such conversion.
No fractional shares of Common Stock will be issued upon conversion but, in
lieu thereof, an appropriate amount will be paid in cash based on the Closing
Price (as defined in the Indenture) on the last trading day before the
conversion date.
The conversion price is subject to adjustment upon the occurrence of
certain events, including (i) the issuance of shares of Common Stock as a
dividend or distribution on the Common Stock, (ii) the subdivision or
combination of the outstanding Common Stock, (iii) the issuance to all or
substantially all holders of Common Stock of warrants, options or other rights
to subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share less than the then Average
Current Market Price, (iv) the distribution to all or substantially all holders
of Common Stock of shares of capital stock of the Company (other than Common
Stock and shares of Series A Preferred Stock upon exercise of Rights), evidences
of indebtedness, or other non-cash assets (including securities of any company
other than the Company), (v) the distribution to all or substantially all
holders of Common Stock warrants, options or other rights to subscribe for its
securities (other than those referred to in (iii) above) and (vi) the
distribution to all or substantially all holders of Common Stock of cash in an
aggregate amount that (together with all other cash distributions to all or
substantially all holders of Common Stock made within the preceding 12 months
not triggering a conversion price adjustment) exceeds an amount equal to 20% of
the Average Current Market Price on the business day immediately preceding the
day on which the Company declares such distribution multiplied by the number of
shares of Common Stock outstanding on such date (excluding shares held in the
treasury of the Company). Issuances of options and securities convertible into
Common Stock are deemed to be issuances of the underlying Common Stock for
purposes of adjustments to the conversion price. Whenever the conversion price
is adjusted, the Company will promptly mail to holders of the Debentures a
notice of adjustment briefly stating the facts requiring the adjustment and the
manner of computing it. No adjustment of the conversion price will be required
to be made in any case until cumulative
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<PAGE> 29
adjustments amount to a change in the conversion price of 1% or more, but any
such adjustment that would otherwise be required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under the Indenture will be made either to the nearest cent or the nearest 1/100
of a share.
Subject to the applicable right of the holders of the Debentures upon a
Change in Control, and subject to the provisions of the Indenture described
below under "-- Merger, Sale or Consolidation," if the Company reclassifies or
changes its outstanding Common Stock, or consolidates with or merges into or
sells or conveys all or substantially all of the assets of the Company as an
entirety to any person, or is a party to a merger or share exchange that
reclassifies or changes its outstanding Common Stock, the Debentures will become
convertible into the kind and amount of shares of stock and other securities and
property (including cash) that the holders of the Debentures would have owned
immediately after the transaction if the holders had converted the Debentures
into Common Stock immediately before the effective date of the transaction. If
in connection with any such reclassification, consolidation, merger, sale,
transfer, or share exchange each holder of shares of Common Stock is entitled to
elect to receive either securities, cash or other assets upon completion of such
transaction, the Company will provide or cause to be provided to each holder of
the Debentures the right to elect to receive the securities, cash or other
assets into which the Debentures held by such holder will be convertible after
completion of any such transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election will be made and the effect of failing to exercise the election).
The above will similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges.
The Company will reserve and at all times keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Debentures, such number of shares of its duly authorized Common Stock as
will from time to time be sufficient to effect the conversion of all outstanding
Debentures.
OPTIONAL REDEMPTION BY THE COMPANY
The Debentures may not be redeemed prior to March 15, 1999. On or after
such date, the Debentures may be redeemed at the option of the Company, in whole
or in part (in any integral multiple of $1,000), upon not less than 30 and no
more than 60 days' prior notice to each holder of the Debentures to be redeemed,
by first-class mail, at redemption prices (expressed as a percentage of
principal amount) as set forth below during the twelve-month periods beginning
on March 15 of the years shown below, plus in each case an amount equal to
accrued and unpaid interest and Liquidated Damages, if any, with respect to the
Debentures to and including the redemption date.
<TABLE>
<CAPTION>
REDEMPTION PRICE (AS A
PERCENTAGE OF
PRINCIPAL
YEAR AMOUNT)
--------------------------------------------------------- ----------------------
<S> <C>
1999..................................................... 105.60%
2000..................................................... 104.80
2001..................................................... 104.00
2002..................................................... 103.20
2003..................................................... 102.40
2004..................................................... 101.60
2005..................................................... 100.80
</TABLE>
If less than all of the Debentures are to be redeemed, the Debentures to be
redeemed shall be selected by lot or pro rata or by any other equitable manner
determined by the Trustee in its sole discretion. On or after the redemption
date, interest will cease to accrue on the Debentures or portions thereof called
for redemption.
PURCHASE OF DEBENTURES AT THE OPTION OF HOLDERS UPON A CHANGE IN CONTROL
If at any time there occurs a Change in Control of the Company, each holder
of Debentures shall have the right upon receipt of a Repurchase Right Notice (as
defined in the Indenture), at such holder's option, to
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<PAGE> 30
require the Company to repurchase all of such holder's Debentures, or a portion
thereof which is $1,000 or any integral multiple thereof, on the date (the
"Repurchase Date") that is no later than 45 days after the date of the
Repurchase Right Notice at a repurchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest to the Repurchase Date and
Liquidated Damages, if any, with respect to the Debentures.
On or before the 30th day following any Change in Control, the Company, or,
at the request of the Company, the Trustee, shall mail the Repurchase Right
Notice to each holder of record of the Debentures and the Trustee stating (i)
that a Change in Control has occurred and that such holder has the right to
require the Company to repurchase such holder's Debentures, (ii) the Repurchase
Date, (iii) the date by which the right to cause repurchase must be exercised,
(iv) the price at which such repurchase is to be made, if the right to cause
repurchase is exercised and (v) a description of the procedure which such holder
must follow to exercise a right to cause repurchase. The Company shall deliver a
copy of the Repurchase Right Notice to the Trustee. The Company shall also place
such notice in a financial newspaper of general circulation in New York City. No
failure of the Company to give the foregoing notice shall limit any such
holder's right to exercise a repurchase right.
To exercise the repurchase right, on or before the 30th day after the date
of the Repurchase Right Notice, holders of Debentures must deliver written
notice to the Company (or an agent designated by the Company for such purposes)
of the holder's exercise of such right, together with the Debentures with
respect to which the right is being exercised, duly endorsed for transfer. Such
written notice shall be irrevocable except with respect to conversions permitted
prior to the Repurchase Date.
The definition of "Change in Control" in the Indenture will be identical to
the definition of such term in the Certificate of Designations. See "Description
of the Preferred Stock -- Special Conversion Rights Upon a Change in Control."
The right to require the repurchase of Debentures shall not continue after
a discharge of the Company from its obligations under the Debentures and the
Indenture in accordance therewith. See "-- Satisfaction and Discharge of the
Indenture." Repurchase of the Debentures may, under certain circumstances,
constitute a default or event of default under Senior Indebtedness then
outstanding and, in such instances, repurchase of the Debentures would be
prohibited unless and until such default has been cured or waived. See
"-- Subordination." The failure to repurchase the Debentures in such instance
would constitute an Event of Default. See "-- Events of Default."
If the Repurchase Date is between a regular record date for the payment of
interest and the next succeeding interest payment date, any Debenture to be
repurchased must be accompanied by payment of an amount equal to the interest
and Liquidated Damages, if any, payable on such succeeding interest payment date
on the principal amount to be repurchased, and the interest on the principal
amount of the Debenture being repurchased, and Liquidated Damages, if any, with
respect thereto, will be paid on such next succeeding interest payment date to
the registered holder of such Debenture on the immediately preceding record
date. A Debenture repurchased on an interest payment date need not be
accompanied by any payment, and the interest on the principal amount of the
Debenture being repurchased and Liquidated Damages, if any, with respect
thereto, will be paid on such interest payment date to the registered holder of
such Debenture on the corresponding record date.
If the Company is required to make an offer to repurchase the Debentures as
a result of the occurrence of a Change in Control, there can be no assurance
that the Company will have sufficient funds available to pay the purchase price
for such Debentures or will be permitted by its other indebtedness agreements to
repurchase such Debentures. As of March 31, 1996, an aggregate principal amount
of $17.9 million of the Company's indebtedness was subject to provisions similar
to the Debentures with respect to the occurrence of a Change in Control. Such
indebtedness consisted of entirely of the outstanding principal balance of the
Company's 11% Senior Secured Notes due 1997.
If any repurchase pursuant to the foregoing provisions constitutes an
"issuer tender offer" as defined in Rule 13e-4 under the Exchange Act, the
Company will comply with the requirements of Rule 13e-4,
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<PAGE> 31
Rule 14e-1 and any other tender offer rules under the Exchange Act which then
may be applicable, including the filing of an Issuer Tender Offer Statement on
Schedule 13E-4 with the Commission and the furnishing of certain information
contained therein to the Debenture holders.
The Company could, in the future, enter into certain significant
transactions that would not constitute a Change in Control with respect to the
Change in Control purchase feature of the Debentures. The Change in Control
purchase feature of the Debentures may in certain circumstances make more
difficult or discourage a takeover of the Company and, thus, the removal of
incumbent management. The Change in Control purchase feature, however, is not
the result of management's knowledge of any specific effort to obtain control of
the Company by means of a merger, tender offer, solicitation or otherwise, or
part of a plan by management to adopt a series of anti-takeover provisions.
MERGER, SALE OR CONSOLIDATION
Without limitation of the provisions of the Indenture described above
regarding a Change in Control, the Company may merge, consolidate or transfer
all or substantially all of its properties and assets as an entirety and the
Company may permit any person to consolidate with or merge into the Company or
transfer all or substantially all of its properties and assets as an entirety to
the Company; provided that, among other things, (a) the successor person is the
Company or another corporation organized and existing under the laws of the
United States, any state thereof or the District of Columbia that assumes the
Company's obligations on the Debentures and under the Indenture and (b)
immediately before and immediately after giving effect to such transaction, no
Event of Default shall have occurred and be continuing.
EVENTS OF DEFAULT
The following shall constitute Events of Default with respect to the
Debentures: (i) failure to pay the principal of, premium, if any, on, and
Liquidated Damages, if any, with respect to, any Debenture when such amounts
become due and payable at maturity, upon acceleration or otherwise, whether or
not such payment is prohibited by the subordination provisions of the Indenture;
(ii) failure to pay interest on the Debentures when due, whether or not such
payment is prohibited by the subordination provisions of the Indenture, and such
failure continues for a 30-day period, (iii) a default in the observance or
performance of any other covenant or agreement of the Company in the Debentures
or the indenture that continues for the period and after the notice specified
below; (iv) an event of default shall have occurred and be continuing under any
other evidence of indebtedness of the Company or any of its subsidiaries,
whether such indebtedness now exists or is created hereafter, which event of
default results in the acceleration of such indebtedness which, together with
any such other indebtedness so accelerated, aggregates more than $15 million and
such acceleration is not rescinded or indebtedness is not paid or discharged for
the period and after the notice specified below; (v) any final judgment or
judgments for payment of money in excess of $15 million in the aggregate shall
be rendered against the Company or a subsidiary and shall remain unstayed,
unsatisfied or undischarged for the period and after the notice specified below
and (vi) certain events of bankruptcy, insolvency or reorganization. The Company
is required to deliver to the Trustees, within 120 days after the end of each
fiscal year of the Company, an officer's certificate stating whether or not the
signatories know of any default by the Company under the Indenture and the
Debentures and, if any default exists, describing such default.
A default under clause (iii), (iv) or (v) above is not an Event of Default
until the Trustee or the holders of at least 25% in principal amount of the then
outstanding Debentures notify the Company of the default and the Company does
not cure the default within 60 days with respect to clauses (iii) or (v), and
within 30 days with respect to clause (iv), after receipt of the notice. The
notice must specify the default, demand that it be remedied and state that the
notice is a "Notice of Default." If the holders of 25% or more in principal
amount of the then outstanding Debentures request the Trustee to give such
notice on their behalf, the Trustee shall do so.
In case an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization) shall have occurred and be continuing,
the Trustee, by notice to the Company, or the holders of 25% or more of the
principal amount of the Debentures then outstanding, by notice to the Company
and the
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Trustee, may declare the principal amount of the Debentures, plus accrued
interest and Liquidated Damages, if any, to be immediately due and payable. In
case an Event of Default resulting from certain events of bankruptcy, insolvency
or reorganization shall occur, such amounts shall be due and payable without any
declaration or any act on the part of the Trustee or the holders of the
Debentures. Such declaration of acceleration may be rescinded and past defaults
may be waived by the holders of a majority of the principal amount of the
Debentures then outstanding upon conditions provided in the Indenture, except a
default in the payment of principal, or interest on, or Liquidated Damages, if
any, with respect to, any Debenture or in respect of a covenant or provision of
the Indenture which cannot be modified or amended without the consent of the
holder of each Debenture. Except to enforce the right to receive payment when
due of principal, premium, if any, interest, and Liquidated Damages, if any, no
holder of a Debenture may institute any proceeding with respect to the Indenture
or for any remedy thereunder unless such holder has previously given to the
Trustee written notice of a continuing Event of Default and unless the holders
of 25% or more of the principal amount of the Debentures then outstanding have
requested the Trustee to institute proceedings in respect of such Event of
Default and have offered the Trustee reasonable indemnity against loss,
liability and expense to be thereby incurred, the Trustee has failed so to act
for 60 days after receipt of the same and during such 60-day period the holders
of a majority of the principal amount of the Debentures then outstanding have
not given the Trustee a direction inconsistent with the request. Subject to
certain restrictions the holders of a majority in principal amount of the
Debentures then outstanding will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture,
that is unduly prejudicial to the rights of any holder of a Debenture or that
would involve the Trustee in personal liability, and the Trustee may take any
other action deemed proper by the Trustee which is not inconsistent with such
direction.
MODIFICATIONS AND WAIVERS OF THE INDENTURE
Supplemental indentures modifying or amending the Indenture may be made by
the Company and the Trustee with the consent of the holders of not less than a
majority in aggregate principal amount of the then outstanding Debentures (or,
prior to the issuance or the Debentures, with the consent of the holders of not
less than a majority of the number of then outstanding shares of Preferred
Stock); provided, however, that no such modification or amendment may, without
the consent of all of the holders of the Debentures then outstanding (or, prior
to the issuance of the Debentures, without the consent of all of the holders of
the then outstanding shares of Preferred Stock), (i) extend the fixed maturity
of any Debenture, reduce the rate or extend the time of payment of interest on,
or Liquidated Damages, if any, with respect to, any Debenture, reduce the
principal amount, or premium, if any, on, or Liquidated Damages, if any, with
respect to, any Debenture, alter the redemption or mandatory repurchase
provisions with respect to any Debenture, impair the right of a holder to
institute suit for payment thereof, change the currency in which the Debentures
are payable or impair the right to convert the Debentures into stock, securities
or other property or assets (including cash) subject to the terms set forth in
the Indenture, (ii) except as permitted under the Indenture, increase the
conversion price or otherwise modify or affect in any manner adverse to the
holders of the Debentures the conversion provisions of the Indenture, or (iii)
reduce the percentage of Debentures (or the number of shares of Preferred
Stock), the consent of the holders of which is required for any modification or
waiver. The Indenture may not be amended to alter the subordination of any
outstanding Debentures without consent of each holder of Senior Indebtedness
then outstanding that would be adversely affected thereby. Without the consent
of any holders of the Debentures, the Company and the Trustee may amend or
supplement the Debentures or the Indenture to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Debentures in addition to or in
place of certificated Debentures, to provide for the assumption of the Company's
obligations to holders of the Debentures in the case of a merger or
consolidation or transfer of all or substantially all of the Company's assets,
or to make any change that does not materially adversely affect the rights of
any holder of the Debentures.
The holders of a majority in aggregate principal amount of outstanding
Debentures may waive any past default under the Indenture, except a default in
the payment of principal, premium, if any, interest or Liquidated Damages, if
any, or default with respect to certain covenants under the Indenture.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, agent, manager,
stockholder or other affiliate, as such, of the Company shall have any liability
for any obligations of the Company under the Debentures or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of the Debentures by accepting a Debenture waives and
releases all such liability.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will provide that the Company may terminate its obligations
under the Indenture at any time by delivering all outstanding Debentures to the
Trustee for cancellation and paying all sums required to be paid pursuant to the
terms of the Indenture. In addition, the Company will be permitted to terminate
all of its obligations under the Indenture by irrevocably depositing with the
Trustee money or U.S. government obligations sufficient to pay principal of and
interest on and Liquidated Damages, if any, with respect to the Debentures to
maturity or redemption and all other sums payable pursuant to the terms of the
Indenture, after complying with certain other procedures set forth in the
Indenture.
TRANSFER AND EXCHANGE
A holder may transfer or exchange the Debentures in accordance with the
Indenture. The Company may require a holder to, among other things, furnish
appropriate endorsements and transfer documents and pay any taxes and fees
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Debenture selected for redemption. Also, the Company is
not required to transfer or exchange any Debenture for a period of 15 days
before a selection of Debentures to be redeemed.
The registered holder of a Debenture may be treated as the owner of it for
all purposes.
DELIVERY AND FORM
The Debentures to be issued upon exchange of the Preferred Stock as set
forth herein will be issued in registered form. Transfers of Debentures must be
made in accordance with the terms of the Indenture. For a description of the
restrictions on the transfer of Debentures, see "ERISA Considerations" and
"Transfer Restrictions."
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received in respect of any such
claim as security or otherwise. Subject to the Trust Indenture Act, the Trustee
will be permitted to engage in other transactions; however, if it acquires any
conflicting interest, as described in the Trust Indenture Act, it must eliminate
such conflict or resign.
REGISTRATION RIGHTS AGREEMENT
At the Initial Closing, the Company and the Initial Purchasers entered into
the Registration Rights Agreement providing for the registration of the resales
of Transfer Restricted Securities. See "Registration Rights Agreement."
DESCRIPTION OF CAPITAL STOCK
Pursuant to TWA's Certificate of Incorporation, the Company has the
authority to issue 300 million shares of capital stock, consisting of 150
million shares of Common Stock and 137.5 million additional shares of preferred
stock. The Certificate of Incorporation authorizes the Board of Directors to
establish one or more series of preferred stock and to establish such relative
voting, dividend, redemption, liquidation, conversion and other powers,
preferences, rights, qualifications, limitations and restrictions as the Board
of Directors may determine without further approval of the stockholders of the
Company. The issuance of additional series of
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preferred stock by the Board of Directors could, among other things, adversely
affect the voting power of the holders of Common Stock and, under certain
circumstances, make it more difficult for a person or group to gain control of
the Company.
The issuance of any series of preferred stock, and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, the
future capital needs of the Company, the then existing market conditions and
other factors that, in the judgment of the Board of Directors, might warrant the
issuance of preferred stock. At the date of this Prospectus, there are no plans,
agreements or understandings relative to the issuance of any additional series
of preferred stock other than the Preferred Stock and the Series A Preferred
Stock issuable pursuant to the Rights described below under "-- Rights Plan."
DESCRIPTION OF COMMON STOCK
The holders of the Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors, and, except
for the voting rights of the holders of Employee Preferred Stock (who are
entitled to elect a total of four directors to the Board) and, under certain
circumstances, the Preferred Stock, and as otherwise required by law or provided
in any resolution adopted by the Board of Directors with respect to any series
of the preferred stock, the holders of such shares exclusively possess all
voting power. Although the Certificate of Incorporation does not provide for
cumulative voting in the election of directors, the Board is classified meaning
that the holders of a majority of the shares entitled to vote at a meeting at
which a quorum is present can elect all of the directors of the class then to be
elected (except that the holders of a majority of the shares of Employee
Preferred Stock are exclusively entitled to elect four labor directors), and the
holders of the remaining shares would not be able to elect any directors at that
meeting. Subject to any preferential rights of any outstanding series of
preferred stock or the Preferred Stock, the holders of Common Stock are entitled
to such dividends as may be declared from time to time by the Board of Directors
from funds available therefor, and upon liquidation are entitled to receive pro
rata all assets of the Company available for distribution to such holders. The
holders of Common Stock have no preemptive rights and no rights to convert their
shares of Common Stock into any other security. It is not presently anticipated
that dividends will be paid on the Common Stock in the foreseeable future. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock issuable upon conversion of the Preferred Stock and, if
issued, the Debentures will be, upon issuance, fully paid and nonassessable. As
of July 8, 1996, 37,390,173 shares of Common Stock were issued and outstanding
and were held by approximately 14,377 holders of record.
RIGHTS PLAN
The Board of Directors of the Company declared a dividend distribution of
one right (a "Right") for each outstanding share of Common Stock and Employee
Preferred Stock (collectively, the "Voting Stock") payable to holders of record
as of the close of business on January 12, 1996 (the "Record Date"). Each Right
entitles the holder to purchase, after the Distribution Date (as defined below),
from the Company one one-hundredth of a share of Series A Preferred Stock of the
Company at a price of $47.50 (the "Purchase Price"). The description and terms
of the Rights are set forth in a Rights Agreement dated as of December 19, 1995
between the Company and American Stock Transfer & Trust Company as Rights Agent
(the "Rights Agent") as supplemented. The Rights Plan is set forth in full in
the Rights Agreement and the description thereof herein is qualified in its
entirety by reference to such Rights Agreement.
Until the earlier to occur of (a) the tenth day after public announcement
that any person or group has become the beneficial owner of at least 15% of the
Company's Voting Stock (other than pursuant to a "Permitted Offer," as defined
below) and (b) the tenth business day after the date of the commencement of a
tender or exchange offer (other than a Permitted Offer) by any person which
would, if consummated, result in such person becoming the beneficial owner of at
least twenty percent (20%) of the Voting Stock (the earlier of such dates being
hereinafter called the "Distribution Date"), the Rights will be evidenced, with
respect to any of the Voting Stock certificates outstanding as of the Record
Date, by such Voting Stock certificates.
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Each share of Voting Stock issued or delivered by the Company (including
shares issued upon conversion of the Preferred Stock of the Debentures) after
the Record Date but prior to the earlier of the Distribution Date or the
expiration of the Rights shall be accompanied by one Right.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Voting Stock. Until the Distribution
Date (or earlier redemption or expiration of the Rights), the surrender or
transfer of any certificates for Voting Stock in respect of which Rights have
been issued will also constitute the transfer of the Rights associated with the
Voting Stock represented by such certificates. As soon as practicable after the
Distribution Date, separate certificates evidencing the Rights (the "Right
Certificates") will be mailed to holders of record of the Voting Stock as of the
close of business on the Distribution Date and such separate Right Certificates
alone will evidence the Rights.
No Right is exercisable at any time prior to the Distribution Date. The
Rights will expire on January 21, 2006 (the "Final Expiration Date") unless
earlier exchanged or redeemed by the Company as described below. Until a Right
is exercised, the holder thereof, as such, will have no rights as a stockholder
of the Company, including without limitation the right to vote or to receive
dividends.
Upon exercise, each Right shall be converted into one one-hundredth of a
share of the Series A Preferred Stock. Holders of shares of Series A Preferred
Stock are entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available therefor, quarterly dividends in an
amount per share equal to the greater of (a) $1.00 and (b) 100 times the
aggregate per share amount of all cash dividends or other distributions (other
than dividends payable solely in shares of Common Stock), declared on the Common
Stock since the first dividend payment date with respect to the Series A
Preferred Stock. Dividends payable on the Series A Preferred Stock are
cumulative. In addition, in the event the Company enters into any consolidation,
merger, combination or other transaction in which shares of Common Stock are
exchanged for or changed into other Stock or securities, shares of Series A
Preferred Stock shall be similarly exchanged for or changed into 100 times the
aggregate amount of stock, securities cash or other consideration.
Subject to the rights of holders of the Preferred Stock, holders of shares
of Series A Preferred Stock are entitled to 100 votes on all matters submitted
to a vote of the stockholders of TWA, voting together as a single class, except
as otherwise required by applicable law. In the event dividends payable on the
Series A Preferred Stock shall be in arrears in an amount equal to six quarterly
payments, all holders of the Series A Preferred Stock together with other
holders of Preferred Stock entitled to vote, shall, voting together as a single
class be entitled to elect one director to the Company's Board of Directors.
In the event that any person or group (an "Acquiring Person") becomes the
beneficial owner of at least 15% of the Company's Voting Stock, then each Right
(other than Rights beneficially owned by the Acquiring Person and certain
affiliated persons) will entitle the holder to elect to receive, without payment
of the Purchase Price, a number of shares of the Company's Common Stock having a
market value equal to the Purchase Price. The term "Acquiring Person" does not
include (i) the Company, any of its subsidiaries or any employee benefit plan of
the Company, except for any such employee benefit plan acting in concert with a
third party (other than another employee benefit plan of the Company) or (ii)
any person or group which becomes the beneficial owner of at least 15% of the
Voting Stock pursuant to a "Permitted Offer" (as defined below).
"Permitted Offer" means a tender or exchange offer by a Person for all
outstanding shares of Voting Stock, which is made at a price and on such other
terms determined by at least a majority of the Continuing Directors (as defined
below) to be in the best interests of the Company and its stockholders.
In the event that, after any person has become an Acquiring Person, (i) the
Company is involved in a merger or other business combination in which the
Company is not the surviving corporation or its Voting Stock is exchanged for
the securities or assets or (ii) the Company and/or one or more of its
subsidiaries sell or otherwise transfer assets or earning power aggregating more
than 50% of the assets or earning power of the Company and its subsidiaries,
taken as a whole, then each Right will entitle the holder to purchase, for the
Purchase Price, a number of shares of common Stock of the other party to such
business combination or sale (or in certain circumstances, an affiliate) having
a market value of two times the Purchase Price.
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At any time after any person has become an Acquiring Person (but before any
person becomes the beneficial owner of at least 50% of the Voting Stock), a
majority of the Company's Continuing Directors may exchange all or part of the
Rights (other than the Rights beneficially owned by the Acquiring Person and
certain affiliated persons) for shares of Common Stock at an exchange ratio of
one share of Common Stock per Right.
"Continuing Director" means (i) any member of the Board of Directors who
was a member of the Board prior to the time an Acquiring Person becomes such or
(ii) any person subsequently elected to the Board if he is recommended or
approved by a majority of the Continuing Directors or, in the case of a
successor to a director elected by holders of a series of Employee Preferred
Stock, if such person is elected pursuant to the applicable terms of such
Employee Preferred Stock. Continuing Directors do not include an Acquiring
Person, an affiliate or associate of an Acquiring Person or any representative
or nominee of the foregoing.
The Company may redeem the Rights, in whole but not in part, at a price of
$.01 per Right at any time prior to the close of business on the tenth day after
public announcement that any person has become an Acquiring Person (subject to
extension by a majority of the Continuing Directors).
After the Distribution Date, the Rights Agreement may be amended in any
respect that does not adversely affect the Rights holders (other than any
Acquiring person and certain affiliated persons). In addition, after any person
has become an Acquiring Person, the Rights Agreement may be amended only with
the approval of a majority of the Continuing Directors.
DESCRIPTION OF EMPLOYEE PREFERRED STOCK
Pursuant to the '95 Reorganization, the Company issued an aggregate of
6,425,118 shares of Employee Preferred Stock to employee stock trusts for the
benefit of certain domestic employees of the Company represented by ALPA, the
IAM and the Independent Federation of Flight Attendants ("IFFA") pursuant to the
terms of the '94 Labor Agreements (collectively, the "Employee Stock Trusts").
The Employee Preferred Stock was issued in three series designated ALPA
Preferred Stock, IAM Preferred Stock and IFFA Preferred Stock. Except for an
exclusive right to elect a certain number of directors to the Board of Directors
and the liquidation preference described below under " -- Liquidation Preference
and Other Rights," the Employee Preferred Stock is the functional equivalent of
Common Stock. The Employee Preferred Stock is junior to the Preferred Stock,
both as to the payment of dividends and the distribution of assets upon
Liquidation.
Dividends
Subject to the issuance by the Company of preferred stock with senior
rights (including the Preferred Stock), the holders of the Employee Preferred
Stock are entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available therefor, dividends payable in cash,
stock or otherwise. No dividends may be paid on the Common Stock unless an
equivalent dividend is paid on the Employee Preferred Stock, and no dividends
may be paid on the Employee Preferred Stock unless an equivalent dividend is
paid on the Common Stock. It is not presently anticipated that dividends will be
paid on the Employee Preferred Stock in the foreseeable future.
Liquidation Preference and Other Rights
Subject to the issuance by the Company of preferred stock with senior
rights (including the Preferred Stock), upon any Liquidation of the Company,
holders of the Employee Preferred Stock will be entitled to a liquidation
preference equal to $.01 per share from TWA's net assets before any amounts are
paid to or on account of the holders of Common Stock, and thereafter the
remaining net assets of the Corporation will be distributed pro rata to the
holders of the Employee Preferred Stock, the Common Stock and other equity
securities of the Company which rank on a parity with such stock and with
respect to such rights, all in accordance with their respective rights and
interests. The Employee Preferred Stock does not have redemption rights.
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Automatic Conversion
Each share of Employee Preferred Stock will automatically convert into one
share of Common Stock upon the withdrawal of such share of Employee Preferred
Stock from the Employee Stock Trust in which such share is held.
Voting
So long as any shares of ALPA Preferred Stock are outstanding, the holders
of the ALPA Preferred Stock are entitled to one vote per share (i) on each
matter submitted to a vote at a meeting of stockholders other than the election
of directors and (ii) for the ALPA Director (defined below) to be elected at an
annual meeting of stockholders. Such holders have the exclusive right to elect
to the Board one (1) director (the "ALPA Director"), which director shall be a
Class II director.
So long as any shares of IFFA Preferred Stock are outstanding, the holders
of the IFFA Preferred Stock are entitled to one vote per share (i) on each
matter submitted to a vote at a meeting of stockholders other than the election
of directors and (ii) for the IFFA Director (defined below) to be elected at an
annual meeting of stockholders. Such holders have the exclusive right to elect
to the Board one (1) director (the "IFFA Director"), which director shall be a
Class II director.
So long as any shares of IAM Preferred Stock are outstanding, the holders
of the IAM Preferred Stock are entitled to one vote per share (i) on each matter
submitted to a vote at a meeting of stockholders other than the election of
directors and (ii) for the IAM Directors (defined below) to be elected at an
annual meeting of stockholders. Such holders have the exclusive right to elect
to the Board two (2) directors (the "IAM Director"), which directors shall be a
Class II directors.
Amendment
The Certificate of Designations, Preferences and Rights relating to each
series of Employee Preferred Stock may be amended only upon the unanimous
approval of the holders of the outstanding shares of such series of Employee
Preferred Stock.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Registration Rights Agreement between the Company and the
Initial Purchasers, the Company is required to file with the Commission, within
90 days after March 22, 1996, the date of original issuance of the Preferred
Stock, the Registration Statement to register the resales of Transfer Restricted
Securities by the holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Registration Statement. The
Company is obligated to use its reasonable best efforts to cause the
Registration Statement to become effective within 150 days from the date of
original issuance of the Preferred Stock and to keep such Registration Statement
effective until the third anniversary of the date of original issuance of the
Preferred Stock unless the three year holding period under Rule 144 is
shortened, in which case the Company must use its reasonable best efforts to
keep such Registration Statement effective until the expiration of such
shortened holding period under Rule 144. For purposes of the foregoing,
"Transfer Restricted Securities" means each share of Preferred Stock, each
Debenture, or each share of Common Stock issuable upon conversion of the
Preferred Stock or the Debentures, as applicable, until the date on which such
share of Preferred Stock, Debenture or share of Common Stock, as applicable, has
been effectively registered under the Securities Act and disposed of in
accordance with the Registration Statement, the date on which such share of
Preferred Stock, Debenture or share of Common Stock, as applicable, is
distributed to the public pursuant to Rule 144 or the date on which such share
of Preferred Stock, Debenture or share of Common Stock, as applicable, may be
sold or transferred pursuant to Rule 144(k) (or any similar provisions then in
force).
If the Registration Statement (i) is not filed with the Commission within
90 days after March 22, 1996, the date of original issuance of the Preferred
Stock, (ii) has not been declared effective by the Commission within 150 days
after the date of original issuance of the Preferred Stock or (iii) is filed and
declared effective
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but shall thereafter cease to be effective (without being succeeded immediately
by an additional Registration Statement filed and declared effective for any
reason) for a period of time which shall exceed 90 days in the aggregate during
any calendar year (each such event referred to in clauses (i) through (iii), a
("Registration Default"), the Company will pay liquidated damages (the
"Liquidated Damages") to each holder of Transfer Restricted Securities, during
the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.0025 per week per share of
Preferred Stock (subject to adjustment in the event of stock splits, stock
recombinations, stock dividends and the like), $0.05 per week per $1,000
principal amount of Debentures and $0.01 per week per share (subject to
adjustment in the event of stock splits, stock recombinations, stock dividends
and the like), $0.05 per week per $1,000 principal amount of Debentures and
$0.01 per week per share (subject to adjustment in the event of stock splits,
stock recombinations, stock dividends and the like) of Common Stock constituting
Transfer Restricted Securities held by such holder. The amount of the Liquidated
Damages will increase by an additional $0.0025 per week per share of Preferred
Stock (subject to adjustment as set forth above), $0.05 per week per $1,000
principal amount of Debentures or $0.01 per week per share (subject to
adjustment as set forth above) of Common Stock constituting Transfer Restricted
Securities for each subsequent 90-day period until the Registration Statement is
declared effective, or the Registration Statement again becomes effective, as
the case may be, up to a maximum amount of Liquidated Damages with respect to
any Registration Default of $0.0125 per week per share of Preferred Stock
(subject to adjustment as set forth above), $0.25 per week per $1,000 principal
amount of Debentures or $0.05 per week per share (subject to adjustment as set
forth above) of Common Stock constituting Transfer Restricted Securities. All
accrued Liquidated Damages shall be paid to holders of Transfer Restricted
Securities by wire transfer of immediately available funds or by Federal funds
check by the Company on each dividend payment date, interest payment date,
Repurchase Date (as defined in the Indenture), redemption date under the
Indenture or Redemption Date (as defined in the Certificate of Designations), as
applicable. If all of the outstanding shares of Preferred Stock or all of the
outstanding principal amount of the Debentures have been converted, then the
Liquidated Damages payment date will be the dividend payment date that would
have been applicable had such Preferred Stock not been converted (unless all of
the shares of Preferred Stock have been exchanged for Debentures, in which case
the Liquidated Damages payment date will be the interest payment date that would
have been applicable had such Debentures not been converted). Following the cure
of a Registration Default, Liquidated Damages will cease to accrue with respect
to such Registration Default. Liquidated Damages, to the extent payable, must be
paid on the applicable dividend payment date regardless of whether or not a
dividend on the Preferred Stock is paid on such date.
With respect to the Preferred Stock, the Debentures and the shares of
Common Stock issuable upon conversion of the Preferred Stock or Debentures,
holders of such securities will be required to make certain representations to
the Company (as described in the Registration Rights Agreement) and will be
required to deliver information to be used in connection with the Registration
Statement and to provide comments on the Registration Statement within the time
periods set forth in the Registration Rights Agreement in order to have such
securities included in the Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth in the preceding paragraph.
The Company has agreed to use its reasonable best efforts to file on a timely
basis all such reports required to be filed under the Exchange Act as, and
endeavor in good faith to take such other actions as, are reasonably necessary
to enable any beneficial owner of such securities issuable upon conversion
thereof to sell Transfer Restricted Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule 144,
as such rule may be amended from time to time, (ii) Rule 144A, as such rule may
be amended from time to time, or (iii) any similar rules or regulations
hereafter adopted by the SEC.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION,
THE BY-LAWS AND DELAWARE LAW
The Certificate of Incorporation and the By-laws contain certain provisions
that could make more difficult the acquisition of the Company by means of a
tender offer, a proxy contest or otherwise. These provisions are expected to
discourage certain types of coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of the Company first to
negotiate with the Company. The
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Company believes that the benefits of increased protection of the Company's
potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure the Company outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms. In
addition, pursuant to the '95 Reorganization and in connection with the adoption
of the '94 Labor Agreements, the Company adopted certain amendments, both to the
Certificate of Incorporation and the By-laws, relating to corporate governance
matters. These amendments are designed to enhance the input of the Company's
union employees or the directors nominated by them in the governance of the
Company and to limit the ability to change the provisions of the Certificate of
Incorporation in general and the By-laws in particular without broad support
from the Company's voting stockholders. Such provisions will also make it more
difficult to enact any change in the By-laws or to take any of the specified
actions, if such changes or actions are opposed by a substantial constituency,
including the Company's employees who are represented by organized labor. The
description set froth below is intended as a summary only and is qualified in
its entirety by reference of the Certificate of Incorporation and the By-laws.
BOARD OF DIRECTORS
The Certificate of Incorporation and By-laws provide that the number of
directors constituting the entire Board of Directors will be fifteen (15).
Subject to any rights of holders of any class or series of the Company's
preferred stock, a majority of the remaining directors then in office has the
sole authority to fill any vacancies on the Board of Directors. Any director
elected to fill a vacancy will hold office for the remainder of the full term of
the class of directors in which the vacancy occurred and until the director's
successor is elected and qualified. The Certificate of Incorporation provides
that directors may be removed only by the affirmative vote of at least a
majority of the voting power of all the then outstanding shares of stock
entitled to vote generally in the election of directors, voting together as a
single class. The affirmative vote of at least eighty percent (80%) of the
Voting Stock, voting together as a single class, is required to amend or repeal,
or adopt any provision inconsistent with, the provision of the Certificate of
Incorporation relating to the number, election and terms of directors.
STOCKHOLDER ACTIONS AND SPECIAL MEETINGS
The Certificate of Incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders, and prohibits,
subject to the rights of holders of any class or series of the Company's
preferred stock to the contrary, stockholder action by written consent in lieu
of a meeting. The Certificate of Incorporation and By-laws provide that, subject
to the rights of holders of any series of preferred stock, special meetings of
stockholders can be called only by (i) the Chairman of the Board of Directors,
(ii) the Corporate Secretary of the Company within ten (10) calendar days after
receipt of the written request of a majority of the total number of directors
that the Company would have if there were no vacancies, and (iii) the Board of
Directors after receipt by the Company of a written request executed by the
holders of at least 35% of the outstanding Voting Stock of the Company;
provided, however, that no separate special meeting will be required to be
convened if the Board of Directors calls an annual or special meeting to be held
no later than ninety (90) calendar days after receiving the request for a
meeting and the purposes of such annual or special meeting of stockholders
called by the Board of Directors include the purposes specified in the request.
Business permitted to be conducted at a special meeting of stockholders is
limited to the business (x) specified in the notice of meeting given by or at
the director of the chairman of the meeting or a majority of the entire Board of
Directors or (y) otherwise properly brought before the meeting by the chairman
of the meeting or at the direction of a majority of the entire Board of
Directors. Moreover, the chairman of the annual or special meeting of the
stockholders will determine whether any business sought to be brought before the
meeting is properly brought.
Pursuant to the Certificate of Incorporation, the By-laws establish an
advance notice procedure with regard to the nomination, other than by or at the
direction of the Board of Directors, of candidates for election as directors and
with regard to business to be brought before an annual meeting of stockholders
of the Company.
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AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation contains provisions requiring the
affirmative vote of the holders of at least 80% of the Voting Stock, voting
together as a single class to amend certain provisions of the Certificate of
Incorporation, primarily those related to anti-takeover provisions. In addition,
the Certificate of Incorporation requires the affirmative vote of at least
three-fourths of its issued and outstanding Voting Stock, voting as a single
class and not as separate classes, to amend the By-laws by stockholder action.
"Voting Stock" means the outstanding shares of all classes and series of capital
stock of the Company entitled to vote generally in the election of directors of
the Company and does not include any class or series of preferred stock of the
Company unless the certificate of designations, preferences and rights for such
class or series specifically states that such class or series shall be deemed
"Voting Stock" for purposes of the Certificate of Incorporation. Employee
Preferred Stock has been deemed Voting Stock and the Preferred Stock is not
Voting Stock. See "Description of Capital Stock."
BLOCKING COALITION
Pursuant to the '94 Labor Agreements and in connection with the '95
Reorganization, the Company amended the By-laws to provide that certain actions
(as set forth in the next paragraph) may not be approved by the Board of
Directors if votes are cast against such actions by directors sufficient to
constitute a "Blocking Coalition." A Blocking Coalition is defined as the
negative votes of (i) a total of the four directors elected by the holders of
the Employee Preferred Stock plus (ii) the negative votes of any two of the
Company's other directors.
Actions subject to disapproval by the Blocking Coalition include (a) any
sale, transfer or disposition, in a single or series of transactions, of at
least twenty percent (20%) of the Company's assets, except for transactions in
the ordinary course of business including aircraft transactions as part of a
fleet management plan; (b) any merger of the Company into or with, or
consolidation of the Company with any other entity; (c) any business combination
within the meaning of Section 203 of the DGCL; (d) any dissolution or
liquidation of the Company; (e) any filing of a petition for bankruptcy,
reorganization or receivership under any state or federal bankruptcy,
reorganization or insolvency law; (f) any repurchase, retirement or redemption
of the Company's capital stock or other equity securities prior to their
scheduled maturity or expiration, except for redemptions out of the proceeds of
any substantially concurrent offering of comparable or junior securities and
mandatory redemptions of any redeemable preferred stock of the Company; (g) any
acquisition of assets, not related to the Company's current business as an air
carrier, in a single transaction or a series of related transactions exceeding
$50 million adjusted annually by the consumer price index; or (h) any sale of
the Company's capital stock or securities convertible into capital stock of the
Company to any person if (i) at the time of issuance or (ii) assuming conversion
of all outstanding securities of the Company convertible into capital stock,
such person or entity would beneficially own at least twenty percent (20%) of
the capital stock of the Company.
SUPER MAJORITY VOTING PROVISIONS
At all times before September 1, 2000, the Company must obtain the approval
of at least two-thirds of the issued and outstanding Voting Stock of the
Company, voting as a single class and not as separate classes, for the holders
of such Voting Stock to approve certain actions, unless such matters have been
approved by a vote of at least eighty percent (80%) of the Board of Directors
then in office. Actions requiring such approval are the following: (i) any
merger of the Company into or with, or consolidation of the Company with, any
other entity; (ii) any business combination within the meaning of Section 203 of
the DGCL; (iii) any dissolution or liquidation of the Company; or (iv) any
repurchase, retirement or redemption of the Company's capital stock or other
equity securities prior to their scheduled maturity or expiration, except for
redemptions out of the proceeds of any substantially concurrent offering of
comparable or junior securities, and mandatory redemptions of any redeemable
preferred stock of the Company.
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PREFERRED STOCK
The Company believes that the ability of the Board of Directors to issue
one or more series of preferred stock of the Company provides TWA with increased
flexibility in structuring possible future financings and in meeting other
corporate needs that might arise. The authorized shares of preferred stock, as
well as shares of Common Stock, will be available for issuance without further
action by TWA's stockholders, unless such action is required by applicable law
or the rules of any stock exchange on which TWA securities may be listed. If the
approval of TWA's stockholders is not required for the issuance of shares of
preferred stock or Common Stock, the Board of Directors does not intend to seek
stockholder approval. Although the Board of Directors has no intention of doing
so, it could issue a series of preferred stock that could, depending on the
terms of such series, impede the completion of a merger, tender offer or other
takeover attempt. The Board of Directors will make any determination to issue
such shares based on its judgment as to the best interests of TWA and its
stockholders. The Board of Directors, in so acting, could issue preferred stock
having terms that could discourage an acquisition attempt or other transaction
that some, or a majority, of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then current market price of such stock.
RIGHTS TO PURCHASE STOCK
The Rights are intended to protect TWA's stockholders from certain
non-negotiated takeover attempts which present the risk of a change of control
on terms which may be less favorable to TWA's stockholders than would be
available in a transaction negotiated with and approved by the Board of
Directors. Although there can be no certainty as to the results of any
particular negotiation, the Board of Directors believes that the interests of
the stockholders are best served if any acquisition of TWA or a substantial
percentage of the Common Stock results from arms-length negotiations and
reflects the Board's or stockholders' careful consideration of the proposed
terms of a transaction. In particular, the Rights are intended to help (a)
reduce the risk of coercive, two-tiered, front-end loaded or partial offers
which may not offer fair value to all stockholders, (b) mitigate against market
accumulators who through open market or private purchases may achieve a position
of substantial influence or control without paying to selling or remaining
stockholders a fair control premium, and (c) deter market accumulators who are
simply interested in putting a company "in play." See "Description of Capital
Stock -- Rights Plan."
ANTI-TAKEOVER STATUTE
Section 203 of the DGCL is applicable to corporate takeovers in Delaware.
Subject to certain exceptions set forth therein, Section 203 of the DGCL
provides that a corporation shall not engage in any business combination with
any "interested stockholder" for a three-year period following the date that
such stockholder becomes an interested stockholder unless (a) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (b) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares) or
(c) on or subsequent to such date, the business combination is approved by the
board of directors of the corporation and by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified therein, an interested stockholder is defined
to include any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the corporation and
was the owner of 15% or more of the outstanding voting stock of the corporation,
at any time within three years immediately prior to the relevant date, and the
affiliates and associates of such person. Under certain circumstances, Section
203 of the DGCL makes it more difficult for an "interested stockholder" to
effect various business combinations with a corporation for a three-year period,
although the stockholders may, by adopting an amendment to the corporation's
certificate of incorporation or by-laws, elect not to be governed by this
section, effective twelve months after adoption. The Certificate of
Incorporation and the By-laws do not exclude TWA from the restrictions imposed
under Section 203 of the DGCL, but do provide that a business combination within
the meaning of Section 203 of the DGCL (i) may be approved
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without the approval of at least 66 2/3% of the Voting Stock if the business
combination is approved by at least 80% of the directors then in office and (ii)
may not be approved if votes are cast against the action by the Blocking
Coalition. It is anticipated that the provisions of Section 203 of the DGCL and
the provisions of the Certificate of Incorporation may encourage companies
interested in acquiring TWA to negotiate in advance with the Board of Directors
since the stockholder approval requirement would be avoided if 80% of the
directors then in office approve either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder.
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from the sale of any
Preferred Stock, Debentures or shares of Common Stock issuable upon conversion
of the Preferred Stock or the Debentures pursuant to this Prospectus, all of
which will be sold by Selling Holders. Such securities as offered hereby may be
sold from time to time to purchasers directly by the Selling Holders;
alternatively, the Selling Holders may from time to time offer such securities
to and through underwriters, broker/dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Holders or the purchasers of such securities for whom they may
act as agents. The Selling Holders and any underwriters, broker/dealers or
agents that participate in the distribution of such securities may be deemed to
be "underwriters" within the meaning of the Securities Act and any profit on the
sale of such securities by them and any discounts, commissions, concessions or
other compensation received by any such underwriter, broker/dealer or agent may
be deemed to be underwriting discounts and commissions under the Securities Act.
The Preferred Stock, the Debentures and the shares of Common Stock issuable
upon conversion of such Preferred Stock or Debentures offered hereby may be sold
from time to time in one or more transactions at fixed prices, at prevailing
market prices at the time of sale, at varying prices determined at the time of
sale or at negotiated prices. The sale of the such securities may be effected in
transactions (which may involve crosses or block transactions) (i) on any
national securities exchange or quotation service on which the such securities
may be listed or quoted at the time of sale, (ii) in the over-the-counter
market, (iii) in transactions otherwise than on such exchanges or in the
over-the-counter market, or (iv) through the writing of options. At the time a
particular offering of the such securities is made, a Prospectus Supplement, if
required, will be distributed which will set forth the aggregate amount and type
of securities being offered and the terms of the offering, including the name or
names of any underwriters, broker/dealers or agents, any discounts, commissions
and other terms constituting compensation from the Selling Holders and any
discounts, commissions or concessions allowed or reallowed or paid to
broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Preferred Stock, the Debentures and the shares of Common Stock issuable upon
conversion of such Preferred Stock or Debentures will be offered or sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain jurisdictions, such securities may not be offered or sold
unless they have been registered or qualified for sale in such jurisdictions or
any exemption from registration or qualification is available and is complied
with.
Pursuant to the Registration Rights Agreement, all expenses of the
registration of Preferred Stock, the Debentures and the shares of Common Stock
issuable upon conversion of such Preferred Stock or Debentures will be paid by
the Company, including, without limitation, SEC filing fees and expenses of
compliance with state securities or "blue sky" laws; provided, however, that the
Selling Holders will pay all underwriting discounts and selling commissions, if
any. The Company will indemnify the Selling Holders against certain civil
liabilities, including certain liabilities under the Securities Act, or will be
entitled to contribution in connection therewith.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax consequences
to purchasing, acquiring and owning the Preferred Stock, the Debentures and the
shares of Common Stock issuable either upon conversion of the Preferred Stock or
the Debentures or pursuant to the Sales Agency Agreement. The summary is based
on the Code, Treasury regulations, court decisions and IRS rulings now in
effect, all of which are subject to change. The summary assumes that Preferred
Stock and Debentures are held as "capital assets" as defined in the Code. The
summary does not address: (1) tax consequences to any holder of the Preferred
Stock, Debentures or Common Stock under any federal tax laws (including, without
limitation, estate and gift tax laws) other than income tax laws or under any
foreign, state or local tax laws of any type; (2) special rules pertaining to
integrated transactions of which the ownership of the Preferred Stock,
Debentures or Common Stock is a part, such as hedging, conversion or straddle
transactions; or (3) tax consequences that result from the tax status or
particular circumstances of the holder. Thus, for example, the summary does not
discuss the treatment of holders that are subject to special tax rules, such as
banks, insurance companies, regulated investment companies, personal holding
companies, corporations subject to the alternative minimum tax, and tax-exempt
entities. PROSPECTIVE PURCHASERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF ACQUIRING, HOLDING OR DISPOSING OF
THE PREFERRED STOCK, DEBENTURES OR COMMON STOCK IN LIGHT OF THEIR PERSONAL
INVESTMENT CIRCUMSTANCES, AND THE CONSEQUENCES UNDER FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS.
DIVIDENDS ON PREFERRED STOCK
Distributions with respect to the Preferred Stock will constitute dividends
to the extent that the Company has current or accumulated earnings and profits
for federal income tax purposes. Dividends paid to corporations will generally
be eligible for the dividends received deduction under section 243 of the Code,
subject to the limitations contained in sections 246 and 246A of the Code.
In general, the dividends received deduction is available only if the
Preferred Stock in respect of which the dividends are paid is held for at least
46 days, or at least 91 days in the case of a dividend attributable to a period
or periods aggregating more than 366 days. A taxpayer's holding period for these
purposes is reduced by periods during which the taxpayer's risk of loss with
respect to the stock is considered diminished by reason of the existence of
options, contracts to sell or other similar transactions. The dividends received
deduction will also not be available if the taxpayer is under an obligation to
make related payments with respect to positions in substantially similar or
related property. The dividends received deduction will be limited to specified
percentages of the holder's taxable income and may be reduced or eliminated if
the holder has indebtedness "directly attributable to its investment" in the
stock. Prospective corporate purchasers of Preferred Stock should consult their
own tax advisors to determine whether these limitations might apply to them.
If distributions with respect to the shares of Preferred Stock exceed the
Company's current and accumulated earnings and profits, the excess will be
applied against and reduce the holder's tax basis in the Preferred Stock. Any
amount in excess of the amount of the dividend and the amount applied against
basis will be treated as capital gain, which will be long-term if the holder's
holding period for the Preferred Stock exceeds one year.
Due to, among other things, the '93 and '95 Reorganizations, the amount, if
any, at December 31, 1995 of the Company's accumulated earnings and profits for
federal income tax purposes is unclear and no assurance can be given that the
Company will have current earnings and profits in any period. As a result, no
assurance can be given that any distribution on the Preferred Stock will be
treated as a dividend for which the dividends received deduction will be
available.
Legislation recently proposed by the Clinton administration, if enacted,
would reduce the inter-corporate dividends received deduction (currently 70
percent for corporations owning less than 20 percent of the distributing
corporation) to 50 percent. In addition, the 46 day (or 91 day) holding period
would have to be satisfied during the period beginning 45 (or 90) days before
the ex-dividend date and ending 45 (or 90) days thereafter.
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EXTRAORDINARY DIVIDENDS
If a corporate holder of Preferred Stock receives an "extraordinary
dividend" from the Company with respect to stock which it has not held for two
years on the dividend announcement date, the basis of the Preferred Stock will
be reduced (but not below zero) by the non-taxed portion of the dividend; i.e.,
the portion of the dividend which is not taxed because of the dividend received
deduction. If, because of the limitation on reducing basis below zero, any
amount of the non-taxed portion of an extraordinary dividend has not been
applied to reduce basis, such amount will be treated as gain from the sale or
exchange of stock when such stock is disposed of. An "extraordinary dividend" on
the Preferred Stock would include (i) a dividend that equals or exceeds 5% of
the holder's adjusted tax basis in the stock, treating all dividends having
ex-dividend dates within a period of 85 consecutive days as one dividend, or
(ii) all dividends on such stock received by such holder if the aggregate amount
of such dividends having ex-dividend dates within a period of 365 consecutive
days exceeds 20% of the holder's adjusted tax basis in the stock. A holder may
elect to use the fair market value of the stock rather than its adjusted basis
for purposes of applying the 5% or 20% limitation if the holder is able to
establish such fair market value to the satisfaction of the IRS. An
"extraordinary dividend" would also include any amount treated as a dividend in
the case of a redemption of the Preferred Stock that is non-pro rata as to all
shareholders, without regard to the period the holder held the stock.
Special rules apply with respect to "qualified preferred dividends." A
qualified preferred dividend is any fixed dividend payable with respect to
preferred stock which (i) provides for fixed preferred dividends payable no less
often than annually and (ii) is not in arrears as to dividends when acquired,
provided the actual rate of return on such stock, as determined under section
1059 (e) (3) of the Code, does not exceed 15%. Where a qualified preferred
dividend exceeds the 5% or 20% limitation described above, the extraordinary
dividend rules will not apply if the taxpayer holds the stock for more than five
years. If the taxpayer disposes of the stock before it has been held for more
than five years, the aggregate reduction in basis will not exceed the excess of
the qualified preferred dividends paid on such stock during the period held by
the taxpayer over the qualified preferred dividends which would have been paid
during such period on the basis of the stated rate of return as determined under
section 1059 (e) (3) of the Code. The length of time that a taxpayer is deemed
to have held stock for this purpose is determined under principles similar to
those applicable for purposes of the dividends received deduction discussed
above.
Recently proposed legislation, if enacted, would amend section 1059 of the
Code in certain respects and would require immediate gain recognition whenever
the basis of the stock with respect to which any extraordinary dividend was
received would otherwise be reduced below zero.
REDEMPTION PREMIUM
Under section 305 of the Code, if a corporation issues preferred stock that
may be redeemed at a price higher than the issue price, the difference (the
redemption premium) may be treated in certain circumstances as a constructive
distribution of additional stock on preferred stock that is taken into account
under principles similar to those described under "-- Original Issue Discount"
below. In that event, a holder would be required to include in gross income
(irrespective of its method of accounting) a portion of the redemption premium
(which would be taxable as a dividend to the extent of the Company's current or
accumulated earnings and profits) for each year during which it holds the
Preferred Stock. Under recently promulgated Treasury Regulations, constructive
distribution treatment is required in the case of callable preferred stock, such
as the Preferred Stock, only if, based on all of the facts and circumstances as
of the issue date, redemption pursuant to such call right is more likely than
not to occur. In the case of stock which may be redeemed at more than one time,
constructive distribution treatment is determined by reference to the time and
price at which redemption is most likely to occur (based on the facts and
circumstances as of the issue date), which, in the case of the time, generally
is the date on which the corporation minimizes the rate of return to the holder.
Even if redemption is more likely than not to occur, constructive distribution
treatment is not required if the redemption premium is solely in the nature of a
penalty for premature redemption; i.e., it is a premium paid as a result of
changes in economic or market conditions over which neither the issuer nor the
holder has legal or practical control. The Treasury Regulations also provide a
safe harbor pursuant to which an issuer's right to redeem will not be treated as
more likely than not to occur if: (i) the issuer and the holder are not related
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parties (as defined in the Regulations); (ii) there are no plans, arrangements,
or agreements that effectively require or are intended to compel the issuer to
redeem the stock; and (iii) exercise of the right to redeem would not reduce the
yield of the stock, as determined under principles similar to those described
under "-- Original Issue Discount" below. The Company anticipates that the
Preferred Stock will satisfy the requirements for the safe harbor and that
constructive distribution treatment of the redemption premium will not be
required.
LIQUIDATED DAMAGES
The tax treatment of any Liquidated Damages which become payable with
respect to the Preferred Stock is unclear. Such Liquidated Damages could be
treated as dividend distributions to the extent of the Company's current or
accumulated earnings and profits, in which case the receipt or accrual of such
Liquidated Damages could be eligible for the dividends received deduction
discussed above under "-- Dividends on Preferred Stock." In that case it is not
clear whether a holder of the Preferred Stock would include the amount of such
Liquidated Damages in income (to the extent that the dividends received
deduction is not available) when received or accrued in accordance with the
holder's method of accounting for federal income tax purposes, or alternatively
whether it must be accrued into income under principles similar to those
applicable to contingent interest described under "-- Original Issue Discount."
However, such Liquidated Damages could also be treated as the payment of damages
in satisfaction of a claim for breach of a contractual obligation rather than a
dividend distribution. In that case, the receipt or accrual of such Liquidated
Damages would be taken into income in accordance with the holder's method of
accounting for federal income tax purposes and the dividends received deduction
would not be applicable. If Liquidated Damages become payable, the Company
intends to treat the Liquidated Damages on the Preferred Stock as the payment of
damages in satisfaction of a claim for breach of a contractual obligation.
SALE OR REDEMPTION FOR CASH
A sale of Preferred Stock generally will give rise to gain or loss to the
holder measured by the difference between the amount realized on such sale and
the holder's tax basis in the shares sold. In general, a holder who sells
Preferred Stock after the record date for a dividend distribution will be
treated as the recipient of the dividend income.
A redemption of shares of Preferred Stock by the Company for cash will be a
taxable event. A redemption of Preferred Stock for cash will be treated under
section 302 of the Code as a distribution taxable as a dividend to redeeming
holders to the extent of the Company's current or accumulated earnings and
profits unless the redemption: (i) results in a "complete termination" of the
holder's interest in the Company (within the meaning of section 302(b)(3) of the
Code); (ii) is "substantially disproportionate" with respect to the holder under
section 302(b)(2) of the Code; or (iii) is "not essentially equivalent to a
dividend" (within the meaning of section 302 (b)(l) of the Code). In determining
whether any of these tests has been met, shares considered to be owned by the
holder by reason of the constructive ownership rules set forth in section 318 of
the Code, as well as shares actually owned, will be taken into account. If any
of the foregoing tests are met, the redemption of shares of Preferred Stock for
cash will result in taxable gain or loss equal to the difference between the
amount of cash received and the holder's tax basis in the redeemed shares. Any
such gain or loss will be capital gain or loss and will be long-term capital
gain or loss if the holder's holding period for the redeemed shares exceeds one
year.
If a redemption of the Preferred Stock is treated as a distribution that is
taxable as a dividend, the holder will be taxed on the payment received in the
same manner as described above under "-- Dividends on Preferred Stock," and the
holder's adjusted tax basis in the redeemed Preferred Stock will be transferred
to any remaining shares held by such holder in the Company. If the holder does
not retain any stock ownership in the Company, then such holder may lose such
basis completely. Any redemption of the Preferred Stock that is treated as a
dividend and that is non-pro rata as to all stockholders may be subject to the
"extraordinary dividend" provisions of section 1059 of the Code applicable to
certain corporate holders as discussed above. See "-- Dividends on Preferred
Stock."
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Recently proposed legislation, if enacted, would require a corporate
shareholder to recognize gain immediately with respect to any redemption treated
as a dividend when the non-taxed portion of the dividend exceeds the basis of
the shares surrendered, if the sale or redemption is treated as a dividend due
to options being counted as stock ownership.
CLASSIFICATION OF THE DEBENTURES
Although the characterization of an instrument as debt or equity must be
based on all facts and circumstances, which, in the case of the Debentures
(which will be issued no earlier than March 15, 1998), cannot presently be
known, the Company anticipates that the Debentures will be treated as debt for
federal income tax purposes. Accordingly, the remainder of this discussion
assumes that the Company will so treat the Debentures and that such treatment
will be respected.
EXCHANGE FOR DEBENTURES
An exchange of shares of Preferred Stock for Debentures would also be
subject to the rules of section 302 of the Code described above. Since a holder
of Debentures will be treated under the constructive ownership rules as owning
the Common Stock into which the Debentures are convertible, the exchange by
itself would not qualify under the "complete termination" test described above.
The "not essentially equivalent to a dividend" or "substantially
disproportionate" tests could be met only if the exchange were regarded as
resulting in a reduction in the holder's proportionate interest in the Company.
If none of these tests is met, the fair market value of the Debentures received
upon the exchange will be taxable as a dividend to the extent of the Company's
current or accumulated earnings and profits (although such treatment would be
changed for corporations under pending legislation described above). Prospective
purchasers should consult their own tax advisors regarding satisfaction of the
Code section 302 tests in their particular circumstances, including the
possibility that a sale of a part of the holder's Preferred Stock or the
Debentures received might be regarded as reducing the holder's interest in the
Company, thereby satisfying one of the tests under section 302(b) of the Code.
In such a case, the shareholder will recognize capital gain or loss on the
exchange (and, in addition, a holder who exchanges Preferred Stock after the
record date for a dividend distribution will be treated as the recipient of the
dividend income). For purpose of determining the amount of gain or loss, the
amount realized in the exchange attributable to the Debenture will be the issue
price of the Debenture as determined for original issue discount purposes. See
"-- Original Issue Discount" below. Such gain or loss will be long-term capital
gain or loss if the holder's holding period for the Preferred Stock exceeds one
year. The installment method will not be available for reporting such gain in
the event that either the Preferred Stock or the Debentures are traded or
readily tradable on an established securities market.
If the redemption does not satisfy the tests of section 302 (b) of the Code
and the fair market value of the Debentures exceeds the Company's current and
accumulated earnings and profits, the excess will be treated as a return of
capital to the extent of the holder's tax basis in the Preferred Stock. Any
amount in excess of the amount of the dividend and the return of capital will be
treated as capital gain, which will be long-term if the holding period exceeds
one year. If the holder retains any stock in the Company, the remaining tax
basis in the Preferred Stock will be transferred to the retained stock. If the
holder retains no stock in the Company, it is unclear whether the remaining tax
basis in the Preferred Stock will be transferred to the Debentures or will be
lost. As noted above, an "extraordinary dividend" includes any redemption of
stock that is treated as a dividend and that is non-pro rata as to all
stockholders, irrespective of the holding period. Consequently, an exchange of
Preferred Stock for Debentures that is treated as a dividend may constitute an
extraordinary dividend.
The Debentures for which Preferred Stock may be exchanged will be issuable
only in denominations of $1,000 and integral multiples thereof. See "Description
of the Preferred Stock -- Exchange Provisions." Accordingly, a holder exchanging
Preferred Stock for Debentures will receive cash (rather than Debentures) to the
extent that, absent the foregoing rule, the exchange would result in the receipt
of an amount of Debentures that is not an integral multiple of $1,000. Any
Preferred Stock for which cash is received in an exchange for Debentures under
this rule will be treated as redeemed for cash, with the results described above
under "-- Sale or Redemption for Cash."
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<PAGE> 47
STATED INTEREST
Stated interest on the Debentures will be includable in income in
accordance with the holder's method of accounting.
ORIGINAL ISSUE DISCOUNT
If the Preferred Stock is exchanged for Debentures having a stated
redemption price at maturity that exceeds their issue price by an amount equal
to or greater than one-fourth of one percent of the stated redemption price at
maturity multiplied by the number of complete years to maturity, the Debentures
will be treated as having original issue discount equal to the entire amount of
such excess. In the event that, at any time during the 60-day period ending 30
days after the issue date, the Debentures are traded on an established
securities market, the issue price of the Debentures will be their fair market
value as determined as of the issue date. If the Debentures are not traded on an
established securities market during the above-described 60-day period, but the
Preferred Stock is so traded, the issue price of the Debentures will be the fair
market value of the Preferred Stock as of the issue date. In the event that
neither the Preferred Stock nor the Debentures are traded on an established
securities market within the above-described 60-day period, the issue price of
the Debentures will be their stated principal amount, unless (i) the Debentures
do not bear "adequate stated interest" within the meaning of section 1274 of the
Code, in which case the issue price will be equal to their "imputed principal
amount" as determined under section 1274 of the Code or (ii) the Debentures are
issued in a so-called "potentially abusive situation," as defined in the
regulations under section 1274 of the Code (including a situation involving a
recent sales transaction), in which case the issue price of the Debentures will
be the fair market value of the Preferred Stock surrendered in exchange
therefor.
A holder of a Debenture would generally be required to include in gross
income (irrespective of its method of accounting) a portion of the original
issue discount for each year during which it holds the Debenture, even though
the cash to which such income is attributable would not be received until
maturity or redemption of the Debenture. The amount of any original issue
discount included in income for each year would be calculated under a
constant-yield-to-maturity formula that would result in the allocation of less
original issue discount to the early years of the term of the Debenture and more
original issue discount to later years. In determining the yield and maturity of
a debt instrument which contains a call option, such as the Debentures, the
Company would be deemed to exercise the call option in a manner that minimizes
the yield on the debt instrument.
In addition, because the Debentures provide for payment of Liquidated
Damages under certain conditions, the amount of such Liquidated Damages might be
treated as contingent interest payable on the Debentures rather than damages
payable in satisfaction of a claim for breach of contract. If the Liquidated
Damages are considered to be contingent interest on the Debentures, under
current law, it appears that a holder of Debentures generally will be required
to include contingent interest in income when received or accrued in accordance
with the holder's method of accounting for federal income tax purposes. However,
there is no controlling authority directly on point, and the Internal Revenue
Service might assert and a court might find that contingent interest should be
treated in some other manner which could affect the amount, character and timing
of income recognized by a holder with respect to a Debenture. If the Liquidated
Damages on the Debentures become fixed in amount, a holder could be required to
accrue the Liquidated Damages in income after the amount thereof becomes fixed.
In addition, under proposed Treasury Regulations issued December 15, 1994 with
respect to contingent payments to be effective for debt instruments issued on or
after the date that is 60 days after the date final regulations are published in
the Federal Register, interest (including contingent interest, stated interest
and original issue discount) on the Debentures could accrue based upon a
projected payment schedule which the Company would be obligated to prepare and
which generally would be binding on a holder. If Liquidated Damages become
payable, the Company intends to treat Liquidated Damages on the Debentures as
the payment of damages in satisfaction of a claim for breach of contract.
If a Debenture is issued with a yield to maturity at least 5 percentage
points above the applicable federal rate in effect for the month in which it is
issued and with "significant original issue discount" (within the meaning of
section 163 (1)(2) of the Code), the Debenture would generally be subject to the
"high yield
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<PAGE> 48
discount obligations" rules under section 163 (e)(5)(C) of the Code. In such a
case, the Company would not be entitled to a deduction with respect to a certain
portion of the original issue discount (the "Disqualified Portion" within the
meaning of section 163 (e)(5)(C) of the Code), and the remainder of the original
issue discount would not be deductible by the Company until paid. In addition,
the Disqualified Portion of the original issue discount would be treated as a
distribution with respect to the stock of the Company and the rules applicable
to distributions with respect to the Preferred Stock would apply.
BOND PREMIUM ON DEBENTURES
If the Debentures are acquired in an exchange for Preferred Stock at a time
when the issue price of the Debentures exceeds the amount payable at the
maturity (or earlier call date, if appropriate) of the Debentures, or if the
Debentures are acquired by a subsequent purchaser for an amount in excess of the
amount payable at maturity or earlier call date, such excess (excluding the
amount thereof attributable to the conversion feature) will be deductible by the
holder of such Debentures as amortizable bond premium over the term of the
Debentures (taking into account earlier call dates, as appropriate), under a
constant-yield-to-maturity formula, if an election by the taxpayer under section
171 of the Code is in effect or is made. Such election would apply to all
obligations owned or subsequently acquired by the taxpayer. Except as may
otherwise be provided in future regulations, the amortizable bond premium will
be treated as an offset to interest income on the Debentures rather than as a
separate deduction item.
MARKET DISCOUNT ON RESALE OF DEBENTURES
The market discount provisions of sections 1276 through 1278 of the Code
may adversely affect a disposition (including a redemption or retirement) of the
Debentures. If a holder acquires (other than at original issue) a Debenture at a
market discount which equals or exceeds one-fourth of 1% of the stated
redemption price at maturity times the number of remaining complete years to
maturity and thereafter recognizes gain upon a disposition of the Debenture, the
lesser of (i) such gain, or (ii) the portion of the market discount which
accrued while the Debenture was held by such holder, will be treated as ordinary
income (and not as capital gain) at the time of the disposition. For these
purposes, market discount equals the excess of the stated redemption price at
maturity (or, if the Debenture is issued with original issue discount, its
revised issue price as defined in the Code) over the adjusted tax basis of the
Debenture in the hands of a holder immediately after its acquisition. Market
discount would generally accrue on a straight line basis over the term of the
Debenture, except that, at the election of the holder, it will accrue on an
economic accrual basis. A holder of the Debenture may elect to include any
market discount in income currently rather than upon disposition of the
Debenture. This election is recoverable only with the consent of the Internal
Revenue Service and applies to all market discount bonds acquired by the holder
on or after the first day of the taxable year in which the holder makes the
election.
A holder of any Debenture who acquired it at a market discount may be
required to defer the deduction of all or a portion of any interest paid or
accrued on any indebtedness incurred or continued to purchase or carry the
Debenture until the market discount is recognizable upon a subsequent
disposition of the Debenture. Such deferral is not required, however, if the
holder elects to include accrued market discount in income currently.
REDEMPTION OR SALE OF DEBENTURES
Generally a redemption or sale of the Debentures will result in taxable
gain or loss equal to the difference between the amount of cash and fair market
value of other property received and the bolder's adjusted tax basis in the
Debentures. To the extent that the amount received is attributable to accrued
interest, however, that amount will be taxed as ordinary income. The tax basis
of a holder who received the Debentures in exchange for shares of Preferred
Stock will generally be equal to the fair market value of the Debentures at the
time of exchange plus any original issue discount included in the holder's
income or minus any premium previously allowed as an offset to interest income
on the Debentures. Such gain or loss will be capital gain or loss and will be
long-term gain or loss if the holder's holding period for the Debentures exceeds
one year. Any unamortized bond premium as of the time of a complete redemption
will be deductible as an ordinary loss.
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<PAGE> 49
If the Debentures are issued with original issue discount and the Company
were found to have had an intention at the time the Debentures were issued to
call them before maturity, any gain realized on a sale or redemption of
Debentures prior to maturity would be considered ordinary income to the extent
of any unamortized original issue discount for the period remaining to the
stated maturity of the Debentures. The Company cannot predict whether it would
be found to have an intention to call the Debentures before their maturity.
CONVERSION OF PREFERRED STOCK OR DEBENTURES INTO COMMON STOCK
No gain or loss will generally be recognized upon conversion of shares of
Preferred Stock or Debentures into shares of Common Stock, except with respect
to any cash paid in lieu of fractional shares of Common Stock and except
possibly to the extent, if any, that Rights are received with the Common Stock
that are deemed to constitute property with value separate from the Common
Stock. Pursuant to a published ruling of the IRS, the Company believes that the
Rights should not be deemed to constitute property with value separate from the
Common Stock so long as the Rights remain contingent, nonexercisable, and
subject to redemption by the Company. However, there can be no assurance that
the IRS will not take a contrary view with respect to the tax treatment of the
receipt of the Rights. Additionally, if the conversion takes place when there is
a dividend arrearage on the Preferred Stock and the fair market value of the
Common Stock exceeds the issue price of the Preferred Stock, a portion of the
Common Stock received might be treated as a dividend distribution, taxable as
ordinary income. Assuming the conversion is not treated as resulting in the
payment of a dividend, the tax basis of the Common Stock received upon
conversion will be equal to the tax basis of the shares of Preferred Stock or
the Debentures converted therefor (other than the portion of the tax basis of
the Preferred Stock or Debentures attributed to a fractional share of Common
Stock for which cash is received by the holder) and the holding period of the
Common Stock received upon conversion will include the holding period of the
shares of Preferred Stock or the Debentures converted. The tax basis of any
Common Stock treated as a dividend will be equal to its fair market value on the
date of the distribution.
ADJUSTMENT OF CONVERSION PRICE
Holders of convertible preferred stock or convertible debentures may be
deemed to have received constructive distributions where the conversion price is
adjusted to reflect property distributions with respect to stock into which such
preferred stock or debentures are convertible. Adjustments to the conversion
price made pursuant to a bona fide reasonable adjustment formula which has the
effect of preventing the dilution of the interest of the holders of the
preferred stock or debentures, however, will generally not be considered to
result in a constructive distribution of stock. Certain of the possible
adjustments provided in the Preferred Stock and the Debentures may not qualify
as being pursuant to a bona fide reasonable adjustment formula. If such
adjustments were made, the holders of Preferred Stock or Debentures might be
deemed to have received constructive distributions taxable under the rules
described above. Similarly, in certain circumstances, the failure to make
appropriate adjustments to the conversion price of the Preferred Stock or the
Debentures may be treated as a constructive distribution.
BACKUP WITHHOLDING
Under the backup withholding provisions of the Code and applicable Treasury
regulations, a holder of Preferred Stock, Debentures or Common Stock may be
subject to backup withholding at the rate of 31% with respect to dividends or
interest paid on, original issue discount accrued with respect to, or the
proceeds of a sale, exchange or redemption of, Preferred Stock, Debentures or
Common Stock, unless such holder (a) is a corporation or comes within certain
other exempt categories and when required demonstrates this fact or (b) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. The amount of any backup withholding from a payment to
a holder will be allowed as a credit against the holder's federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the IRS.
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<PAGE> 50
SPECIAL TAX RULES APPLICABLE TO FOREIGN HOLDERS
For purposes of the following discussion, a "United States Alien Holder" is
any holder who, for United States federal income tax purposes, is a foreign
corporation, a nonresident alien individual, a nonresident alien fiduciary of a
foreign estate or trust, or a foreign partnership.
Income received by a United States Alien Holder in the form of dividends on
Preferred Stock or Common Stock or interest and original issue discount on the
Debentures will be subject to a United States federal withholding tax at a 30%
rate upon the actual payment of the dividends, interest or original issue
discount except as described below and except where an applicable tax treaty
provides for the reduction or elimination of such withholding tax. However, a
United States Alien Holder generally will be taxed in the same manner as a
United States corporation or resident with respect to such income if such income
is effectively connected with the conduct of a trade or business in the United
States. Such effectively connected income received by a United States Alien
Holder which is a corporation may in certain circumstances be subject to an
additional "branch profits tax" at a 30% rate, or, if applicable, a lower treaty
rate.
Payments of interest and original issue discount on the Debentures received
by a United States Alien Holder will not be subject to United States federal
withholding tax provided that (a) the holder does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock of
the Company entitled to vote, (b) the holder is not a controlled foreign
corporation that is related to the Company through stock ownership, (c) the
holder is not party to a conduit financing arrangement involving a person
described in (a) or (b) above, and (d) either (1) the beneficial owner of the
Debenture, under penalties of perjury, provides the Company or its agent with
its name and address and certifies that it is not a United States person or (2)
the holder is a securities clearing organization, bank, or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "financial institution") and certifies to the Company or its
agent, under penalties of perjury, that such a statement has been received from
the beneficial owner by it or another financial institution and furnishes to the
Company or its agent a copy thereof.
A United States Alien Holder generally will not be subject to United States
federal income or withholding tax on gain realized on the sale or exchange of
Preferred Stock, Common Stock, or Debentures unless (i) the holder is an
individual who was present in the United States for 183 days or more during the
taxable year or (ii) the gain is effectively connected with a United States
trade or business of the holder. Upon a redemption of the Preferred Stock for
cash or Debentures, the Company may be required to withhold tax on the entire
amount of the proceeds at a 30% rate or a lower treaty rate applicable to
dividends. In the case of an exchange of Preferred Stock for Debentures, this
requirement would result in a United States Alien Holder receiving a reduced
principal amount of Debentures.
Dividends paid to United States Alien Holders outside the United States
that are subject to the withholding tax described above will generally be exempt
from United States backup withholding tax and United States information
reporting requirements, other than reporting of dividend payments for purposes
of the withholding tax noted above. Backup withholding and information reporting
generally will not apply to payments of interest outside the United States if
the certification described above is received, provided the payor does not have
actual knowledge that the holder is a United States person. The payor of the
dividends may generally rely on a payee's address outside the United States in
determining that the regular withholding tax discussed above applies and
consequently that the back-up withholding provisions do not apply. It is not
clear how withholding would apply to constructive dividends under section 305 of
the Code.
The payment of the proceeds of the sale of Preferred Stock, Common Stock or
Debentures to or through the United States office of a broker will be subject to
information reporting and possible backup withholding at a rate of 31% unless
the owner certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption. The payment of the proceeds of the sale of
Preferred Stock, Common Stock or Debentures to or through the foreign office of
a broker generally will not be subject to this backup withholding tax. In the
case of the payment of proceeds from the disposition of Preferred Stock, Common
Stock or Debentures through a foreign office of a broker that is a United States
person or a "United States related person," existing regulations require
information reporting on the payment unless the broker has documentary evidence
in its files that the owner is a non-United States person and the broker has no
actual knowledge to
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<PAGE> 51
the contrary. For this purpose, a "United States related person" is (i) a
"controlled foreign corporation" for United States federal income tax purposes,
or (ii) a foreign person 50% or more of whose gross income from all sources for
a specified period is derived from activities that are effectively connected
with the conduct of a United States trade or business. Regulations currently in
effect reserve on the question of whether reportable payments made through
foreign offices of a broker that is a United States person or "United States
related person" will be subject to backup withholding. Any amounts withheld
under the backup withholding rules from a payment to a United States Alien
Holder will be allowed as a refund or a credit against such United States Alien
Holder's United States federal income tax, provided that the required
information is furnished to the IRS.
VALIDITY OF SHARES
The validity of the securities offered hereby was passed upon for the
Company by Smith, Gambrell & Russell, 1230 Peachtree Street, NE, Suite 3100,
Atlanta, Georgia 30309.
EXPERTS
The consolidated financial statements and related schedules of the Company
incorporated in this Prospectus and elsewhere in the Registration Statement by
reference to the Company's Annual Report on Form 10-K for the most recent fiscal
year ended December 31, 1995 have been audited by KPMG Peat Marwick LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports. Their report refers to the application of fresh
start reporting in connection with the '95 Reorganization and the '93
Reorganization.
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
Prospectus Summary.................... 5
Risk Factors.......................... 7
Use of Proceeds....................... 16
Selected Consolidated Financial and
Operating Data...................... 17
Selling Holders....................... 19
Description of the Preferred Stock.... 20
Description of the Debentures......... 26
Description of Capital Stock.......... 33
Registration Rights Agreement......... 37
Certain Provisions of the Certificate
of Incorporation, the By-Laws and
Delaware Law........................ 38
Plan of Distribution.................. 42
Certain Federal Income Tax
Considerations...................... 43
Validity of Shares.................... 51
Experts............................... 51
</TABLE>
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TRANS WORLD
AIRLINES, INC.
3,869,000 SHARES
OF
8% CUMULATIVE CONVERTIBLE
EXCHANGEABLE PREFERRED STOCK
(PAR VALUE $.01 PER SHARE)
$193,450,000 PRINCIPAL AMOUNT
OF
8% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2006
9,544,823 SHARES OF
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
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