<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1997.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TRANS WORLD AIRLINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4512 43-1145889
(Primary Standard (I.R.S. Employer
(State of Incorporation) Industrial Classification Identification No.)
Code Number)
ONE CITY CENTRE, 515 N. SIXTH STREET
ST. LOUIS, MISSOURI 63101
(314) 589-3000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
----------------
Copy to:
GERALD L. GITNER HOWARD E. TURNER, ESQ.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER SMITH, GAMBRELL & RUSSELL, LLP
ONE CITY CENTRE, 515 N. SIXTH STREET 1230 PEACHTREE STREET, NE, SUITE 3100
ST. LOUIS, MISSOURI 63101 ATLANTA, GEORGIA 30309
(314) 589-3000 (404) 815-3500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12% Senior Secured Notes
due 2002............... $50,000,000(1) $ -- $ -- $5,051(2)
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Total................... N/A N/A N/A $5,051(2)
</TABLE>
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(1) Equals the aggregate principal amount at issuance of the securities being
registered which were issued with original issue discount.
(2) Pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended
(the "Securities Act"), the registration fee has been calculated using
one-third of the aggregate principal amount at issuance of the securities
being registered ($16,666,666.67).
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION PROSPECTUS CAPTION
-------------------------------- ------------------
<S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Facing Page; Cross-Reference Sheet; Outside
Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page; Available
Information; Outside Back Cover Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Prospectus Summary; Risk Factors; Selected
Historical Consolidated Financial and Certain
Other Data
4. Terms of the Transaction................. Prospectus Summary; The Exchange Offer;
Description of the Notes; Certain Federal
Income Tax Considerations; Plan of
Distribution
5. Pro Forma Financial Information.......... Summary Historical Consolidated Financial and
Certain Other Data; Selected Historical
Consolidated Financial and Certain Other
Data; Interim Condensed Consolidated
Financial Statements
6. Material Contacts with the Company Being
Acquired................................. Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to Be Underwriters....................... Not Applicable
8. Interests of Named Experts and Counsel... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
10. Information with Respect to S-3
Registrants.............................. Not Applicable
11. Incorporation of Certain Information by
Reference................................ Not Applicable
12. Information with Respect to S-2 or S-3
Registrants.............................. Prospectus Summary; Selected Historical
Consolidated Financial and Certain Other
Data; Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Consolidated Financial
Statements
13. Incorporation of Certain Information by Incorporation of Certain Documents by
Reference................................ Reference
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants........ Not Applicable
15. Information with Respect to S-3
Companies................................ Not Applicable
16. Information with Respect to S-2 or S-3
Companies................................ Not Applicable
</TABLE>
<PAGE>
<TABLE>
<S> <C>
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies.......... Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited....... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer..................... Prospectus Summary; The Exchange Offer
20. Indemnification of Directors and
Officers................................. Part II, Item 20
21. Exhibits and Financial Statement
Schedules................................ Part II, Item 21
22. Undertakings............................. Part II, Item 22
</TABLE>
2
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
SUBJECT TO COMPLETION
DATED MAY 7, 1997
TRANS WORLD AIRLINES, INC.
OFFER TO EXCHANGE
12% SENIOR SECURED NOTES DUE 2002,
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND
ALL OUTSTANDING 12% SENIOR SECURED NOTES DUE 2002
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
1997, UNLESS EXTENDED.
Trans World Airlines, Inc., a Delaware corporation (the "Company" or "TWA"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal" and, together with this Prospectus, the "Exchange Offer"), to
exchange its 12% Senior Secured Notes due 2002 (the "New Notes") which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which this Prospectus is a part
(including all amendments, including post-effective amendments, and exhibits
thereto, the "Registration Statement"), for an equal principal amount at
maturity of its outstanding 12% Senior Secured Notes due 2002 (the "Old Notes,"
and collectively with the New Notes, the "Notes"), of which $50 million
aggregate principal amount at maturity is outstanding as of the date hereof.
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 P.M., New York City time, on the
date the Exchange Offer expires (the "Expiration Date"), which will be
, 1997 (30 days following the commencement of the Exchange Offer),
unless the Exchange Offer is extended. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 P.M., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old
Notes being tendered for exchange. Old Notes may be tendered only in integral
multiples at maturity of $1,000. See "The Exchange Offer."
----------
The New Notes will bear interest at the rate of 12% per annum, payable semi-
annually on April 1 and October 1 of each year, commencing on October 1, 1997.
The New Notes will mature on April 1, 2002. The New Notes will not be
redeemable prior to maturity. The New Notes will bear original issue discount
("OID"), and a holder of a New Note will be required to include such OID in
such holder's gross income for federal income tax purposes in advance of the
receipt of the cash payments to which such income is attributable. See "Certain
Federal Income Tax Considerations." Upon a Change in Control (as defined), each
holder of New Notes shall have the right for a limited period to require the
Company to repurchase all or any part of such holder's New Notes at a price, in
cash, equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date fixed for repurchase.
The New Notes will represent senior secured obligations of the Company and
will rank pari passu in right of payment with all other senior obligations of
the Company. The New Notes will be secured by a lien on certain assets of the
Company including (i) TWA's beneficial interest in its FAA designated take-off
and landing slots at three high-density, capacity-controlled airports, (ii)
currently owned and hereafter acquired defined ground equipment of TWA used at
certain domestic airports, and (iii) all of the issued and outstanding stock of
(a) a wholly-owned subsidiary of TWA holding the leasehold interest in a hangar
at Los Angeles International Airport ("LAX") used by TWA and (b) three wholly-
owned subsidiaries of TWA holding leasehold interests in gates and related
support space at certain domestic airports served by the Company.
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS OF OLD NOTES ON , 1997.
The New Notes will be obligations of the Company evidencing the same
indebtedness as the Old Notes. The New Notes will be issued under and entitled
to the benefits of the same Indenture (as defined) pursuant to which the Old
Notes were issued such that the New Notes and Old Notes will be treated as a
single class of debt securities under the Indenture. The form and terms of the
New Notes are generally the same as the form and terms of the Old Notes, except
that (i) the exchange will be registered under the Securities Act and,
therefore, the New Notes will not bear legends restricting the transfer
thereof, and (ii) holders of the New Notes will not be entitled to any of the
registration rights of holders of Old Notes under the Registration Rights
Agreement (as defined), which rights will terminate upon the consummation of
the Exchange Offer. See "Description of the Notes."
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to
third parties, the Company believes that a holder who exchanges Old Notes for
New Notes pursuant to the Exchange Offer may offer for resale, resell and
otherwise transfer such New Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act; provided, that (i) such
New Notes are acquired in the ordinary course of such holder's business, (ii)
such holder is not engaged in, and does not intend to engage in, a distribution
of such New Notes and has no arrangement with any person to participate in the
distribution of such New Notes, and (iii) such holder is not an affiliate of
the Company (as defined under Rule 405 of the Securities Act). However, the
staff of the Commission has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances.
continued on following page
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE PAGE 12, "RISK
FACTORS," FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PARTICIPANTS IN THE EXCHANGE OFFER.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION ORANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OFTHIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution." EXCEPT
AS DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS MAY NOT BE USED FOR ANY OFFER,
SALE OR OTHER TRANSFER OF NEW NOTES.
Prior to this Exchange Offer, there has been no public market for the Old
Notes or New Notes. The Old Notes have traded in the National Association of
Securities Dealers, Inc. Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") market. If a public market were to develop, the
New Notes could trade at prices that may be higher or lower than their
principal amount. The Company does not intend to apply for listing or
quotation of the New Notes on any securities exchange or stock market.
Therefore, there can be no assurance as to the liquidity of any trading market
for the New Notes or that an active public market for the New Notes will
develop. See "Risk Factors -- Risk Factors Relating to the Notes and the
Exchange Offer -- Absence of Public Trading Market."
THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THIS EXCHANGE OFFER. THE
COMPANY HAS AGREED TO PAY THE EXPENSES OF THE EXCHANGE OFFER. NO UNDERWRITER
IS BEING USED IN CONNECTION WITH THIS EXCHANGE OFFER.
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
TWA is subject to the informational requirements of the Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Commission. Reports,
proxy statements and other information filed by the Company with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, NW, Washington,
D.C. 20549 and at the Commission's regional offices located at Room 1400, 75
Park Place, New York, New York 10007 and Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission
at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549 at prescribed
rates, and such reports, proxy statements and other information regarding the
Company 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 Company's
Common Stock, $.01 par value per share (the "Common Stock") is listed. The
Commission maintains a Web site that contains reports, proxy and information
statements and other materials that are filed through the Commission's
Electronic Data Gathering, Analysis and Retrieval System. This Web site can be
accessed at http://www.sec.gov.
2
<PAGE>
This Prospectus contains summaries, believed to be accurate in all material
respects, of certain 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, and all such summaries are qualified in their entirety by this
reference.
This Prospectus forms a part of the Registration Statement 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, 1996;
(ii) 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; and (iii) the
Company's Proxy Statement and Notice of Meeting relating to the Annual Meeting
of Stockholders to be held on May 29, 1997, 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.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE
UPON THE WRITTEN OR ORAL REQUEST OF EACH PERSON, INCLUDING ANY BENEFICIAL
OWNER, TO WHOM THIS PROSPECTUS IS DELIVERED. REQUESTS SHOULD BE MADE TO THE
CORPORATE SECRETARY OF TRANS WORLD AIRLINES, INC., ONE CITY CENTRE, 515 N.
SIXTH STREET, ST. LOUIS, MISSOURI 63101, TELEPHONE (314) 589-3000. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE AT LEAST
FIVE BUSINESS DAYS BEFORE THE EXPIRATION DATE OF THE EXCHANGE OFFER.
FORWARD-LOOKING STATEMENTS
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 financial condition or results of operations.
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 statements. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or projected. Some of the uncertainties that may adversely impact
TWA's future financial condition and results of operations include, but are
not limited to, the "Risk Factors" described herein.
3
<PAGE>
PROSPECTUS SUMMARY
This summary does not purport to be complete and is qualified in its entirety
by reference to the detailed information and financial statements appearing
elsewhere in this Prospectus or incorporated by reference herein. Terms not
defined in this summary are defined elsewhere herein.
THE COMPANY
TWA is the seventh largest U.S. air carrier (based on 1996 revenue passenger
miles ("RPMs")), whose primary business is transporting passengers, cargo and
mail. During 1996, the Company carried more than 23.3 million passengers and
flew approximately 27.3 billion RPMs. As of May 1997, TWA provided regularly
scheduled jet service to 86 cities in the United States, Mexico, Europe, the
Middle East, Canada and the Caribbean. As of May 1, 1997, the Company's fleet
consisted of 183 active 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 335 scheduled daily
departures and approximately a 72% share of airline passenger enplanements in
St. Louis in 1996. Given its location in the center of the country, 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, from which TWA
currently serves 28 domestic and international cities with approximately 39
daily departures. JFK is both the Company's and the industry's largest
international gateway from North America. As of the date hereof, the Company
offers non-stop flights from JFK to 8 cities in Europe and the Middle East as
well as 15 destinations in the U.S. and the Caribbean. The Company recently
announced plans to refocus its JFK operations by discontinuing unprofitable
service to certain European destinations, eliminating certain lower-yielding
domestic feed routes, consolidating most JFK operations for the near term to a
single terminal and accelerating the replacement of certain wide-body aircraft.
THE REORGANIZATIONS
During the early 1990s, the U.S. airline industry experienced unprecedented
losses attributable to, among other things, the Persian Gulf War, recessions in
the United States and Europe, and significant industry-wide fare discounting.
These negative factors affected TWA disproportionately due to the significant
debt the Company had incurred in the 1986 leveraged acquisition of the Company.
As a result, the Company was forced to undergo two financial restructurings
during the period between 1992 and 1995, with the first of such restructurings
effected in 1993 (the " '93 Reorganization") and the second of such
restructurings effected in 1995 (the " '95 Reorganization") (collectively, the
'93 Reorganization and the '95 Reorganization are the "Reorganizations"). The
Reorganizations were effected pursuant to Chapter 11 reorganization
proceedings. Pursuant to the Reorganizations, the Company eliminated more than
$1.5 billion in debt and lease obligations, negotiated agreements with its
unions providing for reductions in wages and benefits and other concessions,
and reached a settlement with respect to the Company's underfunded pension plan
obligations. Pursuant to the '95 Reorganization, the Company canceled its then
outstanding equity securities in exchange for new securities and other
consideration and issued a special class of voting preferred stock (the
"Employee Preferred Stock") to its union employees and shares of Common Stock
to its non-union employees. This resulted in the union and non-union employees
achieving an ownership of approximately 30% of the voting equity of the Company
as of the effective date of the '95 Reorganization. Also pursuant to the '95
Reorganization, the Company adopted an employee stock incentive program (the
"ESIP") designed to permit TWA's employees to increase their level of stock
ownership through grants and purchases of additional shares over a five year
period commencing in July 1997. See "Risk Factors--Risk Factors Related to the
Company--Corporate Governance Provisions; Special Voting Arrangements."
4
<PAGE>
RECENT DEVELOPMENTS
In 1994 the Company began implementing a strategic repositioning which, in
combination with the financial restructuring, cost savings and operating
efficiencies achieved as a result of the '95 Reorganization, was designed to
improve TWA's overall operating and financial performance. The key elements of
this strategy included: (i) optimizing TWA's route structure by redeploying
assets to markets, such as the Company's St. Louis hub, where it believes it
has a competitive advantage, and by eliminating unprofitable operations, such
as its Atlanta hub and certain international routes; (ii) upgrading and
simplifying the Company's fleet by replacing older aircraft with more modern,
technologically advanced aircraft to realize operating cost savings and "right-
sizing" its aircraft types to better conform to TWA's route requirements; (iii)
offering a full-service product designed and priced to appeal both to value-
conscious business travelers and to price-conscious leisure travelers; (iv)
leveraging TWA's cooperative labor relationship and substantial employee stock
ownership to improve TWA's air travel product and identify additional cost
savings and revenue enhancement opportunities; (v) investing in technology
programs designed to enhance revenues or reduce costs; and (vi) pursuing
additional cost and efficiency initiatives to help maintain a low cost
structure.
While the Company experienced improvements in its operating performance in
1995 and the first half of 1996 as a result of implementing the strategy
outlined above, the Company's operating results and cash balances deteriorated
significantly during the second half of 1996. Material factors contributing to
this deterioration included: (i) an overly aggressive expansion of TWA's
capacity and planned flight schedule, particularly during the summer season,
which forced the Company to rely disproportionately on lower-yielding feed
traffic and bulk ticket sales to fill the increased capacity of its system;
(ii) the delayed delivery of four older 747s intended to increase capacity for
incremental international summer operations; and (iii) unexpected maintenance
delays due to the capacity increase, higher levels of scheduled narrow-body
heavy maintenance and increased contract maintenance performed for third
parties. These factors caused excessive levels of flight cancellations, poor
on-time performance, increased pilot training costs and higher maintenance
expenditures. In addition, the crash of TWA Flight 800 on July 17, 1996
distracted management's attention from core operating issues and led to lost
bookings and revenues. Finally, the Company experienced a 27.6% increase in
fuel costs in 1996, driven primarily by a 22.3% increase in the average fuel
price paid per gallon during the year.
In late 1996, management began to implement a series of actions intended to
correct TWA's performance difficulties and refocus the Company's strategy.
Steps taken to improve operating integrity included reducing the near-term
flight schedule to more closely match available aircraft and terminating an
unprofitable aircraft maintenance contract with the U.S. government in order to
increase resources available to service TWA aircraft in maintenance backlog.
The Company also began to restructure its operations at the JFK hub by (i)
eliminating certain unprofitable international routes such as JFK to Frankfurt
and JFK to Athens; (ii) eliminating certain low-yielding domestic feed service
into JFK; and (iii) consolidating for the near term most of its JFK operations
from two terminals into a single terminal in order to reduce operating costs,
increase facility utilization and improve passenger service. The Company
believes that operating and financial results at JFK will be improved by the
Company's recently announced plans to accelerate retirement of its remaining
747 and L-1011 fleets to year-end 1997. Such aircraft will be replaced by
smaller, more efficient new or later-model used 757s, 767s and MD80s, which
management believes will operate more reliably and be more appropriately sized
to the demands of cities served, resulting in higher load factors and improved
yields due to less dependence on low-yielding feed traffic. In addition, these
newer, twin-engine, two-pilot aircraft should provide efficiencies in fuel,
flight crew and maintenance expenses. Finally, the Company believes that its
focus on improving operational integrity and product quality will allow TWA to
further leverage its existing hub dominance in St. Louis by attracting a
greater share of higher yielding connecting traffic. Management also believes
that additional opportunities exist at St. Louis to utilize existing capacity
more efficiently and expand service frequency to certain major domestic cities.
The Company's results for the fourth quarter and full year 1996 reflect,
among others, the impact of the factors discussed above. The Company reported a
fourth quarter 1996 operating loss of $232.4 million and a net loss of $258.6
million versus an operating profit of $1.1 million and net loss of $27.8
million for the fourth quarter of 1995. For the year ended December 31, 1996,
the Company reported an operating loss and net loss of
5
<PAGE>
$198.5 million and $284.8 million, respectively, compared to a 1995 operating
profit of $25.1 million and a 1995 net loss of $227.5 million. The Company's
1996 results reflect special charges, recorded in the fourth quarter, of $85.9
million, including a $53.7 million write-down related to the planned retirement
of older aircraft, a charge of $5.5 million for overseas employee severance
costs and a $26.7 million write-down of the Company's JFK-Athens route
authority, reflecting the Company's decision to terminate service on such route
after April 18, 1997.
The Company's auditors included in their report on TWA's consolidated
financial statements for the year ended December 31, 1996 an explanatory
paragraph to the effect that substantial doubt exists regarding the Company's
ability to continue as a going concern due to the Company's recurring losses
from operations and its limited sources of additional liquidity. See the
Consolidated Financial Statements (as defined) and "Risk Factors--Risk Factors
Related to the Company--Substantial Indebtedness; Capital Expenditure
Requirements; Liquidity."
The Company's first quarter operating results have historically been
considerably less favorable than other quarters and typically reflect
substantial operating and net losses. Notwithstanding actions taken and planned
by management to improve the Company's future operating results and performance
described above, during the first quarter of 1997, the Company reported results
which compare unfavorably with the first quarter of 1996. TWA's operating
revenue of $762.3 million during the first quarter of 1997 represented a $20.1
million (2.6%) decrease from the first quarter of 1996, when the Company's
operating revenue totaled $782.4 million. The reduced revenue during the first
quarter of 1997 as compared with the same period of 1996 reflected a planned
reduction in capacity resulting from the ongoing replacement of larger 747 and
L-1011 aircraft with smaller 767 and 757 aircraft and a reduction in the number
of narrow-body aircraft in TWA's schedule during the first quarter of 1997 in
order to move more aircraft through required scheduled maintenance before the
peak travel season. Despite the decrease in operating revenue during the first
quarter of 1997, operating expenses of $861.8 million represented a $25.2
million (3%) increase over the first quarter of 1996, when the Company's
operating expenses totaled $836.6 million. Approximately $20 million of the
increased expense during the first quarter of 1997 was associated with the
accelerated maintenance of the Company's narrow-body aircraft, while an
additional $10 million resulted from increased crew retaining costs incurred in
connection with the downsizing of the Company's fleet. In addition, TWA's
average cost per gallon for jet fuel during the first quarter of 1997 increased
to 74.02c, an 11.2 percent increase from 66.58c, the average cost per gallon in
the first quarter of 1996. As a result of the above, in the first quarter of
1997 TWA experienced an operating loss of $99.5 million and a net loss of $71.6
million, as compared with the first quarter of 1996, when the Company reported
an operating loss of $54.2 million and a net loss of $37.1 million. See "Risk
Factors--Risk Factors Related to the Company--Substantial Indebtedness; Capital
Expenditure Requirements; Liquidity" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--General."
On February 12, 1997, the Company's Board of Directors (the "Board of
Directors" or the "Board") named Gerald L. Gitner, a member of the Board, as
Chairman and Chief Executive Officer of the Company. Mr. Gitner replaced
Jeffrey H. Erickson, who announced his intention to leave as the Company's
President and Chief Executive Officer on October 24, 1996. On March 27, 1997,
the Board confirmed William F. Compton's appointment as Executive Vice
President--Operations and elected Stephen M. Tumblin as director to fill the
remaining vacancy on the Board. See "Risk Factors--Risk Factors Related to the
Company--Changes to Management Team."
On March 6, 1997, the International Association of Machinists and Aerospace
Workers (the "IAM") was certified to replace the Independent Federation of
Flight Attendants ("IFFA") as the bargaining representative for the Company's
flight attendants. The IAM has notified the Company that it will assume full
representation rights over TWA's flight attendants, including collective
bargaining and IFFA's seat on the Board of Directors. See "Certain Provisions
of the Certificate of Incorporation, the By-laws and Delaware Law--Board of
Directors" and "Risk Factors--Risk Factors Related to the Company--'94 Labor
Agreements."
On March 31, 1997 and pursuant to a private placement (the "Private
Placement"), the Company issued and sold 50,000 Units (the "Units") consisting
of (i) the Old Notes and (ii) 50,000 Redeemable Warrants (the "Warrants"), with
each Warrant representing the right to purchase 126.26 shares of Common Stock
at an exercise price of approximately $7.92 per share. After deducting
discounts, commissions and estimated expenses, the net proceeds of the Private
Placement were approximately $47.2 million.
6
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<C> <S>
Registration Rights Agreement....... Pursuant to the Private Placement, in
March 1997, the Company sold the Old
Notes to the Initial Purchaser (as de-
fined), who placed the Old Notes with in-
stitutional investors as part of an ag-
gregate of 50,000 Units, with each Unit
comprised of $1,000 principal amount at
maturity of Old Notes and one Warrant to
purchase 126.26 shares of Common Stock.
In connection therewith, the Company exe-
cuted and delivered for the benefit of
the holders of the Old Notes the Regis-
tration Rights Agreement dated as of
March 31, 1997 by and between the Company
and the Initial Purchaser of the Units
(the "Registration Rights Agreement"),
which provided, among other things, for
the Exchange Offer.
The Exchange Offer.................. New Notes are being offered in exchange
for an equal principal amount at maturity
of Old Notes. As of the date hereof, $50
million aggregate principal amount at
maturity of New Notes will be recorded in
the Company's accounting records at the
same carrying value as the Old Notes, and
no gain or loss will be recognized by the
Company upon the consummation of the
Exchange Offer. See "The Exchange Offer--
Accounting Treatment." Holders of the Old
Notes do not have appraisal or
dissenters' rights in connection with the
Exchange Offer under the Delaware General
Corporation Law or the Indenture in
connection with the Exchange Offer.
Based on interpretations by the staff of
the Commission, as set forth in no-action
letters issued to third parties, the
Company believes that a holder who
exchanges Old Notes for New Notes
pursuant to the Exchange Offer may offer
for resale, resell and otherwise transfer
such New Notes without compliance with
the registration and prospectus delivery
requirements of the Securities Act;
provided, that (i) such New Notes are
acquired in the ordinary course of such
holder's business, (ii) such holder is
not engaged in, and does not intend to
engage in, a distribution of such New
Notes and has no arrangement with any
person to participate in the distribution
of such New Notes, and (iii) such holder
is not an affiliate of the Company as
defined under Rule 405 of the Securities
Act. However, the staff of the Commission
has not considered the Exchange Offer in
the context of a no-action letter and
there can be no assurance that the staff
of the Commission would make a similar
determination with respect to the
Exchange Offer as in such other
circumstances. Each broker-dealer that
receives New Notes for its own account in
exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer
as a result of market-making activities
or other trading activities, must
acknowledge that it will deliver a
prospectus in connection with any resale
of such New Notes. See "Plan of
Distribution."
Acceptance of Old Notes and Delivery Subject to certain conditions, the
of New Notes....................... Company will accept for exchange any Old
Notes which are properly tendered in the
Exchange Offer prior to 5:00 P.M., New
York City time, on the Expiration Date.
The New Notes issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange
Offer."
</TABLE>
7
<PAGE>
<TABLE>
<C> <S>
Expiration Date..................... 5:00 P.M., New York City time, on
, 1997 (30 days following the
commencement of the Exchange Offer),
unless the Exchange Offer is extended, in
which case the term "Expiration Date"
means the latest date and time to which
the Exchange Offer is extended.
Conditions to the Exchange Offer.... The Exchange Offer is subject to certain
customary conditions, which may be waived
by the Company. See "The Exchange Offer--
Conditions." Except for the requirements
of applicable Federal and state
securities laws, there are no Federal or
state regulatory requirements to be
complied with or obtained by the Company
in connection with the Exchange Offer. NO
VOTE OF THE COMPANY'S SECURITY HOLDERS IS
REQUIRED TO EFFECT THE EXCHANGE OFFER AND
NO SUCH VOTE (OR PROXY THEREFOR) IS BEING
SOUGHT HEREBY.
Procedures for Tendering............ Each holder of Old Notes wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance
with the instructions contained herein
and therein, and mail or otherwise
deliver such Letter of Transmittal, or
such facsimile, together with the Old
Notes to be exchanged (unless such tender
is being effected pursuant to the
procedure for book-entry transfer
described herein) and any other required
documentation to the Exchange Agent (as
defined) at the address set forth herein
and therein. See "The Exchange Offer--
Procedures for Tendering."
Withdrawal Rights................... Tenders of Old Notes may be withdrawn at
any time prior to 5:00 P.M., New York
City time, on the Expiration Date. To
withdraw a tender of Old Notes, a written
or facsimile transmission notice of
withdrawal must be received by the
Exchange Agent at its address set forth
below under "Exchange Agent" prior to
5:00 P.M., New York City time, on the
Expiration Date.
Untendered Old Notes................ Holders of Old Notes whose Old Notes are
not exchanged for New Notes pursuant to
the Exchange Offer will continue to be
subject to the existing restrictions upon
transfer contained in the legend thereon.
In general, the Old Notes may not be
offered for resale or resold, unless
registered under the Securities Act,
except pursuant to an exemption from, or
in a transaction not subject to, the
Securities Act and applicable state
securities laws. See "Risk Factors--Risk
Factors Relating to the Notes and the
Exchange Offer--Consequences of Failure
to Exchange" and "Description of the
Notes--Exchange Offer; Registration
Rights."
Exchange Agent...................... First Securities Bank, National
Association, the Trustee under the
Indenture, is serving as exchange agent
(the "Exchange Agent") in connection with
the Exchange Offer.
Accounting Treatment................ No gain or loss for accounting purposes
will be recognized by the Company upon
the consummation of the Exchange Offer.
See "The Exchange Offer--Accounting
Treatment."
Use of Proceeds..................... There will be no cash proceeds to the
Company from the issuance of the New
Notes pursuant to the Exchange Offer.
</TABLE>
8
<PAGE>
THE NOTES
The Exchange Offer relates to the exchange of up to $50 million aggregate
principal amount at maturity of Old Notes for up to an equal aggregate
principal amount at maturity of New Notes. The New Notes will be obligations of
the Company evidencing the same indebtedness as the Old Notes, and will be
entitled to the benefits of the same Indenture. The form and terms of the New
Notes are generally the same as the form and terms of the Old Notes, except
that the New Notes have been registered under the Securities Act and therefore
will not bear legends restricting the transfer thereof. See "Description of the
New Notes."
COMPARISON OF OLD NOTES WITH NEW NOTES
<TABLE>
<C> <S>
Freely Transferable................. Generally, the New Notes will be freely
transferable under the Securities Act by
holders who are not affiliates of the
Company. The New Notes otherwise will be
substantially identical in all material
respects (including interest rate and
maturity) to the Old Notes. See "The
Exchange Offer--Terms of the Exchange
Offer."
Registration Rights................. The holders of Old Notes currently are
entitled to certain registration rights
pursuant to the Registration Rights
Agreement. However, upon consummation of
the Exchange Offer, subject to certain
exceptions, holders of Old Notes who do
not exchange their Old Notes for New
Notes in the Exchange Offer will no
longer be entitled to registration rights
and will not be able to offer for resale
or resell their Old Notes, unless such
Old Notes are subsequently registered
under the Securities Act (which, subject
to certain limited exceptions, the
Company will have no obligation to do),
except pursuant to an exemption from, or
in a transaction not subject to, the
Securities Act and applicable state
securities laws. See "Risk Factors--Risk
Factors Related to the Notes and the
Exchange Offer--Consequences of Failure
to Exchange."
</TABLE>
TERMS OF THE NEW NOTES
<TABLE>
<C> <S>
Maturity Date....................... April 1, 2002.
Interest............................ 12% per annum, payable semi-annually in
arrears on April 1 and October 1
commencing October 1, 1997.
Redemption.......................... The New Notes will not be redeemable
prior to maturity, nor will the Company
be required to make any sinking fund
payments with respect to the New Notes.
Change in Control................... Upon a Change in Control, each holder of
New Notes shall have the right for a
limited period to require the Company to
repurchase all or any part of such
holder's New Notes at a cash price equal
to 100% of the principal amount thereof,
plus any accrued and unpaid interest to
the date fixed for repurchase.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Ranking.....................The.New.Notes.will.represent.senior.secured.obligations.of the Company and will rank pari passu in
right of payment with all other senior obligations of the Company.
Collateral..................The.New.Notes.will.be.secured.by.a.lien on certain assets of the Company including (i) TWA's
beneficial interest in its Federal Aviation Administration ("FAA") designated take-off and landing
slots at JFK and LaGuardia airports in New York and Chicago's O'Hare International Airport, which
are high-density, capacity-controlled airports, (ii) currently owned and hereafter acquired defined
ground equipment of TWA used at certain domestic airports, and (iii) all of the issued and
outstanding stock of (a) a wholly-owned subsidiary of TWA holding the leasehold interest in a hangar
at LAX used by TWA and (b) three wholly-owned subsidiaries of TWA holding leasehold interests in
gates and related support space at certain domestic airports served by the Company. See "Description
of Notes--Collateral Security."
Certain Covenants...........The.indenture.governing.the.New.Notes.(the."Indenture").and certain related security documents will
contain provisions relating to the preservation of and release of Collateral (as defined), including
a prohibition against the Company allowing certain additional liens against such Collateral. The
Indenture will not contain any financial covenants and will not limit the Company's ability to incur
additional indebtedness.
Original Issue Discount.....The.Old.Notes.were.issued.with.original.issue.discount, requiring holders of the New Notes to
include such OID in such holder's gross income for federal income tax purposes in advance of the
receipt of the cash payments to which such income is attributable. See "Certain Federal Income Tax
Considerations."
</TABLE>
RISK FACTORS
Prospective participants in the Exchange Offer should consider carefully the
information set forth under "Risk Factors" and all other information set forth
in this Prospectus before making any investment in the New Notes.
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary consolidated financial and operating data presented below relates
to periods in the three year period ended December 31, 1996. This data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's 1996 consolidated
financial statements (including the notes thereto, the "1996 Consolidated
Financial Statements" or the "Consolidated Financial Statements"). The
consolidated financial data for the periods in the three year period ended
December 31, 1996 were derived from the audited consolidated financial
statements of the Company. For a discussion of factors affecting the
comparability of this data, see "Selected Consolidated Financial Data." See
"Risk Factors--Risk Factors Related to the Company--Substantial Indebtedness;
Capital Expenditure Requirements; Liquidity" for a description of the auditor's
report issued in connection with the 1996 Consolidated Financial Statements.
<TABLE>
<CAPTION>
REORGANIZED
PREDECESSOR COMPANY COMPANY
------------------------- -------------------------
EIGHT MONTHS FOUR MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenues...... $3,407,702 $2,218,355 $1,098,474 3,554,407
Operating income
(loss)(1).............. (279,494) 14,642 10,446 (198,527)
Loss before
extraordinary
items(2)............... (433,829) (338,213) (33,638) (275,027)
Extraordinary items..... (2,005) 140,898 3,500 (9,788)
Net income (loss)....... (435,834) (197,315) (30,138) (284,815)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
ACTUAL AS ADJUSTED(3)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets......................................... $2,681,939 $2,731,515
Current maturities of long-term debt and capital
leases.............................................. 134,948 134,948
Long-term debt and long-term obligations under
capital leases...................................... 829,275 871,775
Shareholders' equity(4).............................. 238,105 245,181
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
AIRLINE ONLY OPERATING DATA(5):
Revenue passenger miles (millions)................... 24,906 24,902 27,111
Available seat miles (millions)...................... 39,191 37,905 40,594
Passenger load factor................................ 63.5% 65.7% 66.8%
Passenger yield (cents).............................. 11.31c 11.39c 11.35c
Passenger revenue per available seat mile (cents).... 7.19c 7.48c 7.58c
Operating cost per available seat mile (cents)....... 8.45c 8.12c 8.76c
</TABLE>
- --------
(1) Includes special charges of $138.8 million in 1994, $1.7 million in the
eight months ended August 31, 1995 and $85.9 million in 1996. For a
discussion of these and other non-recurring items, see Note 16 to the 1996
Consolidated Financial Statements.
(2) The eight months ended August 31, 1995 include charges of $242.2 million
related to reorganization items.
(3) Reflects the issuance of the Units and the application of the net proceeds
therefrom pursuant to the Private Placement, which are estimated to be
approximately $47.2 million. No effect has been given to the application of
a portion of the net proceeds of the Private Placement (not to exceed
approximately $5 million) used to repay a portion of the 12% Reset Notes.
(4) No dividends were paid on the Company's outstanding Common Stock during the
periods presented above. In addition, the as adjusted reflects the $7.5
million ascribed to the Warrants, net of allocable discounts and
commissions and estimated expenses of $0.4 million. No assurance can be
given that the value allocated to the Warrants is indicative of the price
at which the Warrants may actually trade.
(5) For a definition of the items presented, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
11
<PAGE>
RISK FACTORS
Prospective participants in the Exchange Offer should carefully consider the
risk factors set forth below, as well as the other information appearing in
this Prospectus, before tendering their Old Notes in the Exchange Offer. The
risk factors should be considered carefully in evaluating the Company and its
business before participating in the Exchange Offer.
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 vary
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.
RISK FACTORS RELATED TO THE COMPANY
Substantial Indebtedness; Capital Expenditure Requirements; Liquidity
The Company is highly leveraged and has and will continue to have
significant debt service obligations. As of December 31, 1996, the Company's
ratio of long-term debt and capital leases (including current maturities) to
shareholders' equity was 4.05 to 1. As of December 31, 1996, the Company's
total long-term debt and capital leases (including current maturities) was
$964.2 million. In addition, at December 31, 1996, TWA's estimated minimum
payment obligations under noncancellable operating leases were approximately
$302.8 million for 1997 and approximately $2,862.6 million for periods
thereafter. See "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General" and the Consolidated
Financial Statements.
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 existing indebtedness;
(iii) the Company is placed at a relative competitive disadvantage to its less
highly leveraged competitors and is more vulnerable to economic downturns; and
(iv) 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 "Business--
Legal Proceedings--Icahn Litigation" 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
otherwise have a material adverse effect on the Company.
TWA's capital expenditures for 1997 are currently anticipated to total
approximately $107 million, including approximately $91 million for flight
equipment related expenditures (e.g., progress payments for aircraft and the
purchase of aircraft engines and spare parts). While the Company is seeking
financing for certain of its planned capital expenditures, a substantial
portion of such expenditures are expected to utilize internally generated
funds. The inability to finance or otherwise fund such expenditures could have
a material adverse effect on the ability of the Company to implement its
strategic plan.
TWA's consolidated cash and cash equivalents balance at December 31, 1996
was approximately $181.6 million (including approximately $28.3 million in
cash and cash equivalents held in its international operations and by its
subsidiaries which, based upon various foreign monetary regulations and other
factors, might not be immediately available to the Company), compared to
$304.3 million at December 31, 1995. Due to seasonal factors, the Company's
cash balances during the first quarter of each year are typically lower than
in other periods. These seasonal factors and the large loss in the first
quarter of 1997, significantly exceeding the loss reported in the comparable
quarter of 1996, reduced cash balances during the first quarter of 1997
significantly below the cash balance at December 31, 1996. On March 31, 1997,
including net proceeds of $47.2 million from the Private Placement, the
Company's consolidated cash and cash equivalents balance was approximately
$136.5
12
<PAGE>
million (including approximately $ million in cash and cash equivalents
which, for the reasons described above, might not be immediately available to
the Company), a $45.1 million decrease from the $181.6 million balance at
December 31, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--
Liquidity."
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. See "The
Company--Business Strategy" and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations--General" for a description of
the actions taken by the Company to improve its liquidity during the first
quarter of 1997. Substantially all of TWA's strategic assets, including its
owned aircraft and overhaul facilities, have been pledged to secure various
issues of outstanding indebtedness of the Company. Sales of such other 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. 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. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources--Availability of
NOLs" for a discussion of the status of the Company's net operating loss
carryforwards.
The Company's long-term viability as well as its ability to meet its
existing debt and other obligations and future capital commitments depends
upon the Company's financial and operating performance, which in turn is
subject to, among other things, prevailing economic conditions and to certain
other financial, business and other factors beyond the Company's control. As
discussed elsewhere herein, in late 1996 and early 1997, the Company began
implementing certain operational changes which are intended to improve the
Company's financial results through, among other things, higher yields and
load factors; increased fuel, pilot and other aircraft operating efficiencies;
and a decrease in maintenance-related expenditures, employee headcount and
JFK-related operating costs. Although management believes that such
operational changes will be successful and that the Company's cash flow from
its operations and financing activities should be sufficient in the
foreseeable future to meet the Company's debt and other obligations and future
capital commitments, the airline industry in general and the Company in
particular are subject to significant risks and uncertainties referred to in
this Prospectus including under these Risk Factors and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Recent Results" and "--Liquidity and Capital Resources." Therefore, there can
be no assurance that the Company's operating results and financing activities
will be sufficient in the foreseeable future to meet its debt and other
obligations and future capital commitments. The Company's auditors included in
their report dated March 24, 1997 on TWA's consolidated financial statements
for the year ended December 31, 1996 an explanatory paragraph to the effect
that substantial doubt exists regarding the Company's ability to continue as a
going concern due to the Company's recurring losses from operations and
limited sources of additional liquidity. See the Consolidated Financial
Statements.
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. During the early 1990s, both the
airline industry and the Company experienced periods of significant losses,
with unprecedented losses incurred by the domestic airline industry during the
years 1990-1993. Although the airline industry has generally seen strengthened
performance in recent years, particularly in 1995 and 1996 when many airlines
reported record profits, the Company has continued to report significant net
losses. For example, 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's
reported net loss of $284.8 million for 1996 represented a $57.3 million
increase over the 1995 net loss, while the Company reported a $198.5 million
operating loss for 1996 (including special charges of $85.9 million), which
represented a $223.6 million decline from its operating profit in 1995. During
the first quarter of
13
<PAGE>
1997, the Company reported operating revenue of $762.3 million, which
represented a $20.1 million (2.6%) decrease from the first quarter of 1996,
when the Company's operating revenue totaled $782.4 million. The reduced
revenue during the first quarter of 1997 as compared with the same period of
1996 reflected a planned reduction in capacity resulting from the ongoing
replacement of larger 747 and L-1011 aircraft with smaller 767 and 757
aircraft and a reduction in the number of narrow-body aircraft in TWA's
schedule during the first quarter of 1997 in order to move more aircraft
through required scheduled maintenance before the peak travel season. Despite
the decrease in operating revenue during the first quarter of 1997, operating
expenses of $861.8 million represented a $25.2 million (3%) increase over the
first quarter of 1996, when the Company's operating expenses totaled $836.6
million. Approximately $20 million of the increased expense during the first
quarter of 1997 was associated with the accelerated maintenance of the
Company's narrow-body aircraft, while an additional $10 million resulted from
increased crew retaining costs incurred in connection with the downsizing of
the Company's fleet. In addition, TWA's average cost per gallon for jet fuel
during the first quarter of 1997 increased to 74.02c, an 11.2 percent increase
from 66.58c, the average cost per gallon in the first quarter of 1996. As a
result of the above, in the first quarter of 1997 TWA experienced a net loss
of $71.6 million, which represented a $34.5 million increase over the $37.1
net loss for the first quarter of 1996, and a $99.5 million operating loss,
which represented a $45.3 million increase over the operating loss reported
for the first quarter of 1996. For a discussion of such operating results and
substantial net losses incurred during such periods, including 1996, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "The Company--Business Strategy." Although the Company has
taken a number of actions which management believes will improve future
results, the Company will incur additional expenses relating to these actions,
including pilot training and aircraft leases, and there can be no assurance
that such actions will make the Company's future operations profitable. See
"--Substantial Indebtedness; Capital Expenditure Requirements; Liquidity" and
"The Company--Business Strategy."
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 and the nature of such uncertainties is subject to constant change, the
Company is unable to predict the potential impact of any of such uncertainties
upon its results of operations. 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,
which to date has not been determined. TWA is currently a defendant in a
number of lawsuits relating to the crash, but it is unable to predict the
amount of claims which may ultimately be made against the Company or 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 the claims arising from the crash. Therefore,
TWA believes that the resolution of such claims will not have a material
adverse effect on its financial condition or results of operations. The
Company is unable to identify or predict the extent of any adverse effect on
its revenues, yields, or results of operations which has resulted or may
result from the public perception of the crash. See "Business--Legal
Proceedings." Among the other uncertainties that might adversely impact TWA's
future results of operations are: (i) competitive pricing and scheduling
initiatives; (ii) the availability and cost of capital; (iii) increases in
fuel and other operating costs; (iv) insufficient levels of air passenger
traffic resulting from, among other things, war, threat of war, terrorism or
changes in the economy; (v) governmental limitations on the ability of TWA to
service certain airports and/or foreign markets; (vi) regulatory requirements
requiring additional capital or operating expenditures; (vii) the outcome of
certain upcoming labor negotiations (see "--'94 Labor Agreements"); and
(viii) 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 "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General" and "Business--Legal
Proceedings--Icahn Litigation").
Changes to Management Team
Commencing in June 1996, the Company experienced a substantial number of
changes in its executive management team. In June 1996, Messrs. Robert A.
Peiser and Mark J. Coleman, Chief Financial Officer and Senior Vice President-
Marketing, respectively, resigned from the Company. On August 21, 1996, Edward
Soule
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was elected to the position of Executive Vice President and Chief Financial
Officer. On September 3, 1996, Roden A. Brandt was elected to the position of
Senior Vice President--Planning. On October 24, 1996, Jeffery H. Erickson,
President and Chief Executive Officer announced his intention to leave the
Company. On December 14, 1996, the Board appointed Gerald L. Gitner, a member
of the Board, to serve as Vice Chairman and Acting Chief Executive Officer;
David M. Kennedy, a member of the Board, to serve as Acting Executive Vice
President and Chief Operating Officer; and William F. Compton, also a member
of the Board, to serve as Acting Executive Vice President--Operations. On
December 20, 1996, Michael J. Palumbo was appointed as Senior Vice President
and Chief Financial Officer, succeeding Mr. Soule, who had resigned from such
positions on December 19, 1996. On February 12, 1997, the Board of Directors
elected Mr. Gitner to serve as Chairman and Chief Executive Officer. On
February 14, 1997, Don Monteath, who had served as the Company's Senior Vice
President--Operations, left the Company. On March 13, 1997, Mr. Compton was
appointed Executive Vice President--Operations, subject to Board approval. On
March 27, 1997, the Board confirmed Mr. Compton's appointment. The Company
does not believe that such changes have unduly affected its ongoing operations
or implementation of the Company's business strategy, although there can be no
assurance that such changes will not have a material adverse effect on future
operations.
'94 Labor Agreements
As of December 31, 1996, the Company had approximately 25,092 full-time
employees (based upon full-time equivalents which include part-time
employees). Of these, approximately 82% were represented by three principal
unions: ALPA, the IAM and IFFA. On March 6, 1997, the IAM was certified to
replace IFFA as the bargaining representative of the Company's flight
attendants. The Company's currently effective '94 Labor Agreements (as
defined) with each such union contain more favorable work rules than in prior
contracts and wage levels which the Company believes to be below many other
U.S. airlines. The '94 Labor Agreements are three year agreements which become
amendable after August 31, 1997. Negotiations on a new collective bargaining
agreement with the IAM covering approximately 70% of the Company's employees,
including flight attendants, commenced in February 1997 and are currently
ongoing. Negotiations with ALPA are expected to begin in the second quarter of
1997. Under the Railway Labor Act (the "RLA"), workers whose contracts have
become amendable are required to continue to work under the "status quo"
(i.e., under the terms of employment antedating the amendable date) until the
RLA's procedures are exhausted. Under the RLA, the Company and its unions are
obligated to continue to bargain until agreement is reached or until a
mediator is appointed and concludes that negotiations are deadlocked and
mediation efforts have failed. The mediator must then further attempt to
induce the parties to agree to arbitrate the dispute. If either party refuses
to arbitrate, then the mediator must notify the parties that his efforts have
failed and, after a 30-day cooling-off period, a strike or other direct action
may be taken by the parties.
In the opinion of management, the Company's financial resources are not as
great as those of most of its competitors, and, therefore, any substantial
increase in its labor costs as a result of any new labor agreements or any
cessation or disruption of operations due to any strike or work action could
be particularly damaging to the Company. See "Business--Employees."
Age of Fleet; Noise
At December 31, 1996, the average age of TWA's aircraft fleet was 19.0
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,
fuel and other operating costs associated with older aircraft. The Company is
in the process of acquiring a number of new and later model used aircraft and,
based upon current delivery schedules for firmly committed aircraft, TWA's
composite fleet age should be reduced to slightly under 17 years at December
31, 1997. As of December 31, 1996, TWA's fleet included 70 aircraft which did
not meet the noise reduction requirements under the Airport Noise and Capacity
Act of 1990 (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 Federal Aviation Administration
("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. In 1995 and 1996, TWA spent
approximately $2.6 million and $3.4 million, respectively, to comply with
aging aircraft maintenance
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requirements. Based on information currently available to TWA and its current
fleet plan, TWA estimates that costs associated with complying with these
aging aircraft maintenance requirements will aggregate approximately $18.7
million through the year 2000. These cost estimates assume, among other
things, that newer aircraft will replace certain of TWA's existing aircraft
and that as a result certain aircraft will be retired by the Company before
TWA would be required to make certain aging aircraft maintenance expenditures.
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. See "--Substantial
Indebtedness; Capital Expenditure Requirements; Liquidity," "Business--
Regulatory Matters--Noise Abatement" and "--Aging Aircraft Maintenance."
Corporate Governance Provisions; Special Voting Arrangements
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, which
together constitute a "Blocking Coalition." 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 Delaware General Corporation Law (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.
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, 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. In addition, 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.
Section 203 of the DGCL, which is applicable to corporate takeovers in
Delaware, provides that, subject to certain exceptions set forth therein, a
corporation shall not engage in any business combination with any
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"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 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 of TWA 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. 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 DGCL, could have the effect of delaying, deferring or
preventing a change in control or the removal of existing management. See
"Business--Regulatory Matters--Foreign Ownership of Shares."
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
market 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 $58 million based upon such target prices and the
number of shares of Common Stock and Employee Preferred Stock outstanding at
December 31, 1996. 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, respectively). Additionally, the allocation of approximately 1.1
million shares of Employee Preferred Stock issued to a trust for employees
represented by 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 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 1
and 12 to the Consolidated Financial Statements.
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
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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 (the
" '95 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 are not comparable to the
post-reorganization consolidated financial statements. A vertical black line
is shown in the Consolidated Financial Statements 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. See
"Management's Discussions and Analysis of Financial Condition and Results of
Operations" and Note 19 to the Consolidated Financial Statements.
In the fourth quarter of 1996, the Company reported a special charge of
$26.7 million relating to the write-down of the carrying value of TWA's JFK-
Athens route authority, reflecting the Company's decision to terminate service
on such route after April 18, 1997.
RISK FACTORS RELATED TO THE INDUSTRY
Competition
The airline industry operates in an intensely competitive environment. 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.
The airline industry is also cyclical due to, among other things, a close
relationship of yields and traffic to general U.S. and worldwide economic
conditions. Small fluctuations in revenue per available seat mile ("RASM")
RASM and cost per available seat mile ("CASM") can have a significant impact
on the Company's financial results. 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 airline industry has consolidated in recent years as a result of mergers
and liquidations, and further consolidation may occur in the future. This
consolidation has, among other things, enabled certain of the Company's major
competitors to expand their international operations and increase their
domestic market presence.
The emergence and growth 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. In many cases, such low cost
carriers have initiated or triggered price discounting. In part as a result of
the industry consolidation referred to above, aircraft, skilled labor and
gates at most airports continue to be readily available to start-up carriers.
To the extent new carriers or other lower cost competitors enter markets in
which the Company operates, such competition could have a material adverse
effect on the Company. Many of the traditional carriers that compete with TWA
have
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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 (and in certain cases, a higher cost structure)
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 in the period following such recession, industry capacity
leveled off, such capacity has again begun to expand. 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 15.6% in 1996), 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 1996, the Company's
average per gallon cost of fuel increased approximately 22.3% over 1995, from
approximately $0.57 per gallon to approximately $0.70 per gallon. During the
first quarter of 1997, the Company's average per gallon cost of fuel increased
approximately 11.2%, from approximately $0.67 per gallon to approximately
$0.74 per gallon, over the same period in the prior year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." A
one cent change in the cost per gallon of fuel (based on 1996 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. Although airlines were exempted from this
tax increase until October 1995, the Company continued to collect the tax. The
expiration of the exemption in October 1995 increased the Company's operating
expenses by approximately $13.6 million in 1996 over 1995. See "Business--
Aircraft Fuel."
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 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 "--Risk Factors Related to the Company--
Substantial Indebtedness; Capital Expenditure Requirements; Liquidity."
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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. See "Business--Regulatory Matters" and
"Description of Notes--Collateral Security--Slots."
Management believes that the Company 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. The Ticket Tax was reinstated on August 27, 1996 and expired
again on December 31, 1996. At the end of February 1997, the Ticket Tax was
reinstated effective March 7, 1997 through September 30, 1997. The amount of
the negative impact directly resulting from the reimposition of the Ticket Tax
cannot be precisely determined. However, management believes that
reinstatement of the Ticket Tax will result in higher costs to the Company
and/or, if passed on to consumers in the form of increased ticket prices,
might have an adverse effect on passenger traffic, revenue and/or margins. See
"Business--Regulatory Matters."
RISK FACTORS RELATING TO THE NOTES AND THE EXCHANGE OFFER
Certain Bankruptcy Considerations
If the Company were to become a debtor in a proceeding under Title 11 of the
United States Bankruptcy Code, as amended (the "Bankruptcy Code"), it is
likely that there would be delays in payment with respect to the Notes and
delays in or prevention from enforcing remedies and other rights that may
otherwise be available to holders of the Notes, including rights with respect
to the Collateral (as defined). See "Description of Notes--Certain Bankruptcy
Considerations."
Collateral
The FAA has designated certain congested U.S. airports as "High Density
Traffic Airports." At those airports, the FAA determines the maximum hourly
number of Instrument Flight Rule take-offs and landings which may be reserved
for use by air carriers and other airport operators. The authority granted by
the FAA to conduct one take-off or landing in a specified time period at one
of such airports is referred to as a "slot." A portion of the Collateral
securing the Company's obligations under the Notes is the Company's beneficial
interest in the Company's slots at JFK, LaGuardia and O'Hare airports. These
slots are subject to complete control by the FAA and may be withdrawn from the
Company without compensation at any time to fulfill the FAA's operational
needs, including, but not limited to, providing slots for international or
essential air service operations or eliminating slots. The availability of
slots to serve as Collateral and the ability of the Trustee on behalf of the
holders of the Notes to foreclose upon or realize any value from the sale or
transfer of such slots may be impaired. See "Description of Notes--Collateral
Security" and "Business--Regulatory Matters--Slot Restrictions."
Certain other Collateral consists of all of the outstanding capital stock
(the "Pledged Securities") of (i) a wholly-owned subsidiary of TWA (the "LAX
Hangar Subsidiary") that holds the leasehold and sub-leasehold interests (the
"LAX Hangar Lease") in a hangar at LAX used by TWA (the "LAX Hangar
Facility"), and (ii) three wholly-owned subsidiaries of TWA (the "Gate
Subsidiaries" and, together with the LAX Hangar Subsidiary, the "Pledged
Subsidiaries") which hold the leasehold interests (the "Gate Leases" and
together with the LAX Hangar Lease, the "Subsidiary Facilities Leases") in
gates and related support space (the "Gate Facilities" and, together with the
LAX Hangar Facility, the "Subsidiary Facilities") at certain domestic airports
served by the Company. The value of the Pledged Securities depends upon, among
other things, the value of the Subsidiary Facilities Leases. The lessors under
the Subsidiary Facilities Leases are various governmental
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authorities. The Subsidiary Facilities Leases generally are not assignable
without the consent of such lessors and many such lessors do not enter into
airport facilities leases with, or permit assignment of airport facilities
leases to, non-airline lessees (including subsidiaries of airlines). The
Subsidiary Facilities Leases were assigned to the Pledged Subsidiaries without
the consent of the lessors by special order of the bankruptcy court in the '93
Reorganization. TWA will not be required to assign any additional airport
facilities leases to the Pledged Subsidiaries. In addition, so long as no
Event of Default (as defined in the Indenture) has occurred and is continuing,
there will be no limitation in the Indenture or the Collateral Documents (as
defined) on the Pledged Subsidiaries' paying dividends to TWA or disposing of
or otherwise dealing in the Subsidiary Facilities Leases as such subsidiaries
deem appropriate in the ordinary course of business. Accordingly, the level of
assets in the Pledged Subsidiaries, and thus the value of the Pledged
Securities as Collateral, could decline significantly. Further, the Pledged
Subsidiaries have entered into subleases (the "Facilities Subleases") of the
Pledged Subsidiary Facilities with the Company. Until such time as a Pledged
Subsidiary ceases to be a wholly-owned subsidiary of TWA, the rent under the
Subsidiary Facilities Subleases essentially only equals the rent payable by
the relevant Pledged Subsidiary under the relevant Subsidiary Facilities
Leases. See "Description of Notes--Collateral Security--Ground Equipment;
Beneficial Interest Certificates and Stock of Certain Subsidiaries."
Appraisal of Collateral; Sufficiency of Collateral
Appraisals of the Slots, Ground Equipment (as defined) and the Subsidiary
Facilities Leases (the "Appraised Assets") were prepared by Simat, Helliesen &
Eichner, Inc. As of the date of such appraisals, the fair market value of the
Slots was approximately $68.2 million, the Subsidiary Facilities Leases
(disregarding the effects of the rights and interests of TWA under the
Facilities Subleases), approximately $38.6 million, and the Ground Equipment,
of approximately $24.2 million. Each appraisal is subject to certain
assumptions and limitations and is only an estimate of value. The appraisals
should not be relied on as a measure of realizable value of the Appraised
Assets, which may be more or less than the value indicated in the appraisal.
The value of the Appraised Assets and the Collateral in the event of
liquidation will likely be less than fair market value and could be
considerably below such value depending on market and economic conditions, the
rapidity with which the Collateral is sought to be sold, the availability of
buyers, the existence of liens and/or claims with respect to the Appraised
Assets or the Collateral and similar factors. Accordingly, there can be no
assurance that the proceeds of any sale of Collateral following a payment
default under the Notes would be sufficient to satisfy payments due on the
Notes. See "Notes--Collateral Security--General."
Absence of Public Trading Market
The New Notes will constitute a new issue of securities for which there is
no established trading market and the New Notes may not be widely distributed.
The Initial Purchaser has informed the Company that it currently intends to
make a market in the New Notes as permitted by applicable laws and
regulations; however, the Initial Purchaser is not obligated to do so and any
such market-making may be discontinued at any time without notice at the sole
discretion of the Initial Purchaser. The Company does not intend to list the
New Notes on any national securities exchange or to seek the admission thereof
to trading in the National Association of Securities Dealers' Automated
Quotation Stock Market, and there can be no assurance as to the development of
any market or liquidity of any market that may develop for the New Notes. If a
market for the New Notes does develop, the price of such New Notes may
fluctuate and liquidity may be limited. If a market for the New Notes does not
develop, purchasers may be unable to resell such New Notes for an extended
period of time, if at all. Historically, the market for non-investment grade
debt has been subject to disruptions that have caused substantial volatility
in the prices of such securities. There can be no assurance that the market
for the New Notes will not be subject to similar disruptions. Any such
disruptions may have an adverse effect on holders of the New Notes.
Original Issue Discount
Because a portion of the purchase price for each Unit issued in the Private
Placement was allocated to the Warrants for federal income tax purposes, the
Old Notes will be treated as issued with OID. Therefore, OID will
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be includable in the gross income of a New Note holder for federal income tax
purposes in advance of receipt of the cash interest payments on the Notes to
which the income is attributable. See "Certain Federal Income Tax
Considerations" for a more detailed discussion of the federal income tax
consequences of the purchase, ownership and disposition of the New Notes.
If a bankruptcy case is commenced by or against the Company under the
Bankruptcy Code after the issuance of the Notes, the claim of a holder of the
Notes with respect to the principal amount thereof may be limited to an amount
equal to the sum of (i) the initial offering price of the Notes and (ii) that
portion of the OID that is not deemed to constitute "unmatured interest" for
purposes of the Bankruptcy Code. Any OID that was not accrued as of such
bankruptcy filing may be deemed to constitute "unmatured interest." A holder
of a Note may not have any claim with respect to that portion of the issue
price of a Unit in the Private Placement that is allocated to the Warrant that
was issued as part of such Unit.
Consequences of Failure to Exchange
Upon consummation of the Exchange Offer, holders of Old Notes that were not
prohibited from participating in the Exchange Offer and did not tender their
Old Notes will have no registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes and, accordingly, such
Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon as a consequence of the issuance of the Old
Notes pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered for resale or
resold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not intend to register the
Old Notes under the Securities Act. Based on interpretations by the staff of
the Commission, as set forth in no-action letters issued to third parties, the
Company believes that a holder who exchanges Old Notes for New Notes pursuant
to the Exchange Offer may offer for resale, resell and otherwise transfer such
New Notes without compliance with the registration and prospectus delivery
requirements of the Securities Act; provided that (i) such New Notes are
acquired in the ordinary course of such holder's business, (ii) such holder is
not engaged in, and does not intend to engage in, a distribution of such New
Notes and has no arrangement with any person to participate in the
distribution of such New Notes, and (iii) such holder is not an affiliate of
the Company (as defined under Rule 405 of the Securities Act). However, the
staff of the Commission has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes. See "Plan of Distribution."
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." The New Notes may not be offered or sold
unless they have been registered or qualified for sale under applicable state
securities laws or an exemption from registration or qualification is
available and is complied with. The Registration Rights Agreement requires the
Company to register the New Notes in any jurisdiction requested by the
holders, subject to certain limitations. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Old Notes could be adversely affected.
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USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses of the Exchange Offer. No underwriter
is being used in connection with the Exchange Offer.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
On March 31, 1997, the Company issued $50 million aggregate principal amount
at maturity of Old Notes to PaineWebber Incorporated as Initial Purchaser. The
issuance was not registered under the Securities Act in reliance upon the
exemption under Rule 144A and Section 4(2) of the Securities Act. In
connection with the issuance and sale of the Old Notes, the Company entered
into the Registration Rights Agreement with the Initial Purchaser, which
obligates the Company to (i) file the Registration Statement of which this
Prospectus is a part for the Exchange Offer within 60 days after March 31,
1997, the date the Old Notes were issued (the "Issue Date"), (ii) use its best
efforts to cause the Registration Statement to become effective within 120
days after the Issue Date, and (iii) consummate the Exchange Offer within 180
days of the Issue Date. A copy of the Registration Rights Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part. The Exchange Offer is being made pursuant to the Registration Rights
Agreement to satisfy the Company's obligations thereunder.
Based on interpretations by the staff of the Commission, as set forth in no-
action letters issued to third parties, the Company believes that a holder who
exchanges Old Notes for New Notes pursuant to the Exchange Offer may offer for
resale, resell and otherwise transfer such New Notes without compliance with
the registration and prospectus delivery requirements of the Securities Act;
provided, that (i) such New Notes are acquired in the ordinary course of such
holder's business, (ii) such holder is not engaged in, and does not intend to
engage in, a distribution of such New Notes and has no arrangement with any
person to participate in the distribution of such New Notes, and (iii) such
holder is not an affiliate of the Company (as defined under Rule 405 of the
Securities Act). However, the staff of the Commission has not considered the
Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as in such other circumstances. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes (other than a resale of an unsold allotment from the original sale of
the Notes) received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 180
days after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept any and all Old Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date. The Company will issue a principal amount at maturity of New
Notes in exchange for an equal principal amount at maturity of outstanding Old
Notes validly tendered pursuant to the Exchange Offer and not withdrawn prior
to the Expiration Date. Old Notes may only be tendered in integral multiples
at maturity of $1,000. Holders may tender some or all of their Old Notes
pursuant to the Exchange Offer.
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The terms of the New Notes and the Old Notes are substantially identical in
all material respects, except that (i) the exchange will be registered under
the Securities Act and, therefore, the New Notes will not bear legends
restricting the transfer of such New Notes, and (ii) holders of the New Notes
will not be entitled to any of the registration rights of holders of Old Notes
under the Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. See "Description of New Notes." The New
Notes will evidence the same indebtedness as the Old Notes. The New Notes will
be issued under and entitled to the benefits of the Indenture pursuant to
which the Old Notes were issued such that the New Notes and Old Notes will be
treated as a single class of debt securities under the Indenture.
As of the date of this Prospectus, $50 million aggregate principal amount at
maturity of the Old Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of the Old
Notes.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the DGCL or the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Exchange
Act, and the rules and regulations of the Commission thereunder. Old Notes
which are not tendered and were not prohibited from being tendered for
exchange in the Exchange Offer will remain outstanding and continue to accrue
interest and to be subject to transfer restrictions, but will not be entitled
to any rights or benefits under the Registration Rights Agreement.
Upon satisfaction or waiver of all the conditions to the Exchange Offer, the
Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and not withdrawn and will issue New Notes in exchange
therefor promptly after acceptance of the Old Notes. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted properly tendered
Old Notes for exchange when, as and if, the Company has given oral or written
notice thereof to the Exchange Agent. The Exchange Agent will act as agent for
the tendering holders for the purposes of receiving the New Notes from the
Company.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal and all other required documents; provided,
however, that the Company reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offer. If any
tendered Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount at maturity than the holder desires to exchange, such
unaccepted or nonexchanged Old Notes or substitute Old Notes evidencing the
unaccepted portion, as appropriate, will be returned without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSION; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997 (30 days following the commencement of the Exchange Offer),
unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the term "Expiration Date" will mean the latest date and time to
which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, prior to 9:00 a.m., New York City
time, on the next business day after the then Expiration Date.
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The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written
notice thereof to the registered holders. If the Exchange Offer is amended in
a manner determined by the Company to constitute a material change, the
Company will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of Old Notes of such amendment.
Without limiting the manner in which the Company may choose to make a public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at the rate of 12% per annum, payable semi-
annually in arrears, in cash, on April 1 and October 1 of each year,
commencing October 1, 1997.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to exchange any New Notes for any Old Notes, and may terminate or
amend the Exchange Offer before the acceptance of any Old Notes for exchange,
if: (a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer which
seeks to restrain or prohibit the Exchange Offer or, in the Company's
judgment, would materially impair the ability of the Company to proceed with
the Exchange Offer; or (b) any law, statute, rule or regulation is proposed,
adopted or enacted, or any existing law, statute, rule, order or regulation is
interpreted, by any government or governmental authority which, in the
Company's judgment, would materially impair the ability of the Company to
proceed with the Exchange Offer; or (c) the Exchange Offer or the consummation
thereof would otherwise violate or be prohibited by applicable law.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders who tendered
such Old Notes to withdraw their tendered Old Notes, or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Notes which have not been withdrawn. If the Company's
waiver constitutes a material change to the Exchange Offer, the Company will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and the Company will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such five to ten
business day period.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The Company's failure at any
time to exercise any of the foregoing rights will not be deemed a waiver of
any such right, and each such right will be deemed an ongoing right which may
be asserted at any time and from time to time. Any determination by the
Company concerning the events described above will be final and binding on all
parties. NO VOTE OF THE COMPANY'S SECURITYHOLDERS IS REQUIRED TO EFFECT THE
EXCHANGE OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING SOUGHT HEREBY.
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PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must (i) complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes (unless such tender is being effected pursuant to the procedure for
book-entry transfer described below) and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date,
or (ii) comply with the guaranteed delivery procedures described below.
Delivery of all documents must be made to the Exchange Agent at its address
set forth herein. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with the resale of such New Notes. See "Plan of Distribution."
The tender of Old Notes by a holder as set forth below will constitute an
agreement between such holder and the Company in accordance with the terms and
subject to the conditions set forth in this Prospectus and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner(s) whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering
such owner's Old Notes, either make appropriate arrangement to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership
may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal (described
below), as the case may be, must be guaranteed by an Eligible Institution (as
defined) unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be made by a member
firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act (an "Eligible Institution").
If a person other than the registered holder of any Old Notes listed therein
signs the Letter of Transmittal, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes, with the
signature thereon guaranteed by an Eligible Institution. If the Letter of
Transmittal or any Old Notes or bond powers are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and unless waived by the Company, evidence
satisfactory to the Company of their authority to so act must be submitted
with the Letter of Transmittal.
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The Company will determine, in its sole discretion, all questions as to the
validity, form, eligibility (including time of receipt), acceptance of
tendered Old Notes and withdrawal of tendered Old Notes and the Company's
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any
defects, irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived
will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date or, as set forth below under "Conditions," to terminate
the Exchange Offer and, to the extent permitted by applicable law, to purchase
Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the New Notes to be acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of such holder, (ii) such
holder has no arrangement or understanding with any person to participate in
the distribution (within the meaning of the Securities Act) of the New Notes
and (iii) such holder is not an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company, or that if it is an "affiliate," it will
comply with applicable registration and prospectus delivery requirements of
the Securities Act.
BOOK-ENTRY TRANSFER
Within two business days after the date of this Prospectus, the Exchange
Agent will make a request to establish an account with respect to the Old
Notes at the book-entry transfer facility for the Old Notes, The Depository
Trust Company ("DTC" or the "Depositary"), for purposes of the Exchange Offer.
Any financial institution that is a participant in DTC's systems may make
book-entry delivery of Old Notes by causing DTC to transfer such Old Notes
into the Exchange Agent's account with respect to the Old Notes in accordance
with DTC's procedures for such transfer. Although delivery of Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
an appropriate Letter of Transmittal with any required signature guarantee and
all other required documents must in each case be transmitted to and received
and confirmed by the Exchange Agent at its address set forth below on or prior
to the Expiration Date, or, if the guaranteed delivery procedures described
below are complied with, within the time period provided under such
procedures.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or (iii) who cannot complete the procedures for book-entry
transfer of Old Notes to the Exchange Agent's account with DTC prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
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(b) On or prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution (by facsimile transmission, mail or hand delivery) a
properly completed and duly executed notice of guaranteed delivery
substantially in the form provided by the Company (the "Notice of Guaranteed
Delivery"), setting forth the name and address of the holder, the certificate
number(s) of such Old Notes (if possible) and the principal amount at maturity
of Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five business trading days after the Expiration
Date, (i) the Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Old Notes and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent, or (ii) that book-entry transfer of such Old Notes into
the Exchange Agent's account at DTC will be effected and confirmation of such
book-entry transfer will be delivered to the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Old Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal, or confirmation of book-entry transfer of the Old Notes into the
Exchange Agent's account at DTC, are received by the Exchange Agent within
five business trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, the Exchange Agent
must receive at its address set forth herein a telegram, telex, facsimile
transmission or letter indicating notice of withdrawal prior to 5:00 p.m., New
York City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having tendered the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount at maturity of such Old
Notes), (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accomplished by documents
of transfer sufficient to have the Trustee with respect to the Old Notes
register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer, any
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawn Old Notes or otherwise comply with DTC's
procedures. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for payment will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Old Notes may be retendered by following one of the procedures described above
under "--Procedures for Tendering" at any time prior to the Expiration Date.
UNTENDERED OLD NOTES
Holders of Old Notes whose Old Notes are not tendered or are tendered but
not accepted in the Exchange Offer will continue to hold such Old Notes and
will be entitled to all the rights and preferences and subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders of Old Notes will continue to be subject to
the existing restrictions upon transfer contained in the legend
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thereon. In general, the Old Notes may not be offered for resale or resold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company will have no further obligations to such
holders, other than the Initial Purchaser, to provide for the registration
under the Securities Act of the Old Notes held by them after the Expiration
Date. To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
could be adversely affected.
EXCHANGE AGENT
First Securities Bank, National Association, has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By Mail, Overnight Courier or Hand:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
(registered or certified mail recommended)
Telephone: 801/246-5630
Facsimile: 801/246-5053
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The Company will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, officers and regular employees of
the Company and its affiliates may make additional solicitation by telegraph,
facsimile transmission, telephone or in person.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The Company will pay the cash expenses to be incurred in connection with the
Exchange Offer. Such expenses include registration fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay any and all transfer taxes applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the Old
Notes tendered, or if tendered Old Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, satisfactory evidence of the payment of the
amount of any such transfer taxes must be submitted with the Letter of
Transmittal (whether imposed on the registered holder or any other person).
Certificates representing New Notes will not be issued to such persons until
satisfactory evidence of the payment of such taxes, or an exemption therefrom,
is submitted.
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CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders that were not prohibited
from participating in the Exchange Offer and did not tender their Old Notes
will not have any registration rights under the Registration Rights Agreement
with respect to such nontendered Old Notes and, accordingly, such Old Notes
will continue to be subject to the restrictions on transfer contained in the
legend thereon as a consequence of the issuance of the Old Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Old Notes may not be offered for resale or resold, unless
registered under the Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. The Company does not intend to register the Old Notes under
the Securities Act. Based on interpretations by the staff of the Commission,
as set forth in no-action letters issued to third parties, the Company
believes that a holder who exchanges Old Notes for New Notes pursuant to the
Exchange Offer may offer for resale, resell and otherwise transfer such New
Notes without compliance with the registration and prospectus delivery
requirements of the Securities Act; provided, however, that (i) such New Notes
are acquired in the ordinary course of such Holder's business, (ii) such
holder is not engaged in, and does not intend to engage in, a distribution of
such New Notes and has no arrangement with any person to participate in the
distribution of such New Notes, and (iii) such holder is not an affiliate of
the Company (as defined under Rule 405 of the Securities Act). However, the
staff of the Commission has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes. See "Plan of Distribution."
The New Notes may not be offered or sold unless they have been registered or
qualified for sale under applicable state securities laws or an exemption from
registration or qualification is available and is complied with. The
Registration Rights Agreement requires the Company to register the New Notes
in any jurisdiction requested by the holders, subject to certain limitations.
To the extent that Old Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Old Notes could
be adversely affected.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
Upon consummation of the Exchange Offer, holders who were not prohibited
from participating in the Exchange Offer and who did not tender their Old
Notes will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes and such Old Notes will
continue to be subject to the restrictions on transfer contained in the legend
thereon. Accordingly, such Old Notes may not be offered, sold, pledged or
otherwise transferred except (i) to a person whom the seller reasonably
believes is a "qualified institutional buyer" within the meaning of Rule 144A
under the Securities Act purchasing for its own account or for the account of
a qualified institutional buyer in a transaction meeting the requirements of
Rule 144A, (ii) in an offshore transaction complying with Rule 904 of
Regulation S under the Securities Act, (iii) pursuant to an exemption from
registration under the Securities Act provided by Rule 144 thereunder (if
available), (iv) pursuant to an effective registration statement under the
Securities Act or (v) to the Company and, in each case, in accordance with all
other applicable securities laws.
ACCOUNTING TREATMENT
The New Notes will be recorded in the Company's accounting records at the
same carrying value as the Old Notes as reflected in the Company's accounting
records on the date of the exchange. Accordingly, the Company will recognize
no gain or loss for accounting purposes upon the consummation of the Exchange
Offer. The expenses of the Exchange Offer will be amortized over the remaining
term of the New Notes.
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THE COMPANY
TWA is the seventh largest U.S. air carrier (based on 1996 RPMs), whose
primary business is transporting passengers, cargo and mail. During 1996, the
Company carried more than 23.3 million passengers and flew approximately 27.3
billion RPMs. As of May 1, 1997, TWA provided regularly scheduled jet service
to 86 cities in the United States, Mexico, Europe, the Middle East, Canada and
the Caribbean. As of May 1, 1997, the Company's fleet consisted of 183 active
jet aircraft.
NORTH AMERICAN ROUTE STRUCTURE
TWA's North American operations have a hub-and-spoke structure, with a
primarily domestic hub at St. Louis and a domestic-international hub at JFK.
The North American system serves 37 states, the District of Columbia, Puerto
Rico, Mexico, Canada and the Caribbean. The JFK and St. Louis hub systems are
designed to allow TWA to support both its North American and transatlantic
connecting flights. In 1996, TWA's North American revenues accounted for
approximately 80% of its total revenues.
St. Louis
TWA is the predominant carrier at St. Louis, with approximately 360
scheduled daily departures serving 74 cities. In 1996, TWA had approximately a
72% share of airline passenger enplanements in St. Louis, while the next
largest competitor enplaned approximately 15%. Since 1995, TWA has added
service from its St. Louis hub to Jackson, Mississippi, Reno, Nevada,
Knoxville, Tennessee, Shreveport, Louisiana, Toronto, Canada and the Mexican
resort cities of Cancun, Puerto Vallarta and Ixtapa/Zihuatenejo.
JFK
TWA serves 28 domestic and international cities from its JFK hub, with
approximately 39 daily departures. JFK is both the Company's and the
industry's largest international gateway from North America. The Company
offers non-stop flights from JFK to 8 cities in Europe and the Middle East as
well as 15 destinations in the U.S. and the Caribbean.
Commuter Feed
TWA coordinates operation of its commuter feed into the Company's hubs at
St. Louis and JFK with Trans States Airlines, Inc. ("Trans States"). Trans
States, an independently owned regional commuter carrier, currently operates
approximately 168 daily flights into St. Louis and 53 flights into JFK. Trans
States' operations are coordinated to feed TWA's North American and
international flights. Management believes that these commuter operations are
an important source of traffic into the Company's domestic and international
route networks.
INTERNATIONAL ROUTE STRUCTURE
TWA's international operations consist of both nonstop and through service
from JFK and St. Louis to destinations in Europe and the Middle East. TWA's
international operations are concentrated at JFK, where TWA has built a hub
system designed to provide domestic traffic feed for its transatlantic
service. International cities served include, Barcelona, Cairo, Lisbon,
Madrid, Milan, Riyadh, Rome, Tel Aviv from JFK; Paris from JFK and St. Louis;
London--Gatwick from St. Louis. On January 13, 1997, as part of its plans to
improve the profitability of its international operations, the Company
discontinued service on certain European routes, including JFK to Frankfurt
and Boston to Paris, as well as non-stop feed service to JFK from several
domestic cities. In addition, service to Athens was discontinued on April 18,
1997. In 1996, TWA's international revenues accounted for approximately 20% of
total revenues.
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BUSINESS STRATEGY
In 1994, the Company began implementing a strategic repositioning which, in
combination with the financial restructuring, cost savings and operating
efficiencies achieved as a result of the '95 Reorganization, was designed to
improve TWA's overall operating and financial performance. While the Company
experienced improvements in its operating performance in 1995 and the first
half of 1996 as a result of implementing this strategy, the Company's
operating results and cash balances deteriorated significantly during the
second half of 1996. Material factors contributing to this deterioration
included: (i) an overly aggressive expansion of TWA's capacity and planned
flight schedule, particularly during the summer season, which forced the
Company to rely disproportionately on lower-yielding feed traffic and bulk
ticket sales to fill the increased capacity of its system; (ii) the delayed
delivery of four older 747s intended to increase capacity for incremental
international summer operations; and (iii) unexpected maintenance delays due
to the capacity increase, higher levels of scheduled narrow-body heavy
maintenance and increased contract maintenance performed for third parties.
These factors caused excessive levels of flight cancellations, poor on-time
performance, increased pilot training costs and higher maintenance
expenditures. In addition, the crash of TWA Flight 800 on July 17, 1996
distracted management's attention from core operating issues and led to lost
bookings and revenues. Finally, the Company experienced a 27.6% increase in
fuel costs in 1996, driven primarily by a 22.3% increase in the average fuel
price paid per gallon during the year.
In late 1996, management began to implement a series of actions intended to
correct TWA's performance difficulties and refocus the Company's strategy.
Steps taken to improve operating integrity included reducing the near-term
flight schedule to more closely match available aircraft and terminating an
unprofitable aircraft maintenance contract with the U.S. government in order
to increase resources available to service TWA aircraft in maintenance
backlog. The Company has also begun to restructure its operations at the JFK
hub by (i) eliminating certain unprofitable international routes such as JFK
to Frankfurt and, as of April 18, 1997, Athens; (ii) eliminating certain low-
yielding domestic feed service into JFK; and (iii) consolidating for the near
term most of its JFK operations from two terminals into a single terminal in
order to reduce operating costs, increase facility utilization and improve
passenger service. The Company believes that operating and financial results
at JFK will be improved by the Company's recently announced plans to
accelerate retirement of its remaining 747 and L-1011 fleets to year-end 1997.
Such aircraft will be replaced by smaller, more efficient new or later-model
used 757s, 767s and MD80s, which management believes will operate more
reliably and be more appropriately sized to the demands of cities served,
resulting in higher load factors and improved yields due to less dependence on
low-yielding feed traffic. In addition, these newer, twin-engine, two-pilot
aircraft should provide efficiencies in fuel, flight crew and maintenance
expenses. Finally, the Company believes that its focus on improving
operational integrity and product quality will allow TWA to further leverage
its existing hub dominance in St. Louis by attracting a greater share of
higher yielding connecting traffic. Management also believes that additional
opportunities exist at St. Louis to utilize existing capacity more efficiently
and expand service frequency to certain major domestic cities.
The key elements of the Company's ongoing business strategy are outlined
below.
Route Structure Optimization
The Company is optimizing its route structure by redeploying assets to
markets in which it believes it has a competitive advantage and limiting its
commitments in other markets.
Domestically, the Company believes the greatest opportunities for improved
operating results will come from focusing additional resources on its St.
Louis hub in order to leverage its strong market position. The Company already
dominates operations at St. Louis, with approximately 72% of total 1996
enplanements. In addition, the Company enjoys certain advantages in the
Midwest due to its established route system, strong brand identity and
concentrated presence in that market. Because St. Louis is located in the
center of the country, it is well-suited to function as an omni-directional
hub for both north-south and east-west transcontinental traffic. Therefore,
TWA believes it is better positioned to offer more frequencies and connecting
opportunities to many travelers in its key Midwestern markets than competing
airlines. To capitalize on these advantages, the Company
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increased its number of daily departures at St. Louis from 229 in 1993 to 335
in 1996. In addition, beginning in 1995, the Company has consolidated domestic
routes in order to strengthen its position further, and has increased service
to the north and south with markets to Jackson, Mississippi, Knoxville,
Tennessee, Shreveport, Louisiana, Toronto, Canada and the Mexican resort
cities of Cancun, Ixtapa/Zihuatenejo and Puerto Vallarta.
Internationally, the Company's operations are concentrated at JFK. The
Company's strategy is to reduce and streamline international operations to
focus on business markets that it believes can support non-stop service and to
maximize utilization of the JFK facility. As a result, in 1994 and 1995, the
Company eliminated service to several European cities including Berlin, Zurich
and Vienna and reduced its service to and from Paris. In the summer of 1996,
the Company increased service to several European leisure destinations through
the planned addition of four 747 aircraft. In addition, during 1996 the
Company increased service from JFK to the Caribbean, Florida and certain other
domestic cities to increase utilization of the Company's JFK facility,
particularly during off-peak time periods, and to provide feed traffic for its
international operations.
Implementation of these plans resulted in significant load factor increases
and improvement in RASM during the early months of 1996. However, as TWA moved
into the peak summer months, delays occurred in the expected delivery of the
additional 747 aircraft, requiring daily rescheduling of aircraft and
resulting in considerable disruption in the domestic feed schedule. In
addition, the crash of TWA Flight 800 on July 17, 1996 diverted management's
attention, contributing to additional deterioration of schedule integrity and
impacting the public perception of TWA. Management believes that these factors
contributed to deterioration in load factor and yield on international and
domestic JFK feed flights. In addition, the Company relied disproportionately
on lower-yield feed traffic to fill additional wide-body seats. As a result,
after an extended series of evaluation sessions with union officials and
advisors, the Company embarked on a program in late 1996 to improve yields and
load factors, reduce costs and otherwise increase efficiencies by
(i) accelerating the replacement of all 747 and L-1011 aircraft with smaller
equipment, (ii) reducing low-yield domestic JFK feed service, (iii) limiting
or eliminating historically unprofitable international routes and
(iv) consolidating most JFK operations for the near term from two terminals
into a single terminal.
On April 28, 1997, TWA announced it had filed an application with the U.S.
Department of Transportation seeking approval of code-share service with Royal
Jordanian Airline. The agreement calls for the joint coding of TWA domestic
flights between seven U.S. cities and JFK and of Royal Jordanian Airline's
direct flights between JFK, Amsterdam and Amman, Jordan. Service is
anticipated to begin in late 1997. TWA is exploring the possibility of
entering into marketing and code-share alliances with additional foreign
carriers. These alliances, if consummated, would allow the Company to provide
its passengers with extended service to foreign destinations not served
directly by the Company, while feeding TWA's North American operations from
these foreign destinations.
Fleet Upgrade and Simplification
TWA's fleet modernization plans seek to realize operating cost savings by
replacing a number of older, less efficient aircraft with more modern,
technologically advanced, twin-engine, two-pilot aircraft. New flight
equipment acquisition plans initiated in 1996, are intended to achieve a
decrease in operating and maintenance costs as the older, heavier maintenance
aircraft are phased out and replaced by newer aircraft. The Company's plans
contemplate a phase out of two older aircraft types intended to simplify the
Company's fleet structure, thereby reducing the number of aircraft types to
decrease overall crew training and aircraft maintenance costs (although
resulting in increased short-term transition crew training costs). Additional
efficiencies should be realized through increased standardization of aircraft
parts, supplies and cabin equipment that must be inventoried throughout TWA's
system. Despite the higher capital costs associated with owning or leasing new
and later model aircraft, the Company believes that corresponding reductions
in operating costs should result in a lower overall cost per seat mile.
Management believes this initiative offers the potential for greater
proportionate benefit to TWA than perhaps any other major U.S. airline.
In early 1997, the Company announced plans to accelerate retirement of its
14 remaining 747s (four-engine, 3-pilot wide-body jets with an average age of
approximately 25.6 years) and its 11 remaining L-1011s (three-engine, three-
pilot wide-body jets with an average age of approximately 22.6 years). These
aircraft will be replaced by more efficient twin-engine, two-pilot new or
later-model used 757, 767 and MD80 aircraft, which are more appropriately
sized to meet the needs of TWA's mid-continent St. Louis hub and smaller JFK
operation,
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thereby reducing the Company's dependence on low-yield feed traffic and bulk
ticket sales. Such aircraft should also permit TWA to more effectively utilize
its yield management system. In 1996, TWA entered into agreements with a major
operating lessor to lease 10 new 757s with deliveries in 1996 and 1997 and
with the aircraft manufacturer to purchase an additional 10 new 757 aircraft,
with deliveries that commenced in February 1997. The Company also acquired the
right, subject to certain conditions, to purchase up to 20 additional new 757
aircraft from the manufacturer. TWA is also in discussions with certain other
lessors to lease other aircraft as part of TWA's fleet modernization program.
Also in 1996, the Company entered into an agreement with the manufacturer to
acquire 15 new MD-83s. The long-term leasing arrangement provides for delivery
of the aircraft between the second half of 1997 and 1999. Finally, the Company
outfitted thirty of its DC9-30 aircraft with "hush-kits" in order to bring
such aircraft into compliance with Stage 3 requirements of the Noise Act. The
Company intends to "hush-kit" additional DC9-30, DC9-40 and DC9-50 aircraft in
1997 as the FAA approves hush-kit installations for these aircraft. See
"Business--Regulatory Matters--Noise Abatement." While the Company is seeking
financing for certain of its planned capital expenditures, a substantial
portion of such expenditures is expected to utilize internally generated
funds. The inability to finance or otherwise fund such expenditures could
materially adversely affect the ability of the Company to implement its
strategic plan. See "Risk Factors--Risk Factors Related to the Company--
Substantial Indebtedness; Capital Expenditure Requirements; Liquidity."
Customer Service; Travel Agent Commissions
In recent years, the Company has focused on improving the quality of its air
travel product and the service provided to passengers by TWA personnel. TWA
has undertaken a number of service initiatives which it believes had begun
building brand loyalty and increasing among existing customers its market
share of value-conscious business travelers and price-conscious leisure
travelers. In 1996, however, the Company's operating difficulties described
elsewhere herein caused increased flight cancellations, poor on-time
performance and a general deterioration in product quality. The crash of TWA
Flight 800 also had a negative impact on the public perception of TWA. The
Company believes that the steps taken to restore operating integrity will
result in improvements in TWA's product quality and customer service. Ongoing
initiatives include:
Focus on Business Traveler. Based on customer research, the Company has
targeted value-conscious business travelers and is therefore tailoring its
marketing and advertising efforts to emphasize the Company's positioning as a
full-service, high-value airline providing service to popular business
destinations throughout the U.S. The Company believes that its convenient
flight schedules and connections, as well as its centrally located hub at St.
Louis, are important in providing service which is attractive to these
travelers. The Company also offers its Frequent Flight Bonus ("FFB"(R))
program in order to build customer loyalty among business travelers.
In March 1995, TWA began implementation of Trans World One SM ("Trans World
One") service in international and transcontinental non-stop markets. Trans
World One is aimed at attracting business travelers by providing improved
premium class service at fares comparable to its competitors' business class
service. To implement Trans World One, TWA converted its wide-body fleet of
Boeing 747 and 767 aircraft from a traditional three-class configuration to a
two-class configuration, with a special emphasis on improvements to the
premium class cabin, including new seats with increased recline capability and
enhanced meal service and wine selections.
Leisure Traveler. Within the leisure travel market, TWA has positioned
itself as a high-quality, low-fare carrier. Management believes that based
upon TWA's lower costs and its extensive off-peak flight schedule, the Company
is in a strong position to compete for price-conscious leisure travelers who
seek a full-service product at prices competitive with other carriers offering
"no-frills" service. To capitalize on its strengths in this area, the
Company's marketing and advertising efforts targeted at this segment will
continue to emphasize TWA's quality image and strong name recognition together
with the airline's broad route network serving popular leisure destinations.
The Company has recently commenced service to additional leisure destinations
in Mexico and the Caribbean, and has entered into marketing agreements with a
number of major international tour packagers.
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Travel Agent Commissions. TWA pays the full traditional 10% commission on
tickets for domestic transportation on TWA sold by independent travel agents
and has removed the cap of $50 and $25 per domestic round-trip and one-way
tickets, respectively, which it and most other major airlines imposed in 1995.
Although the Company can not quantify the current or potential future impact
of this decision, the Company believes the payment of full commissions is a
positive factor in the Company maintaining and improving its long-term
relationships with such travel agents. See "Business--Travel Agencies--Travel
Agent Commissions."
Labor Relationship
Management believes TWA has a generally cooperative relationship with its
employees, including employees represented by trade unions. At various times,
the Company's employees have demonstrated significant loyalty and commitment
to TWA's future by, among other things, agreeing to various wage and work rule
concessions to improve productivity in connection with the '93 and '95
Reorganizations. As a result of these agreements (i) the Company's employees
received approximately 30% of the voting equity of TWA outstanding immediately
following the '95 Reorganization and (ii) certain corporate governance
provisions were effected, including provision of the right of employees
represented by ALPA, the IAM and IFFA, who then together constituted
approximately 84% of TWA's total employees, to elect four of the Company's 15
directors. See "Description of Capital Stock--Description of Employee
Preferred Stock" and "Certain Provisions of the Certificate of Incorporation,
the By-laws and Delaware Law." On March 6, 1997, the IAM assumed
representation of the Company's flight attendants formerly represented by
IFFA, and IFFA was decertified. Union and non-union employees are also
eligible under the ESIP to increase their level of stock ownership through
grants and purchases of additional shares over a five year period commencing
in 1997. For information concerning the ESIP, see "Business--Employees."
Each of the Company's union contracts becomes amendable in September 1997,
and negotiations have begun with respect to one of the contracts. While
management believes that the negotiation process for the new contracts will
result in extended contracts mutually satisfactory to the parties, there can
be no assurances as to the ultimate timing or terms of any such new contracts.
As the Company's financial resources are not as great as those of most of its
competitors, any substantial increase in its labor costs as a result of any
new labor agreements or any cessation or disruption of operations due to any
strike or work action could be particularly damaging to the Company. The
Company believes that the status of its employees as substantial stockholders
and participants in corporate governance and the Company's efforts to involve
employees in developing and achieving the Company's goals will result in
continued dedication to the efforts to improve the Company's financial and
operational performance. As part of the Company's efforts to foster employee
participative management concepts throughout the organization, several
employee-led initiatives were begun in 1994 and continue to be developed and
implemented. For example, the Company's Productivity Task Force, is designed
to focus upon broader cost savings opportunities and is comprised of both
labor and management members. Such initiatives are supported by the
Management/Labor Advisory Task Force, consisting of union leaders, the
Chairman and Chief Executive Officer and other senior officers of the Company.
This task force meets monthly to discuss these and other initiatives to
demonstrate joint commitment to reengineering efforts.
Investment in Technology
Management believes significant opportunities exist for the Company to
increase revenues and reduce costs by investing in available technology that
provides the Company and its employees with the information necessary to
operate its business more effectively and to improve customer service. The
Company has recently taken a significant step forward in this area by
installing a new computerized yield management system. The need to build a
historic database for such yield management system has delayed full
realization of benefits expected from such system; however, later in 1997 when
such database is more complete, this system is expected to allow the Company
to improve significantly its ability to estimate demand flight-by-flight for
each class of fares and manage the allocation of seats accordingly. Given
TWA's prior lack of a computerized yield management system, the Company's
management believes that full implementation of this new system will offer
significant
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opportunities for revenue improvement. In 1996, the Company implemented a
"QIK-Res" system at its reservation center in Norfolk, Virginia. QIK-Res is a
front-end reservations software program designed to improve customer service.
Management believes the system has demonstrated its effectiveness at Norfolk
and intends to pursue the possibility of extending the system to its
reservation centers in Los Angeles and Chicago.
Cost and Efficiency Initiatives
Management believes that maintaining a low cost structure is crucial to the
Company's business strategy. TWA's airline operating cost per ASM (adjusted
for subsidiaries, restructuring and earned stock contributions) increased from
8.12c in 1995 to 8.76c in 1996. The primary contributors to this increase were
increases in fuel rates, maintenance costs and costs associated with flight
crew training. Despite this increase, management believes that TWA's operating
costs remain below the average of the six largest full service carriers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company intends to continue to pursue, among other things,
route optimization, increased labor efficiencies, fleet modernization and
rationalization, and investment in technological advances in order to improve
operating results. The Company has also increased to 12 the number of "banks"
of flights operating into its St. Louis hub to increase further the
utilization of its aircraft. TWA has installed a new ticketless system and
will begin testing automatic ticket machines in selected markets in the second
quarter of 1997. In mid-1996, the Company initiated programs allowing
customers to book reservations directly via on-line network systems, and
during the second quarter of 1997, TWA expects to begin to provide bookings
via the Internet. It is expected that distribution costs will be reduced as
travelers use these on-line booking vehicles and ticketless systems. In
addition, TWA is implementing a number of programs to reduce computer
reservation systems booking fees, both internally and from travel agents. TWA
will continue to explore other opportunities to reduce costs and improve
efficiency in the areas of aircraft maintenance, airport operations,
purchasing, distribution, ticket delivery, food service, cargo delivery
operations and administrative functions.
CORPORATE REORGANIZATIONS
During the early 1990s, the U.S. airline industry, including the Company,
experienced unprecedented losses, which were largely attributable to, among
other things, the Persian Gulf War (which caused a substantial increase in
fuel costs and reduction in travel demand due to concerns over terrorism),
recessions in the United States and Europe, and significant industry-wide fare
discounting resulting from another U.S. airline's attempt to introduce a new
pricing structure into the domestic airline business. In addition, TWA had
incurred significant debt as a result of the leveraged acquisition in 1986 of
a controlling interest in the Company by Mr. Icahn. The substantial losses
sustained by the Company during this period, coupled with the Company's
excessive debt obligations, made it necessary for TWA to restructure its debt
obligations and equity, lower its labor costs and severely reduce its capital
outlays.
'93 Reorganization
On November 3, 1993 (the " '93 Effective Date"), TWA emerged from the
protection of Chapter 11 of the United States Bankruptcy Code pursuant to a
bankruptcy case filed on January 31, 1992. During the pendency of the '93
Reorganization, the Company (i) negotiated, effective September 1, 1992, a
series of three-year concession agreements with its unions providing for,
among other things, a 15% reduction in wages and benefits and certain work-
rule concessions designed to reduce costs substantially (the " '92 Labor
Agreements"), (ii) obtained confirmation of a reorganization plan which
eliminated more than $1 billion of debt and lease obligations, and (iii)
reached a settlement with the Pension Benefit Guaranty Corporation (the
"PBGC") with respect to the Company's underfunded pension plan obligations.
During the pendency of the '93 Reorganization, the Icahn Entities released
their claims against and interests in TWA and Mr. Icahn resigned as Chairman
of the Board of Directors and as an officer of TWA. The Icahn Entities (as
defined) also agreed to provide up to $200 million of financing pursuant to
the Icahn Loans (as defined) (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Legal
Proceedings--Icahn Litigation").
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'95 Reorganization
Notwithstanding the reduction in levels of debt and obligations achieved
through the '93 Reorganization, the Company emerged from the '93
Reorganization in a too highly leveraged position and, despite progress in
increasing revenues and reducing costs, continued to experience significant
operating losses. With the hiring of a new management team in 1994, the
assumptions underlying the Company's operating plans, upon which its ability
to service its post '93 Reorganization obligations depended, were recognized
as unrealistic and unachievable. As a consequence, the Company was forced to
seek a second financial restructuring.
In the second quarter of 1995, the Company solicited and received sufficient
acceptances to effect the proposed "prepackaged" plan of bankruptcy.
Therefore, on June 30, 1995, the Company filed a prepackaged Chapter 11 plan
of reorganization, which with certain modifications was confirmed by the
United States Bankruptcy Court in St. Louis (the "Bankruptcy Court") on August
4, 1995. On August 23, 1995, approximately eight weeks after filing the
prepackaged Chapter 11 plan, the '95 Reorganization became effective and the
Company emerged from the protection of this second Chapter 11 proceeding. In
connection with the '95 Reorganization, the Company (i) exchanged certain of
its then outstanding debt securities for a combination of newly issued 12%
Preferred Stock, Common Stock, warrants and rights to purchase Common Stock,
and debt securities, (ii) converted its then outstanding preferred stock to
shares of Common Stock, warrants and rights to purchase Common Stock, (iii)
obtained certain short-term lease payment and conditional sale indebtedness
deferrals amounting to approximately $91 million and other modifications to
certain aircraft leases; and (iv) obtained an extension of the term of the
approximately $190 million principal amount of the Icahn Loans. The Company
also (i) effected a reverse stock split of its then outstanding common stock
and exchanged such shares for Common Stock; (ii) raised approximately $52
million through an equity rights offering; (iii) distributed certain warrants
to its then current equity holders; and (iv) implemented certain amendments to
the Certificate of Incorporation relating to the recapitalization and various
corporate governance matters. See "Description of Capital Stock--Description
of Employee Preferred Stock."
In connection with and as a precondition to the '95 Reorganization, in
August and September of 1994, the Company entered into the '94 Labor
Agreements, amending existing collective bargaining agreements, with the IAM,
ALPA and IFFA, the three labor unions who then represented approximately 84%
of the Company's employees. The '94 Labor Agreements provided for an extension
of certain previously agreed wage concessions, modifications to work rules and
the deletion of certain provisions of the then existing labor agreements,
including elimination of so-called snapbacks, i.e., the automatic restoration
of wage reductions granted in such agreements at the end of their term to
levels that prevailed prior to the concessionary agreement. During 1994 and
1995, the Company also implemented a number of similar cost savings
initiatives with respect to domestic non-union and management employees,
primarily through reducing head count, altering benefit packages, and
continuing wage reductions which had been scheduled to expire. See "Business--
Employees."
----------------
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.
37
<PAGE>
MARKET FOR COMMON STOCK AND DIVIDEND POLICY
On August 23, 1995, all of the Company's previously outstanding equity
securities were canceled and certificates with respect thereto thereafter
evidenced only the right to receive Common Stock and the other consideration
specified in the '95 Reorganization. Also pursuant to the '95 Reorganization,
holders of certain debt securities of the Company received shares of Common
Stock. Information regarding the trading price range of pre-'95 Reorganization
common stock is not comparable with data provided for the Common Stock and is
not included in this Offering Memorandum. For information concerning the '95
Reorganization, see "The Company--Corporate Reorganizations."
The Common Stock is listed for trading on the American Stock Exchange. The
following table sets forth the range of high and low prices for shares of the
Common Stock (as reported in The Wall Street Journal) for the periods
indicated:
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ------- ------
<S> <C> <C>
1995
Third Quarter (August 23 through September 30).............. $ 8.000 $5.313
Fourth Quarter (October 1 through December 31).............. 14.625 6.500
1996
First Quarter............................................... 20.500 9.125
Second Quarter.............................................. 23.625 14.125
Third Quarter............................................... 15.125 8.125
Fourth Quarter.............................................. 9.688 6.500
1997
First Quarter............................................... 8.125 5.750
Second Quarter (through , 1997)........................ -- --
</TABLE>
Since 1978, the Company has not paid any cash dividends on any of its common
stock. The Company currently plans to retain all earnings to finance its
business and to reduce its leverage rather than paying cash dividends on the
Common Stock. Payments of any cash dividends in the future will depend on the
financial condition, results of operations and capital requirements of TWA as
well as other factors deemed relevant by its Board of Directors, including
applicable restrictions in various agreements relating to indebtedness.
38
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996, and as adjusted to give effect to the Private Placement and
the application of the net proceeds therefrom. This information should be read
in conjunction with the Consolidated Financial Statements appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt and capital lease obligations (net of
unamortized discounts and including current
maturities)(1):
12% Senior Secured Notes due 2002(2)................. $ -- $ 42,500
12% Senior Secured Reset Notes due 1998(3)........... 111,799 111,799
8% IAM Backpay Notes................................. 12,090 12,090
PBGC Notes........................................... 198,672 198,672
Icahn Loans.......................................... 125,102 125,102
Equipment Trust Certificates......................... 8,963 8,963
Various secured notes, 4.0% to 12.4%, due 1997-2001.. 75,478 75,478
Installment Purchase Agreements, 10.00% to 10.53%,
due 1997-2003....................................... 109,034 109,034
IRS Deferral Note.................................... 8,708 8,708
Predelivery Financing Agreement...................... 19,862 19,862
WORLDSPAN Note....................................... 31,224 31,224
Capital lease obligations............................ 263,291 263,291
---------- ----------
Total long-term debt and capital lease obliga-
tions............................................. 964,223 1,006,723
---------- ----------
Shareholders' equity:
Preferred Stock, $0.01 par value; 137,500,000 shares
authorized:
8% Preferred Stock, 3,869,000 shares authorized and
3,869,000 shares issued and outstanding and as
adjusted............................................ 39 39
Employee Preferred Stock; 6,425,118 shares
authorized; 5,681,258 shares issued and outstanding
and as adjusted(4).................................. 57 57
Common Stock, $0.01 par value; 150,000,000 shares
authorized; 41,762,803 shares issued and outstanding
and as adjusted(5).................................. 418 418
Additional paid-in capital(6)........................ 552,544 559,620
Accumulated deficit.................................. (314,953) (314,953)
---------- ----------
Total shareholders' equity......................... 238,105 245,181
---------- ----------
Total capitalization............................. $1,202,328 $1,251,904
========== ==========
</TABLE>
- --------
(1) Current maturities of long-term debt and capital lease obligations at
December 31, 1996 were $92.4 million and $42.5 million, respectively. See
Notes 8 and 9 to the Consolidated Financial Statements.
(2) As adjusted reflects the $42.5 million ascribed to the Notes pursuant to
the Private Placement. No assurance can be given that the value allocated
to the Notes is indicative of the price at which the Notes may actually
trade.
(3) No effect has been given to the application of a portion of the net
proceeds of the Private Placement (not to exceed approximately $5 million)
to be used to repay a portion of the 12% Reset Notes.
(4) Comprised of 3,701,023 shares of the Company's IAM Preferred Stock, par
value $0.01 per share, 881,880 shares of the Company's IFFA Preferred
Stock, par value $0.01 per share, and 1,131,999 shares of the Company's
ALPA Preferred Stock, par value $0.01 per share, distributed and allocated
to employees through employee stock ownership plans for the benefit of
employees represented by IAM, IFFA and ALPA. Pursuant to the '95
Reorganization, a trust was established to receive the distribution of the
aggregate of 1,721,764 shares of ALPA Preferred Stock. It is contemplated
that such trust will distribute to the employee stock ownership plan for
the benefit of ALPA employees one-third of the ALPA shares annually over a
three-year period. The first and second distributions of 573,921 shares of
ALPA Preferred Stock from the trust occurred in August 1995 and August
1996, respectively. See "Description of Capital Stock--Employee Preferred
Stock."
(5) On March 26, 1997, the Company had 44,083,266 shares of Common Stock
outstanding which does not include (i) approximately 6.3 million shares of
Common Stock initially reserved for issuance upon exercise of the Warrants
(assuming the Initial Purchaser's over-allotment option is not exercised),
(ii) approximately 9.5 million shares of Common Stock reserved for
issuance upon conversion of the 8% Preferred Stock, (iii) approximately
3.1 million shares of Common Stock which may be issued upon exercise of
outstanding stock options granted to officers and employees of the Company
under the KESIP at prices ranging from $4.64 to $18.37 per share and
Common Stock issuable upon the exercise of warrants, (iv) shares of Common
Stock which may be granted or sold at a discount to employees under the
ESIP. See Notes 11 and 12 to the Consolidated Financial Statements and
"Risk Factors--Risk Factors Related to the Company--Corporate Governance
Provisions; Special Voting Arrangements."
(6) As adjusted reflects the $7.5 million ascribed to the Warrants, net of
allocable discounts and commissions and estimated expenses of $0.4
million. No assurance can be given that the value allocated to the
Warrants is indicative of the price at which the Warrants may actually
trade.
39
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data presented below relate to periods in the year
ended December 31, 1992, the ten months ended October 31, 1993, the two months
ended December 31, 1993, the year ended December 31, 1994, the eight months
ended August 31, 1995, the four months ended December 31, 1995, and the year
ended December 31, 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. The consolidated
financial data for periods in the year ended December 31, 1992, the ten months
ended October 31, 1993, the two months ended December 31, 1993, the year ended
December 31, 1994, the eight months ended August 31, 1995, the four months
ended December 31, 1995 and the year ended December 31, 1996 were derived from
the audited consolidated financial statements of the Company. Certain amounts
have been reclassified to conform with presentations adopted in 1996. See
"Risk Factors--Risk Factors Related to the Company--Substantial Indebtedness;
Capital Expenditure Requirements; Liquidity" for a description of the
auditor's report issued in connection with the 1996 Consolidated Financial
Statements.
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 (the "'95 Effective Date"). For
accounting purposes, the '95 Effective Date 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.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRIOR PREDECESSOR COMPANY PREDECESSOR COMPANY REORGANIZED COMPANY
-------------------------------------- ------------------------- -------------------------
TEN MONTHS TWO MONTHS EIGHT MONTHS FOUR MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31,
1992 1993 1993 1994 1995 1995 1996
------------ ----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues...... $3,618,661 $2,633,937 $520,821 $3,407,702 $2,218,355 $1,098,474 $3,554,407
Operating income (loss)
(1).................... (420,432) (225,729) (58,251) (279,494) 14,642 10,446 (198,527)
Loss before income taxes
and extraordinary
items (2).............. (314,292) (362,620) (88,140) (432,869) (338,309) (32,268) (274,577)
Provision (credit) for
income taxes........... 3,361 1,312 (248) 960 (96) 1,370 450
Loss before
extraordinary items.... (317,653) (363,932) (87,892) (433,829) (338,213) (33,638) (275,027)
Extraordinary items
(3).................... -- 1,075,581 -- (2,005) 140,898 3,500 (9,788)
Net income (loss)....... (317,653) 711,649 (87,892) (435,834) (197,315) (30,138) (284,815)
Preferred stock dividend
requirements (4)....... 4,751 36,649
Loss applicable to
common shares.......... (34,889) (321,464)
Per share amounts (5):
Loss before
extraordinary items
and special dividend
requirement........... $ (1.15) (6.60)
Extraordinary item..... .10 (.22)
Special dividend
requirement--
redemption of 12%.....
Preferred Stock (4).... -- (.45)
Net loss............... (1.05) (7.27)
Ratio of earnings to
fixed charges (6)..... -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
PRIOR
PREDECESSOR
COMPANY PREDECESSOR COMPANY REORGANIZED COMPANY
----------- ----------------------- -------------------------
DECEMBER 31,
------------------------------------ DECEMBER 31, DECEMBER 31,
1992 1993 1994 1995 1996
----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Cash and cash
equivalents..... $ 67,885 $ 187,717 $ 138,531 $ 304,340 $ 181,586
Current assets... 602,007 706,462 577,735 715,647 586,442
Net working
capital
(deficiency).... (316,165) (150,744) (1,286,487) (124,446) (404,150)
Flight equipment,
net............. 827,747 660,797 508,625 455,434 472,495
Total property
and equipment,
net............. 1,114,345 886,116 693,045 600,066 614,207
Intangible
assets, net..... -- 1,024,846 921,659 1,275,995 1,184,786
Total assets..... 2,158,143 2,958,862 2,512,435 2,868,211 2,681,939
Current
maturities of
long-term debt
and capital
leases (7)...... 327,251 108,345 1,149,739 110,401 134,948
Liabilities
subject to
Chapter 11
reorganization
proceedings (8). 2,026,895 -- -- -- --
Long-term debt,
less current
maturities (7).. -- 1,053,644 -- 764,031 608,485
Long-term
obligations
under capital
leases, less
current
maturities...... -- 376,646 339,895 259,630 220,790
Shareholders'
equity
(deficiency)
(9)............. (1,149,733) 18,358 (417,476) 302,855 238,105
</TABLE>
(See notes on following page)
40
<PAGE>
- -------
(1) Includes special charges of $138.8 million in 1994, $1.7 million in the
eight months ended August 31, 1995 and $85.9 million in 1996. For a
discussion of these and other non-recurring items, see Note 16 to the
1996 Consolidated Financial Statements.
(2) The 1992 results include non-recurring gains of $254.6 million 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 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. The extraordinary item in 1996 results from
the early extinguishment of certain debt.
(4) On March 22, 1996, the Company called for redemption of all of its
outstanding 12% Preferred Stock. The excess of the early redemption price
over the carrying value of the 12% Preferred Stock is reflected as a
$20.0 million "special dividend requirement" in 1996.
(5) 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.
(6) For purposes of determining the ratio of earnings to fixed charges,
"earnings" consist of earnings before income taxes, extraordinary items
and fixed charges (excluding capitalized interest) and "fixed charges"
consist of interest (including capitalized interest) on all debt and that
portion of rental expense that management believes to be representative
of interest. Earnings were not sufficient to cover fixed charges as
follows (in millions): for the year ended December 31, 1996, $280.0; for
the four months ended December 31, 1995, $32.3; for the eight months
ended August 31, 1995, $338.3; for the year ended December 31, 1994,
$435.0; for the two months ended December 31, 1993, $88.4; for the ten
months ended October 31, 1994, $364.7; and for the years ended December
31, 1992 and 1991, $317.4 and $4.0, 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 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 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.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 the '95 Effective Date. A description of
the adjustments to financial statements arising from consummation of the '95
Reorganization and the application of fresh start reporting is contained in
Note 19 to the Consolidated Financial Statements. For accounting purposes, the
'95 Effective Date 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.
As discussed below under "--Liquidity and Capital Resources," pursuant to
the '95 Reorganization, the Company initially 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. Pursuant to 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
final maturity of the Icahn Loans was extended from January 8, 1995 to
January 8, 2001, and the Company negotiated an aggregate of $91 million of
aircraft lease and conditional sale agreement deferrals for various periods of
time, with a weighted average life of approximately two years.
Through the second quarter of 1996 the Company experienced improvements in
its operating performance as operating income increased to $7.8 million in the
six months ended June 30, 1996, as compared to an operating loss of $21.9
million in the same period of 1995. However, beginning in the third quarter of
1996, the Company's operating performance substantially deteriorated as the
Company's operating profit for the third quarter, typically the strongest
period of the year, declined to $26.0 million in the three months ended
September 30, 1996, as compared to a combined operating profit (excluding
special charges and earned stock compensation charges aggregating $57.9
million) of $103.7 million in the comparable period of the prior year. The
results for the fourth quarter of 1996 evidenced a further acceleration of
this deterioration as the Company reported an operating loss (excluding
special charges aggregating $85.9 million) of $146.5 million, as compared to
operating income of $1.1 million in the same period of 1995. In the second
half of 1996, the Company's revenues increased only 2.4% while capacity
measured in ASMs increased by 6.9%, as compared to the second half of 1995.
Operating costs, excluding earned stock compensation and special charges,
increased 16.0% over this same period. The most significant increases were:
salaries, wages and benefits ($82.4 million), which reflected the increased
number of employees, wage rate increases and additional overtime costs; fuel
($69.4 million), reflecting significantly higher units costs and increased
usage; and maintenance costs. Notwithstanding the actions taken and planned by
management to improve the Company's future operating results as described
below, the Company's first quarter 1997 operating loss significantly exceeded
that reported in the first quarter of 1996.
In light of deterioration in the Company's operating results, management has
over the last several months refocused and accelerated certain aspects of its
business strategy, including its fleet modernization and consolidation plan,
route structure and facility improvements and efficiencies. Management
believes that its recent operating results have been adversely affected by an
overly aggressive increase in capacity, which when combined with unexpected
maintenance delays and related costs, have negatively impacted schedule
reliability resulting in excessive levels of flight cancellations and
deterioration in its on-time performance. The Company believes that this has
adversely affected its unit revenues (principally yields) and costs. In
response to these issues, management has taken action to accelerate the phase
out of all 747 and L-1011 aircraft, reduce low-yield domestic JFK feed
service, curtail and/or eliminate historically unprofitable international
routes and consolidate for the near term most of its JFK operations into a
single terminal. The above actions are designed to improve its operational
performance and make its product more competitive to the business segment
which offers higher
42
<PAGE>
yields. The Company has also curtailed the amount of contract maintenance
services provided to third parties and redeployed those resources to TWA's
aircraft. In connection with the above described plans, management has
announced a comparable reduction in employee headcount. Management may
undertake further actions to reduce costs which may result in additional
reductions of the number of employees.
GENERAL
The airline industry operates in an intensely competitive environment. The
industry is also cyclical due to, among other things, a close relationship of
yields and traffic to general U.S. and worldwide economic conditions. Small
fluctuations in RASM and cost per ASM can have a significant impact on the
Company's financial results. The Company has experienced significant losses
(excluding extraordinary items) on an annual basis since the early 1990s,
except in 1995 when the Company's combined operating profit was $25.1 million.
Factors contributing to these losses included, among other things, excess
financial leverage; adverse publicity associated with the Company's financial
difficulties; excessive labor costs; the periods of a relatively weak economy,
which resulted in weak air travel demand; poor operating performance; domestic
pricing policies of other airlines, which decreased industry revenue yields
and generated intense competition; and volatility in jet fuel costs.
The Company's ability to improve its financial position and meet its
financial obligations will depend upon a variety of factors, including;
significantly improved operating results, favorable domestic and international
airfare pricing environments, absence of adverse general economic conditions,
more effective operating cost controls and efficiencies, and the Company's
ability to attract new capital and maintain adequate liquidity. No assurance
can be given that the Company will be successful in generating the operating
results or attracting new capital required for future viability.
The '94 Labor Agreements become amendable after August 31, 1997. While the
Company cannot predict the precise wage rates that will be in effect at such
time (since such rates will be determined by subsequent events), the wage
rates then in effect will likely increase. However, management believes that
it is essential that the Company's labor costs remain favorable in comparison
to its largest competitors. See "Business--Business Strategy." The Company
will seek to continue to improve employee productivity as an offset to any
wage increases and will continue to explore other ways to control and/or
reduce operating expenses. There can be no assurance that the Company will be
successful in obtaining such productivity improvements or unit cost
reductions. In the opinion of management, the Company's financial resources
are not as great as those of most of its competitors, and therefore, any
substantial increase in its labor costs as a result of any new labor
agreements or any cessation or disruption of operations due to any strike or
work action could be particularly damaging to the Company.
As a result of the application of fresh start reporting as of the '95
Effective Date, substantial values were assigned to routes, gates and slots
($458.4 million) and reorganization value in excess of amounts allocable to
identifiable assets ($839.1 million). The Company has evaluated its future
cash flows and, not withstanding the operating loss experienced since the '95
Effective Date, expects that the carrying value of the intangibles at December
31, 1996 will be recovered. However, the achievement of such improved future
operating results and cash flows are subject to considerable uncertainties. In
future periods these intangibles will be evaluated for recoverability based
upon estimated future cash flows. If expectations are not substantially
achieved, charges to future operations for impairment of those assets may be
required and such charges could be material.
There are a number of uncertainties relating to agreements with employees,
the resolution of which could result in charges to future operating results of
the Company. 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 $58 million based
upon such target prices and the number of shares of Common Stock and Employee
Preferred Stock outstanding at December 31, 1996. The charge for any year,
however, could be substantially higher if the 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 respective years 1997 to 2002). The allocation of
approximately 570,000 shares of Employee Preferred Stock
43
<PAGE>
issued to a trust for employees represented by ALPA pursuant to the '95
Reorganization will also, when allocated to individual employees so
represented in August 1997, result in a charge equal to the fair market value
of the shares on the dates allocated.
Pursuant to the '92 Labor Agreements, the Company agreed to pay to employees
represented by the IAM a cash "bonus' for the amount by which overtime
incurred by the IAM from September 1992 through August 1995 was reduced below
specified thresholds. This amount was to be offset by the amount by which
medical savings during the period for the same employees did not meet certain
specified levels of savings. The obligation is payable in three equal annual
installments beginning in 1998. The Company has estimated the net overtime
bonus owed to the IAM to be approximately $26.3 million and has reflected this
amount as a noncurrent liability on the accompanying balance sheets. Such
amount reflects a reduction of approximately $10 million pursuant to an
agreement to reduce proportionately the obligation based upon the size of the
reduction of indebtedness achieved by the '95 Reorganization. The IAM, while
not providing a calculation of its own, has disputed the method by which
management has computed the net overtime bonus and has indicated that they
believe the amount due to the IAM is much greater than the amount which has
been estimated by management.
In addition, in connection with certain wage increases afforded to non-
contract employees, employees previously represented by the IFFA have asserted
and won an arbitration ruling that, if sustained, would require that the
Company provide additional compensation to such employees. The Company
estimates that at December 31, 1996 such additional compensation would
aggregate approximately $6 million. The Company denies any such obligation and
intends to pursue an appeal of the arbitration ruling. As such, no liability
has been recorded by the Company at December 31, 1996.
In connection with the '95 Reorganization, the Company entered into a letter
agreement with employees represented by the ALPA whereby if the Company's
flight schedule, as measured by block hours, does not exceed certain
thresholds a defined cash payment would be made to the ALPA. The defined
thresholds were exceeded during the measurement periods through December 31,
1996 and no amount was therefore owed to the ALPA as of that date. The
Company, however, anticipates that a liability will be incurred during 1997 as
a result of the Company's planned reductions in capacity. The amount of the
liability, if any, will be dependent on the amount by which the targeted block
hours flown during the year exceed the actual block hours flown. Based upon
current plans, management believes that its obligation under this agreement in
1997 will not exceed $12 million. See Notes 7 and 12 to the Consolidated
Financial Statements. For a description of certain additional employee related
uncertainties, see "Risk Factors--Risk Factors Related to the Company--Certain
Potential Future Earnings Charges."
Significant variations in annual operating revenues and operating expenses
have been experienced historically by TWA and are expected to continue in the
future. Numerous uncertainties concerning the level of revenues and expenses
always exist and it is not possible to predict the potential impact of such
uncertainties upon TWA's results of operations. Among the uncertainties that
might adversely impact TWA's future results of operations are: (i) competitive
pricing and scheduling initiatives; (ii) the availability and cost of capital;
(iii) increases in fuel and other operating costs; (iv) insufficient levels of
air passenger traffic resulting from, among other things, war, threat of war,
terrorism or changes in the economy; (v) governmental limitations on the
ability of TWA to service certain airports and/or foreign markets; (vi)
regulatory requirements requiring additional capital expenditures; (vii) the
outcome of certain upcoming labor negotiations; (viii) the possible reduction
in yield due to a discount ticket program entered into by the Company with
Karabu in connection with the '95 Reorganization; and (ix) the impact of the
public's perception of the crash of TWA Flight 800. See "--Liquidity and
Capital Resources."
The Company's operating results for any interim period are not necessarily
indicative of those for the entire year due to seasonal fluctuations. The
second and third quarter results have historically been more favorable for the
Company due to increased leisure travel on both domestic and international
routes during the spring and summer months.
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
44
<PAGE>
is cooperating fully with all federal, state and local regulatory and
investigatory agencies to ascertain the cause of the crash, which to date has
not been determined. While TWA is currently a defendant in a number of
lawsuits relating to the crash, it is unable to predict the amount of claims
which may ultimately be made against the Company or 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 the claims arising from the crash. Therefore, TWA believes
that the resolution of such claims will not have a material adverse effect on
its financial condition or results of operations. The Company is unable to
identify or predict the extent of any adverse effect on its revenues, yields
or results of operations which has resulted or may result from the public
perception of the crash.
On May 4, 1993, the bilateral air transport agreement between the U.S. and
France lapsed. Any reduction in U.S. carrier access could have an adverse
impact on TWA's transatlantic operations. Absent a bilateral agreement, the
U.S. and France are operating on a system of comity and reciprocity. Under
this regime, carriers are permitted to maintain historical levels of service,
but few or no new services are permitted. Cessation of service to any
authorized markets from France may cause such underlying authority to
terminate.
In March 1997, the President signed legislation reinstating the 10% tax on
domestic tickets, the 6.25% air cargo tax and the $6.00 international
departure tax, effective March 7, 1997. These taxes had expired on December
31, 1995, were reinstated on August 27, 1996 and thereafter expired again on
December 31, 1996. The Company is not able to determine the extent to which
operating results in 1996 and in early 1997 benefited from the absence of
these taxes, although it does believe that such had a positive impact on its
operating results. Similarly, the Company believes that the reimposition of
the tax in March 1997 will likely have an adverse impact on its operating
results in subsequent periods.
In October 1996 Congress enacted the Federal Aviation Reauthorization Act of
1996 (the "FAA Reauthorization Act"). The FAA Reauthorization Act established
a national commission which, together with the DOT, is to conduct an
independent study of FAA funding requirements and recommend alternative
methods for apportioning the costs of the system to its users, including
commercial airlines. The results of the study are to be presented to the
Secretary of Transportation in August 1997, and the Secretary is to make
recommendations to Congress in October 1997. The Company believes that the
current system of a 10% ticket tax imposed on domestic fares unfairly
subsidizes certain low-fare competitors. The Company and a group of other
major airlines have proposed that the ticket tax be replaced by a system of
user fees including an element based upon a charge per originating passenger
and an element based upon a mileage charge. The Company is unable to predict
the outcome of these studies or any Congressional actions related thereto.
Following the crash of TWA Flight 800 in July 1996, the FAA implemented new
security measures primarily impacting international operations. The Company
does not believe that these measures have had any material effect on its
revenues or operating costs to date. Additionally, a special committee
appointed by the President to review aviation safety and airport security
issued its final report on February 12, 1997. The report contains several
recommendations. However, the Company is unable to predict which
recommendations will be adopted or their impact on the Company's future
operating results. Additional government mandated security measures could have
a direct adverse impact on the Company's operating costs to the extent any
such costs are directly assessed to commercial airlines or, if funded through
new taxes or user fees, could indirectly have an adverse impact on the
Company's future operating results in the event that the Company is not able
to fully pass on those charges in the form of ticket price increases.
RECENT RESULTS
On March 18, 1997, the Company reported a fourth quarter 1996 operating loss
of $232.4 million and a net loss of $258.6 million versus an operating profit
of $1.1 million and net loss of $27.8 million for the fourth quarter of 1995.
For the year ended December 31, 1996, the Company reported an operating loss
and net loss of $198.5 million and $284.8 million, respectively, compared to a
1995 operating profit of $25.1 million and a 1995 net loss of $227.5 million.
The Company's 1996 results reflect special charges, recorded in the fourth
quarter, of $85.9 million, including a $53.7 million write-down related to the
planned retirement of older aircraft, a charge of $5.5 million for overseas
employee severance costs and a $26.7 million write-down of the Company's JFK-
Athens route authority, reflecting the Company's decision to terminate service
on such route after April 18, 1997.
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<PAGE>
Material factors contributing to the deterioration in TWA's 1996 results,
particularly in the second half of the year, included: (i) an overly
aggressive expansion of TWA's capacity and planned flight schedule,
particularly during the summer season, which forced the Company to rely
disproportionately on lower-yielding feed traffic and bulk ticket sales to
fill the increased capacity of its system; (ii) the delayed delivery of four
older 747s intended to increase capacity for incremental international summer
operations; and (iii) unexpected maintenance delays due to the capacity
increase, higher levels of scheduled narrow-body heavy maintenance and
increased contract maintenance performed for third parties. These factors
caused excessive levels of flight cancellations, poor on-time performance,
increased pilot training costs and higher maintenance expenditures. In
addition, the crash of TWA Flight 800 on July 17, 1996 distracted management's
attention from core operating issues and led to lost bookings and revenues.
Finally, the Company experienced a 27.6% increase in fuel costs in 1996,
driven primarily by a 22.3% increase in the average fuel price paid per gallon
during the year.
The Company's auditors included in their report dated March 24, 1997 on the
Consolidated Financial Statements an explanatory paragraph to the effect that
substantial doubt exists regarding the Company's ability to continue as a
going concern due to the Company's recurring losses from operations and
limited sources of additional liquidity. See "Risk Factors--Risk Factors
Related to the Company--Substantial Indebtedness; Capital Expenditure
Requirements; Liquidity" and the Consolidated Financial Statements.
During the first quarter of 1997, the Company reported operating revenue of
$762.3 million, which represented a $20.1 million (2.6%) decrease from the
first quarter of 1996, when the Company's operating revenue totaled $782.4
million. The reduced revenue during the first quarter of 1997 as compared with
the same period of 1996 reflected a planned reduction in capacity resulting
from the ongoing replacement of larger 747 and L-1011 aircraft with smaller
767 and 757 aircraft and a reduction in the number of narrow-body aircraft in
TWA's schedule during the first quarter of 1997 in order to move more aircraft
through required scheduled maintenance before the peak travel season. Despite
the decrease in operating revenue during the first quarter of 1997, operating
expenses of $861.8 million represented a $25.2 million (3%) increase over the
first quarter of 1996, when the Company's operating expenses totaled $836.6
million. Approximately $20 million of the increased expense during the first
quarter of 1997 was associated with the accelerated maintenance of the
Company's narrow-body aircraft, while an additional $10 million resulted from
increased crew retaining costs incurred in connection with the downsizing of
the Company's fleet. In addition, TWA's average cost per gallon for jet fuel
during the first quarter of 1997 increased to 74.02c, an 11.2 percent increase
from 66.58c, the average cost per gallon in the first quarter of 1996. As a
result of the above, in the first quarter of 1997 TWA experienced a net loss
of $71.6 million, which represented a $34.5 million increase over the $37.1
net loss for the first quarter of 1996, and a $99.5 million operating loss,
which represented a $45.3 million increase over the operating loss reported
for the first quarter of 1996.
RESULTS OF OPERATIONS
TWA's passenger traffic data, for scheduled passengers only and excluding
Trans World Express, Inc. ("TWE") a wholly-owned subsidiary of the Company
that provided a commuter feed service to the Company's New York hub prior to
November, 1995, are shown in the table below for the indicated periods(1):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
NORTH AMERICA
Passenger revenues ($ million)...................... $ 2,221 $ 2,292 $ 2,515
Revenue passenger miles (millions)(2)............... 17,543 17,902 19,513
Available seat miles (millions)(3).................. 27,963 28,194 30,201
Passenger load factor(4)............................ 62.7% 63.5% 64.6%
Passenger yield (cents)(5).......................... 12.66c 12.80c 12.89c
Passenger revenue per available seat mile
(cents)(6)......................................... 7.94c 8.13c 8.33c
</TABLE>
(Table continued on following page)
46
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
INTERNATIONAL
Passenger revenues ($ million)...................... $ 597 $ 544 $ 563
Revenue passenger miles (millions)(2)............... 7,363 7,000 7,598
Available seat miles (millions)(3).................. 11,228 9,719 10,393
Passenger load factor(4)............................ 65.6% 72.1% 73.1%
Passenger yield (cents)(5).......................... 8.10c 7.78c 7.41c
Passenger revenue per available seat mile
(cents)(6)......................................... 5.31c 5.60c 5.42c
TOTAL SYSTEM
Passenger revenues ($ millions)..................... $ 2,818 $ 2,836 $ 3,078
Revenue passenger miles (millions)(2)............... 24,906 24,902 27,111
Available seat miles (millions)(3).................. 39,191 37,905 40,594
Passenger load factor(4)............................ 63.5% 65.7% 66.8%
Passenger yield (cents)(5).......................... 11.31c 11.39c 11.35c
Passenger revenue per available seat mile
(cents)(6)......................................... 7.19c 7.48c 7.58c
Operating cost per available seat mile (cents)(7)... 8.45c 8.12c 8.76c
Average daily utilization per aircraft (hours)(8)... 9.30 9.45 9.63
Aircraft in fleet being operated at end of period... 185 188 192
</TABLE>
- --------
(1)Excludes subsidiary companies.
(2)The number of scheduled miles flown by revenue passengers.
(3)The number of seats available for passengers multiplied by the number of
scheduled miles those seats are flown.
(4)Revenue passenger miles divided by available seat miles.
(5)Passenger revenue per revenue passenger mile.
(6)Passenger revenue dividend by available seat miles.
(7)Operating expenses, excluding special charges, earned stock compensation
and other nonrecurring charges, divided by available seat miles.
(8)The average block hours flown per day in revenue service per aircraft.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO
THE FOUR-MONTHS ENDED DECEMBER 31, 1995 AND EIGHT MONTHS ENDED AUGUST 31, 1995
Total operating revenues of $3,554.4 million for 1996 were $237.6 million or
7.2% more than the total operating revenues of $3,316.8 million for the year
ended December 31, 1995. The increase was primarily reflected in TWA passenger
revenues which were $241.6 million higher than in 1995. Additionally, revenues
from contract maintenance work increased $15.7 million and revenue from
freight and mail increased $9.9 million. Operating revenues for 1995 included
$35.9 million in passenger revenues from TWE which discontinued operations in
November 1995.
Capacity and traffic increased in 1996 as compared to 1995. System-wide
capacity, measured in ASMs, increased by 7.1% in 1996 as compared to 1995
(representing increases in domestic and international ASMs of 7.1% and 7.0%,
respectively). Passenger traffic volume, as measured by total RPMs in
scheduled service, increased 8.9% in 1996 over 1995. Passenger load factor for
1996 was 66.8% compared to 65.7% in 1995. TWA's yield per passenger mile
decreased slightly from 11.39 cents in 1995 to 11.35 cents in 1996. Although
the yield per passenger mile declined only slightly year over year, the yield
during the second half of 1996 was 10.97 cents compared to 11.40 cents during
the second half of 1995.
Operating expenses of $3,752.9 million in 1996 reflect an increase of $461.2
million (14.0%) over the total operating expenses of $3,291.7 million for the
year ended December 31, 1995, representing a net change in the following
expense groups:
. Salaries, wages and benefits of $1,254.3 million for 1996 were $125.6
million (11.1%) more than 1995, primarily due to an increase in the
average number of employees, overtime costs required due to poor
operating performance in 1996 and lower productively levels. The Company
had an average of 24,254 employees in 1996 as compared to 22,927 in 1995.
47
<PAGE>
. Earned stock compensation charges of $9.1 million for 1996 and $58.0
million for 1995 represent primarily the non-cash compensation charge
recorded to reflect the expense associated with the distribution of
shares of stock on behalf of employees as part of the '95 Reorganization.
Additional non-cash compensation charges will be recorded in 1997, a
substantial portion of which will depend on the market price of the
Common Stock. For a further discussion of future charges related to non-
cash compensation, see "Risk Factors--Risk Factors Related to the
Company--Certain Potential Future Earnings Charges" and Notes 11 and 12
to the Consolidated Financial Statement.
. Aircraft fuel and oil expense of $582.2 million for 1996 was $126.6
million (27.6%) over the total expense of $458.6 million for 1995. This
increase is primarily due to an increase in the price of fuel (22.3%), an
increase in gallons consumed (4.3%) and the expiration in October 1995 of
the airlines' exemption from paying a federal fuel tax of 4.3 cents per
gallon, which increased fuel expense by approximately $13.6 million.
. Passenger sales commission expense of $268.1 million for 1996 was $2.1
million (0.8%) higher than the combined expense of $266.0 million in
1995, and is primarily related to the $241.6 million increase in TWA
passenger revenues offset by an increase in non-commissionable
international tickets.
. Aircraft maintenance materials and repairs expense of $208.2 million in
1996 represented an increase of $60.5 million (41.0%) from $147.7 million
for 1995. The increase was primarily the result of higher levels of
scheduled maintenance in 1996, including heavy maintenance, a 3.6%
increase in flying hours and increased repair work performed by the
Company for other air carriers and third parties.
. Depreciation and amortization expense of $161.8 million for 1996
increased slightly from combined expenses of $161.6 million for 1995.
. Operating lease rentals of $303.0 million for 1996 were $24.1 million
(8.6%) more than the total rentals of $278.9 million for 1995. The
increase was primarily due to an increase in the average number of leased
aircraft from 119 in 1995 to 123 in 1996 and higher lease rates.
. Passenger food and beverage expense of $110.1 million in 1996 represented
an increase of $7.3 million (7.1%) from $102.8 million for the twelve
months of 1995. The increase is primarily due to the 8% increase in the
number of passengers boarded.
During the fourth quarter of 1996, special charges of $85.9 million were
recorded in connection with the Company's decision to modify its international
route structure and related aircraft fleet plan. The charges included a write-
down of the JFK-Athens route ($26.7 million), international employee severance
liabilities ($5.6 million) related to the termination of service to Athens and
Frankfurt, and a write-down of the L-1011 and 747 fleets ($32.2 million) and
the related inventories ($21.5 million), reflecting planned retirement of such
aircraft. These costs are based upon management's current estimates. Actual
costs could materially differ from these current estimates. See Note 16 to the
Consolidated Financial Statements for a further discussion of these special
charges. Special charges of $1.7 million were recorded in the third quarter of
1995 related to the shutdown of TWE.
All other operating expenses of $767.2 million in 1996 represented an
increase of $79.6 million (11.6%) from $687.6 million for the year ended
December 31, 1995. An increase in flight cancellations during 1996 resulted in
increased CRS fees related thereto ($19.4 million) and interrupted trip
expenses ($3.7 million). In addition, expenses relating to maintenance
services provided under a contract with the military increased approximately
$21.6 million in 1996 compared to 1995. The Company also experienced a
significant increase in professional/technical fees ($18.7 million) which was
primarily due to the use of contract programmers for ongoing development of
new systems and external consultants' fees for re-engineering.
Other charges (credits) were a net charge of $76.1 million for 1996 as
compared to $42.7 million and $353.0 million in the four month and the eight
month periods of 1995, respectively (included in the eight month period is a
charge of $242.3 million for reorganization items in connection with the
application of fresh start reporting pursuant to the '95 Reorganization).
Interest expense decreased $42.3 million in 1996 over 1995 as a result of
48
<PAGE>
the reduction of debt arising from the '95 Restructuring and additional
reductions of debt during 1996. Interest income increased by $3.5 million in
1996 primarily as a result of higher levels of invested funds. Other charges
and credits-net improved $35.8 million in 1996 compared to 1995, primarily due
to a $19.8 million improvement in the Company's share of earnings of Worldspan
and a $2.5 million credit to reflect a litigation settlement. Additionally,
other charges and credits-net for 1995 included a $14.0 million charge for
restructuring expenses.
As a result of the above, the operating loss of $198.5 million for 1996 was
$223.6 million unfavorable to the combined operating income of $10.5 million
and $14.6 million for the four month and the eight month periods of 1995,
respectively. The net loss of $284.8 million for 1996 was $57.4 million
greater than the combined loss of $227.4 for 1995. The 1996 net loss included
$9.8 million in extraordinary losses related to the early extinguishment of
debt, while the 1995 net loss included $144.4 million in extraordinary gains
related to the discharge of indebtedness pursuant to the '95 Reorganization
and the cancellation of debt between TWE and an aircraft lessor.
RESULTS OF OPERATIONS FOR THE FOUR MONTHS ENDED DECEMBER 31, 1995 AND EIGHT
MONTHS ENDED
AUGUST 31, 1995 COMPARED TO THE FISCAL YEAR ENDED DECEMBER 31, 1994
Total operating revenues of $1,098.5 million and $2,218.4 million for the
four months ended December 31, 1995 and the eight months ended August 31,
1995, respectively, were, on a combined basis, $90.9 million (2.7%) less than
1994, primarily because of an $80.5 million decrease in other revenues. This
decrease is primarily due to the sale of subsidiary companies in 1994 ($51.9
million), a decrease of $13.0 million in TWA Nippon, Inc. ("Nippon") revenues,
and a $12.3 million decrease in TWA Getaway Vacations revenue.
During 1995, passenger revenue remained virtually unchanged from 1994,
despite the adverse publicity generated by the '95 Reorganization, and in the
four months since emerging from bankruptcy, passenger revenue increased by
$48.3 million, a 5.5% improvement over the same period of 1994. System
capacity as measured by
ASMs was trimmed by 3.2% on a system-wide basis in 1995 versus 1994.
International capacity decreased 13.7% due to the termination of flights to
several international destinations, while domestic capacity increased slightly
(1.1%). During 1995, system traffic volume, as measured by total RPMs,
improved slightly (0.1%), the result of a decrease in international traffic by
5.1% and an increase in domestic traffic by 2.3%. TWA's yield per passenger
mile for 1995 increased to 11.39 cents from 11.31 cents in 1994 (reflecting a
domestic increase to 12.80 cents from 12.66 cents and an international
decrease to 7.78 cents from 8.10 cents).
Operating expenses of $1,088.0 million and $2,203.7 million for the four
months ended December 31, 1995 and the eight months ended August 31, 1995,
respectively, were, on a combined basis, $395.5 million (10.7%) less than the
operating expenses of $3,687.2 million for 1994, representing a net change in
the following expense groups:
. Salary, wages and benefits for the four months ended December 31, 1995
and the eight months ended August 31, 1995 of $373.0 million and $755.7
million, respectively, were, on a combined basis, $164.8 million (12.7%)
less than 1994. The reduction in employment costs reflect a full year of
savings realized from the '94 Labor Agreements entered into in August
1994 as the average number of employees was reduced from approximately
25,200 in 1994 to approximately 22,900 in 1995. The four months ended
December 31, 1995 included the favorable impacts of changes in estimates
which reduced employee benefit costs by approximately $6.2 million.
Additionally, 1994 employment costs included a non-recurring contractual
benefit accrual of approximately $36.3 million.
. During 1995, the Company distributed shares of stock to employees as part
of its financial restructuring which, together with certain other non-
cash compensation charges, resulted in an aggregate charge of $58.0
million to operating expense.
. Aircraft fuel and oil expense of $161.8 million for the four months ended
December 31, 1995 and $296.8 million for the eight months ended August
31, 1995, reflected a combined decrease of $18.9 million from 1994. The
combined effect of decreased fuel usage (5.6%), offset by a slight
increase in the unit price (1.8%), resulted in a decrease of 4.0% in fuel
costs for 1995. The average unit price of fuel was $0.57
49
<PAGE>
per gallon in 1995 compared to $0.56 in 1994. Effective October 1, 1995,
an exemption expired related to a federal fuel tax of 4.3 cents per gallon
on commercial jet fuel purchased for use in domestic operations. This
additional tax increased fuel costs by $7 million in the fourth quarter of
1995. See "Business--Aircraft Fuel."
. Passenger sales commission expense of $80.0 million in the four months
ended December 31, 1995 and $186.0 million in the eight months ended
August 31, 1995, respectively, together represent a decrease of $22.0
million (7.6%) from 1994. The decrease is primarily due to incentive
commissions and a reduction in the commission rate on international
tickets. The four months ended December 31, 1995 included the favorable
impacts of changes in estimated commissions which reduced commission
expense by approximately $6.7 million.
. Aircraft maintenance and repairs expense of $52.0 million and $95.7
million for the four-month and the eight-month periods of 1995,
respectively, together represent a slight increase of $2.3 million (1.6%)
over 1994.
. Depreciation and amortization decreased $21.6 million (11.8%) to the
combined $55.2 million for the four months ended December 31, 1995 and
the $106.5 million for the eight months ended August 31, 1995 from $183.3
million in 1994. The decrease is generally due to the normal decline in
depreciation as property reaches the end of its estimated economic life,
partially offset by an increase in the amortization of intangible assets
arising from fresh start reporting on the '95 Effective Date and the sale
(and simultaneous leaseback) of five 727 and two 747 aircraft in March
1995.
. Operating lease rentals were $96.4 million for the last four months of
1995 and $182.5 million for the first eight months of 1995, a combined
increase of $17.6 million (6.7%) over 1994. The increase was principally
due to the sale and simultaneous leaseback of five 727s and two 747s in
March 1995 and the addition of three new MD-83 aircraft in late 1995. The
increase was also due to the reclassification of the JFK International
Terminal lease from capital to operating ($3.8 million).
. Passenger food and beverage expenses were $34.7 million and $68.1 million
for the four months ended December 31, 1995 and the eight months ended
August 31, 1995, respectively, a combined decrease of $18.0 million
(14.9%) in 1995 compared to 1994. The decrease is primarily due to
decreased international traffic and cost savings as a result of the
closing of the JFK and Los Angeles dining units in the fourth quarter of
1994.
. Special charges of $1.7 million were recorded in the third quarter of
1995 related to the shut-down of TWE.
. All other operating expenses, excluding special charges, aggregated
$232.7 million for the four months ended December 31, 1995 and $454.9
million for the eight months ended August 31, 1995, a combined decrease
of $90.9 million (11.7%) compared to 1994. The decrease is primarily the
result of the operating subsidiaries sold in 1994 ($34.6 million) and
decreases in the operating costs of TWE ($14.2 million) and other
subsidiaries ($27.3 million).
Other charges (credits) were a net charge of $42.7 million for the last four
months of 1995 and a net charge of $352.9 million for the first eight months
of 1995 compared to a net charge of $153.4 million in 1994. This increase of
$242.3 million was primarily due to a $242.2 million non-recurring charge
related to the Company's restructuring. Additionally, interest expense
declined by $26.2 million and investment income increased by $5.8 million and
other charges increased by $4.3 million, reflecting the Company's
proportionate share of increased losses experienced during 1995 over 1994 by
WORLDSPAN, the computer reservation system owned and operated by the Company,
Delta Air Lines and Northwest Airlines. WORLDSPAN's increased loss during 1995
as compared to 1994 was primarily due to restructuring charges recognized by
WORLDSPAN in the fourth quarter of 1995. See also Note 15 to the Consolidated
Financial Statements.
As a result of the above, the operating profit of $10.4 million for the four
months ended December 31, 1995 and $14.6 million for the eight months ended
August 31, 1995 reflected, on a combined basis, a $304.5 million improvement
from the operating loss of $279.5 million in 1994. The net loss of $30.1
million for the last four months of 1995 and $197.3 million for the first
eight months of 1995 was, on a combined basis, $208.4 million less than the
net loss of $435.8 million in 1994.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following is a discussion of the impact of significant factors affecting
TWA's liquidity position and capital resources. These comments should be read
in conjunction with, and are qualified in their entirety by, the Consolidated
Financial Statements and Notes thereto.
Liquidity
The Company's consolidated cash and cash equivalents balance at December 31,
1996 was $181.6 million (including approximately $28.3 million in cash and
cash equivalents held in its international operations and by its subsidiaries
which, based upon various foreign monetary regulations and other factors,
might not be immediately available to the Company), a $122.7 million decrease
from the December 31, 1995 balance of $304.3 million. Due to seasonal factors,
the Company's cash balances during the first quarter of each year are
typically lower than in other periods. These seasonal factors, when combined
with the large loss in the first quarter of 1997, which significantly exceeded
the loss reported in the comparable quarter of 1996, reduced cash balances
during the first quarter of 1997 significantly below the cash balance at
December 31, 1996. In February 1997, in order to improve its liquidity, the
Company entered into an agreement with and received approximately $26 million
from certain St. Louis business enterprises, representing the advance payment
for tickets for future travel by such enterprises. The Company is currently
pursuing other projects intended to increase its cash balances. On March 31,
1997, including net proceeds of $47.2 million from the Private Placement, the
Company's consolidated cash and cash equivalents balance was approximately
$136.5 million (including approximately $ million in cash and cash
equivalents which, for the reasons described above, might not be immediately
available to the Company).
The net decrease in cash and cash equivalents during 1996 was due, in large
part, to the fact that cash used in operating activities in 1996 was $16.8
million as compared to 1995 when cash provided by operating activities was
$212.2 million. The adverse change was primarily attributable to the decrease
in 1996 operating income as compared with 1995. Additionally, pursuant to the
eight-year Karabu Ticket Program Agreement between the Company and Karabu (the
"Karabu Ticket Agreement") net discounted sales from tickets sold under the
agreement are excluded from cash provided by operating activities as the
related amounts are applied as a $62.9 million reduction of the Icahn Loans
and a $6.4 million reduction of the PBGC Notes. At December 31, 1995
approximately $2.0 million of such proceeds had been applied to the principal
balance of the Icahn Loans, while no proceeds had been applied to the PBGC
Notes. The increase of $79.5 million in trade accounts payable during 1996 was
primarily due to the Company utilizing a safe harbor provision with regard to
payment of U.S. transportation taxes of $60 million for the period September
through December 1996, a significant portion of which was paid in February
1997. Cash used in investing activities increased $106.1 million from $18.9
million in 1995 to $125.0 million in 1996. A large part of this increase was
related to capital expenditures ($121.5 million in 1996 versus $59.5 million
in 1995) which had been somewhat restricted by fiscal controls in place during
most of 1995. Financing activities provided $19.1 million of cash in 1996,
compared with a net use of cash of $27.5 million in 1995. Proceeds from long-
term debt and sale and leaseback transactions decreased from $22.1 million in
1995 to $16.6 million in 1996. Repayments of long-term debt and capital leases
required $15.4 million more cash in 1996 than in 1995. In 1996, net proceeds
from the sale of 8% Preferred Stock were $186.2 million while the early
redemption of the 12% Mandatorily Redeemable Stock and cash dividends required
$81.7 million and $14.5 million, respectively. In 1995, the net proceeds from
an equity rights offering generated $51.9 million.
As previously described, management has indicated that it is focusing on the
improvement of TWA's schedule reliability and on-time performance and that it
plans to accelerate the replacement of its L-1011 and 747 fleets with 757, 767
and MD-80 aircraft. Management believes that these, as well as other actions
which it has taken or expects to take, should substantially improve TWA's unit
revenues and reduce its operating costs in 1997. The Company believes that a
substantial improvement in its operating results is necessary for TWA to
maintain adequate liquidity to meet its obligations throughout the remainder
of 1997. The achievement of these
51
<PAGE>
improved operating results are subject to significant uncertainties, including
the Company's ability to achieve higher revenue yields and load factors, the
cost of aircraft fuel, the Company's ability to finance or lease suitable
replacement aircraft at reasonable rates and the containment of operating
costs. See "--Recent Results."
In March 1996 the Company completed the sale of 3,869,000 shares of its 8%
Preferred Stock for gross proceeds of approximately $193.5 million and net
proceeds to the Company of approximately $186.2 million, after commissions and
expenses. A portion of the net proceeds from the offering were used to redeem
the Company's outstanding 12% Cumulative Preferred Stock, pursuant to the
terms thereof, at an aggregate redemption price of approximately $81.7
million, plus accrued dividends from February 1, 1996 to the redemption date
of April 26, 1996. The Company utilized the balance of the net proceeds for
general corporate purposes, including but not limited to, capital expenditures
and increasing working capital.
Pursuant to the '95 Reorganization, the Company issued 600,000 ticket
vouchers, each with a face value of $50.00, which may be used for up to 50%
discount off the cost of a TWA airline ticket for transportation on TWA
("Ticket Vouchers"). Pursuant to certain agreements, the Company repurchased
approximately 236,000 of the Ticket Vouchers at an aggregate cost of $8.8
million. Payments in respect of these Ticket Vouchers were approximately
$700,000 in 1995 and approximately $8.1 million in 1996. Concurrently, the
Company undertook aircraft lease payment deferrals to increase liquidity and
improve the Company's financial condition. Gross deferrals of lease and
conditional sale indebtedness payments aggregated approximately $91.0 million
with a weighted average repayment period of approximately two years. The
aircraft lease payment deferrals contemplated by the '95 Reorganization
generally anticipated six month deferrals with various payback periods,
extending in some instances over the remaining life of the lease, and in other
cases over a specified period. Cash repayments of lease deferrals, including
interest, were approximately $9.5 million in the fourth quarter of 1995, $23.8
million in 1996 and are expected to approximate $8.7 million in 1997.
On June 14, 1995, the Company signed an agreement (the "Extension and
Consent Agreement") with Karabu to extend the term of the Icahn Loans from
January 8, 1995 to January 8, 2001, to obtain the consent of Karabu and the
Icahn Entities to certain modifications to certain promissory notes issued to
the PBGC in connection with the '93 Reorganization (the "PBGC Notes") and to
obtain agreement with the Icahn Entities to refrain from exercising the right
to terminate certain pension plans, covering employees of the Company as to
which Mr. Icahn and the Icahn Entities assumed certain obligations in the '93
Reorganization. Any such termination would not increase the obligations of TWA
under the PBGC Notes or other obligations of TWA to Mr. Icahn, the Icahn
Entities or the PBGC. Collateral for the Icahn Loans includes a number of
aircraft, engines and related equipment, along with substantially all of the
Company's receivables. On June 26, 1995, the Company made a $12.6 million
interest payment on the Icahn Loans. At December 31, 1996, the outstanding
balance of the Icahn Loans was approximately $125.1 million (excluding
approximately $4.7 million in accrued and unpaid interest). The notes
evidencing the Icahn Loans have been pledged by Mr. Icahn and certain
affiliated entities as security for certain obligations of the Icahn Entities
to the PBGC and/or in respect of funding obligations on the Company's pre-'93
Reorganization pension plans.
On June 14, 1995, in consideration of, among other things, the extension of
the Icahn Loans, TWA and Karabu entered into an eight-year Karabu Ticket
Program Agreement (the "Ticket Agreement"). There are two categories of
tickets under the Ticket Agreement: (1) "Domestic Consolidator Tickets," which
are subject to a cap of $610 million, based on the full retail price of the
tickets ($120 million in the first 15 months and $70 million per year for
seven consecutive years through the term of the Ticket Agreement) and (2)
"System Tickets," which are not subject to any cap throughout the term of 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. The Ticket Agreement provides that no
ticket may be included with an origin or destination of St. Louis, nor may any
ticket include flights on other carriers. Tickets sold by Karabu pursuant to
the Ticket Agreement are required to be at fares specified in the
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<PAGE>
Ticket Agreement, net to TWA, and exclusive of tax. No commissions will be
paid by TWA for tickets sold under the Ticket Agreement, and TWA believes that
under the applicable provisions of the Ticket Agreement, Karabu may not market
or sell such tickets through travel agents. 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 affiliated companies
seeking damages and to enjoin further violations. Mr. Icahn countered
threatening to attempt to declare a default on the Icahn Loans on a variety of
claims related to his various interpretations of the security documents
related to such loans as well as with respect to 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. Mr. Icahn also
alleged independent violations of the Icahn Loans, including, among under
things, that the Company has not been maintaining, as required by the terms of
the Icahn Loans, certain aircraft which TWA has retired from service and
stored which are pledged as security for the Icahn Loans.
To endeavor to eliminate this issue from the various disputes with Mr.
Icahn, the Company has deposited an amount equal to the appraised fair market
value with a security trustee and requested the release of the liens on such
aircraft. To date, the Trustee has not released such liens. 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. Those negotiations
reached an impasse and the Company re-filed its suit on March 20, 1996 in the
St. Louis County Circuit Court. Also on March 20, 1996, Karabu and certain
other companies controlled by Mr. Icahn filed suit against the Company
alleging violations by the Company of the Ticket Agreement and federal anti-
trust laws. On March 24, 1997, the United States District Court for the
Southern District of New York, on the Company's motion, dismissed the suit in
its entirety. If Karabu's interpretation as to sales of discount tickets to
the general public through travel agents was determined by a court or
otherwise to be correct and the Company did not otherwise take appropriate
action to mitigate the effect of such sales, the Company could suffer
significant loss of revenue so as to reduce overall passenger yields on a
continuing basis during the term of the Ticket Agreement. In addition, 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 the Company's other indebtedness and leases and otherwise
have a material adverse effect on the Company.
Domestic Consolidator Tickets sold under the Ticket Agreement are limited to
certain origin/destination city markets in which TWA has less than a 5% market
share limit except for New York where there is a 10% limit. These restricted
markets will be reviewed from time to time to determine any change in TWA's
market share, and other markets may be designated as necessary.
The purchase price for the tickets purchased by Karabu are required to
either, at Karabu's option, be retained by Karabu and the amount so retained
credited as prepayments against the outstanding balance of the Icahn Loans, or
be paid over by Karabu to a settlement trust established in connection with
the '93 Reorganization for TWA's account as prepayments on the PBGC Notes. At
December 31, 1996, approximately $64.9 million of such proceeds had been
applied to the principal balance of the Icahn Loans and $6.4 million had been
applied to the PBGC Notes.
The Company elected to pay interest, due August 1, 1995 and February 1,
1996, and half the interest due February 1, 1997, on the 12% Reset Notes, in
shares of Common Stock. The amount of such interest aggregated approximately
$10.4 million, $10.2 million and $4.1 million, respectively, and resulted in
the issuance of approximately 1.9 million, 1.1 million and 0.6 million shares
of Common Stock on the respective dates. The Company elected to pay dividends
due February 1, 1996 on its 12% Preferred Stock for the period from November
1, 1995 to and including January 31, 1996, in the amount of approximately $3.3
million, in shares of Common Stock.
On March 31, 1997, the Company effected the Private Placement for net
proceeds (after deducting discounts, commissions and estimated expenses) of
approximately $47.2 million.
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Capital Resources
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 borrowings or from the sale of assets. Substantially
all of TWA's strategic assets, including its owned aircraft, ground equipment,
gates, 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.
Commitments
In February 1996, TWA executed definitive agreements providing for the
operating lease of 10 new 757 aircraft to be delivered in 1996 and 1997 with
deliveries commencing in July 1996. Although individual aircraft rentals
escalate over the term of the leases, aggregate rental obligations are
estimated to average approximately $50 million per annum over the lease terms
after all 10 aircraft have been delivered. These aircraft have an initial
lease term of 10 years. As of February 28, 1997, the Company has taken
delivery of six leased 757 aircraft. The Company also entered into an
agreement in February 1996 with Boeing for the purchase of ten 757-231
aircraft and related engines, spare parts and equipment for an aggregate
purchase price of approximately $500 million. The agreement requires the
delivery of the aircraft in 1997, 1998 and 1999, and provides for the purchase
of up to ten additional aircraft. Furthermore, to the extent TWA exercises its
options for additional aircraft, the Company will have the right to an equal
number of additional option aircraft. TWA has obtained commitments for debt
financing for approximately 80% of the total costs associated with the
acquisition of eight of the original ten aircraft and obtained commitments for
100% lease financing of the total costs of the remaining two original
aircraft. Such commitments are subject to, among other things, so-called
material adverse change clauses which, given the Company's financial results
for 1996 and anticipated results for the first quarter of 1997, could make the
availability of such debt and lease financing dependent upon the lender's and
lessor's ongoing evaluation of and satisfaction with the financial condition
of TWA.
TWA has entered into agreements with AVSA, S.A.R.L. and Rolls-Royce plc
relating to the purchase of ten A330-300 twin-engine wide body aircraft and
related engines, spare parts and equipment for an aggregate purchase price of
approximately $1.1 billion. The agreements, as amended, require the delivery
of the aircraft in 1999 and 2000 and provide for the purchase of up to ten
additional aircraft. TWA has not yet made arrangements for the permanent
financing of the purchases subject to the agreements. In the event of
cancellation, predelivery payments of approximately $18 million would be
subject to forfeiture.
The Company has entered into an agreement to acquire from the manufacturer
fifteen new MD-83s. The long-term leasing arrangement provides for delivery of
the aircraft between the second half of 1997 and April 1999.
TWA has elected to comply with the transition requirements of the Noise Act
by adopting the Stage 2 aircraft phase-out/retrofit option, which requires
that 50% of its base level (December 1990) Stage 2 fleet be phased-
out/retrofitted by December 31, 1996, 75% by December 31, 1998 and 100% by
December 31, 1999. To comply with the 1996 requirement, the Company has
retrofitted, by means of engine hush-kits, 30 of its DC-9 aircraft. The
aggregate cost of these hush-kits is estimated to be $49 million, most of
which has been financed by lessors with repayments being facilitated through
increased rental rates.
TWA's capital expenditures for 1997 are currently anticipated to total
approximately $107 million, including approximately $91 million for flight
equipment related expenditures (e.g., progress payments for
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<PAGE>
aircraft and the purchase of related aircraft engines and spare parts). While
the Company is seeking financing for certain of its planned capital
expenditures, a substantial portion of such expenditures are expected to
utilize internally generated funds. The inability to finance or otherwise fund
such expenditures could materially adversely affect the ability of the Company
to implement its strategic plan. See "Risk Factors--Risk Factors Related to
the Company--Substantial Indebtedness; Capital Expenditure Requirements;
Liquidity."
Certain Other Capital Requirements
Expenditures for facilities and equipment, other than aircraft, generally
are not committed prior to purchase and, therefore, no such significant
commitments exist at the present time. TWA's ability to finance such
expenditures will depend in part on TWA's financial condition at the time of
the commitment.
Availability of NOLs
The Company estimates that it had, for federal income tax purposes, net
operating loss carryforwards ("NOLs") amounting to approximately $625 million
at December 31, 1996, which includes increases in the NOLS as originally
filed. Such NOLS expire in 2008 through 2011 if not utilized before then to
offset taxable income. Section 382 of the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations issued thereunder impose limitations on
the ability of corporations to use NOLs, if the corporation experiences a more
than 50% change in ownership during certain periods. In connection with the
change of ownership caused by the '95 Reorganization, the Company elected to
reduce its NOLs in accordance with Section 382 of the Code and regulations
issued thereunder. If another ownership change were to occur prior to
September 1997, the annual limitation on the Company's utilization of its then
existing NOLs would be reduced to zero. Changes in ownership in periods
thereafter could substantially restrict the Company's ability to utilize its
tax net operating loss carryforwards. The Company believes that no ownership
change has occurred subsequent to the '95 Reorganization or will occur as a
result of the Offering. There can be no assurance, however, that the Offering
will not be a contributing factor to an ownership change or that an unrelated
ownership change will not occur in the future. In addition, the NOLs are
subject to examination by the IRS, and, thus, are subject to adjustment or
disallowance resulting from any such IRS examination. For the foregoing
reasons, prospective purchasers of the Units should not assume the
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.
55
<PAGE>
BUSINESS
TWA is the seventh largest U.S. air carrier (based on 1996 RPMs), whose
primary business is transporting passengers, cargo and mail. During 1996, the
Company carried more than 23.3 million passengers and flew approximately 27.3
billion RPMs. As of May 1, 1997, TWA provided regularly scheduled jet service
to 86 cities in the United States, Mexico, Europe, the Middle East, Canada and
the Caribbean. As of May 1, 1997, the Company's fleet consisted of 183 active
jet powered aircraft.
ROUTE STRUCTURE
TWA's passenger airline business is the Company's chief source of revenue.
TWA also carries cargo (mail and freight) on its North American and
international systems. During 1996, the Company's North American operations
accounted for 80% of its total revenues, while its transatlantic operations
contributed 20% of total revenues.
TWA's North American operations have a hub-and-spoke structure, with a
primarily domestic hub at St. Louis and a domestic-international hub at JFK.
The North American system serves 37 states, the District of Columbia, Puerto
Rico, Mexico, Canada, and the Caribbean. TWA also participates in the charter
market, flying both domestic and international charter flights.
TWA's international operations consist of both nonstop and through-service
from JFK and St. Louis to destinations in Europe and the Middle East. TWA's
international operations are concentrated at JFK, from which it now serves 28
cities with approximately 39 daily departures. International cities served
include Barcelona, Cairo, Lisbon, Madrid, Milan, Riyadh, Rome, and Tel Aviv
from JFK; Paris from JFK and St. Louis; and London-Gatwick from St. Louis.
OTHER ACTIVITIES
In addition to TWA's passenger and cargo services, the Company operates
Getaway Vacations, a tour packager offering leisure travel products and
services. In addition, TWA earns revenue by providing contract maintenance
services for a number of third parties. In 1997, the Company began reducing
such contract maintenance service and expects this reduction to continue
through 1997.
FLIGHT EQUIPMENT
As of May 1, 1997, TWA's active operating fleet consisted of 183 aircraft,
of which 43 were owned by TWA and 140 were leased. All aircraft in use are
maintained in airworthy condition in accordance with procedures approved by
the FAA. The active operating aircraft owned by and leased to TWA as of May 1,
1997 are listed below.
<TABLE>
<CAPTION>
AVERAGE AGE
OF AIRCRAFT SEATS IN STANDARD
TYPE OWNED(2) LEASED TOTAL(3) (IN YEARS) TWA CONFIGURATION
- ---- -------- ------ -------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Douglas DC-9-10......... -- 7 7 30.3 68
Douglas DC-9-30......... -- 36 36 27.4 98
Douglas DC-9-40......... -- 3 3 22.5 98
Douglas DC-9-50......... -- 12 12 20.3 107
Douglas MD-80/83........ -- 53 53 9.9 142
Boeing 727-200(1)....... 28 8 36 22.5 146
Boeing 747(1)........... 3 4 7 26.2 434
Boeing 757.............. 2 6 8 0.3 180
Boeing 767.............. 5 9 14 12.6 190
Lockheed L-1011(1)...... 5 2 7 24.0 254
--- --- --- ----
Total............... 43 140 183 18.3
=== === ===
</TABLE>
- --------
(1) Excludes the following aircraft which are not in the active fleet; eight
Boeing 727-100s, four Boeing 727-200s, six Boeing 747-100s, two Boeing
747-200s, seven L-1011s and one MD-82 not yet in service.
(2) Substantially all TWA's owned flight equipment is pledged to secure its
indebtedness.
(3) For information concerning compliance of the above-referenced aircraft
with the Noise Act, see "--Regulatory Matters--Noise Abatement."
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In 1997, the Company intends to replace its 11 remaining L-1011 aircraft
with newer and more efficient 757s. Also in 1997, TWA plans to retire all of
its 747 aircraft, some of which are to be replaced by 767 aircraft, and 10 of
its older 727 aircraft, to be replaced with MD-80s. In 1996, TWA entered into
agreements providing for the lease of up to 10 new 757 aircraft from a major
operating lessor to be delivered in 1996 and 1997, the purchase of 10 new 757
aircraft from the manufacturer with deliveries scheduled from February 1997 to
May 1999, the lease of 15 new MD-83s with deliveries scheduled from 1997 to
1999, and the lease of 9 used MD-82s with deliveries scheduled in 1997. The
Company also acquired the right, subject to certain conditions, to purchase up
to 20 additional 757 aircraft from the manufacturer.
REAL PROPERTY
TWA utilizes or has rights to utilize airport and terminal facilities
located in or near the cities it serves under lease agreements or other
arrangements with the governmental authorities exercising control over such
facilities.
At St. Louis, TWA has preferential use rights to 57 gates and 40 ticket
counter positions, and ramp, baggage and other supporting ground facility
space. TWA's domestic-international hub at JFK operates out of two passenger
terminal facilities (Terminals 5 and 6). TWA is the lessee at JFK of a total
of 27 gates, 102 ticket counter positions, and ramp, baggage and other
supporting ground facility space. TWA occupies both Terminal 5 and Terminal 6
as a holdover tenant pursuant to expired agreements of lease with the Port
Authority of New York and New Jersey (the "Port Authority"). Such holdover
tenancies are with the consent of the Port Authority pursuant to a Term Sheet
dated August 12, 1993 (the "Term Sheet"), which extended TWA's right to occupy
Terminals 5 and 6, provided TWA paid the rent set forth in the Term Sheet,
made certain specified financed improvements to Terminals 5 and 6, and was
otherwise in compliance with the expired leases. On February 8, 1996, the Port
Authority's Board of Commissioners adopted a resolution authorizing the Port
Authority to enter into a new five year lease with TWA for both Terminals 5
and 6 for a term expiring on March 31, 2001; however, the lease has not yet
been signed. The Company has recently consolidated for the near term most JFK
operations into Terminal 5, using only limited facilities in Terminal 6. TWA
is attempting to sublease the remainder of Terminal 6.
TWA's overhaul base is located on approximately 250 acres of leased property
at the Kansas City International Airport, Kansas City, Missouri. The overhaul
base is TWA's principal maintenance base where TWA performs major maintenance
and repair services for its aircraft fleet. The overhaul base is owned by the
City of Kansas City, Missouri and leased to TWA along with other facilities
until May 31, 2000. TWA leases office space and other facilities in a number
of locations in the U.S. and abroad. In December 1993, pursuant to a
sale/leaseback with the City of St. Louis, TWA leased a two-story ground
operations building near the St. Louis Airport and an adjacent 165,000 square
foot, five-story flight training facility. The lease of these properties is
covered under a month-to-month agreement subject to automatic renewal so long
as TWA is not in default thereunder, such agreement having a term otherwise
expiring December 31, 2005. Such term is subject to early termination in the
event of certain events of default, including non-payment of rents, cessation
of service, failure to maintain corporate headquarters within the City or
County of St. Louis or failure to maintain a reservations office within the
City of St. Louis. For a description of certain environmental corrective
actions that TWA anticipates will be required at the overhaul base, see "--
Legal Proceedings."
TWA's corporate headquarters are located at One City Centre, 515 N. Sixth
Street, St. Louis, Missouri where TWA has subleased approximately 56,700
square feet through February 28, 2000. TWA's St. Louis area reservation
facility and customer relations department is located in approximately 48,000
square feet in the City of St. Louis, Missouri. In June 1996, TWA opened a new
reservation facility in Norfolk, Virginia, comprised of approximately 40,000
square feet and having 455 work stations. The facility is leased for a twenty-
five year term.
TRAVEL AGENCIES
Travel Agent Commissions
Consistent with most other airlines, tickets sold for travel on TWA are sold
by travel agents as well as directly by the Company. During 1996,
approximately 78% of all tickets sold for travel on TWA were sold by
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travel agents. In the domestic market, TWA generally pays travel agent
commissions at the rate of 10% on all domestic fares. In the international
market, TWA pays 11% on international tickets issued in the U.S. and 9% for
tickets issued outside the U.S. Carriers (including TWA) may also pay
additional commissions to travel agents as incentive for increased volume or
other business directed to the carrier.
Travel Agency Automation
Greater than 90% of all travel agencies in the U.S. obtain their airline
travel information through access to Global Distribution Systems (also
referred to as Computer Reservation Systems or "CRS"). Such systems are used
by travel agents to make travel reservations including airline, hotel, train,
car and other bookings and allow travel agents to issue airline tickets and
boarding passes.
One such system is WORLDSPAN, which is owned 25%, 32%, 38% and 5% by
affiliates of TWA, Delta Air Lines, Northwest Airlines, and ABACUS
Distribution Systems Pte. Ltd, respectively. Management believes that the
distribution of its airline products through WORLDSPAN is a key factor to the
success of the Company's future operations. Systems such as WORLDSPAN have
expanded distribution to the consumer via the Internet, on-line booking
products, corporate and group booking products. TWA believes that its 25%
ownership of WORLDSPAN assures new distribution opportunities.
FREQUENT FLIGHT BONUS PROGRAM
TWA initiated its FFB Program in May 1981. Frequent flyer programs like
TWA's FFB Program have been adopted by most major air carriers and are
considered the number one marketing tool for developing brand loyalty among
travelers and accumulating demographic data pertaining to business flyers.
TWA's FFB Program rewards its members with mileage credit for travel on TWA
and for purchasing goods and services offered by various travel and non-travel
related businesses that participate in the FFB Program including other
airlines. Currently, FFB Program members receive mileage credit for airline
travel on Air India, Alaska Airlines, Ladeco Airlines, Philippines Airlines
and Trans States. FFB Program members may also receive mileage credit pursuant
to exchange agreements maintained by TWA with a variety of entities, including
hotels, car rental firms, credit card issuers and long distance telephone
service companies.
TWA accounts for its FFB Program under the incremental cost method, whereby
travel awards are valued at the incremental cost of carrying one additional
passenger. Such costs are accrued when FFB Program participants accumulate
sufficient miles to be entitled to claim award certificates. Incremental costs
include unit costs for passenger food, beverages and supplies, fuel,
reservations, communications, liability insurance and denied boarding
compensation expenses expected to be incurred on a per passenger basis. No
profit or overhead margin is included in the accrual for incremental costs. No
liability is recorded for airline, hotel or car rental award certificates that
are to be honored by other parties because there is no cost to TWA for these
awards.
At December 31, 1995, FFB participants had accumulated mileage credits for
approximately 660,752 free awards, compared with accumulated mileage credits
for approximately 751,689 awards at December 31, 1996. Because TWA expects
that some award certificates will never be redeemed, the calculations of the
accrued liability for incremental costs at December 1995 and 1996 were based
on approximately 70% and 71.5%, respectively, of the accumulated credits.
Mileage for FFB participants who have accumulated less than the minimum number
of mileage credits necessary to claim an award is excluded from the
calculation of the accrual. The accrued liability at December 31, 1995 was
approximately $19.0 million compared to approximately $20.4 million at
December 31, 1996.
TWA's customers redeemed awards for free travel representing approximately
6.3%, 6.0% and 4.5% of TWA's RPMs in 1994, 1995 and 1996, respectively.
AIRCRAFT FUEL
TWA's worldwide aircraft fuel requirements are met by in excess of twenty
different suppliers. The Company has contracts with some of these suppliers,
the terms of which vary as to price, payment terms,
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quantities and duration. The Company also makes incremental purchases of fuel
based on price and availability. To assure adequate supplies of jet fuel and
to provide a measure of control over price, the Company trades fuel, ships
fuel and maintains fuel storage facilities to support key locations. Petroleum
product prices, including jet fuel, are primarily driven by crude oil costs.
The market's alternate uses of crude oil to produce petroleum products other
than jet fuel (e.g., heating oil and gasoline) as well as the adequacy of
refining capacity and other supply constraints affect the price and
availability of jet fuel. Changes in the price or availability of fuel could
materially affect the financial results of the Company. See also "Risk
Factors--Risk Factors Related to the Industry--Aircraft Fuel."
During 1996, aircraft fuel prices increased significantly. The following
table details TWA's fuel consumption and costs for the three years ended
December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Gallons consumed (in millions).................. 852.2 804.2 838.9
Total cost(1) (in millions)..................... $477.6 $458.6 585.2
Average cost per gallon (cents)................. 0.56 0.57 0.70
Percentage of operating expenses................ 13.0% 13.9% 15.6%
</TABLE>
- --------
(1) Excludes into-plane fees.
COMPETITION
Since the passage of the Airline Deregulation Act of 1978, the airline
industry has been characterized by intense competition, consolidation of
existing carriers and the advent of numerous low-cost low-fare new entrants. A
number of airlines have filed for bankruptcy and/or ceased operations. In
addition, several carriers have introduced or announced plans to introduce
low-cost, short-haul service, which may result in increased competition to
TWA. Airlines offer discount fares, a wide range of schedules, frequent flyer
mileage programs and ground and in-flight services as competitive tools to
attract passengers and increase market share. Intense price competition has
accelerated the efforts of airline managements to reduce costs and improve
productivity in order to withstand greater levels of discounting. TWA's
services are subject to varying degrees of competition, depending in part on
whether such services are operated over domestic or international routes.
Because of the relative ease with which U.S. carriers can enter new markets,
TWA's domestic services are subject to increases or decreases in competition
from other air carriers. Changes in intensity of competition in the
deregulated domestic environment cannot be predicted.
The level of competition in international markets is normally governed by
the terms of bilateral agreements between the U.S. and the foreign countries
involved. Many of the bilateral agreements permit an unlimited number of
carriers to operate between the U.S. and the foreign country. Competition in
some international markets is limited to a specified number of carriers and
flights on a given route by the terms of the air transport agreements between
the U.S. and the foreign country. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General" and "--Regulatory
Matters."
The airline industry is subject to substantial price competition as U.S.
airlines are free to determine domestic pricing policies without government
regulation. While the DOT retains authority over international fares, which
are also subject to the jurisdiction of the governments of the foreign
countries being served, the Company generally has substantial discretion with
respect to its international pricing policies.
While DOT authority is now required before any person may operate as an air
carrier within or to and from the U.S., the Airline Deregulation Act of 1978
and the International Air Transportation Competition Act of 1979 substantially
decreased previous governmental restrictions in this area. In the case of
domestic operations, any person who is found to be fit, willing and able may
operate as an air carrier between any two points in the U.S. Thus, TWA is able
to enter new routes or suspend existing routes within the U.S. without seeking
regulatory approval, and other airlines are similarly free to enter or leave
TWA's domestic markets.
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EMPLOYEES
As of December 31, 1996 the Company had approximately 25,092 full-time
employees (based upon full-time equivalents which include part-time
employees). Of these, approximately 82% were represented by three principal
unions: ALPA, IAM and IFFA. On March 6, 1997, the IAM was certified to replace
IFFA as the bargaining representative of the Company's flight attendants.
During 1994, the Company entered into the '94 Labor Agreements with ALPA,
IAM and IFFA amending then existing labor agreements with each such union to,
among other things, (i) eliminate certain raises scheduled to take effect in
1994 and 1995, thereby continuing certain wage and benefit concessions granted
to the Company in the '92 Labor Agreements, (ii) modify existing work rules
and benefit packages, and (iii) eliminate contractual "snapback" provisions
contained therein which would have automatically restored wages to pre-
concessionary levels for purposes of future contract negotiations. The terms
of the IFFA contract remain in effect, although the flight attendants are now
represented by the IAM. In addition, the Company implemented a number of
similar savings initiatives with respect to domestic non-union and management
employees, primarily through reducing headcount, altering benefit packages,
and eliminating certain planned restorations of previous wage concessions.
In exchange for the substantial cost savings realizable by the Company as a
result of the foregoing, as described in more detail below, TWA (i) agreed to
certain wage increases and productivity payments to its employees, (ii) issued
certain equity securities of the Company to its employees, (iii) agreed to
make certain future grants of equity securities and to permit such employees
an opportunity to purchase certain additional securities at a discount, and
(iv) effected certain amendments to the Company's Certificate of Incorporation
and By-laws with respect to the election of certain directors and director
voting requirements in the event of certain specified corporate actions.
As part of the '94 Labor Agreements, TWA agreed with its unionized employees
to a series of semi-annual 1% wage increases commencing in May 1995 and
continuing through August 31, 1997 (the last such wage increase to equal 3% in
the case of employees represented by ALPA and IFFA; the IAM will receive a 1%
wage increase and a 2% contribution to its retirement plan on August 31,
1997). In addition to such scheduled wage increases, TWA agreed to make
certain annual productivity payments to its unionized employees in the event
the Company achieves certain operating profit goals set forth in the
agreement. If the Company achieves such goals (established at various levels
between $50 million and $200 million annually), employees will receive
productivity payments in an amount to be determined based upon a sliding scale
from 1% to 4% of employees' W-2 wages. Any productivity payments resulting
from 1996 operations are required to be converted into wage increases.
Similarly, the Company implemented comparable wage increases and productivity
incentives to its non-union (including management) employees.
On the '95 Effective Date, TWA issued to certain trusts established for the
benefit of its unionized employees shares of Employee Preferred Stock; such
stock being issued in three separate series designated the ALPA Preferred
Stock, the IAM Preferred Stock and the IFFA Preferred Stock. Except for
certain rights with respect to the election of directors, the Employee
Preferred Stock has rights substantially identical to the Common Stock. See
"Description of Capital Stock--Employee Preferred Stock." TWA also issued an
aggregate of 1,026,694 shares of Common Stock to a trust established for the
benefit of TWA's non-unionized employees. The value of shares issued to the
Company's non-union employees was intended to reflect the estimated value to
the Company of the concessions granted by employees. The equity securities
issued on the '95 Effective Date resulted in the employees of the Company
initially owning approximately 30% of the then outstanding Common Stock and
Common equivalents of the Company.
In recognition of the fact that as a result of the '95 Reorganization, the
percentage of the Company's stock owned by the Company's employees was
substantially reduced, the Company adopted as of the '95 Effective Date the
ESIP pursuant to which the Company would commencing in 1997 grant to certain
trusts established for the benefit of its union and non-union employees
certain additional shares of Common Stock and Employee Preferred Stock. Under
the ESIP, in any year in which the market price of the Common Stock exceeds
certain target prices, the Company has agreed to issue shares in amounts
sufficient to increase the aggregate percentage
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ownership of the employees by the following percentages of the then
outstanding shares of Common Stock and Common Stock equivalents: 2.0% (1997),
1.5% (1998), 1.5% (1999), 1.0% (2000), 1.0% (2001) and 1.0% (2002). The ESIP
also grants to the employee trusts a right to purchase, on a quarterly basis,
additional shares ("Stock Purchase Shares") in amounts of up to an aggregate
of 2% of the then outstanding Common Stock and Employee Preferred Stock. Stock
Purchase Shares may be purchased at 80% of the then market value of the Common
Stock. In the event of a merger, consolidation or sale of all or substantially
all of the assets of the Company, the ESIP provides for certain limited
acceleration rights with respect to the stock grants and employee stock
purchase arrangements. In addition to the scheduled grants and purchase rights
described above, the ESIP provides for the Company to accelerate grants to be
made in 2001 and 2002, if the Company issues additional Common Stock at a
price equal to or in excess of $11 per share which results in aggregate
proceeds to the Company in excess of $20 million.
The ESIP also provides that if additional shares are distributed following
the '95 Effective Date in respect of the '95 Reorganization, employees will be
entitled to receive an additional number of shares of Common Stock and
Employee Preferred Stock such that the employees will retain the same level of
ownership. Union representatives and the Company have tentatively agreed that
the number of shares of Employee Preferred Stock and Common Stock to be issued
pursuant to the ESIP is 525,856. In addition, if the additional ESIP shares
are not issued to the employees in July 1997, an additional 405,750 shares of
Employee Preferred Stock and Common Stock will be issued, subject to a future
credit, in that amount in the event additional shares are granted pursuant to
the ESIP. The issuance of the additional shares is subject to approval by the
Company's Board of Directors. The number of shares of Employee Preferred Stock
outstanding at December 31, 1996 does not reflect any such additional shares.
In addition to certain amendments required to effect the recapitalization of
the Company, on the '95 Effective Date, TWA further amended its Certificate of
Incorporation and By-laws to (i) permit certain employees represented by ALPA,
the IAM and IFFA to elect four of the Company's 15 directors (the "Employee
Directors"), and (ii) provide that certain extraordinary corporate actions,
including mergers, sales of all or substantially all of the Company's assets
or certain routes or any filing seeking protection under the bankruptcy laws,
must be approved by at least six directors, including each of the Employee
Directors. See "Certain Provisions of the Certificate of Incorporation, the
By-laws and Delaware Law--Blocking Coalition."
The '94 Labor Agreements were three year agreements but become amendable
after August 31, 1997. Negotiations on a new collective bargaining agreement
with the IAM covering approximately 70% of the Company's employees, including
its flight attendants, commenced in February 1997 and are currently ongoing.
Negotiations with ALPA are expected to begin in the second quarter of 1997.
Under the RLA workers whose contracts have become amendable are required to
continue to work under the "status quo" (i.e., under the terms of employment
antedating the amendable date) until the RLA's procedures are exhausted. Under
the RLA, the Company and its unions are obligated to continue to bargain until
agreement is reached or until a mediator is appointed and concludes that
negotiations are deadlocked and mediation efforts have failed. The mediator
must then further attempt to induce the parties to agree to arbitrate the
dispute. If either party refuses to arbitrate, then the mediator must notify
the parties that his efforts have failed and, after a 30-day cooling-off
period, a strike or other direct action may be taken by the parties. In the
opinion of management, the Company's financial resources are not as great as
those of most of its competitors, and, therefore, any substantial increase in
its labor costs as a result of any new labor agreements or any cessation or
disruption of operations due to any strike or work action could by
particularly damaging to the Company. See "Business--Employees."
REGULATORY MATTERS
Slot Restrictions
The Company's ability to increase its level of operations at certain
domestic cities currently served is affected by the number of slots available
for takeoffs and landings. At JFK, LaGuardia, Chicago O'Hare and
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Washington National, which have been designated "High Density Airports" by the
FAA, there are restrictions on the number of aircraft that may land and take
off during peak hours. In the future, these take-off and landing time slot
restrictions and other restrictions on the use of various airports and their
facilities may result in further curtailment of services by, and increased
operating costs for, individual airlines, including TWA, particularly in light
of the increase in the number of airlines operating at such airports. On April
1, 1986, the FAA implemented a final rule relating to allocated slots at the
High Density Airports. This rule, as since amended, contains provisions
requiring the relinquishment of slots for nonuse and permits carriers, under
certain circumstances, to sell, lease or trade their slots to other carriers.
TWA does not anticipate losing any slots as a result of these new rules. The
higher use rates required by these rules, however, increase the risk that TWA
may lose slots in the future because of nonuse and decrease TWA's ability to
adjust its flight schedules at the High Density Airports. For a discussion of
certain slots to be used as Collateral for the Notes, see "Description of
Notes--Collateral Security."
Most international points served by TWA also are slot-controlled.
Control over International Routes
TWA's international certificates are granted by the DOT for indefinite or
fixed-term periods, depending on the route. TWA is authorized to provide
transatlantic service from major cities in the U.S. to points in Europe, North
Africa, the Middle East and Asia. Some of these authorized routes are not
currently served by TWA. Many of the European markets served by TWA are
"limited entry" markets in which, as a result of agreements between the United
States and foreign governments, TWA has traditionally competed with a limited
number of other carriers. During the past several years, however, the U.S.
government has encouraged competition in international markets and entered
into bilateral agreements with various foreign governments that provide for
expanded exchanges of routes and traffic rights, reduction of governmental
controls over fares and avoidance of limits on capacity and charter services.
Competition in international markets has increased dramatically over the past
several years as major U.S. carriers have initiated and/or continued to expand
their international operations. Foreign flag carriers have continued to expand
service and the DOT has indicated its support for further expansion of
opportunities of foreign carriers to serve new points in the U.S. No assurance
can be given that TWA will continue to have the advantage of all the "limited
entry" markets in which it currently operates or that additional carriers will
not be permitted to operate in one or more of these markets or that TWA in
general will not face substantial unexpected competition. Competition in the
international market is further complicated by the fact that pricing levels on
some transatlantic routes are influenced by subsidies that certain foreign
carriers receive from their governments and by the presence of smaller, low-
cost carriers.
Certain portions of TWA's transatlantic route authority have been granted on
a fixed-term basis. TWA's right to carry local traffic between London and
Frankfurt expired in April 1994. In addition, on May 4, 1993, the bilateral
air transport agreement between the U.S. and France lapsed. Absent a bilateral
agreement, the U.S. and France are operating on a system of comity and
reciprocity. Under this regime, carriers are permitted to maintain historical
levels of service, but few or no new services are permitted. Cessation of
service to any authorized markets from France may cause such underlying
authority to terminate. Any reduction in U.S. carrier access to France could
have an adverse impact on TWA's transatlantic operations. TWA's route
authority between St. Louis and London-Gatwick has expired. TWA has applied
for renewal of its St. Louis-Gatwick authority and continues to operate such
route pending a determination of its application. While no assurance can be
given, TWA believes that the St. Louis-Gatwick authority will be renewed.
The operations of TWA's international system will require continued approval
by the U.S. government as well as permission or authorization from the
governments of the respective countries served and compliance with the laws
and regulations of those countries. These authorizations, permits and rights
vary considerably in their terms, particularly as to the imposition of
restrictive conditions on U.S. airlines.
Other DOT/FAA Regulations
The DOT has the authority to regulate competitive practices, advertising and
other consumer protection matters such as on-time performance, smoking
policies, denied boarding, baggage liability and CRSs provided
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to travel agents. With respect to foreign air transportation, the DOT may
approve agreements between air carriers and grant antitrust immunity to those
agreements. The DOT must also approve the transfer between U.S. carriers of
international route certificates. The Department of Justice has the authority
to approve mergers and interlocking relationships.
Noise Abatement
The Noise Act provides for a reduction in aircraft noise levels by
commercial aircraft. Under the Noise Act, air carriers were permitted to elect
to comply with the transitional requirements of the Noise Act at December 31,
1994, either by (i) phasing out, or retrofitting with noise abatement
equipment, certain older aircraft known as Stage 2, or (ii) phasing in quieter
aircraft, known as Stage 3. Air carriers who elected to comply by phasing out
or retrofitting Stage 2 aircraft were required to phase out or retrofit at
least 25% of a specified 1990 base level of such aircraft by December 31, 1994
and by at least 50% by December 31, 1996. TWA elected to comply with the final
Noise Act requirements by adopting the Stage 2 aircraft phase out/retrofit
option, and had reduced its specified base level of Stage 2 aircraft by 25% at
December 31, 1994 and by 50% at December 31, 1996. The Company will be
required to reduce its specified base level of Stage 2 aircraft by at least
75% by December 31, 1998 and 100% by December 31, 1999 or alternatively, that
75% of its total fleet meet Stage 3 requirements by December 31, 1998 and 100%
on December 31, 1999. See "Risk Factors--Risk Factors Related to the Company--
Age of Fleet; Noise."
As of December 31, 1996, 122, approximately 64% of TWA's active fleet, met
the Stage 3 standards. TWA's ability to comply with the federal requirements
within the time specified, or with more restrictive local noise restrictions,
by acquiring newer aircraft and by phasing out or retrofitting older aircraft
that are not in compliance with the Stage 3 standards, will depend upon its
ongoing financial condition, its ability to renegotiate existing leases for
such aircraft and its ability to obtain financing to acquire the requisite
number of Stage 3 aircraft or retrofit kits. Although TWA has a plan to meet
the federal requirements, and has already acquired a number of Stage 3
aircraft while phasing out several Stage 2 aircraft, there can be no assurance
that TWA will be able to satisfy all applicable noise level requirements. See
also "Risk Factors--Risk Factors Related to the Company-- Substantial
Indebtedness; Capital Expenditure Requirements; Liquidity."
Numerous airports have imposed restrictions such as curfews, airplane noise
levels, mandatory flight paths and runway restrictions, which limit the
ability of TWA and other carriers to increase services at such airports. Other
jurisdictions are considering similar measures. While the Company has
historically had the flexibility to schedule around these restrictions, there
can be no assurance that the Company will continue to be able to work around
these restrictions. The Port Authority of New York and New Jersey is
considering a phaseout of Stage 2 aircraft on a more accelerated basis than
that of the FAA requirement, a prohibition on additional Stage 2 flights and
an expanded nighttime curfew. The FAA and air carriers, including TWA, have
stated their opposition to these proposals. At this time, TWA cannot predict
whether the proposals will be implemented or, if so, the timing or effect on
TWA of any such implementation, which would depend on the extent to which
TWA's aircraft then being used in the affected airports meet the Stage 3
requirements as well as the timing of TWA's flights.
Labor
The RLA governs the labor relations of employers and employees engaged in
the airline industry. Comprehensive provisions are set forth in the RLA
establishing the right of airline employees to organize and bargain
collectively along craft or class lines and imposing a duty on air carriers
and their employees to exert every reasonable effort to make and maintain
collective bargaining agreements. See "--Employees." The RLA contains detailed
procedures which must be exhausted before a lawful work stoppage can occur.
Pursuant to the RLA, TWA has collective bargaining agreements with four
domestic unions representing four separate employee groups. See "Risk
Factors--Risk Factors Related to the Company--'94 Labor Agreements."
Aging Aircraft Maintenance
The FAA issued several ADs in 1990 mandating changes to maintenance programs
for older aircraft to ensure that the oldest portion of the nation's fleet
remains airworthy. The FAA required that these older aircraft
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undergo extensive structural modifications prior to the later of the
accumulation of a designated number of flight cycles or 1994 deadlines
established by the various ADs. Most of the Company's aircraft are currently
affected by these aging aircraft ADs. The Company monitors its fleet of
aircraft to ensure safety levels which meet or exceed those mandated by the
FAA.
In 1995 and 1996, TWA spent approximately $2.6 million and $3.4 million,
respectively, to comply with aging aircraft maintenance requirements. Based on
information currently available to TWA and its current fleet plan, TWA
estimates that costs associated with complying with these aging aircraft
maintenance requirements will aggregate approximately $18.7 million through
2000. These cost estimates assume, among other things, that newer aircraft
will replace certain of TWA's existing aircraft and as a result, the average
age of TWA's fleet will be significantly reduced. There can be no assurance
that TWA will be able to implement fully its fleet plan.
Safety
TWA is subject to FAA jurisdiction with respect to aircraft maintenance and
operations, including equipment, dispatch, communications, training, flight
personnel and other matters affecting air safety. The FAA has the authority to
issue new or additional regulations. To ensure compliance with its
regulations, the FAA requires the Company to obtain operating, airworthiness
and other certificates which are subject to suspensions or revocation for
cause. In addition, a combination of FAA and Occupational Safety and Health
Administrative regulations on both federal and state levels apply to all of
TWA's ground-based operations.
Passenger Facilities Charges
During 1990, Congress enacted legislation to permit airport authorities,
with prior approval from the FAA, to impose passenger facility charges
("PFCs") as a means of funding local airport projects. These charges, which
are intended to be collected by the airlines from their passengers and
remitted to the airports, are limited to $3.00 per enplanement and to no more
than $12.00 per round trip. As a result of competitive pressure, the Company
and other airlines have been limited in their abilities to pass on the cost of
the PFCs to passengers through fare increases.
Environmental
The Company is subject to regulation under major environmental laws
administered by state and federal agencies, including the Clean Air Act, the
Clean Water Act, the Comprehensive Environmental Response Compensation and
Liability Act of 1980 and the Resource Conservation and Recovery Act. In some
locations there are also county and sanitary sewer district agencies which
regulate the Company. The Company believes that it is in substantial
compliance with applicable environmental regulations. See, however, "--Legal
Proceedings."
Foreign Ownership of Shares
The Federal Aviation Act of 1958 generally prohibits non-U.S. citizens from
owning more than 25% of the voting interest in U.S. air carriers, including
the Company.
LEGAL PROCEEDINGS
Icahn Litigation
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
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certain affiliated companies seeking damages and to enjoin further violations
of the Ticket Agreement. 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
substantially all of the Company's other indebtedness and 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. 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 standstill agreement 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 attorney's fees. The Company believes the allegations contained in
the TWA Petition are meritorious.
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 alleges, among other things, that
the Company has violated certain federal antitrust laws, breached the Ticket
Agreement and interfered with certain existing and prospective commercial
relations of the Icahn Entities. The Icahn Complaint is based upon an
interpretation by Mr. Icahn and the Icahn Entities that the Ticket Agreement
permits 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").
On March 24, 1997, the United States District Court for the Southern District
of New York, on the Company's motion, dismissed the suit in its entirety. 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 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
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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 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.
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 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. TWA then sought to intervene in such
lawsuit and was granted the right to do so whereupon the Company filed a
motion to dismiss Karabu's complaint and for summary judgment. Karabu then
withdrew its separate suit in New York state court for a declaratory judgment
previously filed on June 28, 1996.
Although the Company intends to press its claims vigorously and believes its
defenses to Mr. Icahn's claim are meritorious, it is possible that Karabu's
interpretation of the Ticket Agreement 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 material 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 would result in a cross-default under
substantially all of the Company's other indebtedness and leases and otherwise
have a material adverse effect on the Company. As of December 31, 1996, an
aggregate principal amount of $125.1 million was outstanding under the Icahn
Loans.
Other Actions
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. While TWA is currently a
defendant in a number of lawsuits relating to the crash, it is unable to
predict the amount of claims which may ultimately be made against the Company
or 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 the claims arising from the
crash. Therefore, TWA believes that the resolution of such claims will not
have a material adverse effect on its financial condition or results of
operations.
On May 31, 1988, the U.S. Environmental Protection Agency ("EPA") filed an
administrative complaint seeking civil penalties as well as other relief
requiring TWA to take remedial procedures at TWA's maintenance base in Kansas
City, Missouri, alleging violations resulting from TWA's past hazardous waste
disposal and related environmental practices. Simultaneously, TWA became a
party to a consent agreement and a consent order with the EPA pursuant to
which TWA paid a civil penalty of $100,000 and agreed to implement a schedule
of remedial and corrective actions and to perform environmental audits at
TWA's major maintenance facilities. In September 1989, TWA and the EPA signed
an administrative order of consent, which required TWA to conduct extensive
investigations at or near the overhaul base and to recommend remedial action
alternatives. TWA completed its investigations and on February 17, 1996,
submitted a Corrective Measures Study ("CMS") to the Missouri Department of
Natural Resources ("MDNR") and the EPA. It is anticipated that review and
approval of the CMS by the MDNR and EPA will be completed by late 1997. Upon
approval of the CMS, an additional order will be issued and the required
corrective actions implemented. TWA presently estimates the cost of the
corrective action activities under the existing and anticipated orders to be
approximately $7 million, a majority of which represents costs associated with
long-term groundwater monitoring and maintenance of the remedial systems.
Although the Company believes adequate reserves have been provided for all
known
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environmental contingencies, it is possible that additional reserves might be
required in the future which could have a material adverse effect on the
results of operations or financial condition of the Company. However, the
Company believes that the ultimate resolution of known environmental
contingencies should not have a material adverse effect on the financial
position or results of operations based on the Company's knowledge of similar
environmental sites.
On October 22, 1991, judgment in the amount of $12,336,127 was entered
against TWA in an action in the United States District Court for the Southern
District of New York by Travellers International A.G. and its parent company,
Windsor, Inc. (collectively, "Travellers"). The action commenced in 1987, as
subsequently amended, sought damages from TWA in excess of $60 million as a
result of TWA's alleged breach of its contract with Travellers for the
planning and operation of Getaway Vacations. In order to obtain a stay of
judgment pending appeal, TWA posted a cash undertaking of $13,693,101. In
connection with the '93 Reorganization, TWA sought to have the matter
ultimately determined by the Bankruptcy Court. Following prolonged litigation
with respect to jurisdiction, the United States Supreme Court determined that
the matter should be addressed by the bankruptcy court, and in February 1994,
the bankruptcy court determined the matter in a manner favorable to TWA. Upon
appeal, the District Court affirmed in part and reversed in part the
bankruptcy court's decision. Both parties have appealed the matter to the
United States Court of Appeals for the Third Circuit. The Company believes
that in the event that the District Court's decision is affirmed, the ultimate
result will not be materially different than the decision of the bankruptcy
court. Pursuant to the Icahn Loans, amounts received by TWA in connection with
the Travellers litigation would be used to repay, in part, certain of the
Company's obligations to the Icahn Entities.
In February 1995, a number of actions were commenced in various federal
district courts against TWA and six other major airlines, alleging that such
companies conspired and agreed to fix, lower and maintain travel agent
commissions on the sale of tickets for domestic air travel in violation of the
United States and, in certain instances, state, antitrust laws. On May 9,
1995, TWA announced settlement, subject to court approval, of the referenced
actions and reinstated the traditional 10% commission on domestic air fares. A
final order has not yet been entered; however, an interim order approving the
settlement has been entered. The Company believes the settlement of this case
will have a favorable effect on revenues.
On November 9, 1995, ValuJet Air Lines, Inc. ("ValuJet") instituted a
lawsuit against TWA and Delta Air Lines ("Delta") in the United States
District Court for the Northern District of Georgia, alleging breach of
contract and violations of certain antitrust laws with respect to the
Company's lease of certain takeoff and landing slots at LaGuardia
International Airport in New York. On November 17, 1995, the court denied
ValuJet's motion to temporarily enjoin the lease transaction and the Company
and Delta consummated the lease of the slots. On July 12, 1996, the Federal
Court in Atlanta granted summary judgment in TWA's favor in the ValuJet
litigation on all claims and counts raised in the ValuJet amended complaint.
The order granting summary judgment to TWA was not a final order and was not
directly appealable due to an outstanding claim against Delta. While ValuJet's
counsel has stated that an appeal will be filed at a later date, the Company
intends to defend itself vigorously in any future action and believes that all
of the allegations that have been made to date are without merit.
In addition, based on certain written grievances or complaints filed by
ValuJet, the Company was informed that the United States Department of Justice
("DOJ"), Antitrust Division, was investigating the circumstances of the slot
lease of certain takeoff and landing slots to Delta at LaGuardia to determine
whether an antitrust violation has occurred. During the course of its
investigation, the DOT was informed of the summary judgment described above.
Since the date of the judgment, TWA is unaware of whether the DOJ has
undertaken further investigative efforts, the status of the investigation or
any future plans of the DOJ or other regulatory bodies with respect to the
ValuJet allegations. While TWA believes the summary judgment should be
persuasive to the various regulatory bodies petitioned by ValuJet, it will
cooperate with any further investigations and strongly believes that the slot
lease transaction was not in violation of antitrust laws.
The Company is also defending a number of other actions which have either
arisen in the ordinary course of business or are insured or the cumulative
effect of which management of the Company does not believe may reasonably be
expected to be materially adverse.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John W. Bachmann......... 58 Director
William F. Compton....... 49 Director and Executive Vice President--Operations
Eugene P. Conese......... 67 Director
Gerald L. Gitner......... 52 Chairman and Chief Executive Officer
William M. Hoffman....... 49 Director
Thomas H. Jacobsen....... 57 Director
Myron Kaplan............. 52 Director
David M. Kennedy......... 58 Director and Acting Executive Vice President and
Chief Operating Officer
Jewel Lafontant-
Mankarious.............. 74 Director
Thomas F. Meagher........ 66 Director
William O'Driscoll....... 68 Director
G. Joseph Reddington..... 55 Director
Lawrence K. Roos......... 78 Director
Stephen M. Tumblin....... 36 Director
William W. Winpisinger... 72 Director
Roden A. Brandt.......... 61 Senior Vice President--Planning and Marketing
Richard P. Magurno....... 53 Senior Vice President and General Counsel
Michael J. Palumbo....... 50 Senior Vice President and Chief Financial Officer
Charles J. Thibaudeau.... 50 Senior Vice President--Employee Relations
</TABLE>
John W. Bachmann has been a director of TWA since April 1, 1996. Mr.
Bachmann has been managing principal of Edward Jones since January 1980. Mr.
Bachmann serves as Chairman of the St. Louis Regional Commerce and Growth
Association/Civic Progress panel studying airport expansion and modernization
in St. Louis. Mr. Bachmann served as a member of the U.S. Steering Committee
for the Group of 30 and chaired its securities settlement implementation
taskforce in 1989. He also served as Chairman of the Securities Industry
Association from 1987 to 1989. Mr. Bachmann has served as a member of the
Board of Governors of the Chicago Stock Exchange and as a member of the
Regional Firms Advisory Board of the New York Stock Exchange. He is the
Chairman of the St. Louis Symphony Society and a Trustee of Washington
University and Wabash College. He is a member of the Board of Visitors of the
Peter F. Drucker Center. Mr. Bachmann's term of office as a director expires
with the Annual Meeting of Stockholders in 1997.
William F. Compton was appointed Executive Vice President--Operations on
March 13, 1997, subject to Board approval which was given on March 27, 1997.
He had been acting in such position since December 14, 1996. He was the ALPA-
designated director of TWA from November 3, 1993 until March 1997, at which
time he resigned and was appointed a management-designated director. A pilot
for TWA since September 13, 1968, Mr. Compton was an Executive Board Member
and Master Chairman of the TWA Master Executive Council ("MEC") of ALPA from
September 1991 to September 11, 1995, Coordinator for the Company's
Productivity Task Force until September 6, 1995 and a member of the TWA Labor
Advisory Committee from August 1992 until September 1995. He was Chairman of
the TWA MEC Negotiating Committee from March 1988 to September 1991, a member
of the ALPA National Collective Bargaining Committee from June 1988 to June
1990, and a member of the TWA MEC Negotiating Committee from June 1986 to
March 1988. Mr. Compton's term of office as a director expires with the Annual
Meeting of Stockholders in 1997. Mr. Compton serves as an officer of the
Company at the pleasure of the Board of Directors.
Eugene P. Conese has been a director of TWA since November 3, 1993. Mr.
Conese has been Chairman of the Board and Chief Executive Officer of Greenwich
Air Services, Inc. ("GAS") since October 1987, and Chairman of the Board and
President of World Air Lease, Inc. since July 1989. He was founder of The
Greenwich Company Ltd. ("GCL") and served as Chairman of the Board and Chief
Executive Officer from August 1980 until December 30, 1995, when GCL was
merged with and into GAS. He also served as Chief
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<PAGE>
Executive Officer and director of Irvin Industries, Inc. ("II") from October
1975 to October 1979, and President and member of the Board of Directors of II
from September 1970 to September 1975. He is a Trustee of Iona College. Mr.
Conese's term of office as a director expires with the Annual Meeting of
Stockholders in 1997.
Gerald L. Gitner has been Chairman and Chief Executive Officer of TWA since
February 12, 1997 and a director of TWA since November 3, 1993. He has been
Chairman of Avalon Group, Ltd. since April 1997, and Co-Chairman of Global
Aircraft Leasing Ltd. since 1990. Mr. Gitner was Vice Chairman of Tribeca
Corporation from February 1990 to December 1991, Chairman of Tribeca
Corporation from December 1991 to March 1992, and President and Chief
Executive Officer, ATASCO USA Inc. from September 1986 to December 1989. Mr.
Gitner was President of Texas Air Corp. from 1985 to 1986, Chairman and Chief
Executive Officer of Pan Am World Services from 1983 to 1985 and Vice Chairman
of Pan Am World Airways Inc. from 1983 to 1985. He was a founder of People
Express Airlines, Inc. and served as its President from 1980 to 1982. Mr.
Gitner is a director of ICTS International, N.V. and was a trustee of Boston
University from 1984 to 1996. Mr. Gitner's term of office as a director
expires with the Annual Meeting of Stockholders in 1998. Mr. Gitner serves as
an officer of the Company at the pleasure of the Board of Directors.
William M. Hoffman has been a director of TWA since January 23, 1996. He has
been a flight attendant for TWA since March 1970. Mr. Hoffman became Vice
President of IFFA during 1990 and served through October 1995. He served as a
member of the IFFA Executive Board from October 1980 through September 1995
and became Secretary and Treasurer of IFFA in 1983 and served through 1990.
Mr. Hoffman's term of office as a director expires with the Annual Meeting of
Stockholders in 1998.
Thomas H. Jacobsen has been a director of TWA since March 21, 1995. He has
been President, Chief Executive Officer and Chairman of the Board of
Mercantile Bancorporation Inc. since 1989. Mercantile Bank National
Association, formerly known as Mercantile Bank of St. Louis National
Association, and a subsidiary of Mercantile Bancorporation Inc., has provided
in the past and from time to time hereafter may provide depository and/or
other banking products to the Company and the Company's affiliates. Mr.
Jacobsen has been a director of the Student Loan Marketing Association since
November 1987 and a director of Union Electric Company since April 1990. Mr.
Jacobsen was Vice Chairman and director of Barnett Banks, Inc. from 1984 to
1989. Mr. Jacobsen's term of office as a director expires with the Annual
Meeting of Stockholders in 1999.
Myron Kaplan has been a director of TWA since November 3, 1993. He has been
a partner in the law firm of Kleinberg, Kaplan, Wolff & Cohen, P.C. since
1972. Mr. Kaplan's term of office as a director expires with the Annual
Meeting of Stockholders in 1998.
David M. Kennedy has been Acting Executive Vice President and Chief
Operating Officer since December 14, 1996, and a director of TWA since October
23, 1996. Mr. Kennedy was Chief Executive Officer of Aer Lingus from 1974 to
1988, and has held a variety of positions in the airline industry, including
as director of CSA, Czechoslovak Airlines, from 1993 to 1994, member of the
International Advisory Committee of Air France from 1991 to 1994, and as
Aviation Consultant to the European Bank for Reconstruction and Development
and the World Bank. Mr. Kennedy was a director of the Bank of Ireland from
1984 to 1995, where he served as Deputy Governor from 1989-1991. Mr. Kennedy
is currently chairman of the Bank of Ireland Pension Fund, and serves as a
director of CRH plc, Jurys Hotel Group Plc. and as Chairman of Drury
Communications Limited. Mr. Kennedy is a part-time lecturer at the Graduate
School of Business of the University College Dublin. Mr. Kennedy is a citizen
of Ireland. Mr. Kennedy's term of office as a director expires with the Annual
Meeting of Stockholders in 1999. Mr. Kennedy serves as an officer of the
Company at the pleasure of the Board of Directors.
Jewel Lafontant-Mankarious has been a director of TWA since October 4, 1994.
Ms. Lafontant-Mankarious is a partner in the Chicago law firm of Holleb & Coff
and concentrates her practice in the areas of corporate law, labor and
employment law, and governmental and international relations. She has been a
partner at Holleb & Coff since March 1993. She was Ambassador at Large --U.S.
Coordinator for Refugee Affairs in the United States State Department from
April 1989 to February 1993, Deputy solicitor General of the United States
from
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<PAGE>
1973 to 1975, and the United States Representative to the United Nations from
1972 to 1973. Ms. Lafontant-Mankarious has also been a member of the
President's Council on Minority Business Enterprise and Vice Chairman of the
U.S. Advisory Commission on International, Educational and Cultural Affairs.
She is a director of MAFCO, Inc. and has served on over 17 major corporate
boards over the past 20 years, including Mobil Oil Corporation, Trans World
Airlines, Inc. from July 1975 to September 1985 and The Equitable Life
Assurance Society of the United States. Ms. Lafontant-Mankarious is also a
director of Project HOPE. Mrs. Lafontant-Mankarious' term of office as a
director expires with the Annual Meeting of Stockholders in 1997.
Thomas F. Meagher has been a director of TWA since November 3, 1993 and was
Chairman of the Board from November 14, 1995 to February 12, 1997 and
currently serves as Lead Outside Director of the Board. Mr. Meagher has served
as Chairman of the Board and Chief Executive Officer of Howell Tractor &
Equipment Co. since 1980, and serves as a director of UNR Industries and
Everen Securities. Mr. Meagher was Chairman of Continental Air Transport from
1983 until July 1, 1995 and was Chief Executive Officer of Continental Air
Transport from 1983 to 1993. He is a retired director of Lakeside Bank of
Chicago and is a former Chairman of the Airport Ground Transportation
Association. He is a Trustee of St. Mary's University and DePaul University.
Mr. Meagher's term of office as a director expires with the Annual Meeting of
Stockholders in 1999.
William O'Driscoll has been a director of TWA since November 3, 1993. Mr.
O'Driscoll has been President and Directing General Chairman of IAM District
Lodge 142 since August 1990. Mr. O'Driscoll's term of office as a director
expires with the Annual Meeting of Stockholders in 1998.
G. Joseph Reddington has been a director of TWA since November 3, 1993. He
has been President and Chief Executive Officer and director of Breuner Home
Furnishings Corp. since February 1997. Mr. Reddington has been a director of
Loblaw Companies Ltd. since August 1994. Mr. Reddington was a director of
Sears Canada, Inc. from January 1985 to February 1994. Mr. Reddington was
Chairman and Chief Executive Officer of the Signature Group from April 1994 to
February 1997. President and Chief Executive Officer of Sears Canada from 1989
to December 1993, and Chief Administrative Officer of Sears Merchandising
Group from December 1988 to December 1989. Mr. Reddington's term of office as
a director expires with the Annual Meeting of Stockholders in 1999.
Lawrence K. Roos has been a director of TWA since November 3, 1993. Mr. Roos
has been a director of Laclede Steel Co. since 1984, an advisory director of
Boatmen's Trust Co. since 1983, and is a former President of the Federal
Reserve Bank of St. Louis and a former St. Louis County executive. Mr. Roos's
term of office as a director expires with the Annual Meeting of Stockholders
in 1997.
Stephen M. Tumblin has been a director of TWA since March 27, 1997. Mr.
Tumblin is an associate with the law firm of LeBoeuf, Lamb, Greene & MacRae
L.L.P. and had been with that firm since 1987. Mr. Tumblin's term of office as
a director expires with the Annual Meeting of Stockholders in 1998.
William W. Winpisinger has been a director of TWA since January 14, 1994. He
was International President of the IAM from July 1977 to June 1989, Resident
(Headquarters) Vice President of IAM from February 1972 to June 1977, Vice
President for Transportation membership of IAM from August 1967 to January
1972, and Vice President of the AFL-CIO from October 1977 to October 1989. Mr.
Winpisinger's term of office as a director expires with the Annual Meeting of
Stockholders in 1999.
Roden A. Brandt has been Senior Vice President--Planning and Marketing of
TWA since November 4, 1996 and served as Senior Vice President--Planning since
September 3, 1996. Mr. Brandt was formerly president of Air South, a South-
Carolina based start-up carrier, from 1995 to 1996. Mr. Brandt has been an
airline consultant since 1984, serving clients in Europe, Asia and the
Americas. Prior to 1984, he held a number of senior positions in the airline
industry, including Pan American World Airways' Senior Vice President--
Planning; Vice President--Western and Pacific Division; and Vice President--
Southern Division, as well as various executive positions with Eastern
Airlines. Mr. Brandt serves as an officer of the Company at the pleasure of
the Board of Directors.
Richard P. Magurno has been Senior Vice President and General Counsel of TWA
since May 2, 1994. Mr. Magurno was a partner at Lord Day & Lord, Barrett Smith
law firm, New York, New York from 1989 until May 1994. From 1970 to 1988, Mr.
Magurno served in various legal capacities at Eastern Air Lines, Inc.,
including
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Senior Vice President--Legal Affairs. Mr. Magurno serves as an officer of the
Company at the pleasure of the Board of Directors.
Michael J. Palumbo has been Senior Vice President and Chief Financial
Officer of TWA since December 20, 1996. Mr. Palumbo was formerly the Company's
Vice President and Treasurer and has been employed by TWA since 1994. Before
joining the Company, Mr. Palumbo was a partner in HPF Associates from 1988 to
1994 and Senior Vice President and Transportation Group Head for E.F. Hutton
from 1984 to 1988. Mr. Palumbo had previously served as Senior Vice
President--Finance and Treasurer of Western Airlines from 1983 to 1984 and
Assistant Treasurer of Pan American World Airways from 1977 to 1983. Mr.
Palumbo serves as an officer of the Company at the pleasure of the Board of
Directors.
Charles J. Thibaudeau has been Senior Vice President -- Employee Relations
of TWA since January 1993. He was also Vice President -- Employee Relations of
TWA from February 1990 to January 1993 and Staff Vice President -- Employee
Relations of TWA from September 1988 to February 1990. Mr. Thibaudeau serves
as an officer of the Company at the pleasure of the Board of Directors.
PRINCIPAL HOLDERS OF CAPITAL STOCK
The following table sets forth, as of May 2, 1997, certain information
concerning ownership of each class of voting securities of the Company by: (i)
each person who is known by the Company to own beneficially more than 5% of
the voting securities of the Company, (ii) each current director individually,
(iii) the chief executive officer and the five other senior executive officers
and (iv) all current directors and executive officers of the Company as a
group. The determinations of "beneficial ownership" of voting securities are
based upon Rule 13d-3 under the Exchange Act. Such rule provides that the
securities will be deemed "beneficially owned" where a person has, either
solely or in conjunction with others, the power to vote or to direct the
voting of securities and/or the power to dispose, or to direct the disposition
of, the securities or where a person has the right to acquire any such power
within 60 days after the date such "beneficial ownership" is determined.
Except as described below, each of the persons and groups listed below has
sole voting and investment power with respect to the securities shown.
PRINCIPAL HOLDERS OF COMMON STOCK(1)
<TABLE>
<CAPTION>
AMOUNT OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OR BENEFICIAL OUTSTANDING
IDENTITY OF GROUP OWNERSHIP(2) VOTING SECURITIES(2)
- --------------------------------------- ------------ --------------------
<S> <C> <C>
John W. Bachmann(3)(4)...................... 3,909 *
William F. Compton(5)....................... 849 *
Eugene P. Conese(3)(6)(7)(8)................ 10,685 *
Gerald L Gitner(3)(6)(9).................... 507,776 1.0%
William M. Hoffman(10)...................... 319 *
Thomas H. Jacobsen(3)(6)(7)................. 17,685 *
Myron Kaplan(3)(4)(6)(11)................... 9,231 *
David M. Kennedy(3)......................... 1,000 *
Jewel Lafontant-Mankarious(3)(12)(13)....... 4,500 *
Thomas F. Meagher(3)(14)(15)................ 10,664 *
William O'Driscoll(16)...................... 202,455 *
G. Joseph Reddington(3)(4)(6)(14)........... 9,731 *
Lawrence K. Roos(3)(6)(12)(17).............. 9,276 *
Stephen M. Tumblin(3)....................... 0 *
William W. Winpisinger(3)(14)(18)........... 5,388 *
Roden A. Brandt(19)......................... 0 *
Richard P. Magurno(19)(20)(21).............. 1,155,698 2.3%
Michael J. Palumbo(19)(20)(22).............. 62,319 *
Charles J. Thibaudeau(19)(20)............... 921,474 1.8%
Total Shares owned by Current Directors and
Current Executive Officers, as a group
(19 individuals)(23)....................... 2,932,959 5.8%
</TABLE>
(see notes on following page)
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<PAGE>
- --------
* Less than 1%
(1) On March 19, 1997, Prince Al-Waleed Bin Talal Bin Abdulaziz Al-Saud of
Saudi Arabia informed the Company that he had purchased 2,088,000 shares
of Common Stock, representing approximately 5% of the outstanding stock.
(2) Includes securities issuable pursuant to options exercisable within 60
days. Except as stated in footnote (12) below, does not include the 1,500
options granted to certain Directors pursuant to the Outside Directors
Plan, as such options are not exercisable within 60 days.
(3) Pursuant to the Company's 1995 Outside Directors' Stock Ownership and
Stock Option Plan (the "Outside Directors Plan"), each outside director
may elect to defer some or all of his or her annual retainer by
participating in a Deferred Retained Program (as defined in the Outside
Directors Plan). Participating directors are entitled to receive annual
credits to their deferred retainer accounts equaling the percentage of his
or her retainer to be received in shares of Common Stock times the annual
retainer amount payable to such outside director divided by (i) with
respect to 1996, $4.1875, the subscription price of the Company's
September 1995 equity rights offering (the "Subscription Price") and (ii)
with respect to 1997, $6.875, the fair market value of the Common Stock on
January 2, 1997. Upon the earlier to occur of December 31, 2000 and the
last date of a participating director's service on the Board, such
director is entitled to a payment equal to (i) the total number of shares
of Common Stock in the director's deferred retainer account, (ii) cash
equaling the number of shares of Common Stock contained in the deferred
retainer account times the Fair Market Value (as defined in the Outside
Directors Plan) of the Common Stock on the date the retainer becomes
payable or (iii) a combination of (i) and (ii).
(4) Messrs. Bachmann, Kaplan and Reddington each elected to defer 50% of 1997
retainer amounts payable to them in a deferred retainer account.
Constitutes or includes 1,455 shares of Common Stock issuable to such
outside director pursuant to the Outside Directors Plan in the event of
his termination from service on the Board within 60 days assuming such
director elects to receive the entire balance of his deferred retainer
account in shares of Common Stock.
(5) Excludes approximately 932 shares of Employee Preferred Stock attributable
to Mr. Compton's beneficial interest in the TWA Air Line Pilots
Supplemental Stock Plan. Excludes shares owned by his wife pursuant to her
beneficial interest in the IAM Trans World Airlines Employees' Stock
Ownership Plan for Flight Attendants (the "Flight Attendant Trust") and
other shares as to which she is the record holder. Mr. Compton disclaims
beneficial ownership of all shares held by his wife. Mr. Compton is the
record holder of 849 shares of Common Stock.
(6) Messrs. Conese, Gitner, Jacobsen, Kaplan, Reddington and Roos each elected
to defer all 1996 retainer amounts payable to them in a deferred retainer
account. Constitutes or includes 4,776 shares of Common Stock issuable to
such outside director pursuant to the Outside Directors Plan in the event
of his termination from service on the Board within 60 days, assuming such
director elects to receive the entire balance of his deferred retainer
account in shares of Common Stock.
(7) Messrs. Conese and Jacobsen each elected to defer all 1997 retainer
amounts payable to them in a deferred retainer account. Constitutes or
includes 2,909 shares of Common Stock issuable to such outside director
pursuant to the Outside Directors Plan in the event of his termination
from service on the Board within 60 days, assuming such director elects to
receive the entire balance of his deferred retainer account in shares of
Common Stock.
(8) Includes warrants to purchase 49 shares of Common Stock at a price of
$14.40 per share.
(9) Includes 500,000 shares of Common Stock issuable upon the exercise of
vested options granted to Mr. Gitner pursuant to the KESIP.
(10) Includes approximately 16 shares held for Mr. Hoffman's benefit as a TWA
employee in the Flight Attendant Trust. Except for the 16 shares
described above, Mr. Hoffman disclaims beneficial ownership of the shares
held by the IFFA Trust. Mr. Hoffman is also the beneficial owner of an
undetermined amount of Common Stock which has not yet been issued or
allocated, which is to be distributed to Mr. Hoffman as a TWA employee as
a result of IFFA litigation against TWA settled in the course of the '93
Reorganization. Mr. Hoffman is the record holder of 295 shares of Common
Stock.
(11) These shares are held by Mr. Kaplan for the benefit of the firm of
Kleinberg, Kaplan, Wolff & Cohen, P.C., of which Mr. Kaplan is a member.
(12) Includes 1,500 options granted pursuant to the Outside Directors' Plan
and which will vest within 60 days as a result of the retirement of Ms.
Lafontant-Mankarious and Mr. Roos.
(13) Pursuant to the Outside Directors Plan, each outside director was granted
the right to purchase up to 3,000 shares of Common Stock at the
Subscription Price. Includes 2,000 shares of Common Stock remaining
issuable upon exercise of this right.
(14) Pursuant to the Outside Directors Plan, such outside director was granted
the right to purchase up to 3,000 shares of Common Stock at the
Subscription Price. Includes 3,000 shares of Common Stock issuable upon
exercise of this right.
(15) Mr. Meagher elected to defer all 1996 retainer amounts payable to him in
a deferred retainer account. Constitutes 7,164 shares of Common Stock
issuable to Mr. Meagher pursuant to the Outside Directors Plan in the
event of his termination from service on the Board within 60 days,
assuming Mr. Meagher elects to receive the entire balance of his deferred
retainer account in shares of Common Stock.
(16) 163,145 shares are held by Mr. O'Driscoll as a member of the IAM Plan
Trust Committee of the IAM Trans World Airlines Employees' Stock
Ownership Plan (the "IAM Trust"), along with Mr. Gary Poos. 39,310 shaes
are held by Mr. O'Driscoll as a member of the Trustee Committee of the
Flight Attendant Trust, along with Sherry Cooper and Rocky Miller. Mr.
O'Driscoll disclaims beneficial ownership of the shares held by the IAM
Trust and the Flight Attendant Trust.
(17) Includes 3,000 shares held in the name of the Lawrence K. Roos Revocable
Trust.
(18) Mr. Winpisinger elected to defer 50% of 1996 retainer amounts payable to
him in a deferred retainer account. Includes 2,388 shares of Common Stock
issuable to Mr. Winpisinger pursuant to the Outside Directors Plan in the
event of his termination from service on the Board within 60 days,
assuming Mr. Winpisinger elects to receive the entire balance of his
deferred retainer account in shares of Common Stock.
(19) Does not include unvested options to purchase shares of Common Stock
pursuant to the KESIP.
(20) Approximately 1,958, 1,119 and 1,725 shares attributable to the
respective beneficial interests of Messrs. Magurno, Palumbo and
Thibaudeau are held by the employee stock ownership trust established for
the benefit of TWA's non-contract employees (the "Non-Contract Employees
Trust"). Except for such shares, Messrs. Magurno, Palumbo and Thibaudeau
disclaim beneficial ownership of the shares held by the Non-Contract
Employees Trust. Messrs. Magurno and Thibaudeau serve as members of the
committee having the power to direct the vote of the shares of Common
Stock held in the Non-Contract Employees Trust. Such trust holds 921,474
shares.
(21) Includes 234,234 shares of Common Stock issuable upon the exercise of
vested options granted to Mr. Magurno pursuant to the KESIP.
(22) Includes 61,200 shares of Common Stock issuable upon the exercise of
vested options granted to Mr. Palumbo pursuant to the KESIP.
(23) When combined with shares of Employee Preferred Stock beneficially held
by current directors and current executive officers, as a group,
represents a total of 7,472,346 shares of the Company's voting
securities.
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<PAGE>
DESCRIPTION OF NOTES
The Company issued the Old Notes and will issue the New Notes under the
Indenture dated as of March 31, 1997 by and between the Company and First
Security Bank, National Association, as trustee (the "Trustee"), a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The Notes are entitled to the benefits of and are
subject to those terms set forth in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA") as in effect on the date of the Indenture. Copies of the Indenture can
be obtained from the Company upon request. The following description of
certain provisions of the Indenture, the Notes, the Pledge and Security
Agreement (as defined), the Slot Trust Agreement (as defined) and the Master
Sub-License Agreement (as defined) is intended as a summary only and is
qualified in its entirety by reference to those documents, including the
definitions in those documents of certain terms. (The Pledge and Security
Agreement, the Slot Trust Agreement and the Master Sub-License Agreement,
collectively, the "Collateral Documents".) Whenever particular articles,
sections or defined terms of the Notes, the Indenture, the Registration Rights
Agreement or the Collateral Documents are referred to, it is intended that
those articles, sections or defined terms are to be incorporated herein by
reference.
GENERAL
The Notes are senior secured obligations of the Company and will mature on
April 1, 2002. The Notes are not redeemable prior to maturity. The Notes will
bear interest at the annual rate of 12% from the date of original issuance, or
from the most recent interest payment date to which interest has been paid or
provided for, payable semiannually in arrears on April 1 and October 1 of each
year, commencing on October 1, 1997, to the person in whose name the Note is
registered at the close of business on the preceding March 15 and September
15, 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. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. The Notes 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 Notes will be payable, and
the transfer of the Notes 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 Notes. The Trustee will initially act as paying
agent, registrar and tender agent (for tender of the Notes in payment of the
exercise price of the Warrants) for the Notes. The Company may change the
paying agent, registrar and tender agent in accordance with the Indenture.
The Notes are issued only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. Holders will not be
charged for any registration of transfer or exchange of the Notes, 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 with respect to the
capital stock of the Company and, subject to certain exceptions, in the case
of an event of default or a default of the type set forth in clauses (i),
(ii), (iv), or (vii) under the heading "Description of Notes--Events of
Default.") or any financial covenants. The covenants and provisions contained
in the Notes and the Indenture would not necessarily afford the holders of the
Notes protection in the event of a highly leveraged transaction involving the
Company.
RANKING
The Notes are senior secured obligations of the Company and rank pari passu
in right of payment with other senior obligations of the Company. As of
December 31, 1996, after giving effect to the issuance of the Units and the
application of the proceeds therefrom, the Company's senior indebtedness
outstanding would have been approximately $1,111 million. While unsecured
indebtedness ranks pari passu with the Notes in right of payment, the holders
of the Notes may, to the exclusion of unsecured creditors, look to the
Collateral as security for the Notes unless and until the Notes are satisfied
in full. See "--Collateral Security" and "--Certain Bankruptcy Limitations."
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There is no limitation in the Indenture on the amount of additional
indebtedness which ranks pari passu in right of payment with the Notes or
additional subordinated indebtedness which may be incurred.
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company has filed the Registration Statement of which this Prospectus is
a part, and will commence the Exchange Offer, pursuant to the Registration
Rights Agreement.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect the Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the date of
the Registration Rights Agreement, or if the Initial Purchaser so requests
with respect to Old Notes not eligible to be exchanged for New Notes in the
Exchange Offer, or if any holder of Old Notes is not eligible to participate
in the Exchange Offer or does not receive freely tradable New Notes in the
Exchange Offer, the Company will, at its cost, (a) as promptly as practicable,
file a shelf registration statement (the "Shelf Registration Statement")
covering resales of the Old Notes or the New Notes, as the case may be, (b)
use its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) keep the Shelf Registration
Statement effective until the earlier of (i) the time when Notes covered by
the Shelf Registration Statement can be sold pursuant to Rule 144 without any
limitations under clauses (c), (e), (f) and (h) of Rule 144 and (ii) two years
from the date of original issuance thereof. The Company will, in the event a
Shelf Registration Statement is filed, among other things, provide to each
holder for whom such Shelf Registration Statement was filed copies of the
prospectus which is a part of the Shelf Registration Statement, notify each
such holder when the Shelf Registration Statement has become effective and
take certain other actions as are required to permit unrestricted resales of
the Old Notes or the New Notes, as the case may be. A holder selling such Old
Notes or New Notes pursuant to the Shelf Registration Statement generally
would be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such holder (including
certain indemnification obligations).
If (i) on or prior to 60 days after the date of original issuance of the
Notes, neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement has been filed with the Commission; (ii) on or prior to
120 days after the original issuance of the Old Notes, neither the Exchange
Offer is consummated nor the Shelf Registration Statement is declared
effective; or (iii) after either the Exchange Offer Registration Statement or
the Shelf Registration Statement is declared effective, such registration
statement thereafter ceases to be effective or usable (subject to certain
exceptions) in connection with resales of Notes or Exchange Notes in
accordance with and during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (i) through (iii), a
"Registration Default"), the Company will pay liquidated damages ("Liquidated
Damages") to each Holder of Old Notes or New Notes that are, at the time of
the Registration Default, subject to certain transfer restrictions under the
Securities Act ("Transfer Restricted Notes") as more fully described in the
Registration Rights Agreement, during the first 90-day period immediately
following such Registration Default in an amount equal to $0.05 per week per
Transfer Restricted Note held by such Holder. The amount of the Liquidated
Damages will increase by an additional $0.05 per week per Transfer Restricted
Note for each subsequent 90-day period until the Exchange Offer Registration
Statement or Shelf Registration Statement is declared effective or such
registration statement again becomes effective, as the case may be, up to a
maximum Liquidated Damages with respect to any Registration Default of $0.25
per week per Transfer Restricted Note. Such Liquidated Damages are payable in
addition to any other interest payable from time to time with respect to the
Notes and the Exchange Notes.
If the Company effects the Exchange Offer, it will be entitled to close the
Exchange Offer 30 days after the commencement thereof provided that it has
accepted all Notes theretofore validly tendered in accordance with the terms
of the Exchange Offer.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject, and is qualified in
its entirety by reference, to all of the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
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PURCHASE OF NOTES AT THE OPTION OF HOLDERS UPON A CHANGE IN CONTROL
Upon a Change in Control of the Company, each holder of Notes shall have the
right upon receipt of a Repurchase Right Notice (as defined in the Indenture),
at such holder's option, to require the Company to repurchase all of such
holder's Notes, or a portion thereof which is $1,000 or any integral multiple
thereof, on the date that is no later than 45 days after the date of the
Repurchase Right Notice (the "Repurchase Date") at a repurchase price equal to
100% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, with respect to the Notes, in each case, to the
Repurchase Date.
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 Notes 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 Notes, (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 and 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 Notes must deliver written notice
to the Company (or an agent designated by the Company for such purposes) of
the holder's election to exercise such right, together with the Notes with
respect to which the right is being exercised, duly endorsed for transfer.
Such written notice shall be irrevocable on or after the 5th business day
prior to the Repurchase Date.
The right to require the repurchase of Notes shall terminate after a
discharge of the Company from its obligations under the Notes and the
Indenture in accordance therewith. See "--Satisfaction and Discharge of the
Indenture." Repurchase of the Notes may, under certain circumstances,
constitute a default or event of default under senior indebtedness then
outstanding and, in such instances, repurchase of the Notes would be
prohibited unless and until such default has been cured or waived. The failure
to repurchase the Notes 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, Notes 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 Note 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 Note on the immediately
preceding record date. A Note repurchased on an interest payment date need not
be accompanied by any payment, and the interest on the principal amount of the
Note being repurchased and Liquidated Damages, if any, with respect thereto,
will be paid on such interest payment date to the registered holder of such
Note on the corresponding record date.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change in Control or
require such indebtedness to be purchased upon a Change in Control. Moreover,
the exercise by the holders of their right to require the Company to
repurchase the Notes could cause a default under such indebtedness, even if
the Change in Control itself does not, due to the financial effect of such
purchase on the Company. Finally, the Company's ability to pay cash to the
holders of Notes following the occurrence of a Change in Control may be
limited by the Company's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases. The provisions under the Indenture relative to the
Company's obligation to make an offer to repurchase the Notes as a result of a
Change in Control may be waived or modified with the written consent of the
holders of a majority in principal amount of the Notes.
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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, 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 Note holders.
One of the events which constitutes a Change in Control under the Indenture
is the disposition of "all or substantially all" of the Company's assets. This
term has not been interpreted under New York law (the law governing the
Indenture) to represent a specific quantitative test. As a consequence, in the
event the holders of the Notes elect to require the Company to repurchase the
Notes and the Company elects to contest such election, there can be no
assurance as to how a court interpreting New York law would interpret the
phrase.
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 Notes. The Change in Control
purchase feature of the Notes 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, to management's knowledge, any specific effort to obtain control of the
Company by means of a merger, tender offer, solicitation or otherwise, nor is
it 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 and the Company may
permit any person to consolidate with or merge into the Company, or transfer
or lease all or substantially all of its properties and assets 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 Notes and under the Indenture and (b) immediately
before and immediately after giving effect to such transaction, no Event of
Default (as defined in the Indenture) shall have occurred and be continuing.
Upon any permitted consolidation, merger or conveyance or transfer of the
properties and assets of all or substantially all of the assets of the
Company, the surviving or acquiring entity, as the case may be (if other than
the Company), shall succeed to, and be substituted for, the Company under the
Indenture, the Securities and the other Operative Documents, and the Company
shall be discharged from liability therefore.
EVENTS OF DEFAULT
The following shall constitute "Events of Default" with respect to the
Notes: (i) failure to pay the principal of, premium, if any, on, or Change in
Control repurchase amount, if any, with respect to, any Note when such amounts
become due and payable at maturity, upon acceleration or otherwise, (ii)
failure to pay interest or Liquidated Damages on the Notes when due, where
such failure continues for a 30-day period; (iii) a default in the observance
or performance of certain covenants or agreements of the Company in the
Indenture and the Collateral Documents that continues for the relevant period
specified therein, (iv) any representation or warranty of the Company in the
Indenture or any of the Collateral Documents shall prove to have been untrue
in any material respect when made and such default continues for the period
and after the notice specified below, or a default in any material respect in
the observance or performance of any other covenant or agreement of the
Company in the Notes, the Indenture or any of the Collateral Documents, in
each case that continues for the period and after the notice specified below;
(v) an event of default shall have occurred and be continuing under any other
evidence of indebtedness of the Company, 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; (vi) any final judgment
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or judgments for payment of money in excess of $15 million in the aggregate
shall be rendered against the Company and shall remain unstayed, unsatisfied
and undischarged for the period and after the notice specified below and (vii)
certain events of bankruptcy, insolvency or reorganization. The Company is
required to deliver to the Trustee 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
Notes and, if any default exists, describing such default.
A default under clause (iv), (v) or (vi) above is not an Event of Default
until the Trustee or the holders of at least 25% in principal amount of the
then outstanding Notes notify the Company of the default and the Company does
not cure the default within 60 days with respect to clauses (iv) or (vi), or
within 30 days with respect to clause (v), 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 Notes 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 Notes than outstanding, by notice to the
Company and the Trustee, may declare the principal amount of the Notes, 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 Notes. 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 Notes 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 Note cannot be waived or
amended without payment of the amount then due otherwise than for the
acceleration. 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 Note may institute any proceeding with respect to the Indenture or
the Notes 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 Notes 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 Notes 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
Notes then outstanding will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee
with respect to the Collateral or otherwise 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 Note 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 Notes;
provided, however, that no such modification or amendment may, without the
consent of the holders of each Note affected thereby, (a) extend the fixed
maturity of any Note, reduce the rate or extend the time of payment of
interest on, or Liquidated Damages, if any, with respect to, any Note, reduce
the principal amount, or premium, if any, on, or Liquidated Damages, if any,
with respect to, any Note, impair the right of a holder to institute suit for
payment thereof, or change the place of payment of the Notes, or the currency
in which the Notes are payable or (b) reduce the percentage of Notes, the
consent of the holders of which is required for any modification or waiver.
Without the consent of any holders of the Notes, the Company and the Trustee
may amend or supplement the Notes, the Indenture or any Collateral Document to
(i) provide for uncertificated Notes in addition to or in place of
certificated Notes, (ii) provide for the assumption of the Company's
obligations to
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holders of the Notes in the case of a merger or consolidation or transfer of
all or substantially all of the Company's assets, (iii) comply with the TIA,
or (iv) cure any ambiguity, defect or inconsistency, or make any other change,
in each case provided that such action does not materially adversely affect
the interests of the holders of the Notes.
The holders of a majority in aggregate principal amount of outstanding Notes
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.
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 Notes 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 Notes by accepting a Note waives and
releases all such liability.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture provides that the Company may terminate its obligations under
the Indenture and obtain the release of the Collateral at any time by
delivering all outstanding Notes 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 and obtain the release of the Collateral 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 Notes 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 Notes 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. For a description of the
restrictions on the transfer of Notes, see "Transfer Restrictions."
The registered holder of a Note may be treated as the owner of it for all
purposes.
DELIVERY AND FORM
The Notes are issued in registered form.
REPORTS
As soon as practicable after it files them with the Commission, the Company
shall deliver to the Trustee and to each holder of a Note, at the address as
set forth in the register of the Company with respect thereto, copies of the
annual reports, quarterly reports and the information, documents and other
reports which the Company furnished by it to its stockholders generally.
Concurrently with the reports delivered to the preceding paragraph, the
Company is required to furnish the Trustee an officer's certificate to the
effect that such officer has conducted or supervised a review of the
activities of the Company and of performance under the Indenture and that, to
the knowledge of such officer, based on such review, the Company has fulfilled
all of its obligations under the Indenture or, if there has been a default,
specifying each default known to him, its nature and status.
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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 TIA, the Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest, as described in the TIA, it must eliminate such conflict
or resign. The Trustee shall have a lien prior to the Notes on all money or
property held or collected by the Trustee or otherwise distributable to
holders of Notes (except money, securities or property held in trust to pay
principal and/or interest on particular Notes) to secure the Company's payment
and indemnity obligations to the Trustee (as trustee under the Indenture, as
collateral agent under the Pledge and Security Agreement (defined below) and
as slot trustee under the Slot Trust described below).
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York.
COLLATERAL SECURITY
The indebtedness evidenced by the Notes is secured by a lien on (i) the
Company's beneficial interest in its FAA-designated take-off and landing time
slots at three high-density, capacity-controlled airports, (ii) certain ground
equipment and (iii) the capital stock of certain TWA wholly-owned subsidiaries
as described below.
Slots
The FAA designates certain congested airports in the United States as high
density traffic airports. At such airports, the FAA determines the maximum
hourly number of instrument flight rule ("IFR") take-offs and landings which
may be reserved for use by air carriers and other aircraft operators. The
authority granted by the FAA to conduct one IFR take-off or landing in a
specified period, at one of these airports is referred to in the industry as a
"slot." While the FAA has sanctioned the right to buy and sell slots, it has
also been specific in stating that a slot does not represent a property right,
but merely an operational authority. As such, slots are subject to complete
control by the FAA and may be withdrawn without compensation at any time to
fulfill the FAA's operational needs, including, but not limited to, providing
slots for international or essential air service operations or eliminating
slots. Further, FAA regulations provide that except in certain circumstances,
the FAA shall recall any slots not utilized by an airline 80% of the time over
a two consecutive month period. The FAA has proposed that this utilization
requirement be increased to up to 90% under certain circumstances and with
respect to certain Slots. TWA currently has the right to use (as a result of
either direct distributions from the FAA or agreements with other airlines) a
total of approximately 220 slots at JFK and LaGuardia airports in New York and
O'Hare International Airport in Chicago each of which will be placed in a
"Slot Trust" governed by a Slot Trust Agreement (the "Slots"). The Company's
interest in the Slot Trust will be evidenced by a beneficial ownership
certificate (the "Beneficial Interest Certificate") which will be pledged to
the Trustee under the Pledge and Security Agreement. While TWA currently has
sufficient slots to conduct its business and has in the past utilized such
slots sufficiently to retain the right to use such slots, there can be no
assurance that such slots, including one or more Slots, will not be revoked in
the future by the FAA for any reason, including, but not limited to, TWA's
failure to use such slots to the extent required now or in the future, or that
such slots will be adequate for TWA's operations in the future. In addition,
the FAA could lower or eliminate the value of a slot, including one or more
Slots, by withdrawing it from the holder as part of a reallocation of slots,
by creating additional Slots, by discounting the requirements for slots at the
affected airport or at the affected hour or by amending or revoking the
regulations or practice with respect to the sale, lease or transfer of slots.
Such actions could adversely affect the value of the Collateral. The Company
will retain a reversionary interest in the Slots. In addition, the Slot Trust
will sub-license the right to operate the Slots to TWA for a period equal to
the term of the Notes, subject to the terms of a Master Sub-License Agreement.
The Master Sub-License Agreement will, subject to certain restrictions, permit
TWA to, among other things, sub-license and agree to further sub-license,
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directly or indirectly, to other air carriers the right to use Slots. These
transactions, which must be confirmed by the FAA, will permit TWA to continue
to operate the Slots.
Upon the acceleration of TWA's obligations under the terms of Notes, the
Master Sub-License Agreement automatically will terminate, whereupon TWA could
no longer have the right to operate the Slots and, subject to certain
limitations, all of TWA's rights (other than its reversion interest) with
respect to operating the Slots would terminate.
Upon the occurrence of an Event of Default under the Indenture and during
the continuance thereof, TWA agrees to deliver to the Collateral Agent all
consideration to be received by TWA after such Event of Default (other than
the right to use a Slot as to which a person other than TWA is the holder of
record at the FAA) in connection with any third party license.
Ground Equipment and Stock of Certain Subsidiaries
Pursuant to a pledge and security agreement (the "Pledge and Security
Agreement") the Notes are also secured by (i) the pledge by the Company of all
the outstanding capital stock of the Pledged Subsidiaries and (ii) a floating
lien on the Company's defined "ground equipment" owned and used by the Company
from time to time and located at domestic airport locations served by the
Company, other than any such ground equipment (i) located from time to time at
St. Louis, LaGuardia, JFK, Newark, TWA's Kansas City overhaul base or any
other maintenance base of TWA or (ii) subject to any existing or future
purchase money liens and encumbrances and ordinary course refinancing thereof
(such non-excluded defined "ground equipment," the "Ground Equipment").
The value of the Pledged Securities depends upon, among other things, the
value of the assets of the Pledged Subsidiaries, which consist largely of such
subsidiaries' interest in their respective Subsidiary Facilities Leases. The
lessors under the Subsidiary Facilities Leases are various governmental
authorities. The Subsidiary Facilities Leases generally are not assignable
without consent of such lessors and many such lessors do not enter into
airport facilities leases with, or permit assignment of airport facilities
leases to, non-airline lessees (including subsidiaries of airlines). The
Subsidiary Facilities Leases were assigned to the Pledged Subsidiaries without
the consent of the lessors by special order of the bankruptcy court in the '93
Reorganization. TWA will not be required to assign any additional airport
facilities leases to the Pledged Subsidiaries. In addition so long as no Event
of Default has occurred and is continuing, there will be no limitation in the
Indenture or the Collateral Documents on the Pledged Subsidiaries paying
dividends to TWA or disposing of or otherwise dealing in their assets as such
subsidiaries deem appropriate in the ordinary course of business. Accordingly,
the level of assets in the Pledged Subsidiaries, and thus the value of the
Pledged Securities as Collateral for the Notes, could decline significantly
(for example, when Subsidiaries Facilities Leases are sold or traded for
operational considerations in the course of TWA's or a Gate Subsidiaries'
business). In addition, the Pledged Subsidiaries have entered into subleases
(the "Facilities Subleases") of the Pledged Subsidiary Facilities with the
Company. Until such time as a Pledged Subsidiary ceases to be a wholly-owned
subsidiary of TWA, the rent under the Subsidiary Facilities Subleases
essentially only is equal to the rent payable by the relevant Pledged
Subsidiary under the relevant Subsidiary Facility Lease.
General
The Beneficial Interest Certificate, the Pledged Securities and Ground
Equipment are sometimes herein referred to as the "Collateral." That portion
of the Collateral consisting of TWA's beneficial interest in the Slots is
currently pledged to secure the 12% Reset Notes. The Company is required to
secure the release of that portion of the Collateral from the lien securing
the 12% Reset Notes concurrently with the issue of the Notes and to pledge
TWA's beneficial interest in such Slots, along with the balance of the
Collateral, to the Trustee to secure the Notes.
Upon the payment in full of all amounts outstanding under the Notes and the
Indenture, the Master Sub-License Agreement, the Slot Trust and the Pledge and
Security Agreement will terminate. In such event, the
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primary operating authority with respect to the Slots, the Ground Equipment
and the Pledged Securities will revert to TWA, provided, that if such
reversion is prohibited by any then applicable law, the Master Sub-License
Agreement and the Slot Trust will continue in effect until such time as the
reversion of the primary operating authority with respect to the Slots is
permitted.
The Indenture and the Pledge and Security Agreement provide, among other
things, that the Company may, among other things, (i) use and deal with the
Collateral in any manner consistent with the Company's ordinary course of
business, (ii) unless an Event of Default has occurred and is continuing,
cause certain Collateral to be leased or subleased in accordance with the
Pledge and Security Agreement and (iii) unless an Event of Default has
occurred and is continuing, cause Collateral to be released from the lien of
the Operative Documents upon providing specified substitute collateral, cash
and/or acquired or cancelled Notes. In addition, the Collateral Documents
permit the release of Collateral from the lien of the Trustee if certain
collateral coverage ratios are satisfied. Generally, the Company may dispose
of Ground Equipment in the ordinary course of its business so long as the
defined net book value of the remaining Ground Equipment (including the net
book value of all Ground Equipment acquired subsequent to the issuance of the
Notes and not previously disposed) is not less than 80% of the initial defined
net book value of Ground Equipment covered by the Original Appraisal (the
"Ground Equipment Threshold"), The Ground Equipment Threshold can be reduced
by providing specified substitute collateral, cash and/or acquired or
cancelled Notes. In addition, the Company may instruct the Slot Trust to
dispose of Slots in the ordinary course of business so long as (i) the ratio
of fair market value (based on an appraisal not more than 20 months old and a
current Company certificate) of the remaining Slots (together with any
permitted substitute collateral) to the principal amount outstanding under the
Notes (less cash collateral) would not thereby be reduced to below 1.2 to 1.0,
and (ii) the ratio of fair market value (based on an appraisal not more than
20 months old and a current Company certificate) of the remaining Slots and
Ground Equipment to the principal amount outstanding under the Notes (less
cash collateral) would not thereby be reduced to below 1.5 to 1.0. The
Collateral Documents also provide that (a) at such time as the aggregate
outstanding principal amount of the Notes is reduced (whether through
cancellation, purchase by the Company or otherwise) to 75% of the initial
amount thereof, the Company will be entitled to the release of (i) the stock
of one of the Gate Subsidiaries (holding various Subsidiary Gate Leases having
an expected indicated aggregate fair market value according to the Original
Appraisals of $7.5 million) and (ii) stock of the LAX Hangar Subsidiary
(holding the LAX Hangar Lease having an expected indicated fair market value
according to the Original Appraisals of $3.1 million); (b) at such time as the
aggregate outstanding principal amount of the Notes has been reduced to 50% of
the initial amount thereof, the Company will be entitled to the release of (i)
all JFK Slots (such Slots having an aggregate expected indicated fair market
value according to the Original Appraisals of $32.4 million) or Slots acquired
in substitution therefor and made part of the Collateral and (ii) the stock of
another Gate Subsidiary (holding various Subsidiary Gate Leases having an
aggregate expected indicated fair market value according to the Original
Appraisals of $10.5 million); and (c) at such time as the aggregate
outstanding principal amount of the Notes has been reduced to 20% of the
initial amount thereof, the Company will be entitled to the release of (i) all
O'Hare Airport Slots (such Slots having an aggregate expected indicated fair
market value according to the Original Appraisals of $1.25 million) or Slots
acquired in substitution therefor and made part of the Collateral and (ii) all
of the Ground Equipment (such Ground Equipment having an aggregate expected
fair market value according to the Original Appraisals of approximately $24.2
million). All of the releases of Collateral referred to in the immediately
preceding sentence will occur on the first date, on or after the satisfaction
of the foregoing Note retirement thresholds, when (i) after giving effect to
such release, the ratio of the aggregate fair market value of the Slots and
the Ground Equipment (based on an appraisal not more than 12 months old and a
current Company certificate) to the aggregate outstanding principal amount of
the Notes (less cash collateral), would equal or exceed 1.5 to 1.0 and (ii) no
Event of Default or Default of the type described in clauses (i), (ii), (iv)
or (vii) under the heading "Description of Notes--Events of Default") shall
have occurred and be continuing.
Under the terms of the Pledge and Security Agreement, the Trustee, acting
upon instructions from holders of at least a majority in aggregate principal
amount of Notes then outstanding (the "Required Holders") will determine the
circumstances under and the manner in which the Collateral may be disposed of,
including, but not limited to, the determination of whether to release all or
any portion of the Collateral from the liens created by the
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Pledge and Security Agreement other than in accordance with the terms thereof
and whether to foreclose on the Collateral. Upon any foreclosure, cash or
other property realized by the Trustee will be applied first to pay the
expenses of such foreclosure and fees and other amounts then payable to the
Trustee under the Pledge and Security Agreement and the Indenture, and
thereafter for the equal and ratable benefit of the holders pro rata to the
aggregate principal amounts of Notes held by such holders. In connection with
any release of Collateral, the Trustee shall determine whether they have
received all documentation required by Section 314 of the TIA (to the extent
applicable) to permit such release.
Simat, Helliesen & Eichner, Inc. ("SH&E") prepared appraisals (the "Original
Appraisals") of the Slots, the Ground Equipment, the LAX Hangar Lease and
certain of the Subsidiary Gate Leases (the "Appraised Assets"), which
appraisals indicated a fair market value of $68.2 million for the Slots, $38.6
million for the Subsidiaries Facilities Leases and of approximately $24.2
million for the Ground Equipment. In determining fair market value, SH&E first
estimated the value of such Appraised Assets to TWA as a going concern, which
is effectively the replacement value of such property (or approximately the
current fair market value for the sale thereof by a willing buyer and a
willing seller, neither being under any pressure to complete the transaction).
SH&E relied substantially upon previous valuations of the Appraised Assets
made by them in 1994 and 1995, and, in part, on prior research and analysis to
the extent deemed relevant. Among other things, SH&E also reviewed other prior
sale transactions over a period of years in order to derive comparables, made
certain limited inspections where deemed appropriate, performed telephone
surveys of relevant industry sources and consulted with TWA's management to
the extent deemed necessary or appropriate. The appraisals by SH&E are matters
of opinion only, disregard in the case of Subsidiary Facilities Leases the
effects of the rights and interests of TWA under the Facilities Subleases and
in any event may not reflect actual realizable values to be obtained in
connection with any exercise of remedies. The value of the Appraised Assets
and the Collateral in the event of liquidation will likely be less than fair
market value and could be considerably below such value depending on market
and economic conditions, the rapidity with which the Collateral is sought to
be sold, the availability of buyers, the existence of lien or claims with
respect to the Appraised Assets or the Collateral and similar factors.
Accordingly, there can be no assurances that the proceeds of any sale of
Collateral, including the Appraised Assets, pursuant to the Indenture and
Pledge and Security Agreement following a default would be sufficient to
satisfy payments due on the Notes. If such proceeds were not sufficient to
repay all such amounts due on the Notes, then holders (to the extent not
repaid from the proceeds of the sale of Collateral) would have only an
unsecured claim against the Company's remaining assets. In addition, the
ability of holders to realize upon the Collateral may be subject to certain
federal bankruptcy law limitations and, due to the nature of the Collateral
and Appraised Assets (particularly the Slots and Subsidiary Facilities),
significant restrictions imposed by governmental authorities including the DOT
and FAA.
Filing and Perfection Requirements for Collateral
The security interest in the Ground Equipment, Beneficial Interest
Certificate and Pledged Securities was required to be duly perfected generally
in accordance with applicable federal, state and local laws. The transfer of
Slots to the Slot Trust was confirmed by the FAA and will be noted by the FAA
in its records.
RESTRICTION ON LIENS
The Indenture, Pledge and Security Agreement and the Master Sub-License
Agreement require that the Collateral, the Slots and the Subsidiary Facilities
Leases be maintained free of any liens, other than the liens created by the
Pledge and Security Agreement, certain liens currently existing, certain
leasehold improvements or facility expansion liens in the case of the
Subsidiary Facilities Leases, liens for taxes either not yet due and payable,
liens for taxes due but whose validity is being contested in good faith by
TWA, materialmen's, mechanics' or other similar liens which are not overdue
for more than 60 days (except to the extent being contested in good faith by
appropriate proceedings that, in the opinion of TWA, do not involve a material
danger of the loss of such Slots, Gate Leases or LAX Hangar Lease), liens
resulting from any litigation that is being contested in good faith by
appropriate proceedings which, in the opinion of TWA, do not involve a
significant danger of the loss of any of such Slots or Subsidiary Facilities
Leases, judgment liens which are being appealed
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in good faith and with respect to which a stay of execution pending appeal has
been secured and other non-consensual liens that do not secure indebtedness
which in the aggregate exceeds 1% of the principal amount of Notes and certain
other liens.
TWA will further covenant not to permit any of the Pledged Subsidiaries to
(i) own any assets other than their rights under the Subsidiary Facilities
Leases, and assets related or incidental thereto, or (ii) subject to certain
exceptions, incur any indebtedness for borrowed money. Any indebtedness of, or
lien upon the assets of, a expansion Pledged Subsidiary could reduce the value
of the Pledged Securities as collateral.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Trustee to repossess and dispose of the Collateral, or
otherwise to exercise rights or remedies with respect to the Collateral, upon
the occurrence of an Event of Default is likely to be significantly impaired
by applicable bankruptcy law if a bankruptcy proceeding were to be commenced
by or against the Company prior to the date when, or possibly even after, the
Trustee has effected any such action. Under bankruptcy law, secured creditors
such as the holders are prohibited from repossessing their security from a
debtor in a bankruptcy case, or from disposing of security repossessed from
such debtor, without bankruptcy court approval. Moreover, bankruptcy law
permits the debtor to continue to retain and to use collateral even though the
debtor is in default under the applicable debt instruments, provided generally
that the secured creditor is given "adequate protection." The meaning of the
term "adequate protection" may vary according to circumstances, but it is
intended in general to protect the value of the secured creditor's interest in
the collateral and may include cash payments or the granting of additional
security, if and at such times as the court in its discretion determines, for
any diminution in the value of the collateral as a result of the stay of
repossession or disposition or any use of the collateral by the debtor during
the pendency of the bankruptcy case. In view of the lack of a precise
definition of the term "adequate protection" and the broad discretionary
powers of a bankruptcy court, it is impossible to predict how long payments
under the Notes could be delayed following commencement of a bankruptcy case,
whether or when the Trustee could repossess or dispose of the Collateral
and/or cause any Pledged Subsidiary to dispose of any of the Subsidiary
Facilities Leases or whether or to what extent holders would be compensated
for any delay in payment or loss or value of the Collateral through the
requirement of "adequate protection." Furthermore, in the event that the
bankruptcy court determines the value of the Collateral is not sufficient to
repay all amounts due on the Notes, the holders would hold "undersecured
claims." Applicable federal bankruptcy laws do not permit the payment and/or
accrual of interest, costs and attorney's fees for "undersecured claims"
during the pendency of a debtor's bankruptcy case.
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BOOK-ENTRY, DELIVERY AND FORM
GENERAL
Each of the Old Notes was issued in the form of one or more fully registered
Notes in global form ("Old Global Notes"), except that each of the Notes
offered and sold to institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) who are not Qualified
Institutional Buyers ("QIBs") or, outside the United States, to a person who
is not a "U.S. person," as defined in Regulation S under the Securities Act,
was delivered in certificated fully registered form only and bears a legend
containing restrictions on transfers. All New Notes issued in the Exchange
Offer for Old Notes represented by Old Global Notes will be represented by one
or more Notes in global form (the "New Global Notes," and together with the
Old Global Notes, the "Global Notes"), which will be deposited with, or on
behalf of, the Depositary and registered in the name of the Depositary or its
nominee.
Upon issuance of the Global Notes, the Depositary or its nominee will
credit, on its book-entry registration and transfer system, the number of New
Notes represented by such Global Notes to the accounts of institutions that
have accounts with the Depositary or its nominee ("participants"). Ownership
of beneficial interests in the Global Notes will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interest in such Global Notes will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the Depositary
or its nominee (with respect to participants' interests) for such Global
Securities, or by participants or persons that hold interests through
participants (with respect to beneficial interests of persons other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Notes.
So long as the Depositary, or its nominee, is the registered holder of any
Global Notes, the Depositary or such nominee, as the case may be, will be
considered the sole legal owner and holder of such Notes represented by such
Global Notes for all purposes under the Indenture and the New Notes. Except as
set forth below, owners of beneficial interests in Global Notes will not be
entitled to have such Global Notes represented thereby registered in their
names, will not receive or be entitled to receive physical delivery or
Certificated Notes in exchange therefor and will not be considered to be the
owners or holders of such Global Notes represented thereby for any purpose
under the New Notes or the Indenture. The Company understands that under
existing industry practice, in the event an owner of a beneficial interest in
a Global Note desires to take any action that the Depositary, as the holder of
such Global Note, is entitled to take, the Depositary would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or
would otherwise act upon the instructions of beneficial owners owning through
them.
Any payment of principal or interest due on the New Notes on any interest
payment date or at maturity will be made available by the Company to the
Trustee by such date. As soon as possible thereafter, the Trustee will make
such payments to the Depositary or its nominee, as the case may be, as the
registered owner of the Global Notes representing such New Notes in accordance
with existing arrangements between the Trustee and the Depositary.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of the Global Notes, will credit
immediately the accounts of the related participants with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Note as shown on the records of the Depositary. The Company
also expects that payments by participants to owners of beneficial interests
in the Global Notes held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such participants.
None of the Company, the Trustee, or any payment agent for the Global Notes
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests
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in any of the Global Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for other aspects
of the relationship between the Depositary and its participants or the
relationship between such participants and the owners of beneficial interests
in the Global Securities owning through such participants.
As long as the New Notes are represented by a Global Note, DTC's nominee
will be the holder of the New Notes and therefore will be the only entity that
can exercise a right to repayment or repurchase of the New Notes. See
"Description of the Notes--Change of Control." Notice by participants or by
owners of beneficial interests in a Global Note held through such participants
of the exercise of the option to elect repayment of beneficial interests in
Notes represented by a Global Note must be transmitted to DTC in accordance
with its procedures on a form required by DTC and provided to participants. In
order to ensure that DTC's nominee will timely exercise a right to repayment
with respect to a particular New Note, the beneficial owner of such New Note
must instruct the broker or other participant to exercise a right to
repayment. Different firms have cut-off times for accepting instructions from
their customers and, accordingly, each beneficial owner should consult the
broker or other participant through which it holds an interest in a New Note
in order to ascertain the cut-off time by which such an instruction must be
given in order for timely notice to be delivered to DTC. The Company will not
be liable for any delay in delivery of notices of the exercise of the option
to elect repayment.
Unless and until exchanged in whole or in part for New Notes in definitive
form in accordance with the terms of the New Notes, the Global Notes may not
be transferred except as a whole by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary of any such nominee to a
successor of the Depositary or a nominee of each successor.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of
the Depositary, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Trustee nor the Company will have any responsibility for the performance
by the Depositary or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations. The Company and the Trustee may conclusively rely on, and shall be
protected in relying on, instructions from the Depositary for all purposes.
CERTIFICATED SECURITIES
Upon transfer of Certificated Notes to a QIB, such Certificated Notes will
be transferred to the corresponding Global Notes. Global Notes shall be
exchangeable for corresponding Certificated Notes registered in the name of
persons other than the Depositary or its nominee only if (A) the Depositary
(i) notifies the Company that it is unwilling or unable to continue as
Depositary for any of the Global Notes or (ii) at any time ceases to be a
clearing agency registered under the Exchange Act, (B) there shall have
occurred and be continuing an Event of Default (as defined in the Indenture)
with respect to the Notes or (C) the Company executes and delivers to the
Trustee an order that the Global Notes shall be so exchangeable. Any
Certificated Notes will be issued only in fully registered form and shall be
issued without coupons in denominations of $1,000 and integral multiples
thereof. Any Certificated Notes so issued will be registered in such names and
in such denominations as the Depositary shall request.
THE CLEARING SYSTEM
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of participants and to facilitate
the clearance and settlement of securities transactions among its participants
in such securities through electronic book-entry changes in accounts of
participants, thereby
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eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (which may
include the Initial Purchaser), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depositary's book-entry system
is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, whether directly or indirectly.
SETTLEMENT
Initial settlement in the New Notes will be in same-day funds. Investors
holding their New Notes through the Depositary will follow settlement
practices applicable to United States corporate debt obligations. The
Indenture will require that payments in respect of Notes (including principal,
premium and interest) be made by wire transfer of same-day funds to the
accounts specified by the holders thereof or, if no such account is specified,
by mailing a check to each such holder's registered address.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
considerations applicable to the exchange of Old Notes for New Notes pursuant
to the Exchange Offer, and to the ownership and disposition of the New Notes.
This summary is based upon provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), regulations, rulings and decisions currently in effect,
all of which are subject to change (possibly with retroactive effect). The
discussion does not purport to deal with all aspects of federal taxation that
may be relevant to particular investors in light of their personal investment
circumstances (for example, to persons holding Notes as part of a conversion
transaction or as part of a hedge or hedging transaction, or as a position in
a straddle for tax purposes), nor does it discuss federal income tax
considerations applicable to certain types of investors subject to special
treatment under the federal income tax laws (for example, life insurance
companies, tax-exempt organizations and financial institutions). In addition,
the discussion does not consider the effect of any foreign, state, local,
gift, estate, or other tax laws that may be applicable to a particular
investor. The discussion assumes that investors hold the Notes as "capital
assets" within the meaning of Section 1221 of the Code. Each holder is
strongly urged to consult his, her or its tax advisor regarding the particular
tax consequences to such holder of exchanging the Old Notes for the New Notes,
and of the ownership and disposition of the New Notes.
EXCHANGE
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer should not be treated as a taxable transaction for federal income tax
purposes because the New Notes do not differ materially in kind or extent from
the Old Notes. Accordingly, no gain or loss should be recognized by a holder
who exchanges an Old Note for a New Note pursuant to the Exchange Offer, and
each New Note should be viewed as a continuation of the corresponding Old
Note. For purposes of determining gain or loss upon a subsequent sale or
exchange of the New Notes, a holder's initial basis in the New Notes will be
the same as such holder's adjusted basis in the Old Notes exchanged therefor,
and the holding period of a holder in the New Note should include the period
during which such holder held such corresponding Old Note.
INITIAL TAX BASIS
The Old Notes were issued in the Private Placement as part of an investment
unit that included the Old Notes and Warrants to acquire Common Stock.
Consequently, a purchaser of a Unit was required to allocate the purchase
price of a Unit between the Old Notes and the Warrants based on their relative
fair market values on the date of purchase for the purpose of determining the
initial basis of the Notes and Warrants for federal income tax purposes. For
purposes of determining original issue discount on the Notes, the Company
allocated the issue price of the Units between the Notes and Warrants based on
valuation advice furnished to it by [the Initial Purchaser], as described
below under "--Tax Treatment of Notes--Interest and Original Issue Discount."
The Company's allocation will be binding on each holder unless the holder
discloses that the holder's allocation differs from the Company's allocation
on a statement attached to the holder's timely filed federal income tax return
for the year in which the holder acquires the Unit.
TAX TREATMENT OF NOTES
Status as Debt
The Company intends to treat the Notes as indebtedness and not as equity for
federal income tax purposes, and the federal income tax consequences described
below are based on that characterization. Such treatment, however, is not
binding on the Internal Revenue Service (or the courts), and there can be no
assurance that the Internal Revenue Service would not argue (or that a court
would not hold) that all or some portion of the Notes should be treated as
equity for federal income tax purposes. Among other consequences, treatment as
equity would result in all or some portion of the interest payments and/or
original issue discount on the Notes being treated as distributions with
respect to stock which would not be deductible by the Company.
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Interest and Original Issue Discount
The Old Notes were issued with original issue discount for federal income
tax purposes. Because the New Notes are treated as a continuation of the Old
Notes, the original issue discount on the Old Notes will carry over to the New
Notes, and continue to be treated in the same manner. In general, original
issue discount on the Notes, defined as the excess of "stated redemption price
at maturity" over "issue price," must be included in the holder's gross
taxable income in advance of the receipt of cash representing that income, and
such amounts will increase periodically over the life of the Notes.
Under the Treasury regulations, the issue price of the Units under the
Private Placement was the first price at which a substantial amount of the
Units were sold for money. For this purpose, sales to bondhouses, brokers or
similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers including, without limitation, the Initial
Purchaser, were ignored. The issue price for a Unit as so determined was
allocated between the debt instrument (i.e., the Old Note) and the property
rights (i.e., the Warrants) that comprised the Unit based on their relative
fair market values at the time of issuance. Pursuant to these rules, and based
on advice furnished to it by the Initial Purchaser, the Company treated each
Old Note as having an issue price of $850.00 and each Warrant as being issued
for $150.00. This allocation, however, is not binding on the Internal Revenue
Service, and there can be no assurance that the Internal Revenue Service will
not challenge the Company's determination of the issue price of the Old Notes.
Moreover, the Company's allocation is binding on each holder unless the holder
discloses that his, her or its allocation differs from the Company's
allocation on a statement attached to the holder's timely filed federal income
tax return for the year in which he, she or it acquires the investment unit.
If a holder uses an allocation different from the Company, or a holder
acquired a Unit at a price different than that on which the Company's
allocation is based, the holder will be treated as having acquired the Note
for a greater or lesser amount than the Note's issue price, resulting in
"acquisition premium" or "market discount" as defined below. Holders intending
to use an issue price allocation different from that used by the Company
should consult their tax advisors as to the consequences to them of their
particular allocation.
Under the Treasury regulations, a debt instrument's stated redemption price
at maturity is the sum of all payments provided by the instrument other than
payments of "qualified stated interest," which is defined as stated interest
that is unconditionally payable (other than in debt instruments of the issuer)
at least annually at a single fixed rate. The Company believes that the stated
interest on the Notes will be qualified stated interest, and therefore that
the stated redemption price at maturity of the Notes will equal their
principal amount at maturity. Thus, each Note will bear original issue
discount in an amount equal to the excess of (i) the sum of its principal
amount at maturity over (ii) its issue price.
A holder generally will be required to include in gross income the original
issue discount attributable to the Notes over their term and before receipt of
the cash attributable to such income under a method embodying an economic
accrual of such discount and calculated on the basis of a constant yield to
maturity.
A Registration Default, as described under "Description of the Notes--
Exchange Offer; Registration Rights," will cause Liquidated Damages to be
payable with respect to the Notes in the manner described therein. However,
under the Treasury regulations, the possibility of any such additional payment
will not affect the accrual of original issue discount or the yield to
maturity on the Notes unless, based on all the facts and circumstances as of
the issue date, it is more likely than not that such additional interest will
be paid. The Company does not intend to treat the possibility of such
additional payment as affecting the computation of original issue discount or
yield to maturity. If a holder of a Note becomes entitled to a payment, then,
for purposes of determining the accrual of original issue discount, the yield
to maturity of the Notes will be redetermined by treating the Notes as
reissued on the date that it is determined that such additional payments will
be required to be paid, for an amount equal to its adjusted issue price on
such date.
If a holder acquires a Note for an amount less than the "revised issue
price" (generally the original issue price increased by the aggregate amount
of previously accrued original issue discount (without regard to any
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reductions described in the following sentence) less payments other than
qualified stated interest), such holder may be subject to the market discount
rules described below. If a holder acquires a Note by purchase for an amount
greater than its revised issue price, such holder will be considered to have
purchased such Note with "acquisition premium," and the amount of original
issue discount that such purchaser must include in income with respect to such
Note for any taxable year will be reduced by the portion of acquisition
premium properly allocable to such year.
A holder may make an election to include in gross income all interest that
accrues on a Note (including original issue discount, market discount and de
minimis market discount, as adjusted by any amortizable bond premium) in
accordance with an economic yield method (under which none of the interest
payments provided for in the instruments are qualified stated interest
payments) calculated by treating the Note as being issued on the holder's
acquisition date at an issue price equal to the holder's adjusted basis in the
Note immediately after its acquisition.
Sale or Redemption
A holder generally will recognize taxable gain or loss on the sale of the
Notes equal to the difference between the amount realized from such sale and
his, her or its adjusted tax basis for such Notes. Except as discussed under
"--Market Discount," such gain or loss generally will be capital gain or loss
and will be long-term capital gain or loss if the holding period for such
Notes is more than one year. A holder's adjusted tax basis in a Note is
generally equal to the amount paid therefor, increased by accrued original
issue discount and market discount previously included in the holder's gross
income with respect to the Note, and decreased by (i) payments on the Note
other than payments of qualified stated interest and (ii) amortized bond
premium with respect to the Note (discussed below).
A Holder generally will not recognize any taxable gain or loss on the
exchange of Notes for Exchange Notes pursuant to the Registered Exchange
Offer.
Market Discount
A holder who purchases a Note for an amount that is less than its revised
issue price will be subject to the market discount provisions of the Code.
Market discount is the excess, if any, of the Note's revised issue price
(defined above) over its basis in the hands of the acquirer immediately after
its acquisition. However, market discount will not be considered to exist if,
at the time of acquisition, the discount is less than 1/4 of 1% of the Note's
stated redemption price at maturity multiplied by the number of full years
remaining until maturity ("de minimis market discount").
When a holder disposes of a Note acquired with market discount, the lesser
of the gain recognized or the accrued market discount will be taxable to the
holder as ordinary income (and will generally be treated as interest). Accrued
market discount at such time is the total market discount multiplied by a
fraction, the numerator of which is the number of days the acquirer held the
Note and the denominator of which is the number of days from the date the
acquirer acquired the Note until (and including) its maturity date. As an
alternative to this ratable method, the holder may elect to compute the
accrued market discount based upon an economic yield to maturity.
A holder of a market discount obligation is generally required, until the
holder disposes of the obligation in a taxable transaction, to defer a portion
of the deduction of interest expense on any indebtedness incurred or
maintained to purchase or carry the obligation in an amount equal to the
lesser of (i) the amount of such interest expense in excess of the amount of
interest (including original issue discount) includible in gross income with
respect to the obligation or (ii) the amount of market discount allocable to
the number of days in the taxable year the holder held the obligation.
A holder of a debt instrument acquired at a market discount may elect to
include the market discount in income as the discount accrues. The current
inclusion election, once made, applies to all market discount
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obligations acquired on or after the first day of the taxable year to which
the election applies and may not be revoked without the consent of the
Internal Revenue Service. If a holder of Notes elects to include market
discount in income as it accrues, the above-described rules regarding ordinary
income recognition on dispositions and partial redemptions of such Notes and
the deferral of interest deductions on indebtedness related to such Notes
would not apply.
Bond Premium
A holder who acquires an obligation for an amount in excess of the amount
payable at maturity (or at an earlier call date, if a smaller premium would
result) may elect to amortize and deduct (on a constant yield basis) the
amount of such excess over the period from the acquisition date to the
maturity date, or to the earlier "call date," where appropriate, if a smaller
deduction would result, with corresponding reductions in such holder's tax
basis in the debt instrument. Amortizable bond premium is treated as an
interest deduction, except as may be provided in Treasury Regulations. An
election to amortize bond premium applies with respect to all bonds held on
the first day of the taxable year for which the election is made and to all
bonds thereafter acquired and may not be revoked without the consent of the
Internal Revenue Service.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO FOREIGN HOLDERS
The following discussion summarizes certain United Stated federal income tax
consequences generally applicable to the ownership and disposition of the
Notes by "non-resident aliens" (as defined in Section 7701(b) of the Code and
"foreign corporations" that acquire such Notes as part of the initial offer at
the initial offering price ("Non-U.S. Holder"). This summary does not address
the tax treatment of Non-U.S. Holders who hold Notes through a partnership or
other pass-through entity. This discussion does not purport to deal with all
aspects of United States federal income taxation that may be relevant to a
Non-U.S. Holder and does not describe any tax consequences arising out of the
laws of any state, locality or foreign jurisdiction or out of United States
federal estate and gift tax laws. NON-U.S. HOLDERS ARE ADVISED TO CONSULT
THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND
OWNERSHIP AND DISPOSITION OF THE NEW NOTES.
Interest and Original Issue Discount
Interest paid by the Company to a Non-U.S. Holder that is not effectively
connected with the conduct of a trade or business within the United States by
such Non-U.S. Holder generally will not be subject to withholding of United
States federal income tax if (i) the Non-U.S. Holder does not actually or
constructively own (under the provisions of Sections 318 and 871(h)(3)(a) of
the Code) 10% or more of the total voting power of all voting stock of the
Company, (ii) the Non-U.S. Holder is not a controlled foreign corporation with
respect to which the Company is a "related person" within the meaning of
Section 267 of the Code and (iii) the beneficial owner, under penalty of
perjury, certifies that the beneficial owner is not a United States person and
provides the beneficial owner's name and address. A Non-U.S. Holder that does
not qualify for exemption from withholding under the preceding sentence
generally will be subject to withholding of U.S. federal income tax at the
rate of 30% (or a lower applicable treaty rate) on interest payments and
payments attributable to original issue discount on the Notes.
Interest paid by the Company to a Non-U.S. Holder that is effectively
connected with the conduct of a trade or business within the United States by
such foreign holder generally will be subject to the United States federal
income tax on net income that applies to United States persons generally (and,
with respect to corporate holders under certain circumstances, the branch
profits tax).
Original issue discount that accrues while a Note is held by a Non-U.S.
Holder is generally treated in the same manner as interest described above.
Withholding attributable to original issue discount, where required, is made
at the time interest on the Note is paid or, to the extent such original issue
discount was not previously taxed, at the time the Note is sold, exchanged or
redeemed.
90
<PAGE>
Gain of Disposition
A Non-U.S. Holder generally will not be subject to United States federal
income tax (subject to the discussion under "Information Reporting and Backup
Withholding" below) on gain recognized on a sale or other disposition
(including a redemption) of Notes unless (i) the gain is effectively connected
with the conduct of a trade or business within the United States by the Non-
U.S. Holder, or effectively connected with a U.S. permanent establishment
maintained by a Non-U.S. Holder if a tax treaty applies, (ii) in the case of a
Non-U.S. Holder who is a nonresident alien individual and holds the Notes as a
capital asset, such holder is present in the United States for 183 or more
days in the taxable year of the sale or disposition and either has a "tax
home" (as defined for the United States federal income tax purposes) in the
United States or an office or other fixed place of business in the United
States to which the sale or disposition is attributable or (iii) the Company
is or has been a "U.S. real property holding corporation."
Information Reporting and Backup Withholding
In the case of payment of interest to Non-U.S. Holders, temporary Treasury
Regulations provide that the 31% backup withholding and other reporting will
not apply to such payments with respect to which either the requisite
certifications, as described above, have been received or an exemption has
otherwise been established (provided that neither the Company nor its paying
agent has actual knowledge that the holder is a United States person or the
conditions of any other exemption are not in fact satisfied). Under temporary
Treasury Regulations, these information reporting and backup withholding
requirements will apply, however, to the gross proceeds paid to a foreign
person upon the disposition of the Notes by or through a United States office
of a United States or foreign broker, unless the holder certifies to the
broker under penalties of perjury as to its name, address and status as a
foreign person or the holder otherwise establishes an exemption. Information
reporting requirements (but not backup withholding) will also apply to a
payment of the proceeds of a disposition of the Notes by or through a foreign
office of (i) a United States broker, (ii) a foreign broker 50% or more of
whose gross income for certain periods is effectively connected with the
conduct of a trade or business in the United States or (iii) a foreign broker
that is "controlled foreign corporation", unless the broker has documentary
evidence in its records that the holder is a non-United States holder and
certain other conditions are met, or the holder otherwise establishes an
exemption. Neither information reporting nor backup withholding will generally
apply to a payment of the proceeds of a disposition of the Notes by or through
a foreign office of a foreign broker not subject to the preceding sentence.
The Company must report annually to the Internal Revenue Service the total
amount of federal income taxes withheld from dividends (including constructive
dividends) distributed to Non-U.S. Holders. In addition, the Company must
report annually to the Internal Revenue Service and to each Non-U.S. Holder
the amount of dividends distributed to and the tax withheld with respect to
such holder. These information reporting requirements apply regardless of
whether withholding was reduced by an applicable treaty.
The 31% backup withholding tax will not generally apply to dividends
distributed to Non-U.S. Holders outside the United States that are subject to
the 30% withholding discussed above or that are not so subject because a tax
treaty applies that reduces or eliminates such withholding. In that regard,
under current Treasury Regulations, dividends payable at an address located
outside of the United States to a Non-U.S. Holder are not subject to the
backup withholding rules. Proposed regulations would impose backup withholding
in certain cases in which dividends are paid to an address outside the United
States.
REFUNDS
Any amounts withheld under the backup withholding rules from a payment to a
holder will be allowed as a refund or a credit against such holder's United
States federal income tax liability, provided that the required information is
furnished to the Internal Revenue Service.
91
<PAGE>
There may be other federal, state, local or foreign tax considerations
applicable to the circumstances of a particular prospective purchaser of
Units, Notes and Warrants. ACCORDINGLY, EACH HOLDER OF NOTES SHOULD CONSULT
HIS, HER OR ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH
HOLDER OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND OWNERSHIP AND
DISPOSITION OF THE NEW NOTES.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until , 199 , all dealers effecting
transactions in the New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such New Notes. Any broker-
dealer that resells New Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of New Notes
and any commission or concessions received by any such persons may be deemed
to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. The Company has agreed to pay all expenses incident to
the Exchange Offer (including the reasonable expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the Holders of the Notes (including any broker-
dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the New offered hereby will be passed upon for the Company
by Smith, Gambrell & Russell, LLP of Atlanta, Georgia.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and 1996 and for each of the periods in the three year period ended December
31, 1996 included in this Prospectus, have been audited by KPMG Peat Marwick
LLP, independent auditors, as set forth in their report appearing herein and
are included in reliance upon the report of such firm given and upon their
authority as experts in accounting and auditing. The report of KPMG Peat
Marwick LLP contains an explanatory paragraph indicating that the Company's
recurring losses from operations and its limited sources of additional
liquidity raise substantial doubt about the Company's ability to continue as a
going concern. In addition, their report refers to the application of fresh
start reporting in connection with the '95 Reorganization. See the
Consolidated Financial Statements.
92
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
FINANCIAL STATEMENTS:
Independent Auditors' Report.......................................... F-2
Statements of Consolidated Operations for the Year Ended December 31,
1996, the Four Months Ended December 31, 1995, the Eight Months Ended
August 31, 1995, and the Year Ended December 31, 1994................ F-3
Consolidated Balance Sheets, December 31, 1996 and 1995............... F-4
Statements of Consolidated Cash Flows for the Year Ended December 31,
1996, the Four Months Ended December 31, 1995, the Eight Months Ended
August 31, 1995, and the Year Ended December 31, 1994................ F-6
Consolidated Statements of Shareholders' Equity (Deficiency) for the
Year Ended December 31, 1996, the Four Months Ended December 31,
1995, the Eight Months Ended August 31, 1995, and the Year Ended
December 31, 1994.................................................... F-8
Notes to Consolidated Financial Statements............................ F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Trans World Airlines, Inc.
We have audited the accompanying consolidated balance sheets of Trans World
Airlines, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related statements of consolidated operations, cash flows and shareholders'
equity (deficiency) for the year ended December 31, 1996, the four months
ended December 31, 1995, the eight months ended August 31, 1995 and the year
ended December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Trans
World Airlines, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for the year ended
December 31, 1996, the four months ended December 31, 1995, the eight months
ended August 31, 1995 and the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the
consolidated financial statements reflect the application of fresh start
reporting as of September 1, 1995 and, therefore, are not comparable in all
respects to the consolidated financial statements for periods prior to such
date.
The accompanying consolidated financial statements have been prepared
assuming that Trans World Airlines, Inc. and subsidiaries will continue as a
going concern. The Company's recurring losses from operations and its limited
sources of additional liquidity raise substantial doubt about the entity's
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
KPMG PEAT MARWICK LLP
Kansas City, Missouri
March 24, 1997
F-2
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996, THE FOUR MONTHS ENDED DECEMBER 31, 1995,
THE EIGHT MONTHS ENDED AUGUST 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------- -------------------------
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues:
Passenger................ $3,077,905 $ 943,077 $1,929,166 $2,875,851
Freight and mail......... 153,076 48,384 94,784 149.932
All other................ 323,426 107,013 194,405 381,919
---------- ---------- ---------- ----------
Total.................. 3,554,407 1,098,474 2,218,355 3,407,702
---------- ---------- ---------- ----------
Operating expenses:
Salaries, wages and
benefits................ 1,254,341 373,041 755,708 1,293,570
Earned stock compensation
(Note 12)............... 9,056 2,192 55,767 -
Aircraft fuel and oil.... 585,163 161,799 296,833 477,555
Passenger sales
commissions............. 268,131 80,045 185,981 288,000
Aircraft maintenance
materials and repair.... 208,183 51,998 95,657 145,321
Depreciation and
amortization............ 161,822 55,168 106,474 183,283
Operating lease rentals.. 302,990 96,393 182,548 261,365
Passenger food and
beverages............... 110,092 34,676 68,137 120,804
Special charges (Note
16)..................... 85,915 -- 1,730 138,849
All other................ 767,241 232,716 454,878 778,449
---------- ---------- ---------- ----------
Total.................. 3,752,934 1,088,028 2,203,713 3,687,196
---------- ---------- ---------- ----------
Operating income (loss).... (198,527) 10,446 14,642 (279,494)
---------- ---------- ---------- ----------
Other charges (credits):
Interest expense
(contractual interest of
$141,967 for the eight
months ended August 31,
1995).................... 126,822 45,917 123,247 195,352
Interest and investment
income................... (21,309) (7,484) (10,366) (12,058)
Disposition of assets,
gains and losses-net
(Note 15)................ 1,135 (3,330) 206 (1,072)
Reorganization items (Note
19)...................... -- -- 242,243 -
Other charges and credits-
net (Note 17)............ (30,598) 7,611 (2,379) (28,847)
---------- ---------- ---------- ----------
Total.................. 76,050 42,714 352,951 153,375
---------- ---------- ---------- ----------
Loss before income taxes
and extraordinary items... (274,577) (32,268) (338,309) (432,869)
Provision (credit) for in-
come taxes (Note 5)....... 450 1,370 (96) 960
---------- ---------- ---------- ----------
Loss before extraordinary
items..................... (275,027) (33,638) (338,213) (433,829)
Extraordinary items, net of
income taxes (Note 14).... (9,788) 3,500 140,898 (2,005)
---------- ---------- ---------- ----------
Net loss................... (284,815) (30,138) (197,315) (435,834)
Preferred stock dividend
requirements.............. 36,649 4,751 11,554 15,000
---------- ---------- ---------- ----------
Loss applicable to common
shares.................... $ (321,464) $ (34,889) $ (208,869) $ (450,834)
========== ========== ========== ==========
Per share amounts:
Loss before extraordinary
item and special dividend
requirements............. $ (6.60) $ (1.15)
Extraordinary item and
special dividend
requirements............. (.67) .10
---------- ----------
Net loss.................. $ (7.27) $ (1.05)
========== ==========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED COMPANY
---------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 181,586 $ 304,340
Receivables, less allowance for doubtful accounts,
$12,939 in 1996 and $13,517 in 1995 (Note 8)........... 239,496 226,451
Spare parts, materials and supplies, less allowance for
obsolescence, $11,563 in 1996 and $2,201 in 1995 (Note
8)..................................................... 111,239 143,374
Prepaid expenses and other.............................. 54,121 41,482
---------- ----------
Total................................................ 586,442 715,647
---------- ----------
Property (Notes 8,9 and 18):
Property owned:
Flight equipment....................................... 339,150 303,248
Prepayments on flight equipment........................ 39,072 -
Land, buildings and improvements....................... 59,879 54,722
Other property and equipment........................... 60,750 39,032
---------- ----------
Total owned property................................. 498,851 397,002
Less accumulated depreciation.......................... 71,810 18,769
---------- ----------
Property owned--net.................................. 427,041 378,233
---------- ----------
Property held under capital leases:
Flight equipment....................................... 172,812 172,812
Land, buildings and improvements....................... 54,761 54,761
Other property and equipment........................... 6,570 6,862
---------- ----------
Total property held under capital leases............. 234,143 234,435
Less accumulated amortization.......................... 46,977 12,602
---------- ----------
Property held under capital leases--net.............. 187,166 221,833
---------- ----------
Total property--net.................................. 614,207 600,066
---------- ----------
Investments and other assets:
Investments in affiliated companies (Note 4)............ 108,173 98,156
Investments, receivables and other (Note 9)............. 188,331 178,347
Routes, gates and slots--net............................ 401,659 450,916
Reorganization value in excess of amounts allocable to
identifiable assets--net............................... 783,127 825,079
---------- ----------
Total................................................ 1,481,290 1,552,498
---------- ----------
$2,681,939 $2,868,211
========== ==========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
REORGANIZED COMPANY
----------------------
1996 1995
---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current maturities of long-term debt (Note 8)........... $ 92,447 $ 67,566
Current obligations under capital leases (Note 9)....... 42,501 42,835
Advance ticket sales.................................... 241,516 209,936
Accounts payable, principally trade..................... 216,675 137,140
Accounts payable to affiliated companies (Note 4)....... 4,894 6,104
Accrued expenses:
Employee compensation and vacations earned............. 116,846 101,637
Contributions to retirement and pension trusts (Note
6).................................................... 14,091 17,716
Interest on debt and capital leases.................... 39,420 44,710
Taxes.................................................. 19,018 16,995
Other accrued expenses................................. 203,184 195,454
---------- ----------
Total accrued expenses............................... 392,559 376,512
---------- ----------
Total................................................ 990,592 840,093
---------- ----------
Long-Term Liabilities and Deferred Credits:
Long-term debt, less current maturities (Note 8)........ 608,485 764,031
Obligations under capital leases, less current
obligations (Note 9)................................... 220,790 259,630
Postretirement benefits other than pensions (Note 6).... 471,171 461,346
Noncurrent pension liabilities (Note 6)................. 30,716 21,253
Other noncurrent liabilities and deferred credits....... 122,080 157,573
---------- ----------
Total................................................ 1,453,242 1,663,833
---------- ----------
Mandatorily redeemable 12% preferred stock,(aggregate
liquidation preference of $111,179 in 1995)(Note 10).... -- 61,430
---------- ----------
Commitments and Contingent Liabilities (Notes
1,2,3,6,7,8,9,11,12,16,18)
Shareholders' equity:
8% cumulative convertible exchangeable preferred stock,
$50 liquidation preference; 3,869 shares issued and
outstanding............................................ 39 -
Employee preferred stock, $0.01 liquidation preference;
special voting rights; shares issued and outstanding;
1996-5,681; 1995-5,277................................. 57 53
Common Stock, $0.01 par value; shares issued and
outstanding; 1996-41,763; 1995-35,129.................. 418 351
Additional paid-in capital.............................. 552,544 332,589
Accumulated deficit..................................... (314,953) (30,138)
---------- ----------
Total................................................ 238,105 302,855
---------- ----------
$2,681,939 $2,868,211
========== ==========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996, THE FOUR MONTHS ENDED DECEMBER 31, 1995,
THE EIGHT MONTHS ENDED AUGUST 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------- -------------------------
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net loss.................. $ (284,815) $ (30,138) $ (197,315) $ (435,834)
Adjustments to reconcile
net loss to net cash
provided (used) by
operating activities:
Employee earned stock
compensation............ 9,056 2,192 55,767 --
Depreciation and
amortization............ 161,822 55,168 106,474 183,283
Amortization of discount
and expenses on debt.... 14,744 3,063 12,472 18,571
Extraordinary loss (gain)
on extinguishment of
debt.................... 9,788 (3,500) (140,898) --
Interest paid in common
stock................... 11,332 11,587 -- --
Equity in undistributed
earnings of affiliates
not consolidated........ (10,017) 12,169 (2,339) 5,517
Revenue from Icahn ticket
program................. (71,534) (4,356) -- --
Net gains-losses on
disposition of assets... 1,135 (3,330) 206 (1,072)
Non-cash special charges. 85,915 -- -- 119,829
Reorganization items..... -- -- 242,243 --
Change in operating
assets and liabilities:
Decrease (increase) in:
Receivables........... 3,927 69,121 (62,094) 37,628
Inventories........... (4,897) 510 5,866 1,259
Prepaid expenses and
other current assets. (10,639) 7,686 2,244 6,963
Other assets.......... 111 (3,088) (1,586) (10,079)
Increase (decrease) in:
Accounts payable and
accrued expenses..... 62,594 (40,047) 105,084 48,587
Advance ticket sales.. 19,698 (39,350) 81,598 (33,890)
Benefits, other
noncurrent
liabilities and
deferred credits..... (15,057) (5,559) (27,667) 65,182
---------- --------- ---------- ----------
Net cash provided
(used).............. (16,837) 32,128 180,055 5,944
---------- --------- ---------- ----------
Cash Flows from Investing
Activities:
Proceeds from sales of
property................. 3,234 7,069 2,221 76,240
Capital expenditures...... (121,547) (42,973) (16,554) (44,897)
Net decrease (increase) in
investments, receivables
and other................ (6,708) 16,397 14,926 23,733
---------- --------- ---------- ----------
Net cash provided
(used).............. (125,021) (19,507) 593 55,076
---------- --------- ---------- ----------
Cash Flows from Financing
Activities:
Proceeds from long-term
debt issued.............. 2,750 22,100 -- 6,213
Proceeds from sale and
leaseback of certain
aircraft................. 13,800 -- -- --
Repayments on long-term
debt and capital lease
obligations.............. (117,203) (39,654) (62,158) (116,331)
Net proceeds from sale of
preferred stock.......... 186,163 -- -- --
Net proceeds from exercise
of equity rights,
warrants and options..... 1,034 51,930 -- --
Redemption of 12%
Preferred Stock.......... (81,749) -- -- --
Cash dividends paid on
preferred stock.......... (14,489) -- -- --
Increase (decrease) in
checks outstanding and
other.................... 28,798 (2,770) 3,092 276
---------- --------- ---------- ----------
Net cash provided
(used).............. 19,104 31,606 (59,066) (109,842)
---------- --------- ---------- ----------
Net increase (decrease) in
cash and cash equivalents. (122,754) 44,227 121,582 (48,822)
Cash and cash equivalents
at beginning of period.... 304,340 260,113 138,531 187,353
---------- --------- ---------- ----------
Cash and cash equivalents
at end of period.......... $ 181,586 $ 304,340 $ 260,113 $ 138,531
========== ========= ========== ==========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996, THE FOUR MONTHS ENDED DECEMBER 31, 1995,
THE EIGHT MONTHS ENDED AUGUST 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------- -------------------------
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash Paid During the
Period for:
Interest.............. $102,311 $27,318 $ 55,878 $110,287
======== ======= ======== ========
Income taxes.......... $ 159 $ 7 $ 39 $ 24
======== ======= ======== ========
Information About
Noncash Operating,
Investing and Financing
Activities:
Promissory notes
issued to finance
aircraft acquisition. $ 10,565 $ -- $ -- $ --
======== ======= ======== ========
Promissory notes
issued to finance
aircraft predelivery
payments............. $ 19,862 $ -- $ 12,690 $ 7,000
======== ======= ======== ========
Property acquired and
obligations recorded
under new capital
lease transactions... $ 4,266 $ -- $ 12,690 $ 7,000
======== ======= ======== ========
Partial interest on
debt paid in kind,
issued and valued at
principal amount..... $ -- $ 574 $ 18,496 $ --
======== ======= ======== ========
Common Stock issued in
lieu of cash
dividends on
mandatorily
redeemable 12%
preferred stock...... $ 3,255 $ -- $ -- $ --
======== ======= ======== ========
Exchange of long-term
debt for common
stock:
Debt cancelled
including accrued
interest, net of
unamortized
discount........... $ 41,021 $ -- $ -- $ --
Common stock issued,
at fair value...... 49,182 -- -- --
-------- ------- -------- --------
Extraordinary loss.. $ 8,161 $ -- $ -- $ --
======== ======= ======== ========
</TABLE>
ACCOUNTING POLICY
For purposes of the Statements of Consolidated Cash Flows, TWA considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
See Notes to Consolidated Financial Statements
F-7
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEAR ENDED DECEMBER 31, 1996, THE FOUR MONTHS ENDED DECEMBER 31, 1995,
THE EIGHT MONTHS ENDED AUGUST 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
12% 8% EMPLOYEE PAID-IN
PREFERRED PREFERRED PREFERRED COMMON CAPITAL ACCUMULATED
STOCK STOCK STOCK STOCK (DEFICIENCY) DEFICIT TOTAL
--------- --------- --------- ------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
Balance, December 31,
1993................... $ 125 $ - $ - $ 200 $ 105,925 $ (87,892) $ 18,358
Net loss for 1994....... -- -- -- -- -- (435,834) (435,834)
----- ---- ---- ----- --------- ---------- ---------
Balance, December 31,
1994................... 125 -- -- 200 105,925 (523,726) (417,476)
Net loss for the eight
months ended August 31,
1995................... -- -- -- -- -- (197,315) (197,315)
Eliminate Predecessor
equity accounts in
connection with fresh
start reporting........ (125) -- -- (200) (105,925) 35,817 (70,433)
Record additional excess
of reorganization value
over identifiable
assets................. -- -- -- -- -- 685,224 685,224
Issuance of Common and
Employee Preferred
Stock pursuant to Plan
of Reorganization...... -- -- 53 172 269,775 -- 270,000
----- ---- ---- ----- --------- ---------- ---------
Balance, August 31,
1995................... -- -- 53 172 269,775 -- 270,000
REORGANIZED COMPANY:
Equity rights exercised. -- -- -- 132 51,727 -- 51,859
Interest on 12% Notes
paid in Common Stock... -- -- -- 19 11,568 -- 11,587
Options and warrants
exercised.............. -- -- -- 28 43 -- 71
Earned Stock
Compensation........... -- -- -- -- 2,046 -- 2,046
Amortization of the
excess of redemption
value over carrying
value of Mandatorily
Redeemable 12%
Preferred Stock........ -- -- -- -- (2,570) -- (2,570)
Net loss for the four
months ended December
31, 1995............... -- -- -- -- -- (30,138) (30,138)
----- ---- ---- ----- --------- ---------- ---------
Balance, December 31,
1995................... -- -- 53 351 332,589 (30,138) 302,855
Warrants exercised...... -- -- -- 4 68 -- 72
Options exercised....... -- -- -- 2 1,248 -- 1,250
Earned Stock
Compensation........... -- -- -- -- 6,875 -- 6,875
Allocation of employee
preferred stock to ALPA
ESOP................... -- -- 6 -- (6) -- --
Conversion of employee
preferred stock to
Common Stock........... -- -- (2) 2 -- -- --
Net proceeds from
issuance of 8%
preferred stock........ -- 39 -- -- 186,124 -- 186,163
Dividends on 8%
preferred stock paid in
cash................... -- -- -- -- (11,349) -- (11,349)
Dividends on mandatorily
redeemable 12%
preferred stock paid in
Common Stock........... -- -- -- 3 (3) -- --
Dividends on mandatorily
redeemable 12%
preferred stock paid in
cash................... -- -- -- -- (3,140) -- (3,140)
Amortization of the
excess of redemption
value over carrying
value of mandatorily
redeemable 12%
preferred stock........ -- -- -- -- (328) -- (328)
Excess of cash paid for
early redemption of
mandatorily redeemable
12% preferred stock
over carrying value.... -- -- -- -- (19,992) -- (19,992)
Common Stock issued in
exchange for 12% notes. -- -- -- 45 49,137 -- 49,182
Interest on 12% Notes
paid in Common Stock... -- -- -- 11 11,321 -- 11,332
Net loss for 1996....... -- -- -- -- -- (284,815) (284,815)
----- ---- ---- ----- --------- ---------- ---------
Balance, December 31,
1996................... $ - $ 39 $ 57 $ 418 $ 552,544 $ (314,953) $ 238,105
===== ==== ==== ===== ========= ========== =========
</TABLE>
See notes to consolidated financial statements
F-8
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL CONDITION AND LIQUIDITY:
Trans World Airlines, Inc. ("TWA" or the "Company") has undergone two
reorganizations under Chapter 11 of the Bankruptcy Code since 1992, as further
described in Note 3--Chapter 11 Reorganizations. In August 1995 the Company
emerged from the most recent bankruptcy proceeding and thereafter, through the
second quarter of 1996, the Company had experienced improvements in its
operating performance as operating income had increased to $7.8 million in six
months ended June 30, 1996, as compared to an operating loss of $21.9 million
in the same period of 1995. However, beginning in the third quarter of 1996,
the Company's operating performance substantially deteriorated as the
Company's operating profit for the third quarter, typically the strongest
period of the year, declined to $26.0 million in the three months ended
September 30, 1996, as compared to a combined operating profit (excluding
special charges and earned stock compensation charges aggregating $57.9
million) of $103.7 million in the comparable period of the prior year. The
results of the fourth quarter of 1996 evidenced a further acceleration of
deterioration as the Company reported an operating loss (excluding special
charges) of $146.5 million, as compared to operating income of $1.1 million in
the same period of 1995. In the second half of 1996, the Company's revenues
increased only 2.4%, while capacity operated, measured in ASMs, increased by
6.9%, as compared to the second half of 1995. Operating costs, excluding
earned stock compensation and special charges, increased 16.0% over this same
period. The most significant increases were; salaries, wages and benefits
($82.4 million), which reflected the increased number of employees and
additional overtime costs; fuel ($69.4 million), reflecting significantly
higher units costs and increased usage; and maintenance costs. Notwithstanding
the actions taken and planned by management to improve the Company's future
operating results as described below, management expects that its first
quarter 1997 operating loss will significantly exceed that reported in the
first quarter of 1996.
In light of the deterioration in the Company's operating results, management
has over the last several months refocused and accelerated certain aspects of
its business strategy, including its fleet modernization and consolidation
plan, route structure and facility improvements and efficiencies. Management
believes that its recent operating results have been adversely affected by an
aggressive increase in capacity, which when combined with unexpected
maintenance delays and related costs, has negatively impacted schedule
reliability resulting in excessive levels of flight cancellations and
deterioration in its on-time performance. The Company believes that this has
adversely affected its unit revenues (principally yields) and costs. In
response to these issues, management has taken action to accelerate the phase
out of all B-747 and L-1011 aircraft, reduce low yield domestic JFK feed
service, curtail and/or eliminate historically unprofitable international
routes and consolidate for the near term most operations at JFK to a single
terminal. The above actions are designed to improve its operational
performance and make its product more attractive to the business segment which
offers higher yields. The Company has also curtailed the amount of contract
maintenance services provided to third parties and redeployed those resources
to TWA's aircraft. Furthermore, the Company has reviewed its route structure
and fleet plan. The Company recently announced that it would discontinue
service to Athens and Frankfurt and that it would undertake to accelerate the
replacement of its L-1011 and B-747 aircraft with newer and smaller sized
aircraft, specifically B-757, B-767 and MD-80 aircraft. Management believes
such aircraft will better match the market demands in cities served and
provide efficiencies relative to the costs of fuel, flight crews and
maintenance. The Company plans to retire its remaining fleet of L-1011 and B-
747 aircraft in 1997, although the implementation of this plan could be
delayed if suitable replacement aircraft can not be obtained within this time
frame. The Company has also determined to consolidate a substantial potion of
its operations at JFK into a single terminal which should result in reductions
in labor and other costs and improve the overall utilization of this facility.
In connection with the above described plans, management has announced a
comparable reduction in employee headcount. Management may undertake further
actions to reduce costs which may result in additional reductions of the
number of employees.
The Company's consolidated cash and cash equivalents balance at December 31,
1996 was $181.6 million (including approximately $28.3 million in cash and
cash equivalents held in its international operations and by
F-9
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
its subsidiaries which, based upon various foreign monetary regulations and
other factors, might not be immediately available to the Company), a $122.7
million decrease from the December 31, 1995 balance of $304.3 million. Due to
seasonal factors, the Company's cash balances during the first quarter of each
year are typically lower than in other periods. These seasonal factors, when
combined with the large anticipated loss in the first quarter of 1997 which
would significantly exceed the loss reported in the comparable quarter of
1996, will reduce cash balances significantly below the cash balance at
December 31, 1996. In February 1997, in order to improve its liquidity, the
Company entered into an agreement with and received approximately $26 million
from certain St. Louis business enterprises, representing the advance payment
for tickets for future travel by such enterprises. The Company is currently
pursuing other projects intended to increase its cash balances.
The Company's collective bargaining agreements with all of its union-
represented employee groups, which represent approximately 82% of the
Company's work force, become amendable after August 31, 1997. While the
Company cannot predict the precise wage rates that will be in effect at such
time (since such rates will be determined by subsequent events), the wage
rates then in effect will likely increase. However, management believes that
it is essential that the Company's labor costs remain favorable in comparison
to its largest competitors. The Company will seek to continue to improve
employee productivity as an offset to any wage increases and will continue to
explore other ways to control and/or reduce operating expenses. There can be
no assurance that the Company will be successful in obtaining such
productivity improvements or unit cost reductions. In the opinion of
management, the Company's financial resources are not as great as those of
most of its competitors and, therefore, any substantial increase in its labor
cost as a result of any new labor agreements or any cessation or disruption of
operation due to any strike or work action could be particularly damaging to
the Company.
As a result of application of fresh start reporting in August of 1995,
substantial values were assigned to routes, gates and slots ($458.4 million)
and reorganization value in excess of amounts allocable to identifiable assets
($839.1 million). The Company has evaluated its future cash flows and,
notwithstanding its substantial operating losses in recent periods, expects
that the carrying value of the intangibles at December 31, 1996 will be
recovered. However, the achievement of such improved future operating results
and cash flows are subject to considerable uncertainties. In future periods
these intangibles will be evaluated for recoverability based upon estimated
future cash flows. If expectations are not substantially achieved, charges to
future operations for impairment of those assets may be required and such
changes could be material.
The accompanying consolidated financial statements have been prepared on a
going concern basis which assumes continuity of operations and realization of
assets and liquidation of liabilities in the ordinary course of business. The
Company remains highly leveraged and substantially all of TWA's assets are and
will likely remain subject to various liens and security interest, and many of
its loan agreements contain mandatory prepayment provisions in the event that
the assets are sold. Accordingly, management expects that TWA will not be able
to rely, in any significant degree, on the proceeds from sales of assets to
fund operations and that TWA may have limited sources of additional liquidity
other than cash generated by operations. The Company's ability to improve its
financial position and meet its financial obligations will depend upon a
variety of factors including; significantly improved operating results,
favorable domestic and international airfare pricing environments, absence of
adverse general economic conditions, more effective operating cost controls
and efficiencies, and the Company's ability to attract new capital and
maintain adequate liquidity. No assurance can be given that the Company will
be successful in generating the operating results or attracting new capital
required for future viability.
As a result of the redemption of the 12% Mandatorily Redeemable Preferred
Stock, certain of TWA's leasehold interests in domestic airport gates were
released as collateral and are now unencumbered. As a result of the exchange
of common stock for 12% Senior Secured Notes as described in Note 8, liens on
the stock of
F-10
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
wholly owned subsidiary which owns TWA's interest in a hangar at Los Angeles
International Airport and a floating lien on certain of TWA's domestic airport
ground equipment were released as collateral and are also now unencumbered. In
addition, based on the current level of outstanding 12% Senior Secured Notes,
TWA expects that certain slots at New York's LaGuardia and JFK airports and
Chicago's O'Hare airport will be released as security for the 12% Senior
Secured Notes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounting policies and methods of their application that significantly
affect the determination of financial position, cash flows, and results of
operations are as follows:
(a) Description of Business: TWA is one of the major airlines in the United
States serving many of the principal domestic and transatlantic
destinations. TWA's principal domestic routes include service to and from
its St. Louis and New York-JFK hubs and between other cities in the U.S.,
both nonstop and through St. Louis. TWA's domestic routes also provide
connections with its international service to and from U.S. cities and
certain major cities in Europe and the Middle East (see Note 21).
The airline industry is highly competitive and the factors affecting
competition are subject to rapid change. Many of the Company's competitors
are larger and have significantly greater financial resources. In addition,
several carriers have introduced or have announced plans to introduce low-
cost, short-haul service, which may result in increased competition to the
Company. Internationally, TWA competes in several "limited entry" markets
in which, as a result of governmental regulations and agreements with
foreign governments, TWA has traditionally competed with a limited number
of carriers. No assurance can be given that TWA will continue to have the
advantage of all of the "limited entry" markets in which it currently
operates or that it will not face substantial additional competition.
Historically, the airline industry has experienced substantial volatility
in profitability as a result of, among other factors, general economic
conditions, competitive pricing initiatives, the overall level of capacity
operated in the industry and fuel prices. TWA continues to be highly
leveraged and has and will continue to have significant debt service
obligations. TWA presently has no unused credit lines and substantially all
of TWA's strategic assets have been pledged to secure indebtedness of the
Company.
(b) Fresh Start Reporting: Financial accounting during a Chapter 11 proceeding
is prescribed in "Statement of Position 90-7 of the American Institute of
Certified Public Accountants", titled "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"), which TWA adopted
effective June 30, 1995. The emergence from the 1995 Chapter 11 proceeding
(the "'95 Reorganization") on August 23, 1995 (the "'95 Effective Date"),
resulted in the creation of new reporting entities without any accumulated
deficit and with the Company's assets and liabilities restated to their
estimated fair values (also see Note 19-Fresh Start Reporting). Because of
the application of fresh start reporting, the financial statements for
periods after reorganization are not comparable in all respects to the
financial statements for periods prior to the '95 Reorganization.
For periods during the Chapter 11 proceedings, prepetition liabilities
which were unsecured or estimated to be undersecured were classified as
"Liabilities Subject to Compromise in the Chapter 11 Reorganization
Proceedings." The accrual of interest on such liabilities was discontinued
for the period from June 30, 1995 to the '95 Effective Date.
(c) Consolidation: The consolidated financial statements include the accounts
of TWA and its subsidiaries. All significant inter-company transactions
have been eliminated. The results of Worldspan, L.P. ("Worldspan"), a 25%
owned affiliate are recorded under the equity method and are included in
the Statements of Consolidated Operations in Other Charges (Credits).
Certain amounts previously reported have been reclassified to conform with
revised classifications.
F-11
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(d) Property and Depreciation: Property and equipment owned are depreciated to
residual values over their estimated useful service lives on the straight-
line method. Property held under capital leases is amortized on the
straight-line method over its estimated useful life, limited generally by
the lease period. Estimated remaining useful service lives and residual
values are reviewed periodically for reasonableness and any necessary
change is effected at the beginning of the accounting period in which the
revision is adopted. In connection with the application of fresh start
reporting, no significant changes in the estimated useful lives of assets
have been made.
Estimated useful service lives in effect for the purpose of computing the
provision for depreciation, were:
Flight equipment (aircraft and engines, including related spares)--16
to 25 years, varying by aircraft fleet type
Buildings--20 to 50 years
Other equipment--3 to 20 years
Leasehold improvements--Estimated useful life limited by the lease
period
Maintenance and repairs, including periodic aircraft overhauls, are
expensed in the year incurred; major renewals and betterments of equipment
and facilities are capitalized and depreciated over the remaining life of
the asset.
(e) Intangible Assets: Route authorities are amortized on a straight line
basis over 30 years (1), gates over the term of the related leases and
slots over 20 years. Routes, gates and slots consist of the following
amounts at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Routes................................................... $ 248,100 $276,000
Gates.................................................... 86,649 86,649
Slots.................................................... 95,800 95,800
--------- --------
430,549 458,449
Accumulated Amortization................................. 28,890 7,533
--------- --------
$ 401,659 $450,916
========= ========
</TABLE>
--------
(1) Prior to January 1, 1995, the Company utilized an estimated useful life
for route authorities of 40 years (also see Note 16-Special Charges and
Other Nonrecurring Items).
The reorganization value in excess of amounts allocable to identifiable
assets is being amortized over a twenty year period on the straight-line
method. Accumulated amortization at December 31, 1996 and 1995 was
$55,937,000 and $13,984,000, respectively.
When facts and circumstances suggest that intangible and other long-term
assets may be impaired, the Company evaluates their recoverability based
upon estimated undiscounted future cash flows over the remaining estimated
useful lives. The amount of impairment, if any, is measured based on
projected undiscounted future operating cash flows.
(f) Foreign Exchange: Foreign currency and amounts receivable and payable in
foreign currencies are translated into U.S. dollars at current exchange
rates on the date of the financial statements. Revenue and expense
transactions are translated at average rates of exchange in a manner that
produces approximately the same dollar amounts that would have resulted
had the underlying transactions been translated into dollars on the dates
they occurred. Exchange gains and losses are included in net income for
the period in which the exchange rate changes.
F-12
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(g) Inventories: Inventories, valued at standard cost, which approximates
actual average unit cost, consist primarily of expendable spare parts used
for the maintenance and repair of flight equipment, plus aircraft fuel and
other operating supplies. A provision for obsolescence of spare parts is
accrued at annual rates which will provide an allowance such that the
unused inventory, at the retirement date of the related aircraft fleet, is
reflected at the lower of cost or estimated net realizable value.
(h) Passenger Revenue Recognition: Passenger ticket sales are recognized as
revenue when the transportation service is rendered. At the time of sale a
current liability for advance ticket sales is established and subsequently
is eliminated either through carriage of the passenger by TWA, through
billing from another carrier that renders the service, or by refund to the
passenger.
Under TWA's "Frequent Flight Bonus Program" ("FFB"), frequent travelers may
accumulate certain defined unit mileage credits which entitle them to a
choice of various awards, including certain free air transportation on TWA
at a future date. When the free travel award level is achieved by a
frequent traveler, a liability is accrued and TWA's operating expense is
charged for the estimated incremental cost which will be incurred by TWA
upon the future redemption of the free travel awarded.
Pursuant to the 1995 Restructuring, TWA issued 600,000 ticket vouchers,
each having a face value of $50, which may be used for a discount of up to
50% off the cost of a ticket for transportation on TWA. Concurrently, TWA
entered into an agreement, as amended, to purchase for cash from a third
party any ticket vouchers acquired by the stand-by purchaser. The ticket
vouchers were initially recorded as a liability at their estimated fair
value, approximately $26.2 million. The liability will be relieved in
future periods as vouchers are redeemed for cash or will be reflected as
revenue when the transportation is provided for tickets purchased with
vouchers. Approximately 180,000 and 396,000 vouchers were outstanding at
December 31, 1996 and 1995, respectively.
(i) Interest Capitalized: Interest cost associated with funds expended for the
acquisition of qualifying assets is capitalized. Interest capitalized was
$5,463,000 in 1996 and $2,133,000 in 1994. There was no interest
capitalized during 1995.
(j) Income Taxes: TWA accounts for income taxes based on Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". This statement requires the use of the liability method to record
the deferred income tax consequences of differences between the financial
reporting and income tax bases of assets and liabilities.
(k) Postretirement Benefits Other Than Pensions: TWA accounts for
postretirement benefits other than pensions based on SFAS No. 106 which
requires that the expected cost of providing such benefits be accrued over
the years that the employee renders service, in a manner similar to the
accounting for pension benefits.
(l) Deferred Credit-Aircraft Operating Leases: The present value of the excess
of contractual rents due under aircraft operating leases over the fair
rentals for such aircraft were recorded as deferred credits as part of the
application of fresh start reporting. The deferred credit will be
increased through the accrual of interest expense and reduced through a
reduction in operating lease rentals over the terms of the respective
aircraft leases. At December 31, 1996 and 1995, the unamortized balance of
the deferred credits were $31,408,000 and $41,727,000 respectively.
(m) Environmental Contingencies: TWA is subject to numerous environmental laws
and regulations and is subject to liabilities and compliance costs arising
from its past and current handling, processing, recycling, storing and
disposing of hazardous substances and hazardous wastes. It is TWA's policy
to accrue environmental remediation costs when it is probable that a
liability has been incurred and an amount can be
F-13
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
reasonably estimated. As potential environmental liabilities are identified
and assessments and remediation proceed, these accruals are reviewed
periodically and adjusted, if necessary, as additional information becomes
available. The accruals for these liabilities can significantly change due
to factors such as the availability of additional information on the nature
or extent of the contamination, methods and costs of required remediation
and other actions by governmental agencies. Costs of future expenditures
for environmental remediation obligations are not discounted to their
present value.
(n) Mandatorily Redeemable 12% Preferred Stock: The Mandatorily Redeemable
12% Preferred Stock issued in connection with the 1995 Reorganization was
initially recorded at its estimated fair value. Until its redemption in
April 1996, the carrying amount was being increased by amortization of the
difference between the redemption value and the carrying amount, using the
interest method. Such amounts were recorded as additional preferred stock
dividend requirements. A special dividend requirement of approximately
$20.0 million was recorded in 1996 to reflect the excess of the early
redemption price over the carrying value of the Mandatorily Redeemable 12%
Preferred Stock.
(o) Earnings (Loss) Per Share: In computing the loss applicable to common
shares for 1996 and the four months ended December 31, 1995, the net loss
has been increased by dividend requirements on the Mandatorily Redeemable
12% Preferred Stock (including amortization of the difference between the
carrying amount and the redemption value and the special dividend
requirement related to the early redemption in 1996) and on the 8%
Cumulative Convertible Exchangeable Preferred Stock from the date of
issuance in March 1996. In computing the related net loss per share, the
loss applicable to common shares has been divided by the aggregate average
number of outstanding shares of Common Stock (38.5 million in 1996 and
28.0 million in 1995) and Employee Preferred Stock (5.7 million in 1996
and 5.3 million in 1995) which, with the exception of certain special
voting rights, is the functional equivalent of Common Stock. 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.
Earnings per share of the predecessor company are not presented as the
amounts are not meaningful.
(p) Concentration of Credit Risk: TWA does not believe it is subject to any
significant concentration of credit risk. At December 31, 1996 most of the
Company's receivables related to tickets sold to individual passengers
through the use of major credit cards (37%) or to tickets sold by other
airlines (16%) and used by passengers on TWA. These receivables are short-
term, generally being settled shortly after sale or in the month following
usage. Bad debt losses, which have been minimal in the past, have been
considered in establishing allowances for doubtful accounts.
(q) Use of Estimates: Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(r) Stock-Based Compensation: TWA applies APB Opinion No. 25 and related
interpretations in accounting for its plans. This opinion allows for
stock-based employee compensation to be recognized based on the intrinsic
value.
(s) Presentation: Certain prior period amounts have been reclassified to
conform with current year presentation.
3. CHAPTER 11 REORGANIZATIONS:
On January 31, 1992, TWA commenced a reorganization case (the "'93
Reorganization") by filing a voluntary petition for relief under Chapter 11,
Title 11 of the United States Bankruptcy Code (the "Bankruptcy
F-14
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Code") in the U.S. Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). TWA's subsidiary companies did not file for Chapter 11
protection. On August 12, 1993 the Bankruptcy Court entered an order
confirming the '93 Reorganization, which was jointly proposed by TWA and the
Official Unsecured Creditors' Committee. The '93 Reorganization became
effective on November 3, 1993 (the "'93 Effective Date").
Pursuant to the '93 Reorganization Plan, on the '93 Effective Date: (i) all
prepetition interests in TWA (including TWA's previously existing preferred
stock, preference stock and common stock) were cancelled without any
consideration being distributed on account of those interests; (ii) nine
million shares of newly authorized TWA common stock, representing 45% of TWA's
then authorized common stock, were issued to trusts established for the
benefit of TWA's domestic unionized and domestic non-unionized and management
employees (the "Employee Stock Trusts") in exchange for certain wage, benefit
and claim concessions granted pursuant to certain agreements entered into by
TWA with its domestic unionized and domestic non-unionized and management
employees (the "'92 Labor Agreements"); (iii) 11 million shares of newly
authorized common stock, representing 55% of TWA's authorized common stock,
were issued to a voting trust established on the '93 Effective Date for the
benefit of certain creditors of TWA in partial satisfaction and discharge of
their claims, which trust issued 11 million Voting Trust Certificates ("VTCs")
evidencing the rights of the VTC holders in the Voting Trust; (iv) 12.5
million shares of newly authorized preferred stock were issued for the benefit
of certain creditors of TWA in partial satisfaction and discharge of their
claims; (v) new five year notes (the "10% Senior Secured Notes"), new seven
year notes (the "8% Senior Secured Notes"), new eight year, 8% secured notes
(the "IAM Back Pay Notes"), new equipment trust certificate notes (the "11%
ETC Notes") and Aircraft Financing Secured Notes with varying interest rates
and maturity dates (the "Aircraft Financing Notes"), the aggregate principal
amount of which was approximately $730.6 million, were issued to certain
creditors of TWA in full satisfaction and discharge of their claims; (vi) all
claims except for certain claims to be reinstated under the '93 Reorganization
Plan were discharged; (vii) certain contingent and/or unliquidated claims were
settled and (viii) executory contracts and unexpired leases to which TWA was a
party were assumed or rejected, in each case on the terms and subject to the
conditions set forth in the '93 Reorganization.
Notwithstanding the reductions in levels of debt and obligations achieved
through the '93 Reorganization, TWA's operating results and cash flows did not
meet the projected levels upon which the '93 Reorganization Plan was
formulated, and in 1994 it was determined that a recapitalization of the
Company was needed.
In the second quarter of 1995, the Company solicited and received sufficient
acceptances to effect the proposed "prepackaged" plan of bankruptcy.
Therefore, on June 30, 1995, the Company filed a prepackaged Chapter 11 plan
of reorganization, which with certain modifications was confirmed by the
United States Bankruptcy Court for the Eastern District of Missouri (the
"Bankruptcy Court") on August 4, 1995. On August 23, 1995, approximately eight
weeks after filing the prepackaged Chapter 11 plan, the '95 Reorganization
became effective and the Company emerged from the protection of this second
Chapter 11 proceeding. In connection with the '95 Reorganization, the Company
(i) exchanged certain of its then outstanding debt securities for a
combination of newly issued Mandatorily Redeemable 12% Preferred Stock, Common
Stock, warrants to purchase Common Stock and debt securities, (ii) converted
the then outstanding preferred stock of the Company to shares of Common Stock,
warrants and equity rights, (iii) obtained certain short-term lease payment
and conditional sale indebtedness deferrals amounting to approximately $91
million and other modifications to certain aircraft leases and (iv) obtained
an extension of the Company's approximately $190 million principal amount of
indebtedness to certain entities controlled by Mr. Carl C. Icahn (the "Icahn
Loans"). The Company also (i) effected a reverse stock split of its then
outstanding common stock for Common Stock, (ii) completed an equity rights
offering, (iii) distributed certain warrants to its then current equity
holders and (iv) implemented certain amendments to the Company's Certificate
of Incorporation.
In connection with and as a precondition to the '95 Reorganization, in
August and September of 1994, the Company entered into new three-year labor
agreements (the "'94 Labor Agreements"), amending existing
F-15
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
collective bargaining agreements with the three labor unions representing
approximately 84% of the Company's employees, the IAM, ALPA and IFFA. The '94
Labor Agreements provided for waiver of certain contractually agreed wage
concessions, modifications to work rules and the deletion of certain
provisions of the then existing labor agreements, including eliminating so
called snapbacks, i.e., the automatic restoration of the wage reductions
granted in such agreements upon their expiration. During 1994 and 1995, the
Company also implemented a number of similar saving initiatives with respect
to domestic non-union and management employees, primarily through reducing
head count, altering benefit packages, and eliminating certain planned
restorations of wage reductions.
On June 14, 1995, as one of the transactions contemplated by the extension
of the Icahn Loans, TWA and an entity affiliated with Mr. Icahn, Karabu
Corporation ("Karabu"), entered into an agreement for the sale of tickets (the
"Ticket Agreement"). There are two categories of tickets under the Karabu
Ticket Program: (1) "Domestic Consolidator Tickets" which are subject to a cap
of $610 million, based on the full retail price of the tickets ($120 million
in the first fifteen months and $70 million per year for seven consecutive
years through the term of the Ticket Agreement) and (2) "System Tickets" and
"Matching Tickets" which are not subject to any cap throughout the term of the
Ticket Agreement. The Ticket Agreement provides for the sale of tickets to
Karabu at prices significantly lower than the full retail price.
Domestic Consolidator Tickets sold under the Ticket Agreement are limited to
certain origin/destination city markets in which TWA has less than a 5% market
share, except for the New York market, which has a 10% market share limit.
These restricted markets will be reviewed from time to time to determine any
change in TWA's market share, and other markets may be designated as
necessary.
Ticket sales under the Ticket Program, which commenced in September 1995,
were $139.7 million in 1996 and $16.0 million in 1995 at full published fares.
The aggregate net sales, after applicable discounts under the Ticket
Agreement, were $76.9 million in 1996 and $8.8 million in 1995. Of these
amounts, $71.5 million and $4.4 million is included as passenger revenues for
1996 and the four months ended December 31, 1995, respectively, as the related
transportation had been provided. Substantially all ticket sales under the
Ticket Program to date have been "System Tickets".
The purchase price for the tickets purchased by Karabu are required to
either, at Karabu's option and with certain restrictions, be retained by
Karabu and the amount so retained shall be credited as prepayments against the
outstanding balance of the Icahn Loans, or be paid over to the settlement
trust established in connection with the '93 Reorganization for TWA's account
as prepayments on the PBGC Notes. At December 31, 1996, approximately $64.9
million of such proceeds had been applied to the principal balance of the
Icahn Loans, and $6.4 million had been applied to the PBGC Notes, which
resulted in a $1.6 million extraordinary charge related to the early
extinguishment of PBGC Notes (See Note 14).
Tickets sold to Karabu pursuant to the Ticket Agreement are priced at levels
intended to approximate current competitive discount fares available in the
airline industry. The Ticket Agreement provides that no ticket may be included
with an origin or destination of St. Louis, nor may any ticket include flights
on other carriers. Tickets sold pursuant to the Ticket Agreement are required
to be at fares specified in the Agreement, net to TWA, and be exclusive of
tax. No commissions will be paid by TWA for tickets sold under the Ticket
Agreement, and in general TWA believes that under the applicable provisions of
the Ticket Agreement such tickets may not be marketed or sold through travel
agents. 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 affiliated companies seeking damages and to enjoin further
violations. Mr. Icahn countered threatening to attempt to declare a default on
the Icahn Loans on a variety of claims related to his
F-16
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
various interpretations of the security documents related to such loans as
well as with respect to alleged violations of the Ticket Agreement by the
Company. The parties then negotiated a series of standstill agreements
pursuant to which the lawsuit was temporarily withdrawn while the parties
endeavor to negotiate a settlement of their differences and respective claims.
If Karabu's interpretation as to sales of discount tickets to the general
public through travel agents was determined by a court or otherwise to be
correct and the Company did not otherwise take appropriate action to mitigate
the effect of such sales, the Company could suffer significant loss of revenue
so as to reduce overall passenger yields on a continuing basis during the
eight year term of the Ticket Agreement. In addition, 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 the Company's other indebtedness and leases and otherwise have a material
adverse effect on the Company.
4. INVESTMENTS:
TWA, through a wholly-owned subsidiary, has a 25% partnership interest in
Worldspan, a joint venture among TWA, Delta Airlines, Inc., Northwest
Airlines, Inc. and ABACUS Distribution Systems PTE Ltd. Worldspan owns,
markets and operates a global computer airline passenger reservation system on
behalf of subscriber travel agents and contracting airlines who pay booking
fees to Worldspan for such reservation service. TWA accounts for its
investment in the partnership on the equity basis. TWA's share of the combined
net earnings (loss) of the partnership was approximately $11,919,000 for the
year ended December 31, 1996, $(11,535,000) for the four months ended December
31, 1995, $3,607,000 for the eight months ended August 31, 1995 and
$(3,616,000) for the year ended December 31, 1994, which is included in Other
Charges (Credits) in TWA's Statements of Consolidated Operations. The excess
of TWA's carrying value for its investment in Worldspan over its share of the
underlying net assets of Worldspan is being amortized over a period of 20
years. At December 31, 1996 and 1995, the unamortized balance of this excess
amounted to approximately $32.0 million and $33.9 million, respectively.
The partnership provides passenger reservations services, communication
facilities and other computer services which are purchased by TWA on a
recurring basis. The aggregate cost of the services purchased from the
partnership, which is included in all other operating expenses in TWA's
Statements of Consolidated Operations, is approximately as follows (in
thousands):
<TABLE>
<S> <C>
Year Ended December 31, 1996........................................ $54,611
Four Months Ended December 31, 1995................................. $16,566
Eight Months Ended August 31, 1995.................................. $29,604
Year Ended December 31, 1994........................................ $43,638
</TABLE>
Summary financial data for Worldspan is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1996 1995
-------- --------
<S> <C> <C>
Current assets............................................... $172,368 $ 84,854
Non-current assets........................................... 384,653 410,901
-------- --------
Total assets............................................... $557,021 $495,755
======== ========
Current liabilities.......................................... $126,774 $101,219
Non-current liabilities...................................... 125,255 137,220
Partners' equity............................................. 304,992 257,316
-------- --------
Total liabilities and equity............................... $557,021 $495,755
======== ========
</TABLE>
F-17
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Revenues..................................................... $548,419 $498,138
Costs and expenses........................................... 500,743 529,852
-------- --------
Net income (loss).......................................... $ 47,676 $(31,714)
======== ========
</TABLE>
5. INCOME TAXES:
Income tax liabilities at December 31, 1996 and 1995, included in other
noncurrent liabilities, consist of the following (in millions):
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Current taxes................................................... $ -- $ --
Deferred taxes:
Federal....................................................... 10.7 10.7
Other income and franchise taxes.............................. .3 .3
----- -----
Total income tax liability...................................... $11.0 $11.0
===== =====
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1996 and 1995 are as follows (in millions):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits, other than pensions............ $ 198.5 $ 194.6
Pension obligations..................................... 82.3 83.4
Employee compensation and other benefits................ 36.5 60.2
Capital leases, net..................................... 54.3 56.6
Net operating loss carryforwards........................ 247.1 207.8
Other, net.............................................. 84.0 86.7
------- -------
Total deferred tax assets............................. 702.7 689.3
------- -------
Deferred tax liabilities:
Property and spare parts, net........................... $ (34.6) $ (24.7)
Routes, gates, and slots, net........................... (158.7) (178.1)
Investment in affiliate................................. (42.7) (38.8)
------- -------
Total deferred tax liabilities........................ $(236.0) $(241.6)
======= =======
Net deferred tax asset before valuation allowance......... 466.7 447.7
Deferred tax asset valuation allowance.................. (477.7) (458.7)
------- -------
Net deferred tax asset (liability).................... $ (11.0) $ (11.0)
======= =======
</TABLE>
The valuation allowance arises primarily from the amortization of
intangibles, representing taxable temporary differences, the reversal of which
extends beyond the period in which deductible temporary differences are
expected to reverse. The net deferred tax liability, after giving effect to
the valuation allowance, arises primarily in years after 2020.
F-18
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the provision (credit) for income taxes is as follows (amounts
in thousands):
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------- -------------------------
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current, primarily foreign............................................... $450 $1,370 $(96) $960
Deferred................................................................. -- -- -- --
---- ------ ---- ----
Total provision (benefit) for income taxes, net...................... $450 $1,370 $(96) $960
</TABLE>
Income tax expense for the periods presented below differs from the amounts
which would result from applying the federal statutory tax rate to pretax
income, as follows:
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------- -------------------------
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income tax benefit at United States statutory rates...................... $(93,652) $(11,294) $(118,408) $(151,504)
Amortization of reorganization value in excess of amounts allocable to
identifiable assets..................................................... 14,683 4,894 1,976 2,870
Meals and entertainment disallowance .................................... 4,257 1,419 2,838 4,663
Foreign taxes............................................................ 450 1,370 (96) 960
Net operating loss not benefited and other items......................... 74,712 4,981 113,594 143,971
-------- -------- --------- ---------
Income tax expense (benefit)......................................... $ 450 $ 1,370 $ (96) $ 960
</TABLE>
A provision for income tax on the extraordinary gain from the extinguishment
of debt in the eight months ended August 31, 1995 was not required as such
income is excluded from taxation under the Internal Revenue Code of 1986, as
amended.
In May 1993, TWA and the Internal Revenue Service reached an agreement (the
"IRS Settlement") to settle both: (i) the IRS' proof of claim in the '93
Reorganization in the amount of approximately $1.4 billion covering
prepetition employment and income taxes of TWA, and (ii) the audit of TWA's
federal income tax returns through 1992. Pursuant to the IRS Settlement, TWA
paid $6 million to the IRS through the application of funds owed to TWA by
certain governmental agencies and issued a note in the amount of $19 million
payable in quarterly installments over a six year period (also see Note 8 -
Debt). As a result of the IRS Settlement, TWA increased its tax basis in
certain of its assets and will be allowed no benefit of any federal net
operating loss or credit carryforward from 1992 or any prior year. Federal
income tax losses incurred by TWA subsequent to 1992 may not be carried back
to pre-1993 years.
The Company estimates that it has tax net operating loss carryforwards
amounting to approximately $625 million at December 31, 1996 expiring in 2008
through 2011 if not utilized before then to offset taxable income. Section 382
of the Internal Revenue Code of 1986, as amended (the "Code"), and regulations
issued thereunder, imposed limitations on the ability of corporations to use
NOLs if the corporation experiences a more than 50% change in ownership during
certain periods. In connection with the change of ownership caused by the '95
F-19
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reorganization, the Company elected to reduce its NOLs in accordance with
Section 382 of the Code and regulations issued thereunder. If another
ownership change were to occur prior to September 1997, the annual limitations
on the Company's utilization of its then existing NOLs would be reduced to
zero. Changes in ownership in periods thereafter could substantially restrict
the Company's ability to utilize its tax net operating loss carryforwards. In
addition, the tax net operating loss carryforwards are subject to examination
by the IRS and thus are subject to adjustment or disallowance resulting from
any such IRS examination. 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
excessive amounts allocable to identifiable assets.
6. EMPLOYEE BENEFIT PLANS:
Substantially all of TWA's employees are covered by noncontributory defined
benefit retirement plans that were frozen on January 1, 1993. While many of
TWA's employees continue participation in these plans, they have not accrued
any additional benefits since the date the plans were frozen. Employees hired
after the freeze are not entitled to participate in these defined benefit
retirement plans. TWA's policy has been to fund the defined benefit plans in
amounts necessary for compliance with the funding standards established by the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The retirement plans for Pilots, Flight Attendants and Dispatchers provide
benefits determined from career average earnings, with Pilots having minimum
benefits after ten years of service. Employees (other than Passenger Service
Employees) represented by the IAM earn retirement plan benefits of stated
amounts for each year of service. The Retirement Plan for U.S. Noncontract
Employees (including Passenger Service Employees) provides pension benefits
that are based on the employee's compensation during the last five years prior
to retirement, with compensation subsequent to 1988 frozen at the 1988 pay
level. Foreign plans provide benefits that meet or exceed local requirements.
Normal retirement is age 60 for Pilots and Flight Attendants, and age 65 for
nonflight personnel. The age at which employees can receive supplemental
benefits for early retirement varies by labor group, but ranges from age 45 to
age 64.
As noted above, in January 1993, TWA's defined benefit plans covering
domestic employees (the "Pension Plans") were frozen and Pichin Corporation, a
Delaware corporation formed by the Icahn Entities, assumed sponsorship of the
Pension Plans and is now responsible for management and control of the Pension
Plans. Pursuant to an agreement (the "Comprehensive Settlement Agreement")
among the Company, the Icahn Entities, the Pension Benefit Guarantee
Corporation (the "PBGC") and unions representing TWA employees, TWA retains
only specified obligations and liabilities in respect of the Pension Plans,
which include (i) payment obligations under the PBGC Notes, and (ii) the
obligation to continue to act as the benefits administrator responsible for,
among other things, determining and administering the payment of Pension Plan
benefits (also see Note 8-Debt).
Pichin Corporation is obligated to make the required minimum funding
payments to each of the Pension Plans, subject to reduction for any payments
made under the PBGC Notes. The PBGC may not terminate the Pension Plans,
except under section 4042(a)(2) of ERISA or at the request of Pichin
Corporation, so long as the Icahn Entities and Pichin Corporation have
complied with all terms of the Comprehensive Settlement Agreement relating to
the PBGC. Upon the occurrence of certain significant events (as defined)
including, but not limited to, a sale of substantially all of TWA's assets, a
merger involving TWA or a liquidation under Chapter 7 under the Bankruptcy
Code, and at the request of Pichin Corporation, the Pension Plans will be
terminated. After such a termination, the liability of Pichin Corporation and
all members of its controlled group will be limited to an obligation to make
annual payments of $30 million to the PBGC for a period of eight years. Mr.
Icahn has
F-20
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
advised TWA that Pichin Corporation is entitled to terminate the Pension Plans
in a non-standard termination at any time after January 1, 1995.
In connection with the Comprehensive Settlement Agreement, Mr. Icahn and
each of the Icahn Entities surrendered all of the equity and debt securities
of TWA and its affiliates owned beneficially or of record by them. Pursuant to
the Comprehensive Settlement Agreement, each of the parties to the agreement
mutually released the various claims of the other parties to the agreement.
The net periodic pension expense recorded for TWA's foreign defined benefit
retirement plans is presented below.
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------- -------------------------
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service cost............................................................. $ 577 $ 274 $ 493 $ 1,190
Interest cost............................................................ 992 583 1,040 3,053
Actual return on assets.................................................. (505) (100) (200) (864)
Net amortization and deferral............................................ (355) -- -- --
- --------------------------------------------------
----- ----- ------- -------
Net pension expense..................................................... $ 709 $ 757 $ 1,333 $ 3,379
</TABLE>
Actuarial assumptions used for determining pension costs were:
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------- -------------------------
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Discount rate for interest
cost...................... 7.50% 7.00% 8.50% 8.50%
Rate of increase in future
compensation levels....... 5.50% 5.50% 5.50% 7.50%
Expected long-term rate of
return on plan assets..... 9.00% 11.00% 11.00% 11.00%
</TABLE>
F-21
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status (with benefit obligations determined using the current
estimated discount rate of 7.5% and 7.0% at December 31, 1996 and 1995
respectively) and amounts recognized in the Consolidated Balance Sheets at
December 31, 1996 and 1995, for defined benefit plans covering foreign
employees, are as follows (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995
------------------------------ ----------------------
PLANS IN WHICH PLANS IN WHICH
------------------------------ ----------------------
ASSETS ACCUMULATED ASSETS
EXCEED BENEFITS EXCEED ACCUMULATED
ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS
BENEFITS ASSETS BENEFITS ASSETS
----------- ------------------ --------- -----------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested benefit
obligation............ $ 44,200 $ 7,153 $ 23,986 $ 13,958
Nonvested benefit
obligation............ -- 1,198 14 2,338
-------- -------- --------- --------
Accumulated benefit
obligation............ 44,200 8,351 24,000 16,296
Projected benefit
obligation more than
accumulated benefit
obligation............ 3,983 5,882 1,327 8,273
-------- -------- --------- --------
Projected benefit
obligation............ 48,183 14,233 25,327 24,569
Plan assets at fair value
(a)..................... 50,703 -- 47,814 --
-------- -------- --------- --------
Projected benefit
obligation more (less)
than plan assets at
fair value............ (2,520) 14,233 (22,487) 24,569
Unrecognized net gain
(loss).................. 7,307 11,696 -- 949
-------- -------- --------- --------
Pension liability (asset)
before adjustment....... 4,787 25,929 (22,487) 25,518
Adjustment to reduce
pension assets to
estimated recoverable
amount.................. -- -- 18,222 (b) --
-------- -------- --------- --------
Pension liability
(asset) recognized in
Consolidated Balance
Sheets................ $ 4,787 $ 25,929 $ (4,265) $ 25,518
======== ======== ========= ========
</TABLE>
- --------
(a) Plan assets are invested in cash equivalents, international stocks, fixed
income securities and real estate.
(b) The adjustment at December 31, 1995 represented the amount by which the
net pension asset exceeded the amount estimated to be recoverable pursuant
to a planned termination of a pension plan covering certain foreign
employees. United Kingdom law requires the reduction of retirement plan
assets when such assets exceed 105% of plan liabilities. In 1996, assets
in TWA's United Kingdom Pension Plan exceeded liabilities by approximately
$20 million. This surplus was eliminated by terminating the existing UK
Pension Plan and establishing a new pension plan for UK employees. The
surplus assets were split between TWA and the participants of the UK Plan,
with plan participants receiving their share in enhanced pension benefits,
and TWA receiving, in December 1996, a reversion from the original plan of
$9.7 million.
TWA has several defined contribution plans covering most of its employees.
Total pension expense for these plans was $58.0 million, $14.1 million, $26.8
million, $46.0 million, for the year ended December 31, 1996, the four months
ended December 31, 1995, the eight months ended August 31, 1995 and the year
ended December 31, 1994, respectively. Such defined contribution plans
include: (a) trust plans established pursuant to collective bargaining
agreements with certain employee groups providing for defined Company
contributions generally
F-22
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
determined as a percentage, ranging from 2% to 11%, of pay; and (b) retirement
savings plan for Noncontract Employees to which the Company contributes
amounts equal to 25% of voluntary employee after-tax contributions up to a
maximum of 10% of the employee's pay. Pursuant to the '92 Labor Agreements,
Company contributions were suspended for certain defined contribution plans
for the period September 1, 1992 through August 31, 1995. Such suspension has
been extended through August 31, 1997. In connection with the Comprehensive
Settlement Agreement, TWA agreed to make contributions to defined contribution
plans aggregating 2% of eligible wages for 1993 through 1995, and 3.3%
thereafter. The Company made the 1994 contribution payment on June 20, 1995.
Commencing on July 1, 1995, TWA is required to make such contributions on a
monthly basis.
In addition to providing retirement benefits, TWA provides certain health
care and life insurance benefits for retired employees, their spouses and
qualified dependents. Substantially all employees may become eligible for
these benefits if they reach specific retirement age criteria while still
actively employed by TWA. SFAS No. 106 requires that the expected cost of
providing postretirement benefits other than pensions be accrued over the
years that the employee renders service, in a manner similar to the accounting
for pension benefits.
The following table sets forth a reconciliation of the accrued
postretirement benefit cost as of December 31, 1996 and 1995 (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Actives fully eligible......................... $ 163 $ 165
Other actives.................................. 144 150
Retirees....................................... 225 208
----- -----
Total APBO................................... 532 523
Unrecognized cumulative loss..................... (29) (30)
----- -----
Accrued postretirement benefit cost.............. $ 503 $ 493
===== =====
</TABLE>
The components of net periodic postretirement benefit cost are as follows
(in millions):
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------- -------------------------
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service cost............ $10.0 $ 3.0 $ 5.4 $ 9.5
Interest cost........... 35.4 11.0 25.5 34.5
----- ----- ----- -----
Total................. $45.4 $14.0 $30.9 $44.0
===== ===== ===== =====
</TABLE>
The discount rate used to determine the APBO was 7.5% at December 31, 1996
and 7.0% at December 31, 1995. The discount rate used to determine net
periodic postretirement benefit costs was 7.0% for the year ended December 31,
1996, 7.0% for the four months ended December 31, 1995, 8.5% for the eight
months ended August 31, 1995 and 7.0% for the year ended December 31, 1994.
The assumed health care cost trend rate used in measuring the APBO was 8.0% in
1997 declining by 1% per year to an ultimate rate of 5%. If the assumed health
care cost trend rate was increased by 1 percentage point, the APBO at December
31, 1996 would be increased by approximately 10% and 1996 periodic
postretirement benefit cost would increase approximately 10%.
F-23
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. CONTINGENCIES:
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, but to date a cause has not been determined.
While TWA is currently the defendant in a number of lawsuits, TWA is unable to
predict the amount of claims relating to the crash which may 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 the
claims arising from the crash. Therefore, TWA believes that the resolution of
such claims will not have a material adverse effect on its financial condition
or results of operations. The Company is unable to identify or predict the
extent of any adverse effect on its revenues, yields, or results of operations
which has resulted or may result from the public perception of the crash.
During 1992, TWA and several other major airlines agreed to settle certain
class action antitrust litigation. Pursuant to the settlement agreement, which
was approved by the United States District Court for the Northern District of
Georgia in 1994, TWA paid $1 million and, together with five other carriers,
issued approximately $400 million in face amount of certificates for discounts
of approximately 10% on future domestic air travel on any of the six carriers.
TWA will reflect the certificates that are redeemed for travel on TWA as a
reduction in revenue as the transportation is provided. While TWA presently
does not have any reason to expect that the face amount of the discount
coupons that will be redeemed for travel on TWA in the future will not
reasonably approximate the face amount of discount coupons that TWA
contributed to the settlement, it is reasonably possible that the actual face
amount of discount coupons redeemed by TWA could be substantially different,
considering the interchangeability of the discount coupons and that the face
amount of the discount coupons contributed by all of the participating
carriers and distributed to claimants aggregated approximately $400 million.
Therefore, while the settlement agreement could have the effect of reducing
TWA's future revenues and cash flows from levels that might otherwise be
realized, because of the uncertainties as to the face amount of the discount
coupons that will ultimately be redeemed by TWA and uncertainties as to the
impact that the distribution of discount coupons will have on traffic levels,
TWA is unable to reasonably estimate any such effects.
On October 22, 1991, a judgment in the amount of $12,336,127 was entered
against TWA in an action in the New York District Court by Travellers
International A.G. and its parent company, Windsor, Inc. (collectively,
"Travellers"). On November 4, 1991, TWA posted a cash undertaking of
$13,693,101, which was charged to expense, for a stay of execution of the
judgment pending the appeal. On March 10, 1992, the Company commenced an
adversary proceeding against Travellers in the Bankruptcy Court seeking to
avoid the cash undertaking on the grounds that it constitutes a preferential
transfer or, in the alternative, to find that the cash undertaking constitutes
property of the estate. In March 1993, Travellers filed a petition for a writ
of certiorari in the United States Supreme Court seeking to require TWA to
litigate its claims against Travellers in the New York District Court and not
the Bankruptcy Court. The petition was denied by the United States Supreme
Court in April 1993. A trial of the adversary proceeding took place in
Bankruptcy Court in February 1994 and in December of 1994, the Bankruptcy
Court reached a decision in this proceeding which is favorable to the Company.
Upon appeal, the District Court affirmed in part and reversed in part the
bankruptcy courts decision. Both parties have appealed the matter to the Third
Circuit Court of Appeals. The Company believes that in the event the District
Court's decision is affirmed, the ultimate result will not be materially
different than the decision of the bankruptcy court. Pursuant to the Icahn
Financing Facilities, amounts received pursuant to these proceedings must be
used to repay, in part, TWA's obligations thereunder.
TWA is subject to numerous environmental laws and regulations administered
by various state and federal agencies. Although the Company believes adequate
reserves have been provided for all known environmental
F-24
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
contingencies, it is possible that additional reserves might be required in
the future which could have a material effect on the results of operations or
financial condition of the Company. However, the Company believes that the
ultimate resolution of known environmental contingencies should not have a
material adverse effect on the financial position or results of operations
based on the Company's knowledge of similar environmental sites.
Since May 1991, TWA's employees in Israel have claimed that the Company
should be required to collateralize its contingent payment of termination
indemnities. This matter deals only with collateralization of a contingent
payment obligation. The employees have asserted that the amount necessary to
collateralize the contingent payment of termination indemnities could be as
much as $25 million. The Company denies any obligation to collateralize and
asserts that any obligation to collateralize any termination indemnity is not
a current obligation.
In February 1995, a number of actions were commenced in various federal
district courts against TWA and six other major airlines alleging that the
companies conspired and agreed to fix, lower and maintain travel agent
commissions on the sale of tickets for domestic air travel in violation of the
United States antitrust laws. Generally the complaints in these actions seek
treble damages and injunctive relief on behalf of a nationwide class of travel
agents. Certain of these actions also claim violations of various state laws.
On May 9, 1995 TWA announced settlement, subject to court approval, of the
referenced actions and reinstated the traditional 10 percent commission on
domestic air fares. A final court order has not yet been entered; however,
there has been entered an interim order approving the settlement.
On November 9, 1995, ValuJet Air Lines, Inc. ("ValuJet") instituted a
lawsuit against TWA and Delta Air Lines ("Delta") in the United States
District Court for the Northern District of Georgia, alleging breach of
contract and violations of certain antitrust laws with respect to the
Company's lease of certain takeoff and landing slots at LaGuardia
International Airport in New York. On November 17, 1995, the court denied
ValuJet's motion to temporarily enjoin the lease transaction and the Company
and Delta consummated the lease of the slots. ValuJet subsequently amended its
original complaint. On July 12, 1996, the Federal Court in Atlanta granted
summary judgment in TWA' s favor in the ValuJet litigation on all claims and
counts raised in the ValuJet amended complaint. The order granting summary
judgment to TWA was not a final order and was not directly appealable due to
an outstanding claim against Delta. While ValuJet's counsel has stated that an
appeal will be filed at a later date, the Company intends to vigorously defend
itself in any future action and believes all of the allegations that have been
made to date are without merit.
In addition, based on certain written grievances or complaints filed by
ValuJet, the Company was informed that the United States Department of Justice
("DOJ"), Antitrust Division, was investigating the circumstances of the slot
lease transaction to determine whether an antitrust violation has occurred.
During the course of its investigation, the DOT was informed of the summary
judgment described above. Since the date of the judgment, TWA is unaware of
whether the DOJ has undertaken further investigative efforts, the status of
the investigation or any future plans of the DOJ or other regulatory bodies
with respect to the ValuJet lawsuit. While TWA is hopeful the summary judgment
will be persuasive to the various regulatory bodies petitioned by ValueJet, it
will cooperate with any further investigations and strongly believes that the
slot lease transaction was not in violation of antitrust laws.
On September 6, 1995 TWA announced that the operations of its wholly owned
subsidiary, Trans World Express, Inc. ("TWE"), would be discontinued on
November 6, 1995. TWA has entered into an agreement with an unaffiliated
entity, Trans States Airlines, Inc., to provide feeder service into TWA's JFK
hub, which commenced on November 7, 1995. TWA does not currently expect that
the liquidation of TWE will have a material adverse impact on the financial
position or results of operations of TWA.
F-25
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pursuant to the '92 Labor Agreements, the Company agreed to pay to employees
represented by the IAM a cash "bonus' for the amount by which overtime
incurred by the IAM from September of 1992 through August 1995 was reduced
below specified thresholds. This amount was to be offset by the amount by
which medical savings during the period for the same employees did not meet
certain specified levels of savings. The obligation is payable in three equal
annual installments beginning in 1998. The Company has estimated the net
overtime bonus owed to the IAM to be approximately $26.3 million and has
reflected this amount as a noncurrent liability in the accompanying balance
sheets. Such amount reflects a reduction of approximately $10.0 million
pursuant to the final calculation of the liability and an agreement to reduce
proportionately the obligation based upon the size of the reduction of
indebtedness achieved by the '95 Reorganization. The IAM, while not providing
a calculation of its own, has disputed the method by which management has
computed the net overtime bonus and has indicated that they believe the amount
due to the IAM is much greater than the amount which has been estimated by
management.
In connection with certain wage increases afforded to non-contract
employees, employees represented by the IFFA have asserted and won an
arbitration ruling that, if sustained, would require that the Company provide
additional compensation to IFFA represented employees. The Company estimates
that at December 31, 1996 such additional compensation would aggregate
approximately $6 million. The Company denies any such obligation and intends
to pursue an appeal of the arbitration ruling. As such, no liability has been
recorded by the Company at December 31, 1996.
In connection with the '95 Reorganization, the Company entered into a letter
agreement with employees represented by the ALPA whereby if the Company's
flight schedule, as measured by block hours, does not exceed certain
thresholds a defined cash payment would be made to the ALPA. The defined
thresholds were exceeded during the measurement periods through December 31,
1996 and no amount was therefore owed to the ALPA as of that date. The
Company, however, anticipates that a liability will be incurred during 1997 as
a result of the Company's planned reductions in capacity. The amount of the
liability, if any, will be dependent on the amount by which the targeted block
hours flown during the year exceed the actual block hours flown. Based upon
current plans, the Company estimates its obligation under this agreement will
not exceed $12.0 million in 1997.
The Company is also defending a number of other actions which have arisen in
the ordinary course of business, and are insured or the likely outcome of
which the management of the Company does not believe may be reasonably be
expected to be materially adverse to the Company's financial condition or
results of operations.
F-26
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. DEBT:
Substantially all of TWA's assets are subject to liens and security
interests relating to long-term debt and other agreements.
Long-term debt (net of unamortized discounts) outstanding at each balance
sheet date was:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
12% Senior Secured Reset Notes due 1998 (a)............. $ 111,799 $ 145,184
12% Contingent Payment Rights due 1996 (b).............. -- 11,265
8% IAM Backpay Notes (c)................................ 12,090 11,037
PBGC Notes (d).......................................... 198,672 201,164
Icahn Financing Facilities (e).......................... 125,102 187,977
Equipment Trust Certificates (f)........................ 8,963 17,929
Various Secured Notes, 4.0% to 12.4, due 1997-2001 (g).. 75,478 103,847
Installment Purchase Agreements, 10.0% to 10.53%, due
1997--2003 (h)......................................... 109,034 111,033
Predelivery Financing Agreement (i)..................... 19,862 --
IRS Deferral Note (j)................................... 8,708 10,937
WORLDSPAN Note (k)...................................... 31,224 31,224
----------- ----------
Total long-term debt.................................. 700,932 831,597
Less current maturities............................... 92,447 67,566
----------- ----------
Long-term debt, less current maturities............... $ 608,485 $ 764,031
=========== ==========
</TABLE>
- --------
(a) The 12% Senior Secured Reset Notes due 1998 pay interest semi-annually,
payable either in cash or, as to the first four interest payments, at the
Company's option, in whole or in part, in Common Stock, beginning August
1, 1995, subject to certain conditions. The Company elected to pay
interest due and payable for the first two periods and one-half of the
interest due and payable February 1, 1997 (fourth period) in common stock.
The outstanding notes have a stated principal amount of $124.8 million and
$170.0 million at December 31, 1996 and 1995, respectively, and are
reflected net of the unamortized discount of $13.0 million and $24.8
million at December 31, 1996 and 1995. The notes are secured by a first
lien on certain slots, equipment and spare parts.
During 1996, the Company consummated a series of privately negotiated
exchanges with a significant holder of the 12% Senior Secured Reset Notes
which resulted in the return to the Company of approximately $45.3 million
principal amount of 12% Senior Secured Reset Notes and $1.5 million in
accrued interest thereon in exchange for the issuance of approximately 4.5
million shares of Company Common Stock (See Note 14).
(b) The Contingent Payment Rights, arising under the terms of the '95
Reorganization, were paid in 1996.
(c) The 8% IAM Backpay Notes have a stated principal amount of $22.0 million
and $22.9 million at December 31, 1996 and 1995, respectively. The notes
are reflected net of the unamortized discount of $9.9 million and $11.9
million at December 31, 1996 and 1995, respectively, which reflects an
effective interest rate of approximately 24.4% at December 31, 1996. The
notes mature in 2001 and pay interest semi-annually. The notes are secured
by a subordinate lien on TWA's interest in Worldspan and a lien on
approximately $2.2 million in proceeds from the sale of Midcoast Aviation.
During December 1996, ownership of the notes was transferred from the
Indenture Trustee to current and former IAM union members who participated
in the 1992 labor agreement.
F-27
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(d) The PBGC Notes have a stated unpaid principal balance of $232.9 million
and $244.3 million at December 31, 1996 and 1995, respectively. The notes
are reflected net of unamortized discounts of $34.3 million and $43.2
million at December 31, 1996 and 1995, respectively, to reflect an
effective interest rate of approximately 13.0%. Interest on the PBGC Notes
is payable semi-annually at an average stated rate of 8.19% per annum.
Principal payments are due in semi-annual installments beginning in 1999
through 2003, however, due to certain note provisions mandatory
prepayments are required. Additional prepayments could arise from the
election of Karabu to apply the purchase price for tickets purchased under
the Ticket Agreement to a reduction of the PBGC Notes (see Note 3). The
Notes are non-recourse notes secured by first liens on TWA's international
routes and TWA's leasehold interest in the Kansas City maintenance
facility and certain fixtures and equipment.
(e) The Icahn Financing Facilities include a $75 million Asset Based Facility
and a $125 million Receivables Facility, which had principal balances of
$46.9 million and $78.2 million, respectively, at December 31, 1996. The
loans are due in January 2001 and interest is payable monthly at a rate of
prime plus 1.75% per annum. Collateral for the Icahn Loans include a
number of aircraft, engines, and related equipment, along with
substantially all of the Company's receivables. The notes evidencing the
Icahn Loans are security for certain obligations of the Icahn Entities to
the PBGC. Prepayments of the Icahn Loans could arise from the election of
Karabu to apply the purchase price for tickets purchased under the Ticket
Agreement to a reduction of the Icahn Loans (see Note 3).
(f) The Equipment Trust Certificates pay interest semi-annually at a rate of
11% per annum and are subject to mandatory redemptions beginning in April
1994 and continuing until September 1997. The certificates are secured by
certain aircraft, engines and other equipment.
(g) Various Secured Notes represent borrowings to finance the purchase or
lease of certain flight equipment and other property.
(h) Installment Purchase Agreements represent borrowings to finance the
purchase of four Boeing 767-231 and one Boeing 747-238 aircraft. The
borrowings mature in monthly installments through 2003, and require
interest at rates ranging from 10.0% to 10.53% per annum.
(i) The Predelivery Financing Agreements represent borrowings from the engine
manufacturer to finance prepayments on the purchase of five Boeing 757
aircraft. The borrowings mature upon delivery of the aircraft beginning in
February 1997 and continuing through October 1997. Interest is payable
quarterly at a rate of LIBOR plus 3.5%.
(j) The IRS Deferral Note represents unpaid amounts due under the terms of a
settlement reached in 1993 for taxes and interest owed to the IRS. The
note requires payment of interest quarterly at a rate of 7% per annum and
matures in 1999.
(k) The Worldspan Note represents amounts owed to Worldspan, a 25% owned
affiliate of TWA, for prior services and advances. The note pays interest
at maturity at a rate of prime plus 1% per annum and matures in 1999. The
note is secured by a pledge of TWA's partnership interest in Worldspan.
(l) At December 31, 1996, aggregate principal payments due for long-term debt
for the succeeding five years were as follows:
<TABLE>
<CAPTION>
(AMOUNTS IN
YEAR THOUSANDS)
---- -----------
<S> <C>
1997............................................ $92,447
1998............................................ 181,915
1999............................................ 95,990
2000............................................ 73,347
2001............................................ 201,558
</TABLE>
F-28
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
TWA discontinued, effective June 30, 1995, the accrual of interest on
prepetition debt that was unsecured or estimated to be undersecured through
the '95 Effective Date. Contractual interest expense for the eight months
ended August 31, 1995 was approximately $18.7 million in excess of reported
interest expense.
9. LEASES AND RELATED GUARANTEES:
Eighteen of the aircraft in the Company's fleet at December 31, 1996 were
leased under capital leases. The remaining lease periods for these aircraft
range from one to ten years. The Company has options and/or rights of first
refusal to purchase or re-lease most of such aircraft at market terms upon
termination of the lease. The Company has guaranteed repayment of certain of
the debt issued by the owner/lessor to finance some of the aircraft under
capital lease to the Company; however, the scheduled rental payments will
exceed the principal and interest payments required of the owner/lessor.
Aggregate annual rentals in 1997 will be approximately $42.3 million for the
18 aircraft held under capital leases.
One hundred twenty nine of the aircraft in TWA's fleet at December 31, 1996
were leased under operating leases. Other than seven leases on a month-to-
month basis, the remaining lease periods range from three months to 15 years.
Upon expiration of the current leases, TWA has the option to re-lease most of
such aircraft for specific terms and/or rentals with some of the renewal
options being subject to fair market rental rates.
Buildings and facilities leased under capital and operating leases are
primarily for airport terminals and air transportation support facilities.
Leases of equipment, other than flight equipment, include some of the
equipment at airports and maintenance facilities, flight simulators, computers
and other properties.
Pursuant to an agreement between the City of St. Louis and TWA in November
1993 (the "Asset Purchase Agreement"), the City of St. Louis waived a $5.3
million pre-petition claim and provided TWA with two installments of $24.7
million and $40 million pursuant to sale/leaseback transactions involving
certain of TWA's assets located at Lambert-St. Louis Airport and other
property and assets located in St. Louis including gates, terminal support
facilities at the airport, hangar/St. Louis Ground Operations Center complex,
Flight Training Center and equipment and tenant improvements at these various
St. Louis facilities.
Under the Asset Purchase Agreement, TWA leased back the properties involved
under a month-to-month agreement subject to automatic renewal so long as TWA
is not in default thereunder, such agreement having a term otherwise expiring
December 31, 2005. Such term is subject to early termination in the event of
certain events of default, including non-payment of rents, cessation of
service, or failure to relocate and maintain its corporate headquarters within
the City or County of St. Louis, or relocate and maintain a reservations
office within the City of St. Louis. Under the Asset Purchase Agreement, TWA
has the right to use 57 gates and terminal support facilities at Lambert-St.
Louis Airport. The City has certain rights of redesignation of TWA's gates in
the event TWA's flight activity at St. Louis is reduced below a threshold
level of 190 daily flight departures during any given monthly period. The
related leases are classified as capital leases for financial reporting
purposes.
The Company's acquisition of 11 new aircraft during 1982 and 1983, one
Lockheed L-1011 and ten Boeing 767s, created certain tax benefits that were
not of immediate value in the Company's federal income tax returns and,
therefore, such tax benefits were sold to outside parties under so-called
"Safe Harbor Leases" as permitted by IRS regulations. Pursuant to the sales
agreements, the Company is required to indemnify the several purchasers if the
tax benefits cannot be used because of circumstances within the control of the
Company. As of December 31, 1996, the Company's contingent indemnification
obligations in connection with the tax benefit transfers were collateralized
by bank letters of credit aggregating $11,510,000 for which the Company has
posted $11,510,000 in cash collateral to secure its reimbursement obligations
and the bank letters of credit. In addition, the Company has pledged
$7,413,000 in cash collateral to secure its obligation with respect to four of
the tax
F-29
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
benefit transfers and has pledged flight equipment having a net book value of
$23,359,000 to secure its obligation with respect to two of the tax benefit
transfers.
At December 31, 1996 future minimum lease payments for capital leases and
future minimum lease payments, net of sublease rentals of immaterial amounts,
for long-term leases, were as follows:
<TABLE>
<CAPTION>
MINIMUM LEASE PAYMENTS
-----------------------
CAPITAL OPERATING
LEASES LEASES
---------- ------------
YEAR
---- (AMOUNTS IN THOUSANDS)
<S> <C> <C>
1997................................................ $ 64,601 $ 302,811
1998................................................ 56,416 304,226
1999................................................ 52,664 303,802
2000................................................ 49,249 284,538
2001................................................ 45,008 265,714
Subsequent.......................................... 87,173 1,704,364
---------- ------------
Total............................................. 355,111 $ 3,165,455
============
Less imputed interest............................... 91,820
----------
Present value of capital leases..................... 263,291
Less current portion................................ 42,501
----------
Obligations under capital leases, less current
portion............................................ $ 220,790
==========
</TABLE>
Included in the Minimum Lease Payments for Operating Leases are increased
rental rates related to lessor financing of engine hush-kits for 21 aircraft
plus estimates of increased rentals for nine additional aircraft yet to be
financed. The estimated amounts assume an eight year extension of the
respective aircraft leases from date of hush-kit installation. Also included
in the Minimum Lease Payments for Operating Leases are rentals related to an
agreement entered into in 1996 providing for the lease of ten Boeing 757
aircraft, with delivery of the first aircraft in July 1996 and the final
aircraft in July 1997, as well as estimated rentals related to an agreement
entered into in 1996 for the lease of fifteen new and three used McDonnell
Douglas MD-83 aircraft, with delivery of the aircraft between February 1997
and April 1999.
10. MANDATORILY REDEEMABLE 12% PREFERRED STOCK:
Pursuant to the '95 Reorganization the Company issued 1,089,991 shares of
the 1,510,000 authorized shares of Mandatorily Redeemable 12% Preferred Stock
to the holders of the 8% Senior Secured Notes. The Mandatorily Redeemable 12%
Preferred Stock had an aggregate redemption value of approximately $109.0
million, was cumulative, and had an initial liquidation preference of $100 per
share. Commencing November 1995, dividends accrued at the rate of 12% of the
liquidation preference per share per annum, payable quarterly in arrears on
the first day of each February, May, August and November. Subject to certain
limitations, the dividends could be paid in Common Stock at the option of the
Company, and the Company elected to pay the February 1, 1996 dividend in
Common Stock and subsequently issued 317,145 shares. For purposes of
determining the number of shares of Common Stock to distribute, such Common
Stock was valued at 90% of the fair market value, based upon trading prices
for the twenty days prior to the record date for the dividend payment.
On March 22, 1996, the Company announced a call for redemption on April 26,
1996 (the "Redemption Date") of all of its issued and outstanding 12%
Preferred Stock at a redemption price per share equal to $75.00, plus accrued
dividends to and including the Redemption Date of $2.8667 per share. On April
26, 1996, the
F-30
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company paid an aggregate of $84.9 million in redemption of the 12% Preferred
Stock and payment of accrued dividends.
11. CAPITAL STOCK:
The Company has the authority to issue 300 million shares of capital stock,
consisting of 150 million shares of Common Stock, 12.5 million shares of
cumulative preferred stock and 137.5 million additional shares of preferred
stock. On the '95 Effective Date of the '95 Reorganization, TWA issued
approximately 17.2 million shares of Common Stock, 6.4 million shares of
Employee Preferred Stock (including approximately 1.7 million shares which are
attributable to ALPA represented employees, see Note 12), Equity Rights for
the purchase of approximately 13.2 million shares of Common Stock, warrants
for the purchase of approximately 1.7 million shares of Common Stock
exercisable over a seven year period at $14.40 per share (the "Seven Year
Warrants"), warrants for the purchase of up to 1.15 million shares of Common
Stock (for nominal consideration), and $109.0 million aggregate liquidation
value of Mandatorily Redeemable 12% Preferred Stock (the "12% Preferred
Stock"). In addition, each of the 12.5 million shares of the then existing
preferred stock were converted into, and holders received, 0.1024 shares of
Common Stock, 0.0512 Equity Rights and 0.1180 Seven Year Warrants. Holders of
then existing common stock, other than shares held by trusts for employees,
received 0.0213 shares of Common Stock, 0.0107 Equity Rights and 0.0246 Seven
Year Warrants.
In October 1995, TWA received approximately $55.3 million in gross proceeds
from the exercise of 13,206,247 Equity Rights and issued 13,206,247 shares of
Common Stock. The Company paid a fee of approximately $3.4 million in
September to certain standby purchasers of shares covered by the Equity
Rights.
TWA subsequently issued 2.07 million additional shares of Common Stock to
previous holders of TWA's 10% Senior Secured Notes based upon the trading
prices of securities distributed pursuant to the '95 Reorganization.
The Employee Preferred Stock is the functional equivalent of Common Stock
except for an exclusive right to elect a certain number of directors to the
Board of Directors and its liquidation preference of $0.01 per share. Employee
Preferred Stock does not have redemption rights. Each share will automatically
convert into one share of Common Stock upon the withdrawal of such share from
the employee stock trust in which such share is held.
There were 1,742,922 and 1,746,874 Seven Year Warrants outstanding at
December 31, 1996 and 1995, respectively. All warrants to purchase shares of
Common stock for nominal consideration had been exercised at December 31,
1996.
In March 1996, the Company completed an offering, pursuant to Rule 144A of
the Securities Act of 1933 (the "Act"), of 3,869,000 shares of its 8%
Preferred Stock, with a liquidation preference of $50 per share. Each share of
the 8% Preferred Stock 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 (equivalent to a conversion rate of
approximately 2.467 shares of Common Stock for each share of 8% Preferred
Stock), subject to adjustment.
The 8% Preferred Stock may not be redeemed prior to March 15, 1999. On or
after March 15, 1999, the 8% Preferred Stock may be redeemed, in whole or in
part, at the option of the Company, at specified redemption prices. The 8%
Preferred Stock may be exchanged, in whole but not in part, at the option of
the Company, for the Company's 8% Convertible Subordinated Debentures Due 2006
(the "Debentures") on any dividend payment date beginning March 15, 1998 at
the rate of $50 principal amount of Debentures for each share of 8% Preferred
Stock outstanding at the time of exchange; provided that all accrued and
unpaid dividends, whether or not earned or declared, on the 8% Preferred Stock
to the date of exchange have been paid or set aside for payment
F-31
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and certain other conditions are met. Pursuant to the registration rights
agreement between the Company and the initial purchases of the 8% Preferred
Stock, the Company was obligated to register resales of the 8% Preferred
Stock, the Debentures, and the underlying shares of Common Stock issuable upon
conversion thereof. In addition, the Company must use its best efforts to keep
the shelf registration effective until March 22, 1999. If the shelf
registration does not remain effective until such date, the Company may be
required to pay liquidated damages in amounts of up to $0.0125 per week per
share of 8% Preferred Stock.
In December 1995, the Company adopted a Shareholders Rights Plan. Each
holder of Common Stock or Employee Preferred Stock received a dividend of one
right for each share, entitling the holder to buy one one- hundredth of a
share of a new series of preferred stock at a purchase price of $47.50. The
rights may become exercisable only under certain conditions whereby certain
persons (as defined) become the owner of or commence a tender offer for
certain specified percentages of TWA's voting stock and may be redeemed by TWA
at $0.01 per right prior to such time. In the event the rights become
exercisable, holders would be entitled to receive, without payment of a
purchase price, additional shares of Common Stock or be entitled to purchase
Common Stock having a market value of twice the purchase price.
12. EARNED STOCK COMPENSATION:
Pursuant to the '94 Labor Agreements and '95 Reorganization, on the '95
Effective Date, approximately 4.7 million shares of Employee Preferred Stock
and 1.0 million shares of Common Stock were distributed and allocated to
employees through employee stock ownership plans for the benefit of union
(other than the ALPA represented employees) and noncontract employees,
respectively. The distribution of these shares resulted in a charge to
operations in the eight months ended August 31, 1995 of $43.2 million, based
upon the market price of TWA's Common Stock at the time.
Additionally, a "Rabbi Trust" was established to receive the distribution of
approximately 1.7 million shares of Employee Preferred Stock attributable to
ALPA represented employees. The Rabbi Trust will distribute to an employee
benefit plan (the "ESOP") one-third of the shares annually beginning August
1995, subject to certain conditions. Accordingly, operating results for 1996,
the four months ended December 31, 1995 and the eight months ended August 31,
1995 include charges of approximately $6.9 million, $2.0 million and $5.1
million, respectively, representing the value of shares allocated and shares
earned, but unallocated, for such periods, based upon the market price of
TWA's Common Stock. The charge to earnings for shares to be allocated to ALPA
represented employees in the future will be based upon the value of the shares
at that time. Accordingly, material changes in this non-cash charge may occur
in periods prior to the allocation of the shares and such changes may be
unrelated to the Company's operating performance during such periods.
Operating results for the eight months ended August 31, 1995 include a non-
cash charge of approximately $8.0 million, representing the excess of the fair
market value of the shares distributed to employees over the purchase price
paid for shares which were sold to employees pursuant to the Equity Rights
offering.
Also pursuant to the '94 Labor Agreements and the '95 Reorganization, the
Company has adopted a seven year employee stock incentive program (the "ESIP")
pursuant to which TWA will grant its union and non- union employees additional
shares of Employee Preferred Stock and Common Stock (the "Incentive Shares"),
respectively, and such employees will be entitled to purchase additional
shares of such stock under certain circumstances through an employee stock
purchase arrangement. The ESIP has been designed to enable TWA's employees to
increase their level of ownership from 30% to 40% of the combined total number
of outstanding Common Stock and Employee Preferred Stock over the seven year
period.
The first stock grant under the ESIP is to be made on July 15, 1997 in an
amount that would increase the level of employee ownership by 2% of the
combined total number of then outstanding shares of Common Stock
F-32
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and Employee Preferred if the closing price of the Common Stock exceeds a
target price of $11.00 per share following January 1, 1997 or would be made on
any date thereafter if the price of the Common Stock exceeds such target
price. In subsequent years through the end of the seven year term of the ESIP,
the increase in the number of shares of Employee Preferred Stock to be granted
under this program would be equivalent to 1.5% in 1998, 1.5% in 1999, 1.0% in
2000, 1.0% in 2001 and 1.0% in 2002 of the combined total number of shares of
Common Stock and Employee Preferred Stock, and the target prices would
increase to $12.10 in 1998, $13.31 in 1999, $14.64 in 2000, $16.11 in 2001 and
$17.72 in 2002. If TWA issues additional shares of Common Stock with an
aggregate value of more then $20 million to third parties for cash or a
reduction in debt at a price equal to or greater then $11.00 per share, the
last two scheduled installments of the ESIP would be aggregated and these
shares allocated equally to the remaining installments in the program. In
addition, pursuant to the ESIP, employees would have the right after July 15,
1997, to purchase over the seven year term of the ESIP additional shares of
Employee Preferred Stock in amounts up to an aggregate of 2% of the combined
total number of outstanding Common Stock and Employee Preferred Stock at a
discount of 20% from the market price. The employees' right to purchase
additional shares of Employee Preferred Stock would be accelerated and become
immediately exercisable if there is a merger, sale or consolidation of TWA
(where TWA is not the surviving entity) at a merger, sale or consolidation
price equivalent to or in excess of $17.72 per share of Common Stock at a 20%
discount from the merger, sale or consolidation price relating to such a
transaction.
The percentage of employee ownership could decline below 30% in the event
the Company issues additional Common Stock to third parties for cash or
property or in lieu of cash payments on the 12% Senior Secured Reset Notes. To
the extent that as a result of the sale for cash of additional capital stock,
the percentage of employee ownership of the combined total number of shares of
Common Stock and Employee Preferred Stock declines below a level equal to the
Adjusted Maximum Percentage (as defined below) minus eight percentage points
plus the percentage equivalent to any Incentive Shares already issued, one-
quarter of the difference between the new percentage of employee ownership and
the level just determined (but in no event greater than 1% in each year) times
the combined total number of shares of Common Stock and Employee Preferred
Stock outstanding would be added to the amount of Employee Preferred Stock to
union employees and Common Stock to non-union employees to be issued under the
ESIP in each of the years 1999 through 2002 assuming the target prices are met
in each of such years.
In the event of a merger, sale or consolidation of TWA where TWA is not the
surviving entity, TWA would issue to employees at or prior to the consummation
of such a transaction: (i) a number of shares of Employee Preferred Stock and
Common Stock to which the employees would have otherwise been entitled under
the ESIP during its seven year term assuming the trading price of the Common
Stock during such term was the merger, sale or consolidation price, provided,
that if the merger, sale or consolidation price falls between two target
prices, the number of shares to be issued will be based on an interpolation
between the target prices, (ii) if the employee ownership percentage is less
than 35% of the combined total number of outstanding shares of Common Stock
and Employee Preferred Stock, a number of shares of Employee Preferred Stock
and Common Stock equal to the difference between the number of shares already
distributed under the ESIP and a number of shares equivalent to 2.0%, 3.5% or
5.0%, respectively, of the then combined total number of outstanding Common
Stock and Employee Preferred Stock depending on the merger, sale or
consolidation price, but in no event shall shares issued pursuant to this
paragraph increase the employee ownership percentage above 35%, or (iii) if,
following the issuance by the Company of additional shares of Common Stock to
third parties for cash or property equal to 1% of the number of shares of
Common Stock outstanding immediately following the Restructuring and the
employee ownership percentage is below the lesser of 35% and the Adjusted
Maximum Percentage, TWA shall at the option of each employee effect an
immediate cash contribution to the employee's respective pension plan or make
an immediate cash payment to each employee equal to an amount determined as
the number of shares necessary to increase the employee ownership percentage
to the lesser of 35% and the Adjusted Maximum Percentage of the merger, sale
or consolidation price. The Adjusted Maximum Percentage is
F-33
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
defined to mean a level of the percentage of employee ownership following a
reduction below 38% but to no lower than 30% in a manner proportionate to the
aggregate proceeds, if any, received from the issuance of additional Common
Stock to third parties for cash or property up to $200 million.
The ESIP also provides that if additional shares are distributed following
the '95 Effective Date in respect of the '95 Reorganization, employees will be
entitled to receive an additional number of shares of Common Stock and
Employee Preferred Stock such that the employees will retain the same level of
ownership. Pursuant to the '95 Reorganization, TWA issued 2,069,898 shares of
common stock as conditional consideration to the 12% Senior Secured Notes.
Union representatives and the Company have tentatively agreed that the number
of "Fill-Up Shares" to be issued pursuant to the ESIP is approximately
932,000. Under the agreement, approximately 526,000 shares will be distributed
immediately (the "Initial Fill-Up Shares") and the remaining shares (the
"Credit Shares") will be issued in July of 1997 if the 1997 target price is
not met. If the 1997 ESIP target price is not met, the Credit Shares
distributed may be used as a credit against future grants under the ESIP. TWA
will record a charge in 1997 for the fair value of the Initial Fill-Up Shares
as of the date those shares are distributed. The issuance of the Fill-Up
Shares is subject to approval by the Company's Board of Directors. The number
of shares of Employee Preferred Stock outstanding at December 31, 1996 does
not reflect any such additional shares. 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 a 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, based on
the number of Common Stock and Employee Preferred Stock outstanding at
December 31, 1996 (including Initial Fill-Up Shares) and excluding the impact
of any merger, sale or consolidation of TWA, would be approximately $58
million. The charge for any year, however, could be substantially higher if
the market prices of the Common Stock exceed the respective yearly target
prices.
13. STOCK OPTION PLANS:
The Company's 1994 Key Employee Incentive Stock Plan (the "KESIP"), as
amended, provides for the award of incentive and nonqualified stock options
for up to 7% of the Common Stock and Employee Preferred Stock outstanding as
of the start of each fiscal year (approximately 3.4 million shares at January
1, 1997). Options granted under the KESIP have a five year life after the
final vesting period and vest at the rate of 34% upon the first anniversary of
the award date, 33% upon the second and 33% upon the third anniversary of the
award date. Unvested shares are subject to forfeiture under certain
circumstances.
A summary of the Company's outstanding stock options as of December 31, 1996
and 1995, and changes during the years ended on those dates is presented
below:
<TABLE>
<CAPTION>
1996 1995
------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year....................... 2,228,000 $4.68 1,398,576 $4.64
Granted..................... 453,000 11.65 829,424 4.74
Exercised................... (191,316) 4.64 -- --
Forfeited................... (463,300) 7.43 -- --
--------- ---------
Outstanding at end of year 2,026,384 $5.61 2,228,000 $4.68
========= =========
Options exercisable at year-
end........................ 1,307,530 475,516
Weighted average fair value
of options granted during
the year................... $ 6.79 $ 3.03
</TABLE>
F-34
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The per share weighted average fair value of options granted during 1996 and
1995 were estimated using the Black Scholes option pricing model assuming
risk-free interest rates of 6.6% and 6.0% in 1996 and 1995, respectively, an
expected volatility factor of 85% and an expected life of three years.
The following table summarizes information about fixed stock options at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ----------------------------
RANGE NUMBER WEIGHTED-AVERAGE NUMBER
OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 4.64 to 6.78......... 1,757,184 3.0 years $4.64 1,255,850 $4.64
7.06 to 8.12......... 20,000 3.8 years 7.95 6,800 7.95
10.62 to 15.81......... 238,100 7.4 years 11.97 39,780 10.64
16.25 to 18.37......... 11,100 4.3 years 17.85 5,100 18.37
--------- ---------
$ 4.64 to 18.37......... 2,026,384 1,307,530
========= =========
</TABLE>
As permitted under Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company applies
APB Opinion No. 25 and related Interpretations in accounting for its plans.
However, pro forma disclosures as if the Company adopted the fair value based
method of measurement for stock-based compensation plans under SFAS 123 in
1996 and 1995 are presented below.
Had compensation cost for the Company's grants for stock-based compensation
plans been determined using the fair value method under SFAS No. 123, the
Company's net loss pro forma, and net loss per common share for 1996 and 1995
would approximate the amounts below (in millions except per share data):
<TABLE>
<CAPTION>
YEAR ENDED FOUR MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- ---------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net loss........................... (284,815) (285,716) (30,138) (30,350)
Net loss per common share.......... (7.27) (7.30) (1.05) (1.06)
</TABLE>
The pro forma amounts do not give any effect to options granted prior to
January 1, 1995.
Operating results include charges of $2.2 million, $0.02 million and $0.02
million for the year ended December 31, 1996, the eight months ended August
31, 1995 and the four months ended December 31, 1995, respectively, to reflect
the excess of the market price of TWA's common stock on the date of grant over
the exercise price, over the vesting period. The 1996 charge includes $1.8
million in respect to the accelerated vesting of certain awards in connection
with the severance of certain officers.
14. EXTRAORDINARY ITEMS:
In 1996, the Company consummated a series of privately negotiated exchanges
with a significant holder of the 12% Senior Secured Reset Notes which resulted
in the return to the Company of approximately $45.3 million in 12% Senior
Secured Reset Notes and approximately $1.5 million in accrued interest thereon
in exchange for the issuance of approximately 4.5 million shares of Company
Common Stock. As a result of the exchange of the 12% Senior Secured Notes, the
Company recorded an extraordinary non-cash charge of $8.2 million representing
the difference between the fair value of the common stock issued (based upon
the trading price of the Company's common stock on the dates of exchanges) and
the carrying value of the Senior Secured Reset Notes retired.
F-35
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1996, the Company recorded an extraordinary charge of approximately
$1.6 million due to the early extinguishment of a portion of the PBGC Notes as
a result of Karabu applying approximately $6.4 million in ticket proceeds as
prepayments on the PBGC Notes.
The extraordinary gain recorded in the four months ended December 31, 1995
was due to the cancellation of debt as a result of a settlement between Trans
World Express, Inc. ("TWE"), a subsidiary, and an aircraft lessor. The
extraordinary gain recorded in the eight months ended August 31, 1995 was for
the discharge of indebtedness pursuant to the Company's '95 Reorganization.
The extraordinary charge recorded in 1994 was for a prepayment premium of
approximately $2.0 million related to the sale and lease back of four
McDonnell Douglas MD-80 aircraft.
15. DISPOSITION OF ASSETS:
Disposition of assets resulted in net losses of approximately $1,135,000 and
$206,000 during 1996 and for the eight months ended August 31, 1995,
respectively, and net gains of $3,330,000 and $1,072,000 for the four months
ended December 31, 1995 and during 1994, respectively.
In 1996, TWA recorded a gain of approximately $8.0 million in connection
with the hull insurance settlement for the aircraft destroyed in the Flight
800 incident. The gain was offset by a loss of $8.3 million on the sale of
expendable aircraft parts and losses on other miscellaneous dispositions.
In November 1995, TWA entered into an agreement to sublease certain of TWA's
leased commissary facilities in Los Angeles. As part of this agreement, TWA
sold its commissary furnishings and equipment, resulting in a gain of $2.0
million.
The 1994 net gain included a gain of approximately $1.3 million on the
divestiture of three subsidiaries, Midcoast Aviation, Inc., Travel Marketing
Services, Inc. and World Marketing Services, Inc.
16. SPECIAL CHARGES AND OTHER NONRECURRING ITEMS:
The 1996 operating loss includes an aggregate of approximately $85.9 million
in special charges and nonrecurring items, primarily as follows: (i)
approximately $26.7 million to reflect the write-off of the carrying value of
TWA's New York-Athens route authority over which TWA has elected to
discontinue service, (ii) approximately $53.7 million to reflect the reduction
in carrying value of TWA's owned L-1011 and B-747 aircraft and related spare
parts which are expected to be retired from service over the next year and
(iii) approximately $5.5 million for employee severance liabilities related to
the termination of service to Athens and Frankfurt. The write-down of owned
aircraft and related spare parts was based upon managements estimates of the
net proceeds to be received upon the disposition of these assets.
Additionally, the Company has obligations under operating leases for B-747
aircraft aggregating approximately $50 million over the next seven years.
Management currently estimates that it will be able to recover substantially
all of these costs pursuant to subleases of these aircraft and, accordingly,
no provision has been made for any such costs at this time. Management's
estimates relative to the costs of the retirement of the L-1011 and B-747
fleets and related spare parts are based upon current market conditions,
preliminary discussions with interested parties and other factors. The actual
costs could differ materially from the current estimates.
The operating income for the eight months ended August 31, 1995, includes a
special charge of $1.7 million for shut-down related expenses of TWE.
The 1994 operating loss includes an aggregate of $175.1 million in costs
associated with special charges and nonrecurring items as further described
below.
F-36
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In the fourth quarter of 1994, TWA recorded a charge of $36.3 million to
salaries, wages and benefits to reflect the estimated portion of the
obligation earned to date for payments due to employees represented by the IAM
for overtime savings in excess of certain targeted levels established in the
'92 Labor Agreement (see Note 7).
During 1994, TWA undertook several strategic operational initiatives to
improve its competitiveness and reduce its cost structure. Special charges
recorded in 1994 include the following principal components: (i) approximately
$61 million to reflect the write-off of the carrying value of certain
international route authorities which were no longer expected to be utilized
in connection with the restructuring of such operations, (ii) approximately
$34 million to reflect the write-off of pre-delivery payments and related
capitalized interest for certain aircraft on order (also see Note 18--Aircraft
Commitments), (iii) approximately $24 million to reflect the reduction in the
carrying value of certain owned aircraft and spare parts which, under the
Company's fleet plan, were expected to be retired and sold and (iv)
approximately $15 million for furlough pay and severance costs related to
reduction in the number of employees.
17. OTHER CHARGES AND CREDITS:
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------- -------------------------
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ------------ ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Expenses associated with the restructuring of debt and flight equipment
leases.................................................................. -- 3,000 11,000 11,100
Provisions for losses resulting from claims and litigation judgments
against TWA............................................................. 235 26 351 200
Foreign currency transaction (gains) losses-net.......................... (642) 1,156 384 (1,941)
Finance charge income earned on receivables carried by TWA............... (8,030) (2,662) (6,198) (9,557)
Credits related to settlement of various contract disputes, litigation
and other matters....................................................... (2,500) -- -- --
Equity in (earnings)/losses of TWA's investment in Worldspan............. (11,919) 11,535 (3,607) 3,616
Miscellaneous other nonoperating charges (credits)-net (a)............... (7,742) (5,444) (4,309) (32,265)
-------- ------ ------- --------
Total Other Charges and Credits.......................................... $(30,598) $7,611 $(2,379) $(28,847)
- --------------------------------------------------
======== ====== ======= ========
</TABLE>
- --------
(a) The amount for 1994 includes certain nonrecurring income amounts
aggregating approximately $21.1 million relating to the reduction of
certain liabilities established on the '93 Effective Date (also see Note
20-Supplemental Financial Information (Unaudited)).
18. AIRCRAFT COMMITMENTS:
TWA has entered into agreements with AVSA, S.A.R.L. and Rolls-Royce plc
relating to the purchase of ten A330-300 twin-engine wide body aircraft and
related engines, spare parts and equipment for an aggregate purchase price of
approximately $1.1 billion. The agreements, as amended, require the delivery
of the aircraft in 1999 and 2000 and provide for the purchase of up to ten
additional aircraft. TWA has not yet made arrangements
F-37
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for the permanent financing of the purchases subject to the agreements. In the
event of cancellation, predelivery payments of approximately $18 million would
be subject to forfeiture.
During 1996 TWA entered into a purchase agreement with the Boeing Company
relating to the purchase of ten Boeing Model 757-231 aircraft and related
engines, spare parts and equipment for an aggregate purchase price of
approximately $500 million. The agreement requires the delivery of the
aircraft in 1997, 1998 and 1999, and provides for the purchase of up to ten
additional aircraft. Furthermore, to the extent TWA exercises its options for
additional aircraft, the Company will have the right to an equal number of
additional option aircraft. TWA has obtained commitments for debt financing
for approximately 80% of the total costs associated with the acquisition of
eight of the original ten aircraft and obtained commitments for 100% of the
total costs of the remaining two original aircraft. Such commitments are
subject to the lender's and lessor's ongoing evaluation of the financial
condition of TWA.
Required future expenditures under the purchase agreements described above,
including an estimate of price escalation as defined in the subject agreements
and exclusive of secured financing, are as follows (amounts in millions):
<TABLE>
<CAPTION>
AVSA BOEING
----- ------
<S> <C> <C>
1997.......................................................... 49.1 248.5
1998.......................................................... 49.8 97.0
1999.......................................................... 515.4 143.0
2000.......................................................... 532.5 --
</TABLE>
19. FRESH START REPORTING:
Pursuant to SOP 90-7, TWA adopted fresh start reporting which has resulted
in the creation of a new reporting entity and the Company's assets and
liabilities being adjusted to reflect fair values on the '95 Effective Date.
For accounting purposes, the '95 Effective Date was deemed to be September 1,
1995. In the fresh start reporting, an aggregate value of $270 million was
assigned to TWA's Common Stock and Employee Preferred Stock. These values were
established by management with the assistance of its financial advisors. These
valuations considered TWA's expected future performance, relevant industry and
economic conditions, and analyses and comparisons with comparable companies.
The reorganization value of TWA has been allocated to the Reorganized
Company's assets and liabilities in a manner similar to the purchase method of
accounting for a business combination. Management obtained valuations from
independent third parties which, along with other market and related
information and analyses, were utilized in assigning fair values to assets and
liabilities. A summary of the impact of the '95 Reorganization and the related
fresh start adjustments is presented below. The fresh start adjustments
resulted in, among other things, the allocation of substantial amounts to
reorganization value in excess of amounts allocable to identifiable assets,
the amortization of which, while not requiring the use of cash, will
significantly affect future operating results.
F-38
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the impact of the '95 Reorganization Plan and the related fresh
start adjustments is presented below (amounts in thousands).
<TABLE>
<CAPTION>
SEPTEMBER 1, 1995
-------------------------------------------------------------------
PREDECESSOR DEBT FRESH START OTHER REORGANIZED
COMPANY DISCHARGE(A) ADJUSTMENTS(B) ADJUSTMENTS(C) COMPANY
----------- ------------ -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents........... $ 239,796 $ -- $ -- $ -- $ 239,796
Receivables............ 297,022 (1,449) -- -- 295,573
Spare parts, materials
and supplies.......... 146,191 -- -- -- 146,191
Prepaid expenses and
other................. 60,947 -- -- -- 60,947
---------- --------- ---------- --------- ----------
Total Current Assets.. 743,956 (1,449) -- -- 742,507
---------- --------- ---------- --------- ----------
Property and Equipment.. 631,087 -- (24,239) -- 606,848
---------- --------- ---------- --------- ----------
Other Assets:
Investment in
affiliated companies.. 110,325 -- -- -- 110,325
Other investments and
receivables........... 163,715 -- -- -- 163,715
Routes, gates and
slots................. 737,171 -- (278,722) -- 458,449
Reorganization value in
excess of amounts
allocable to
identifiable assets... 153,840 -- -- 685,224 839,064
Other assets........... 28,531 -- ( 9,392) -- 19,139
---------- --------- ---------- --------- ----------
Total Other............ 1,193,582 -- (288,114) 685,224 1,590,692
---------- --------- ---------- --------- ----------
Total................... $2,568,625 $ (1,449) $ (312,353) $ 685,224 $2,940,047
========== ========= ========== ========= ==========
Current Liabilities:
Current maturities of
long-term debt........ $ 472,510 $(404,665) $ -- $ -- $ 67,845
Current obligations
under capital leases.. 42,643 -- (647) -- 41,996
Advance ticket sales... 253,642 -- -- -- 253,642
Accounts payable and
other accrued
expenses.............. 518,030 24,466 3,739 -- 546,235
---------- --------- ---------- --------- ----------
Total.................. 1,286,825 (380,199) 3,092 -- 909,718
---------- --------- ---------- --------- ----------
Liabilities Subject To
Chapter 11
Reorganization
Proceedings............ 748,855 (748,855) -- -- --
---------- --------- ---------- --------- ----------
Noncurrent Liabilities
and Deferred Credits:
Long-term debt, less
current maturities.... -- 765,435 -- -- 765,435
Obligations under
capital leases, less
current obligations... 317,196 -- (42,440) -- 274,756
Other noncurrent
liabilities and
deferred credits...... 673,428 18,612 (30,762) -- 661,278
---------- --------- ---------- --------- ----------
Total.................. 990,624 784,047 (73,202) -- 1,701,469
---------- --------- ---------- --------- ----------
Redeemable Preferred
Stock.................. -- 58,860 -- -- 58,860
---------- --------- ---------- --------- ----------
Shareholders' Equity
(Deficiency):
Old Preferred Stock.... 125 -- -- (125) --
Old Common Stock....... 200 -- -- (200) --
Employee Preferred
Stock................. -- -- -- 53 53
New Common Stock....... -- -- -- 172 172
Additional paid-in
capital............... 161,692 143,800 -- (35,717) 269,775
Accumulated Deficit.... (619,696) 140,898 (242,243) 721,041 --
---------- --------- ---------- --------- ----------
Total.................. (457,679) 284,698 (242,243) 685,224 270,000
---------- --------- ---------- --------- ----------
Total................... $2,568,625 $ (1,449) $ (312,353) $ 685,224 $2,940,047
========== ========= ========== ========= ==========
</TABLE>
- --------
(a) To record the discharge of indebtedness pursuant to the '95 Reorganization
and reclassification of debt between current and non-current based upon
its revised terms. Debt securities, Mandatorily Redeemable 12% Preferred
Stock, Ticket Vouchers and Contingent Payment Rights issued pursuant to
the '95 Reorganization have been recorded at their estimated fair values.
The excess of indebtedness eliminated
F-39
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
over the fair value of securities issued in settlement of those claims,
approximately $140.9 million, is reflected as an extraordinary item in the
eight months ended August 31, 1995.
(b) To record adjustments to reflect assets and liabilities at fair values.
The adjustments to record the fair values of assets and liabilities
resulted in a nonrecurring charge to reorganization items of approximately
$228.8 million in the eight months ended August 31, 1995. Charges to
reorganization items were recorded for various fees and expenses related
to the consummation of the '95 Plan aggregating approximately $13.4
million. Significant elements of the adjustments to record the fair value
of assets and liabilities are summarized below:
--Adjustments to reflect the fair value of owned property and equipment
under capital leases.
--Adjustments to reflect the fair value of TWA's international route
authorities, take-off and landing time slots and airport gate leaseholds.
--Adjustments to record the present value of the liabilities for
postretirement medical and life insurance benefits and certain foreign
pension plans to reflect the current postretirement benefit obligation and
projected benefit obligation, respectively, utilizing current discount
rates.
--An adjustment to reduce deferred income taxes to reflect the impact of
the preceding adjustments.
(c) To record adjustments to reflect the elimination of the remaining deficit
in shareholders' equity after the adjustments arising from (a) and (b)
above and to reflect the associated reorganization value in excess of
amounts allocable to identifiable assets.
F-40
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED):
Selected consolidated financial data (unaudited) for each quarter within 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- -------- ---------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
REORGANIZED COMPANY
YEAR ENDED DECEMBER 31, 1996
Operating revenues.............. $ 782,433 $965,808 $1,002,867 $ 803,299
========= ======== ========== =========
Special charges (note 16)....... $ -- $ -- $ -- $ 85,915
========= ======== ========== =========
Operating income (loss)......... $ (54,191) $ 62,028 $ 26,019 $(232,383)
========= ======== ========== =========
Disposition of assets, gains
(losses)--net.................. $ (214) $ 239 $ (87) $ (1,073)
========= ======== ========== =========
Income (loss) before
extraordinary item............. $ (37,107) $ 25,262 $ (6,905) $(256,277)
========= ======== ========== =========
Extraordinary items............. $ -- $ -- $ (7,420) $ (2,368)
========= ======== ========== =========
Net income (loss)............... $ (37,107) $ 25,262 $ (14,325) $(258,645)
========= ======== ========== =========
Per share amounts:
Earnings (loss) before
extraordinary items and
special dividend requirements. $ (.98) $ .46 $ (.24) $ (5.51)
========= ======== ========== =========
Extraordinary items and special
dividend requirements......... $ (.48) $ -- $ (.16) $ (.05)
========= ======== ========== =========
Net income (loss).............. $ (1.46) $ .46 $ (.40) $ (5.56)
========= ======== ========== =========
REORGANIZED COMPANY
FOUR MONTHS ENDED DECEMBER 31,
1995
Operating revenues.............. $ -- $ -- $ 293,890 (a) $ 804,584
========= ======== ========== =========
Operating income................ $ -- $ -- $ 9,308 (a) $ 1,138
========= ======== ========== =========
Disposition of assets, gains
(losses)--net.................. $ -- $ -- $ (50)(a) $ 3,380
========= ======== ========== =========
Loss before extraordinary item.. $ -- $ -- $ (2,347)(a) $ (31,291)
========= ======== ========== =========
Extraordinary items............. $ -- $ -- $ -- (a) $ 3,500
========= ======== ========== =========
Net loss........................ $ -- $ -- $ (2,347)(a) $ (27,791)
========= ======== ========== =========
Per share amounts:
Loss before extraordinary
items......................... $ -- $ -- $ (.16)(a) $ (.93)
========= ======== ========== =========
Extraordinary item............. $ -- $ -- $ -- (a) $ .09
========= ======== ========== =========
Net loss....................... $ -- $ -- $ (.16)(a) $ (.84)
========= ======== ========== =========
PREDECESSOR COMPANY
EIGHT MONTHS ENDED AUGUST 31,
1995
Operating revenues.............. $ 692,320 $860,506 $ 665,529 (b) $ --
========= ======== ========== =========
Special charges (note 16)....... $ -- $ -- $ 1,730 (b) $ --
========= ======== ========== =========
Operating income (loss)......... $ (76,261) $ 54,382 $ 36,521 (b) $ --
========= ======== ========== =========
Reorganization items............ $ -- $ -- $ 242,243 (b) $ --
========= ======== ========== =========
Disposition of assets, gains
(losses)--net.................. $ (271) $ (67) $ 132 (b) $ --
========= ======== ========== =========
Income (loss) before
extraordinary item............. $(122,795) $ 5,168 $ (220,586)(b) $ --
========= ======== ========== =========
Extraordinary items............. $ -- $ -- $ 140,898 (b) $ --
========= ======== ========== =========
Net income (loss)............... $(122,795) $ 5,168 $ (79,688)(b) $ --
========= ======== ========== =========
</TABLE>
- --------
(a) One month ended September 30, 1995
(b) Two months ended August 31, 1995
F-41
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The results for each period include all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods.
The consolidated financial results on an interim basis are not necessarily
indicative of future financial results on either an interim or annual basis.
TWA's air transportation business is highly seasonal with the second and third
quarters of the calendar year historically producing substantially better
operating results than the first and fourth quarters.
The results for the fourth quarter of 1996 includes an adjustment to reduce
aircraft fuel and oil costs by approximately $8.8 million, as a result of
federal fuel excise taxes paid which are expected to be refunded to the
Company.
The results for the fourth quarter of 1995 include several adjustments to
operating expenses to reflect changes in estimates, including a reduction in
passenger sales commissions of approximately $6.7 million and a reduction in
employee benefits and workers compensation costs of $6.2 million.
21. FOREIGN OPERATIONS:
TWA conducts operations in various foreign countries, principally in Europe
and the Middle East. Operating revenues from foreign operations were
approximately $719.2 million in the year ended December 31, 1996, $228.7
million in the four months ended December 31, 1995, $474.4 million in the
eight months ended August 31, 1995 and $794.1 million in the year ended
December 31, 1994.
22. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments"
requires disclosures with regards to fair values of all financial instruments,
whether recognized or not recognized in the balance sheet, subject to certain
exceptions. Solely for purposes of complying with this accounting standard,
the Company has estimated the fair value of certain of its financial
instruments, as further described below. Because no market exists for a
significant portion of TWA's financial instruments, fair value estimates
provided below are based on judgments regarding current economic conditions,
risk characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates. The
discussion of financial instruments below conforms with the presentation in
the Consolidated Balance Sheet and relates to the amounts at December 31, 1996
and 1995.
(a) Cash, cash equivalents and receivables: The carrying amounts of these
assets is estimated to approximate fair value due to the generally short
maturities of these instruments.
(b) Other investments and receivables: The carrying amount of these assets are
estimated to approximate fair value due to the generally short maturities
of the underlying instruments which are, however, classified as long-term
assets because TWA's ability to access these amounts is generally
restricted by contractual provisions.
(c) Accounts payable and other accrued liabilities: The carrying amount of
these liabilities are estimated to approximate fair value due to the
generally short maturities of these instruments.
(d) Debt: At December 31, 1996 and December 31, 1995, approximately $111.8
million and $145.2 million, respectively, of the carrying value of TWA's
debt was traded publicly. The aggregate market value of such debt was
approximately $126.0 million and $160.4 million on those dates,
respectively. The Company
F-42
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
believes the fair value of the remaining debt which had an aggregate
carrying value of approximately $589.1 million and $686.4 million at
December 31, 1996 and 1995, respectively, was approximately $466.4 million
and $644.5 million on those dates.
(e) Mandatorily Redeemable 12% Preferred Stock: At December 31, 1995 the
carrying value of TWA's Mandatorily Redeemable 12% Preferred Stock was
$61.4 million. The aggregate market value of such stock was approximately
$74.1 million on that date.
F-43
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COM-
PANY. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL CON-
STITUTES AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR ANY SALE MADE HEREUN-
DER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN 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.
UNTIL , 199 , ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION THE OBLIGATIONS OF DEALERS TO DELIVER A PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OF SUBSCRIPTIONS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 3
Forward-Looking Statements................................................ 3
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 23
The Exchange Offer........................................................ 23
The Company............................................................... 31
Market for Common Stock and Dividend Policy............................... 38
Capitalization............................................................ 39
Selected Consolidated Financial Data...................................... 40
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 42
Business.................................................................. 56
Management................................................................ 68
Principal Holders of Capital Stock........................................ 71
Description of Notes...................................................... 73
Book-Entry, Delivery and Form............................................. 84
Certain Federal Income Tax Considerations................................. 87
Plan of Distribution...................................................... 92
Legal Matters............................................................. 92
Experts................................................................... 92
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TRANS WORLD AIRLINES, INC.
OFFER TO EXCHANGE ITS
12% SENIOR SECURED NOTES DUE 2002
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
12% SENIOR SECURED NOTES DUE 2002
---------------
PROSPECTUS
---------------
---------------
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
<TABLE>
<S> <C>
SEC registration fee.............................................. $5,051
Accounting fees................................................... *
Legal fees........................................................ *
Qualification under state securities laws......................... *
Miscellaneous..................................................... *
------
TOTAL........................................................... $ *
======
</TABLE>
- --------
* To be filed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, directors, offices, employees and other individuals may be
indemnified against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than a derivative action) if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of TWA and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. A similar standard of care is applicable
in the case of a derivative action, except that indemnification only extends
to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such an action, and the DGCL requires court approval
before there can be any indemnification of expenses where the person seeking
indemnification has been found liable to TWA.
The eleventh article of TWA's Third Amended and Restated Certificate of
Incorporation ("Article Eleventh") provides that the Company shall indemnify
any person who was or is a party or is threatened to be made a party to, or
testifies in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative in nature, by reason
of the fact that such person is or was a director, officer, employee or agent
of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding to the full extent permitted by law, and the
Company may adopt By-Laws or enter into agreements with any such person for
the purpose of providing for such indemnification.
To the extent that a director or officer of the Company has been successful
on the merits or otherwise (including without limitation settlement by nolo
contendere) in defense of any action, suit or proceeding referred to in the
immediately preceding paragraph, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonable incurred by such person in connection
therewith.
Expenses incurred by an officer, director, employee or agent in defending or
testifying in a civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the Company in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such director or officer is not entitled to be indemnified
by the Company against such expenses as authorized by Article Eleventh and the
Company may adopt By-Laws or enter into agreements with such persons for the
purpose of providing for such advances.
The indemnification permitted by Article Eleventh shall not be deemed
exclusive of any other rights to which any person may be entitled under any
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in such person's official capacity and as to action in another
capacity while holding an office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.
II-1
<PAGE>
The Company shall have power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
employee benefit plan trust or other enterprise, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Company
would have the power to indemnify such person against such liability under the
provisions of Article Eleventh or otherwise.
If the DGCL is amended to further expand the indemnification permitted to
directors, officers, employees or agents of the Company, then the Company
shall indemnify such persons to the fullest extent permitted by the DGCL, as
so amended.
The obligations of the Company to indemnify any person serving as one of its
directors, officers or employees as of or following the Company's '93
Reorganization, by reason of such person's past or future service in such a
capacity, or as a director, officer or employee of another corporation,
partnership or other legal entity, to the extent provided in Article Eleventh
or in similar constituent documents or by statutory law or written agreement
of or with the Company, shall be deemed and treated as executory contracts
assumed by the Company pursuant to the Company's '93 Reorganization.
Accordingly, such indemnification obligations survive and were unaffected by
the entry of the order confirming the Company's '93 Reorganization. The
obligations of the Company to indemnify any person who, as of the '93
Reorganization, was no longer serving as one of its directors, officers or
employees, which indemnity obligation arose by reason of such person's prior
service in any such capacity, or as a director, officer or employee of another
corporation, partnership or other legal entity, to the extent provided in the
certificate of incorporation, by-laws or other constituent documents or by
statutory law or written agreement of or with TWA were terminated and
discharged pursuant to Section 502(e) of the United States Bankruptcy Code or
otherwise, as of the date the '93 Reorganization was confirmed. Nothing
contained in the Second Amended and Restated Certificate of Incorporation of
the Company shall be deemed to reinstate any obligation of the Corporation to
indemnify any person or entity, which was otherwise released under or in
connection with the Comprehensive Settlement Agreement entered into pursuant
to the '93 Reorganization.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a complete list of Exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein:
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
Purchase Agreement dated as of March 31, 1997 between the Company and
1.1 the Initial Purchaser
*2.1 Joint Plan of Reorganization dated May 12, 1995 (Appendix B to the
Company's Registration Statement on Form S-4, Registration Number 33-
84944, as amended)
*2.2 Modifications to Joint Plan of Reorganization dated July 14, 1995 and
Supplemental Modifications to Joint Plan of Reorganization dated
August 2, 1995 (Exhibit 2.5 to 6/95 10-Q)
*2.3 Findings of Fact, Conclusions of Law and Order Confirming Modified
Joint Plan of Reorganization dated August 4, 1995, with Exhibits A-B
attached (Exhibit 2.6 to 6/95 10-Q)
*2.4 Final Decree dated December 28, 1995 related to the '95
Reorganization (Exhibit 2.7 to 1995 10-K)
*3(i) Third Amended and Restated Certificate of Incorporation of Trans
World Airlines, Inc. (Exhibit 3(iv) to Company's Registration
Statement on Form S-3, Reg. No. 333-04977)
*3(ii) Amended and Restated By-Laws of Trans World Airlines, Inc. effective
May 24, 1996 (Exhibit 3(ii) to 6/96 10-Q)
*4.1 Voting Trust Agreement dated November 3, 1993 between TWA and LaSalle
National Trust, N.A., as trustee (Exhibit 4.3 to 9/93 10-Q)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
*4.2 IAM TWA Employees' Stock Ownership Plan and related Trust Agreement
dated August 31, 1993 between TWA, the IAM Plan Trustee Committee and
the IAM Trustee (Exhibit to 9/93 10-Q)
*4.3 IFFA TWA Employees' Stock Ownership Plan and related Trust Agreement
dated August 31, 1993 between TWA, the IFFA Plan Trustee Committee
and the IFFA Trustee (Exhibit 4.5 to 9/93 10-Q)
*4.4 TWA Employee Stock Ownership Plan dated August 31, 1993, First
Amendment thereto dated October 31, 1993 and related Trust Agreement
dated August 31, 1993, between TWA and the ESOP Trustee (Exhibit 4.6
to 9/93 10-Q)
*4.5 ALPA Stock Trust dated August 31, 1993 between TWA and the ALPA
Trustee (Exhibit 4.7 to 9/93 10-Q)
*4.6 Stockholders Agreement dated November 3, 1993 among TWA, LaSalle
National Trust, N.A., as Voting Trustee and the ALPA Trustee, IAM
Trustee, IFFA Trustee and Other Employee Trustee (each as defined
therein), as amended by the Addendum to Stockholders dated November
3, 1993 (Exhibit 4.8 to 9/93 10-Q)
*4.7 Indenture dated November 3, 1993 between TWA and Shawmut Bank,
National Association, relating to TWA's 10% Senior Secured Notes Due
1998 (Exhibit 4.10 to 9/93 10-Q)
*4.8 Indenture dated November 3, 1993 between TWA and American National
Bank and Trust Company of Chicago, N.A. relating to TWA's 8% Secured
Notes Due 2001 (Exhibit 4.12 to 9/93 10-Q)
*4.9 Indenture dated November 3, 1993 between TWA and Shawmut Bank
Connecticut, National Association relating to TWA's 11% Senior
Secured Notes Due 1997 (Exhibit 4.13 to 9/93 10-Q)
*4.10 The TWA Air Line Pilots 1995 Employee Stock Ownership Plan effective
as of January 1, 1995 (Exhibit 4.12 to 9/95 10-Q)
*4.11 TWA Air Line Pilots Supplemental Stock Plan effective September 1,
1994 (Exhibit 4.13 to 9/95 10-Q)
*4.12 TWA Air Line Pilots Supplemental Stock Plan Trust effective August
23, 1995 (Exhibit 4.14 to 9/95 10-Q)
*4.13 TWA Air Line Pilots Supplemental Stock Plan Custodial Agreement
effective August 23, 1995 (Exhibit 4.15 to 9/95 10-Q)
*4.14 Form of Indenture relating to TWA's 8% Convertible Subordinated
Debentures Due 2006 (Exhibit 4.16 to Registrant's Registration
Statement on Form S-3, Registration No. 333-04977)
4.15 Indenture dated as of March 31, 1997 between TWA and First Security
Bank, National Association relating to TWA's 12% Senior Secured Notes
due 2002
4.16 Form of 12% Senior Secured Note due 2002 (contained in Indenture
filed as Exhibit 4.15)
**4.17 Registration Rights Agreement dated as of March 31, 1997 between the
Company and the Initial Purchaser
**4.18 Warrant Agreement dated as of March 31, 1997 between the Company and
American Stock Transfer & Trust Company, as Warrant Agent(1)
5.1 Opinion of Smith, Gambrell & Russell, LLP as to the legality of the
securities being registered hereunder
*10.1.1 Icahn Asset-Based Facility Loan documents dated January 5, 1993
(Exhibit 10(iv)(4) to '92 10-K)
*10.1.2 Icahn Asset-Based Facility Loan documents dated January 5, 1993
(Exhibit 10(iv)(5) to '92 10-K)
*10.2.1 Asset Purchase Agreement dated as of November 4, 1993 between TWA and
St. Louis (Exhibit 10.2 to 9/93 10-Q)
*10.2.2 Equipment Operating Lease Agreement dated November 4, 1993 between
TWA and St. Louis (Exhibit 10.2 to 9/93 10-Q)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
*10.2.3 Cargo Use Amendment dated November 4, 1993 between TWA and St. Louis
(Exhibit F to the Asset Purchase Agreement) (Exhibit 10.2 to 9/93 10-
Q)
*10.2.4 Use Amendment 1993 dated November 4, 1993 between TWA and St. Louis
(Exhibit E to the Asset Purchase Agreement) (Exhibit 10.2 to 9/93 10-
Q)
*10.3.1 Amendment Number One to the Note Purchase and Security Agreement
dated October 26, 1993 between TWA and Rolls-Royce (Exhibit 10.3 to
9/93 10-Q)
*10.3.2 Amendment Number One to the Equipment Purchase Contract dated October
26, 1993 between TWA and Rolls-Royce (Exhibit 10.3 to 9/93 10-Q)
*10.4 Amendment Number Two to the AVSA Agreement dated June 1, 1989 between
TWA and AVSA, dated August 25, 1993 (Exhibit 10.4 to 9/93 10-Q)
*10.5.1 First Amendment to Aircraft Installment Sale Agreement dated November
1, 1993 among TWA, the Vendors, and ITOCHU with respect to aircraft
N605TW (Exhibit 10.5 to 9/93 10-Q)
*10.5.2 First Amendment to Aircraft Installment Sale Agreement dated November
1, 1993 among TWA, the Vendors, and ITOCHU with respect to aircraft
N603TW (Exhibit 10.5 to 9/93 10-Q)
*10.5.3 First Amendment to Security Agreement and Chattel Mortgage dated
November 1, 1993 among TWA, the Vendors, and ITOCHU, as to ITOCHU
Amendment No. 1 (Exhibit 10.5 to 9/93 10-Q)
*10.5.4 First Amendment to Security Agreement and Chattel Mortgage dated
November 1, 1993 among TWA, the Vendors, and ITOCHU, as to ITOCHU
Amendment No. 2 (Exhibit 10.5 to 9/93 10-Q)
*10.6.1 Deferral Agreement and First Amendment to Aircraft Installment Sale
Agreement No. 1 dated November 1, 1993 among TWA, the Vendors, and
ORIX with respect to aircraft N601TW (Exhibit 10.6 to 9/93 10-Q)
*10.6.2 Deferral Agreement and First Amendment to Aircraft Installment Sale
Agreement dated November 1, 1993 among TWA, the Vendors, and ORIX
with respect to aircraft N603TW (Exhibit 10.6 to 9/93 10-Q)
*10.6.3 First Amendment to Security Agreement and Chattel Mortgage dated
November 1, 1993 among TWA, the Vendors, and ORIX, as to ORIX
Amendment No. 1 (Exhibit 10.6 to 9/93 10-Q)
*10.6.4 First Amendment to Security Agreement and Chattel Mortgage dated
November 1, 1993 among TWA, the Vendors, and ORIX, as to ORIX
Amendment No. 2 (Exhibit 10.6 to 9/93 10-Q)
*10.7.1 Purchase Agreement dated October 5, 1993 between TWA and Pacific
AirCorp 747, Inc. with respect to aircraft N93107 and N93108 (Exhibit
10.7 to 9/93 10-Q)
*10.7.2 Lease Agreement 107 dated October 5, 1993 between Pacific AirCorp
747, Inc. and TWA with respect to aircraft N93107 (Exhibit 10.7 to
9/93 10-Q)
*10.7.3 Lease Agreement 108 dated October 5, 1993 between Pacific AirCorp
747, Inc. and TWA with respect to aircraft N93107 (Exhibit 10.7 to
9/93 10-Q)
*10.8 Comprehensive Settlement Agreement dated January 5, 1993 (Exhibit
10(iv)(1) to '92 10-K)
10.8.1 Omnibus Amendment and Supplement to Agreements dated as of March 28,
1994 between TWA and Karabu Corp.(2)
*10.9 Letter Agreement dated April 15, 1994 between TWA and Richard P.
Magurno relating to employment by TWA (Exhibit 10.14 to 3/94 10-Q)
*10.10 Form of Indemnification Agreement between TWA and individual members
of the TWA Board of Directors relating to indemnification of director
(Exhibit 10.16 to 6/94 10-Q)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
10.11.1 Purchase Agreement dated as of December 15, 1993 between TWA and
Pacific AirCorp DC9, Inc. with respect to aircraft N927L and N928L(2)
10.11.2 Lease Agreement 927 dated as of December 15, 1993 between Pacific
AirCorp DC9, Inc. and TWA with respect to aircraft N927L(2)
10.11.3 Lease Agreement 928 dated as of December 1, 1993 between Pacific
AirCorp DC9, Inc. and TWA with respect to aircraft N928L(2)
10.12.1 Aircraft Purchase Agreement dated March 31, 1994 between TWA and
Mitsui & Co. (U.S.A.), Inc. with respect to aircraft N950U(2)
10.12.2 Aircraft Purchase Agreement dated March 31, 1994 between TWA and
Mitsui & Co. (U.S.A.), Inc. with respect to aircraft N953U(2)
10.12.3 Lease Agreement dated as of March 31, 1994 between Mitsui & Co.
(U.S.A.), Inc. and TWA with respect to aircraft N950U and N953U(2)
10.12.4 Aircraft Purchase Agreement dated March 31, 1994 between TWA and
McDonnell Douglas Finance Corporation with respect to aircraft
N951U(2)
10.12.5 Aircraft Purchase Agreement dated March 31, 1994 between TWA and
McDonnell Douglas Finance Corporation with respect to aircraft
N952U(2)
10.12.6 Lease Agreement dated as of March 31, 1994 between McDonnell Douglas
Finance Corporation and TWA with respect to aircraft N951U and
N952U(2)
10.13.1 Aircraft Purchase Agreement dated March 31, 1994 between McDonnell
Douglas Finance Corporation and TWA with respect to aircraft N306TW
(formerly N534AW)(2)
10.13.2 Purchase Money Chattel Mortgage dated as of March 31, 1994 between
TWA as Mortgagor in favor of McDonnell Douglas Finance Corporation as
Mortgagee, with respect to N306TW (formerly N534AW)(2)
10.13.3 Chattel Mortgage dated as of March 31, 1994 by TWA as Mortgagor, in
favor of McDonnell Douglas Finance Corporation as Mortgagee, with
respect to aircraft N306TW (formerly N534AW)(2)
10.14 Commuter Air Service Agreement dated October 27, 1993 between TWA and
Alpha Air(2)
10.15 Air Service Agreement dated October 1, 1994 between TWA and Trans
States Airlines, Inc.(2)
10.16 Consulting Agreement dated July 11, 1994 between TWA and Fieldstone,
Private Capital Group, L.P.(2)
10.17 Consulting Agreement dated July 15, 1994 between TWA and Simat,
Helliesen & Eichner, Inc.(2)
10.17.1 Agreement for Purchase and Sale dated as of August 29, 1994 between
TWA and Browsh & Associates, Inc.(2)
10.17.2 Agreement for Purchase and Sale dated as of August 29, 1994 between
TWA and Travel Marketing Holding Corporation(2)
*10.18.1 Addendum to Stock Purchase Agreement (identified in 10.29.2) dated
October 31, 1994 (Exhibit 10.29.3 to 9/94 10-Q)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
*10.18.2 Addendum to Stock Purchase Agreement (identified in 10.29.2) dated
November 2, 1994 (Exhibit 10.29.4 to 9/94 10-Q)
10.19.1 Form of Agreement dated as of August 31, 1994 between TWA and Air
Line Pilots Association, International(2)
10.19.2 Form of Agreement dated as of September 1, 1994 between TWA and the
International Association of Machinists and Aerospace Workers (2)
10.19.3 Form of Agreement dated as of September 1, 1994 between TWA and the
Independent Federation of Flight Attendants(2)
*10.19.4 Form of Agreement dated as of September 1, 1994 between TWA and the
Transport Workers Union of America (Exhibit 10.31.4 to 9/94 10-Q)
10.20.1 Trust Agreement dated as of August 29, 1994 between and among TWA,
the International Association of Machinists and Aerospace Workers,
the Independent Federation of Flight Attendants, the Air Line Pilots
Association, International, United States Trust Company of New
York(2)
10.20.2 Stock Pledge and Intermediator Agreement dated as of August 24, 1994
among TWA, TWA Stock Holding Company, Inc. and United States Trust
Company of New York(2)
10.21.1 Key Employee Stock Incentive Plan(2)
10.21.2 Form of Opinion Agreements for options issued pursuant to the 1994
Key Employee Stock Incentive Plan(2)
*10.22 Extension, Refinancing and Consent Agreement dated as of June 14,
1995 between TWA, Karabu Corp, Pichin Corp and Carl C. Icahn and the
"Icahn Entities" (Exhibit 10.37 to 9/95 10-Q)
*10.22.1 Karabu Ticket Program Agreement dated as of June 14, 1995 between TWA
and Karabu Corp.
*10.23 Trans World Airlines, Inc. Stock Purchase Warrant to Purchase Shares
of Common Stock dated August 23, 1995 (Exhibit 10.38 to 9/95 10-Q)
*10.24 Stand-By Purchase Agreement dated as of August 8, 1995 between Trans
World Airlines, Inc., M.D. Sass Re/Enterprise Partners L.P., a
Delaware limited partnership and M.D. Sass Re/Enterprise
International Ltd. a British Virgin Islands Company (Exhibit 10.39 to
9/95 10-Q)
*10.25 Voucher Purchase Agreement dated as of October 18, 1995 between TWA
and M.D. Sass Re/Enterprise Partners L.P., a Delaware limited
partnership and M.D. Sass Re/Enterprise International Ltd. a British
Virgin Islands Company (Exhibit 10.40 to 9/95 10-Q)
*10.26 Purchase Agreement, dated February 9, 1996 between The Boeing Company
and TWA relating to Boeing Model 757-231 Aircraft (Purchase Agreement
Number 1910) (Exhibit 10.48 to 1995 10-K)
*10.27 Employee Stock Incentive Program dated as of August 23, 1995 (Exhibit
10.49 to 1995 10-K)
*10.28 Letter Agreement dated July 26, 1996 between Trans World Airlines,
Inc. and Robert A. Peiser (Exhibit 10.52 to Pre-effective Amendment
No. 2 to Registrant's Registration Statement on Form S-3, Reg. No.
333-04977)
*10.29 Letter Agreement dated July 26, 1996 between Trans World Airlines,
Inc. and Mark J. Coleman (Exhibit 10.53 to Pre-effective Amendment
No. 2 to Registrant's Registration Statement on Form S-3, Reg. No.
333-04977)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
*10.30 Exchange Agreement dated as of June 10, 1996 between Trans World
Airlines, Inc. and Elliott Associates, L.P., as amended (Exhibit 10.1
to 9/20/96 8-K)
*10.31 Exchange Agreement dated as of June 10, 1996 between Trans World
Airlines, Inc. and Westgate International, L.P., as amended (Exhibit
10.2 to 9/20/96 8-K)
*10.32 Agreement dated as of September 3, 1996 between Trans World Airlines,
Inc. and Roden A. Brandt relating to employment by TWA (Exhibit 10.6
to 9/96 10-Q)
*10.33 Letter Agreement dated January 6, 1997 between the Company and Edward
Soule (Exhibit 10.33 to 12/31/96 10-K)
*10.34 Agreement dated as of October 1, 1996 between the Company and Michael
J. Palumbo (Exhibit 10.34 to 12/31/96 10-K)
*10.35 Agreement dated as of November 11, 1996 between the Company and
Jeffrey H. Erickson (Exhibit 10.35 to 12/31/96 10-K)
*11 Statement re Computation of Per Share Earnings (included in the
Company's 12/31/96 10-K)
**12 Statement of Computation of Ratio of Earnings to Fixed Charges
13 1997 Annual Report to Stockholders
21 Subsidiaries of TWA
23.1 Consent of KPMG Peat Marwick LLP
**23.2 Consent of Smith, Gambrell & Russell LLP
24 Powers of Attorney
*27 Financial Data Schedule (included in the Company's 12/31/96 10-K)
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- --------
*Incorporated by reference
**To be filed by amendment
(1) Incorporated herein by reference to the exhibit of the same number in
TWA's Registration Statement on Form S-4 (Reg. No. 333- ).
(2) Incorporated herein by reference to the exhibit of the same number in
TWA's Registration Statement on Form S-4, (Reg. No. 33-849444).
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
II-7
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(2)(ii) above do not apply
if the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Company pursuant to section 13 or section 15(d) of the Exchange Act that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the Trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act ("Act") in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement on Form S-4 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of St. Louis, State of
Missouri, on April 29, 1997.
April 29, 1997 TRANS WORLD AIRLINES, INC.
By: /s/ Gerald L. Gitner
---------------------
Gerald L. Gitner
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-4 has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Gerald L. Gitner Director, Chairman of the April 29, 1997
- ------------------------------------ Board and Chief Executive
Officer (Principal Executive
Officer)
Gerald L. Gitner
/s/ Michael J. Palumbo Senior Vice President and April 29, 1997
- ------------------------------------ Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
Michael J. Palumbo
* Director April 29, 1997
- ------------------------------------
John W. Bachmann
* Director April 28, 1997
- ------------------------------------
William F. Compton
* Director May 7, 1997
- ------------------------------------
Eugene P. Conese
* Director April 29, 1997
- ------------------------------------
William M. Hoffman
* Director May 2, 1997
- ------------------------------------
Thomas H. Jacobsen
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director April 29, 1997
- ------------------------------------
Myron Kaplan
* Director May 2, 1997
- ------------------------------------
David M. Kennedy
* Director May 6, 1997
- ------------------------------------
Jewel Lafontant-Mankarious
* Director April 29, 1997
- ------------------------------------
Thomas F. Meagher
* Director May 6, 1997
- ------------------------------------
William O'Driscoll
* Director April 29, 1997
- ------------------------------------
G. Joseph Reddington
* Director April 29, 1997
- ------------------------------------
Lawrence K. Roos
* Director April 29, 1997
- ------------------------------------
Stephen M. Tumblin
* Director May 6, 1997
- ------------------------------------
William W. Winpisinger
*By: /s/ Richard P. Magurno May 6, 1997
- ------------------------------------
Richard P. Magurno,
</TABLE>
as Attorney-in-fact
S-2
<PAGE>
===============================================================================
TRANS WORLD AIRLINES, INC.
and
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
as Trustee
INDENTURE
Dated as of March 31, 1997
$50,000,000*
12% Senior Secured Notes Due 2002
===============================================================================
* Subject to an increase up to an aggregate of $7,500,000, for the additional
issuance of 12% Senior Secured Notes Due 2002 pursuant to the Purchase
Agreement as defined herein.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1.
<TABLE>
<CAPTION>
Page
----
<S> <C>
DEFINITIONS AND RULES OF CONSTRUCTION..................................... 1
Section 1.1 Definitions................................................ 1
Section 1.2 Rules of Construction...................................... 1
ARTICLE 2.
THE SECURITIES............................................................ 1
Section 2.1 Designation, Form and Dating............................... 1
Section 2.2 Execution, Amount, Authentication and Delivery............. 2
Section 2.3 Registrar and Paying Agent................................. 5
Section 2.4 Paying Agent to Hold Payments In Trust..................... 5
Section 2.5 Securityholder Lists....................................... 7
Section 2.6 Transfer and Exchange...................................... 7
Section 2.7 Mutilated, Defaced, Destroyed, Lost and Stolen Securities.. 8
Section 2.8 Treasury Securities........................................ 9
Section 2.9 Temporary Securities....................................... 10
Section 2.10 Cancellation............................................... 10
Section 2.11 Defaulted Interest......................................... 10
ARTICLE 3.
REDEMPTION AND REPURCHASE................................................. 11
Section 3.1 No Optional Redemption..................................... 11
Section 3.2 Use of Temporary Cash Collateral or Cash Collateral
for Purchase............................................. 11
ARTICLE 4.
COVENANTS................................................................. 12
Section 4.1 Payment of Securities...................................... 12
Section 4.2 Maintenance of Office or Agency............................ 13
Section 4.3 Limitation on Dividends and Acquisition of Common Stock.... 13
Section 4.4 Corporate Existence........................................ 14
Section 4.5 Payment of Taxes and other Claims.......................... 15
Section 4.6 Notices.................................................... 15
Section 4.7 Maintenance of Properties.................................. 16
Section 4.8 Default Notices and Compliance Certificates................ 16
Section 4.9 SEC Reports................................................ 17
Section 4.10 Waiver of Stay, Extension or Usury Laws.................... 18
Section 4.11 Amendment to Certain Agreements............................ 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.12 Liens...................................................... 18
Section 4.13 Books, Records, Access; Confidentiality.................... 18
Section 4.14 Security Interests......................................... 19
Section 4.15 Change in Control.......................................... 20
ARTICLE 5.
SUCCESSOR CORPORATION..................................................... 23
Section 5.1 Covenant Not to Consolidate, Merge, Convey or Transfer
Except Under Certain Conditions.......................... 23
Section 5.2 Successor Person Substituted............................... 24
Section 5.3 Limitation on Lease of Properties.......................... 25
ARTICLE 6.
DEFAULT AND REMEDIES...................................................... 25
Section 6.1 Events of Default.......................................... 25
Section 6.2 Acceleration............................................... 27
Section 6.3 Other Remedies............................................. 28
Section 6.4 Waiver of Past Defaults.................................... 28
Section 6.5 Control by Majority........................................ 28
Section 6.6 Limitation on Suits........................................ 29
Section 6.7 Rights of Holders to Receive Payment....................... 29
Section 6.8 Collection Suit by Trustee................................. 30
Section 6.9 Trustee May File Proofs of Claim........................... 30
Section 6.10 Application of Proceeds.................................... 30
Section 6.11 Undertaking for Costs...................................... 32
Section 6.12 Restoration of Rights on Abandonment of Proceedings........ 32
Section 6.13 Powers and Remedies Cumulative; Delay or Omission
Not Waiver of Default.................................... 32
ARTICLE 7.
TRUSTEE................................................................... 33
Section 7.1 Duties of Trustee.......................................... 33
Section 7.2 Rights of Trustee.......................................... 34
Section 7.3 Individual Rights of Trustee............................... 34
Section 7.4 Trustee's Disclaimer....................................... 34
Section 7.5 Notice of Defaults......................................... 34
Section 7.6 Reports by Trustee to Holders.............................. 35
Section 7.7 Compensation and Indemnity................................. 35
Section 7.8 Replacement of Trustee..................................... 36
Section 7.9 Successor Trustee by Merger, etc........................... 37
Section 7.10 Eligibility; Disqualification.............................. 37
</TABLE>
ii
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7.11 Preferential Collection of Claims Against Company.......... 37
Section 7.12 Other Capacities........................................... 37
ARTICLE 8.
DISCHARGE OF INDENTURE.................................................... 38
Section 8.1 Termination of Company's Obligations....................... 38
Section 8.2 Application of Trust Money................................. 39
Section 8.3 Repayment to Company....................................... 40
Section 8.4 Reinstatement.............................................. 40
ARTICLE 9.
AMENDMENTS, SUPPLEMENTS AND WAIVERS....................................... 41
Section 9.1 Without Consent of Holders................................. 41
Section 9.2 With Consent of Holders.................................... 41
Section 9.3 Compliance with Trust Indenture Act........................ 42
Section 9.4 Revocation and Effect of Consents.......................... 42
Section 9.5 Notation on or Exchange of Securities...................... 43
Section 9.6 Trustee to Sign Amendments, etc............................ 43
Section 9.7 Effect of Supplement and/or Amendment...................... 43
ARTICLE 10.
SECURITY.................................................................. 44
Section 10.1 Operative Documents........................................ 44
Section 10.2 Opinions, Certificates and Appraisals...................... 44
Section 10.3 Authorization of Actions to be Taken by the Trustee
Under the Operative Documents............................ 46
Section 10.4 Payment of Expenses........................................ 46
Section 10.5 Authorization of Receipt of Funds by the Trustee
Under the Operative Documents............................ 46
Section 10.6 Agreement as to Appraised Value and Fair Market Value...... 47
Section 10.7 Intercreditor Agreement.................................... 47
ARTICLE 11.
MISCELLANEOUS............................................................. 47
Section 11.1 Trust Indenture Act Controls............................... 47
Section 11.2 Notices.................................................... 47
Section 11.3 Communications By Holders With Other Holders............... 48
Section 11.4 Certificate and Opinion as to Conditions Precedent......... 48
Section 11.5 Statements Required In Certificate or Opinion.............. 49
Section 11.6 Liens. Rules By Trustee, Paying Agent, Registrar........... 50
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 11.7 Payment Dates............................................. 50
Section 11.8 Governing Law............................................. 50
Section 11.9 No Adverse Interpretation of Other Agreements............. 50
Section 11.10 No Recourse Against Others................................ 51
Section 11.11 Provisions of Indenture for the Sole Benefit of
Parties and Securityholders............................. 51
Section 11.12 Successors................................................ 51
Section 11.13 Duplicate Originals....................................... 51
Section 11.14 Severability.............................................. 51
Section 11.15 Rating Agencies........................................... 51
Section 11.16 Effect of Headings........................................ 52
ARTICLE 12.
RELEASE OF COLLATERAL..................................................... 52
Section 12.1 Release of Collateral..................................... 52
</TABLE>
APPENDIX I Definitions
APPENDIX II Rule 144A/Regulation S Appendix
EXHIBIT A Form of 12% Senior Secured Note
EXHIBIT B Form of Legend for Global Securities
EXHIBIT C Form of Acquired Slot Trust Agreement with Form of Subsequent
Deed of Conveyance attached thereto as Exhibit A thereto and Form
of Master Sub-License Agreement attached thereto as Exhibit C
thereto
EXHIBIT D Form of Pledge and Security Agreement
EXHIBIT E Form of Intercreditor Agreement
iv
<PAGE>
INDENTURE dated as of March 31, 1997 between TRANS WORLD AIRLINES, INC., a
Delaware corporation (the "Company"), and FIRST SECURITY BANK, NATIONAL
ASSOCIATION, as Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Company's 12% Senior Secured
Notes Due 2002 (the "Initial Securities") and, if and when issued pursuant to a
registered exchange for Initial Securities, the Company's 12% Senior Secured
Notes Due 2002 (the "Exchange Securities") and, if and when issued pursuant to a
private exchange for Initial Securities, the Company's 12% Senior Secured Notes
Due 2002 (the "Private Exchange Securities", together with the Exchange
Securities and the Initial Securities, the "Securities").
ARTICLE 1.
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1 Definitions.
-----------
Capitalized terms used and not otherwise defined herein shall have the
meanings ascribed to such terms in Section 1 of the Definitions Appendix
attached hereto as Appendix I, which shall be a part of this Indenture as if
fully set forth in this place.
Section 1.2 Rules of Construction.
---------------------
The rules of construction for this Indenture are set forth in Section 2 of
the Definitions Appendix.
ARTICLE 2.
THE SECURITIES
Section 2.1 Designation, Form and Dating.
----------------------------
Provisions relating to the Initial Securities, the Private Exchange
Securities and the Exchange Securities are set forth in the Rule 144A/Regulation
S Appendix attached hereto as Appendix II (the "Rule 144A Appendix") which is
hereby incorporated in and expressly made part of this Indenture. The Initial
Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit 1 to the Rule 144A Appendix (with such
appropriate insertions, omissions, substitutions and other variations as are
required by this Indenture) which is hereby incorporated in and expressly made a
part of this Indenture. The Exchange Securities, the Private Exchange
Securities, and the Trustee's certificates of authentication shall be
substantially in the form of Exhibit A hereto which
<PAGE>
is hereby incorporated in and expressly made a part of this Indenture. The
Exchange Securities and the Private Exchange Securities may be issued with the
appropriate insertions, omissions, substitutions and other, variations. The
Securities may have imprinted or otherwise reproduced thereon such notations,
legends or endorsements, not inconsistent with the provisions of this Indenture,
as may be required to comply with any law or with any rules or regulations
pursuant thereto, or with the rules of any securities market in which the
Securities are admitted to trading, or to conform to general usage. The Company
shall approve the form of the Securities and any notation, legend or endorsement
on them. Each Security shall be dated the date of its authentication and shall
bear interest from the applicable date set forth in the form of security and
shall be payable, unless previously Tendered, on the dates as specified on the
face of the form of the Security.
The terms and provisions contained in the Securities, annexed hereto as
Exhibit A shall constitute, and are hereby expressly made, a part of this
Indenture.
The Person in whose name any Security is registered at the close of
business on any Record Date with respect to any Interest Payment Date shall be
entitled to receive the interest and Liquidated Damages, if any, payable on such
Interest Payment Date to the extent provided by such Security, notwithstanding
any transfer, exchange, or tender, in connection with payment of the Exercise
Price of the Warrants, of such Security subsequent to the Record Date and prior
to such Interest Payment Date, except if and to the extent the Company shall
default in the payment of the interest or Liquidated Damages due on such
Interest Payment Date, in which case defaulted interest or Liquidated Damages,
as the case may be, shall be paid to the Person in whose name the Outstanding
Security is registered at the close of business on the subsequent record date
(which shall be not less than five (5) Business Days prior to the date of
payment of such defaulted interest) established by notice given by mail or on
behalf of the Company to the Holders of Securities not less than fifteen (15)
days preceding such subsequent record date (a "Special Record Date").
Section 2.2 Execution, Amount, Authentication and Delivery.
----------------------------------------------
The Securities shall be signed for the Company by the manual or facsimile
signatures of an Officer and a Certifying Officer. The Company's seal shall be
affixed to or reproduced on the Securities. Typographical or other errors or
defects in any such reproduction of the seal or any such signature shall not
affect the validity or enforceability of any Security which has been duly
authenticated and delivered by the Trustee.
If an officer whose signature is on a Security no longer holds that office
at the time the Trustee authenticates the Security, the Security shall be valid
nevertheless.
A Security shall not be valid until the Trustee manually signs the
certificate of authentication on the Security. The signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is limited to (a) $50,000,000 plus (b) such
aggregate principal amount (which
2
<PAGE>
may not exceed $7,500,000 principal amount) of Securities as shall be purchased
by PaineWebber Incorporated pursuant to the exercise of its overallotment option
under the Purchase Agreement, dated March 27, 1997, between the Company and
PaineWebber Incorporated (the "Over-Allotment Option"), except for Securities
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Securities pursuant to Sections 2.6, 2.7, 2.9, 4.15,
or 9.5 or in conjunction with a Registered Exchange Offer or any Private
Exchange.
The Securities shall be known and designated as the "12% Senior Secured
Notes Due 2002" of the Company. Their Stated Maturity shall be April 1, 2002,
and they shall bear interest at the rate of 12% per anum, from March 31, 1997 or
from the most recent Interest Payment Date to which interest and Liquidated
Damages, if any, have been paid or duly provided for, as the case may be,
payable semi-annually on April 1 and October 1, commencing October 1, 1997,
until the principal thereof is paid or made available for payment.
Subject to the limits set forth in the second preceding paragraph of this
Indenture, the Trustee shall authenticate Securities for original issue upon
written order of the Company signed by an Officer and by a Certifying Officer of
the Company. The order shall specify the amount of Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated, shall provide instructions with respect to the delivery thereof
and shall be accompanied by the documents specified in Sections 10.2 (except in
the case of any original issuance of Securities pursuant to the Over-Allotment
Option) and 11.4 and (except in the case of any original issuance of Securities
pursuant to the Over-Allotment Option) by the following (each to the extent and
in form acceptable to the Trustee, who is authorized conclusively to rely upon
the documents specified in Section 11.4):
(a) the grant to the Collateral Agent, by assignment, pledge, or otherwise
pursuant to the Pledge Agreement, of a security interest in the Collateral and
the conveyance to or otherwise vesting in the Slot Trust of the Acquired Slots;
(b) (i) Officers' Certificates or other satisfactory confirmation (i) with
respect to the Pledge Agreement and the Collateral, that the Company is the
legal and beneficial owner of the Collateral, free and clear of all Liens except
Permitted Liens; (ii) that the Acquired Slots are vested in the Slot Trustee;
and (iii) describing the actions taken to make, obtain and accomplish all
necessary filings, confirmations and identifications referred to in Section 4.15
hereof and Section 7.1(b)(i) of the Master Sub-License Agreement;
(c) compliance with all applicable provisions of Sections 4.13 and 4.15
hereof;
(d) an Officers' Certificate (i) listing (A) (by reference to exhibits or
schedules to the Operative Documents or otherwise) as of the last day of the
month preceding the date hereof the locations of and the Adjusted Cost of the
Ground Equipment, and (B) as of the date of such Certificate, the Acquired Slots
then held by the Slot Trust; and (ii) stating that (A) no dispositions of Ground
Equipment outside of the Ordinary Course have occurred since the date of such
list nor has any amount of Ground Equipment, as described on such list, been
moved from the location
3
<PAGE>
indicated other than in the ordinary course of business nor is the sum of such
dispositions or movements, considered in the aggregate, material in relation to
the Property set forth on such list, (B) no material changes in the information
provided have occurred from the last day of the preceding month to the date
hereof; and (C) confirming all representations and warranties of the Company
contained in the Indenture and the Operative Documents as of the date of
authentication;
(e) an Officers' Certificate containing representations and warranties of
the type usual and customary to the issuance of the Securities such as, but not
limited to, representations regarding due authorization of the Indenture; due
authorization of the issuance, sale and delivery of the Securities that the
Securities; when so issued, sold and delivered against payment therefor will be
duly and validly issued, fully paid and non-assessable; that no consent,
approval or authorization of, or designation, declaration, or filing with, any
governmental authority or any other person or entity is required of the Company
in connection with the execution and delivery of the Indenture or the issuance,
sale and delivery of the Securities; and that the Securities have been
registered under the Securities Act or that registration is not required in
connection with the offer, sale and delivery of the Securities;
(f) an Opinion of Counsel to the effect that the Company has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Indenture; that the Securities have been duly authorized and validly
issued; and that the offer and sale of the Securities have been registered or
will be exempt from the registration requirements under the Securities Act; and
(g) execution and delivery by the Company of the Securities and by all
parties thereto of this Indenture and all Operative Documents;
provided, however, that any Securities in fact authenticated by the Trustee upon
- -------- -------
written order of the Company as set forth in the first sentence of this
paragraph shall be deemed to have been duly authenticated hereunder and to
constitute an enforceable contractual obligation of the Company and shall be
entitled to all the benefits of this Indenture and the other Operative Documents
equally and proportionately with any and all other Securities duly authenticated
and delivered hereunder, in each case, notwithstanding any failure of the
Company to deliver any of the documents specified in Sections 10.2 and 11.4 or
above in this sentence;
The Securities shall be issuable only in registered form, without coupons,
in denominations of $1,000 and any integral multiple thereof, except that one
Global Security may be issued in a different denomination.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Securities. An authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company,
any guarantor or any Affiliate of the Company.
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Section 2.3 Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency where Securities eligible
for transfer or exchange may be presented for registration of transfer or for
exchange ("Registrar") and an office or agency where Securities may be presented
for payment or repurchase ("Paying Agent") or tender in payment of the Exercise
Price of the Warrants ("Tender Agent"). The Registrar shall keep a register of
the Securities and of their transfer and exchange ("Register"). Such Register
shall be in written form in the English language or any other form capable of
being converted into such form within a reasonable time. At all reasonable
times such Register shall be open for inspection by the Trustee. The Company
may have one or more co-Registrars and one or more additional paying agents or
tender agents. The term "Paying Agent" or "Tender Agent" includes any
additional paying agent or tender agent.
The Company may enter into an appropriate agency agreement with any Agent
not a party to this Indenture. The agreement shall implement the provisions of
this Indenture that relate to such Agent. The Company shall notify the Trustee
of the name and address of any such Agent. If the Company fails to maintain a
Registrar, Paying Agent or Tender Agent, the Trustee shall act as such.
The Company initially appoints First Security Bank, National Association,
as Registrar, Paying Agent and Tender Agent.
Section 2.4 Paying Agent to Hold Payments In Trust.
--------------------------------------
Each Paying Agent shall hold in trust for the benefit of Securityholders or
the Trustee all Payments held by the Paying Agent for the payment of principal
of, interest on, Liquidated Damages, if any, with respect to, the Securities
(whether such Payment has been Paid to it by the Company or any other obligor on
the Securities), and shall notify the Trustee of any default by the Company (or
any other obligor on the Securities) in making any such Payment. The Company at
any time may require a Paying Agent to Pay all Payments held by it to the
Trustee and account for any funds disbursed and the Trustee may at any time
during the continuance of any payment default, upon written request to a Paying
Agent, require such Paying Agent to Pay all Payments held by it to the Trustee
and to account for any Payments distributed. Upon doing so the Paying Agent
shall have no further liability for the Payments.
If the Company shall at any time act as its own Paying Agent, it will, on
or before each due date of the principal of, interest on, or Liquidated Damages,
if any, with respect to, any of the Securities, segregate and hold in trust for
the benefit of the Persons entitled thereto Payments sufficient to pay the
principal, interest or Liquidated Damages, if any, so becoming due until such
Payments shall be Paid to such Persons or otherwise disposed of as herein
provided, and will promptly notify the Trustee of such action or any failure so
to act.
The Company will, on or before each due date for the payment of the
principal of, interest on, or Liquidated Damages, if any, with respect to, or
any Securities, deposit with a Paying Agent Payments (in same day funds)
sufficient to pay the principal, interest or Liquidated Damages, if any,
5
<PAGE>
so becoming due, such Payments to be held in trust for the benefit of the
Persons entitled to such principal, interest, or Liquidated Damages, if any, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of such action or any failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(a) hold all Payments received by it as such agent for the payment of the
principal of, or Liquidated Damages, if any, with respect to or interest on
Securities (whether such Payments have been Paid to it by the Company or by any
other obligor on the Securities) in trust for the benefit of the Persons
entitled thereto until such Payments shall be paid to such Persons or otherwise
disposed of as herein provided;
(b) promptly give the Trustee notice of any failure by the Company (or any
other obligor upon the Securities) to make any payment of the principal of,
interest on, or Liquidated Damages, if any, with respect to the Securities when
the same shall be due and payable; and
(c) at any time during the continuance of any such failure, upon the
written request of the Trustee, forthwith pay to the Trustee all Payments so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, Pay, or direct any
Paying Agent to Pay, to the Trustee all Payments held in trust by the Company or
such Paying Agent, such Payments to be held by the Trustee upon the same trusts
as those upon which such Payments were held by the Company or such Paying Agent;
and, upon such Payment by any Paying Agent to the Trustee, such Paying Agent
shall be released from all further liability with respect to such Payments held
by it as Paying Agent.
Any Payments deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, Repurchase Price
of, interest on or Liquidated Damages, if any, with respect to any Security and
unclaimed for two (2) years after such principal, interest or Liquidated
Damages, if any, has become due and payable shall be Paid to the Company on its
request, or (if then held by the Company) shall be discharged from such trust,
unless otherwise required by mandatory provisions of applicable escheat or
abandoned or unclaimed property law, and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof and all liability of the Trustee or such Paying Agent with
regard to such Payments, and all liability of the Company as trustee thereof,
shall thereupon cease.
Section 2.5 Securityholder Lists.
--------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders identified as to series. If the Trustee is not the Registrar,
the Company shall furnish to the Trustee on or before each Interest
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Payment Date and at such other times as the Trustee may request in writing a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of Securityholders.
Section 2.6 Transfer and Exchange.
---------------------
When Securities are presented to the Registrar or a co-Registrar with a
request to register the transfer or to exchange them for an equal principal
amount of Securities of other authorized denominations, the Registrar shall
register the transfer or make the exchange as requested if its requirements, for
such transactions are met. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Securities at the
Registrar's request. All Securities presented for registration of transfer,
exchange, redemption or payment shall (if so required by the Company or the
Trustee) be duly endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company and the Trustee,
duly executed by the Holder or his attorney duly authorized in writing. The
Company may require payment of a sum sufficient to pay all taxes, assessments or
other governmental charges in connection with any registration of transfer or
exchange, but not for any exchange pursuant to Sections 2.9, 3.5, 4.15 or 9.5 or
any Tender not involving any transfer of Securities (other than to the Company).
No service charge shall be made for any such transaction.
In the case of any Security which is Tendered in part only, upon such
Tender the Company shall execute and the Trustee shall authenticate and make
available for delivery to the Holder thereof, without service charge, a new
Security or Securities of any authorized denomination as requested by such
Holder in aggregate principal amount equal to the non-Tendered portion of the
principal of such Security. No Securities will be issued in denominations of
less than $1000 upon tender of the Securities nor shall any cash be paid by the
Company in connection with a tender of the Securities in payment of the Exercise
Price of the Warrants other than in payment of fractional shares.
All Securities issued upon any transfer or exchange of Securities shall be
valid obligations of the Company, evidencing the same debt of the same series
and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such transfer or exchange.
Section 2.7 Mutilated, Defaced, Destroyed, Lost and Stolen Securities.
---------------------------------------------------------
In case any temporary or definitive Security shall become mutilated,
defaced or be apparently destroyed, lost or stolen, subject to compliance with
the following sentence and in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute, and the Trustee shall authenticate and deliver, a new
Security, bearing a number not contemporaneously outstanding, in exchange and
substitution for the mutilated or defaced Security, or in lieu of and
substitution for the Security so apparently destroyed, lost or stolen. In every
case the applicant for a substitute Security shall furnish to the Company and to
the Trustee and any agent of the Company or the Trustee such security or
indemnity as may be required by them to indemnify and defend and to save each of
them harmless and, in every case of
7
<PAGE>
destruction, loss or theft, evidence to their satisfaction of the apparent
destruction, loss or theft of such Security and of the ownership thereof.
Upon the issuance of any substitute Security pursuant to the preceding
paragraph, the Company may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the Trustee) connected
therewith. In case any Security which has matured or is about to mature, or has
been tendered for repurchase pursuant to Section 4.15 or has been tendered in
payment of the Exercise Price for the Warrants (as evidenced by an irrevocable
written notice from the Holder to the Company and the Trustee), shall become
mutilated or defaced or be apparently destroyed, lost or stolen, the Company
may, instead of issuing a substitute Security, pay or authorize the payment of
such Security or authorize the issuance of the securities issuable upon exercise
of the Warrants (without surrender of such Security except in the case of a
mutilated or defaced Security), as applicable, if the applicant for such payment
shall furnish to the Company and to the Trustee and any agent of the Company or
the Trustee such security or indemnity as any of them may require to save each
of them harmless from all risks, however remote, and, in every case of apparent
destruction, loss or theft, the applicant shall also furnish to the Company and
the Trustee and any agent of the Company or the Trustee evidence to their
satisfaction of the apparent destruction, loss or theft of such Security and of
the ownership thereof.
Every substitute Security issued pursuant to the provisions of this Section
by virtue of the fact that any Security is apparently destroyed, lost or stolen
shall constitute an additional contractual obligation of the Company, whether or
not the apparently destroyed, lost or stolen Security shall be at any time
enforceable by anyone and shall be entitled to all the benefits of (but shall
also be subject to all the limitations of rights set forth in) this Indenture
equally and proportionately with any and all other Securities duly authenticated
and delivered hereunder. Every substitute Security issued pursuant to the
provisions of this Section by virtue of the fact that any Security is mutilated
or defaced shall constitute an additional contractual obligation of the Company
and shall be entitled to all the benefits of (but shall also be subject to all
the limitations of rights set forth in) this Indenture equally and
proportionately with any and all other Securities of the same series duly
authenticated and delivered hereunder. All Securities shall be held and owned
upon the express condition that, to the extent permitted by law, the foregoing
provisions are exclusive with respect to the replacement or payment of mutilated
or defaced or apparently destroyed, lost or stolen Securities and shall preclude
any and all other rights or remedies notwithstanding any law or statute existing
or hereafter enacted to the contrary with respect to the replacement or payment
of negotiable instruments or other securities without their surrender.
Section 2.8 Treasury Securities.
-------------------
In determining whether the Holders of the required principal amount of
Securities have given or concurred in any amendment, request, demand,
authorization, direction, notice, consent or waiver under this Indenture or any
other Operative Document, Securities owned by the Company (including Securities
Tendered), an Affiliate of the Company, any other obligor upon the Securities,
any Affiliate of such obligor upon the Securities or any Person who has given or
concurred in any such
8
<PAGE>
amendment, request, demand, authorization, direction, notice, consent or waiver
under the direction of, by agreement with, or as a condition or in consideration
of any exchange offer by or transfer of such Person's Securities to the Company,
an Affiliate of the Company, any other obligor, any Affiliate of such obligor or
any such Person, shall be disregarded and deemed not to be Outstanding for the
purpose of any such determination, except that, for the purposes of determining
whether the Trustee shall be protected in relying on any such amendment,
request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows are so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee that
neither the Company nor any such other obligor, Affiliate or Person is
affiliated with the pledgee or any Affiliate of the pledgee and that the pledgee
has the present right (subject to no contrary obligation or understanding) so to
act with respect to the Securities on the basis of its best interests as a
Holder independently of any direction by or interest of the Company. In case of
a dispute as to such right, the Trustee in good faith shall be entitled to rely
upon the advice of counsel, including counsel for the Company. Upon request of
the Trustee, the Company shall promptly furnish to the Trustee a certificate of
a Certifying Officer listing and identifying all Securities, if any, known by
the Company to be owned or held by or for the account of any of the above-
described Persons; and subject to Sections 7.1 and 7.2 herein, the Trustee shall
be entitled to accept such certificate as conclusive evidence of the facts
therein set forth and of the fact that all Securities not listed therein are
Outstanding for the purpose of any such determination. The Company shall not,
directly or indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, or grant any
additional security, to any Holder of Securities as consideration for or as an
inducement to giving or concurring in any amendment, request, demand,
authorization, direction, notice, consent or waiver under this Indenture or any
other Operative Document unless such remuneration is concurrently paid, or such
security is concurrently granted, as the case may be, on the same terms ratably
to the Holders of all Securities then Outstanding (regardless of whether any
such Holder has given or concurred in such amendment, request, demand,
authorization, direction, notice, consent or waiver under this Indenture or any
other Operative Document).
For purposes of this Section and without limiting the generality of the
foregoing, Securities which are subject to a binding contract or irrevocable
tender offer (including an offer which is in any way conditioned upon or
simultaneous with, or requires as a condition precedent (whether by contract or
otherwise) or which cannot be effected without, the agreement or consent of the
transferor to any amendment, request, demand, authorization, direction, notice,
consent or waiver hereunder) pursuant to which ownership (direct or indirect) is
to be transferred (including for example, Securities tendered to the Company or
any other Person in an exchange transaction) shall be deemed owned by such
transferee, and therefore, any such simultaneous agreement or consent by the
transferor shall be invalid.
Section 2.9 Temporary Securities.
--------------------
Until definitive Securities are ready for delivery, the Company may
prepare, and, upon written order of the Company, the Trustee shall authenticate,
temporary Securities in any authorized
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<PAGE>
denominations. Temporary Securities shall be substantially in the form of
definitive Securities of the same series but may have variations that the
Company considers appropriate for temporary Securities. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate and deliver
definitive Securities in exchange for temporary Securities. Until so exchanged,
the temporary Securities shall be entitled to the same benefits under this
Indenture as definitive Securities of the same series.
Section 2.10 Cancellation.
------------
The Company may at any time deliver Securities to the Trustee for
cancellation. The Registrar, the Paying Agent and the Tender Agent shall
forward to the Trustee any Securities surrendered to them (i) for transfer,
exchange (including without limitation, Initial Securities exchanged for
Exchanged Securities, Private Exchange Securities or both), repurchase or
payment, or (ii) in payment (in whole or in part) of the Exercise Price of the
Warrants. All Securities purchased pursuant to Section 3.2 shall be cancelled.
The Trustee and no one else shall cancel all Securities surrendered for
transfer, exchange, repurchase, payment (in whole or in part) of the Exercise
Price of the Warrants or cancellation. The Company may not issue new Securities
to replace Securities it has paid (upon Tender or otherwise) or which have been
delivered to the Trustee for cancellation. The Trustee shall destroy all
canceled Securities and, if requested, deliver a certificate of such destruction
to the Company. If the Company shall acquire any of the Securities, such
acquisition shall not operate as a satisfaction of the indebtedness represented
by such Securities unless and until the same are delivered to the Trustee for
cancellation.
Section 2.11 Defaulted Interest.
------------------
If the Company defaults in a payment of interest on, or Liquidated Damages,
if any, with respect to, the Securities, it shall pay the defaulted interest,
plus interest on the defaulted interest or Liquidated Damages, as the case may
be, at the rate then borne on the Securities to the extent permitted by law and
the terms thereof, to the persons who are Securityholders on a subsequent
Special Record Date. The Company shall fix the Special Record Date and payment
date. At least fifteen (15) days before the Special Record Date, the Company
shall mail to each Securityholder a notice that states the Special Record Date,
the payment date and the amount of defaulted interest or Liquidated Damages, as
the case may be, to be paid.
ARTICLE 3.
REDEMPTION AND REPURCHASE
Section 3.1 No Optional Redemption.
----------------------
The Securities Outstanding shall not be subject to redemption in whole or
in part at any time, at the option of the Company.
Section 3.2 Use of Temporary Cash Collateral or Cash Collateral
---------------------------------------------------
for Purchase
------------
10
<PAGE>
So long as no Event of Default shall have occurred and be continuing, the
Company may at any time direct the Trustee by Request to apply moneys held by
the Collateral Agent as Temporary Cash Collateral to the purchase of Securities
for cancellation at prices not exceeding their face amount plus accrued interest
and Liquidated Damages, if any, provided that (a) the Request shall specify the
principal amount of Securities to be purchased, the date by which and maximum
price at which the purchase of any Securities is directed, and the arrangements
(which shall be satisfactory to the Trustee) the Company will make to assure
payment of accrued interest and Liquidated Damages, if any, to the date of
purchase on the Securities to be purchased from sources other than Temporary
Cash Collateral; (b) the Trustee shall direct the Collateral Agent to hold for
the account of or transfer to the Trustee Temporary Cash Collateral in the
amounts and to be available at the times specified in the Request, and such
Temporary Cash Collateral shall thereupon be held by the Trustee or Collateral
Agent (together with accrued interest and Liquidated Damages, if any provided by
the Company) for the exclusive purpose of paying, and shall be applied by them
to pay, the principal amount of, accrued interest on, and Liquidated Damages, if
any, with respect to, the Securities purchased on the applicable date of
purchase; (c) the Trustee may enter into such purchase contracts for Securities
as are necessary to comply with the Request; and shall notify the Company and
the Collateral Agent as to the face amount of Securities (including accrued
interest and Liquidated Damages, if any) purchased from time to time; and (d)
Temporary Cash Collateral held exclusively for purposes of this Section may be
returned to the Collateral Agent as Temporary Cash Collateral upon Request
except to the extent it is needed by the Trustee to honor its contracts for the
purchase of Securities or to pay the Repurchase Price of Securities tendered for
repurchase pursuant to Section 4.15. So long as no Event of Default shall have
occurred and be continuing, the Company may at any time direct the Trustee by
Request to apply moneys held by the Collateral Agent as Cash Collateral to the
purchase of Securities for cancellation under the terms and subject to the
provisions of clauses (a) through (c) of the preceding sentence applicable to
Temporary Cash Collateral.
ARTICLE 4.
COVENANTS
Section 4.1 Payment of Securities.
---------------------
The Company shall pay the principal of, interest on and Liquidated Damages,
if any, with respect to the Securities on the dates and in the manner provided
in this Indenture and in the Securities, subject to utilization of Securities in
payment of the Exercise Price of the Warrants,.
The Company shall pay interest semi-annually in arrears on each Interest
Payment Date, commencing with the first such Interest Payment Date to occur
after the Original Issuance Date. Interest shall be paid on each Interest
Payment Date in an amount equal to the interest accrued for the period beginning
from March 31, 1997, or from the most recent date to which interest and
Liquidated Damages, if any, have been paid. All interest due and payable on the
Securities shall be paid in cash.
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In the case of any Security which is Tendered in payment of the Exercise
Price of Warrants after any Record Date for the payment of interest and on or
prior to the next succeeding Interest Payment Date, interest or Liquidated
Damages whose Stated Maturity is on such Interest Payment Date shall be payable
on such Interest Payment Date notwithstanding such Tender, and such interest or
Liquidated Damages (whether or not punctually paid or duly provided for) shall
be paid to the Person in whose name that Security (or one or more predecessor
Securities to such Security) is registered at the close of business on such
Record Date. Any Security which is tendered in payment of the Exercise Price
after any Record Date for the payment of interest or Liquidated Damages, if any,
and on or prior to the next succeeding Interest Payment Date must be accompanied
by funds equal to the interest and Liquidated Damages, if any, payable on such
succeeding Interest Payment Dates on the principal amount to be tendered in
payment of the Exercise Price of the Warrants. Except as otherwise expressly
provided in the second preceding sentence, in the case of any Security which is
Tendered in payment of the Exercise Price of Warrants, interest whose Stated
Maturity is after the date of Tender of such Security shall not be payable.
No Securities will be accepted in payment of the Exercise Price of the
Warrants, if such acceptance would result in cash being due to Holder in payment
of the principal amount of the Securities at any time other than the Stated
Maturity of the Securities.
An installment of principal, interest or Liquidated Damages, if any, shall
be considered paid on the date due if the Trustee or Paying Agent (other than
the Company or any Affiliate thereof) holds on that date Payments designated for
and sufficient to pay the installment and the Trustee or Paying Agent has not
received instructions from the Company not to make such payment or is not
prohibited from Paying such Payments to the Holders of the Securities pursuant
to this Indenture. An installment of principal on a Security also shall be
considered paid on the date due if the Trustee or Paying Agent holds on such
date instructions from the Holder of the Security to apply such principal to
payment of the Exercise Price of the Warrants.
The Company shall pay interest at the rate set forth in the Securities and
the Company shall pay interest on unpaid interest or Liquidated Damages, if any,
at the same rate to the extent legally permitted.
Section 4.2 Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the Borough of Manhattan, The City of New
York, an office or agency where Securities may be surrendered for registration
of transfer or exchange or for presentation for payment, repurchase or tender in
payment of the Exercise Price of Warrants and where notices and demands to or
upon the Company in respect of the Securities and this Indenture may be served.
At the request of the Company, said office or agency may be the office of an
agent appointed by the Trustee for such purpose. The Company shall give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency not designated or appointed by the Trustee. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office.
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The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York, for such purposes. The Company will give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.
Section 4.3 Limitation on Dividends and Acquisition of Common Stock.
-------------------------------------------------------
The Company will not declare or pay any dividend or make any distribution
on its Common Stock, Employee Preferred Stock or other capital stock of the
Company (other than dividends or distributions payable in the Company's Common
Stock or Employee Preferred Stock or options, warrants or other rights to
acquire, subscribe for or purchase the Company's Common Stock or Employee
Preferred Stock) and will not, and will not permit any of its Subsidiaries to,
purchase, redeem or otherwise acquire for value any shares of its Common Stock,
Employee Preferred Stock or other capital stock of the Company, whether in cash
or property or in obligations of the Company, if, at the time of such
declaration, payment, distribution, purchase, redemption or other acquisition
or, after giving effect thereto, a Default or Event of Default shall have
occurred and be continuing; provided, further, that notwithstanding anything to
-------- -------
the contrary written above, this Section 4.3 shall not apply to: (a) any
purchase or redemption of Common Stock or Preferred Stock by the Company or an
employee stock ownership or benefit plan (i) from union employees or former
union employees, or their respective transferees, pursuant to the terms of
agreements with labor unions existing on the date hereof; (ii) from recipients
or their transferees of such stock from employee stock ownership or benefit
plans subject to ERISA; (iii) from employee stock ownership or benefit plans
subject to ERISA in order to provide cash benefits to employees pursuant to the
terms of such plans; and (iv) as required by ERISA; and (b) any purchase or
redemption of Common Stock or Preferred Stock by an employee stock ownership or
benefit plan subject to ERISA for an aggregate consideration, without regard to
purchases or redemptions pursuant to clause (a) above, of up to $200,000,000;
(c) the payment of fixed or mandatory dividends on or scheduled redemptions or
exchanges of any of the Company's 8% Preferred Stock and the payment of any
interest on the securities issuable upon such exchange; (d) the payment of any
dividends on or the purchase, redemption or other acquisition or retirement of
the Common Stock or Preferred Stock of the Company within sixty (60) days after
the date of declaration of such dividend or the commitment to make such
purchase, redemption or other acquisition or retirement, if at said date of
declaration or commitment such payment or commitment complied with this Section
4.3; (e) the purchase, redemption, retirement or other acquisition of any shares
of the Company's Common Stock or Preferred Stock in exchange for, or out of the
proceeds of the substantially concurrent sale of, Common Stock or Preferred
Stock of the Company; (f) any consolidation or merger with or into any Person or
conveyance or transfer of all or substantially all of the Company's Property to
one or more Persons substantially as an entirety, not prohibited by the terms of
Section 5.1; and (g) the conversion of Employee Preferred Stock into Common
Stock.
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Section 4.4 Corporate Existence.
-------------------
(a) Except as otherwise provided in Article 5, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate existence of each Pledged
Subsidiary and the corporate existence of each other Subsidiary engaged in
substantial business activity each in accordance with the respective
organizational documents of the Company and each such Subsidiary and the rights
(charter and statutory), licenses, permits, approvals and governmental
franchises of the Company and each such Subsidiary necessary to the conduct of
its respective business; provided, however, that the Company shall not be
required to preserve any such right, license or franchise, or (other than with
respect to the Pledged Subsidiaries) to preserve the corporate existence of any
such Subsidiary, if the Board of Directors shall determine that the preservation
thereof is no longer in the interest of the Company and that termination of the
corporate existence is not disadvantageous to the Holders in any material
respect.
(b) The Company shall continue to be an air carrier certificated under
Section 604(b) of the Federal Aviation Act.
(c) The Company is and, to the extent required to operate its business as
presently conducted and to perform its obligations under this Indenture and the
Operative Documents, shall remain a "citizen of the United States" as defined in
Section 101(16) of the Federal Aviation Act.
Section 4.5 Payment of Taxes and other Claims.
---------------------------------
The Company shall, and shall cause each Subsidiary to, pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, (a) all
taxes, assessments and governmental charges levied or imposed upon the Company
and each Subsidiary or upon the income, profits or Property of the Company and
each Subsidiary or upon the Collateral, the Slot Trust or the Acquired Slots and
(b) all lawful claims for labor, materials and supplies which, if unpaid, might
by law become a Lien upon the Collateral, the Slot Trust, the Acquired Slots or
the other Property of the Company or a Subsidiary; provided, however, that the
Company or a Subsidiary, as the case may be, shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim (i) the amount, applicability or validity of which is being contested in
good faith by appropriate proceedings as permitted by and in accordance with the
provisions of the Operative Documents, to the extent applicable, and for which
adequate reserves have been established in accordance with generally accepted
accounting principles, as in effect from time to time, or (ii) if the Company
delivers to the Trustee a Certificate of an Officer stating that such non-
payment and non-discharge is in the interest of the Company and not prejudicial
in any material respect to the Holders.
Nothing contained herein or in the Securities shall be deemed to impose on
the Trustee or on the Company any obligation to pay on behalf of the Holder of
any Securities any tax, assessment or governmental charge required by any
present or future law of the U.S. or of any state, county, municipality or other
taxing authority thereof to be paid on behalf of, or withheld from the amount
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payable to, the Holder of any Securities; rather any tax, assessment or
governmental charge shall, to the extent required by law, be withheld from the
amounts provided for herein.
Section 4.6 Notices.
-------
The Company shall notify the Trustee in writing of any of the following
promptly (and in any event within five (5) Business Days after an Officer learns
of the occurrence thereof) describing the same and, if applicable, the steps
being taken by the Person(s) affected with respect thereto:
(a) In the event of any failure to pay any Senior Obligation at its stated
maturity or any default on any Senior Obligations giving any Person the right to
cause such Senior Obligations to become due prior to their stated maturity or
exercise other remedies, regardless of any waiver of such default or non-
exercise of such right;
(b) In the event that any other Indebtedness of the Company in a principal
amount in excess of $15,000,000 (i) is declared due and payable before its
stated maturity because of the occurrence of any default (or any event which,
with notice or the lapse of time, or both, shall constitute such default) under
such Indebtedness or (ii) is not paid at its stated maturity; or
(c) Any litigation, arbitration proceeding or governmental proceeding
involving damages or potential liability in excess of $15,000,000 is instituted
against the Company or any of its Subsidiaries which, if adversely determined,
would have a material adverse effect on the business, operations or financial
condition of the Company and its Subsidiaries taken as a whole.
Section 4.7 Maintenance of Properties.
-------------------------
Except as otherwise provided in this Indenture, the Company shall, and
shall cause each Subsidiary to, cause all material Properties owned by or leased
to it and used or useful in the conduct of the business of the Company or any
Subsidiary, as the case may be, to be maintained and kept in normal condition,
repair and working order, except for reasonable wear and use, and supplied with
all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Company may be necessary, so that the business carried on in
connection therewith may be properly and advantageously conducted at all times,
except, in every case, as and to the extent that the Company or any Subsidiary
may be prevented by fire, strikes, lockouts, acts of God, inability to obtain
labor or materials, governmental restrictions, enemy action, civil commotion or
unavoidable casualty or similar causes beyond the control of the Company or such
Subsidiary; provided, however, that subject to all requirements of the Operative
Documents, nothing in this Section 4.7 shall prevent the Company or any
Subsidiary from discontinuing the use, operation or maintenance of any such
Properties, or disposing of any of them, if such discontinuance or disposal is,
in the good faith judgment of an Officer of the Company (or other agent employed
by the Company) having managerial responsibility for any such Property (or, in
the case of any materially important item, with respect to operations or value,
in the good faith judgment of the Company as expressed in a resolution of the
Board of Directors), desirable in the conduct of the business of the Company.
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Section 4.8 Default Notices and Compliance Certificates.
-------------------------------------------
Contemporaneously with furnishing quarterly financial reports to the
Trustee under Section 4.9(a) or mailing quarterly statements to the Trustee and
Holders under Section 4.9(c), the Company shall furnish to the Trustee a
Certifying Officer's Certificate to the effect that no Default or Event of
Default has occurred or is continuing, or, if there is any such Default or Event
of Default, describing it and the steps, if any, being taken to cure it.
The Company shall deliver to the Trustee within one hundred twenty (120)
days after the end of each fiscal year in which any of the Securities remain
Outstanding (i) a certificate of the principal executive officer, principal
financial officer or principal accounting officer of the Company (which need not
comply with the provisions of Section 11.5) stating whether or not, to the
knowledge of the signer, the Company is in compliance with all conditions and
covenants under this Indenture and the Operative Documents (determined without
regard to any period of grace or requirement of notice), and if the Company is
not in compliance with all such conditions and covenants, describing each
Default or Event of Default and its status, and (ii) a certificate of one of the
foregoing officers or an Officers' Certificate stating whether or not, to the
knowledge of the signer, the Company is in compliance with all conditions and
covenants under each Senior Security Agreement, and if not, describing each
default or event of default thereunder and its status. The first certificates
to be delivered by the Company pursuant to this Section 4.8 shall be for the
fiscal year ending December 31, 1997.
Section 4.9 SEC Reports.
-----------
(a) The Company shall deliver to the Trustee as soon as practicable after
it files them with the SEC, copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Company is required
to file with the SEC pursuant to Sections 13 or 15(d) of the Securities Exchange
Act of 1934, as amended. The Company also shall comply with the other
provisions of TIA (S) 314(a).
(b) So long as any of the Securities remain Outstanding, the Company shall
cause its annual report to stockholders and any quarterly or other financial
reports furnished by it to stockholders generally, to be mailed to the Holders
of such Outstanding Securities at their addresses appearing in the Register.
(c) At any time the Company does not have a class of securities registered,
or is not otherwise required to file quarterly and other reports under the
Securities Exchange Act of 1934, as amended, the Company will prepare or cause
to be prepared, for each of the first three (3) quarters of each fiscal year, an
unaudited balance sheet of the Company and its consolidated Subsidiaries as at
the end of such quarter and related unaudited consolidated statements of income
and retained earnings and cash flow of the Company and its consolidated
Subsidiaries for such quarter and the portion of the fiscal year through such
date, setting forth in each case in comparative form the figures for the
corresponding year-to-date period in the previous year, certified by the
principal
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financial officer of the Company, and for each fiscal year, an audited
balance sheet of the Company and its consolidated Subsidiaries as at the end of
such year and related audited consolidated statements of income and retained
earnings and cash flow of the Company and its consolidated Subsidiaries for such
year, setting forth in comparative form the figures for the previous year,
reported on without a qualification arising out of the scope of the audit, by
the Company's independent public accountants. All financial statements will be
prepared in accordance with generally accepted accounting principles, as in
effect from time to time, consistently applied, except for changes with which
the Company's independent public accountants concur and except that quarterly
statements may be subject to year-end adjustments. The Company will cause a
copy of the respective financial statements to be mailed to the Trustee and each
of the Holders of the Securities within forty-five (45) days after the close of
each of the first three (3) quarters of each fiscal year and within one hundred
twenty (120) days after the close of each fiscal year, to the addresses set
forth in Section 11.2 or, in the case of each of the Holders, to such Holder's
address as set forth in the Register of the Securities.
Section 4.10 Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim,
and will resist any and all efforts to be compelled to take the benefit or
advantage of, any stay or extension law or any usury law or other law that would
prohibit or forgive the Company from paying all or any portion of the principal
of, interest on, or Liquidated Damages, if any, with respect to the Securities
as contemplated herein, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this Indenture and the
Operative Documents; and (to the extent that it may lawfully do so) the Company
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power granted to
the Trustee herein and in the Operative Documents, but will suffer and permit
the execution of every such power as though no such law had been enacted.
Section 4.11 Amendment to Certain Agreements.
-------------------------------
The Company shall not enter into or consent to any amendment, supplement or
other modification of the Operative Documents except as permitted under Article
9 hereof.
Section 4.12 Liens.
-----
The Company represents and warrants that it has, and covenants that it
shall continue to have, full power and lawful authority to grant, release,
convey, assign, transfer, mortgage, pledge, hypothecate and otherwise create the
security interests in the Collateral referred to in Article 10; the Company
shall warrant, preserve and defend the interest and title of the Collateral
Agent to the Collateral, and of the Pledged Subsidiaries to their respective
Properties, against the claims of all persons and will maintain and preserve the
security interests contemplated by Article 10; and the Company shall not, and
not permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien upon or with respect to the Collateral,
except for Permitted Liens.
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The Company shall cause the Operative Documents, including all necessary
financing statements, notifications of secured transactions and other assurances
or instruments to be properly recorded, registered and filed and to be kept,
recorded, registered and filed in such manner and in such places as may be
required by law and shall take all such other actions as may be required in
order to make effective the security interests intended to be created in
connection with this Indenture. The Company shall furnish to the Trustee the
Opinions of Counsel required by Section 10.2 to confirm such action.
Section 4.13 Books, Records, Access; Confidentiality.
---------------------------------------
(a) The Company shall, and shall cause each of its Subsidiaries to, (i)
maintain complete and accurate books and records in which full and correct
entries in conformity with generally accepted accounting principles shall be
made of all dealings and transactions in relation to its respective business and
activities, (ii) permit authorized representatives of the Trustee, the
Collateral Agent and/or the Slot Trustee to visit and inspect the Properties of
the Company or its Subsidiaries, and any or all books, records and documents in
the possession of the Company relating to the Collateral and the Acquired Slots,
including the records, logs, and other materials referred to in Section 4.8 of
the Pledge Agreement, and to make copies and take extracts therefrom and to
visit and inspect the Collateral, all upon reasonable notice and at such
reasonable times during normal business hours and as often as may be reasonably
requested, and (iii) permit the authorized representatives of any Trustee
Appraiser or Third-Party Appraiser to visit and inspect the Properties, books,
records and documents described in clause (ii) and any Properties to be provided
as Substitute Collateral (including comparable books, records and documents
relating thereto), at such times and to such extent as may be necessary to allow
timely completion of any Independent Appraiser's Certificate to be prepared by
such Trustee Appraiser or Third Party Appraiser.
(b) The Trustee, the Collateral Agent, the Slot Trustee and their
respective authorized representatives referred to in clause (a) above agree not
to use any information obtained pursuant to this Section 4.13 for any purpose
other than as required in order to discharge their respective duties hereunder
and under the Operative Documents and except as otherwise required for such
purpose to keep confidential and not to disclose any such information to any
person except that (i) the recipient of the information may disclose any
information which becomes publicly available other than as a result of
disclosure by such recipient, (ii) the recipient of the information may disclose
any information which its counsel reasonably concludes is necessary to be
disclosed by law, pursuant to any court or administrative order or ruling or in
any pending legal or administrative proceeding or investigation after notice to
the Company adequate, subject to applicable laws, to allow the Company to obtain
a protective order or other appropriate remedy, provided that the recipient of
the information will (if not otherwise required in order to discharge its duties
as aforesaid) cooperate with the Company's efforts to obtain a protective order
or other reliable assurance that confidential treatment will be accorded any
such information required to be so disclosed, and (iii) the recipient of the
information may disclose any information necessary to be disclosed pursuant to
any provision of the TIA.
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Section 4.14 Security Interests.
------------------
The Company and its Subsidiaries shall perform any and all acts and execute
any and all documents (including, without limitation, the execution, amendment
or supplementation of any financing statement and continuation statement or
other statement) for filing under the provisions of the Federal Aviation Act and
the applicable Uniform Commercial Code and the rules and regulations thereunder
or any other statute, rule or regulation of any applicable federal, state or
local jurisdiction, which are necessary or advisable, from time to time, in
order to grant and maintain in favor of the Collateral Agent for the benefit of
the Holders a valid, perfected Lien on the Collateral.
The Company and its Subsidiaries shall deliver or cause to be delivered to
the Collateral Agent from time to time such other documentation, consents,
authorizations, approvals and orders in form and substance satisfactory to the
Collateral Agent as it shall deem reasonably necessary or advisable to perfect
or maintain the Liens for the benefit of the Holders.
The Company will not nor permit any of its Subsidiaries to, directly or
indirectly, create, incur, assume or suffer or permit to exist any Lien upon or
with respect to any Property (other than the Pledged Stock of the Gate
Companies) of the Company or any of its Subsidiaries that is, or is required to
be, subject to any of the Operative Documents (pursuant to the terms hereof or
thereof) except for Permitted Liens.
Section 4.15 Change in Control.
-----------------
(a) In the event that there shall occur a Change in Control (as defined
below) of the Company, each Holder of a Security shall have the right (the
"Repurchase Right") upon receipt of a Repurchase Right Notice (as defined
below), at such Holder's option, to require the Company to repurchase any
Security of such Holder or any portion of the principal amount thereof which is
$1,000 or an integral multiple of $1,000, on the date (the "Repurchase Date")
that is 45 days after the date of the Repurchase Right Notice, or, if such 45th
day is a Legal Holiday, the next subsequent day which is not a Legal Holiday,
unless otherwise required by applicable law, at a purchase price equal to 100%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to and including the Repurchase Date (the "Repurchase Price").
The right to require the repurchase of Securities shall not continue after a
discharge of the Company from its obligations with respect to the Securities in
accordance with Article 8.
(b) Within thirty (30) days after the occurrence of a Change in Control,
the Company, or, at the request of the Company and at the Company's expense, the
Trustee, shall give notice of the occurrence of the Change in Control and of the
Repurchase Right set forth herein (the "Repurchase Right Notice") by first-class
mail, postage prepaid, to each Holder of the Securities at such Holder's address
appearing in the registry books of the Company kept by the registrar. 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 rights to exercise a Repurchase Right. Any
such notice shall state that a Change in Control has occurred and that such
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Holder has the right to require the Company to repurchase such Holder's
Securities and shall contain all instructions and materials necessary to enable
such Holders to deliver Securities pursuant to the Repurchase Right including,
without limitation, the following:
(1) the Repurchase Date;
(2) the date by which the Repurchase Right must be exercised;
(3) the Repurchase Price;
(4) that Securities are to be surrendered for payment of the
Repurchase Price;
(5) that the exercise of the Repurchase Right is irrevocable on and
after the fifth Business Day prior to the Repurchase Date, unless
(i) the Company shall default in making the repurchase payment
when due, in which case Holders who elect to exercise the
Repurchase Right will retain the right to tender Securities
submitted for repurchase in payment of the Exercise Price of the
Warrants until the close of business on the date such default is
cured and such Security is repurchased; or (ii) the Company shall
otherwise, in its sole discretion, consent thereto; and
(6) the then existing Exercise Price for exercise of the Warrants,
the date on which the right to tender the principal of the
Securities to be repurchased in payment of the Exercise Price of
the Warrants will terminate and the place or places where such
Securities may be tendered in payment of the Exercise Price of
the Warrants.
(c) To exercise a Repurchase Right, a Holder shall deliver to the Company
(if it is acting as its own Paying Agent) or to a Paying Agent designated by the
Company for such purpose in the notice referred to above on or before the 30th
day after the date of the Repurchase Right Notice, or, if such day is a Legal
Holiday, the next subsequent day which is not a Legal Holiday, (i) written
notice (which notice shall be deemed to be delivered when received) of the
Holder's exercise of such right, which notice shall set forth the name of the
Holder, the principal amount of Securities (or portions thereof) to be
repurchased, a statement that an election to exercise the Repurchase Right is
being made thereby, and (ii) the Securities with respect to which the Repurchase
Right is being exercised, duly endorsed for transfer to the Company, and the
Holder of such Securities shall be entitled to receive from the Company (if it
is acting as its own Paying Agent) or such Paying Agent a non-transferable
receipt of deposit evidencing such deposit. Such written notice shall be
irrevocable, except as provided in Section 4.15(b) above. Interest on any
Securities or portion thereof tendered for repurchase pursuant to a Repurchase
Right will cease to accrue on and after the Repurchase Date.
(d) In the event a Repurchase Right shall be exercised in accordance with
the terms hereof, the Company shall pay or cause to be paid the applicable
Repurchase Price with respect to
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<PAGE>
the Securities as to which the Repurchase Right shall have been exercised to the
Holder on the Repurchase Date.
(e) Prior to a Repurchase Date, the Company shall deposit with the Trustee
or with a Paying Agent (or if the Company is acting as its own Paying Agent,
segregate and hold in trust in accordance with Section 2.4) an amount of money
sufficient to pay the Repurchase Price payable in respect of all of the
Securities which are to be repurchased on that date. If any Security submitted
for repurchase is converted prior to the repurchase thereof, any money deposited
with the Trustee or with the Paying Agent or so segregated and held in trust for
the redemption of such Security shall be paid to the Company upon its request,
or, if then held by the Company, shall be discharged from such trust.
(f) Both the notice of the Company and the notice of the Holder having
been given as specified in this Section 4.15, the Securities so to be
repurchased shall, on the Repurchase Date become due and payable at the
Repurchase Price applicable thereto and from and after such date (unless the
Company shall default in the payment of the Repurchase Price) such Securities
shall cease to bear interest. Upon surrender of any such Security for
repurchase in accordance with said notice, such Security shall be paid by the
Company at the Repurchase Price. If any Security shall not be paid upon
surrender thereof for repurchase, the principal shall, until paid, bear interest
from the Repurchase Date at the rate borne by such Security.
(g) Any Security which is to be submitted for repurchase only in part
shall be delivered pursuant to this Section 4.15 (with, if the Company or the
Trustee so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing) and the Company shall
execute, and the Trustee shall authenticate and make available for delivery to
the Holder of such Security without any service charge, a new Security or
Securities, of any authorized denomination as requested by such Holder, of the
same tenor and in aggregate principal amount equal to and in exchange for the
portion of the principal of such Security not submitted for repurchase.
(h) 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, 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 SEC and the furnishing of certain information contained therein to the
Holders.
(i) As used in this Section 4.15:
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
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the Board of Directors of the Company, (ii) the Person then constituting the
"Company" hereunder sells, transfers or otherwise disposes of all or
substantially all of its assets (regardless of whether such Person thereupon
ceases to constitute the "Company" hereunder pursuant to Section 5.2 hereof),
(iii) when, during any period of 12 consecutive months after the date of
original issuance of the Securities, individuals who at the beginning of any
such 12-month period constituted the Board of Directors of the Company (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 entitled to vote with respect to such
nomination who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved, but excluding
any of the individuals who at the beginning of such 12-month period constituted
such Board but who ceased to be a member of the Board pursuant to the Company's
mandatory retirement policy as in effect as of the date of this Indenture),
cease for any reason to constitute a majority of the Board of Directors of the
Company then in office or (iv) the date of the consummation of the merger or
consolidation of the Person then constituting the "Company" hereunder with
another corporation where the stockholders of such Person, 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 of the
Person then constituting the "Company" hereunder, 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.
Section 4.16 Restrictions on Becoming an Investment Company. The Company
----------------------------------------------
shall not become an investment company within the meaning of the Investment
Company Act of 1940 as such statute and the regulations thereunder and any
successor statute or regulations thereto may from time to time be in effect.
ARTICLE 5.
SUCCESSOR CORPORATION
Section 5.1 Covenant Not to Consolidate, Merge, Convey or Transfer Except
-------------------------------------------------------------
Under Certain Conditions.
------------------------
The Company shall not consolidate with, or merge with or into, or convey or
transfer (excluding by way of lease) all or substantially all of its Properties
(as determined at the time of such transfer without regard to any prior
conveyance or transfer or series of conveyances or transfers made on unrelated
transactions) to any other Person, or permit any Person to convey, lease or
transfer all or substantially all of its Properties to the Company, unless:
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(a) The Company shall be the continuing Person or the Person (if other
than the Company) formed by such consolidation or into which the Company is
merged or to which all or substantially all of the Properties of the Company are
conveyed or transferred (the "surviving Person"): (i) shall be a corporation
organized and existing under the laws of the United States of America or any
state thereof or the District of Columbia; (ii) shall expressly assume, by an
indenture and other agreements supplemental hereto and to the Operative
Documents, executed and delivered to the Trustee in form reasonably satisfactory
to the Trustee, the due and punctual payment of the principal of, interest on
and Liquidated Damages with respect to all the Securities and the observance and
performance of every covenant, condition and obligation of this Indenture, the
Securities and the Operative Documents on the part of the Company to be observed
or performed;
(b) Immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing hereunder;
(c) In the case of any such conveyance or transfer, such conveyance or
transfer includes, without limitation, all of the Collateral and in any event
such consolidation, merger, conveyance or transfer shall be on such terms as
shall fully preserve the Lien and security of each of the Operative Documents,
the priority thereof purported to be established thereby and the rights and
powers of the Trustee, the Collateral Agent, the Slot Trustee and the Holders of
the Securities under each of the Operative Documents; and
(d) The Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel each stating that such merger, consolidation, transfer,
conveyance, or acquisition of assets and such supplemental indenture comply with
the Indenture.
Section 5.2 Successor Person Substituted.
----------------------------
Upon any consolidation or merger, or any conveyance or transfer (excluding
by way of lease) of all or substantially all of the Properties of the Company in
accordance with Section 5.1, the surviving entity formed by such consolidation
or into which the Company is merged or the surviving entity to which such
conveyance or transfer is made shall succeed to, and be substituted for, and be
bound by and obligated to pay the obligations of, and may exercise every right
and power of, the Company under this Indenture, the Securities and the Operative
Documents with the same effect as if such successor had been named as the
Company herein and therein; and in the event of any such conveyance or transfer,
the Person that immediately prior to such conveyance or transfer constituted the
"Company" shall be discharged from all obligations and covenants under the
Indenture, the Securities and the Operative Documents and may be dissolved and
liquidated.
Such surviving entity may cause to be signed, and may issue either in its
own name or in the name of the Company prior to such succession any or all of
the Securities issuable hereunder which theretofore shall not have been signed
by the Company and delivered to the Trustee; and, upon the order of such
surviving entity, instead of the Company, and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver any Securities which previously shall have been
signed and delivered by the officers of the Company
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to the Trustee for authentication, and any Securities which such surviving
entity thereafter shall cause to be signed and delivered to the Trustee for that
purpose. All of the Securities so issued shall in all respects have the same
legal rank and benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture as though all
of such Securities had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, transfer or conveyance
such changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
Section 5.3 Limitation on Lease of Properties. Without limitation of the
---------------------------------
prohibitions set forth in the other Operative Documents, the Company shall not
lease all or substantially all of its Properties to any Person.
ARTICLE 6.
DEFAULT AND REMEDIES
Section 6.1 Events of Default.
-----------------
An "Event of Default" occurs if:
(a) the Company defaults in the payment of interest on, or Liquidated
Damages, if any, with respect to, any Security when the same becomes due and
payable and the default continues for thirty (30) days;
(b) the Company defaults in the payment of the principal amount of any
Securities when the same becomes due and payable at maturity, upon acceleration
or tender for repurchase, or otherwise;
(c) the Company fails to comply with the covenants contained in Sections
4.3 or 4.12 hereof, takes any action prohibited by Section 5.1 hereof,
discontinues substantially all of its commercial airlines operations, fails to
comply with the covenants contained in Sections 4.4(a), 4.4(c), or 4.9 of the
Pledge Agreement or Section 5.1(e) of the Master Sub-License Agreement within
the time periods provided therein, or fails to pay over amounts required under
Section 4.11(c) of the Pledge Agreement;
(d) (i) the Company fails in any material respect to comply with any of
its other agreements contained in the Securities, this Indenture or the
Operative Documents or (ii) any representation or warranty made by the Company
in this Indenture, the Operative Documents, any Subsequent Deed of Conveyance or
any Supplemental Pledge Agreement or in any certificate of the Company delivered
hereunder or under any such document shall prove to have been untrue in any
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material respect when made, and in any such case such default continues for the
period and after the notice specified below;
(e) there shall be a default or an event under or with respect to (i) any
Indebtedness of the Company or any Significant Subsidiary in excess of
$15,000,000 in principal amount, (ii) any Senior Obligation or related Senior
Security Agreement, whether such Indebtedness or Senior Obligation now exists or
shall hereafter be created, and the effect of any such default or event is to
cause the principal amount of any such Indebtedness or Senior Obligation to
become due, to have the date of payment thereof fixed prior to its stated
maturity or the date it would otherwise become due and while any Securities are
Outstanding, or to be unpaid at maturity while any Securities are Outstanding,
but only if such redemption or payment thereupon or thereafter occurs;
(f) the Company or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law (as hereinafter defined):
(i) commences a voluntary case or proceeding,
(ii) consents to the entry of an order for relief against it in an
involuntary case or proceeding,
(iii) consents to the appointment of a Custodian (as hereinafter
defined) of it or for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors, or
(v) generally is unable to pay its debts as the same become due;
(g) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against the Company or any Significant Subsidiary
in an involuntary case or proceeding,
(ii) appoints a Custodian of the Company or any Significant Subsidiary
for all or substantially all of its properties, or
(iii) orders the liquidation of the Company or any Significant
Subsidiary,
and in each case the order and decree remains unstayed and in effect for sixty
(60) consecutive days;
(h) final, non-appealable judgments for the payment of money which
judgments in the aggregate exceed $15,000,000 shall be rendered against the
Company or any Significant Subsidiary or by a court of competent jurisdiction
remain undischarged, unstayed and unsatisfied for the period and after the
notice specified below; or
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(i) any of the Operative Documents ceases, without the consent of the
Trustee, to be in full force and effect, provided, however, that if an Operative
-------- -------
Document ceases to be in full force and effect by virtue of, or arising out of,
any action by the Federal Aviation Administration terminating proprietary rights
to airport takeoff and landing access or otherwise eliminating Slots that such
occurrence shall not give rise to a Default or Event of Default.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal
or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator, sequestrator or similar official under
any Bankruptcy Law.
A Default under clause (d), (e) or (h) of this Section 6.1 is not an Event
of Default until the Trustee notifies the Company, or the Holders of at least
twenty-five percent (25%) in aggregate principal amount of the Securities
Outstanding notify the Company and the Trustee, of the Default and the Company
does not cure the Default within sixty (60) days with respect to clauses (d) and
(h), or within thirty (30) days with respect to clause (e), after receipt of the
notice; provided, however, that the Company shall be permitted such longer
period of time, if any, as may be provided for under the Operative Documents in
respect of any particular Default. The notice must specify the Default, demand
that it be remedied and state that the notice is a "Notice of Default." When a
Default is cured, it ceases.
Section 6.2 Acceleration.
------------
If an Event of Default (other than an Event of Default specified in Section
6.1(f) or (g)) occurs, and is continuing, the Trustee may, by notice to the
Company, or the Holders of at least twenty-five percent (25%) in aggregate
principal amount of the Securities Outstanding may, by notice to the Company and
the Trustee, and the Trustee shall, upon the request of such Holders, declare
all unpaid principal of, accrued interest and Liquidated Damages, if any, to the
date of acceleration on the Securities Outstanding (if not then due and payable)
to be due and payable and upon any such declaration, the same shall become and
be immediately due and payable. If an Event of Default specified in Section
6.1(f) or (g) occurs, all unpaid principal of, accrued interest on and
Liquidated Damages, if any, with respect to, the Securities Outstanding shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Securityholder. Upon payment of
such principal amount, interest, and Liquidated Damages, if any, all of the
Company's obligations under the Securities and this Indenture, other than
obligations under Sections 7.7 and 8.4, shall terminate. The Holders of a
majority in principal amount of the Securities then Outstanding by notice to the
Trustee may rescind an acceleration and its consequences if (a) all existing
Events of Default, other than the non-payment as to the Securities of the
principal, interest or Liquidated Damages, if any, which has become due solely
by such declaration of acceleration, have been cured or waived, (b) to the
extent the payment of such interest is permitted by law, interest on overdue
installments of interest and on overdue principal which has become due otherwise
than by such declaration of acceleration, has been paid, (c) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction, and (d) all payments due to the Trustee and any predecessor
Trustee under Section 7.07 have been made.
26
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Section 6.3 Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of, interest on or Liquidated Damages, if any, with respect to the
Securities or to enforce the performance of any provision of the Securities or
this Indenture including, without limitation, instituting proceedings and
exercising and enforcing, or directing exercise and enforcement of, all rights
and remedies of the Trustee, the Collateral Agent and the Slot Trustee under the
Operative Documents (provided that the Collateral Agent shall only be permitted
to become the record Holder of the Beneficial Interest and the Beneficial
Interest Certificate as and when described in Section 6.1 of the Pledge
Agreement) and directing the Collateral Agent to deposit with the Trustee all
cash and/or Investment Securities held by the Collateral Agent.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
Section 6.4 Waiver of Past Defaults.
-----------------------
Subject to Sections 6.7, 9.2 and 9.6, the Holders of a majority in
principal amount of the Securities Outstanding by notice to the Trustee may
authorize the Trustee to waive an existing Default or Event of Default and its
consequences, except a Default (a) in the payment of principal of or interest on
or Liquidated Damages with respect to any Security as specified in clauses (a)
and (b) of Section 6.1 or (b) in respect of a covenant or provision hereof which
cannot be modified or amended without the consent of the Holder of each Security
affected. When a Default or Event of Default is waived, it is cured and ceases,
and the Company, the Holders and the Trustee shall be restored to their former
positions and rights hereunder respectively; but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon.
Section 6.5 Control by Majority.
-------------------
The Holders of a majority in principal amount of the Securities Outstanding
may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee (as Trustee, Collateral Agent or Slot Trustee,
subject, in the case of any actions based on the status of the Trustee as
Collateral Agent or Slot Trustee, to any limitations otherwise expressly
provided for in the Operative Documents) or exercising any trust or power
conferred on it; provided that the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such direction. The
Trustee may refuse to follow any direction hereunder or authorization under
Section 6.4 that conflicts with law or this Indenture, that the Trustee
determines may be unduly prejudicial to the rights of another Securityholder, or
that the Trustee determines may subject the Trustee to personal liability.
However, the Trustee shall have no liability for any actions or omissions to act
which are in accordance with any such direction or authorization.
27
<PAGE>
Section 6.6 Limitation on Suits.
-------------------
A Securityholder may not pursue any remedy with respect to this Indenture
or the Securities unless:
(a) the Holder gives to the Trustee written notice of a continuing Event
of Default;
(b) the Holders of at least twenty-five percent (25%) in principal amount
of the Securities Outstanding make a written request to the Trustee to pursue
the remedy;
(c) such Holder or Holders offer to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within sixty (60) days
after receipt of the request and the offer of indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the Securities Outstanding do not give the Trustee a direction which,
in the opinion of the Trustee, is inconsistent with such request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
Section 6.7 Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal of, interest on, and
Liquidated Damages, if any, with respect to, the Security in cash, on or after
the respective due dates expressed in the Security, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of the Holder.
It is hereby expressly understood, intended and agreed that any and all
actions which a Holder of the Securities may take to enforce the provisions of
this Indenture and/or collect Payments due hereunder or under the Securities,
except to the extent that such action is determined to be on behalf of all
Holders of the Securities, shall be in addition to and shall not in any way
change, adversely affect or impair the rights and remedies of the Trustee or any
other Holder of the Securities thereunder or under this Indenture and the
Operative Documents, including the right to foreclose upon and sell the
Collateral or any part thereof and to apply any proceeds realized in accordance
with the provisions of this Indenture.
Section 6.8 Collection Suit by Trustee.
--------------------------
If an Event of Default in payment of interest or principal specified in
clause (a) or (b) of Section 6.1 occurs and is continuing, the Trustee may
recover judgment in its own name and as
28
<PAGE>
trustee of an express trust against the Company or any other obligor on the
Securities for the whole amount of principal, accrued interest and Liquidated
Damages, if any, remaining unpaid, together with interest on overdue principal
and on overdue installments of interest to the extent that payment of such
interest is permitted by law, in each case at the rate per annum provided for by
the Securities, and such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.9 Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Securityholders
allowed in any judicial proceedings relative to the Company (or any other
obligor upon the Securities), its creditors or its property and shall be
entitled and empowered to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each
Securityholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.7, and unless
prohibited by law or applicable regulations to vote on behalf of the Holders of
Securities for the election of a trustee in bankruptcy or other person
performing similar functions. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf of
any Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Securityholder in
any such proceeding except, as aforesaid, for the election of a trustee in
bankruptcy or person performing similar functions.
Section 6.10 Application of Proceeds.
-----------------------
Any moneys collected by the Trustee pursuant to this Article shall be
applied in the following order at the date or dates fixed by the Trustee and, in
case of the distribution of such moneys on account of principal, interest, or
Liquidated Damages, if any, upon presentation of the several Securities and
stamping (or otherwise noting) thereon the payment, or issuing Securities in
reduced principal amounts in exchange for the presented Securities if only
partially paid, or upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses, including reasonable
compensation to the Trustee, the Collateral Agent, the Slot Trustee, each
of their predecessors and their respective agents and attorneys (including
amounts due and unpaid under Section 7.7), and of all costs, fees, expenses
and liabilities incurred, and all advances made, by any and all of the
foregoing (including amounts due and unpaid under Section 7.7), except as a
result of negligence or bad faith;
29
<PAGE>
SECOND: In case the entire principal of the Securities shall not have
become and be then due and payable, as to any Securities (a) first to the
payment of interest and Liquidated Damages, if any, in default in the
order of the maturity of the installments of such interest and Liquidated
Damages, if any, with interest (to the extent that such interest has been
collected by the Trustee) upon the overdue installments of interest or
Liquidated Damages, if any, at the rate of interest specified in the
Securities and (b) second to the payment of principal of the Securities as
the same shall become due and payable, such payments to be made ratably to
the Persons entitled thereto, without discrimination or preference;
THIRD: In case the entire principal of the Securities shall have
become and shall be then due and payable, as to any Securities, to the
payment of the whole amount then owing and unpaid upon all the Securities
for principal, interest and Liquidated Damages, with interest upon the
overdue principal, and (to the extent that such interest has been collected
by the Trustee) upon overdue installments of interest or Liquidated
Damages, if any, at the same rate as the rate of interest specified in the
Securities; and in case such moneys shall be insufficient to pay in full
the whole amount so due and unpaid upon the Securities, then to the payment
of such principal, interest and Liquidated Damages, if any, without
preference or priority of any of principal, interest or Liquidated Damages,
if any, over the other, or any installment of interest or Liquidated
Damages, if any, over any other installment of interest or Liquidated
Damages, if any, or of any Security over any other Security, ratably to the
aggregate of such principal and accrued and unpaid interest and Liquidated
Damages; and
FOURTH: To the payment of the remainder, if any, after payment in
full of the entire principal balance, if any, of the Securities and all
interest, Liquidated Damages and other amounts due upon or in respect of
such Securities, to the Company or any other Person lawfully entitled
thereto.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Securityholders pursuant to this
Section 6.10.
Section 6.11 Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court in its
discretion may require in any suit for the enforcement of any right or remedy
under this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 does not apply
to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit
by Holders of more than ten percent (10%) in principal amount of the Securities
Outstanding.
30
<PAGE>
Section 6.12 Restoration of Rights on Abandonment of Proceedings.
---------------------------------------------------
In case the Trustee shall have proceeded to enforce any right under this
Indenture and such proceedings shall have been discontinued or abandoned for any
reason, or shall have been determined adversely to the Trustee, then and in
every such case the Company, the Trustee and the Securityholders shall be
restored respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Company, the Trustee and the Securityholders
shall continue as though no such proceedings had been taken.
Section 6.13 Powers and Remedies Cumulative; Delay or Omission Not
-----------------------------------------------------
Waiver of Default.
-----------------
No right or remedy herein conferred upon or reserved to the Trustee or to
the Securityholders is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
No delay or omission of the Trustee or of any Holder of any of the
Securities to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power or
shall be construed to be a waiver of any such Event of Default or an
acquiescence therein; and, subject to the other applicable provisions of this
Indenture, every power and remedy given by this Indenture or by law to the
Trustee or to the Securityholders may be exercised from time to time, and as
often as shall be deemed expedient, by the Trustee or by the Securityholders.
Any right or remedy herein conferred upon or reserved to the Trustee may be
exercised by it in its capacity as Trustee, as Collateral Agent and/or as Slot
Trustee, as it may deem most efficacious, if it is then acting in such capacity.
ARTICLE 7.
TRUSTEE
Section 7.1 Duties of Trustee.
-----------------
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of his own affairs.
31
<PAGE>
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties as are specifically
set forth in this Indenture and the Operative Documents and no others.
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) This paragraph (c) does not limit the effect of paragraph (b) of
this Section 7.1 or of Section 7.2.
(ii) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to Section 6.5.
(d) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1.
(f) Funds held in trust for the benefit of the Holders of the Securities
by the Trustee or any Paying Agent on deposit with itself or elsewhere, and
Investment Securities held in trust for the benefit of the Holders of the
Securities by the Trustee, shall be held in distinct, identifiable accounts, and
other funds or investments of any nature or from any source whatsoever may be
held in such accounts, except, in each case, to the extent required by law. The
Trustee shall not be liable for interest on any money received by it except as
the Trustee may agree with the Company.
Section 7.2 Rights of Trustee.
-----------------
(a) The Trustee may rely on any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
32
<PAGE>
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, which shall conform to Section
11.5. The Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on such certificate or opinion.
(c) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through its attorneys and
agents and the Trustee shall not be responsible for the misconduct or negligence
of any agent or attorney appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it reasonably believes to be authorized or within its
rights or powers.
Section 7.3 Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or Affiliates of the Company with the same rights it would
have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee is subject to Sections 7.10 and 7.11.
Section 7.4 Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Securities, it shall not be accountable for the Company's use
of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities or in this Indenture other than its certificate of
authentication.
Section 7.5 Notice of Defaults.
------------------
If a Default occurs and is continuing and if it is known to the Trustee,
the Trustee shall mail to each Securityholder notice of the Default within
ninety (90) days after the occurrence thereof except as otherwise permitted by
the TIA. Except in the case of a Default in payment of principal of, or
interest on, or Liquidated Damages, if any, with respect to, any Security, the
Trustee may withhold the notice if and so long as it, in good faith, determines
that withholding the notice is in the interests of the Securityholders.
Section 7.6 Reports by Trustee to Holders.
-----------------------------
If circumstances require any report to Holders under TIA (S) 313(a), it
shall be mailed to Securityholders within sixty (60) days after each May 15
(beginning with the May 15 following the date of this Indenture) as of which
such circumstances exist. The Trustee also shall comply with the remainder of
TIA (S) 313.
The Company shall notify the Trustee if the Securities become listed on any
stock exchange or other recognized trading market.
33
<PAGE>
The Trustee shall, upon the written request of any Holder of Securities but
subject to applicable laws and contractual limitations, provide to such Holder
copies of any reports, certificates, opinions or other materials of any kind or
nature required to be delivered to the Trustee (including in its capacity as
Collateral Agent and Slot Trustee) under this Indenture or any of the Operative
Documents or otherwise delivered by or on behalf of the Company to the Trustee
(including in its capacity as Collateral Agent and Slot Trustee).
Section 7.7 Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee from time to time reasonable
compensation, as agreed upon from time to time, for its services, including as
Collateral Agent and as Slot Trustee. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances incurred or made by it in any such
capacities. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel and all agents
and other persons not regularly in its employ.
The Company shall indemnify the Trustee (in its capacities as Trustee,
Collateral Agent and Slot Trustee) and each predecessor Trustee for, and hold
each of them harmless against, any loss or liability incurred by each of them in
connection with the administration of this trust and its duties hereunder. In
connection with any defense of such a claim, the Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee or any predecessor Trustee through the
negligence or bad faith of such Trustee or each such predecessor Trustee.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a Lien (legal and equitable) prior to the Securities on all
money or property held or collected by the Trustee, in its capacity as Trustee,
or otherwise distributable to Securityholders, except money, securities or
property held in trust to pay principal of or interest on particular Securities
(including, without limitation, pursuant to Section 8.1(b) hereof).
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(f) or (g) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.8 Replacement of Trustee.
----------------------
The Trustee (in its capacities as Trustee, Collateral Agent and Slot
Trustee) may resign by so notifying the Company in writing. The Holders of a
majority in principal amount of the Securities Outstanding may remove the
Trustee (in its capacities as Trustee, Collateral Agent and Slot Trustee) by so
notifying the Trustee in writing and may appoint a successor Trustee with the
Company's consent, which consent shall not be unreasonably refused or delayed.
The Company may remove the Trustee (in its capacities as Trustee, Collateral
Agent and Slot Trustee) if:
34
<PAGE>
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent;
(c) a receiver or other public officer takes charge of the Trustee or its
property;
(d) the Trustee becomes incapable of acting; or
(e) no Default or Event of Default has occurred and is continuing and the
Company determines in good faith to remove the Trustee.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Securities Outstanding may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Immediately after that, the
retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the Lien provided in Section 7.7, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
No resignation or removal of the Trustee and no appointment of a successor
Trustee, pursuant to this Article, shall become effective until the acceptance
of appointment by the successor Trustee under this Section 7.8. If a successor
Trustee does not take office within sixty (60) days after the retiring Trustee
resigns or is removed, the retiring Trustee, the Company or the Holders of at
least ten percent (10%) in principal amount of the Securities Outstanding may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Holder of Securities
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section 7.8,
the Company's obligations under Section 7.7 shall continue for the benefit of
the retiring Trustee which shall retain its claim pursuant to Section 7.7.
35
<PAGE>
Section 7.9 Successor Trustee by Merger, etc.
--------------------------------
If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the resulting, surviving or transferee corporation without any further act shall
be the successor Trustee.
Section 7.10 Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the requirements
of TIA (S) 310(a)(1). The Trustee shall have a combined capital and surplus of
at least $50,000,000 as set forth in its most recent, published annual report of
condition. The Trustee shall comply with TIA (S) 310(b); provided, however,
that there shall be excluded from the operation of TIA (S) 310(b)(1) any
indenture or indentures under which other securities, or certificates of
interest or participation in other securities, of the Company are outstanding,
if the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met.
Section 7.11 Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated.
Section 7.12 Other Capacities.
----------------
At all times during which any Securities are Outstanding, unless otherwise
permitted under the Operative Documents, the Trustee shall serve as the
Collateral Agent and (unless otherwise required under or for the purposes of the
Slot Trust) as the Slot Trustee, and any resignation, removal or
disqualification from any one such office (except as aforesaid as Slot Trustee)
shall, without action on the part of any Person, result in the resignation,
removal, or disqualification from all such offices. Any Person serving in such
capacities shall have and may effectively exercise all the rights, remedies and
powers, and be entitled to all protections and indemnifications, provided to
such Person in whatever capacities such Person then serves under any and all of
the Indenture and the Operative Documents, regardless of the capacity or
capacities in which such Person may purport to take or omit any action. The
Trustee agrees to and shall have the benefit of all provisions of the Operative
Documents stated therein to be applicable to the Trustee.
36
<PAGE>
ARTICLE 8.
DISCHARGE OF INDENTURE
Section 8.1 Termination of Company's Obligations.
------------------------------------
(a) The Company may terminate its obligations under this Indenture, except
those obligations referred to in the second succeeding paragraph, if all
Securities previously authenticated and delivered (other than destroyed, lost or
stolen Securities which have been replaced or paid or Securities for whose
payment Payments have theretofore been held in trust and thereafter repaid to
the Company, as provided in Section 8.3) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it hereunder.
(b) The Company may terminate all its obligations under the Indenture
except those obligations referred to in the immediately succeeding paragraph if
(1) the Company has irrevocably deposited or caused to be irrevocably
deposited with the Trustee or a Paying Agent, under the terms of an irrevocable
trust agreement in form and substance satisfactory to the Trustee and any such
Paying Agent, as trust funds in trust solely for the benefit of the Holders for
that purpose, cash or U.S. Government Obligations maturing as to principal and
interest, in such amounts and at such times as are sufficient without
consideration of any reinvestment of any such interest to pay principal of,
interest on, and the then maximum possible Liquidated Damages, if any, with
respect to the Securities Outstanding to maturity provided that the Trustee or
such Paying Agent shall have been irrevocably instructed to apply such money or
the proceeds of such U.S. Government Obligations to the payment of said
principal, interest and Liquidated Damages, if any, with respect to the
Securities.
(2) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing (A) on the date of such deposit described
in clause (1), or (B) insofar as paragraph (f) of Section 6.1 is concerned, at
any time during the period ending on the 91st day after the date of such deposit
or, if longer, ending on the day following the expiration of the longest
preference period applicable to the Company in respect of such deposit (it being
understood that the condition in this clause (B) is a condition subsequent and
shall not be deemed satisfied until the expiration of such period);
(3) Such termination and deposit described in clause (1) shall not (A)
cause the Trustee to have a conflicting interest as defined in TIA Section
310(b) or otherwise for purposes of the Trust Indenture Act with respect to any
securities of the Company, or (B) result in the trust arising from such deposit
to constitute, unless it is qualified as, a regulated investment company under
the Investment Company Act of 1940, as amended;
37
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(4) Such termination and deposit described in clause (1) shall not
result in a breach or violation of or constitute a default under, this Indenture
or any other material agreement or instrument to which the Company is a party or
by which it is bound;
(5) The Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the Securities will not recognize
income, gain or loss for federal income tax purposes as a result of such
termination and deposit described in clause (1) and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such termination and deposit had not occurred; and
(6) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent and subsequent provided for above in this Section 8.1(b) have been
complied with.
The Company may make an irrevocable deposit pursuant to this Section 8.1
only if at such time the Company shall have delivered to the Trustee and any
such Paying Agent an Officers' Certificate to that effect.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.3, 2.4, 2.5, 2.6, 2.7, 4.1, 4.2, 4.8, 7.7, 7.8, 8.2, 8.3, 8.4 and
10.4 shall survive until the Securities are no longer Outstanding. Thereafter,
the Company's obligations in Sections 7.7 and 8.3 shall survive.
(c) After the effectiveness of any termination of its obligations (except,
in the case of Section 8.1(b), as set forth in the second paragraph thereof),
under this Indenture in accordance with Section 8.1(a) or (b) above (such
effective date, the "Indenture Discharge Date") and payment of all obligations
of the Company accrued under Section 7.7, the Trustee upon Request shall
acknowledge in writing the discharge of the Company's obligations under this
Indenture except for those surviving obligations specified above.
Section 8.2 Application of Trust Money.
--------------------------
The Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.1, and shall apply the
deposited money and the money from U.S. Government Obligations in accordance
with this Indenture to the payment of principal, interest and Liquidated
Damages, if any, on the Securities. The obligations of the Trustee and Paying
Agent under this Section 8.2 shall survive, notwithstanding any termination or
discharge of the Company's obligations pursuant to Section 8.1, until all
Securities are paid in full.
The Company shall pay and indemnify the Trustee or Paying Agent, as the
case may be, against any tax, fee or other charge imposed on or assessed against
the money or U.S. Government Obligations deposited pursuant to Section 8.1(c) or
the principal and interest received in respect thereof.
Section 8.3 Repayment to Company.
--------------------
38
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Anything in Section 8.1(b) to the contrary notwithstanding, the Trustee or
Paying Agent, as the case may be, shall deliver or pay to the Company from time
to time upon Company Request any money or U.S. Government Obligations (or other
property and any proceeds therefrom) held by it as provided in Section 8.1(b)
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee and to the Paying Agent, if applicable, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
termination under said Section 8.1(b). The Trustee and the Paying Agent shall
Pay to the Company any Payments held by them for the payment of principal,
interest and Liquidated Damages, if any, that remains unclaimed for two (2)
years after the Stated Maturity of such payment of principal, interest or
Liquidated Damages, as the case may be; provided, however, that the Trustee or
such Paying Agent before making any Payment shall at the expense of the Company
cause to be published once in a newspaper of general circulation in the City of
New York or mail to each Holder entitled to such money, notice that such
Payments remain unclaimed and that, after a date specified therein which shall
be at least thirty (30) days from the date of such publication or mailing, any
unclaimed balance of such Payments then remaining will be repaid to the Company.
After payment to the Company, Securityholders entitled to Payments must look to
the Company for payment as general creditors unless an applicable abandoned
property law designates another person.
Section 8.4 Reinstatement.
-------------
Anything herein to the contrary notwithstanding, (i) if the Trustee or
Paying Agent, as the case may be, is unable to apply any money or U.S.
Government Obligations in accordance with Section 8.1 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, or
(ii) the deposited money or U.S. Government Obligations (or the proceeds
thereof) are, for any reason, insufficient in amount, then the Company's
obligations under this Indenture shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.1 until such time as the Trustee, or
Paying Agent, as the case may be, is permitted to apply all such money or U.S.
Government Obligations and the proceeds of the investment thereof in accordance
with Section 8.1, or the deficiency is cured in the manner set forth in Section
8.1(b), as the case may be. In such event, the Trustee will invest all such
money or the proceeds from U.S. Government Obligations at the Company's request
in other U.S. Government Obligations and, upon written notice from the Company,
so long as there exists no Event of Default, to the extent and only to the
extent provided in the first sentence of Section 8.3 return to the Company any
money or U.S. Government Obligations deposited with the Trustee pursuant to
Section 8.1. If the Company has made any payment of interest on, principal of,
or Liquidated Damages, if any, with respect to any Securities because of an
event described in clause (i) of the first sentence of this Section 8.4, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent, as the case may be.
39
<PAGE>
ARTICLE 9.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.1 Without Consent of Holders.
--------------------------
The Company and the Trustee, the Collateral Agent or the Slot Trustee, as
the case may be, may amend or supplement this Indenture, the Securities or the
Operative Documents without notice to or consent of any Securityholder:
(a) to provide for uncertified Securities in addition to or in place of
certificated Securities;
(b) to provide for the assumption of the Company's obligations to the
Holders of the Securities in the case of a merger or consolidation or transfer
of all or substantially all of the assets of the Company or otherwise to comply
with Article 5;
(c) to comply with any requirements of the SEC in connection with the
qualification of this Indenture under the TIA; or
(d) to cure any ambiguity, defect or inconsistency or to make any other
change, in each case, provided that such action does not materially adversely
affect the interests of any Securityholder.
Section 9.2 With Consent of Holders.
-----------------------
Subject to Section 6.7, the Company (by resolution of its Board of
Directors if required) and the Trustee, the Collateral Agent or the Slot
Trustee, as the case may be, may amend or supplement this Indenture, the
Securities or the Operative Documents without notice to any Securityholder but
with the written consent of the Required Holders. Subject to Sections 6.4, 6.5
and 6.7, the Required Holders may authorize the Trustee to, and the Trustee,
subject to Section 9.6, upon such authorization shall, waive compliance by the
Company with any provision of this Indenture, the Securities or the Operative
Documents. However, an amendment, supplement or waiver, including a waiver
pursuant to any provision of Section 6.4, may not without the consent of each
Securityholder affected:
(a) reduce the amount of Securities whose Holders must consent to an
amendment, supplement or waiver (or, without limiting the generality of the
foregoing, consent to any Senior Security Interest);
(b) reduce the rate or change the time for payment of interest on, or
Liquidated Damages, if any, with respect to any Security;
40
<PAGE>
(c) reduce the principal of, or the amount of Liquidated Damages, if any,
with respect to, or change the fixed maturity of any Security;
(d) change the place of payment where, or the coin or currency in which,
any Security (or the Repurchase Price thereof) interest thereon, or Liquidated
Damages, if any, with respect thereto is payable;
(e) waive a default in the payment of the principal of, or interest on, or
Liquidated Damages with respect to any Security;
(f) make any changes in Sections 2.8, 6.4, 6.7 or 6.10 or the third
sentence of this Section 9.2; or
(g) reduce any amount payable upon exercise of the Repurchase Right
thereof or otherwise change the Repurchase Right provision or impair the right
to institute suit for the enforcement of any such payment on any Security when
due or adversely effect any Repurchase Rights.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment, supplement or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section 9.2 becomes
effective, the Company shall mail to the Holders affected thereby the amendment,
supplement or waiver. Any failure of the Company to mail such notice, or any
defect therein, shall not, however in any way impair or affect the validity of
any such amendment, supplement or waiver.
Section 9.3 Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect.
Section 9.4 Revocation and Effect of Consents.
---------------------------------
Until an amendment or waiver becomes effective, a consent to it by a Holder
is a continuing consent by the Holder and every subsequent Holder of a Security
or portion of a Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent is not made on any Security. However,
any such Holder or subsequent Holder may revoke the consent as to his Security
or portion of a Security. Such revocation shall be effective only if the
Trustee receives the notice of revocation before the date the amendment,
supplement or waiver becomes effective.
After an amendment, supplement or waiver becomes effective, it shall bind
every Securityholder, unless it makes a change described in any of clauses (a)
through (g) of Section 9.2.
41
<PAGE>
In that case the amendment, supplement or waiver shall bind each Holder of a
Security who has consented to it and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security; provided, however, that no amendment, supplement or waiver relating to
any impairment of the right to receive principal and interest when due and
payable consented to by a Holder shall be binding upon any subsequent Holder of
a Security or a portion of a Security that evidences the same debt as the
consenting Holder's Security unless notation with regard thereto is made upon
such Security or the Security representing such portion.
Section 9.5 Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security, the
Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
Section 9.6 Trustee to Sign Amendments, etc.
-------------------------------
The Trustee shall be entitled to receive and rely upon an Officers'
Certificate and an Opinion of Counsel stating that the execution of any
amendment, supplement or waiver authorized pursuant to this Article 9 has been
duly authorized by the Company and is authorized or permitted by this Indenture
and the applicable Operative Documents. The Trustee may, but shall not be
obligated to, execute any such amendment, supplement or waiver which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 9.7 Effect of Supplement and/or Amendment.
-------------------------------------
Upon the execution of any supplemental indenture and/or any such amendment
or supplement to the Operative Documents pursuant to the provisions of this
Article 9, this Indenture and the Operative Documents shall be and be deemed to
be modified and amended in accordance therewith and the respective rights,
limitations of rights, obligations, duties and immunities under this Indenture
and the Operative Documents of the Trustee, the Collateral Agent, the Slot
Trustee, the Company and the Holders of Securities shall thereafter be
determined, exercised and enforced hereunder and thereunder subject in all
respects to such modifications and amendments, and all terms and conditions of
any such supplemental indenture and/or any such amendment or supplement to the
Operative Documents shall be and be deemed to be part of the terms and
conditions of this Indenture and the Operative Documents for any and all
purposes.
42
<PAGE>
ARTICLE 10.
SECURITY
Section 10.1 Operative Documents.
-------------------
To secure the due and punctual payment, performance and observance of the
Obligations, the Company has simultaneously with the execution of this Indenture
entered into or caused to be assigned to the Trustee, Collateral Agent and/or
Slot Trustee the Operative Documents and has made an assignment and pledge of or
otherwise transferred or caused to be transferred its right, title and interest
in and to the Collateral and the Acquired Slots to the Trustee, Collateral Agent
and/or Slot Trustee pursuant to the Operative Documents and in the manner and to
the extent therein provided. Each Securityholder, by accepting a Security,
agrees to all of the terms and provisions of each Operative Document (including,
without limitation, the provisions providing for the release of Collateral
and/or Slot Trust Assets), as the same may be in effect or may be amended from
time to time pursuant to its terms and the terms hereof. The Company will
execute, acknowledge and deliver to the Trustee, the Collateral Agent or the
Slot Trustee such further assignments, transfers, assurances or other
instruments as the Trustee may require or request, and will do or cause to be
done all such acts and things as may be necessary or proper, or as may be
reasonably required by the Trustee, the Collateral Agent or the Slot Trustee to
assure and confirm to the Trustee, the Collateral Agent or the Slot Trustee the
security interest in the Collateral and the ownership of the Acquired Slots
contemplated hereby and by the Operative Documents or any part thereof, as from
time to time constituted, so as to render the same available for the security
and benefit of this Indenture and of the Securities secured hereby, according to
the intent and purposes herein expressed.
Section 10.2 Opinions, Certificates and Appraisals.
-------------------------------------
(a) The Company shall furnish to the Trustee promptly after the execution
and delivery of this Indenture but prior to authentication of any Securities an
Opinion of Counsel (A) either (i) stating that in the opinion of such Counsel
the actions necessary to be taken under the Federal Aviation Act, the Uniform
Commercial Code of all applicable jurisdictions, or otherwise with respect to
the recording, registering and filing of this Indenture, the Operative
Documents, financing statements or other instruments to make effective and
(subject to the Certificate of Title Exception) to perfect the Lien intended to
be created by the Pledge Agreement have been taken and reciting with respect to
the security interests in the Collateral, the details of such actions, or (ii)
stating that, in the opinion of such Counsel, no such action is necessary to
make such Lien effective and (subject to the Certificate of Title Exception)
perfected, and (B) either (i) stating that, in the opinion of such Counsel,
action has been taken with respect to the recordation of all instruments
required to be executed or filed to establish and maintain the Slot Trust as the
holder of record at the FAA of the Acquired Slots and reciting with respect to
such recordation the details of such action, or (ii) stating that, in the
opinion of such Counsel, no such action, execution or filing is necessary to
establish and maintain the Slot Trust.
43
<PAGE>
(b) The Company shall furnish to the Collateral Agent and the Trustee
hundred and twenty (120) days after January 1 in each year beginning with
January 1, 1998, an Opinion of Counsel, dated as of such date, either (a)(i)
stating that, in the opinion of such Counsel, action has been taken with respect
to the recording, registering, filing, rerecording, re-registering and refiling
(in this section, "recordation") of all supplemental indentures, financing
statements, continuation statements or other instruments of further assurance as
is necessary to maintain the Lien intended to be created by the Pledge Agreement
and (subject to the Certificate of Title Exception) the perfection thereof and
reciting with respect to the security interests in the Collateral the details of
such action or referring to prior Opinions of Counsel in which such details are
given, and (ii) stating that all financing statements and continuation
statements have been executed and filed that are necessary as of such date and
during the succeeding seventeen (17) months fully to maintain the Lien of the
Securityholders and the Collateral Agent and the Trustee intended to be created
hereunder and under the Pledge Agreement with respect to the security interest
in the Collateral and (subject to the Certificate of Title Exception) the
perfection thereof, or (b) stating that, in the opinion of such Counsel, no such
action is necessary to maintain such Lien and (subject to the Certificate of
Title Exception) the perfection thereof.
The Company shall also furnish to the Slot Trustee and the Trustee within
one hundred and twenty (120) days after January 1 in each year beginning with
January 1, 1998, an Opinion of Counsel, dated as of such date, either (a)(i)
stating that, in the opinion of such Counsel, action has been taken with respect
to the recordation of all instruments as are necessary to maintain the Slot
Trust as the Holder of record at the FAA of the Acquired Slots and reciting with
respect to the recordation of such Acquired Slots the details of such action or
referring to prior Opinions of Counsel in which such details are given, and (ii)
stating that all instruments have been executed and filed that are necessary as
of such date and during the succeeding seventeen (17) months fully to continue
in effect such recordation as will maintain the Slot Trust as such Holder of
record for the benefit of the Securityholders, the Slot Trustee, the Holder of
the Beneficial Interest and the Beneficial Interest Certificate and the Trustee
as intended hereunder and under the Acquired Slot Trust Agreement and the Master
Sub-License Agreement with respect to the Acquired Slots, or (b) stating that,
in the opinion of such Counsel, no such action, execution or filing is necessary
to maintain the necessary recordation.
(c) The release of any Collateral from the terms of the Pledge Agreement
or of Slot Trust Assets from the Slot Trust will not be deemed to impair the
security under this Indenture in contravention of the provisions hereof if and
to the extent the Collateral and the Slot Trust Assets are released pursuant to
the Pledge Agreement, the Acquired Slot Trust Agreement or the Master Sub-
License Agreement, as applicable. To the extent applicable, the Company shall
cause TIA (S) 314(d) relating to the release of property or securities from the
Lien of the Pledge Agreement or the possession of the Slot Trust pursuant to the
Master Sub-License Agreement and relating to the substitution therefor of any
property or securities to be subjected to the Lien of the Pledge Agreement to be
complied with. With respect to any such substitution, the Company shall furnish
to the Trustee an Independent Appraiser's Certificate if required by TIA (S)
314(d). Any certificate or opinion required by TIA (S) 314(d) may be made by an
Officer of the Company, except in cases where TIA (S) 314(d) requires that such
certificate or opinion be made by an independent person,
44
<PAGE>
which person shall meet the requirements set forth in clauses (a) through (d) of
the definition of the term "Independent Appraiser."
Section 10.3 Authorization of Actions to be Taken by the Trustee Under the
-------------------------------------------------------------
Operative Documents.
-------------------
The Trustee (in its capacities as such and/or as Collateral Agent and/or
Slot Trustee) may, in its sole discretion and without the consent of the
Securityholders, take all actions it deems necessary or appropriate to (a)
enforce any of the terms of the Operative Documents and (b) collect and receive
any and all amounts payable in respect of the obligations of the Company
hereunder. Subject to the provisions of this Indenture and the Operative
Documents, the Trustee (in such capacities) shall have power to institute and to
maintain such suits and proceedings as it may deem expedient to prevent any
impairment of the Collateral and the Acquired Slots by any acts which may be
unlawful or in violation of the Operative Documents or this Indenture, and such
suits and proceedings as it may deem expedient to preserve or protect its
interest and the interests of the Securityholders in the Collateral and the
Acquired Slots (including power to institute and maintain suits or proceedings
to restrain the enforcement of or compliance with any legislative or other
governmental enactment, rule or order that may be unconstitutional or otherwise
invalid if the enforcement of, or compliance with, such enactment, rule or order
would impair the security interest hereunder or be prejudicial to the interests
of the Securityholders or of the Trustee in any such capacity).
Section 10.4 Payment of Expenses.
-------------------
On demand of the Trustee, the Company forthwith shall pay or satisfactorily
provide for all reasonable expenditures incurred by the Trustee under this
Article 10, and all such sums shall be a Lien upon the Collateral and shall be
secured thereby.
Section 10.5 Authorization of Receipt of Funds by the Trustee Under the
----------------------------------------------------------
Operative Documents.
-------------------
The Trustee is authorized to receive any funds for the benefit of
Securityholders distributed under the Operative Documents, and to make further
distributions of such funds to the Holders according to the provisions of this
Indenture.
Section 10.6 Agreement as to Appraised Value and Fair Market Value.
-----------------------------------------------------
The Company and the Trustee acknowledge that the use of Appraised Value and
Fair Market Value herein or in the Operative Documents is strictly and solely
for convenience in establishing relative value equivalencies of Permitted
Substitutes permitted to be substituted under limited circumstances for
Collateral and/or Acquired Slots under the Operative Documents. Accordingly,
the Appraised Value or Fair Market Value of any Collateral, Permitted
Substitutes, Acquired Slots or Slots subjected to the Lien of the Pledge
Agreement or conveyed to the Slot Trust is not an indication of and shall not be
deemed an agreement by the parties as the basis for valuation of such
45
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Collateral, Permitted Substitutes, Acquired Slots, or Slots for purposes of
determining the value of the Trustee's secured claim against the Company,
adequate protection of the Trustee's interest in the Collateral, Permitted
Substitutes, Acquired Slots or Slots or for any other purpose in any bankruptcy,
receivership or insolvency proceeding involving the Company or any remedial
action brought by the Trustee, Collateral Agent or Slot Trustee, except to the
extent such valuations are mandated by applicable law, or any court with
jurisdiction over such proceedings, in either case without regard to the use of
the concept of Appraised Value or Fair Market Value by the parties hereto.
Section 10.7 Intercreditor Agreement.
-----------------------
The Trustee or the Collateral Agent may enter into intercreditor agreements
substantially in the form attached hereto as Exhibit E with the holders from
time to time of Senior Security Interests in order to define the relative rights
and priorities among the Holders of the Securities and the holders of the
applicable Senior Obligations in respect of the Collateral.
ARTICLE 11.
MISCELLANEOUS
Section 11.1 Trust Indenture Act Controls.
----------------------------
If and to the extent that any provision of this Indenture limits,
qualifies, or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the TIA, such imposed duties shall control.
Section 11.2 Notices.
-------
Any notice or communication shall be sufficiently given (subject to the
provisions of the third succeeding paragraph) if in writing and delivered in
person or when mailed by first-class mail addressed as follows:
46
<PAGE>
if to the Company:
Trans World Airlines, Inc.
One City Centre
515 N. 6th Street
St. Louis, Missouri 63101
Attention: Richard P. Magurno, Senior Vice
President and General Counsel
if to the Trustee:
First Security Bank, National Association,
as Trustee
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
------------
The Company or the Trustee by notice to the others may designate additional
or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed to
him by first-class mail, postage prepaid, at his address as it appears on the
Register and shall be sufficiently given to him if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders.
Except for a notice to the Trustee or to the Company, which is deemed given only
when received, if a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
Section 11.3 Communications By Holders With Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other person shall
have the protection of TIA (S) 312(c).
Section 11.4 Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any Request or application by the Company to the Trustee to take any
action under this Indenture or the Operative Documents, the Company shall
furnish to the Trustee:(a) an Officers' Certificate, and (b) an Opinion of
Counsel, each stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with, provided, that in the case of any such
application or Request as to which the furnishing of an Officers' Certificate or
Opinion of Counsel is specifically required by any provision
47
<PAGE>
of this Indenture or the Operative Documents relating to such particular
application or Request, no additional certificate or opinion, as the case may
be, need be furnished.
Section 11.5 Statements Required In Certificate or Opinion.
---------------------------------------------
Each certificate or opinion provided for and delivered to the Trustee, the
Collateral Agent or the Slot Trustee with respect to compliance with a condition
or covenant provided for in this Indenture or the Operative Documents shall
include: (a) a statement that the Person signing such certificate or opinion
has read such condition or covenant and the definitions herein or therein
relating thereto; (b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (c) a statement that, in the opinion of
such Person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such condition or
covenant has been complied with; and (d) a statement as to whether or not in the
opinion of such Person, such condition or covenant has been complied with.
Any certificate or opinion of an Officer or an engineer, insurance broker,
accountant or other expert may be based, insofar as it relates to legal matters,
upon a certificate or opinion of or upon representations by counsel, unless such
officer, engineer, insurance broker, accountant or other expert knows that the
certificate or opinion or representations with respect to the matters upon which
his opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should have known that the same were erroneous.
Any certificate or Opinion of Counsel may be based, insofar as it relates
to factual matters, upon the certificate or opinion of or representations by an
officer or officers of the Company stating that the information with respect to
such factual matters is in possession of the Company, unless such counsel knows
that the certificate or opinion or representations with respect to the matters
upon which his opinion may be based as aforesaid are erroneous and insofar as it
relates to legal matters in a jurisdiction or area of law beyond the expertise
of such counsel, such counsel may rely upon the opinion of counsel qualified in
such other jurisdiction or area of law.
Wherever in this Indenture or the Operative Documents in connection with
any application, certificate or report to the Trustee, the Collateral Agent or
the Slot Trustee it is provided that the Company shall deliver any document as a
condition of the granting of such application or as evidence of the Company's
compliance with any term hereof, it is intended that the truth and accuracy at
the time of the granting of such application or at the effective date of such
certificate or report, as the case may be, of the facts and opinions stated in
such document shall in each such case be a condition precedent to the right of
the Company to have such application granted or to the sufficiency of such
certificate or report. Nevertheless, in the case of any such application,
certificate or report, any document required by any provision of this Indenture
or the Operative Documents to be delivered to the Trustee, the Collateral Agent
or the Slot Trustee as a condition of the granting of such application or as
evidence of such compliance may be received by the Trustee, the Collateral Agent
or the Slot Trustee as conclusive evidence of any statement therein contained
and shall be full
48
<PAGE>
warrant, authority and protection to the Trustee, the Collateral Agent or the
Slot Trustee acting on the faith thereof.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Whenever any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements or opinions or other
instruments under this Indenture or any Operative Document he may, but need not,
consolidate such instruments into one.
Section 11.6 Liens. Rules By Trustee, Paying Agent, Registrar.
------------------------------------------------
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Registrar, Paying Agent or Tender Agent may make
reasonable rules for their respective functions.
Section 11.7 Payment Dates.
-------------
If a payment date is not a Business Day, payment may be made at the
designated place on the next succeeding day that is a Business Day with the same
effect as if such payment was made on the original payment date, and no interest
or Liquidated Damages, if any, shall accrue on that payment for the intervening
period.
Section 11.8 Governing Law.
-------------
The laws of the State of New York shall govern this Indenture and the
Securities without regard to principles of conflict of laws.
Section 11.9 No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret any indenture, loan or debt
agreement of the Company or any of its Subsidiaries which is unrelated to the
Indenture, the Securities or the Operative Documents. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture or the Operative
Documents.
Section 11.10 No Recourse Against Others.
--------------------------
A director, officer, employee or stockholder, as such, of the Company shall
not have any liability for any obligations of the Company under the Securities
or the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability.
49
<PAGE>
Section 11.11 Provisions of Indenture for the Sole Benefit of Parties and
-----------------------------------------------------------
Securityholders.
---------------
Nothing in this Indenture or the Securities, expressed or implied, shall
give or be construed to give to any Person, firm or corporation, other than the
parties hereto and their successors and the Holders of the Securities, any legal
or equitable right, remedy or claim under this Indenture or under any covenant
or provision herein contained, all such covenants and provisions being for the
sole benefit of the parties hereto and their successors and of the Holders of
the Securities.
Section 11.12 Successors.
----------
All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
Section 11.13 Duplicate Originals.
-------------------
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 11.14 Severability.
------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and a Holder shall have no claim therefor against any party hereto.
Section 11.15 Rating Agencies.
---------------
Any reference in this Indenture or in the Operative Documents to Moody's
Investors Service, Standard & Poor's Corporation or Duff & Phelps (each a
"rating agency" or an "agency") shall include its successors or successor
publishers of its financial ratings, and references to the ratings of any such
rating agency shall include comparable ratings in the event of one or more
reclassifications of such ratings by such rating agency after the date hereof.
In the event that any of such rating agencies shall cease to publish applicable
ratings, any provision herein requiring ratings of all of such agencies shall be
deemed to require ratings of only the agency or agencies continuing to publish
applicable ratings. If all of such agencies cease to publish applicable
ratings, any provision herein requiring ratings of any of such agencies shall be
deemed to require ratings that are both (a) certified by the Company in an
Officers' Certificate to be equivalent to the ratings of such agency or agencies
and (b) reasonably satisfactory to the Trustee or the Collateral Agent.
Section 11.16 Effect of Headings.
------------------
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
50
<PAGE>
ARTICLE 12.
RELEASE OF COLLATERAL
Section 12.1 Release of Collateral.
---------------------
The Collateral securing the obligations evidenced by the Securities shall
be subject to release from the Lien of this Indenture and the Operative
Documents from and to the extent provided by the Operative Documents.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
TRANS WORLD AIRLINES, INC,
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
FIRST SECURITY BANK, NATIONAL ASSOCIATION
as Trustee
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
51
<PAGE>
EXHIBIT A TO INDENTURE
===============================================================================
12% SENIOR SECURED NOTES
ISSUED UNDER
INDENTURE
FROM
TRANS WORLD AIRLINES, INC.
TO
FIRST SECURITY BANK, NATIONAL ASSOCIATION
AS TRUSTEE
Dated as of March 31, 1997
==============================================================================
<PAGE>
Form of 12% Senior Secured Note due 2002
----------------------------------------
No. PS______ $_______
THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT. SOLELY FOR FEDERAL
INCOME TAX PURPOSES, (I) ISSUE PRICE IS $_____ PER $1,000 PRINCIPAL
AMOUNT, (II) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $_____ PER
$1,000 PRINCIPAL AMOUNT, (III) THE ISSUE DATE WAS MARCH 31, 1997, AND
(IV) YIELD TO MATURITY IS ______.
THE NOTES REPRESENTED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS
PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000
PRINCIPAL AMOUNT AT MATURITY OF 12% SENIOR SECURED NOTES DUE 2002 OF
TRANS WORLD AIRLINES, INC (THE "NOTES") AND ONE WARRANT. PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE EARLIEST OF (i) JUNE 29, 1997, (ii)
THE DATE ON WHICH AN EXCHANGE OFFER REGISTRATION STATEMENT OR A SHELF
REGISTRATION STATEMENT FOR THE NOTES IS DECLARED EFFECTIVE BY THE
SECURITIES AND EXCHANGE COMMISSION OR (iii) SUCH EARLIER DATE AS
PAINEWEBBER INCORPORATED MAY, IN ITS DISCRETION, DEEM APPROPRIATE, THE
NOTES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR
EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY
TOGETHER WITH, THE WARRANTS.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR
ANY STATE SECURITIES LAWS. NEITHER THESE SECURITIES NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION
5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE RESALE
RESTRICTION TERMINATION DATE WHICH IS THE DATE WHICH IS TWO YEARS
AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE AND THE LAST DATE ON
WHICH THE CORPORATION OR ANY AFFILIATE OF THE CORPORATION WAS THE
OWNER OF THESE SECURITIES (OR ANY PREDECESSOR OF THESE SECURITIES)
ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
TO A PERSON IT REASONABLY BELIEVES IS AS "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
A-1
<PAGE>
WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A UNDER THE SECURITIES ACT, (D) PURSUANT TO OFFERS AND SALES
TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(a)(1),(2) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND
NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE CORPORATION'S AND THE TRANSFER AGENT'S
RIGHT PRIOR TO ANY SUCH OFFER, SALE, OR TRANSFER (i) PURSUANT TO
CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND OTHER INFORMATION SATISFACTORY TO EACH OF
THEM, AND (ii) IN EACH OF THE FOREGOING CASES ,TO REQUIRE A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF
THESE SECURITIES IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW
YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OR
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE
REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION
AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE
TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
TRANS WORLD AIRLINES, INC.
12% SENIOR SECURED NOTE DUE 2002
CUSIP ________
Trans World Airlines, Inc., a Delaware corporation (hereinafter sometimes
called the "Company", which term includes any successor Person under the
Indenture hereinafter referred to), promises to pay to _________________________
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<PAGE>
______, or registered assigns, the principal sum of ___________________ Dollars
on April 1, 2002 and to pay interest thereon as provided on the reverse hereof,
until the principal hereof is duly paid or provided for.
Interest Payment Dates: April 1 and October 1 and the date of maturity.
Record Dates: March 15 and September 15.
Other provisions of this Note set forth on the reverse hereof or elsewhere
herein shall have the same effect as if set forth at this place.
Executed as a sealed instrument under the corporate seal or a facsimile thereof.
ATTEST: TRANS WORLD AIRLINES, INC.
Corporate Secretary
________________________________ By:____________________________________
Vice President, Corporate Finance
Dated: __________________________
Certificate of Authentication
-----------------------------
This is one of the Securities referred to in the within-mentioned Indenture.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, as Trustee
By:____________________________________
Authorized Signature
A-3
<PAGE>
(Back of Security)
TRANS WORLD AIRLINES, INC.
"THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933
(THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD, OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED
THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT,
PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO
YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE
ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS
SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), (A) THIS SECURITY MAY BE
OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QIB (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(ii) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (iv) TO THE
COMPANY OR (v) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH OF CASES (i) THROUGH (v) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO
IN (A) ABOVE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER
AFTER THE RESALE RESTRICTION TERMINATION DATE."
BY ITS ACQUISITION HEREOF, THE HOLDER REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR") AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) OR (C)
IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH REGULATION S.
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR
AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER
AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE
FOREGOING RESTRICTIONS."
12% Senior Secured Notes Due 2002
The Security is one of a duly authorized issue of securities of the Company
designated as its 12% Senior Secured Notes due 2002 (hereinafter called the
Securities"), limited in aggregate principal amount Outstanding to $50,000,000,
(subject to increase up to $57,500,000 aggregate principal amount Outstanding,
as provided in the Indenture) issued or to be issued pursuant to an Indenture,
dated as of March 31, 1997 (hereinafter called the "Indenture") between the
Company and First Security Bank, National Association, as Trustee (herein called
the "Trustee", which term includes any successor trustee under the Indenture).
A-4
<PAGE>
1. Interest; Liquidated Damages. The Company promises to pay interest on
----------------------------
the principal amount of this Security at the rate of twelve percent (12%) per
---
annum. To the extent permitted by law, interest on any overdue interest or
- ------
Liquidated Damages, if any, will accrue and be paid at the rate then borne by
the principal amount hereof. Overdue principal shall bear interest at the rate
shown above. The Company will pay interest and Liquidated Damages, if any,
semi-annually on April 1 and October 1 of each year, commencing October 1, 1997.
Interest on the Securities will accrue from March 31, 1997 or the most recent
Interest Payment Date to which interest and Liquidated Damages, if any, have
been paid. 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 Securities tendered for
repurchase on a Repurchase 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 repurchase (unless such
Holders tender such Securities in payment of the Exercise Price of the Warrants
in accordance with the Indenture, in which case such holders will receive such
payment on the corresponding Interest Payment Date, but will be required to
accompany such tender with funds equal to the interest and Liquidated Damages,
if any, payable on such succeeding Interest Payment Date on the principal amount
of Securities tendered in payment of the Exercise Price of the Warrants).
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment. Unless the Securities are tendered in payment of
-----------------
the Exercise Price of the Warrants, the Company will pay interest on and
Liquidated Damages, if any, with respect to, the Securities (except defaulted
interest) to the persons who are registered Holders of Securities at the close
of business on the record date set forth on the face of this Security next
preceding the applicable Interest Payment Date. Holders must surrender
Securities to a Paying Agent to collect principal payments and must surrender
Securities to a Tender Agent to utilize the principal amount of such Securities
to pay the Exercise Price of the Warrants. The Company will pay principal,
interest and Liquidated Damages, if any, at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan, The City of New York
and at any other office or agency maintained by the Company for such purpose in
money of the United States that at the time of payment is legal tender for
payment of public and private debts; provided, however, that at the option of
the Company, payment of interest on and Liquidated Damages, if any, with respect
to, the Securities may be by check payable in such money and mailed to a
Holder's registered address. If a payment date is a legal holiday at a place of
payment, payment may be made at that place on the next succeeding Business Day,
and no interest shall accrue for the intervening period.
3. Registrar, Paying Agent and Tender Agent. Initially, First Security
----------------------------------------
Bank, National Association (the "Trustee") will act as Registrar, Paying Agent
and Tender Agent. The Company may change any Paying Agent, Tender Agent,
Registrar or co-registrar without prior notice to any Securityholder. The
Company may act in any such capacity, except in certain circumstances.
A-5
<PAGE>
4. Indenture. The Company issued the Securities under an Indenture dated
---------
as of March 31, 1997 (as amended, amended and restated or supplemented, the
"Indenture") between the Company and the Trustee. The terms of the Securities
include those stated in the Indenture and those made applicable to the Indenture
by the Trust Indenture Act of 1939 (15 U.S.C. (S) (S) 77aaa-77bbbb) as in effect
on the date of the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and such Act for a statement of
such terms. The Securities are secured obligations of the Company limited to
$50,000,000 aggregate principal amount (subject to increase up to $57,500,000
aggregate principal amount), except as otherwise provided in the Indenture.
Capitalized terms used in this Security and not defined in this Security shall
have the meaning set forth in the Indenture, including the Definitions Appendix
to the Indenture.
5. Security. The Securities are secured by Liens on certain Properties
--------
of the Company pursuant to the Operative Documents described in the Indenture.
6. Change in Control. In the event of a Change in Control (as
-----------------
hereinafter defined) with respect to the Company, then each Holder of the
Securities shall have the right, at the Holder's option, to require the Company
to repurchase such Holder's Securities including any portion thereof which is
$1,000 or any integral multiple thereof on the date (the "Repurchase Date") that
is 45 days after the date of the Repurchase Right Notice at a purchase price
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, to and including the Repurchase Date (the
"Repurchase Price").
Within 30 days after the occurrence of a Change in Control, the Company is
obligated to give notice of the occurrence of such Change in Control, and the
procedure which such Holder must follow to exercise such right. To exercise the
repurchase option, the Holder of a Security must deliver on or before the 30th
day after the date of the Repurchase Right Notice, written notice to the Company
of the Holder's exercise of such option together with the Security or Securities
with respect to which the option is being exercised, duly endorsed for transfer.
Exercise of the Repurchase Right by the Holder of a Security will be irrevocable
on and after five (5) Business Days prior to the Repurchase Date, unless (i) the
Company shall default in making the repurchase payment when due, in which case a
Holder who elects to exercise the Repurchase Right will retain the right to
tender such Security in payment of the then current Exercise Price of the
Warrants (as defined in the Warrant Agreement dated as of March 31, 1997 between
the Company and American Stock Transfer & Trust Company) until the close of
business on the date such default is cured and such Security is repurchased, or
(ii) the Company shall otherwise, in its sole discretion, consent thereto.
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, 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 SEC and the furnishing of certain information contained therein to the
Holders.
A-6
<PAGE>
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 of the Company,
(ii) the Person then constituting the "Company" under the Indenture sells,
transfers or otherwise disposes of all or substantially all of its assets
(regardless of whether such Person thereupon ceases to constitute the "Company"
under the Indenture pursuant to Section 5.2 of the Indenture), (iii) when,
during any period of 12 consecutive months after the date of original issuance
of the Securities, individuals who at the beginning of any such 12-month period
constituted the Board of Directors of the Company (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 entitled to vote with respect to such nomination who
were either directors at the beginning such period or whose election or
nomination for election was previously so approved, but excluding any of the
individuals who at the beginning of such 12-month period constituted such Board
but who ceased to be a member of the Board pursuant to the Company's mandatory
retirement policy as in effect as of the date of the Indenture), cease for any
reason to constitute a majority of the Board of Directors of the Company then in
office or (iv) the date of the consummation of the merger or consolidation of
the Person then constituting the "Company" under the Indenture with another
corporation where the stockholders of such Person, 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 of the
Person then constituting the "Company" under the Indenture, 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.
7. Tender in Payment of Exercise Price of Warrants. A Holder of a
-----------------------------------------------
Security may tender such Security in payment of the Exercise Price of the
Warrants at any time prior to maturity. The initial Exercise Price is $7.92 per
share, subject to adjustment under certain circumstances as set forth in the
Warrant Agreement. No payment or adjustment will be made for accrued interest
or Liquidated Damages, if any, on a Security tendered in payment of the Exercise
Price or for dividends or distributions on shares of Common Stock issued upon
exercise of the Warrant except as provided in Section 1 of the Security. No
Securities will be issued in denominations of less than $1000 upon tender of the
Securities nor shall any cash be paid by the Company in connection with a tender
of the Securities in payment of the Exercise Price of the Warrants.
To tender a Security in payment of the Exercise Price of the Warrants, a
Holder must (a) complete and manually sign the tender notice set forth below and
deliver such notice to the Tender Agent, (b) surrender the Security to the
Tender Agent, (c) furnish appropriate endorsements and transfer documents, if
required by the Registrar or the Tender Agent, and (d) pay a transfer or similar
A-7
<PAGE>
tax, if required. If a Holder surrenders a Security for tender after the close
of business on a record date, then, notwithstanding such tender, the interest
and Liquidated Damages, if any, payable on the related Interest Payment Date
shall be paid to the Holder of such Security on such record date. In such
event, the Security must be accompanied by payment of any amount equal to the
interest and Liquidated Damages, if any, payable on such Interest Payment Date
on the principal amount of the Security or portion thereof then tendered. A
Holder may tender in payment of the Exercise Price of the Warrants a portion of
a Security equal to $1,000 or any integral multiple thereof other than for
payment of fractional shares issuable upon the exercise of such Warrants.
8. Denominations, Transfer, Exchange. The Securities shall be issuable
---------------------------------
only in registered form without coupons and in denominations of $1,000 and
integral multiples thereof. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes required by law or permitted by the
Indenture.
9. Persons Deemed Owners. The Company, the Trustee and any agent of the
---------------------
Company or the Trustee may treat the person in whose name the Security is
registered with the Registrar as the owner for all purposes.
10. Amendments and Waivers. Subject to certain exceptions, the Indenture,
----------------------
the Securities, or the Operative Documents may be amended with the consent of
the Holders of at least a majority in principal amount of the then Outstanding
Securities, and any existing Default, Event of Default or acceleration may be
waived with the consent of the Holders of a majority in principal amount of the
then Securities Outstanding. Without the consent of any Holder, the Indenture,
the Securities or any of the Operative Documents may be amended to, among other
things, cure any ambiguity, defect or inconsistency.
11. Defaults and Remedies. Events of Default under the Indenture include
---------------------
the following: default for the period specified in the Indenture in payment of
interest on, or Liquidated Damages, if any, with respect to the Securities;
default in payment of principal when due on the Securities (upon maturity,
tender for repurchase or otherwise); failure by the Company to comply with
specific covenants or discontinuance by the Company of substantially all of its
airline operations; failure by the Company for sixty (60) days after notice to
it to comply in any material respect with any of its other covenants, conditions
or agreements in the Indenture or the Securities, unless otherwise specified;
the occurrence of certain defaults under any Indebtedness of the Company or any
Significant Subsidiary in excess of $15,000,000 in principal amount or under
Senior Obligations which continues for thirty (30) days after notice to the
Company; the rendering or domestication of final judgments by a court of
competent jurisdiction against the Company or any Significant Subsidiary in an
aggregate amount of $15,000,000 or more which remain undischarged for a period
(during which execution is not stayed) of sixty (60) days after the date on
which the right to appeal has expired; cessation of effectiveness of Operative
Documents without the consent of the Trustee; and certain events of bankruptcy,
insolvency or reorganization. Subject to certain limitations in the Indenture,
if an Event of Default occurs and is continuing, the Trustee or the Holders of
twenty-five
A-8
<PAGE>
percent (25%) in principal amount of the then Securities Outstanding may declare
all the Securities to be due and payable immediately, except that in the case of
an Event of Default arising from certain events of bankruptcy or insolvency, all
Securities Outstanding become due and payable immediately without further action
or notice. Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Securities. Subject
to certain limitations, Holders of a majority in principal amount of the then
Outstanding Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Securityholders notice of any continuing
default (except a default in payment of principal or interest) if it determines
that withholding notice is in their interests. The Company must furnish
compliance certificates to the Trustee. The above description of Events of
Default and remedies is qualified by reference, and subject in its entirety to
the more complete description thereof contained in the Indenture.
12. Trustee Dealings with Company. The Trustee under the Indenture, in
-----------------------------
its individual or any other capacity, may make loans to, accept deposits from,
and perform services for the Company or its Affiliates, and may otherwise deal
with the Company or its Affiliates, as if it were not the Trustee.
13. No Recourse Against Others. A director, officer, employee or
--------------------------
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
14. Authentication. This Security shall not be valid until authenticated
--------------
by the manual signature of the Trustee or an authenticating agent.
15. Unclaimed Money. If money for the payment of principal of, interest
---------------
on, or Liquidated Damages, with respect to, or the Repurchase Price for the
Securities remains unclaimed for two (2) years, the Trustee or Paying Agent will
pay the money back to the Company at its request. After such payment, Holders
entitled to any portion of such money must look to the Company for payment
unless an applicable law designates another person.
16. Abbreviations. Customary abbreviations may be used in the name of a
-------------
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
The Company will furnish to any Holder of this Security, upon written
request and without charge, a copy of the Indenture. Request may be made to:
Trans World Airlines, Inc., One City Centre, 515 N. 6th Street, St. Louis,
Missouri 63101, Attention: Corporate Secretary.
Dated:
---------------------- ----------------------------------------------
NOTICE: To be executed by an executive officer
A-9
<PAGE>
ASSIGNMENT FORM
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to:
- -----------------------------------------------------------------------
(Insert Assignee's Soc. Sec. or Tax I.D. No.)
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
----------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
TENDER NOTICE
To tender this Security in payment of the Exercise Price of the Warrants, check
the box:
[_]
To tender only part of this Security in payment of the Exercise Price of the
Warrants, state the amount to be tendered (must be in multiples of $1,000)
$
-----------------------------------------------------------------------------
If you want the stock certificate issuable upon exercise of the Warrants made
out in another person's name, fill in the form below:
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
(Print or type other person's name, address and zip code and Social Security
number or Tax Identification Number)
==============================================================================
Date:
--------------------------------------------------------------------------
Signature(s) guaranteed by:
Signature(s):
-----------------------------------------------------------------
- ------------------------------------------------------------------------------
(Sign exactly as your name(s) appear(s) on the other side of this Security)
(All signatures must be guaranteed by a member of a national securities exchange
or of the National Association of Securities Dealers, Inc. or by a commercial
bank or trust company located in the United States)
A-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security repurchased by the Company
pursuant to Section 4.15 of the Indenture, check the box:
[_]
If you want to elect to have only part of this Security repurchased by the
Company pursuant to Section 4.15 of the Indenture, state the amount to be
repurchased:
$
- --------------------------------------------
(in an integral multiple of $1,000)
Date: Signature:
------------------------------- ------------------------------
------------------------------------------
(Sign exactly as your name(s) appear(s) on
the other side of this Security)
Signature(s) guaranteed by:
-------------------------------------------
(All signatures must be guaranteed by a
member of a national securities exchange or
of the National Association of Securities
Dealers, Inc. or by a commercial bank or
trust company located in the United States)
A-11
<PAGE>
EXHIBIT B
Form of Legend for Global Securities
Every Global Security authenticated and delivered hereunder shall bear a legend
in substantially the following form:
Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to
Issuer or its agent for registration of transfer, exchange, or
payment, and any certificate issued is registered in the name of Cede
& Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to
such other entity, as is requested by an authorized representative of
DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co. has an interest herein.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF
OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFER MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO HEREIN.
B-1
<PAGE>
Exhibit 5.1
[SMITH, GAMBRELL & RUSSELL LETTERHEAD]
May 7, 1997
Trans World Airlines, Inc.
One City Centre
515 N. Sixth Street
St. Louis, Missouri 63101
RE: Registration Statement on Form S-4
Ladies and Gentlemen:
We have served as counsel for Trans World Airlines, Inc. a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, pursuant to a Registration Statement on Form
S-4 (the "Registration Statement"), of an aggregate $50,000,000 principal amount
of the Company's 12% Senior Secured Notes due 2002 (the "Notes") offered by the
Company in the exchange for its outstanding 12% Senior Secured Notes due 2002
(the "Old Notes"). The Notes are being offered in exchange for the Old Notes
upon the terms and subject to the conditions set forth in the Registration
Statement and Letter of Transmittal relating thereto (collectively, the
"Exchange Offer").
We have examined and are familiar with the originals or copies
(certified, photostatic or otherwise identified to our satisfaction) of such
documents, corporate records and other instruments relating to the incorporation
of the Company and the authorization and issuance of the Notes as we have deemed
necessary and advisable.
In all such examinations, we have assumed the genuineness of all
signatures on all originals and copies of documents we have examined, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all certified, conformed or photostatic copies. As to
questions of fact material and relevant to our opinion, we have relied upon
certificates or representations of Company officials and of appropriate public
officials.
We express no opinion as to matters under or involving laws of any
jurisdiction other than the State of Delaware and its political subdivisions.
Based upon and subject to the foregoing and having regard for such legal
considerations as
<PAGE>
Trans World Airlines, Inc.
May 7, 1997
Page 2
we have deemed relevant, it is our opinion that:
i. the Company is a corporation in good standing, duly organized and
validly existing under the laws of the State of Delaware;
ii. the necessary corporate proceedings and actions legally required
for the registration of the Notes have been held and taken;
iii. the issuance of Notes pursuant to the Exchange Offer has been duly
and validly authorized; and
iv. the Notes when issued will be binding obligations of the Company.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus. In giving this consent, we do not thereby
admit we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
SMITH, GAMBRELL & RUSSELL
/s/ Howard E. Turner
-------------------------
Howard E. Turner
<PAGE>
EXHIBIT 23.1
AUDITORS' CONSENT
-----------------
The Board of Directors
Trans World Airlines, Inc.:
We consent to the use of our reports included herein and incorporated herein by
reference and to the reference to our firm under the heading "Experts" in the
prospectus. Our reports, dated March 24, 1997, contain an explanatory paragraph
that states that the Company's recurring losses from operations and its limited
sources of additional liquidity raise substantial doubt about the Company's
ability to continue as a going concern. In addition, our reports refer to the
application of fresh start reporting as of September 1, 1995.
KPMG PEAT MARWICK LLP
Kansas City, Missouri
May 5, 1997
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, William M. Hoffman, a Director of
TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do
constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A.
Soled, jointly and severally, my true and lawful attorneys-in-fact, with full
power of substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed offering by the Company of the securities registered pursuant to
said Registration Statement, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 29th day of
April, 1997.
/s/ William M. Hoffman
----------------------
William M. Hoffman
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, William F. Compton, a Director of
TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do
constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A.
Soled, jointly and severally, my true and lawful attorneys-in-fact, with full
power of substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed offering by the Company of the securities registered pursuant to
said Registration Statement, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 28th day of
April, 1997.
/s/ William F. Compton
----------------------
William F. Compton
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, John W. Bachmann, a Director of
TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do
constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A.
Soled, jointly and severally, my true and lawful attorneys-in-fact, with full
power of substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed public offering by the Company of the securities registered
pursuant to said Registration Statement, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 29th day of
April, 1997.
/s/ John W. Bachmann
--------------------
John W. Bachmann
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, Myron Kaplan, a Director of TRANS
WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and
appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A. Soled, jointly
and severally, my true and lawful attorneys-in-fact, with full power of
substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed public offering by the Company of the securities registered
pursuant to said Registration Statement, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 29th day of
April, 1997.
/s/ Myron Kaplan
----------------
Myron Kaplan
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, Stephen M. Tumblin, a Director of
TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do
constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A.
Soled, jointly and severally, my true and lawful attorneys-in-fact, with full
power of substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed public offering by the Company of the securities registered
pursuant to said Registration Statement, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 29th day of
April, 1997.
/s/ Stephen M. Tumblin
----------------------
Stephen M. Tumblin
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, Thomas F. Meagher, a Director of
TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do
constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A.
Soled, jointly and severally, my true and lawful attorneys-in-fact, with full
power of substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed public offering by the Company of the securities registered
pursuant to said Registration Statement, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 29th day of
April, 1997.
/s/ Thomas F. Meagher
---------------------
Thomas F. Meagher
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, G. Joseph Reddington, a Director of
TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do
constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A.
Soled, jointly and severally, my true and lawful attorneys-in-fact, with full
power of substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed public offering by the Company of the securities registered
pursuant to said Registration Statement, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 29th day of
April, 1997.
/s/ G. Joseph Reddington
------------------------
G. Joseph Reddington
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, Lawrence K. Roos, a Director of
TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do
constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A.
Soled, jointly and severally, my true and lawful attorneys-in-fact, with full
power of substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed public offering by the Company of the securities registered
pursuant to said Registration Statement, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 29th day of
April, 1997.
/s/ Lawrence K. Roos
--------------------
Lawrence K. Roos
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, Thomas H. Jacobsen, a Director of
TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do
constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A.
Soled, jointly and severally, my true and lawful attorneys-in-fact, with full
power of substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed offering by the Company of the securities registered pursuant to
said Registration Statement, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 2nd day of
May, 1997.
/s/ Thomas H. Jacobsen
----------------------
Thomas H. Jacobsen
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, David M. Kennedy, a Director of
TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do
constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A.
Soled, jointly and severally, my true and lawful attorneys-in-fact, with full
power of substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed offering by the Company of the securities registered pursuant to
said Registration Statement, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 2nd day of
May, 1997.
/s/ David M. Kennedy
--------------------
David M. Kennedy
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, Jewel Lafontant-Mankarious, a
Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation,
do constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A.
Soled, jointly and severally, my true and lawful attorneys-in-fact, with full
power of substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed offering by the Company of the securities registered pursuant to
said Registration Statement, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of
May, 1997.
/s/ Jewel Lafontant-Mankarious
------------------------------
Jewel Lafontant-Mankarious
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, William O'Driscoll, a Director of
TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do
constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A.
Soled, jointly and severally, my true and lawful attorneys-in-fact, with full
power of substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed offering by the Company of the securities registered pursuant to
said Registration Statement, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of
May, 1997.
/s/ William O'Driscoll
----------------------
William O'Driscoll
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, William W. Winpisinger, a Director
of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do
constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A.
Soled, jointly and severally, my true and lawful attorneys-in-fact, with full
power of substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed offering by the Company of the securities registered pursuant to
said Registration Statement, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of
May, 1997.
/s/ William W. Winpisinger
--------------------------
William W. Winpisinger
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, Eugene P. Conese, a Director of
TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do
constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A.
Soled, jointly and severally, my true and lawful attorneys-in-fact, with full
power of substitution for me in any and all capacities, to sign, pursuant to the
requirements of the Securities Act of 1933, the Registration Statement on Form
S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration
of its New Notes issuable in exchange for the Company's 12% Senior Secured Notes
due 2002, and to file the same with the Securities and Exchange Commission,
together with all exhibits thereto and other documents in connection therewith,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments and supplements to said Registration Statement, incorporating such
changes as any of the said attorneys-in-fact deems appropriate, in the matter of
the proposed offering by the Company of the securities registered pursuant to
said Registration Statement, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 7th day of
May, 1997.
/s/ Eugene P. Conese
----------------------
Eugene P. Conese
<PAGE>
LETTER OF TRANSMITTAL (INCLUDING FORM W-9 AND GUIDELINES)
TRANS WORLD AIRLINES, INC.
OFFER TO EXCHANGE ITS 12% SENIOR SECURED NOTES DUE 2002, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL
OF ITS OUTSTANDING 12% SENIOR SECURED NOTES DUE 2002
PURSUANT TO THE PROSPECTUS DATED , 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent:
FIRST SECURITY BANK, NATIONAL ASSOCIATION
By Mail, Overnight Courier or Hand:
FIRST SECURITY BANK, NATIONAL ASSOCIATION
CORPORATE TRUST SERVICES
79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
TELEPHONE: 801/246-5630
FACSIMILE: 801/246-5053
Delivery of the Letter of Transmittal and Old Note Certificates (as defined
below) to an address other than as set forth above, or transmission of
instructions via facsimile to a number other than as set forth above, will not
constitute a valid delivery. No Letters of Transmittal and no Old Note
Certificates should be sent to the Company.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE EXECUTION. THE
EXCHANGE AGENT CAN ASSIST YOU IN COMPLETING THIS FORM AND PROVIDING
ADDITIONAL COPIES OF THE LETTER OF TRANSMITTAL. THE INSTRUCTIONS TO THE
LETTER OF TRANSMITTAL MUST BE FOLLOWED. PLEASE DIRECT ANY QUESTIONS TO
THE EXCHANGE AGENT.
<PAGE>
DESCRIPTION OF SURRENDERED OLD NOTE CERTIFICATES TENDERED
PLEASE FILL IN (SEE INSTRUCTIONS 3 AND 4)*
- --------------------------------------------------------------------------------
NAME(S) AND
ADDRESS(ES) OF
REGISTERED
HOLDER(S)
(IF BLANK, OLD NOTE
PLEASE FILL IN CERTIFICATE(S)
EXACTLY AS ENCLOSED
NAME (ATTACH
APPEAR(S) ON ADDITIONAL
OLD NOTE SIGNED LIST IF
CERTIFICATE(S) NECESSARY)
- -------------------------------
TOTAL PRINCIPAL AMOUNT
OLD NOTE OF OLD NOTES
CERTIFICATE(S) REPRESENTED BY OLD
NUMBERS NOTE CERTIFICATE(S)
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
TOTAL PRINCIPAL
AMOUNT OF NOTES
* Need not be completed if Old Notes are being tendered by book-entry transfer.
Unless you indicate otherwise, you will be deemed to have tendered the entire
aggregate principal amount represented by the column labeled "Total Principal
Amount of Notes Represented by Old Note Certificate(s)."
[_] Check here if Tendered Old Notes are being delivered by The Depository
Trust Company ("DTC") to the Exchange Agent's account at DTC and complete
the following:
Name of Tendering Institution: ____________________________________________
DTC Book-Entry Account No. ________________________________________________
Transaction Code No.: _____________________________________________________
[_] Check here if Tendered Old Notes are being delivered pursuant to a
Notice of Guaranteed Delivery previously sent to the Exchange Agent and
complete the following:
Name(s) of Registered Holder(s): __________________________________________
Window Ticket Number (if any): ____________________________________________
Date of Execution of Notice of Guaranteed Delivery: _______________________
Name of Institution which guaranteed delivery: ____________________________
If delivery by book-entry transfer, complete the following:
Account Number: Transaction Code Number:
[_] Check here if you are a broker-dealer and wish to receive 10
additional copies of the Prospectus and 10 copies of any amendments or
supplements thereto.
Name: _____________________________________________________________________
Address: __________________________________________________________________
2
<PAGE>
Dear Noteholder:
The Letter of Transmittal (the "Letter of Transmittal") is being sent to
you, along with the Prospectus dated , 1997 (the "Prospectus") of Trans
World Airlines, Inc., a Delaware corporation (the "Company"). Together, the
Prospectus and the Letter of Transmittal constitute the Company's offer (the
"Exchange Offer") to exchange its 12% Senior Secured Notes due 2002 (the "New
Notes"), which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement of which
the Prospectus is a part, for an equal principal amount at maturity of its
outstanding 12% Senior Secured Notes due 2002 (the "Old Notes," and
collectively with the New Notes, the "Notes"). The Exchange Offer is being
effected in accordance with the terms and conditions specified in the
Registration Rights Agreement dated as of March 31, 1997 between the Company
and the Initial Purchaser of the Old Notes (the "Registration Rights
Agreement"). Capitalized terms used and not otherwise defined herein have the
meaning given to them in the Prospectus.
Under the terms of the Exchange Offer, the holder of each Old Note accepted
for exchange will receive a New Note having a principal amount at maturity
equal to that of the surrendered Old Note. The form and terms of the New Notes
are generally the same as the form and terms of the Old Notes, except that the
New Notes have been registered under the Securities Act and therefore will not
bear legends restricting their transfer. The New Notes will mature on October
1, 2002 and will accrue cash interest at a rate of 12% per annum, with
interest payable on April 1 and October 1 of each year commencing October 1,
1997. If (i) the Exchange Offer is not consummated on or before July 29, 1997
or (ii) the Registration Statement becomes effective and later ceases to be
effective or usable (subject to certain exceptions) in the resale of New Notes
according to and during the periods specified in the Registration Rights
Agreement (each such event referred to in (i) or (ii) above, a "Registration
Default"), the Company will pay liquidated damages ("Liquidated Damages") to
each holder of Notes that are, at the time of the Registration Default,
subject to certain transfer restrictions under the Securities Act ("Transfer
Restricted Notes"), as more fully described in the Registration Rights
Agreement. During the first 90-day period immediately following a Registration
Default, each holder of Transfer Restricted Notes will be entitled to
Liquidated Damages of $0.05 per week per Transfer Restricted Note held by such
Holder. Following the initial 90-day period following a Registration Default,
Liquidated Damages will increase by an additional $0.05 per week per Transfer
Restricted Note for each subsequent 90-day period until the Registration
Statement is declared effective or again becomes effective, up to maximum
Liquidated Damages of $0.25 per week per Transfer Restricted Note with respect
to any Registration Default.
The Company will be entitled to close the Exchange Offer 30 days after its
commencement, provided that it has accepted all Notes theretofore validly
tendered in accordance with the terms of the Exchange Offer. The Company
reserves the right, at any time or from time to time and in its sole
discretion, to extend the Exchange Offer, in which case the term "Expiration
Date" shall mean the latest time and date to which the Exchange Offer is
extended. The Company will notify the Exchange Agent of any extension of the
Exchange Offer by oral or written notice and will mail to the registered
holders an announcement thereof, before 5:00 P.M., New York City time, on the
next business day after the then Expiration Date.
You may exchange Old Notes by (i) completing and signing the Letter of
Transmittal or a facsimile thereof, with the signatures thereon guaranteed as
required, and mail or otherwise deliver such Letter of Transmittal or such
facsimile, together with certificates representing Old Notes ("Old Note
Certificates") and any other required documents to First Security Bank,
National Association as the "Exchange Agent," at the address set forth above
or (ii) requesting your broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for you. You must use the Letter of
Transmittal to exchange Notes (i) if you are physically delivering Old Note
Certificates with the Letter of Transmittal; (ii) if you are a DTC participant
whose name appears on a security position that lists you as the owner of Old
Notes, and you are tendering Old Notes by book-entry transfer to the Exchange
Agent's DTC account; or (iii) if you are tendering Old Notes according to the
guaranteed delivery procedures set forth in the Prospectus under "The Exchange
Offer--Guaranteed Delivery Procedures." Please note that delivery of documents
to DTC does not constitute delivery to the Exchange Agent.
3
<PAGE>
The term "holder" with respect to the Exchange Offer means any person (i) in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder; or (ii) whose Old Notes are held of record by DTC and who desires to
deliver such Old Notes by book-entry transfer at DTC. The undersigned has
completed, executed and delivered the Letter of Transmittal to indicate the
action the undersigned desires to take regarding the Exchange Offer. Holders
who wish to tender their Old Notes must complete the Letter of Transmittal in
its entirety.
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby acknowledges receipt of the Letter of Transmittal and
surrenders to the Exchange Agent the principal amount of Old Notes indicated
above. The undersigned agrees that full execution of the Letter of Transmittal
will constitute surrender of all Old Notes indicated herein.
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Old Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to the Old Notes being tendered hereby.
The tender of Old Notes by a holder as set forth in the Letter of
Transmittal will constitute an agreement between such holder and the Company
in accordance with the terms and subject to the conditions set forth in the
Prospectus, the Letter of Transmittal and the Registration Rights Agreement.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim when the Company accepts the same. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course
of business of the person receiving such New Notes, whether or not such person
is the undersigned, that neither the holder of such Old Notes nor any such
other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes and that neither the holder
of such Old Notes nor any such other person is an "affiliate" within the
meaning of Rule 405 of the Securities Act ("Rule 405").
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission that holders (other than Rule 405 "affiliates") may offer for
resale, resell and otherwise transfer of the New Notes issued in exchange for
the Old Notes pursuant to the Exchange Offer without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that the holders acquire such New Notes in the ordinary course of
business and the holders have no arrangement or understanding with any person
to participate in the distribution of the New Notes. If the undersigned is not
a broker-dealer, the undersigned represents that it is not engaged in, and
does not intend to engage in, a distribution of New Notes. If the undersigned
is a broker-dealer that will receive New Notes for its own account in exchange
for Old Notes, it represents that it acquired the Old Notes to be exchanged
for the New Notes as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus in connection
with any resale of such New Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents the Company deems to be necessary or desirable to complete the sale,
assignment and transfer of the Old Notes tendered by the Letter of
Transmittal. All authority conferred or agreed to be conferred in, and every
obligation of the undersigned under, the Letter of Transmittal shall be
binding upon the successors, assigns, heirs, executors, administrators,
trustees in bankruptcy and legal representatives of the undersigned and shall
not be affected by, and shall survive, the death or incapacity of the
undersigned. This tender may be withdrawn only in accordance with the
procedures set forth in the Prospectus under "The Exchange Offer--Withdrawal
of Tenders."
4
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS*
(SEE INSTRUCTIONS 1, 4, 5 AND 6)
To be completed ONLY if New Notes are to be issued in a name other than the
name of the registered holder of the Old Notes.
ISSUE NEW NOTES TO:
Name____________________________________________________________________________
(Please Type or Print)
Address_________________________________________________________________________
- --------------------------------------------------------------------------------
(Include Zip Code)
________________________________________________________________________________
(Taxpayer ID Or Social Security Number(s))
(See Substitute Form W-9 below)
SPECIAL DELIVERY INSTRUCTIONS*
(SEE INSTRUCTIONS 1, 4, 5 AND 6)
To be completed ONLY if New Notes are to be sent to someone other than the
undersigned, or the undersigned at an address other than the address shown in
the space indicated under the box entitled "Description of Surrendered Old Note
Certificates Tendered."
MAIL NEW NOTES TO:
Name____________________________________________________________________________
Address_________________________________________________________________________
- --------------------------------------------------------------------------------
(Include Zip Code)
5
<PAGE>
TO BE COMPLETED BY ALL SURRENDERING HOLDERS OF OLD NOTES
(SEE "IMPORTANT TAX INFORMATION")
PAYER'S NAME: FIRST SECURITY BANK, NATIONAL ASSOCIATION
SUBSTITUTE PART I -- PLEASE
PROVIDE YOUR TIN IN THE
BOX AT THE RIGHT AND
CERTIFY BY SIGNING AND
DATING BELOW.
FORM W-9 _______________________
Social Security Number
DEPARTMENT OF THE
TREASURY INTERNAL REVENUE or
SERVICE
_______________________
PAYER'S REQUEST FOR Employer
TAXPAYER IDENTIFICATION Identification Number
NUMBER (TIN)
- --------------------------------------------------------------------------------
PART II
- --------------------------------------------------------------------------------
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding because (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you
have been notified by the IRS that you are currently subject to backup
withholding because of underreporting interest or dividends on your tax
return. However, if after being notified by the IRS that you were subject
to backup withholding you received another notification from the IRS that
you are no longer subject to backup withholding, do not cross out such
item (2).
- --------------------------------------------------------------------------------
SIGNATURE ______________________________ DATE ________________ PART III
NAME (PLEASE PRINT) __________________________________________ Awaiting TIN
[_]
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF THE PRINCIPAL AMOUNT OF NEW NOTES ISSUED TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9
6
<PAGE>
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
IRS Center or Social Security Administration Office or (2) I intend to
mail or deliver an application in the near future. I understand that if I
do not provide a taxpayer identification number by the time of payment,
31% of all reportable payments made to me will be withheld, but that such
amounts will be refunded to me if I then provide a Taxpayer Identification
Number within sixty (60) days.
Signature _________________________________________________Date
Name (Please Print) _______________________________________________________
Unless otherwise indicated under the box entitled "Special Payment
Instructions" above, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old Notes, please credit the account indicated above maintained at
DTC. Similarly, unless otherwise indicated under the box entitled "Special
Delivery Instructions" above, please send the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Surrendered Old Note Certificates Tendered."
INSTRUCTIONS FOR LETTER OF TRANSMITTAL
The following instructions form part of the terms and conditions of the
Exchange Offer to exchange registered 12% Senior Secured Notes of Trans World
Airlines, Inc. for any and all outstanding 12% Senior Secured Notes of Trans
World Airlines, Inc.
1. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES; GUARANTEED DELIVERY
PROCEDURES. Holders of Old Notes must use the Letter of Transmittal either if
Old Note Certificates are to be forwarded with the Letter of Transmittal or if
tenders are to be made according to the procedures for delivery by book-entry
transfer set forth in the Prospectus under "The Exchange Offer--Book-Entry
Transfer." On or before the Expiration Date, tendering holders must either (a)
mail or deliver to the Exchange Agent at the address set forth above Old Note
Certificates for all physically tendered Old Notes, or confirmation of book-
entry transfer, as the case may be, as well as a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) and any other documents
required by the Letter of Transmittal or (b) comply with the guaranteed
delivery procedures set forth below. Tenders of Old Notes must be made in
denominations of principal amount of maturity of $1,000 and integral multiples
of $1,000. Until all necessary steps have been taken to surrender the Old
Notes, no certificates representing New Notes ("New Note Certificates") will
be issued.
Holders whose Old Note Certificates are not immediately available or who
cannot deliver their certificates and all other required documents to the
Exchange Agent on or before the Expiration Date, or who cannot complete the
procedure for book-entry transfer on or before the Expiration Date, may tender
their Old Notes pursuant to the guaranteed delivery procedures set forth in
the Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures."
Pursuant to such procedures, (i) such tender must be made through a firm which
is a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States (an
"Eligible Institution"), (ii) on or before the Expiration Date the Exchange
Agent must receive (by facsimile transmission, mail or hand delivery) from
such Eligible Institution a properly completed and duly executed notice of
guaranteed delivery substantially in the form provided by the Company (the
"Notice of Guaranteed Delivery"), setting forth the holder's name and address,
the relevant Old Note Certificate number(s) (if possible) and the principal
amount at maturity of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within five business trading days after
the Expiration Date (A) the Eligible
7
<PAGE>
Institution will deposit with the Exchange Agent the Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing the Old
Notes and any other documents required by the Letter of Transmittal, or (B)
that book-entry transfer of such Old Notes into the Exchange Agent's account
at DTC will be effected and confirmation of such book-entry transfer will be
delivered to the Exchange Agent; and (iii) the Exchange Agent receives within
five business trading days after the Expiration Date, such properly completed
and executed Letter of Transmittal (or facsimile thereof), as well as the
certificate(s) representing all tendered Old Notes in proper form for transfer
and all other documents required by the Letter of Transmittal, or confirmation
of book-entry transfer of the Old Notes into the Exchange Agent's account at
DTC.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING OLD NOTE CERTIFICATES AND
THE LETTER OF TRANSMITTAL, TO THE EXCHANGE AGENT IS AT THE HOLDER'S ELECTION
AND RISK. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, HOLDERS SHOULD ALLOW
SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. DO NOTE SEND LETTERS OF TRANSMITTAL OR OLD NOTE CERTIFICATES TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS ON THEIR
BEHALF.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER BY
BOOK-ENTRY TRANSFER). If less than all of the Old Notes evidenced by a
submitted Old Note Certificate are to be tendered, the tendering holder(s)
should fill in the aggregate principal amount of Old Notes to be tendered in
the box above entitled "Description of Surrendered Old Note Certificates
Tendered; Total Principal Amount of Old Notes Represented by Old Note
Certificates Tendered." A reissued certificate representing the balance of
nontendered Old Notes will be sent to such tendering holder, unless otherwise
provided in the appropriate box on the Letter of Transmittal, promptly after
the Expiration Date. ALL OLD NOTE CERTIFICATES DELIVERED TO THE EXCHANGE AGENT
WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
3. INADEQUATE SPACE. If the space provided is inadequate, please list on a
separately attached, signed schedule the Old Notes Certificates numbers and
principal amount of the Old Notes tendered thereby.
4. SIGNATURES ON LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES.
(a) If the registered holder of the Old Notes tendered hereby signs the
Letter of Transmittal, the signature must correspond exactly with the name as
written on the face of such Old Note Certificates without any change
whatsoever.
(b) If any tendered Old Notes are owned of record by two or more joint
owners, all such owners must sign the Letter of Transmittal.
(c) If any tendered Old Notes are registered in different names on several
Old Note Certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
Old Notes.
(d) When the registered holder of the Old Notes listed signs and transmits
the Letter of Transmittal, no endorsements of Old Note Certificates or
separate bond powers are required unless New Note Certificates are to be
issued, or any untendered Old Notes are to be reissued, to a person other than
the registered holders. An Eligible Institution must guarantee the signatures
on such Old Note Certificates. However, if a person other than the registered
holder of the Old Notes listed signs the Letter of Transmittal, the Old Notes
must be endorsed by the registered holder(s) or accompanied by a written
instrument or instruments of transfer or exchange in form, in either case
signed exactly as the name or names of the registered holder or holders appear
on the Old Note Certificates. An Eligible Institution must guarantee the
signatures on such Old Note Certificates or bond powers. See Instruction 1
hereto.
8
<PAGE>
(e) If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Note Certificates specified herein, such Old Note
Certificates must be endorsed or accompanied by appropriate bond powers, in
either case signed exactly as the name of the registered holder(s) appears on
the Old Note Certificates, and an Eligible Institution must guarantee the
signatures on such Old Note Certificates.
(f) If the Letter of Transmittal or any Old Note Certificates or bond power
are signed by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, must submit to the Company proper and evidence
satisfactory of their authority to so act.
ENDORSEMENTS ON OLD NOTE CERTIFICATES OR SIGNATURES ON BOND POWERS REQUIRED
BY THIS INSTRUCTION 4 MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
SIGNATURES ON THE LETTER OF TRANSMITTAL NEED NOT BE GUARANTEED BY AN
ELIGIBLE INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (i) BY A REGISTERED
HOLDER OF OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES
ANY PARTICIPANT IN THE TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A
SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT
COMPLETED THE BOX ENTITLED "SPECIAL PAYMENT INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS" ON THE LETTER OF TRANSMITTAL OR (ii) FOR THE ACCOUNT OF AN
ELIGIBLE INSTITUTION.
5. SPECIAL ISSUANCE PAYMENT, AND DELIVERY INSTRUCTIONS. If New Note
Certificates are to be issued in the name of a person other than the signer of
the Letter of Transmittal, or if such New Note Certificates are to be sent to
someone other than the signer of the Letter of Transmittal or to the signer at
a different address, the appropriate boxes on the Letter of Transmittal should
be completed.
6. TAXPAYER IDENTIFICATION NUMBER. Federal income tax laws generally require
that a tendering holder whose Old Notes are accepted for exchange to provide
Exchange Agent with such holder's correct Taxpayer Identification Number
("TIN") on Substitute Form W-9 above. For individuals, the TIN is the holder's
social security number. If the Exchange Agent is not provided with the current
TIN or an adequate basis for an exemption, the Internal Revenue Service may
impose a $50 penalty on the holder. In addition, delivery of New Notes to such
tendering holder may be subject to backup withholding in an amount equal to
31% of all reportable payments made after the exchange. If withholding results
in an overpayment of taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines")
for additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
notify the Exchange Agent of its correct TIN by completing the "Substitute
Form W-9" set forth above, certifying that the TIN provided is correct (or
that such holder is awaiting a TIN) and that (i) the holder is exempt from
backup withholding, (ii) the Internal Revenue Service has not notified such
Noteholder that such Noteholder is subject to a backup withholding as a result
of a failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to
backup withholding. If the tendering holder of Old Notes is a nonresident
alien or foreign entity not subject to backup withholding, such holder must
give the Company a completed Form W-8, Certificate of Foreign Status. These
forms may be obtained from the Exchange Agent. If the Old Notes are in more
than one name or are not in the name of the actual owner, such holder should
consult the W-9 Guidelines for information on which TIN to report. If such
holder does not have a TIN, such holder should consult the W-9 Guidelines for
instructions on applying for a TIN, check the box in Part 2 of the Substitute
Form W-9 and write "applied for" in lieu of its TIN. Note: checking this box
and writing "applied for" on the form means that such holder has already
applied for a TIN or that such holder intends to apply for one in the near
future. If such holder does not provide its TIN to the Company within 60 days,
backup withholding will begin and continue until such holder furnishes its TIN
to the Company.
9
<PAGE>
7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company
will pay any and all transfer taxes payable on the surrender of Old Notes and
the issuance of New Note Certificates. If, however, New Note Certificates
and/or substitute Old Note Certificates not exchanged are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered holder of the Old Notes tendered hereby, or if tendered Old Notes
are registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the transfer of Old Notes to the Company or its order pursuant to the
Exchange Offer, satisfactory evidence of the payment of the amount of any such
transfer taxes must be submitted with the Letter of Transmittal (whether
imposed on the registered holder or such other person). New Note Certificates
will not be issued to such persons until satisfactory evidence of the payment
of such taxes, or an exemption therefrom, is submitted. EXCEPT AS PROVIDED IN
THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE
AFFIXED TO THE OLD NOTE CERTIFICATES DELIVERED WITH THE LETTER OF TRANSMITTAL.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
9. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Notes, by
execution of the Letter of Transmittal, shall waive any right to receive
notice of the acceptance of their Old Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
10. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old
Note Certificates have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus or the Letter
of Transmittal may be directed to the Exchange Agent at the address set forth
above. Holders may also contact their broker, dealer, commercial bank, trust
company or other nominee for assistance concerning the Exchange Offer.
12. VALIDITY OF SURRENDER; IRREGULARITIES. All questions as to the form of
all documents and the validity (including time of receipt), eligibility,
acceptance and withdrawal of surrendered Old Notes will be determined by the
Company, in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any or all
attempted surrenders not in proper form or the acceptance of which would, in
the opinion of Company's counsel, be unlawful. The Company also reserves the
absolute right, subject to applicable law, to waive any of the conditions
contained herein or any defect or irregularity in the surrender of any of the
Old Notes without making a public announcement thereof and permitting the
withdrawal of Old Notes surrendered to the extent required by applicable law.
Neither the Company, the Exchange Agent, nor any other person will be under
any duty to give notification of any defects or irregularities in surrenders
or will incur any liability for failure to give any such notification. As soon
as practicable, the Exchange Agent will return to the appropriate surrendering
holder of Old Notes any Old Notes received by the Exchange Agent that are not
properly surrendered and as to which irregularities have not be cured or
waived. The Company's interpretation of the terms and conditions of the Letter
of Transmittal and these instructions will be final and binding on all
parties.
10
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
12% SENIOR SECURED NOTES DUE 2002
OF
TRANS WORLD AIRLINES, INC.
This form or a substantially equivalent form must be used to accept the
Exchange Offer of Trans World Airlines, Inc. (the "Company") made pursuant to
the Prospectus dated , 1997 (the "Prospectus") if certificates for
the Company's 12% Senior Secured Notes due 2002 (the "Old Notes") are not
immediately available, if the procedure for book-entry transfer cannot be
completed on a timely basis, or if time will not permit all other documents
required by the Letter of Transmittal to be delivered to the Depositary on or
before the Expiration Date (as defined in the Prospectus). Such form may be
delivered by hand or transmitted by mail or overnight courier, or (for
Eligible Institutions only) by facsimile transmission, to First Security Bank,
National Association (the "Exchange Agent"). In addition, to utilize the
guaranteed delivery procedure to tender Old Notes pursuant to the Exchange
Offer, a completed, signed and dated Letter of Transmittal (or facsimile
thereof) before 5:00 P.M., New York City time, on the Expiration Date.
Capitalized terms used but not defined herein have the meaning given to them
in the Prospectus.
To: First Security Bank, National Association
By Mail, Overnight Courier or by Hand:
FIRST SECURITY BANK, NATIONAL ASSOCIATION
CORPORATE TRUST SERVICES
79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
Telephone: 801/246-5630
Facsimile: 801/246-5053
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS
VIA A FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID
DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Old Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Trans World Airlines, Inc., a Delaware
Corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus and the Letter of Transmittal (which together
constitute the "Exchange Offer"), receipt of which is hereby acknowledged, the
principal amount of Old Notes listed below, pursuant to the guaranteed
delivery procedures set forth in Instruction 1 of the Letter of Transmittal.
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW:
Principal Amount(s) of Old Notes ______________________________________________
Name(s) of Record Holder(s) ___________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Please Print or Type
Address Zip Code
Area Code and Tel. No
Signature(s)
______________________________________
Dated:
If Old Notes will be delivered by book-entry transfer at The Depository Trust
Company ("DTC"), Depository Account No.: .
The registered Holder(s) of Old Notes must sign this Notice of Guaranteed
Delivery exactly as its (their) name(s) appear on certificates for Old Notes
or on a security position listing as the owner of Old Notes, or by person(s)
authorized to become registered Holder(s) by endorsements and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must
provide the following information.
Please print name(s) and address(es)
Name(s): ______________________________________________________________________
Capacity: _____________________________________________________________________
Address(es): __________________________________________________________________
<PAGE>
GUARANTEE
(Not to Be Used for Signature Guarantee)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the United States
or an "Eligible Guarantor Institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
hereby guarantees (a) that the above named person(s) "own(s)" the Old Notes
tendered hereby within the meaning of Rule 10b-4 under the Exchange Act, (b)
that such tender of Old Notes complies with Rule 10b-4 under the Exchange Act
and (c) that delivery to the Exchange Agent of certificates for the Old Notes
tendered hereby, in proper form for transfer (or confirmation of the book-
entry transfer of such Old Notes into the Exchange Agent's Account at DTC,
pursuant to the procedures for book-entry transfer set forth in the
Prospectus), with delivery of a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof) with any required signature
and any other required documents, will be received by the Exchange Agent at
one of its addresses set forth above within five business trading days after
the Expiration Date.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
AND OLD NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD SET
FORTH ABOVE AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE
UNDERSIGNED.
Name of Firm __________________________________________________________________
Address and Zip Code __________________________________________________________
_______________________________________________________________________________
Area Code and Tel. No. ________________________________________________________
_______________________________________________________________________________
Authorized Signature
Name
Please Print or Type
Title
Date
Dated: , 1997
NOTE: DO NOT SEND OLD NOTE CERTIFICATES WITH THIS FORM; OLD NOTE CERTIFICATES
SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY
THE EXCHANGE AGENT WITHIN FIVE BUSINESS TRADING DAYS AFTER THE EXPIRATION
DATE.
