<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OFINDUSTRIAL CLASSIFICATION CODE NUMBER)
IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
ONE CITY CENTRE, 515 N. SIXTH STREET
ST. LOUIS, MISSOURI 63101
(314) 589-3000
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GERALD L. GITNER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
TRANS WORLD AIRLINES, INC.
ONE CITY CENTRE, 515 N. SIXTH STREET
ST. LOUIS, MISSOURI 63101
(314) 589-3000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
----------------
COPIES TO:
JOSEPH P. HADLEY, ESQ.
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
----------------
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, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 1/2% Senior Secured
Notes due 2004.......... $140,000,000 100% $140,000,000 $41,300
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from the date of issuance.
(2) Calculated pursuant to Rule 457(f).
----------------
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 OF 1933, AS AMENDED OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILLED 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 THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1998
PROSPECTUS
TRANS WORLD AIRLINES, INC.
OFFER TO EXCHANGE
11 1/2% SENIOR SECURED NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND
ALL OUTSTANDING 11 1/2% SENIOR SECURED NOTES DUE 2004
-----------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, 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 11 1/2% Senior Secured Notes due 2004 (the "Exchange 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 11 1/2% Senior Secured Notes
due 2004 (the '"Old Notes," and together with the Exchange Notes, the "Notes"),
of which $140 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 ,
1998 (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 Exchange Notes will bear interest at the rate of 11 1/2% per annum,
payable semi-annually on June 15 and December 15 of each year, commencing on
June 15, 1998. The Exchange Notes will mature on December 15, 2004. The
Exchange Notes will be redeemable, in whole or in part, at the option of TWA,
at any time on or after December 15, 2001 at the redemption prices set forth
herein, plus accrued and unpaid interest and Special Interest, if any, to the
redemption date. In addition, prior to December 15, 2000, TWA may, at its
option, use the Net Cash Proceeds from one or more Public Equity Offerings to
redeem up to $49.0 million aggregate principal amount of the Notes at a price
equal to 111 1/2% of the principal amount thereof, plus accrued and unpaid
interest and Special Interest, if any, to the redemption date; provided, that
at least $91.0 million aggregate principal amount of the Notes is outstanding
immediately following each such redemption. Upon entering into certain merger
or acquisition agreements, TWA shall have the right, without the consent of
holders of the Exchange Notes, to redeem the Exchange Notes in whole, but not
in part, at a redemption price equal to 100% of the outstanding principal
amount of the Exchange Notes plus Applicable Premium and accrued and unpaid
interest and Special Interest, if any. Upon a Change in Control, each holder of
Exchange Notes shall have the right to require TWA to purchase all, or any part
of, such holder's Exchange Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and Special
Interest, if any, to the purchase date. Upon the incurrence of Acquired
Indebtedness, each holder of Exchange Notes shall have the right to require TWA
to purchase all, or any part of, such holder's Exchange Notes at a purchase
price equal to 100% of the principal amount thereof, plus Applicable Premium
and accrued and unpaid interest and Special Interest, if any, to the purchase
date. In addition, upon the occurrence of an Asset Disposition, the Company
will, under certain circumstances, make an Offer to Purchase the Exchange Notes
at 100% of their principal amount plus accrued and unpaid interest and Special
Interest, if any. See "Description of Notes."
The Exchange 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. As of December 31, 1997, the Company had approximately $1,061.3
million of total outstanding indebtedness (including $140 million for the Old
Notes), all of which will rank pari passu in right of payment of principal and
interest with the Exchange Notes. None of the Company's outstanding
indebtedness is senior to the Notes. The Exchange Notes will be secured by a
lien on (i) certain aircraft spare parts, (ii) TWA's beneficial interest in 30
Federal Aviation Administration-designated take-off and landing slots at
Washington National Airport and (iii) the Pledged Collateral.
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS OF OLD NOTES ON OR ABOUT , 1998.
The Exchange Notes will be obligations of the Company evidencing the same
indebtedness as the Old Notes. The Exchange 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 Exchange Notes and Old Notes will be
treated as a single class of debt securities under the Indenture. The form and
terms of the Exchange 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 Exchange Notes will not bear legends restricting the
transfer thereof, and (ii) holders of the Exchange 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."
continued on following page
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE PAGE 17, "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 OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to
Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley &
Co. Incorporated (available June 5, 1991), Mary Kay Cosmetics, Inc. (available
June 5, 1991) and Warnaco, Inc. (available October 11, 1991), the Company
believes that a holder who exchanges Old Notes for Exchange Notes pursuant to
the Exchange Offer may offer for resale, resell and otherwise transfer such
Exchange Notes without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided, that (i) such Exchange
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 Exchange Notes and has no arrangement with any person to participate in
the distribution of such Exchange 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. A holder who exchanges Old
Notes for Exchange Notes pursuant to the Exchange Offer with the intention to
participate in a distribution of the Exchange Notes may not rely on the
staff's position enunciated in the Exxon Capital Letter, the Morgan Stanley
Letter or similar letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
Each broker-dealer that receives Exchange 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 Exchange 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 Exchange 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 EXCHANGE NOTES.
Prior to this Exchange Offer, there has been no public market for the Old
Notes or Exchange 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
Exchange Notes could trade at prices that may be higher or lower than their
principal amount at maturity. The Company intends to apply for listing of the
Exchange Notes on the American Stock Exchange. However, there can be no
assurance that an active public market for the Exchange 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
2
<PAGE>
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.
----------------
The Company believes that a substantial improvement in its operating results
is necessary for TWA to maintain adequate liquidity to meet its obligations
through 1998. The Company's auditors included in their report dated March 24,
1997 on TWA's consolidated financial statement 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 Consolidated Financial Statements.
3
<PAGE>
AVAILABLE INFORMATION
TWA is currently subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. 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, N.W., 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, New York 1006-1881, 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.
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 the
following documents filed with the Commission pursuant to the requirements of
the Exchange Act (File No. 001-07815): (i) the Company's Annual Report on Form
10-K for the year ended December 31, 1996, as amended on June 30, 1997
pursuant to Form 10-K/A; (ii) the Company's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997; (iii)
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 (iv) the
Company's Proxy Statement and Notice of Meeting relating to the Annual Meeting
of Stockholders held on May 29, 1997.
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 such document. 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) 589-3285. 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.
4
<PAGE>
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "PROSPECTUS SUMMARY",
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS", IN ADDITION TO CERTAIN STATEMENTS CONTAINED
ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE THUS
PROSPECTIVE. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER
FACTORS ARE DISCUSSED UNDER THE HEADING "RISK FACTORS" IN THIS PROSPECTUS AND
HOLDERS OF THE OLD NOTES AND PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE
URGED TO CAREFULLY CONSIDER SUCH FACTORS.
5
<PAGE>
PROSPECTUS SUMMARY
This summary does not purport to be complete and is qualified 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 eighth largest U.S. air carrier (based on revenue passenger miles
("RPMs") for the first nine months of 1997), whose primary business is
transporting passengers, cargo and mail. During the first nine months of 1997,
the Company carried more than 17.6 million passengers and flew approximately
19.2 billion RPMs. As of September 30, 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 September 30, 1997, the Company operated a
fleet of 186 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 365 scheduled daily
departures as of September 30, 1997 and approximately a 72% share of airline
passenger enplanements in St. Louis for the first nine months of 1997. 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 42
daily departures. JFK is both the Company's and the industry's largest
international gateway from North America. As of September 30, 1997, the Company
offers non-stop flights from JFK to 8 cities in Europe and the Middle East as
well as 17 destinations in the U.S. and the Caribbean. As described below,
during 1997, the Company has taken steps to refocus and improve the operating
and financial performance of its JFK operations.
RECENT FINANCIAL AND OPERATING RESULTS
For the third quarter of 1997, TWA reported operating income of $63.8 million
and pre-tax income of $47.2 million. These results compare to operating income
of $26.0 million and pre-tax income of $10.0 million in the third quarter of
1996. In addition, the Company's yield (passenger revenue per RPM) for the
third quarter of 1997 increased 3.2% to 11.24c versus comparable prior year
period and passenger revenue per available seat mile ("RASM") increased 5.8% to
8.08c versus comparable prior year period. The Company's unit costs remained
essentially unchanged at 8.29c, despite a 13.7% decrease in capacity for the
quarter versus the third quarter of 1996, as measured by total available seat
miles ("ASMs").
TWA also has significantly enhanced its operational reliability and schedule
integrity since the first quarter of 1997. According to statistics reported to
the U.S. Department of Transportation (the "DOT"), TWA ranked first among the
10 largest U.S. scheduled commercial airlines in domestic on-time performance
in both the second and third quarters of 1997. This compares to tenth (last)
and eighth place finishes, respectively, for the same periods of 1996. TWA has
also recorded a significant improvement in its percentage of scheduled flights
completed. In the second and third quarters of 1997, TWA completed an average
of approximately 99% of scheduled flights, which management believes is among
the highest in the industry. In contrast, TWA completed 97.4% of scheduled
flights in the second and third quarters of 1996 and 96.2% for 1996 overall.
6
<PAGE>
RECENT STRATEGIC INITIATIVES
Management believes that certain strategic initiatives undertaken by the
Company beginning in late 1996 have contributed to the improved financial and
operating results described above. TWA's management began to implement such
strategic initiatives in response to a significant deterioration in the
Company's operating performance and financial condition during the second half
of 1996. This deterioration was primarily caused by (i) an overly aggressive
expansion of TWA's capacity and planned flight schedule, particularly during
the 1996 summer season, which forced the Company to rely disproportionately on
lower-yield 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 operations during the summer of
1996; 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 and adversely affected the Company's
yields and unit costs. 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. The Company also experienced a 27.6% increase in
fuel costs in 1996 versus 1995, primarily due to a 22.3% increase in the
average fuel price paid per gallon during the year.
The primary focus of the Company's new strategic initiatives is to
reestablish TWA's operational reliability and schedule integrity and overall
product quality in order to attract higher-yield passengers and improve its
financial results. As the initial steps in implementing this strategy, the
Company temporarily reduced its flight schedule during the first quarter of
1997 to more closely match aircraft available for active service and worked to
reduce the number of aircraft in maintenance backlog by increasing overtime and
utilizing maintenance capacity made available by the termination of an
unprofitable aircraft maintenance contract with the U.S. government.
Other new strategic initiatives being pursued by TWA are:
Accelerated Fleet Renewal. In the first quarter of 1997, as part of its
efforts to improve near-term operational performance, TWA announced plans to
accelerate the retirement of the 14 747s and 11 L-1011s remaining in its fleet
at December 31, 1996. As a result, TWA's last L-1011 was retired in September
1997 and its last 747 is scheduled to leave active service in February 1998.
Under its fleet renewal plan, the Company has been replacing these older, less
reliable and less efficient wide-body aircraft with new or later-model used
757, 767 and MD-80 aircraft. Management believes that these smaller aircraft
are more appropriately sized to the routes served, and, by reducing the
Company's reliance on lower-yield feed traffic to fill capacity, have resulted
in higher load factors and improved yields. Further, these newer, twin-engine,
two-pilot aircraft are expected to provide efficiencies in fuel, flight crew
and maintenance expenses, while reducing long-term pilot training costs by
enabling TWA to have fewer aircraft types in the fleet. TWA also expects to
retire eight 727s during 1998. As a result of this fleet restructuring, it is
estimated that the Company's mix of narrow-body and wide-body aircraft shifted
to approximately 91%/9% as of December 31, 1997 versus approximately 80%/20% as
of year-end 1996, and that TWA's average number of seats per aircraft declined
to 141 from 161 over the same period. Management estimates that as of December
31, 1997, the average age of its fleet had decreased to slightly under 17 years
from 19 years at year-end 1996.
The Company believes that this rationalization of fleet size, together with
the decrease in international operations described below, will help
deseasonalize TWA's business, with the difference between TWA's seasonal
average daily peak and trough capacities anticipated to be approximately 4.1%
in 1998, versus 26.2% in 1996 and 20.2% in 1997. As a result, the Company
expects the seasonal variability of its financial performance will be reduced;
however, there can be no assurance that such deseasonalization will occur.
Restructuring of JFK Operations. As part of its efforts to position the
Company for sustained profitability, TWA restructured its operations at JFK
during 1997 by eliminating certain unprofitable international destinations
7
<PAGE>
(such as Frankfurt and Athens), as well as certain low-yield domestic feed
service into JFK. The Company also consolidated 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.
In addition to enhancing yields and load factors, the substitution of 757s and
767s for 747s and L-1011s on international routes also has increased operating
efficiencies at JFK, since these smaller aircraft are better suited to the
physical limitations of TWA's terminals. As a result of these changes, TWA's
international scheduled capacity (as measured by ASMs) decreased 31.2% in the
first nine months of 1997 versus the same period in 1996 and represented 20.0%
of total scheduled capacity for the first nine months of 1997 versus 26.1% for
the same period in 1996.
Productivity Enhancements. The Company has sought to improve its financial
performance through productivity enhancements. During 1997, TWA has realized
cost efficiencies in maintenance, reflecting the elimination of TWA's
maintenance backlog during the first quarter of 1997, as well as the reduced
maintenance requirements for the newer aircraft added to TWA's fleet. In
addition, as described above, the Company's fleet renewal plan is expected to
provide efficiencies in fuel, flight crew and training expenses, while the JFK
restructuring has eliminated certain unprofitable routes and reduced certain
operating costs. TWA's average number of employees per aircraft has decreased
from 131 as of December 31, 1996 to 121 as of September 30, 1997, and to 119 as
of December 31, 1997, which is generally consistent with industry standards.
Marketing Initiatives. The Company has also begun to introduce a series of
marketing initiatives designed, in combination with its enhanced operational
reliability and schedule integrity, to attract a greater percentage of higher-
yield business passengers. These initiatives include branded service products
such as an improved international business class, Trans World One SM ("Trans
World One"), expanded first class cabins in the domestic narrow-body fleet
(launched with an enhanced service package as Trans World First in January
1998), and a branded short-haul business market service in the first quarter of
1998. The Company has also enhanced its frequent flier program by introducing a
Platinum level for its highest mileage customers and, for certain travelers, a
system for recognizing dollar amounts paid as well as miles flown, and by
joining the American Express Membership Miles program, which allows members to
earn additional frequent flier miles on TWA. The Company is also in the early
phases of a series of facilities upgrades, including a newly opened Ambassadors
Club in St. Louis, a renovated club at LaGuardia, a completely refurbished club
in its JFK terminal and improved new check-in counters and backwalls. The
Company's advertising features the improved on-time and operational
performance, new aircraft, and the programs outlined above.
Employee Initiatives. Through the SCORE Program (or Safe, Clean, On-time and
Reliable), TWA has sought to institutionalize throughout all levels of its
organization the importance of running an airline with operational reliability.
This program provides certain operating and procedural guidelines for enhancing
performance and improving overall product quality. In addition, in 1996 the
Company introduced Flight Plan 97, which pays eligible employees a $65 bonus
for each month that TWA finishes in the top five in all three performance
categories tracked by the DOT (on-time performance, customer complaints and
baggage handling) and a total of $100 if TWA also ranks first in at least one
of such categories. Based on the Company's performance in September 1997,
eligible employees earned their first bonus under this program, a $100 payment
for ranking first in on-time performance, fourth in customer complaints and
fifth in baggage handling.
CHANGES TO MANAGEMENT TEAM
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 since
1993, as Chairman and Chief Executive Officer of the Company. Mr. Gitner, who
had been named acting Chief Executive Officer in December 1996, replaced
Jeffrey H. Erickson, who on October 24, 1996 announced his intention to leave
as the Company's President and Chief Executive Officer. On December 3, 1997,
the Board named William F. Compton, a TWA pilot and a director of
8
<PAGE>
the Company since November 1993, as President and Chief Operating Officer of
the Company. Mr. Compton had been 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. On
May 29, 1997 the Board elected Donald M. Casey as Executive Vice President,
Marketing. On October 29, 1997 James F. Martin was elected as Senior Vice
President, Human Resources. On December 31, 1997, Roden A. Brandt resigned as
Senior Vice President, Planning, but will remain as a consultant to the
Company. See "Risk Factors--Risk Factors Related to the Company--Changes to
Management Team."
LABOR MATTERS
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. Negotiations on a new collective bargaining agreement with
the IAM with regard to the flight attendants commenced in July 1997 and are
currently ongoing. Negotiations regarding the Company's ground employees
represented by the IAM commenced in February 1997 and are also currently
ongoing. At the request of the IAM, a mediator was appointed on August 6, 1997
in connection with the negotiation on the collective bargaining agreement
covering the ground employees. Negotiations on a new collective bargaining
agreement with the Air Line Pilots Association ("ALPA") commenced in June 1997
and are currently ongoing. 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."
1997 PREFERRED STOCK OFFERING
On December 2, 1997, the Company consummated a Rule 144A/Regulation S private
placement offering of 1,725,000 shares of 9 1/4% Cumulative Convertible
Exchangeable Preferred Stock (the "1997 Preferred Stock") which raised net
proceeds of approximately $83.2 million. The 1997 Preferred Stock has a
liquidation preference of $50.00 per share, plus accrued and unpaid dividends.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Concurrently with this Exchange Offer, the Company plans to file a shelf
registration statement to register resales of the 1997 Preferred Stock. The
Company will use its reasonable best efforts to cause such shelf registration
statement to become effective within 150 days from the date of original
issuance of the 1997 Preferred Stock and to keep such shelf registration
statement effective until the earlier of (i) the sale of all securities covered
by such shelf registration statement, and (ii) the expiration of two years
after the date of original issuance of the 1997 Preferred Stock or, if the
period applicable under Rule 144(k) under the Securities Act, or any successor
provision for such securities is shortened, such shorter period.
RECEIVABLES SECURITIZATION OFFERING
On December 30, 1997, the Company consummated a Rule 144A/Regulation S
private placement offering (the "Receivables Securitization Offering") of $100
million aggregate principal amount of 9.80% Airline Receivable Asset Backed
Notes due 2001 (the "Receivables Securitization Notes"). Proceeds from the
offering were used to repay the Company's remaining debt to Karabu Corp. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
----------------
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.
9
<PAGE>
THE OLD NOTE OFFERING
Old Notes................. On December 9, 1997, the Company issued and sold
$140,000,000 aggregate principal amount of its Old
Notes to Lazard Freres & Co. LLC and PaineWebber
Incorporated, as initial purchasers (the "Initial
Purchasers"). The Initial Purchasers subsequently
offered and resold the Old Notes to Qualified
Institutional Buyers (as defined in Rule 144A under
the Securities Act) pursuant to Rule 144A under the
Securities Act, to a limited number of
institutional investors that are Accredited
Investors (as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act) and in offshore
transactions complying with Rule 903 or Rule 904 of
Regulation S under the Securities Act (the "Old
Note Offering").
EXCHANGE OFFER
Exchange Notes............ Up to $140,000,000 aggregate principal amount of 11
1/2% Senior Secured Notes due 2004 (the "Exchange
Notes") of the Company. The terms of the Exchange
Notes and the Old Notes are identical in all
respects, except that the offer of the Exchange
Notes will have been registered under the
Securities Act and therefore, the Exchange Notes
will not be subject to certain transfer
restrictions and registration rights and related
provisions for an increase in the interest rate
payable on the Old Notes under certain
circumstances if the Company defaults with respect
to its registration requirements under the
Registration Rights Agreement applicable to the Old
Notes.
Exchange Offer............ The Company is offering, upon the terms and subject
to the conditions of the Exchange Offer, to
exchange $1,000 principal amount of Exchange Notes
for each $1,000 principal amount of Old Notes. See
"The Exchange Offer" for a description of the
procedures for tendering Old Notes. In connection
with the Old Note Offering, the Company entered
into the Registration Rights Agreement (the
"Registration Rights Agreement") dated as of
December 9, 1997 among the Company and the Initial
Purchasers, which grants holders of the Old Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy obligations
of the Company under the Registration Rights
Agreement. The date of acceptance for exchange of
the Exchange Notes will be the first business day
following the Expiration Date.
Tenders, Expiration Date;
Withdrawal...............
The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, or such later date
and time to which it is extended. The tender of Old
Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
Any Old Notes not accepted for exchange for any
reasons will be returned without expense to the
tendering Holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
10
<PAGE>
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."
Federal Income Tax The exchange pursuant to the Exchange Offer will
Consequences.............. not result in any income, gain or loss to the
Holders of the Notes or the Company for federal
income tax purposes. See "Exchange Offer--United
States Federal Income Tax Consequences of the
Exchange Offer."
Use of Proceeds........... There will be no proceeds to the Company from the
issuance of the Exchange Notes pursuant to the
Exchange Offer.
Exchange Agent............ The First Security Bank, National Association is
serving as exchange agent (the "Exchange Agent") in
connection with the Exchange Offer.
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old
Notes may be offered for sale, resold or otherwise transferred by any holder
without compliance with the registration and prospectus delivery provisions of
the Securities Act. Based on interpretations by the staff of the Commission set
forth in no-action letters issued to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by any holder of
such Exchange Notes, other than broker-dealers which must sell in accordance
with the provisions set forth below and other than any holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has
no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
or who is an affiliate of the Company may not rely on such interpretations by
the staff of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction. Each broker-dealer (whether or not it is also an
"affiliate"of the Company) that receives Exchange 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 Exchange Notes. See "Plan of Distribution."
By executing the Letter of Transmittal, each holder of Old Notes will
represent to the Company that, among other things, (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is such holder, (ii) neither the holder of Old Notes, nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such Exchange Notes, (iii) if the holder is not a
broker-dealer, or is a broker-dealer but will not receive Exchange Notes for
its own account in exchange for Old Notes, neither the holder nor any such
other person is engaged in or intends to participate in the distribution of
such Exchange Notes and (iv) neither the holder nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or, if such Holder is an "affiliate," that such Holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. If the tendering Holder is a broker-dealer (whether or not
it is also an "affiliate") that will receive Exchange Notes for its own account
in exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it will be required to acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
11
<PAGE>
Notes. See "Plan of Distribution". To comply with the securities laws of
certain jurisdictions, it may be necessary to qualify for sale or register the
Exchange Notes prior to offering or selling such Exchange Notes. The Company
does not currently intend to take any action to register or qualify the
Exchange Notes for resale in any such jurisdictions.
Following the consummation of the Exchange Offer, holders of Old Notes not
tendered will not have any further registration rights and the Old Notes will
continue to be subject to certain restrictions on transfer. In general, the Old
Notes may not be offered or sold, 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. Failure to comply with
such requirements in such instance may result in such Holder incurring
liability under the Securities Act for which such Holder is not indemnified by
the Company. See "Exchange Offer--Consequences of Failure to Exchange."
SUMMARY DESCRIPTION OF THE NOTES
The terms of the Exchange Notes and the Old Notes are identical in all
respects, except that the offer of the Exchange Notes is registered under the
Securities Act and, therefore, the Exchange Notes will not be subject to
certain transfer restrictions, registration rights and related provisions
requiring an increase in the interest rate on the Old Notes under certain
circumstances if the Company defaults with respect to its registration
requirements under the Registration Rights Agreement applicable to the Old
Notes.
Exchange Notes Offered.... Up to $140,000,000 aggregate principal amount of
Exchange Notes of the Company.
Maturity Date............. December 15, 2004
Interest Payment Dates.... June 15 and December 15, beginning June 15, 1998.
The Exchange Notes will bear interest from December
9, 1997. Holders of Old Notes whose Old Notes are
accepted for exchange will be deemed to have waived
the right to receive any payment in respect of
interest on such Old Notes accrued from December 9,
1997 to the date of the issuance of the Exchange
Notes. Consequently, holders who exchange their Old
Notes for Exchange Notes will receive the same
interest payment on June 15, 1998 (the first
interest payment date with respect to the Old Notes
and the Exchange Notes) that they would have
received had they not accepted the Exchange Offer.
Mandatory Repurchases..... The Company will be required to make an Offer to
Purchase the Notes in the case of (i) the
incurrence of certain Acquired Indebtedness (as
defined) or (ii) certain Asset Dispositions (as
defined). See "Description of Notes--Repurchase of
Notes in Connection with Incurrence of Acquired
Indebtedness" and "--Limitation on Sales of Assets
and Subsidiary Stock."
Optional Redemption....... The Notes will be redeemable prior to December 15,
2001 only in the event that on or before December
15, 2000 the Company uses the Net Cash Proceeds (as
defined) of one or more Public Equity Offerings (as
defined) to redeem up to $49.0 million aggregate
principal amount of the Notes. On or after December
15, 2001, the Notes will be redeemable on at least
30 days' prior notice to the Company, in whole
12
<PAGE>
or in part, at any time, at the redemption price
set forth herein, in each case together with
accrued and unpaid interest and Special Interest
(as defined), if any, to the date fixed for
redemption. See "Description of Notes--
Redemptions." The Notes will also be redeemable in
whole, but not in part, in the event the Company
enters into any merger or acquisition agreement
which is prohibited by the terms of the indenture
governing the Notes (the "Indenture"). See
"Description of Notes--Certain Covenants--Merger
and Consolidation."
Change in Control......... Upon a Change in Control, each holder of Notes
shall have the right for a limited period to
require the Company to repurchase all or any part
of such holder's Notes at a price, in cash, equal
to 101% of the principal amount thereof, plus
accrued and unpaid interest and Special Interest,
if any, to the date fixed for repurchase.
Ranking................... The Notes will represent senior secured obligations
of the Company and will rank pari passu in right of
payment with all other senior secured obligations
of the Company. As of December 31, 1997, the
Company had approximately $1,061.3 million of total
outstanding indebtedness (including $140 million
for the Old Notes), all of which will rank pari
passu in right of payment of principal and interest
with the Exchange Notes. None of the Company's
outstanding indebtedness is senior to the Notes.
Collateral Security....... The Notes will be secured by a lien on (i) a pool
of aircraft spare parts as constituted at August
31, 1997 with an appraised fair market value of
approximately $234 million as of December 3, 1997,
(ii) TWA's beneficial interest in 30 Federal
Aviation Administration ("FAA") designated take-off
and landing slots at Washington National Airport, a
high-density, capacity-controlled airport, with an
appraised fair market value of approximately $36
million as of November 17, 1997 and (iii) Pledged
Collateral (as defined). These appraised values are
based on certain assumptions and limitations and
are only an estimate of value. See "Description of
Notes--Collateral Security."
Certain Covenants......... The Indenture and certain related security
documents contains provisions relating to the
preservation of and release of Collateral Security
(as defined), including a prohibition against the
Company allowing certain additional liens against
such Collateral Security. The Indenture contains
certain covenants, which, among other things, limit
(i) the incurrence of additional indebtedness by
the Company and its Restricted Subsidiaries (as
defined) and the issuance of preferred stock by the
Company's Restricted Subsidiaries, (ii) the payment
of dividends on capital stock of the Company and
the purchase, redemption or retirement of capital
stock or subordinated indebtedness, (iii) certain
investments, (iv) certain transactions with
affiliates, (v) the incurrence of liens and sale
and leaseback transactions, (vi) sale of assets,
including the capital stock of subsidiaries, (vii)
certain consolidations and mergers and certain
guarantees by Restricted Subsidiaries and (viii)
distributions from Restricted Subsidiaries. These
limitations are subject to a number of important
qualifications. See "Description of Notes--Certain
Covenants."
13
<PAGE>
Exchange Offer; In the event that applicable law or interpretations
Registration Rights....... of the staff of the Commission do not permit the
Company to effect this Exchange Offer or if certain
holders of the Old Notes notify the Company that
they are not permitted to participate in, or would
not receive freely transferable Exchange Notes
pursuant to, the Exchange Offer, or upon the
request of an Initial Purchaser (as defined herein)
under certain circumstances, the Company will use
its best efforts to cause to become effective a
registration statement (the "Shelf Registration
Statement") with respect to the resale of the Old
Notes and to keep the Shelf Registration Statement
effective for a period of two years from the date
of original issuance of the Old Notes or such
shorter period that will terminate when Old Notes
covered by the Shelf Registration Statement have
been sold pursuant thereto or can be sold pursuant
to Rule 144(k). The interest rate on the Old Notes
is subject to increase under certain circumstances
if the Company defaults with respect to its
registration obligations under the Registration
Rights Agreement. See "Exchange Offer."
Lack of Prior Market for
the Exchange Notes.......
The Exchange Notes are being offered to holders of
the Old Notes. The Old Notes were resold by the
Initial Purchasers to Qualified Institutional
Buyers (as defined in Rule 144A of the Securities
Act), to a limited number of institutional
accredited investors within the meaning of Rule
501(a)(1), (2), (3) or (7) of the Securities Act
and in offshare transactions, complying with Rule
903 or Rule 904 of Regulation S under the
Securities Act and are eligible for trading in the
PORTAL Market. The Exchange Notes will be new
securities for which there is currently no
established trading market, and none may develop.
Although the Initial Purchasers are making a market
in the Old Notes and have indicated to the Company
that they currently intend to make a market in the
Exchange Notes, as permitted by applicable laws and
regulations, they are under no obligation to do so;
and such market-making could be discontinued at any
time without notice, at the sole discretion of the
Initial Purchasers. In addition, such market making
activities may be limited during the Exchange Offer
and the pendency of a Shelf Registration Statement.
Accordingly, no assurance can be given that an
active trading market for the Exchange Notes will
develop or, if such a market develops, as to the
liquidity of such market. The Company intends to
apply for listing of the Exchange Notes on the
American Stock Exchange. If the Exchange Notes, are
traded after their initial issuance, they may trade
at a discount from their initial offering price,
depending upon prevailing interest rates, the
market for similar securities, the performance of
the Company and certain other factors.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors which should be
considered in connection with the Exchange Offer or an investment in the
Exchange Notes.
14
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary consolidated financial and operating data presented below relates
to the three year period ended December 31, 1996, the nine month periods ended
September 30, 1996 and 1997 and the three month periods ended September 30,
1996 and 1997. This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company's 1996 consolidated financial statements (including the notes thereto,
the "1996 Consolidated Financial Statements") and the Company's condensed
consolidated financial statements for the nine months ended September 30, 1996
and 1997 and the three months ended September 30, 1996 and 1997 (including the
notes thereto, the "1997 Interim Consolidated Financial Statements"), together
referred to herein as 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--Liquidity; Substantial Indebtedness; Capital Expenditure
Requirements" for a description of the auditor's report issued in connection
with the 1996 Consolidated Financial Statements.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY REORGANIZED COMPANY
------------------- --------------------------------------------------------
EIGHT FOUR THREE MONTHS
YEAR MONTHS MONTHS YEAR NINE MONTHS ENDED ENDED
ENDED ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30,
DECEMBER AUGUST DECEMBER DECEMBER ------------------ ----------------
31, 1994 31, 1995 31, 1995 31, 1996 1996 1997 1996 1997
--------- --------- -------- -------- -------- -------- -------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenues..... $ 3,407.7 $ 2,218.4 $1,098.5 $3,554.4 $2,751.1 $2,515.1 $1,002.9 $908.4
Operating income
(loss)(1)............. (279.5) 14.6 10.4 (198.5) 33.9 (29.8) 26.0 63.8
Income (loss) before
income taxes and
extraordinary
items(2).............. (432.9) (338.3) (32.3) (274.6) (18.3) (68.3) 10.0 47.2
Income (loss) before
extraordinary
items(2).............. (433.8) (338.2) (33.6) (275.0) (18.8) 68.8 (6.9) 13.3
Extraordinary items(3). (2.0) 140.9 3.5 (9.8) (7.4) (10.9) (7.4) (7.0)
Net income (loss)...... (435.8) (197.3) (30.1) (284.8) (26.2) (79.7) (14.3) 6.3
Earnings (loss) per
share................. -- -- (1.05) (7.27) (1.36) (1.75) (0.40) 0.04
Weighted average shares
outstanding........... -- -- 33.3 44.2 43.2 52.0 45.1 56.1
Ratio of earnings to
fixed charges(4)...... -- -- -- -- -- -- -- 1.21
OTHER DATA:
Operating lease
rentals............... 261.4 182.5 96.4 303.0 222.1 268.8 77.3 94.4
Interest expense....... 195.4 123.2 45.9 126.8 95.5 85.5 30.9 27.4
Capital expenditures... 44.9 16.6 43.0 121.5 109.9 58.2 34.9 24.8
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
(IN MILLIONS)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................... $2,676.6
Current maturities of long-term debt and capital leases.... 104.6
Long-term debt and long-term obligations under capital
leases.................................................... 783.4
Shareholders' equity(7).................................... 219.8
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
NINE MONTHS ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------- ------------------ ---------------
1994 1995 1996 1996 1997 1996 1997
------- ------- ------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
AIRLINE ONLY OPERATING
DATA(8):
Revenue passenger miles
(millions)............ 24,906 24,902 27,111 20,906 19,169 8,028 7,113
Available seat miles
(millions)............ 39,191 37,905 40,594 30,708 27,590 11,450 9,894
Passenger load factor.. 63.5% 65.7% 66.8% 68.1% 69.5% 70.1% 71.9%
Passenger yield
(cents)............... 11.31c 11.39c 11.35c 11.44c 11.54c 10.89c 11.24c
Passenger revenue per
available seat mile
(cents)............... 7.19c 7.48c 7.58c 7.79c 8.01c 7.64c 8.08c
Operating cost per
available seat mile
(cents)............... 8.45c 8.12c 8.76c 8.58c 8.99c 8.27c 8.29c
</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) 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
15
<PAGE>
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 items
in 1996 and 1997 result from the early extinguishment of certain debt.
(4) 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, 1994, $430; for the eight
months ended August 31, 1995, $338.3; for the four months ended December
31, 1995, $32.3; for the year ended December 31, 1996, $280.0; for the
nine months ended September 30, 1996 and 1997, $21.8 and $72.5,
respectively; and for the three months ended September 30, 1996, $8.5.
(5) No dividends were paid on the Company's outstanding common stock, $0.01
par value per share (the "Common Stock") during the periods presented
above.
(6) For a definition of the items presented, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
16
<PAGE>
RISK FACTORS
In addition to the other information appearing in this Prospectus, the
following risk factors should be considered carefully in evaluating the
Company and its business before participating in the Exchange Offer or
investing in the Exchange Notes.
RISK FACTORS RELATED TO THE COMPANY
Liquidity; Substantial Indebtedness; Capital Expenditure Requirements
The Company believes that continued improvement in its operating results is
necessary for TWA to maintain adequate liquidity. 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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and the Consolidated Financial Statements.
The Company is highly leveraged and has and will continue to have
significant debt service obligations. As of September 30, 1997, the Company's
ratio of long-term debt and capital leases (including current maturities) to
shareholders' equity was 4.0 to 1. After giving effect to the Old Note
Offering, the 1997 Preferred Stock Offering and the Receivables Securitization
Offering and the application of the net proceeds therefrom, the aggregate
principal amount of the Company's total outstanding indebtedness is
approximately $1,061.3 million, all of which constitutes senior obligations.
The ratio of such long-term debt and capital leases (including current
maturities) to shareholders' equity, including net proceeds from the 1997
Preferred Stock Offering, is 3.32 to 1. TWA's estimated minimum payment
obligations under noncancellable operating leases in effect at September 30,
1997 were approximately $330 million for 1998 and approximately $2,339 million
for periods thereafter. Over the last several years, the Company's earnings
have not been sufficient to cover fixed charges. The Company's earnings were
not sufficient to cover fixed charges by $72.5 million and $21.8 million for
the nine months ended September 30, 1997 and 1996, respectively, $280.0
million for the year ended December 31, 1996, $32.3 million for the four
months ended December 31, 1995, $338.3 million for the eight months ended
August 31, 1995, $435.0 million for the year ended December 31, 1994, $88.4
million for the two months ended December 31, 1993, $364.7 million for the ten
months ended October 31, 1993, and $317.4 million for the year ended December
31, 1992. See "Selected Consolidated Financial Data," "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 Notes 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 (including, under
certain circumstances, a cross-default of other debt).
On September 30, 1997, the Company's total cash and cash equivalents balance
was approximately $104.6 million (including amounts held in TWA's
international operations and by subsidiaries which, based upon various
monetary regulations and other factors, might not be immediately available to
the Company). This balance represented a decrease of approximately $77.0
million from the Company's corresponding cash balance at December 31, 1996.
This reduction in the Company's cash balance resulted primarily from the
repayment of
17
<PAGE>
long-term debt and capital lease obligations and from TWA's net losses in the
first half of 1997. 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 Condition and Results of Operations--Liquidity and Capital
Resources--Liquidity" for a description of the actions taken by the Company to
improve its liquidity during the first nine months of 1997. Substantially all
of TWA's strategic assets, including its owned aircraft, have been pledged to
secure various issues of outstanding indebtedness of the Company. In
connection with the Old Note Offering, the Company repaid the 12% Reset Notes,
thereby releasing certain collateral which, based on current fair market
value, the Company believes has a value of approximately $278 million. Of such
released collateral, the aircraft spare parts, valued at approximately $234
million, has been used together with certain of the Company's take-off and
landing slots, valued at approximately $36 million, to secure the Notes. To
the extent that pledged assets are sold, the applicable financing agreements
generally require the sale proceeds to be applied to repay the corresponding
indebtedness. To the extent that the Company's access to capital is
constrained, the Company may not be able to make certain capital expenditures
or to continue to 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, improved operational
reliability; 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
therefore 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--General" and "--Liquidity and Capital Resources."
Prior Operating Losses and Future Uncertainties Relating to Results of
Operations
TWA's long-term viability depends on its ability to achieve and maintain
profitable operations. Although the airline industry has generally seen
strengthened performance in recent years, particularly since 1995 when many
airlines reported record profits, the Company has reported significant net
losses. For example, the Company reported a net loss of $227.5 million for the
combined 12-month period ended December 31, 1995 (including extraordinary
gains related to the '95 Reorganization (as defined)), 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), which represented 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. For the first nine months of 1997, the Company reported a net loss of
$79.7 million, which represented a $53.5 million increase over the $26.2
million net loss for the first nine months of 1996, and a $29.8 million
operating loss, which represented a $63.7 million adverse change from the
$33.9 million operating profit reported for the first nine months of 1996. For
a
18
<PAGE>
discussion of such operating results and the substantial net losses incurred
during such periods, 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 "--Liquidity; Substantial Indebtedness; Capital
Expenditure Requirements" and "The Company--Business Strategy."
TWA has historically experienced significant variations in quarterly and
annual operating revenues and operating expenses and expects such variations
to continue. Due to the greater demand for air travel during the summer
months, airline industry revenues for the third quarter of the year are
generally significantly greater than revenues in the first and fourth quarters
of the year and moderately greater than revenues in the second quarter of the
year. In the past, given the Company's historical dependence on summer leisure
travel, TWA's results of operations have been particularly sensitive to such
seasonality. While the Company, through an acceleration of its fleet renewal
program and restructuring of its JFK operations, anticipates that the
deseasonalization of operations affected thereby will reduce quarter to
quarter fluctuations in the future, there can be no assurance that such
deseasonalization will occur.
The Company's results of operations have also been impacted by numerous
other factors that are not necessarily seasonal. 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 necessitating additional capital or operating
expenditures; (vii) the outcome of certain ongoing labor negotiations (see "--
'94 Labor Agreements"); and (viii) the reduction in yield due to the continued
implementation of a discount ticket program entered into between the Company
and Karabu Corporation ("Karabu"), a Delaware corporation controlled by Carl
Icahn, in connection with the '95 Reorganization, on the terms currently
sought to be applied by Karabu, which terms are, in the opinion of the
Company, inconsistent with, and in violation of, the agreement governing such
program (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--General" and "Business--Legal Proceedings--Icahn
Litigation"). The Company is unable to predict the potential impact of any
such uncertainties upon its future results of operations.
Crash of Flight 800
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. The
National Transportation Safety Board held hearings relating to the crash in
December 1997 and is continuing its investigation. 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 or from any
future findings by the National Transportation Safety Board. See "Business--
Legal Proceedings."
Changes to Management Team
Commencing in June 1996, the Company experienced a substantial number of
changes in its executive management team. In June 1996, the Company announced
the separation of Messrs. Robert A. Peiser and Mark J. Coleman, Executive Vice
President and Chief Financial Officer and Senior Vice President, Marketing,
19
<PAGE>
respectively, from the Company. Messrs. Peiser and Coleman differed with the
determination of the Board of Directors, as expressed by its unanimous vote,
to continue the management approach of the Company's President and Chief
Executive Officer at that time relating to the Company's rebuilding process.
On August 21, 1996, Edward Soule 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, the Company announced that Jeffery H. Erickson, President and Chief
Executive Officer, had informed the Board of his intention to leave the
Company in January 1997. 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 the positions of Executive Vice President and Chief Financial
Officer 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 27, 1997, the Board elected
Mr. Compton to serve as Executive Vice President, Operations. On May 29, 1997,
Donald M. Casey was elected to serve as the Company's Executive Vice
President, Marketing. It was also announced on May 29, 1997 that Mr. Kennedy
would leave his interim position as Acting Executive Vice President and Chief
Operating Officer. Mr. Kennedy, whose services have been retained on a
consulting basis, will also remain as a director and as chairman of the
Finance Committee of the Board of Directors. On October 29, 1997 James F.
Martin was elected to the office of Senior Vice President, Human Resources,
replacing Charles J. Thibaudeau who retired effective October 1, 1997. In
addition, on December 3, 1997, the Board elected Mr. Compton to serve as the
Company's President and Chief Operating Officer. On December 31, 1997, Mr.
Brandt resigned as senior Vice President, Planning, but he will remain as a
consultant to the Company. The Company does not believe that such changes have
unduly affected its ongoing operations or implementation of the Company's
business strategy.
'94 Labor Agreements
As of September 30, 1997, the Company had approximately 22,540 full-time
employees (based upon full-time equivalents which include part-time
employees). Of these, approximately 84.6% were represented by ALPA and the
IAM. 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 collective bargaining agreement with each such union (collectively
the " '94 Labor Agreements") 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 became
amendable as of August 31, 1997. Negotiations on a new collective bargaining
agreement with the IAM with regard to the flight attendants commenced in July
1997 and are currently ongoing and negotiations regarding the Company's ground
employees represented by the IAM commenced in February 1997 and are also
currently ongoing. Negotiations on a new collective bargaining agreement with
ALPA commenced in June 1997 and are currently ongoing. 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. At the
request of the IAM, a mediator was appointed on August 6, 1997 with respect to
ground employees represented by the IAM. The mediator has not yet met with the
parties and has not rendered a conclusion that negotiations are deadlocked.
In the opinion of management, the Company's financial resources are not as
great as those of most of its competitors, and, therefore, management believes
that 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."
20
<PAGE>
Age of Fleet; Noise
At September 30, 1997, the average age of TWA's operating aircraft fleet was
17.6 years, making TWA's fleet one of the oldest of U.S. air carriers. As a
result, TWA has incurred increased overall operating costs due to the higher
maintenance, fuel and other operating costs associated with older aircraft.
During the first ten months of 1997, TWA acquired 23 new or later-model used
aircraft. The Company expects to continue the process of acquiring a number of
new and later-model used aircraft and, including aircraft delivered in the
fourth quarter of 1997, TWA's composite fleet age was reduced to slightly
under 17.0 years at December 31, 1997. As of September 30, 1997, TWA's fleet
included 64 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 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. Many 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 requirements and spent approximately $3.1 million
on such requirements during the first nine months of 1997. 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 an additional approximately $19.8
million through the year 2001. 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 "--Liquidity;
Substantial Indebtedness; Capital Expenditure Requirements," "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 (the "Blocking Coalition 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
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 20% of the capital stock of the Company.
21
<PAGE>
Anti-takeover Provisions in Certificate of Incorporation and By-laws; Rights
Plan
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. These provisions of the Certificate of
Incorporation and By-laws and the Blocking Coalition Provisions, 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. In addition, the Board of
Directors declared a dividend distribution of one Right for each outstanding
share of Common Stock and Employee Preferred Stock payable to holders of
record as of the close of business on January 12, 1996 and, thereafter all
Common Stock issued by the Company has had an equivalent number of rights
attendant to it. The Rights are intended to protect TWA's shareholders from
certain non-negotiated takeover attempts which present the risk of a change of
control on terms which may be less favorable to TWA's stockholders than would
be available in a transaction negotiated with and approved by the Board of
Directors of the Company. See "Certain Provisions of the Certificate of
Incorporation, the By-laws and Delaware Law" and "Business--Regulatory
Matters--Foreign Ownership of Shares" and "Description of Capital Stock--
Rights Plan."
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 employee stock incentive plan (the "ESIP") will generally
result in a charge equal to the fair market value of shares granted plus 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 certain target prices, see "Business--Employees."
Fresh Start Reporting
In connection with the '95 Reorganization, the Company adopted fresh start
reporting in accordance with the American Institute of Certified Public
Accountants' Statement of Position 90-7 "--Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). The fresh start
reporting common equity value of the Company was determined by the Company,
with the assistance of its financial advisors, to be approximately $270.0
million based, in part, on assumptions as to future results of operations. The
carrying value of the Company's assets does not reflect historical cost but
rather reflects current values determined by the Company as of the August 23,
1995 effective date (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 Consolidated 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
22
<PAGE>
accounting. See "Management's Discussion 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 various 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 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. In addition, certain of the Company's competitors
have in recent years established alliances with one or more large foreign
carriers, allowing those competitors to strengthen their overall operations
by, among other things, transporting passengers connecting with or otherwise
traveling on the alliance carriers. Although the Company has established a
code share arrangement with one foreign carrier and has filed an application
with the DOT to establish an alliance with another foreign carrier, it does
not have an alliance with a large foreign carrier.
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. Certain of the traditional carriers that compete with
TWA have implemented, or are in the process of implementing, measures to
reduce their operating costs including the creation of low cost regional jet
airline affiliates. 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 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.
23
<PAGE>
Aircraft Fuel
Since fuel costs constitute a significant portion of the Company's operating
costs (approximately 15.6% in 1996 and approximately 14.5% for the first nine
months of 1997), 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% versus 1995, from approximately
57.0c per gallon to approximately 70.0c per gallon. During the first nine
months of 1997, the Company's average per gallon cost of fuel decreased
approximately 2.1%, from approximately 67.9c per gallon to approximately 66.5c
per gallon. 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 consumption during the first nine months of 1997) impacts operating
expense by approximately $620,000 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. 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 expects that a number of aircraft will be
retired before major aging aircraft modifications and noise compliance will be
required; however, required capital expenditures will vary depending upon
changes in TWA's 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--
Liquidity; Substantial Indebtedness; Capital Expenditure Requirements."
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. For example,
several airports have recently sought to increase substantially the rates
charged to airlines, and the ability of airlines to contest such increases has
been restricted by federal legislation, DOT resolutions and judicial
decisions. In addition, 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."
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
24
<PAGE>
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. Congress recently passed tax legislation
reimposing and significantly modifying the Ticket Tax. The legislation
includes the imposition of new excise tax and significant fee tax formulas
over a multiple year period, an increase in the international departure tax,
the imposition of a new arrivals tax, and the extension of the Ticket Tax to
cover items such as the sale of frequent flier miles. Management believes that
the reimposition and modification of the Ticket Tax will have a negative
impact on the Company, although neither the amount of such negative impact nor
the benefit previously realized by its expiration can be precisely determined.
However, management believes that the recent tax legislation and any other
increases 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). It is also possible that holders of Notes
would not ultimately receive repayment, in whole or in part, of the Notes. See
"Description of Notes --Certain Bankruptcy Limitations."
Ranking of the Notes
The Notes represent senior secured obligations of the Company and rank pari
passu in right of payment with other senior obligations of the Company. None
of the Company's outstanding indebtedness is senior to the Notes. As of
September 30, 1997, after giving effect to the issuance of the Notes and the
application of the proceeds therefrom, the aggregate principal amount of the
Company's total outstanding indebtedness would have been approximately
$1,032.7 million, all of which constitutes senior obligations. 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, seek recourse
against the Collateral as security for the Notes unless and until the Notes
are satisfied in full. See "Description of Notes--Collateral Security" and "--
Certain Bankruptcy Limitations." The Notes are not presently guaranteed by any
subsidiary of the Company and as a result effectively rank junior to all
creditors (including trade creditors) of, and holders of preferred stock
issued by, subsidiaries of the Company. As of September 30, 1997, the
subsidiaries of the Company did not have any outstanding indebtedness or
preferred stock. Although the Notes contain restrictions on the incurrence of
indebtedness by subsidiaries, the amount of indebtedness which is permitted to
be incurred could be substantial. The Notes contain no limitations on the
ability of subsidiaries to incur trade credit and other obligations. See
"Description of Notes."
Fraudulent Conveyance
Under certain circumstances, subsidiaries of the Company will be required to
guarantee the Company's obligations with respect to the Notes. The Company
believes that any such guarantee will be for proper purposes and in good
faith. See "Description of Notes--Certain Covenants--Limitation on Guarantees
by Restricted Subsidiaries."
If a court of competent jurisdiction in a suit by an unpaid creditor or a
representative of creditors (such as a trustee in bankruptcy or a debtor-in-
possession) were to find that, at the time such subsidiary incurred its
obligations under its guarantee, either such subsidiary incurred such
obligations with the intent to hinder, delay
25
<PAGE>
or defraud its present or future creditors, or that it was insolvent or was
rendered insolvent by reason of such incurrence, was engaged or was about to
engage in a business or transaction for which its remaining unencumbered
assets constituted unreasonably small capital to carry on its business or
intended to incur, or believed or reasonably should have believed that it
would incur, debts beyond its ability to pay such debts as they matured, and
the indebtedness was incurred for less than reasonably equivalent value, such
court could avoid such subsidiary's obligations under its guarantee,
subordinate such guarantee to any or all other indebtedness of such subsidiary
or take other action detrimental to the holders of the Notes. In that event,
there can be no assurance that any repayment on such guarantee could ever be
recovered by the holders of the Notes.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction in which it is being applied. Generally,
however, an entity would be considered insolvent for these purposes if, at the
time it incurred indebtedness such as a guaranty obligation, either the sum of
its debts was then greater than all of its property at a fair valuation, or
the then fair salable value of its assets was less than the amount that was
then required to pay its probable liabilities on its existing debts (including
contingent liabilities such as guarantee obligations) as they become absolute
and matured or if, at any time, it proved unable to satisfy its liabilities
immediately due and payable with its current cash flow and available assets.
Slots as 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 30 of the Company's slots at Washington National Airport. 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. 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. See "Description of
Notes--Collateral Security" and "Business--Regulatory Matters--Slot
Restrictions."
Appraisal of Collateral; Sufficiency of Collateral
The appraisal of the aircraft spare parts and slots constituting part of the
Collateral was prepared by Simat, Helliesen & Eichner, Inc. As of the date of
such appraisal, the fair market value, as therein defined, of these portions
of the Collateral was approximately $270 million. The appraisal is subject to
certain assumptions and limitations and is only an estimate of value. The
appraisal should not be relied on as a measure of realizable value of such
Collateral, which may be more or less than the value indicated in the
appraisal. The value of such 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
such Collateral is sought to be sold, the availability of buyers, the
existence of liens and/or claims with respect to such Collateral and similar
factors. A substantial portion of the aircraft spare parts component of the
Collateral consists of spare parts for Lockheed L-1011 and Boeing 747
aircraft. The Company retired its last L-1011 aircraft in September 1997 and
its last 747 aircraft is scheduled to leave active service in February 1998,
which factors have been taken into consideration in determining the fair
market value of the spare parts relating to such aircraft in the appraisal. In
addition, given that the Collateral Documents (as defined) contain provisions
permitting the use, release, substitution and sale of Collateral, the
composition and amount of Collateral will continually change. Accordingly,
there can be no assurances that the proceeds of any sale of Collateral
pursuant to the Indenture and Collateral Documents following a default would
be sufficient to satisfy all 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
26
<PAGE>
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
(particularly the Slots), significant restrictions imposed by governmental
authorities including the DOT and FAA. The Collateral Documents will require
the Company to maintain a minimum ratio of collateral value to outstanding
principal balance of Notes, but this ratio requirement will only be triggered
if certain minimum threshold values of spare parts Collateral are not met. See
"Description of Notes--Collateral Security."
Change in Control; Cross Default Provisions
Upon a Change in Control, each holder of Notes will have the right, for a
limited period of time, to require the Company to repurchase all or any part
of such holder's Notes at a price in cash equal to 101% of the principal
amount thereof, plus accrued and unpaid interest and Special Interest, if any,
to the date fixed for repurchase. However, there can be no assurance that upon
the occurrence of such a Change in Control, the Company will be able to
repurchase the Notes. In the event the Company fails to repurchase the Notes
upon a Change in Control, it would be in default under the Indenture and the
maturity of substantially all of its long-term debt could be accelerated. See
"Description of Notes--Repurchase of Notes Upon a Change in Control."
Lack of Prior Market for the Exchange Notes
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were offered and sold in December 1997 to "Qualified Institutional
Buyers" and to a limited number of other institutional "Accredited Investors"
(as defined in Rule 144A and Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, respectively) and in offshore transactions complying with Rule
903 or Rule 904 of Regulation S under the Securities Act and are eligible for
trading in the PORTAL Market.
The Exchange Notes will constitute a new issue of securities for which there
is currently no established trading market, and the Exchange Notes may not be
widely distributed. Although the Initial Purchasers are making a market in the
Old Notes and have indicated to the Company that they currently intend to make
a market in the Exchange Notes, as permitted by applicable laws and
regulations, they are 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
Purchasers. In addition, such market making activities may be limited during
the Exchange Offer and the tendency of a Shelf Registration Statement.
Accordingly, no assurance can be given that an active trading market for the
Exchange Notes will develop. If a market for any of the Exchange Notes does
develop, the price of such Exchange Notes may fluctuate and liquidity may be
limited. If a market for any of the Exchange Notes does not develop,
purchasers may be unable to resell such Exchange Notes for an extended period
of time, if at all. The Company has agreed to list the Exchange Notes on the
American Stock Exchange or on such other stock exchange or market as the
Common Stock is then principally traded no later than the earliest to occur of
(i) the effectiveness of the this Exchange Offer Registration Statement and
(ii) the effectiveness of the Shelf Registration Statement, provided that such
Exchange Notes meet the minimum requirements for listing on any such exchange
or market, and, if applicable, to maintain such listing for so long as any of
the Exchange Notes is outstanding.
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 Old Notes or the
Exchange Notes will not be subject to similar disruptions. Any such
disruptions may have an adverse effect on holders of the Old Notes or the
Exchange Notes.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend
27
<PAGE>
thereon. In general, the Old Notes may not be offered or sold, 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. The Company believes that, based upon interpretations
contained in letters issued to third parties by the staff of the SEC, Exchange
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred by each Holder thereof
(other than a broker-dealer, as set forth below, and any such Holder which is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such Exchange Notes
are acquired in the ordinary course of such Holder's business and such Holder
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Eligible Holders wishing to accept the
Exchange Offer must represent to the Company in the Letter of Transmittal that
(i) the Exchange Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is such holder, (ii) neither the
holder of Old Notes nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes, (iii) if the holder is not a broker-dealer or is a broker-
dealer but will not receive Exchange Notes for its own account in exchange for
Old Notes, neither the holder nor any such other person is engaged in or
intends to participate in a distribution of the Exchange Notes and (iv)
neither the holder nor any such other person is an "affiliate" of the Company
within the meaning of Rule 405 or if such holder is an "affiliate", that such
holder will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable. Each broker-dealer (whether or
not it is also an "affiliate") that receives Exchange Notes for its own
account pursuant to the Exchange Offer must represent that the Old Notes
tendered in exchange therefor were acquired as a result of market-making
activities or other trading activities and must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. 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 the resales of Exchange 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 (as
defined herein), it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
However, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdiction or an exemption
from registration or qualification is available and is complied with. The
Company does not currently intend to take any action to register or qualify
the Exchange Notes for resale in any such jurisdictions.
In the event the Exchange Offer is consummated, the Company will not be
required to register the transfer of the Old Notes under the Securities Act or
any applicable securities laws. In such event, holders of Old Notes seeking
liquidity in their investment would have to rely on exemptions to the
registration requirements under such laws. The Old Notes currently may be sold
to "Qualified Institutional Buyers" and to a limited number of other
institutional "Accredited Investors" (as defined in Rule 144A and Rule 501(a)
(1), (2), (3) or (7) under the Securities Act, respectively) and in offshore
transactions complying with Rule 903 or Rule 904 of Regulation S under the
Securities Act or pursuant to another available exemption under the Securities
Act without registration under the Securities Act. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the reduction in the
principal amount of Old Notes outstanding could have an adverse effect upon,
and increase the volatility of the market price for, the untendered and
tendered but unaccepted Old Notes.
Exchange Offer Procedures
To participate in the Exchange Offer, and avoid the restrictions on Old
Notes, each holder of Old Notes must transmit a properly completed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to the First Security Bank, National Association (the "Exchange
Agent") at the address set forth below under "Exchange Agent" on or prior to
the Expiration Date. In addition, (i) certificates for such Old Notes
28
<PAGE>
must be received by the Exchange Agent along with the Letter of Transmittal,
(ii) a timely confirmation of a book-entry transfer (a Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company ("DTC" or the
"Depositary") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date or
(iii) the Holder must comply with the guaranteed delivery procedures. See "The
Exchange Offer."
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 December 9, 1997, the Company issued $140 million aggregate principal
amount of Old Notes to the Initial Purchasers. In connection with the issuance
and sale of the Old Notes, the Company entered into the Registration Rights
Agreement with the Initial Purchasers, which obligated the Company to (i) file
the Registration Statement of which this Prospectus is a part for the Exchange
Offer within 60 days after December 9, 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 150 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 Exxon Capital Holdings Corporation (available May 13,
1988), Morgan Stanley & Co. Incorporated (available June 5, 1991), Mary Kay
Cosmetics, Inc. (available June 5, 1991) and Warnaco, Inc. (available October
11, 1991), the Company believes that a holder who exchanges Old Notes for
Exchange Notes pursuant to the Exchange Offer may offer for resale, resell and
otherwise transfer such Exchange Notes without compliance with the
registration and prospectus delivery requirements of the Securities Act;
provided, that (i) such Exchange 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 Exchange Notes and has no
arrangement with any person to participate in the distribution of such
Exchange 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. A holder who exchanges Old Notes for Exchange Notes
pursuant to the Exchange Offer with the intention to participate in a
distribution of the Exchange Notes may not rely on the staff's position
enunciated in the Exxon Capital Letter, the Morgan Stanley Letter or similar
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange 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 Exchange 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 Exchange 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
29
<PAGE>
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
Exchange 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.
The terms of the Exchange 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 Exchange Notes will
not bear legends restricting the transfer of such Exchange Notes, and (ii)
holders of the Exchange 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 Exchange Notes." The Exchange Notes will evidence the same
indebtedness as the Old Notes. The Exchange Notes will be issued under and
entitled to the benefits of the Indenture pursuant to which the Old Notes were
issued such that the Exchange Notes and Old Notes will be treated as a single
class of debt securities under the Indenture.
As of the date of this Prospectus, $140 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 Exchange 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 Exchange Notes from
the Company.
In all cases, issuance of Exchange 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.
30
<PAGE>
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
, 1998 (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.
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 EXCHANGE NOTES
The Exchange Notes will bear interest from December 9, 1997 at the rate of
11 1/2% per annum, payable semi-annually in arrears, in cash, on June 15 and
December 15 of each year, commencing June 15, 1998. Holders of Old Notes whose
Old Notes are accepted for exchange will be deemed to have waived the right to
receive any payment in respect of interest on the Old Notes accrued from
December 9, 1997 until the date of the issuance of the Exchange Notes.
Consequently, holders who exchange their Old Notes for Exchange Notes will
receive the same interest payment on June 15, 1998 (the first interest payment
date with respect to the Old Notes and the Exchange Notes) that they would
have received had they not accepted the Exchange Offer.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to exchange any Exchange 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
31
<PAGE>
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.
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 Exchange 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 Exchange 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 contract 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 guarantor
institution" (banks, stockbrokers, savings and loan associations and credit
unions with membership in an approved signature guarantee medallion program),
pursuant to Rule
32
<PAGE>
17Ad-15 under the Exchange Act (an "Eligible Institution") 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.
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.
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 above 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 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 Exchange 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, DTC, 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.
33
<PAGE>
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;
(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 Exchange 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.
34
<PAGE>
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 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 other
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 Exchange 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
35
<PAGE>
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 Exchange
Notes will not be issued to such persons until satisfactory evidence of the
payment of such taxes, or an exemption therefrom, is submitted.
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 Exxon Capital Holdings Corporation
(available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5,
1991), Mary Kay Cosmetics, Inc. (available June 5, 1991) and Warnaco, Inc.
(available October 11, 1991), issued to third parties, the Company believes
that a holder who exchanges Old Notes for Exchange Notes pursuant to the
Exchange offer may offer for resale, resell and otherwise transfer such
Exchange Notes without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided, however, that (i) such
Exchange 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 Exchange Notes and has no arrangement with any person to
participate in the distribution of such Exchange 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. A holder
who exchanges Old Notes for Exchange Notes pursuant to the Exchange Offer with
the intention to participate in a distribution of the Exchange Notes may not
rely on the staff's position enunciated in the Exxon Capital Letter, the
Morgan Stanley Letter or similar letters and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. Each broker-dealer that receives Exchange 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 Exchange Notes. See "Plan of Distribution." The
Exchange 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 Exchange
Notes in any jurisdiction requested by the holders, subject to certain
limitations. To the extent the 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.
RESALE OF THE EXCHANGE NOTES
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes would in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act. However, any purchaser of Old Notes who
intends to participate in the Exchange Offer for the purpose of distributing
the Exchange Notes (i) would not be able to rely on the interpretation of the
staff of the Commission, (ii) will not be able to tender its Old Notes in the
Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Notes unless such sale or transfer is made pursuant to an
exemption from such requirements.
36
<PAGE>
By executing the Letter of Transmittal, each holder of the Old Notes will
represent that (i) it is not an affiliate of the Company or if such Holder is
an "affiliate," that such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent
applicable, (ii) any Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) at the time of commencement of the
Exchange Offer, it had no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
In addition, in connection with any resales of Exchange Notes, any broker-
dealer (a "Participating Broker-Dealer") who acquired the Notes for its own
account as a result of market-making or other trading activities must deliver
a prospectus meeting the requirements of the Securities Act. The Commission
has taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other
than a resale of an unsold allotment from the original sale of the Old Notes)
with the prospectus contained in the Exchange Offer Registration Statement.
Under the Registration Rights Agreement, the Company is required to allow
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use this Prospectus as it may be amended
or supplemented from time to time, in connection with the resale of such
Exchange Notes.
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, (ii) 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 Exchange 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 Exchange Notes.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer
will not result in any United States federal income tax consequences to
Holders. When a Holder exchanges an Old Note for an Exchange Note pursuant to
the Exchange Offer, the Holder will have the same adjusted basis and holding
period in the Exchange Note as in the Old Note immediately before the
exchange.
37
<PAGE>
THE COMPANY
TWA is the eighth largest U.S. air carrier (based on RPMs for the first nine
months of 1997), whose primary business is transporting passengers, cargo and
mail. During the first nine months of 1997, the Company carried more than 17.6
million passengers and flew approximately 19.2 billion RPMs. As of September
30, 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 September 30, 1997, the Company operated a fleet of 186 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. During the first nine months of 1997, TWA's North American
revenues accounted for approximately 84% of its total revenues versus
approximately 79% during the same period of 1996.
St. Louis
TWA is the predominant carrier at St. Louis, with approximately 365
scheduled daily departures as of September 30, 1997 serving 75 cities. For the
first nine months of 1997, 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 Reno, Nevada, Knoxville, Tennessee, Shreveport, Louisiana,
Steamboat Springs, Colorado, Toronto, Canada and the Mexican resort cities of
Cancun, Puerto Vallarta and Ixtapa/Zihuatenejo. On December 18, 1997, TWA
added service to Palm Springs, California.
JFK
TWA serves 28 domestic and international cities from its JFK hub, with
approximately 42 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 17 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 173 daily flights into St. Louis and 57 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 primarily 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; and London--Gatwick from St. Louis. On January 13, 1997, as part of its
plans to improve the operating and financial performance 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 the first nine months of 1997, TWA's
international revenues accounted for approximately 16% of total revenues
versus approximately 21% during the same period in 1996.
38
<PAGE>
On April 28, 1997, TWA announced it had filed an application with the DOT
seeking approval of code-share service with Royal Jordanian Airline. The DOT
approved the code-share on October 1, 1997. 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 began on November 1, 1997. On October 24, 1997, TWA announced that it
had signed an agreement with Spanish carrier Air Europa to provide code share
service. Under the agreement, which still requires governmental approval, TWA
will place its TW flight code on Air Europa flights operating between Madrid
and Barcelona, on the one hand, and Palma and Malaga, Spain, on the other
hand. Air Europa will place its UX flight code on TWA flights operating
between both Madrid and Barcelona, on the one hand, and JFK, on the other
hand, and to numerous U.S. points beyond JFK. The code share service is
anticipated to commence in the first quarter of 1998. The Company anticipates
that, pursuant to the code-share agreements, both Royal Jordanian Airline and
Air Europa will move their operations to the Company's JFK terminal. 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.
BUSINESS STRATEGY
In late 1996, the Company began implementing certain initiatives designed to
further its strategic objectives. These initiatives were implemented in
response to a significant deterioration in the Company's operating performance
and financial condition during the second half of 1996. This deterioration was
primarily caused by (i) an overly aggressive expansion of TWA's capacity and
planned flight schedule, particularly during the 1996 summer season, which
forced the Company to rely disproportionately on lower-yield 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 operations during the summer of 1996; 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 and adversely affected the Company's yields
and unit costs. 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. The Company also experienced a 27.6% increase in fuel
costs in 1996 versus 1995, primarily due to a 22.3% increase in the average
fuel price paid per gallon during the year.
The primary focus of the Company's late 1996 strategic initiatives was to
reestablish TWA's operational reliability and schedule integrity and overall
product quality in order to attract higher-yield passengers and improve its
financial results. As the initial steps in implementing this strategy, the
Company temporarily reduced its flight schedule during the first quarter of
1997 to more closely match aircraft available for active service and worked to
reduce the number of aircraft in maintenance backlog by increasing overtime
and maintenance capacity made available by terminating an unprofitable
aircraft maintenance contract with the U.S. government. The other key
initiatives which TWA began implementing in late 1996 included: (i)
acceleration of the Company's fleet renewal plan; (ii) a restructuring of
TWA's operations at JFK; (iii) a focus on improving productivity; (iv)
implementation of a series of revenue-enhancing marketing initiatives; and (v)
implementation of a number of employee-related initiatives to reinforce the
Company's focus on operational performance.
The key elements of the Company's overall ongoing business strategy, as well
as the late 1996 strategic initiatives, are outlined below.
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. These changes are
39
<PAGE>
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 the first quarter of 1997, as part of its efforts to improve near-term
operational reliability, the Company announced plans to accelerate retirement
of the 14 747s (four-engine, 3-pilot wide-body jets with an average age of
approximately 25.6 years) and the 11 L-1011s (three-engine, three-pilot wide-
body jets with an average age of approximately 22.6 years) remaining in its
fleet as of December 31, 1996. As of September 30, 1997, all of the L-1011s
and 8 of the 747s had been retired, with the last 747 scheduled to leave
active service in February 1998. These older, less efficient and less reliable
aircraft are being replaced with new or later-model used 757, 767 and MD-80
aircraft. Management believes that these smaller aircraft are more
appropriately sized to the routes served and, by reducing the Company's
reliance on lower-yield feed traffic to fill capacity, have resulted in higher
load factors and improved yields. Further, these newer twin-engine, two-pilot
aircraft are expected to provide efficiencies in fuel, flight crew and
maintenance expenses, while reducing long-term pilot training costs by
enabling TWA to have fewer aircraft types in the fleet. Such aircraft should
also permit TWA to more effectively utilize its yield management system. In
1996, TWA entered into agreements to lease 10 new 757s and to purchase an
additional 10 new 757 aircraft. As of October 24, 1997, TWA had taken delivery
of 15 of such aircraft. The Company also acquired the right, subject to
certain conditions, to purchase up to 20 more new 757 aircraft from the
manufacturer. In addition, the Company entered into agreements with a major
operating lessor to lease two 767-300ERs with deliveries in 1998. In 1996, the
Company entered into an agreement with the manufacturer to acquire 15 new MD-
83s. As of December 3, 1997, the Company had taken delivery of seven of the
MD-83s, and expects to take delivery of six additional planes during 1998 and
two additional planes in 1999. The Company has also entered into an agreement
for the lease of nine late-model used MD-82s with deliveries scheduled in 1997
and 1998. The Company also intends to retire eight of its older 727s, which
are expected to be replaced with MD-80s. As a result of this fleet
restructuring, the Company's mix of narrow-body and wide-body aircraft shifted
to approximately 91%/9% as of December 31, 1997 versus 80%/20% as of year-end
1996, while TWA's average number of seats per aircraft declined to 141 from
161 over the same period. Management estimates that as of December 31, 1997,
the average age of its fleet had decreased to slightly under 17 years from 19
years at year-end 1996. TWA is also in discussions with certain other lessors
to lease other aircraft as part of TWA's fleet modernization program.
During 1996 and 1997, the Company outfitted 30 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 is considering "hush-kitting"
additional DC9-30, DC9-40 and DC9-50 aircraft as well as other alternatives to
assure compliance with Stage 3 noise requirements. 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 continue to implement its strategic plan.
See "Risk Factors--Risk Factors Related to the Company--Liquidity; Substantial
Indebtedness; Capital Expenditure Requirements."
Route Structure Optimization
The Company has been 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 continue to 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
enplanements in the
40
<PAGE>
first nine months of 1997. 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 has increased its
number of daily departures at St. Louis from 229 in 1993 to 365 as of
September 30, 1997. In addition, beginning in 1995, the Company has been
consolidating domestic routes in order to strengthen its position further, and
has increased service to the north and south with service to 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, since 1994, the Company
has eliminated service to several European cities including Berlin, Zurich and
Vienna and reduced its service to and from Paris. In addition, during 1996 the
Company increased service from JFK to the Caribbean, Florida and to 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.
As part of its efforts to position the Company for sustained profitability,
TWA restructured its operations at JFK during 1997 by eliminating certain
unprofitable international destinations (such as Frankfurt and Athens), as
well as certain low-yield domestic feed service into JFK. The Company also
consolidated 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. In addition to enhancing yields and
load factors, the substitution of 757s and 767s for 747s and L-1011s on
international routes also has increased operating efficiencies at JFK, since
these smaller aircraft are better suited to the physical limitations of TWA's
terminals. As a result of these changes, TWA's international scheduled
capacity (as measured by ASMs) decreased 31.2% in the first nine months of
1997 versus the same period in 1996 and represented 20.0% of total scheduled
capacity for the first nine months of 1997 versus 26.1% for the same period in
1996. The Company believes that this decrease in international operations,
together with the rationalization of fleet size described above, will help
deseasonalize TWA's business, with the difference between TWA's seasonal
average daily peak and trough capacities anticipated to be approximately 4.1%
in 1998, versus 26.2% in 1996 and 20.2% in 1997. As a result, the Company
believes the seasonal variability of its financial performance will be
reduced; however, there can be no assurance that such deseasonalization will
occur.
Customer Service; Travel Agent Commissions
The Company is focusing on improving the quality of its air travel product
and the service provided to passengers by TWA personnel. The Company believes
that its increased focus on quality, certain new marketing initiatives and the
steps taken to restore operational reliability and schedule integrity in 1997
have resulted and will allow TWA to attract a greater percentage of higher-
yield passengers. Ongoing initiatives include:
Focus on Business Traveler. Based on customer research, the Company has
targeted 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 is introducing a series of marketing initiatives designed to
attract a greater percentage of higher-yield business passengers.
In March 1995, TWA introduced Trans World One, a premium business class
service in its international and certain trans-continental non-stop markets.
This product has recently been enhanced and relaunched with
41
<PAGE>
advertising and promotional support. Trans World One is available in 767
aircraft and will also be available commencing in early 1998 in selected 757
equipment. Overall service is being improved, including check-in, on-board
comfort, food service and priority baggage return. TWA is also increasing
first class cabin seating in its narrow-body domestic aircraft by 60% and is
planning a series of airport and in-flight enhancements. When complete in
early 1998, the domestic service will be launched as Trans World First. The
Company is also beginning to implement a specially designed service for short-
haul business markets, which will be branded and launched in the first quarter
of 1998. The Company is also in the early phases of a series of facilities
upgrades, including a newly opened Ambassadors Club in St. Louis, a renovated
club at LaGuardia, a completely refurbished club in its JFK terminal and
improved new check-in counters and backwalls. A new electronic passenger and
baggage processing system is being installed in St. Louis.
TWA plans to launch a revamped and rebranded frequent flier program in the
first quarter of 1998. The Company has already implemented several new
initiatives to improve its frequent flier program. A Platinum level was
introduced in the third quarter of 1997 to offer the Company's most attractive
travel benefits for its highest mileage customers. Platinum level travelers
and travelers purchasing first class or full fare coach tickets will also be
given mileage bonuses equal to the dollar amount paid for their tickets, in
addition to other existing bonuses. Further, TWA joined the American Express
Membership Miles Program, allowing members the opportunity to earn additional
miles for amounts charged on the American Express Card.
Leisure Traveler. Within the leisure travel market, TWA is positioned as a
high-quality, competitive-fare carrier. Management believes that TWA's cost
structure and attractive route system position it well to compete for leisure
traffic. Further, TWA's Getaway Program, which was the original airline tour
program, has a leading position in this sector.
Travel Agent Commissions. Until recently TWA paid the full traditional 10%
commission on tickets for domestic transportation on TWA sold by independent
travel agents without the cap of $50 and $25 per domestic round-trip and one-
way tickets, respectively, which most other major airlines imposed in 1995,
and paid an 11% commission on tickets for international transportation. On
October 2, 1997, the Company reduced its commissions on tickets for domestic
and international transportation to 8% and 10%, respectively, without the cap
imposed by most other major airlines. Although the Company can not quantify
the current or potential future impact of this decision, the Company believes
the uncapped commission structure is a positive factor in maintaining and
improving its long-term relationships with such travel agents and encourages
the booking of higher fare tickets. 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
currently represented by ALPA and the IAM 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 became amendable as of August 31,
1997, and negotiations have begun with respect to all three of the contracts.
While management believes that the negotiation process for the
42
<PAGE>
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.
In January 1997, TWA implemented the SCORE Program (or Safe, Clean, On-time
and Reliable), through which TWA has sought to institutionalize throughout all
levels of its organization the importance of running an airline with
operational reliability and schedule integrity. This program provides certain
operating and procedural guidelines for enhancing performance and improving
overall product quality. In addition, in 1996 the Company introduced Flight
Plan 97, which pays eligible employees a $65 bonus for each month that TWA
finishes in the top five in all three performance categories tracked by the
DOT (on-time performance, customer complaints and baggage handling) and a
total of $100 if TWA also ranks first in at least one of such categories.
Based on the Company's performance in September 1997, eligible employees
earned their first bonus under this program, a $100 payment for ranking first
in on-time performance, fourth in customer complaints and fifth in baggage
handling.
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
historical database for such yield management system has delayed full
realization of benefits expected from such system; however, as this database
grows during the remainder of 1997 and into 1998, 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 as this database grows this new system
will offer significant 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 St. Louis, Los Angeles and Chicago.
TWA is also in the process of installing state-of-the-art computer hardware
for ticket counter and gate podiums at St. Louis using "QIK-Chek" software to
improve passenger service and data collection while simplifying the ticket and
check-in process.
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 and from 8.58c for the first nine months of
1996 to 8.99c for the first nine months of 1997. The primary contributors to
these increases were increases in maintenance costs and costs associated with
flight crew training which occurred primarily during the first six months of
1997. Despite these increases, 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. During 1997, TWA realized cost efficiencies in maintenance,
reflecting the elimination of TWA's maintenance backlog during the first
quarter of 1997, as well as the reduced maintenance requirements for the newer
aircraft already added to TWA's fleet. In addition, as described above, the
Company's fleet renewal
43
<PAGE>
plan is expected to provide efficiencies in fuel, flight crew and training
expenses, while the JFK restructuring has eliminated certain unprofitable
routes and reduced certain operating costs. As a result of such efficiencies,
the Company's unit costs remained essentially unchanged at 8.29c for the third
quarter of 1997 versus the third quarter of 1996. TWA's average number of
employees per aircraft has decreased from 131 as of December 31, 1996 to 121
as of September 30, 1997, and to 119 as of December 31, 1997, which is
generally consistent with industry standards.
The Company has 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 has begun to test automatic
ticket machines in selected markets. 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 began 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. Such
booking fees are separate transaction fees that are paid in addition to any
travel agent commission. 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 Carl 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 (as defined)
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 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").
'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.
44
<PAGE>
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."
45
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated cash and the capitalization
of the Company as of September 30, 1997 and as adjusted to give effect to the
issuance of the Old Notes and the application of the proceeds therefrom, the
issuance on December 2, 1997 of the 1997 Preferred Stock and the application
of the net proceeds therefrom and the issuance on December 30, 1997 of the
Receivables Securitization Notes 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>
SEPTEMBER 30,
1997
------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents(1)............................... $ 104.6 $ 251.6
======== ========
Long-term debt and capital lease obligations (net of
unamortized discounts and including current
maturities)(2):
9.80% Airline Receivable Asset Backed Notes, Series 1997-
1........................................................ $ -- $ 100.0
11 1/2% Senior Secured Notes due 2004..................... $ -- 138.4
12% Senior Secured Notes due 2002......................... 43.0 43.0
12% Senior Secured Reset Notes due 1998................... 67.8 --
8% IAM Backpay Notes...................................... 13.0 13.0
PBGC Notes................................................ 164.9 164.9
Icahn Loans............................................... 71.4 --
Various secured notes, 4.0% to 12.4%, due 1997-2001....... 50.3 50.3
Installment Purchase Agreements, 10.00% to 10.53%, due
2002-2003................................................ 93.5 93.5
Boeing Co. 757 Purchase Agreements, 11.85% to 12.38%, due
2015..................................................... 111.7 111.7
IRS Deferral Note......................................... 7.1 7.1
Predelivery Financing Agreement........................... 6.2 6.2
Worldspan Note............................................ 31.2 31.2
Capital lease obligations................................. 228.0 228.0
-------- --------
Total long-term debt and capital lease obligations.... 888.1 987.3
-------- --------
Shareholders' equity:
Preferred Stock, $0.01 par value; 137,500,000 shares
authorized:
8% Preferred Stock, 3,869,000 shares authorized;
3,869,000 shares issued and
outstanding, as adjusted............................... -- --
9 1/4% Preferred Stock, no shares authorized; no shares
issued and outstanding;
1,725,000 authorized, issued and outstanding, as
adjusted............................................... -- --
Employee Preferred Stock; 6,959,860 shares authorized;
6,943,239 shares issued and outstanding, as adjusted
(3)...................................................... 0.1 0.1
Common Stock, $0.01 par value; 150,000,000 shares
authorized;
50,665,706 shares issued and outstanding, as adjusted
(4)...................................................... 0.5 0.5
Additional paid-in capital................................ 613.8 696.0
Accumulated deficit....................................... (394.6) (399.3)
-------- --------
Total shareholders' equity............................ 219.8 297.3
-------- --------
Total capitalization.................................. $1,107.9 $1,257.0
======== ========
</TABLE>
- --------
(1) Includes cash and cash equivalents held in its international operations
and by its subsidiaries which, based upon foreign monetary regulations and
other factors, might not be immediately available to the Company. "As
adjusted" reflects receipt of the net proceeds from the sale of the Old
Notes of approximately $133.5 million and the application of approximately
$23.1 million and $76.6 million to purchase Pledged Securities and to
prepay at par, plus accrued and unpaid interest, its 12% Reset Notes,
respectively; the receipt of the net proceeds from the sale of the 1997
Preferred Stock of $82.2 million; the receipt of the net proceeds from the
sale of the Receivables Securitization Notes of $97.0 million and the
application of approximately $74.0 million of such proceeds to repay the
Icahn Loans, including accrued and unpaid interest, and approximately $8.0
million of certain cash collateral released following repayment of the
Icahn Loans.
(2) Current maturities of long-term debt and capital lease obligations at
September 30, 1997 were $66.2 million and $38.4 million, respectively.
(3) Comprised of 4,072,508 shares of the Company's IAM Preferred Stock, par
value $0.01 per share, 974,672 shares of the Company's IFFA Preferred
Stock, par value $0.01 per share, and 1,896,059 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 and ALPA. See "Description of Capital Stock--
Employee Preferred Stock."
(4) Does not include (i) approximately 10.9 million shares of Common Stock
initially reserved for issuance upon conversion of the 1997 Preferred
Stock, (ii) approximately 6.3 million shares of Common Stock reserved for
issuance upon exercise of warrants issued in connection with the March
1997 offering of the Company's 50,000 Units, (iii) approximately 9.5
million shares of Common Stock reserved for issuance upon conversion of
the 8% Preferred Stock, (iv) approximately 3.7 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, and (v) 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."
46
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below relate to 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, the year ended
December 31, 1996, the nine months ended September 30, 1996 and 1997 and the
three months ended September 30, 1996 and 1997. 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 1997. See "Risk Factors--Risk Factors Related to the Company--Liquidity;
Substantial Indebtedness; Capital Expenditure Requirements" 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 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.
47
<PAGE>
<TABLE>
<CAPTION>
PRIOR PREDECESSOR
COMPANY PREDECESSOR COMPANY REORGANIZED COMPANY
------------------------ ------------------------------------ ----------------------------------------------
EIGHT
TEN MONTHS TWO MONTHS MONTHS FOUR MONTHS NINE MONTHS ENDED
YEAR ENDED ENDED ENDED YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31, ------------------
1992 1993 1993 1994 1995 1995 1996 1996 1997
------------ ----------- ------------ ------------ ---------- ------------ ------------ -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Operating
revenues....... $3,618.7 $2,633.9 $520.8 $3,407.7 $2,218.4 $1,098.5 $3,554.4 $2,751.1 $2,515.1
Operating income
(loss) (1)..... (420.4) (225.7) (58.3) (279.5) (14.6) 10.4 (198.5) 33.9 (29.8)
Income (loss)
before income
taxes
and
extraordinary
items (2)...... (314.3) (362.6) (88.1) (432.9) (338.3) (32.3) (274.6) (18.3) (68.3)
Provision
(credit) for
income taxes... 3.4 1.3 (0.2) 0.9 (0.1) 1.3 0.4 0.5 0.5
Income (loss)
before
extraordinary
items.......... (317.7) (363.9) (87.9) (433.8) (338.2) (33.6) (275.0) (18.8) (68.8)
Extraordinary
items (3)...... -- 1,075.6 -- (2.0) 140.9 3.5 (9.8) (7.4) (10.9)
Net income
(loss)......... (317.7) 711.7 (87.9) (435.8) (197.3) (30.1) (284.8) (26.2) (79.7)
Preferred stock
dividend
requirements
(4)............ 2.4 15.0 11.6 4.8 36.7 32.7 11.6
Income (loss)
applicable to
common shares.. (90.3) (450.8) (208.9) (34.9) (321.5) (58.9) (91.3)
Weighted average
shares
outstanding ... 33.3 44.2 43.2 52.0
Per share
amounts (5):
Income (loss)
before
extraordinary
items and
special
dividend
requirement.... (1.15) (6.60) (.73) (1.54)
Net income
(loss)......... (1.05) (7.27) (1.36) (1.75)
Ratio of
earnings to
fixed charges
(6)............ -- -- -- -- -- -- -- -- --
OTHER DATA
Operating lease
rentals........ 203.1 173.5 36.6 261.4 182.5 96.4 303.0 222.1 268.8
Interest
expense........ 110.0 91.9 31.2 195.4 123.2 45.9 126.8 95.5 85.5
Capital
expenditures... 44.1 30.2 10.4 44.9 16.6 43.0 121.5 109.9 58.2
<CAPTION>
----------------
THREE MONTHS
ENDED
SEPTEMBER 30,
----------------
1996 1997
-------- ------
<S> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Operating
revenues....... $1,002.9 $908.4
Operating income
(loss) (1)..... 26.0 63.8
Income (loss)
before income
taxes
and
extraordinary
items (2)...... 10.0 47.2
Provision
(credit) for
income taxes... 16.9 33.9
Income (loss)
before
extraordinary
items.......... (6.9) 13.3
Extraordinary
items (3)...... (7.4) (7.0)
Net income
(loss)......... (14.3) 6.3
Preferred stock
dividend
requirements
(4)............ 3.9 3.9
Income (loss)
applicable to
common shares.. (18.2) 2.4
Weighted average
shares
outstanding ... 45.1 56.1
Per share
amounts (5):
Income (loss)
before
extraordinary
items and
special
dividend
requirement.... (.24) .17
Net income
(loss)......... (.40) .04
Ratio of
earnings to
fixed charges
(6)............ -- 1.21
OTHER DATA
Operating lease
rentals........ 77.3 94.4
Interest
expense........ 30.9 27.4
Capital
expenditures... 34.9 24.8
</TABLE>
<TABLE>
<CAPTION>
PRIOR
PREDECESSOR
COMPANY PREDECESSOR COMPANY REORGANIZED COMPANY
----------- ------------------- ---------------------------------
DECEMBER 31, DECEMBER 31,
--------------------------------- ------------------ SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
----------- --------- ---------- -------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents(7)........ $ 67.9 $ 187.7 $ 138.5 $ 304.3 $ 181.6 $ 104.6
Current assets......... 602.0 728.3 603.8 737.3 625.7 593.3
Net working capital
deficiency............ (316.2) (106.7) (1,238.2) (81.9) (336.4) (425.9)
Flight equipment, net.. 827.7 660.8 508.6 455.4 472.5 558.2
Total property and
equipment, net........ 1,114.3 886.1 693.0 600.1 614.2 678.5
Intangible assets, net. -- 1,024.8 921.7 1,276.0 1,184.8 1,134.7
Total assets........... 2,158.1 2,958.9 2,512.4 2,868.2 2,681.9 2,676.6
Current maturities of
long-term debt and
capital leases (8).... 327.3 108.3 1,149.7 110.4 134.9 104.6
Liabilities subject to
Chapter 11
reorganization
proceedings (9)....... 2,026.9 -- -- -- -- --
Long-term debt, less
current maturities
(8)................... -- 1,053.6 -- 764.0 608.5 593.8
Long-term obligations
under capital leases,
less current
maturities............ -- 376.6 339.9 259.6 220.8 189.6
Shareholders' equity
(deficiency) (10)..... (1,149.7) 18.4 (417.5) 302.9 238.1 219.8
</TABLE>
(See notes on following page)
48
<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 items in 1996 and 1997
result 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, 1992, $317.4; for
the ten months ended October 31, 1993, $364.7; for the two months ended
December 31, 1993, $88.4; for the year ended December 31, 1994, $435.0;
for the eight months ended August 31, 1995, $338.3; for the four months
ended December 31, 1995, $32.3; for the year ended December 31, 1996,
$280.0; and for the nine months ended September 30, 1996 and 1997, $21.8
and $72.5, respectively; and for the three months ended September 30,
1996, $8.5.
(7) Includes cash and cash equivalents held in its international operations
and by its subsidiaries which, based upon foreign monetary regulations
and other factors, might not be immediately available to the Company.
(8) 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.
(9) 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.
(10) No dividends were paid on the Company's outstanding Common Stock during
the periods presented above.
49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In late 1996, the Company began implementing certain strategic initiatives
in response to a significant deterioration in the Company's operating
performance and financial condition during the second half of 1996. This
deterioration was primarily caused by: (i) an overly aggressive expansion of
TWA's capacity and planned flight schedule, particularly during the 1996
summer season, which forced the Company to rely disproportionately on lower-
yield 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 operations during the summer of 1996;
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 and adversely affected the Company's
yields and unit costs. 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. The Company also experienced a 27.6% increase in
fuel costs in 1996 versus 1995, primarily due to a 22.3% increase in the
average fuel price paid per gallon during the year.
The primary focus of the Company's new strategic initiatives was to
reestablish TWA's schedule integrity, operational reliability and overall
product quality in order to attract higher-yield passengers and improve its
financial results. As the initial steps in implementing this strategy, the
Company temporarily reduced its flight schedule during the first quarter of
1997 to more closely match aircraft available for active service and worked to
reduce the number of aircraft in maintenance backlog by increasing overtime
and utilizing maintenance capacity made available by the termination of an
unprofitable aircraft maintenance contract with the U.S. government. The other
key initiatives which TWA began implementing in late 1996 included: (i)
acceleration of the Company's fleet renewal plan; (ii) a restructuring of
TWA's operations at JFK; (iii) a focus on improving productivity; (iv)
implementation of a series of revenue-enhancing marketing initiatives; and (v)
implementation of a number of employee-related initiatives to reinforce the
Company's focus on operational performance.
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.
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.
The '94 Labor Agreements became amendable after August 31, 1997.
Negotiations on a new collective bargaining agreement with the IAM with regard
to the flight attendants commenced in July 1997 and are currently ongoing, and
negotiations regarding the Company's ground employees represented by the IAM
commenced in February 1997 and are currently ongoing. At the request of the
IAM, a mediator was appointed on August 6, 1997 in connection with the
negotiations on the collective bargaining agreement covering the ground
employees. Negotiations on a new collective bargaining agreement with ALPA
commenced in June 1997 and are also currently ongoing. While wage rates
currently in effect will likely increase, management believes that it is
essential that the Company's labor costs remain favorable in comparison to its
largest competitors. See "The Company--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
50
<PAGE>
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.
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 plus
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 $58.0
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 certain target prices. See "Business--Employees."
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 in the Consolidated Financial Statements.
Such amount reflects a reduction of approximately $10.0 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 it
believes 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 scale adjustments afforded to
non-contract employees, employees previously represented by the IFFA have
asserted and won an arbitration ruling with respect to the comparability of
wage concessions made in 1994 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 $6.0 million. The Company denies any such obligation
and is pursuing an appeal of the arbitration ruling and a court award
affirming the ruling. Effective September 1, 1997, the Company also reduced
the overall compensation and benefits package for non-contract employees so as
to offset, in the Company's view, any claims by such employees previously
represented by IFFA for any retroactive or prospective wage increases. 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 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 ALPA. The defined thresholds were
exceeded during the measurement periods through December 31, 1996 and no
amount was therefore owed to ALPA as of that date. A payment of approximately
$2.6 million was due under the agreement on August 14, 1997 for the period
January through June 1997. The Company made this payment in January 1998.
Although the Company can not, at this time, determine the amount that the
Company will be obligated to pay under the agreement for the period July
through December 1997, management believes that its obligation for 1997 will
not exceed $12.0 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."
TWA has historically experienced significant variations in quarterly and
annual operating revenues and operating expenses and expects such variations
to continue. Due to the greater demand for air travel during the summer
months, airline industry revenues for the third quarter of the year are
generally significantly greater than revenues in the first and fourth quarters
of the year and moderately greater than revenues in the second quarter
51
<PAGE>
of the year. In the past, given the Company's historical dependence on summer
leisure travel, TWA's results of operations have been particularly sensitive
to such seasonality. While the Company, through an acceleration of its fleet
renewal program and restructuring of its JFK operations, anticipates that the
deseasonalization of operations affected thereby will reduce quarter to
quarter fluctuations in the future, there can be no assurance that such
deseasonalization will occur. See "Risk Factors."
The Company's results of operations have also been impacted by numerous
other factors that are not necessarily seasonal. 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 necessitating additional capital expenditures; (vii)
the outcome of certain ongoing labor negotiations; and (viii) the reduction in
yield due to the continued implementation, of a discount ticket program
entered into by the Company with Karabu in connection with the '95
Reorganization on the terms currently sought to be applied by Karabu, which
terms are, in the opinion of the Company, inconsistent with and in violation
of, the agreement governing such program. See""--Liquidity and Capital
Resources" and "Business--Legal Proceedings--Icahn Litigation." The Company is
unable to predict the potential impact of any of such uncertainties upon its
future 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. The
National Transportation Safety Board held hearings relating to the crash in
December of 1997 and is continuing its investigation. 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 or from any
future findings by the National Transportation Safety Board. See "Business--
Legal Proceedings."
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.
Management believes that the Company benefitted from the expiration on
December 31, 1995 of 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. Congress recently passed tax legislation reimposing and
significantly modifying the Ticket Tax. The legislation includes the
imposition of new excise tax and significant fee tax formulas over a multiple
year period, an increase in the international departure tax, the imposition of
a new arrivals tax, and the extension of the Ticket Tax to cover items such as
the sale of frequent flier miles. Management believes that the imposition and
modification of the Ticket Tax have a negative impact on the
52
<PAGE>
Company, although neither the amount of such negative impact nor the benefit
previously realized by its expiration can be precisely determined. However,
management believes that the recent tax legislation and any other increases 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."
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 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, notwithstanding 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.
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 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--Liquidity; Substantial Indebtedness; Capital
Expenditure Requirements" and the Consolidated Financial Statements.
RECENT FINANCIAL AND OPERATING RESULTS
For the third quarter of 1997, TWA reported operating income of $63.8
million and pre-tax income of $47.2 million. These results compare to
operating income of $26.0 million and pre-tax income of $10.0 million in the
third quarter of 1996. In addition, the Company's yield (passenger revenue per
RPM) for the third quarter of 1997 increased 3.2% to 11.24c versus the
comparable prior year period and passenger RASM increased 5.8% to 8.08c versus
the comparable prior year period. The Company's unit costs remained
essentially unchanged at 8.29c, despite a 13.7% decrease in capacity for the
quarter versus the third quarter of 1996, as measured by ASMs.
53
<PAGE>
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>
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------- ---------------- --------------
1994 1995 1996 1996 1997 1996 1997
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTH AMERICA
Passenger revenues
(millions)............ $ 2,221 $ 2,292 $ 2,515 $ 1,936 $ 1,884 $ 671 $ 655
Revenue passenger miles
(millions)(2)......... 17,543 17,902 19,513 14,884 14,930 5,388 5,357
Available seat miles
(millions)(3)......... 27,963 28,194 30,201 22,688 22,072 7,959 7,707
Passenger load fac-
tor(4)................ 62.7% 63.5% 64.6% 65.6% 67.6% 67.7% 69.5%
Passenger yield
(cents)(5)............ 12.66c 12.80c 12.89c 13.01c 12.62c 12.46c 12.23c
Passenger revenue per
available seat mile
(cents)(6)............ 7.94c 8.13c 8.33c 8.53c 8.54c 8.43c 8.50c
INTERNATIONAL
Passenger revenues
(millions)............ $ 597 $ 544 $ 563 $ 455 $ 327 $ 203 $ 144
Revenue passenger miles
(millions)(2)......... 7,363 7,000 7,598 6,022 4,239 2,640 1,756
Available seat miles
(millions)(3)......... 11,228 9,719 10,393 8,020 5,518 3,491 2,187
Passenger load fac-
tor(4)................ 65.6% 72.1% 73.1% 75.1% 76.8% 75.6% 80.3%
Passenger yield
(cents)(5)............ 8.10c 7.78c 7.41c 7.56c 7.71c 7.70c 8.20c
Passenger revenue per
available seat mile
(cents)(6)............ 5.31c 5.60c 5.42c 5.67c 5.93c 5.82c 6.59c
TOTAL SYSTEM
Passenger revenues
(millions)............ $ 2,818 $ 2,836 $ 3,078 $ 2,391 $ 2,211 $ 874 $ 799
Revenue passenger miles
(millions)(2)......... 24,906 24,902 27,111 20,906 19,169 8,028 7,113
Available seat miles
(millions)(3)......... 39,191 37,905 40,594 30,708 27,590 11,450 9,894
Passenger load fac-
tor(4)................ 63.5% 65.7% 66.8% 68.1% 69.5% 70.1% 71.9%
Passenger yield
(cents)(5)............ 11.31c 11.39c 11.35c 11.44c 11.54c 10.89c 11.24c
Passenger revenue per
available seat mile
(cents)(6)............ 7.19c 7.48c 7.58c 7.79c 8.01c 7.64c 8.08c
Operating cost per
available seat mile
(cents)(7)............ 8.45c 8.12c 8.76c 8.58c 8.99c 8.27c 8.29c
Average daily utiliza-
tion per aircraft
(hours)(8)............ 9.30 9.45 9.63 9.82 9.34 9.90 9.64
Aircraft in fleet being
operated at end of pe-
riod.................. 185 188 192 191 186 191 186
</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 THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 1996
Total operating revenues of $908.4 million during the third quarter of 1997
were $94.5 million (9.4%) less than the comparable 1996 period. This reduction
occurred primarily because of decreases in scheduled passenger revenues ($75.1
million) and cargo revenue ($6.4 million) which were primarily due to
decreases in domestic and international capacity and because of a decrease in
contract work ($10.0 million), which declined primarily due to the elimination
of a government maintenance contract.
Capacity and traffic decreased in the third quarter of 1997 from the
comparable period of 1996. System wide capacity, measured by scheduled ASMs,
decreased by 13.7% during the third quarter of 1997 (representing decreases in
domestic and international ASMs of 3.2% and 37.4%, respectively). The decrease
in capacity was primarily attributed to the ongoing replacement of B-747 and
L-1011 aircraft with smaller B-767 and B-757 aircraft and the elimination of
unprofitable international routes. Passenger traffic volume, as measured by
total
54
<PAGE>
RPMs in scheduled service, during the third quarter of 1997 decreased 11.4%
compared to the same period of 1996. Passenger load factor for the three
months ended September 30, 1997 was 71.9% compared to 70.1% in the same period
of 1996. TWA's yield per passenger mile increased from 10.89 cents in 1996 to
11.24 cents for the three months ended September 30, 1997.
Operating expenses of $844.6 million in the third quarter of 1997 reflected
a decrease of $132.2 million (13.5%) from the operating expenses of $976.8
million for the three months ended September 30, 1996, representing a net
change in the following expense groups:
. Salary, wages and benefits of $304.3 million for the third quarter of
1997 were $13.2 million (4.2%) less than the same period in 1996,
primarily due to a decrease of 1,979 in the average number of employees.
The Company had an average of 23,038 full-time equivalent employees in
the third quarter of 1997 as compared to 25,017 in the third quarter of
1996. Flight attendants, mechanics, and passenger service agents were the
primary groups affected by the decrease.
. Earned stock compensation charges of $1.1 million for the third quarter
of 1997 versus a credit of $735 thousand for the third quarter of 1996
represents 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 may be recorded in the future, 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 $122.2 million for the third quarter of
1997 was $40.2 million (24.8%) less than the expense of $162.4 million
for the three months ended September 30, 1996. Approximately $14.4
million of the decrease was due to a reduction in the average cost of
fuel from 69.67 cents per gallon in the third quarter of 1996 to 62.31
cents per gallon in the third quarter of 1997 and the remaining $25.8
million decrease was due to the reduction in gallons consumed (196.2
million gallons in the third quarter of 1997 versus 233.1 million gallons
in the third quarter of 1996) resulting from the replacement of B-747 and
L-1011 aircraft with B-757 and B-767 aircraft and a reduction in
international flying.
. Passenger sales commission expense of $66.0 million for the third quarter
of 1997 was $10.0 million (13.2%) less than the comparable period in 1996
primarily due to the 8.6% decrease in scheduled passenger revenues and
reduced sales development commissions.
. Aircraft maintenance materials and repairs expense of $27.5 million for
the third quarter of 1997 represented a decrease of $26.0 million (48.6%)
from the $53.5 million for the same period of 1996. The decrease was
primarily the result of the introduction of new B-757 and MD-80/83
aircraft into the fleet as replacements for B-747, L-1011 and B-727
aircraft and a reduction in contract maintenance work performed.
. Depreciation and amortization expense decreased $2.9 million in the third
quarter of 1997 compared to the same period of 1996. Depreciation
generated by the L-1011 and B-747 fleets was approximately $4.7 million
less in the third quarter of 1997 than the same period of 1996 primarily
because of special charges recorded in the fourth quarter of 1996 related
to international route authorities and aircraft to be disposed of and the
sale/leaseback of one B-747 in 1997. The remaining increase is primarily
attributed to the addition of B-757 aircraft to TWA's fleet.
. Operating lease rentals of $94.4 million for the third quarter of 1997
were $17.1 million (22.1%) more than the rentals of $77.3 million for the
third quarter of 1996. The increase was primarily due to an increase in
the average number of leased aircraft from 144 in the third quarter of
1996 to 158 in the comparable period of 1997, and higher lease rates
attributable primarily to the addition of new B-757 and MD-80/83 aircraft
to the fleet.
55
<PAGE>
. Passenger food and beverage expense of $21.6 million during the third
quarter of 1997 represented a decrease of $9.6 million (30.8%) from $31.2
million during the third quarter of 1996. The decrease was primarily due
to the 33.7% reduction in the number of passengers boarded for
international flights resulting from the 37.4% reduction in international
scheduled ASMs and savings derived from changes and improved efficiencies
in food and beverage service.
All other operating expenses of $170.9 million during the third quarter of
1997 decreased by $49.3 million (22.4%) from $220.2 million for the three
months ended September 30, 1996. The decrease was primarily due to a decrease
in outside services purchased ($12.3 million). Additionally, international
navigational facility user charges and advertising expenses decreased year
over year for the third quarter by $4.9 million and $7.0 million,
respectively, due, in large part, to the 37.4% reduction in international
scheduled ASMs. Decreases were also noted in landing fees ($1.8 million),
personnel related expenses ($2.2 million), uncollectible accounts ($1.9
million), taxes other than payroll and income ($1.8 million), and numerous
other miscellaneous expenses.
Other charges (credits) were a net charge of $16.6 million for the third
quarter of 1997 as compared to $16.0 million for the same period in 1996.
Interest expense decreased $3.5 million in the third quarter of 1997 over the
third quarter of 1996 as a result of the reduction of debt in the third
quarter of 1997. Interest income decreased by $2.5 million in the third
quarter of 1997 primarily as a result of lower levels of invested funds. Net
gains from the disposition of assets were $2.8 million in the third quarter of
1997 as compared to a net loss of $87 thousand in the same period of 1996. The
net gain in the third quarter of 1997 included a gain of $1.8 million related
to the sale of a B-727 aircraft. Other charges and credits net decreased from
a net credit of $9.5 million for the third quarter of 1996 to a net credit of
$5.1 million for the third quarter of 1997, primarily caused by a $2.8 million
decline in the Company's share of Worldspan's earnings and a $1.3 million
adjustment to reflect the weakening of the U.S. dollar against currencies of
foreign countries in which TWA operates.
A tax provision of $33.9 million was recorded in the third quarter of 1997
compared to a tax provision of $16.9 million recorded in the third quarter of
1996. The tax provision recorded in the third quarter reflects the reversal of
previously recorded tax benefits, as management currently expects a taxable
loss at year-end and the realization of the benefits of any such tax loss in
future periods is presently subject to substantial uncertainty.
As a result of the above, the Company's operating income of $63.8 million
for the three months ended September 30, 1997 increased $37.8 million from
operating income of $26.0 million for the third quarter of 1996. The Company
had a net income of $6.3 million for the third quarter of 1997 compared to a
net loss of $14.3 million for the third quarter of 1996. The third quarter
1997 net income included a $7.0 million non-cash extraordinary loss related to
the early extinguishment of debt versus a $7.4 million non-cash extraordinary
loss in the third quarter of 1996.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Total operating revenues of $2,515.1 million for the nine months ended
September 30, 1997 were $236.0 million (8.6%) less than the comparable 1996
period. This reduction occurred primarily because of a $180.0 million (7.5%)
decrease in scheduled passenger revenue, a $33.7 million (55.2%) decrease in
contract revenue and a $16.6 million (14.9%) decrease in cargo revenues.
Capacity and traffic decreased in the nine months ended September 30, 1997
from the comparable period of 1996. System wide capacity, measured by
scheduled ASMs, decreased 10.2% during the first nine months of 1997
(representing decreases in domestic and international ASMs of 2.7% and 31.2%,
respectively). The decrease in capacity was primarily attributed to the
ongoing replacement of B-747 and L-1011 aircraft with smaller B-767 and B-757
aircraft and the elimination of unprofitable international routes. Passenger
traffic volume, as measured by total RPMs in scheduled service, during the
first nine months of 1997 decreased 8.3% compared to the same period of 1996.
Passenger load factor for the nine months ended September 30, 1997 was
56
<PAGE>
69.5% compared to 68.1% in the same period of 1996. TWA's yield per passenger
mile increased from 11.44 cents in 1996 to 11.54 cents in the first nine
months of 1997.
Operating expenses of $2,544.9 million in the first nine months of 1997
reflected a decrease of $172.4 million (6.3%) from the operating expenses of
$2,717.3 million for the nine months ended September 30, 1996, representing a
net change in the following expense groups:
. Salary, wages and benefits of $922.2 million for the first nine months of
1997 were $1.1 million less than the same period of 1996, primarily due
to a decrease in the average number of full-time equivalent employees
from 24,212 during the first nine months of 1996 to 23,785 during the
comparable 1997 period.
. Earned stock compensation charges of $4.2 million for the first nine
months of 1997 and $4.3 million for the first nine months of 1996
represent primarily the non-cash compensation charges recorded to reflect
the expense associated with the distribution of shares of stock on behalf
of employees as part of the '95 Reorganization.
. Aircraft fuel and oil expense of $369.5 million for the first nine months
of 1997 decreased $63.3 million (14.6%) from expenses of $432.8 million
for the nine months ended September 30, 1996. Approximately $55.7 million
of the decrease was due to a 12.8% reduction in consumption (555.7
million gallons in the first nine months of 1997 versus 637.5 million
gallons in the first nine months of 1996), and the remaining $7.6 million
decrease was related to the 2.1% decrease in the average cost of fuel per
gallon from 67.90 cents in the first nine months of 1996 compared to
66.49 cents in the first nine months of 1997.
. Passenger sales commission expense of $189.0 million for the first nine
months of 1997 was $24.6 million (11.5%) less than the comparable period
in 1996 primarily due to a 7.5% decrease in passenger revenues and
reduced sales development commissions.
. Aircraft maintenance materials and repairs expense of $109.6 million for
the first nine months of 1997 represented a decrease of $48.9 million
(30.9%) from $158.5 million for the same period of 1996. The decrease was
primarily the result of the introduction of new B-757 and MD-80/83
aircraft into the fleet as replacements for B-747, L-1011 and B-727
aircraft, a reduction in contract maintenance work and a 4.3% decrease in
flying hours.
. Depreciation and amortization expense decreased $6.2 million in the first
nine months of 1997 compared to the same period of 1996. Special charges
recorded in the fourth quarter of 1996, related to international route
authorities and aircraft to be disposed of, reduced depreciation and
amortization in the first nine months by approximately $10.8 million but
was offset, in part, by the depreciation expense on the new aircraft that
the Company has acquired.
. Operating lease rentals of $268.8 million for the first nine months of
1997 were $46.7 million (21.0%) more than the rentals of $222.1 million
for the first nine months of 1996. The increase was primarily due to an
increase in the average number of leased aircraft from 140 during the
first nine months of 1996 to 154 during the first nine months of 1997 and
higher lease rates attributable primarily to the addition of new B-757
and MD-80/83 aircraft to the fleet.
. Passenger food and beverage expense of $61.4 million during the first
nine months of 1997 represented a decrease of $22.7 million (27.0%) from
$84.1 million for the first nine months of 1996. The decrease was
primarily due to a 30.0% reduction in the number of passengers boarded
for international flights resulting from a 31.2% reduction in
international scheduled ASMs and savings derived from changes and
improved efficiencies in food and beverage service.
All other operating expenses of $508.1 million during the first nine months
of 1997 decreased by $52.2 million (9.3%) from $560.3 million for the first
nine months of 1996. Primarily as the result of management's decision to
reduce international service, international departures decreased by 16.5%
during the first nine months of 1997 as compared to the same period of 1996,
which affected system-wide departures by 2.6% during the same period. This
reduction had a direct impact on several operational expenses such as
navigation charges ($8.6
57
<PAGE>
million), landing fees ($4.4 million), advertising and publicity ($13.3
million), reservation booking fees ($6.5 million) and traffic handling costs
($4.9 million). Other areas of reduced expenses included accruals for waste
management fees ($8.6 million) and provision for uncollectible accounts ($5.1
million).
Other charges (credits) were a net charge of $38.5 million for the first
nine months of 1997 as compared to $52.1 million for the same period in 1996.
Interest expense decreased $10.0 million in the first nine months of 1997 from
the first nine months of 1996 as a result of the reduction of debt in 1996 and
1997. Interest income decreased $8.3 million in the first nine months of 1997
primarily as a result of lower levels of invested funds. Net gains from the
disposition of assets were $15.2 million in the first nine months of 1997 as
compared to net losses of $62 thousand in the same period of 1996. The net
gains in the first nine months of 1997 included gains of $7.3 million related
to the sale of three gates at Newark International Airport, $1.5 million
related to the sale of spare flight equipment, and $3.2 million related to the
sale of four aircraft engines and $2.8 million related to the sale of five
surplus aircraft. Other charges and credits-net for the first nine months of
1997 were a net credit of $22.9 million compared to a net credit of $26.2
million in the first nine months of 1996. The $3.3 million decrease is
primarily the result of decreases in vendor discounts ($1.4 million) and the
favorable settlement of a lawsuit in 1996 ($2.5 million).
As a result of the above, the Company's operating loss of $29.8 million for
the nine months ended September 30, 1997 decreased $63.7 million from
operating income of $33.9 million for the first nine months of 1996. The
Company had a net loss of $79.7 million for the first nine months of 1997
compared to a net loss of $26.2 million for the first nine months of 1996.
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.
. 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.
. 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
58
<PAGE>
(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 ($5.5 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 the
reduction of debt arising from the '95 Reorganization 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
59
<PAGE>
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 57.0 cents per gallon
in 1995 compared to 56.0 cents 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
60
<PAGE>
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, a partnership among affiliates of the Company, Delta Air Lines,
Northwest Airlines and ABACUS Distributions Systems Pte. Ltd., which owns and
operates the WORLDSPAN computer reservation system. 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.
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.
61
<PAGE>
Liquidity
The Company's consolidated cash and cash equivalents balance at September
30, 1997 was $104.6 million, a $77.0 million decrease from the December 31,
1996 balance of $181.6 million. This reduction in the Company's cash balances
resulted primarily from the repayment of long-term debt and capital lease
obligations and from TWA's net losses caused in part by, among other factors,
difficulties experienced in the last two quarters of 1996 and the first
quarter of 1997 in operating performance. Although the Company's operational
performance substantially improved during the second and third quarters of
1997, the residual effects of these difficulties continued throughout the
first two quarters of 1997 and, to a lesser extent, during the third quarter
of 1997. However, the Company has taken various initiatives, discussed below,
designed to improve the Company's financial performance and the Company's
financial performance for the third quarter of 1997 was better than its
performance in the third quarter of 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. In March 1997, the Company raised
approximately $47.2 million in net proceeds from the issuance of 50,000 Units.
In December 1997, the Company raised net proceeds of $83.2 million from the
sale of the 1997 Preferred Stock, net proceeds of $133.5 million from the sale
of the Old Notes, a portion of the proceeds of which was used to refinance the
12% Reset Notes, and net proceeds of $97.0 million from the sale of the
Receivables Securitization Notes, a portion of the proceeds of which was used
to repay the outstanding balance of the Icahn Loans (as defined below).
The net decrease in cash and cash equivalents during the first nine months
of 1997 was due, in part, to the fact that cash used in operating activities
in the first nine months of 1997 was $21.0 million as compared to the first
nine months of 1996 when $47.9 million was provided by operating activities.
Pursuant to the eight-year Karabu Ticket Program Agreement between the Company
and Karabu (the "Ticket Agreement"), net discounted sales from tickets sold
under the agreement are excluded from cash provided by operating activities as
the related amounts were applied as a $53.7 million reduction to the
outstanding balance of financing provided to TWA by Karabu (the "Icahn Loans")
and a $38.8 million reduction to the outstanding balance of certain promissory
notes issued to the PBGC in connection with the '93 Reorganization (the "PBGC
Notes"). Cash used by investing activities was $17.6 million in the first nine
months of 1997 versus $108.9 million in the first nine months of 1996. A large
part of this change was related to a reduction in new aircraft predelivery
deposits of approximately $35 million during the first nine months of 1997 and
an increase of $16.3 million in proceeds from asset sales. Gross proceeds from
assets sold during the first nine months of 1997 included $10.0 million for
three gates at Newark International Airport and $11.8 million for spare flight
equipment, aircraft and engines. Financing activities used $38.5 million of
cash in 1997, while such activities provided cash of $5.1 million in the first
nine months of 1996, primarily related to net proceeds of $104.4 million
(after the redemption of the Mandatorily Redeemable 12% Preferred Stock) from
the sale of 3,869,000 shares of 8% Preferred Stock in March 1996. Net proceeds
from the issuance of the Units were $47.2 million in March 1997.
The net decrease in cash and cash equivalents during 1996 as compared to
1995 was due, in large part, to the fact that cash used in operating
activities in 1996 was $5.7 million as compared to 1995 when cash provided by
operating activities was $216.9 million. The adverse change was primarily
attributable to the decrease in 1996 operating income as compared with 1995.
Additionally, pursuant to 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 were 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 $84.1 million from $23.3 million in 1995 to $107.4 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
62
<PAGE>
controls in place during most of 1995. Financing activities used $9.7 million
of cash in 1996, compared with a net use of cash of $27.8 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 Mandatorily Redeemable 12% Preferred 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.
The Company's ability to improve its financial position and meet its
financial obligations will depend upon a variety of factors, including:
continued improvement in 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. In late 1996, the Company began implementing a series of new
strategic initiatives designed to improve the Company's financial and
operating results. See "The Company--Business Strategy."
The achievement of these improved operating results is 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. No assurance can be given that any of
the initiatives already implemented or any new initiatives, if implemented,
will be successful, or if successful, that such initiatives will produce
sufficient results for the Company to be successful in generating the
operating revenues and cash required for profitable operations or future
viability. See "Risk Factors."
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 a 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 $9.0 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 and to obtain the consent of Karabu and the
Icahn Entities to certain modifications to the PBGC Notes. Collateral for the
Icahn Loans included a number of aircraft, engines and related equipment,
along with substantially all of the Company's receivables. On December 30,
1997 the Company repaid the outstanding balance of the Icahn Loans out of
proceeds from the sale of the Receivables Securitization Notes.
On June 14, 1995, in consideration of, among other things, the extension of
the Icahn Loans, TWA and Karabu entered into the Ticket Agreement which
permitted Karabu to purchase two categories of discounted tickets: (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
63
<PAGE>
other carriers. Tickets purchased by Karabu pursuant to the Ticket Agreement
are required to be at fares specified in the 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 System Tickets through
travel agents or directly to the general public. Karabu, however, has been
marketing System Tickets through travel agents and directly to the general
public. 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 or directly to the general public. In December 1995, the Company filed
a lawsuit against Karabu, Mr. Icahn and affiliated companies seeking damages
and to enjoin further violations of the Ticket Agreement. Mr. Icahn countered
by threatening to file his own lawsuit and declare a default on the Icahn
Loans, which financing was secured by receivables and certain flight equipment
pledged under one or more security agreements (the "Karabu Security
Agreements"). Mr. Icahn's position was based on a variety of claims related to
his various interpretations of the Karabu Security Agreements as well as with
respect to certain alleged violations of the Ticket Agreement by the Company.
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. In response to
such lawsuit, Karabu and another Icahn-affiliated company asserted
counterclaims alleging that the Company had breached its obligations under the
Ticket Agreement by, among other things, seeking to restrict Karabu and Icahn-
affiliated companies from selling System Tickets through travel agents or
directly to the general public. If Karabu's interpretation as to sales of
System Tickets through travel agents or directly to the general public 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 collected that could reduce
overall passenger yields on a continuing basis during the term of the Ticket
Agreement. The trial of this case was completed on January 7, 1998. A final
judicial determination that the Ticket Agreement was violated by the Company
could result in the imposition of damages.
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 and that decision has not been
appealed. On August 11, 1997, Karabu and another entity controlled by Mr.
Icahn filed another suit against six senior officers of the Company in New
York state court alleging tortious interference with prospective economic
advantage based on alleged violations of the Ticket Agreement. This suit is
similar to the previous action filed by Karabu referred to in the first
sentence of this paragraph. The defendants removed this case to the United
States District Court for the Southern District of New York and have moved to
dismiss the case on the grounds of lack of personal jurisdiction, res judicata
and failure to state a claim. This action is pending.
For a more complete description of the various Icahn litigations, see
"Business--Legal Proceedings--Icahn Litigation."
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 had been 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
September 30, 1997, approximately $118.6 million of such proceeds had been
applied to the principal balance of the Icahn Loans and $45.2 million had been
applied to the PBGC Notes.
64
<PAGE>
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 $3.7 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.
Capital Resources
During the nine months ended September 30, 1997 the Company continued a
series of privately negotiated exchanges with a significant holder of 12%
Reset Notes which resulted in the return to the Company of $51.8 million in
12% Reset Notes and approximately $1.4 million in accrued interest thereon in
exchange for the issuance of approximately 7.7 million shares of Common Stock
leaving an outstanding principal balance of approximately $72.5 million.
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, issuance of additional equity or from
the sale of assets. Substantially all of TWA's strategic assets, including its
owned aircraft, have been pledged to secure various issues of outstanding
indebtedness of the Company. To the extent that the pledged assets are sold,
the applicable financing agreements generally require the sale proceeds to be
applied to repay the corresponding indebtedness. 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 to continue to 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, all of which have been delivered.
These aircraft have an initial lease term of 10 years. Although individual
aircraft rentals escalate over the term of the leases, aggregate rental
obligations are estimated to average approximately $59 million per annum over
the lease terms. 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 also provides for the purchase of up to ten
additional aircraft. As of November 25, 1997, TWA had taken delivery of five
of such aircraft and had five on firm order. 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. Four of the five aircraft
already delivered were manufacturer financed and one was leased. TWA has
obtained commitments for debt financing for approximately 80% of the total
costs associated with the acquisition of four of the remaining five aircraft
which have not been delivered and obtained commitments for 100% lease
financing of the total costs of the remaining fifth and final of such
aircraft. Such commitments are subject to, among other things, so-called
material adverse change clauses which make the availability of such debt and
lease financing dependent upon the financial condition of the Company.
In 1997, TWA reached agreements for the acquisition, by lease, of two new
Boeing 767-300ER aircraft to be delivered in March and April of 1998. The
longer-range 300 series aircraft will be utilized on TWA's international
routes.
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
65
<PAGE>
2001 and 2002 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 quarter of 1997 and the first quarter of 1999.
The Company has taken delivery of seven of the MD-83 aircraft and expects to
take delivery of six additional planes during 1998 and two additional planes
in 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. As of
September 30, 1997, hush-kits have been installed on 71 DC-9's engines at an
aggregate cost of approximately $55 million, most of which was financed by
lessors with repayments being facilitated through increased rental rates or
lease term extensions.
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.
The Company utilizes software and related computer technologies essential to
its operations that use two digits rather than four to specify the year,
resulting in a date recognition problem in the year 2000. The Company has
hired an outside consulting firm to study what actions will be necessary to
make its computer systems year 2000 compliant. The expense associated with
these actions cannot presently be determined, but could be material to the
Company's financial position and results of operations.
Availability of NOLs
The Company estimates that it had, for federal income tax purposes, net
operating loss carryforwards ("NOLs") amounting to approximately $691 million
at December 31, 1996. 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. An additional change in ownership
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. There can be no
assurance that an 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 Notes 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.
66
<PAGE>
BUSINESS
TWA is the eighth largest U.S. air carrier (based on RPMs for the first nine
months of 1997), whose primary business is transporting passengers, cargo and
mail. During the first nine months of 1997, the Company carried more than 17.6
million passengers and flew approximately 19.2 billion RPMs. As of September
30, 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 September 30, 1997, the Company operated a fleet of 186 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. For the first nine months of 1997, the Company's North
American operations accounted for 84% of its total revenues, while its
transatlantic operations contributed 16% 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 42 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 package offering leisure travel products and
services. In addition, TWA earns revenue by providing contract maintenance
services for a number of third parties. In 1996, the Company began reducing
certain third-party airframe and engine contract maintenance service and,
while the Company expects to maintain the reduced level of airframe third-
party contract work through 1997, the Company has selectively expanded the
amount of engine third-party contract maintenance work that it performs.
FLIGHT EQUIPMENT
As of September 30, 1997, TWA operated a fleet of 186 aircraft, of which 37
were owned by TWA and 149 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 September 30, 1997
are listed below.
<TABLE>
<CAPTION>
AVERAGE AGE SEATS IN
OF AIRCRAFT STANDARD TWA
TYPE OWNED(2) LEASED TOTAL(3) (IN YEARS) CONFIGURATION
- ---- ------- ------ ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Douglas DC-9-10.............. -- 7 7 30.7 77
Douglas DC-9-30.............. -- 36 36 27.8 100
Douglas DC-9-40.............. -- 3 3 22.9 100
Douglas DC-9-50.............. -- 12 12 20.7 107
Douglas MD-80/83............. -- 59 59 10.0 144
Boeing 727-200(1)............ 27 8 35 22.9 146
Boeing 747(1)................ 2 4 6 27.0 434
Boeing 757................... 3 11 14 0.5 180
Boeing 767................... 5 9 14 13.1 192
--- --- --- ----
Total........................ 37 149 186 17.6
=== === === ====
</TABLE>
- --------
(1) Excludes the following aircraft which are not in the active fleet: four
Boeing 727-100s, five Boeing 747-100s, two Boeing 747-200s and 13 L-1011s.
67
<PAGE>
(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."
For a discussion of the Company's fleet restructuring plans, see "The
Company--Business Strategy--Fleet Upgrade and Simplification."
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. TWA's tenancy is currently on
a month-to-month basis and no lease has been signed. The Company has recently
consolidated for the near term most of its JFK operations into Terminal 5,
using only limited facilities in Terminal 6. TWA has currently subleased nine
of the 13 gates in Terminal 6 to other carriers and anticipates that at least
two more gates will be subleased by the end of the first quarter of 1998.
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 the first nine
months of 1997, approximately 81.9% of all tickets sold for travel on TWA were
sold by travel agents. Until October 2, 1997, TWA paid the full traditional
10% commission on
68
<PAGE>
tickets for domestic transportation on TWA sold by independent travel agents
without the cap of $50 and $25 per domestic round-trip and one-way tickets,
respectively, which most other major airlines imposed in 1995 and paid an 11%
commission on tickets for international transportation. On October 2, 1997,
the Company reduced its commission on tickets for domestic and international
transportation to 8% and 10%, respectively, without the cap imposed by most of
the major airlines. Although the Company can not quantify the current or
potential future impact of this decision, the Company believes the uncapped
commission structure is a positive factor in the Company maintaining and
improving its long-term relationships with such travel agents and encourages
the booking of higher fare tickets. TWA pays 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 by a partnership in which
affiliates of TWA, Delta Air Lines, Northwest Airlines, and ABACUS
Distribution Systems Pte. Ltd, have interests of 25%, 32%, 38% and 5%,
respectively. Management believes that its participation in Worldspan has
given it direct access to an efficient distribution system. Worldspan
continues to expand its offering and coverage, further benefitting the
Company. TWA will continue to increase the methods and efficiency of
distributing its product through a variety of channels and systems, including
increasing use of "E" ticketing (electronic ticketing) and direct booking
through the Internet.
FREQUENT FLIGHT BONUS PROGRAM
TWA initiated its FFB Program in May 1981. Frequent flier 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 fliers.
TWA's FFB Program rewards certain of its members with mileage credits based
on the fare paid as well as miles flown for travel on TWA and also offers
mileage credits for members' purchases of goods and services offered by
various travel and non-travel related businesses that participate in the FFB
Program including other airlines. 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. For example, through the American
Express Membership Miles program, FFB Program members may use amounts charged
on the American Express card to earn additional frequent flier miles.
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 70.0% and 71.5%, respectively, of the accumulated credits.
Mileage for FFB participants who have accumulated less than the
69
<PAGE>
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 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, 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, however, such
prices have declined moderately during the first nine months of 1997. The
following table details TWA's fuel consumption and costs for the three years
ended December 31, 1994, 1995 and 1996, the nine months ended September 30,
1996 and 1997 and the three months ended September 30, 1996 and 1997:
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
YEAR ENDED DECEMBER ENDED ENDED
31, SEPTEMBER 30, SEPTEMBER 30,
---------------------- -------------- --------------
1994 1995 1996 1996 1997 1996 1997
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Gallons consumed (in
millions).............. 852.2 804.2 838.9 637.5 555.7 233.1 196.2
Total cost(1) (in mil-
lions)................. $477.6 $458.6 $585.2 $432.8 $369.5 $162.4 $122.2
Average cost per gallon. 56c 57c 70c 68c 66c 70c 62c
Percentage of operating
expenses............... 13.0% 13.9% 15.6% 15.9% 14.5% 16.6% 14.5%
</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, the formation of international alliances 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 flier 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 domestic 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
70
<PAGE>
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 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. Similarly, other airlines are free to enter or leave
TWA's domestic markets.
EMPLOYEES
As of September 30, 1997, the Company had approximately 22,540 full-time
employees (based upon full-time equivalents which include part-time
employees). Of these, approximately 84.6% were represented by ALPA and the
IAM. 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 equaled 3% in
the case of employees represented by ALPA and IFFA, and the IAM received a 1%
wage increase and a 2% contribution to its retirement plan on August 31,
1997).
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--Description of Employee Preferred Stock." TWA
also issued an aggregate of 1,026,694 shares of Common Stock to a trust
established for the benefit of certain of TWA's other employees. The value of
shares issued to the Company's non-union employees was intended to
71
<PAGE>
reflect the estimated value to the Company of the concessions granted by these
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 Stock 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 grant, commencing in 1997, to certain
trusts established for the benefit of its union and non-union employees
certain additional shares of Common Stock and Employee Preferred Stock. The
first stock grant under the ESIP was to be made on July 15, 1997 in an amount
sufficient to increase the employee ownership of the combined total number of
then outstanding shares of Common Stock and Employee Preferred Stock by 2% if
the closing price of the Common Stock exceeded a target price of $11.00 per
share during the period from January 1, 1997 to July 15, 1997. Because such
target price was not exceeded, the grant will instead be made on July 15 of
the next year up to and including July 15, 2002, if any that the Common Stock
exceeds such target price. In subsequent years through the end of the seven
year term of the ESIP, the additional number of shares of Employee Preferred
Stock subject to grant 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
outstanding as of the applicable July 15 grant date, with the target prices
increasing to $12.10 in 1998, $13.31 in 1999, $14.64 in 2000, $16.11 in 2001
and $17.72 in 2002. Each such grant is cumulative and, where the applicable
target price is not met in the initial grant year, the applicable grant is
carried forward and is subject to grant in future years up to and including
July 15, 2002 in the manner described above if TWA issues additional shares of
Common Stock with an aggregate value of more than $20 million to third parties
for cash or a reduction in debt at a price equal to or greater than $11.00 per
share, the last two scheduled grants under the ESIP are to be aggregated and
these shares allocated equally to the remaining installments in the program.
In addition, pursuant to the ESIP, employees have the right commencing 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 then current market price. The employees' right
to purchase additional shares of Employee Preferred Stock is accelerated and
becomes immediately exercisable if there is a merger, sale or consolidation of
TWA (where TWA is not the surviving entity) at a 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. Should all of the
target prices be met or exceeded within the time periods specified and should
the entire discount stock purchase option be exercised, the various employee
stock trusts would receive a total of 10% of the outstanding stock, with the
exact amount issued dependent upon the outstanding shares as of the date of
each grant and option exercise.
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 agreed that the number of
shares of Employee Preferred Stock and Common Stock to be issued pursuant to
the ESIP was 525,856. In addition, since additional ESIP shares were not
issued to the employees in July 1997, an additional 405,750 shares of Employee
Preferred Stock and Common Stock were issued to the ESIP and, to the extent
that additional shares are granted to the ESIP, the Company will receive a
credit towards the new grant for these previously issued shares, in that
amount in the event additional shares are granted pursuant to the ESIP.
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
and the IAM 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,
may be blocked by a vote of six directors, including each of the Employee
Directors. See "Certain Provisions of the Certificate of Incorporation, the
By-laws and Delaware Law--Blocking Coalition."
72
<PAGE>
The '94 Labor Agreements were three year agreements and became amendable as
of August 31, 1997. Negotiations on a new collective bargaining agreement with
the IAM with regard to the flight attendants commenced in July 1997 and are
currently ongoing and negotiations regarding the Company's ground employees
represented by the IAM commenced in February 1997 and are also currently
ongoing. Negotiations on a new collective bargaining agreement with ALPA
commenced in June 1997 and are currently ongoing. 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 in effect before 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. At the request of the IAM, a
mediator was appointed on August 6, 1997 in connection with the negotiations
on the collective bargaining agreement covering ground employees. The mediator
has not yet met with the parties and has not reached a conclusion that
negotiations are deadlocked. 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 "Risk
Factors--Risk Factors Related to the Company--'94 Labor Agreements."
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 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; however the
higher use rates required by these rules do increase the risk that TWA might
lose slots in the future because of nonuse and decrease TWA's ability to
adjust its flight schedules at the High Density Airports.
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
73
<PAGE>
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. On May 4, 1993, the bilateral air transport agreement
between the U.S. and France lapsed. In the absence of a new a bilateral
agreement, the U.S. and France are currently 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.
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 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, 75%
and 100% of its total fleet will be required to meet Stage 3 requirements by
December 31, 1998 and December 31, 1999, respectively. See "Risk Factors--Risk
Factors Related to the Company--Age of Fleet; Noise."
As of September 30, 1996, approximately 66% 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. TWA is considering "hush-kitting"
additional DC9-30, DC9-40 and DC9-50 aircraft as well as other alternatives to
assure compliance with Stage 3 noise requirements, and has already acquired a
number of Stage 3 aircraft while phasing out several Stage 2 aircraft.
However, 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--Liquidity; Substantial Indebtedness; Capital
Expenditure Requirements."
74
<PAGE>
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. At this time, TWA cannot predict what additional
restrictions will be implemented or, if so, the timing or effect on TWA of any
such implementation. The effect on TWA 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 two
domestic unions which together represent approximately 84.6% of the Company's
employees. 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 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 and spent
approximately $3.5 million during 1997 on such 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 $19.8 million for 1998
through 2001. 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
75
<PAGE>
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.
INSURANCE
The Company maintains commercial airline insurance with a major group of
independent insurers that regularly participate in world aviation insurance
markets. The Company's policies include coverage for losses resulting from the
physical destruction of or damage to TWA's owned and leased aircraft, as well
as losses arising from bodily injury, property damage and personal injury to
third parties for which TWA becomes legally obligated to pay. The Company
maintains aircraft third party and airline general third party liability
insurance with a combined single limit of $1 billion per occurrence.
Management believes that TWA's commercial airline insurance policies are
generally consistent with those of other United States domiciled scheduled
passenger air carriers operating similar aircraft over similar routes.
LEGAL PROCEEDINGS
Icahn Litigation
On June 14, 1995, the Company signed the Extension and Consent Agreement
with Karabu to extend the term of the Icahn Loans from January 8, 1995 to
January 8, 2001 and to obtain the consent of Karabu and the Icahn Entities to
certain modifications to the PBGC Notes. Collateral for the Icahn Loans
included a number of aircraft, engines and related equipment, along with
substantially all of the Company's receivables. On December 30, 1997, the
Company repaid the outstanding balance of the Icahn Loans out of the proceeds
from the sale of the Receivables Securitization Notes.
On June 14, 1995, in consideration of, among other things, the extension of
the Icahn Loans, TWA and Karabu entered into the Ticket Agreement which
permitted Karabu to purchase two categories of discounted tickets: (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. TWA believes that applicable provisions of
the Ticket Agreement do not allow Karabu to market or sell System Tickets
through travel agents
76
<PAGE>
or directly to the general public. Karabu, however, has been marketing System
Tickets through travel agents and directly to the general public. 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 or
directly to the general public. In December 1995, the Company filed a lawsuit
against Karabu, Mr. Icahn, and certain affiliated companies seeking damages
and to enjoin further violations of the Ticket Agreement. Mr. Icahn countered
by threatening to file his own lawsuit and to declare a default on the Icahn
Loans, which financing was secured by receivables and certain flight equipment
pledged under the Karabu Security Agreements. Mr. Icahn's position was based
upon a variety of claims related to his interpretations of the Karabu Security
Agreements as well as with respect to certain alleged violations of the Ticket
Agreement by the Company. 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 refiled its suit on March 20, 1996 in the St. Louis County Circuit
Court (as described below).
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 was filed 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 through travel agents or directly
to the general public. 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. In response to such lawsuit, Karabu and another
Icahn-affiliated company asserted counterclaims alleging that the Company had
breached its obligations under the Ticket Agreement by, among other things,
seeking to restrict Karabu and Icahn-affiliated companies from selling System
Tickets through travel agents or directly to the general public. The trial of
this case was completed on January 7, 1998. A final judicial determination
regarding this matter is pending.
Also on March 20, 1996, TWA was named as a defendant in a complaint (the
"Icahn Complaint") filed by Karabu and certain other affiliates of Mr. Icahn
(the "Icahn Entities"). The Icahn Complaint alleged, among other things, that
the Company had violated certain federal antitrust laws, breached the Ticket
Agreement and interfered with certain existing and prospective commercial
relations of the Icahn Entities. The Icahn Complaint was based upon an
interpretation by Mr. Icahn and the Icahn Entities that the Ticket Agreement
permits sales of tickets through travel agents and directly to the general
public. The Icahn Complaint sought 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
claim 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 and that decision has not been appealed.
On August 11, 1997, Karabu and another entity controlled by Mr. Icahn filed
another suit against six senior officers of the Company in New York state
court alleging tortious interference with prospective economic advantage based
on alleged violations of the Ticket Agreement. This suit is similar to the
previous action with respect to which the Icahn Complaint related. The
defendants removed this case to the United States District Court for the
Southern District of New York and have moved to dismiss the case on the
grounds of lack of personal jurisdiction, res judicata and failure to state a
claim. This action is pending.
Although the Company intends to press its claims vigorously, it is possible
that Karabu's interpretation of the Ticket Agreement regarding system discount
ticket sales by the Icahn Defendants through travel agents or directly to the
general public could be determined, either by a court or otherwise, to be
correct. In such event,
77
<PAGE>
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, a final judicial determination that the Ticket
Agreement was violated by the Company could result in the imposition of
damages.
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. 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. The
National Transportation Safety Board held hearings relating to the crash in
December 1997 and is continuing its investigation. 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. On August 19, 1997 the MDNR and the
EPA approved the CMS. Currently, drafts of the Statement of Basis and the Post
Closure Permit are being reviewed by both agencies. Upon completion of that
review, the documents will be submitted for public comment. Upon final
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 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.
78
<PAGE>
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., now known as AirTran Airlines,
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.
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 DOJ 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.
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.
79
<PAGE>
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...... 59 Director
William F. Compton.... 50 President and Chief Operating Officer
Eugene P. Conese...... 68 Director
Gerald L. Gitner...... 52 Chairman and Chief Executive Officer
William M. Hoffman.... 50 Director
Thomas H. Jacobsen.... 58 Director
Myron Kaplan.......... 52 Director
David M. Kennedy...... 59 Director
Merrill A. McPeak..... 62 Director
Thomas F. Meagher..... 67 Director
William O'Driscoll.... 68 Director
G. Joseph Reddington.. 56 Director
Blanche M. Touhill.... 66 Director
Stephen M. Tumblin.... 36 Director
Donald M. Casey....... 62 Executive Vice President, Marketing
Richard P. Magurno.... 54 Senior Vice President and General Counsel
James F. Martin....... 47 Senior Vice President, Human Resources
Michael J. Palumbo.... 51 Senior Vice President and Chief Financial Officer
</TABLE>
- --------
* A vacancy exists on the Board of Directors due to the death of William W.
Winpisinger in December 1997.
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 1998.
William F. Compton was appointed President and Chief Operating Officer of
TWA on December 3, 1997. Mr. Compton had been named 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 1998. Mr. Compton serves as an officer
of the Company at the pleasure of the Board of Directors.
80
<PAGE>
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 The
Greenwich Company Limited ("GCL") since September 1997. He was Chairman and
Chief Executive Officer of Greenwich Air Services, Inc. ("GAS") from October
1987 until September 1997, and Chairman of the Board and President of World
Air Lease, Inc. since July 1989. He was the founder of 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 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 1998.
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 1992, 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 a director of TWA since October 23, 1996. Mr.
Kennedy served as the Company's Acting Executive Vice President and Chief
Operating Officer from December 14, 1996 to May 29, 1997 on an interim basis,
and his services have been retained by the Company on a consulting basis. 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.
81
<PAGE>
General Merrill A. McPeak (USAF, Ret.) has been a director of TWA since May
29, 1997. He is President of McPeak and Associates, an aerospace consulting
firm, and a director of ECC International Corp., Praegitzer Industries,
Tektronix, Inc., and Thrustmaster, Inc. General McPeak was Chief of Staff,
United States Air Force, 1990 to 1994, Commander-in-Chief, Pacific Air Forces,
1988-1990 and Commander, 12th Air Force, 1987 to 1988. He serves on the
national boards of the Air Force Association, the National Aeronautic
Association and the International Aerobatic Club. General McPeak's term of
office as a director expires with the Annual Meeting of Stockholders in 1998.
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.
Blanche M. Touhill, has been a director of TWA since May 29, 1997. Since
1991, she has been Chancellor of the University of Missouri-St. Louis, where
she is Professor of History and Education. She was Interim Chancellor from
1990 to 1991 and Vice Chancellor for Academic Affairs from 1987-1991. Ms.
Touhill is a director of Boatmen's National Bank, Delta Dental, Christian
Health Services, the Missouri Botanical Garden, the Urban League of
Metropolitan St. Louis and the American Conference for Irish Studies. Ms.
Touhill's term of office as a director expires with the Annual Meeting of
Stockholders in 1998.
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.
Donald M. Casey has been Executive Vice President, Marketing since May 29,
1997. Mr. Casey was formerly a principal with Deskey Luxon Carra, a design
consulting firm. In 1993, he formed Seabrook Consultants and was President,
leaving the firm in 1995. From 1983 to 1993 Mr. Casey worked with Young and
Rubicam in a number of executive positions. He previously worked for TWA from
1968 until 1981, including serving as Senior Vice President, Marketing from
1976 to 1981. Mr. Casey 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 Senior Vice President--Legal Affairs. Mr. Magurno serves as an
officer of the Company at the pleasure of the Board of Directors.
82
<PAGE>
James F. Martin was elected Senior Vice President, Human Resources on
October 29, 1997. Mr. Martin formerly was Vice President, Operations and
Technology of Coors Brewing Company from 1996-1997, Vice President, Human
Resources of Harcourt Brace & Company from 1992 to 1995 and Vice President,
Human Resources of Macmillan/McGraw-Hill School Publishing Company from 1989
to 1992. Mr. Martin 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.
On September 22, 1997, the Company's Board of Directors authorized the
adoption of severance agreements (each, a "Severance Agreement") with 10
officers of the Company. Each Severance Agreement provides that, if at any
time following a Change in Control of the Company (for purposes of this
paragraph only, as defined therein), the employment of the applicable officer
is terminated by the Company without Cause (as defined) or is terminated by
the executive for Good Reason (as defined), the officer will be entitled to
receive a severance payment equal to two times the officer's annual base
salary and bonus, continuation of certain benefits such as life, disability
and health insurance for a period of two years, a two year additional service
credit under applicable Company retirement plans and lifetime travel pass
privileges. Each Severance Agreement has an initial term of two years and is
subject to automatic renewal on each one year anniversary of the date of the
original Severance Agreement for a period of two years from such date unless
the Company elects not to so extend the term. For purposes of the Severance
Agreements, "Change in Control" is defined to include, with certain
exceptions, any acquisition by any person of beneficial ownership of 20% or
more of the Company's voting securities, approval by the Company's
shareholders of certain mergers, consolidations or reorganizations or of a
sale of all or substantially all of the Company's assets and any change in the
Board which results, within any period of 18 months, in persons who, on the
date of the Severance Agreements, were members of the Board (the "Incumbent
Directors") (together with any new directors whose election or nomination for
election was approved by a vote of at least a majority of the then Incumbent
Directors or in the case of an individual elected by holders of a series of
Employee Preferred Stock, if such individual is elected pursuant to the terms
of the applicable Employee Preferred Stock) cease to constitute at least a
majority of the Board. The Severance Agreements do not alter the preexisting
rights, if any, of the officers upon a termination of employment by reason of
death, disability or retirement, by the Company for Cause or by the officer
other than for Good Reason.
83
<PAGE>
PRINCIPAL HOLDERS OF CAPITAL STOCK
The following table sets forth, as of December 31, 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>
PERCENT OF
AMOUNT OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OR IDENTITY OF BENEFICIAL VOTING
GROUP OWNERSHIP(2) SECURITIES(2)
- --------------------------------------------------- ----------- ------------
<S> <C> <C>
John W. Bachmann(3)(4).............................. 3,909 *
William F. Compton(5)............................... 849 *
Eugene P. Conese(3)(6)(7)(8)(9)..................... 12,185 *
Gerald L Gitner(3)(6)(10)........................... 657,776 1.1%
William M. Hoffman(11).............................. 319 *
Thomas H. Jacobsen(3)(6)(7)(9)...................... 10,185 *
Myron Kaplan(3)(4)(6)(9)(12)........................ 10,731 *
David M. Kennedy(3)................................. 1,000 *
Merrill A. McPeak(3)................................ 1,514 *
Thomas F. Meagher(3)(9)(13)(14)..................... 12,164 *
William O'Driscoll(15).............................. 192,975 *
G. Joseph Reddington(3)(4)(6)(9)(13)................ 11,231 *
Blanche M. Touhill(3)............................... 1,000 *
Stephen M. Tumblin(3)............................... 1,000 *
Donald M. Casey(16)................................. 2,500 *
Richard P. Magurno (16)(17)(18)..................... 1,247,117 2.2%
Michael J. Palumbo(16)(17)(19)...................... 1,009,512 1.7%
James F. Martin(16)................................. 0
Total Shares owned by Current Directors and Current
Executive Officers, as a group (18 individu-
als)(20)........................................... 3,175,967 5.5%
</TABLE>
- --------
* 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.
(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 Retainer 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
84
<PAGE>
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, and Reddington 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 1,500 options granted pursuant to the Outside Directors Plan for
Messrs. Conese, Jacobsen, Kaplan, Meagher and Reddington.
(10) Includes 500,000 shares of Common Stock issuable upon the exercise of
vested options and 150,000 shares which will vest within 60 days hereof,
granted to Mr. Gitner pursuant to the KESIP.
(11) Includes approximately 16 shares of Common Stock held for Mr. Hoffman's
benefit as a TWA employee in the Flight Attendant Trust and warrants to
purchase 8 shares of Common Stock at a price of $14.40 per share. 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.
(12) 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.
(13) 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.
(14) 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.
85
<PAGE>
(15) 155,227 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. 37,748 shares
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.
(16) Does not include unvested options to purchase shares of Common Stock
pursuant to the KESIP.
(17) Approximately 1,958 and 1,119 shares attributable to the respective
beneficial interests of Messrs. Magurno, and Palumbo 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 and Palumbo disclaim beneficial ownership of the
shares held by the Non-Contract Employees Trust. Messrs. Magurno and
Palumbo 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 887,793 shares.
(18) Includes 357,366 shares of Common Stock issuable upon the exercise of
vested options granted to Mr. Magurno pursuant to the KESIP.
(19) Includes 120,600 shares of Common Stock issuable upon the exercise of
vested options granted to Mr. Palumbo pursuant to the KESIP.
(20) When combined with shares of Employee Preferred Stock beneficially held
by current directors and current executive officers, as a group,
represents a total of 9,647,902 shares of the Company's voting
securities.
86
<PAGE>
PRINCIPAL HOLDERS OF EMPLOYEE PREFERRED STOCK (AS OF OCTOBER 31, 1997)
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS OF SERIES OF AMOUNT OF OUTSTANDING
BENEFICIAL OWNER OR EMPLOYEE BENEFICIAL SHARES OF
IDENTITY OF GROUP PREFERRED STOCK OWNERSHIP SERIES
- ------------------- --------------- ---------- -----------
<S> <C> <C> <C>
TWA Air Line Pilots
Supplemental Stock
Plan, Joseph A.
Chronic, Howard L.
Coldwell, Jr. and Scott
Schwartz as
trustees(1)............ ALPA Preferred Stock 1,366,151 72.10%(2)
TWA Air Line Pilots 1995
Employee Stock Owner-
ship Plan, American
Stock
Transfer & Trust Compa-
ny, Trustee(3)......... ALPA Preferred Stock 528,375 27.90%(4)
IAM Trust(5)............ IAM Preferred Stock 3,948,510 100%(6)
Flight Attendant
Trust(7)............... Flight Attendant Preferred Stock 971,309 100%(8)
William O'Driscoll(9)... IAM and Flight Attendant
Preferred Stock 4,919,819 100%(10)
</TABLE>
- --------
(1) The address of the ALPA Trust is c/o Joseph A. Chronic, as co-trustee,
TWA Air Line Pilots Supplemental Stock Plan, 3221 McKelvey Road, Suite
200, Bridgeton, Missouri 63044.
(2) Constitutes 2.37% of the securities entitled to vote on all agenda
matters at meetings of stockholders other than the election of directors.
(3) The address of the TWA Air Line Pilots 1995 Employee Stock Ownership Plan
is c/o American Stock Transfer & Trust Company, as trustee ("AST"), 40
Wall Street, 46th Floor, New York, New York 10005.
(4) Constitutes 0.92% of the securities entitled to vote on all agenda items
at meetings of stockholders other than the election of directors.
(5) The address of the IAM Trust is c/o Fleet National Bank, N.A., as
trustee, One Federal Street, 31st Floor, Boston, Massachusetts 02211.
(6) When combined with the 155,227 shares of Common Stock held by the IAM
Trust, constitutes 7.11% of the securities entitled to vote on all agenda
matters at meetings of stockholders other than the election of directors.
(7) The address of the Flight Attendant Trust is c/o AST, at the address set
forth in footnote 3.
(8) When combined with the 37,748 shares of Common Stock held by the Flight
Attendant Trust, constitutes 1.75% of the securities entitled to vote on
all agenda matters at meetings of stockholders other than the election of
directors.
(9) The address of Mr. O'Driscoll is c/o Fleet National Bank, N.A., as
trustee, One Federal Street, 31st Floor, Boston, Massachusetts 02211.
(10) Includes all shares of IAM Preferred Stock held by the IAM Trust and all
shares of the Flight Attendant Preferred Stock held by the Flight
Attendant Trust. Mr. O'Driscoll disclaims beneficial ownership of the
shares of IAM Preferred Stock held by the IAM Trust and all shares of the
Flight Attendant Preferred Stock held by the Flight Attendant Trust.
87
<PAGE>
DESCRIPTION OF NOTES
The Company issued the Old Notes and will issue the Exchange Notes under the
Indenture dated as of December 9, 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
material provisions of the Notes, the Indenture, the Registration Rights
Agreement and the Collateral Documents (as defined) is intended as a summary
only and is qualified by reference to those documents, including the
definitions in those documents of certain terms. 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. See "--Certain Definitions" for definitions of certain capitalized
terms used herein.
GENERAL
The Notes represent senior secured obligations of the Company and rank pari
passu in right of payment with other senior obligations of the Company. None
of the Company's outstanding indebtedness is senior to the Notes. As of
September 30, 1997, after giving effect to the issuance of the Old Notes and
the application of the proceeds therefrom, the aggregate principal amount of
the Company's total outstanding indebtedness would have been approximately
$1,032.7 million, all of which constitutes senior obligations. 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, seek recourse
against the Collateral as security for the Notes unless and until the Notes
are satisfied in full. See "--Collateral Security" and "--Certain Bankruptcy
Limitations."
The Notes are issued only in fully registered form, without coupons, in
minimum 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.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited to $140.0 million of principal in the aggregate
and will mature on December 15, 2004. The Notes will bear interest at the
annual rate of 11 1/2% 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 June 15 and December 15 of each year,
commencing on June 15, 1998, to the person in whose name the Note is
registered at the close of business on the preceding June 1 and December 1, as
the case may be. Interest and Special Interest, 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, premium, if any, interest on, and Special
Interest, 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 Special
Interest, 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 and
registrar for the Notes. The Company may change the paying agent and registrar
in accordance with the Indenture.
REDEMPTIONS
Mandatory Redemption. Except as set forth under "--Repurchase of Notes Upon
a Change in Control", "--Repurchase of Notes in Connection with Incurrence of
Acquired Indebtedness" and "--Certain Covenants
88
<PAGE>
- --Limitation on Sales of Assets and Subsidiary Stock," the Company will not be
required to repurchase or make mandatory redemption or sinking fund payments
with respect to the Notes.
Optional Redemption. Except as described below under "--Redemption upon
Public Equity Offering" and "--Certain Covenants--Merger and Consolidation,"
the Notes may not be redeemed prior to December 15, 2001. On or after December
15, 2001, the Notes may be redeemed at any time in whole or in part (in any
integral multiple of $1,000) by the Company at its sole option at redemption
prices (expressed as a percentage of principal amount) as set forth below
during the twelve month periods beginning December 15 of the years shown
below, plus in each case an amount equal to accrued and unpaid interest and
Special Interest, if any, with respect to the Notes to and including the
redemption date.
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001................................... 105.750%
2002................................... 102.875%
2003 and thereafter.................... 100.000%
</TABLE>
Notice of redemption shall be sent to each holder of Notes being redeemed at
the address shown on the books of the Company at least 30 but not more than 60
days prior to the redemption date. If less than all of the Notes are to be
redeemed, the Notes to be redeemed shall be selected by lot or pro rata or by
any other equitable manner determined by the Trustee in its sole discretion.
On or after the redemption date, interest will cease to accrue on the Notes or
portions thereof called for redemption.
Redemption upon Public Equity Offering. The Notes will be redeemable prior
to December 15, 2001 only in the event that on or before December 15, 2000 the
Company receives Net Cash Proceeds of one or more Public Equity Offerings in
which case the Company may, at its option, use all or a portion of any such
Net Cash Proceeds to redeem up to $49.0 million aggregate principal amount of
the Notes, within 90 days of such Public Equity Offering, on not less than 30
days, but not more than 60 days, notice to each holder of the Notes to be
redeemed, at a redemption price (expressed as a percentage of principal
amount) of 111 1/2% plus accrued and unpaid interest and Special Interest, if
any, to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest and Special Interest, if any, due on
the relevant interest payment date); provided, however, that at least $91.0
million aggregate principal amount of the Notes must remain outstanding after
each such redemption.
REPURCHASE OF NOTES UPON A CHANGE IN CONTROL
The Company must commence, within 30 days of the occurrence of a Change in
Control, and consummate an Offer to Purchase for all Notes then outstanding,
at a purchase price equal to 101% of the principal amount thereof on the
relevant Payment Date, plus accrued and unpaid interest and Special Interest,
if any, to the Payment Date.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change in Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well
as may be contained in other securities or agreements of the Company which
might be outstanding at the time).
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. The provisions
under the Indenture relative to the Company's obligation to make an offer to
repurchase the Notes as
89
<PAGE>
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.
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.
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 "--Defeasance." 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."
REPURCHASE OF NOTES IN CONNECTION WITH INCURRENCE OF ACQUIRED INDEBTEDNESS
The Company shall not, and shall not permit any Restricted Subsidiary to
incur any Acquisition Indebtedness in reliance, in whole or in part, on clause
(8) of paragraph (b) of the "Limitation on Indebtedness" covenant described
below under "--Certain Covenants" unless the Company shall have (i) made an
Offer to Purchase all of the Notes at a purchase price equal to 100% of the
principal amount thereof, plus the Applicable Premium (as defined) as of, and
accrued and unpaid interest and Special Interest, if any, to, the Payment Date
and (ii) such Payment Date shall have occurred and money sufficient to pay the
purchase price of all Notes or portions thereof tendered for purchase pursuant
to such Offer to Purchase shall have been deposited with the Trustee. Any such
Offer to Purchase shall contain information concerning the business of the
Company which the Company in good faith believes will enable the Holders of
the Notes to make an informed decision with respect to such Offer to Purchase
and will include (A) the most recent annual and quarterly financial statements
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained in the documents required to be filed with the
Trustee pursuant to the Indenture (which requirements may be satisfied by
delivery of such documents together with the Offer to Purchase), (B) a
description of material developments, if any, in the Company's business
subsequent to the date of the latest of such financial statements referred to
in clause (A) (including a description of the events requiring the Company to
make such Offer to Purchase), (C) if applicable, appropriate pro forma
financial information concerning such Offer to Purchase and the events
requiring the Company to make the Offer to Purchase and (D) any other
information required by applicable law to be included therein.
REGISTERED 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 Registered Exchange Offer, or if for
any other reason the Registered Exchange Offer is not consummated within 180
days of the date of the Registration Rights Agreement, or if the Initial
Purchasers so
90
<PAGE>
request with respect to Old Notes not eligible to be exchanged for Exchange
Notes in the Registered Exchange Offer, or if any holder of Old Notes is not
eligible to participate in the Registered Exchange Offer or does not receive
freely tradable Exchange Notes in the Registered 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 Exchange 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 for a
period of two years from the date of original issuance of the Old Notes or
such shorter period that will terminate when Old Notes covered by the Shelf
Registration Statement have been sold pursuant thereto or can be sold pursuant
to Rule 144(k). 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 Exchange
Notes, as the case may be. A holder selling such Old Notes or Exchange 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 Old
Notes, neither the Registered Exchange Offer Registration Statement nor the
Shelf Registration Statement has been filed with the Commission; (ii) on or
prior to 150 days after the original issuance of the Old Notes, neither the
Exchange Offer Registration Statement nor the Shelf Registration Statement is
declared effective; (iii) on or prior to 180 days after the original issuance
of the Old Notes, neither the Registered Exchange Offer is consummated nor the
Shelf Registration Statement is declared effective; or (iv) 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 Old 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 (iv), a "Registration Default," and each period during
which a Registration Default has occurred and is continuing, a "Registration
Default Period"), then special interest ("Special Interest") on the Old Notes
and the Exchange Notes will accrue at a per annum rate of 0.50% for the first
90 days of the Registration Default Period, at a per annum rate of 1.0% for
the second 90 days of the Registration Default Period, at a per annum rate of
1.50% for the third 90 days of the Registration Default Period and at a per
annum rate of 2.00% thereafter for the remaining portion of the Registration
Default Period. From and including the date on which all Registration Defaults
have been cured, the accrual of Special Interest will cease. Special Interest
is payable in addition to any other interest payable from time to time
pursuant to the terms of the Old Notes and the Exchange Notes.
If the Company effects the Exchange Offer, it will be entitled (subject to
applicable law) to consummate the Exchange Offer 30 days after the
commencement thereof provided that it has accepted all Old 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.
CERTAIN COVENANTS
Limitation on Indebtedness. (a) Neither the Company nor the Restricted
Subsidiaries shall Incur, directly or indirectly, any Indebtedness; provided,
however, that the Company may Incur Indebtedness so long as, on the date of
such Incurrence and after giving effect thereto, the Consolidated Coverage
Ratio exceeds (i) 2.00 to 1 for Indebtedness Incurred on or prior to December
31, 1999, (ii) 2.25 to 1 for Indebtedness Incurred after December
91
<PAGE>
31, 1999 and on or prior to December 31, 2001 and (iii) 2.50 to 1 for
Indebtedness Incurred after December 31, 2001.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness of the Company Incurred subsequent to the Issue Date;
provided, however, that (A) after giving effect to any such Incurrence, the
aggregate principal amount of such Indebtedness then outstanding does not
exceed $400.0 million, (B) the Stated Maturity of any such Indebtedness is
at least one year after the Stated Maturity of the Notes, (C) the Average
Life of any such Indebtedness at the time that it is Incurred is not less
than the Average Life of the Notes at such time and (D) except for Liens
permitted by clause (p) of the definition of Permitted Liens, such
Indebtedness is not secured by a Lien on any asset of the Company or its
Restricted Subsidiaries;
(2) Aircraft Acquisition Debt;
(3) Indebtedness of the Company owed to and held by a Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or a Restricted Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock which results in any
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or
another Restricted Subsidiary) shall be deemed in each case, to constitute
the Incurrence of such Indebtedness by the Company;
(4) the Old Notes and the Exchange Notes;
(5) Indebtedness Incurred to finance the cost (including the cost of
design, development, acquisition, construction, installation, improvement,
transportation or integration) of plant, property and equipment used or to
be used in the airline business or any other business that is substantially
related, ancillary or complementary thereto (including any Capitalized
Lease Obligation and the cost of the Capital Stock of a Person that becomes
a Restricted Subsidiary to the extent of the fair market value of the
plant, property and equipment of such Person at the time it becomes a
Restricted Subsidiary) to be acquired by the Company or a Restricted
Subsidiary after the Issue Date; provided that such Indebtedness is
incurred within 270 days after such plant, property and equipment has been
placed into service; provided further that (A) the principal amount of such
Indebtedness does not exceed 80% of the cost of such plant, property or
equipment financed thereby and (B) the aggregate principal amount of all
Indebtedness Incurred pursuant to the provisions described under this
clause (5) shall not exceed $70.0 million at any time outstanding; provided
further that the limitations described in clauses (A) and (B) of the
immediately preceding proviso shall not apply to Indebtedness Incurred to
finance the cost of (i) airport facilities, reservations centers or
maintenance facilities or (ii) information technology systems, including
all related hardware and software;
(6) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2), (3), (4) or (5) of this covenant);
(7) Indebtedness of the Company not to exceed, at any time outstanding,
2.0 times the Net Cash Proceeds received by the Company after the Issue
Date from the issuance and sale of its Capital Stock (other than
Disqualified Stock) to a Person that is not a Subsidiary of the Company, to
the extent such Net Cash Proceeds are not included in the calculation of
amounts under clause (3)(B) of paragraph (a) of the "Limitation on
Restricted Payments" covenant described below or used to make a Restricted
Payment pursuant to clause (i) of paragraph (b) of such "Limitation on
Restricted Payments" covenant; provided that such Indebtedness (A) is
Incurred within 180 days following receipt of such Net Cash Proceeds and
(B) does not have a Stated Maturity that is prior to the first anniversary
of the Stated Maturity of the Notes and has an Average Life longer than the
Notes at the time of Incurrence of such Indebtedness;
(8) Acquired Indebtedness; provided that prior to the Incurrence thereof
the Company shall have made an Offer to Purchase all of the Notes and
deposited with the Trustee money sufficient to pay the purchase
92
<PAGE>
price of all Notes or portions thereof tendered for purchase pursuant to
such Offer to Purchase, all as described above under "--Repurchase of Notes
in Connection with Incurrence of Acquired Indebtedness";
(9) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) or pursuant to clause (1), (2), (3), (4), (5), (6), (7),
(8) of this covenant or this clause (9);
(10) Indebtedness (A) in respect of performance, surety, appeal or
similar bonds provided in the ordinary course of business, and (B) arising
from agreements providing for indemnification, adjustment of purchase price
or similar obligations, or from Guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or any
of the Restricted Subsidiaries pursuant to such agreements, in any case
Incurred in connection with the disposition of any business, assets of the
Company or any of the Restricted Subsidiaries, including all or any
interest in any Restricted Subsidiary, and not exceeding the gross proceeds
therefrom, other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary or any of the Restricted Subsidiaries for the purpose of
financing such acquisition;
(11) Hedging Obligations consisting of Interest Rate Agreements, Fuel
Protection Agreements or Currency Agreements;
(12) Indebtedness Incurred in satisfaction of payment obligations arising
out of collective bargaining agreements with labor unions representing
employees of the Company or its Restricted Subsidiaries;
(13) Indebtedness arising from aircraft lessor financing of improvements
to or maintenance of aircraft, engines or related parts and equipment
leased by the Company or its Restricted Subsidiaries;
(14) Indebtedness Incurred in satisfaction of "return condition"
obligations of the Company or its Restricted Subsidiaries under aircraft
leases in an aggregate principal amount not to exceed $25.0 million at any
time outstanding;
(15) Indebtedness under working capital and/or Receivables financing
facilities in an aggregate principal amount not to exceed $150.0 million at
any time outstanding and Guarantees thereof by Restricted Subsidiaries not
prohibited by the "Limitation of Guarantees by Restricted Subsidiary"
covenant; provided that such Indebtedness is not secured by a Lien on any
assets of the Company or its Restricted Subsidiaries other than Receivables
and Capital Stock of special purpose Subsidiaries of the Company formed to
effect a Receivables--based financing;
(16) Indebtedness issued in satisfaction of trade payables arising in the
ordinary course of business; provided that (A) the principal amount of such
Indebtedness does not exceed the amount of such trade payables (including
accrued interest or finance charges), (B) the Stated Maturity of such
Indebtedness is no more than 180 days after the date of Incurrence thereof
and (C) the aggregate principal amount of such Indebtedness does not exceed
$50.0 million at any time outstanding; and
(17) Indebtedness of the Company or any Restricted Subsidiary in an
aggregate principal amount which, together with all other Indebtedness of
the Company and the Restricted Subsidiaries outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (1) through (16)
of this covenant or paragraph (a) of this covenant) does not exceed $100.0
million.
(c) Notwithstanding the foregoing, neither the Company nor any Restricted
Subsidiary shall Incur any Indebtedness pursuant to the foregoing paragraph
(b) if the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations unless such Indebtedness shall be subordinated to the
Notes, to at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one
of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses
and (ii) an item of Indebtedness may be divided and classified in more than
one of the types of Indebtedness described above.
93
<PAGE>
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described
under "--Limitation on Indebtedness"; or (3) the aggregate amount of such
Restricted Payment and all other Restricted Payments since the Issue Date (the
amount of any such Restricted Payment, if other than cash, as determined in
good faith by the Company, whose determination shall be conclusive and
evidenced by a resolution of the Board of Directors or a certificate of the
chief financial or accounting officer of the Company delivered to the Trustee
prior to the making of such Restricted Payment) would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period (treated
as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Notes are
originally issued to the end of the most recent fiscal quarter for which
financial statements are publicly available prior to the date of such
Restricted Payment (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such deficit);
(B) the aggregate net proceeds (including 50% of the fair market value of
property other than cash (as determined in good faith by the Company, whose
determination shall be conclusive and evidenced by a resolution of the
Board of Directors or a certificate of the chief financial or accounting
officer of the Company delivered to the Trustee prior to the making of such
Restricted Payment)) received by the Company or any Restricted Subsidiary
from the issuance or sale, subsequent to the Issue Date, of its Capital
Stock (other than Disqualified Stock) and Indebtedness of the Company or
any Restricted Subsidiary that has been converted into or exchanged for
Capital Stock (other than Disqualified Stock) subsequent to the Issue Date
(other than an issuance or sale to a Restricted Subsidiary and other than
an issuance or sale to an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit of
their employees); and
(C) an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of loans or
advances or other transfers of assets, in each case to the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the
fair market value of the net assets of an Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the case of
any Unrestricted Subsidiary, the amount of Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any Restricted Payment made by exchange for, or out of the net
proceeds (including 50% of the fair market value of property other than
cash (as determined in good faith by the Company, whose determination shall
be conclusive and evidenced by a resolution of the Board of Directors or a
certificate of the chief financial or accounting officer of the Company
delivered to the Trustee prior to the making of such Restricted Payment))
of the substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or sold
to a Subsidiary of the Company or an employee stock ownership plan or to a
trust established by the Company or any of its Subsidiaries for the benefit
of their employees); provided, however, that (A) such Restricted Payment
shall be excluded in the calculation of the amount of Restricted Payments
and (B) to the extent used to make such Restricted Payment, the net
proceeds from such sale shall be excluded from the calculation of amounts
under clause (3)(B) of paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company which is permitted to be Incurred pursuant
to the covenant described under "--Limitation on Indebtedness"; provided,
however, that such purchase, repurchase, redemption,
94
<PAGE>
defeasance or other acquisition or retirement for value shall be excluded
in the calculation of the amount of Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration thereof
if at such date of declaration such dividend would have complied with this
covenant; provided, however, that such dividend shall be included in the
calculation of the amount of Restricted Payments;
(iv) the declaration or payment of dividends on or payment of liquidated
damages with respect to (A) any Preferred Stock outstanding on the Issue
Date or (B) any Preferred Stock (other than Disqualified Stock) issued
after the Issue Date that ranks on parity with or junior to Preferred Stock
outstanding on the Issue Date; provided, however, that any dividend
referred to in the foregoing clause (A) or, subject to the following
proviso, clause (B), shall be included in the calculation of the amount of
Restricted Payments and provided further, that the Company may elect to
exclude from the calculation of amounts under clause 3(B) of paragraph (a)
above any Net Cash Proceeds received by the Company from the issue or sale
of Preferred Stock pursuant to the foregoing clause (B) (which election
must be made by written notice to the Trustee within ten (10) Business Days
of the receipt of such Net Cash Proceeds) and, if such election is made,
any dividend, distribution, purchase, redemption, acquisition or retirement
on or of the Preferred Stock for which such election is made shall not be a
Restricted Payment;
(v) (A) the payment of cash in lieu of issuing fractional shares of
Capital Stock of the Company in connection with the exercise of options or
warrants, the conversion of convertible securities or the redemption of
interests in employee stock ownership or benefits plans, (B) the purchase
or redemption of Capital Stock by the Company from employee stock ownership
or benefit plans subject to ERISA to the extent required by ERISA, (C)
repurchases of Capital Stock which occur upon the exercise of stock options
if such Capital Stock represents a portion of the exercise price of such
options, (D) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company or any
Restricted Subsidiary, options on any such shares or related stock
appreciation rights or similar securities held by officers or employees or
former officers or employees (or their estates or beneficiaries under their
estates), upon death, disability, retirement, termination of employment or
pursuant to any agreement under which such shares of stock or related
rights were issued; provided that the aggregate cash consideration paid
pursuant to this clause (D) for such purchase, redemption, acquisition,
cancellation or other retirement of such shares of Capital Stock or related
rights after the Issue Date does not exceed an aggregate amount of $10.0
million; provided further that the amount of any payment, purchase,
redemption, repurchase, acquisition, cancellation or other retirement paid
pursuant to this clause (D) shall be included in the amount of Restricted
Payments;
(vi) any purchase or redemption of Capital Stock of the Company resulting
from the consolidation or merger with or into any Person or conveyance,
transfer or lease of all or substantially all of the Company's or any
Restricted Subsidiary's property to one or more Persons substantially as an
entirety not prohibited by the terms of the "Merger and Consolidation"
covenant (other than any consolidation, merger or other transactions
involving only the Company and a Subsidiary of the Company or involving
only Subsidiaries of the Company); provided that the amount of such
purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments; or
(vii) the exchange of Preferred Stock (other than Disqualified Capital
Stock) for Indebtedness of the Company permitted to be incurred under the
Limitation on Indebtedness Covenant; provided that the liquidation value of
the Preferred Stock exchanged shall be included in the calculation of the
amount of Restricted Payments but only to the extent of the Net Cash
Proceeds of such Preferred Stock received after the Issue Date.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness
95
<PAGE>
owed to the Company, (b) make any loans or advances to the Company or (c)
transfer any of its property or assets to the Company except:
(i) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary or its property or assets pursuant to an agreement relating to
any Indebtedness or Preferred Stock Incurred by such Restricted Subsidiary
on or prior to the date on which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company (other than
Indebtedness or Preferred Stock Incurred as consideration in, or to provide
all or any portion of the funds or credit support utilized to consummate,
the transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness or Preferred Stock Incurred pursuant to an
agreement referred to in clause (i) or (ii) of this covenant or this clause
(iii) or contained in any amendment to an agreement referred to in clause
(i) or (ii) of this covenant or this clause (iii); provided, however, that
the encumbrances and restrictions with respect to such Restricted
Subsidiary contained in any such refinancing agreement or amendment are in
the aggregate no less favorable to the Noteholders than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in such
predecessor agreements;
(iv) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition;
(v) any encumbrances and restrictions existing under or by reason of
applicable law or regulation;
(vi) any encumbrances and restrictions (A) that restrict in a customary
manner the subletting, assignment or transfer of any property or asset that
is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company or
any Restricted Subsidiary not otherwise prohibited by the Indenture or the
Collateral Documents or (C) arising or agreed to in the ordinary course of
business not relating to any Indebtedness, and that do not (as determined
by the Company and certified in a resolution of the Board of Directors or a
certificate of the chief financial or chief accounting officer of the
Company delivered to the Trustee prior to or promptly following such
encumbrance or restriction becoming effective), individually or in the
aggregate, (1) detract from the value of property or assets of the Company
or any Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary or (2) materially adversely affect the Company's
ability to make principal or interest (including Special Interest, if any)
payments on the Notes;
(vii) any encumbrance or restriction contained in the terms of any
Indebtedness or any agreement pursuant to which such Indebtedness was
issued if (A) the encumbrance or restriction applies only in the event of a
payment default or default with respect to a financial covenant contained
in such Indebtedness or agreement, (B) the encumbrance or restriction is
not materially more disadvantageous to the Holders of the Notes than is
customary in comparable financings (as determined by the Company and
certified in a resolution of the Board of Directors or a certificate of the
chief financial or chief accounting officer of the Company delivered to the
Trustee prior to or promptly following such encumbrance or restriction
becoming effective) and (C) such encumbrance or restriction will not
materially adversely affect the Company's ability to make principal or
interest (including Special Interest, if any) payments on the Notes (as
determined by the Company and certified in a resolution of the Board of
Directors or a certificate of the chief financial or chief accounting
officer of the Company delivered to the Trustee prior to or promptly
following such encumbrance or restriction becoming effective); and
(viii) any encumbrance or restriction resulting from any financing
transaction involving the sale of Receivables or aircraft and/or related
engines, spare parts and equipment to a special purpose Subsidiary of
96
<PAGE>
the Company formed to effect such financing and which applies only to such
special purpose Subsidiary and its assets.
Nothing contained in this "Limitation on Restrictions on Distributions from
Restricted Subsidiaries" covenant shall prevent the Company or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company
or any of its Restricted Subsidiaries.
Limitation on Sales of Assets and Subsidiary Stock. The Company shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate (x) any sale, lease, transfer or other disposition (or series of
related sales, leases, transfers or other dispositions) of any Collateral
Security, except as permitted under the Collateral Documents or (y) any Asset
Disposition unless the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value (including as to the value of all non-cash consideration), as
determined in good faith by the Board of Directors or by the chief financial
or accounting officer of the Company, of the shares and assets subject to such
Asset Disposition and at least 80% of the consideration thereof received by
the Company or such Restricted Subsidiary is in the form of cash or cash
equivalents. If the Company or any Restricted Subsidiary engages in an Asset
Disposition, the Company may use the Net Available Cash from such Asset
Disposition, within one year after the later of such Asset Disposition and the
receipt of such Net Available Cash (such later date, the "Trigger Date"), to
(i) permanently repay or prepay any then outstanding Senior Indebtedness of
the Company or any Restricted Subsidiary or (ii) invest in or acquire (or
enter into a legally binding commitment to invest in or acquire) Additional
Assets; provided that the transaction subject to any such commitment be
consummated within 180 days after the date of such commitment. If any such
legally binding commitment to invest in or acquire such Additional Assets is
terminated, then the Company may, within 90 days of such termination or the
Trigger Date, whichever is later, use such Net Available Cash as provided in
clause (i) or (ii) (without giving effect to the parenthetical contained in
such clause (ii)) above. The amount of such Net Cash Proceeds not so used as
set forth above in this paragraph constitutes "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company will, within 30 days thereof, apply such aggregate Excess Proceeds (1)
first, to make an Offer to Purchase outstanding Notes at 100% of their
principal amount plus accrued and unpaid interest and Special Interest, if
any, to the date of purchase and, to the extent required by the terms thereof,
any other Indebtedness of the Company that is pari passu with the Notes at a
price no greater than 100% of the principal amount thereof plus accrued
interest to the date of purchase and (2) second, to the extent of any
remaining Excess Proceeds following the completion of the Offer to Purchase,
to any other use as determined by the Company which is not otherwise
prohibited by the Indenture. Upon the completion of an Offer to Purchase
pursuant to this paragraph, the amount of Excess Proceeds shall be reset to
zero.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of the Company or any
Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such
Asset Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property
or employee compensation arrangements) with any Affiliate of the Company (an
"Affiliate Transaction") unless the terms thereof (1) are no less favorable to
the Company or such Restricted Subsidiary than those that could be obtained at
the time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate and (2) if such Affiliate Transaction involves an amount in
excess of $2.0 million (i) are set forth in writing and (ii) have been
approved by a majority of the members of the Board of Directors having no
personal stake in such Affiliate Transaction. If such Affiliate Transaction
involves an amount in excess of $10.0
97
<PAGE>
million, a fairness opinion must be obtained from an internationally
recognized investment banking firm, appraisal firm or auditing firm with
respect to the financial terms of such Affiliate Transaction.
(b) The provisions of the foregoing paragraph (a) shall not prohibit or
apply to (i) any Restricted Payment permitted to be paid pursuant to the
covenant described under "--Limitation on Restricted Payments," (ii) loans or
advances to employees in the ordinary course of business and in an amount that
does not exceed $1.0 million in the aggregate outstanding at any one time,
(iii) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or its Restricted
Subsidiaries, (iv) any Affiliate Transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries, (v) any issuance of
securities, or other payments, awards or grants in cash, securities or
otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors, (vi) the
grant of stock options or similar rights to employees and directors of the
Company pursuant to plans approved by the Board of Directors and (vii) any
Affiliate Transaction entered into pursuant to agreements with labor unions.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any Capital
Stock of a Restricted Subsidiary, and shall not permit any such Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of
any of its Capital Stock except (i) to the Company or a Wholly Owned
Subsidiary, (ii) the issuance and sale of directors' qualifying shares, (iii)
if, immediately after giving effect to any such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining after giving
effect thereto would have been permitted to be made under the covenant
described under "--Limitation on Restricted Payments" if made on the date of
such issuance, sale or other disposition, (iv) if such sale or other
disposition is of all or any portion of the Capital Stock of a Restricted
Subsidiary and the Net Available Cash received from such sale or other
disposition are applied in accordance with the covenant "--Limitation on Sales
of Assets and Subsidiary Stock" or (v) to the extent the ownership by a Person
other than the Company or a Wholly Owned Subsidiary is required by applicable
law and except that any Restricted Subsidiary may issue or permit to exist (x)
Preferred Stock issued to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that upon either (A) the transfer or other
disposition by the Company or such Wholly Owned Subsidiary of any Preferred
Stock so permitted to a Person other than the Company or another Wholly Owned
Subsidiary or (B) such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary, the provisions of this clause (x) will no longer be applicable to
such Preferred Stock and such Preferred Stock will be deemed to have been
issued at the time of such transfer or other disposition or such cessation;
and (y) Preferred Stock issued by a Person prior to the time such Person
becomes a Restricted Subsidiary (including by way of a merger or consolidation
with another Restricted Subsidiary), which Preferred Stock was not issued in
anticipation of and was outstanding prior to such transaction; provided,
however, that on the date of such acquisition and after giving effect thereto,
the Company would have been able to Incur at least $1.00 of additional
Indebtedness pursuant to clause (a) of the covenant described under "--
Limitation on Indebtedness."
Limitation on Guarantees by Restricted Subsidiaries. The Company shall not
permit any Restricted Subsidiary, directly or indirectly, to Guarantee any
Indebtedness of the Company which is pari passu with or subordinate in right
of payment to the Notes ("Guaranteed Indebtedness"), unless (i) such
Restricted Subsidiary simultaneously executes and delivers a Subsidiary
Guaranty of payment of the Notes by such Restricted Subsidiary and (ii) such
Restricted Subsidiary waives and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guaranty; provided that this paragraph shall not be applicable to
(1) any Guarantee by any Restricted Subsidiary that existed at the time such
Person became a Restricted Subsidiary and was not Incurred in connection with,
or in contemplation of, such Person becoming a Restricted Subsidiary or (2)
Guarantees of Indebtedness under working capital facilities of the Company in
an aggregate principal amount not exceeding $50.0 million at any time
outstanding or, if less, the amount by which $150.0 million exceeds the
aggregate outstanding principal amount of Indebtedness of the Company under
clause (15) of paragraph (b) of the
98
<PAGE>
"Limitation on Indebtedness" which is secured by a Lien. If the Guaranteed
Indebtedness is (A) pari passu with the Notes, then the Guarantee of such
Guaranteed Indebtedness shall be pari passu with, or subordinated to, the
Subsidiary Guarantee or (B) subordinated to the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guaranty
at least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes.
Notwithstanding the foregoing, any Subsidiary Guaranty by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the
Company's and each Restricted Subsidiary's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release
or discharge of the Guarantee which resulted in the creation of such
Subsidiary Guaranty, except a discharge or release by, or as a result of,
payment under such Guarantee.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on (i) any of its properties other than the
Collateral Security (including Capital Stock of a Restricted Subsidiary),
whether owned at the Issue Date or thereafter acquired, other than Permitted
Liens, without effectively providing that the Notes shall be secured equally
and ratably with (or prior to) the obligations so secured for so long as such
obligations are so secured or (ii) any Collateral Security other than, with
respect to any Collateral, Permitted Collateral Liens.
Limitation on Sale/Leaseback Transactions. The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Company or such
Restricted Subsidiary would be entitled to (A) Incur Indebtedness in an amount
equal to the Attributable Debt with respect to such Sale/Leaseback Transaction
pursuant to the covenant described under "--Limitation on Indebtedness" and
(B) create a Lien on such property securing such Attributable Debt without
equally and ratably securing the Notes pursuant to the covenant described
under "--Limitation on Liens," or (ii) the Sale/Leaseback Transaction is
treated as an Asset Disposition and the Company applies the proceeds of such
transaction in compliance with the covenant described under "--Limitation on
Sales of Assets and Subsidiary Stock."
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all of its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United States,
any state thereof or the District of Columbia and the Successor Company (if
not the Company) shall expressly assume, by an indenture supplemental thereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all the obligations of the Company under the Notes, the Indenture and the
Collateral Documents; (ii) immediately after giving effect to such transaction
(and treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary of the Company as a result of such transaction as
having been Incurred by such Successor Company or such Subsidiary at the time
of such transaction), no Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction, the Successor Company
would be able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of the covenant described under "--Limitation on Indebtedness;"
(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less than
the Consolidated Net Worth of the Company immediately prior to such
transaction; and (v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that (A) such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture, (B) the Indenture and the Notes will constitute
valid and legally binding obligations of the Successor Company and (C) the
Indenture and the Collateral Documents are enforceable against the Successor
Company in accordance with their terms.
The Successor Company shall be the successor to the Company and 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
99
<PAGE>
Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of, interest on, and Special Interest, if any, with respect to,
the Notes.
The Company shall have the right, without the consent of the Holders, to
redeem the Notes in whole, but not in part, at a redemption price equal to
100% of the unpaid principal amount of the outstanding Notes plus the
Applicable Premium as of, and accrued and unpaid interest and Special Interest
if any, to, the date of redemption in the event that the Company enters into a
binding agreement to consummate any transaction which would be prohibited by
this covenant. The redemption date must occur prior to or simultaneously with
the consummation of such prohibited transaction. Notice of redemption will be
mailed to each Noteholder at such Noteholder's address of record not less than
30 days nor more than 60 days prior to the redemption date. On and after the
redemption date, interest will cease to accrue on the Notes.
Maintenance of Properties and Insurance. The Company will, and will cause
its Subsidiaries to, maintain or cause to be maintained in good repair,
working order and condition all Collateral and properties used or useful in
their businesses; provided, however, that, subject to the requirements of the
Collateral Documents, neither the Company nor any such Subsidiary shall be
prevented from discontinuing those operations or suspending the maintenance of
that Collateral or those properties which, in the reasonable judgment of the
Company, are no longer necessary or useful in the conduct of the Company's
business or that of its Subsidiaries.
For so long as any Collateral or property is deemed to be useful to the
conduct of the business of the Company or its Subsidiaries, the Company will,
or will cause such Subsidiaries to, maintain appropriate insurance, in
accordance with industry practice, on such Collateral and properties and as
required under the provisions of the Collateral Documents.
Application for Rating. The Company will, within 180 days after the Issue
Date, apply to Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group, to obtain a rating for the Notes.
SEC Reports. The Company shall file with the Trustee and provide, or cause
the Trustee to provide, holders of Notes, within 30 days after it files with,
or furnishes to, the SEC, copies of its annual report 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 Section 13 or 15(d) of the
Exchange Act or is required to furnish to the SEC pursuant to the Indenture.
Notwithstanding that the Company may not be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise
report on an annual and quarterly basis on forms provided for such annual and
quarterly reporting pursuant to rules and regulations promulgated by the SEC,
the Indenture requires the Company to continue to file with, or furnish to,
the SEC (i) within 90 days after the end of each fiscal year (or such shorter
period as the SEC may in the future prescribe), annual reports on Form 10-K
(or any successor form) containing the information required to be contained
therein (or required in such successor form), including annual financial
statements audited by an internationally recognized independent public
accountant with respect to such year and prepared in accordance with GAAP and
all applicable exhibits, (ii) within 45 days after the end of each of the
first three fiscal quarters of each fiscal year (or such shorter period as the
SEC may in the future prescribe), reports on Form 10-Q (or any successor form)
containing substantially the same information required to be contained therein
prepared in accordance with GAAP and (iii) promptly from time to time after
the occurrence of an event required to be therein reported, such other reports
on Form 8-K (or any successor form) containing substantially the same
information required to be contained therein.
Concurrently with the reports delivered pursuant 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.
100
<PAGE>
Listing of Exchange Notes on the AMEX. The Company has agreed to list the
Exchange Notes on the American Stock Exchange or on such other stock exchange
or market as the Common Stock is then principally traded no later than the
earliest to occur of (i) the effectiveness of the initial Exchange Offer
Registration Statement and (ii) the effectiveness of the initial Shelf
Registration Statement, provided that the Exchange Notes meet the minimum
requirements for listing on any such exchange or market, and, if applicable,
to maintain such listing for so long as any of the Exchange Notes is
outstanding.
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 Offer to
Purchase repurchase amount, if any, with respect to, any Note when such
amounts become due and payable at maturity, upon acceleration, redemption or
otherwise; (ii) failure to pay interest or Special Interest 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 Collateral Documents that continues for the relevant period specified
therein, including, but not limited to, the requirements described under "--
Collateral Security--Maintenance Test;" (iv) the failure by the Company to
comply with its obligations under "--Certain Covenants--Merger and
Consolidation" above; (v) the failure by the Company to comply for 30 days
after notice with any of its obligations in the covenants described above
under "Repurchase of Notes Upon a Change in Control" or "Repurchase of Notes
in Connection with Incurrence of Acquired Indebtedness" (other than, in each
case, a failure to purchase Notes) and "--Certain Covenants" under "--
Limitation on Indebtedness," "--Limitation on Restricted Payments," "--
Limitation on Restrictions on Distributions from Restricted Subsidiaries," "--
Limitation on Sales of Assets and Subsidiary Stock (other than a failure to
purchase Notes)," "--Limitation on Affiliate Transactions," "--Limitation on
the Sale or Issuance of Capital Stock of Restricted Subsidiaries," "--
Limitation on Guarantees by Restricted Subsidiaries," "--Limitation on Liens,"
"--Limitation on Sale/Leaseback Transactions," "--Maintenance of Properties
and Insurance," "--Application for Rating," "--SEC Reports" or "--Listing of
Notes on the AMEX;" (vi) 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;
(vii) an event of default shall have occurred and be continuing under any
other evidence of Indebtedness of the Company or any Significant Subsidiary
(as defined in SEC Regulation S-X) 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 $15.0 million (the "cross
acceleration provision"); (viii) any final judgment or judgments for payment
of money in excess of $15.0 million in the aggregate shall be rendered against
the Company or any Restricted Subsidiary and shall remain unstayed,
unsatisfied and undischarged for the period and after the notice specified
below; and (ix) certain events of bankruptcy, insolvency or reorganization
involving the Company or any Restricted Subsidiary. 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 (v), (vi) or (viii) above or, with respect to a
Restricted Subsidiary that is not a Significant Subsidiary, clause (ix) 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 (vi) or (viii), or within 30 days with respect to clause (v) or,
with respect to a Restricted Subsidiary that is not a Significant Subsidiary,
clause (ix), 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.
101
<PAGE>
In case an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization of the Company or a Restricted
Subsidiary that is a Significant Subsidiary) 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 then outstanding, by notice to the
Company and the Trustee, may declare the principal amount of the Notes, plus
accrued and unpaid interest and Special Interest, if any, to be immediately
due and payable. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization of the Company or a Restricted
Subsidiary that is a Significant Subsidiary 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
Special Interest, 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 Special Interest, 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 Security 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 Special Interest, if any, with respect to, any Note, reduce
the principal amount, or premium, if any, on, or Special Interest, if any, (in
each case, whether on redemption or otherwise) with respect to, any Note,
change the time at which any Note may be redeemed as described under "--
Redemptions" above, 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 make any change in any Subsidiary Guaranty that would
adversely affect any holders of the Notes 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 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 Special Interest, if any,
or default with respect to certain covenants under the Indenture.
102
<PAGE>
The consent of the holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment. After the
amendment under the Indenture becomes effective, the Company is required to
mail to holders of the Notes a notice briefly describing such amendment.
However, the failure to give such notice to all holders of the Notes, or any
defect therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes,
the Indenture and the Collateral Documents ("legal defeasance"), except for
certain obligations, including those respecting the defeasance trust and
obligations to register the transfer or exchange of the Notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain a registrar and
paying agent in respect of the Notes. The Company at any time may terminate
its obligations under "Redemptions," "Repurchase of Notes Upon a Change in
Control" and under the covenants described under "--Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Restricted Subsidiaries, the judgment default provision, described under "--
Events of Default" above and the limitations contained in clauses (iii) and
(iv) of the first paragraph under "--Certain Covenants--Merger and
Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (iii), (v), (vi), (vii),
(viii) or (ix) (with respect only to Restricted Subsidiaries), under "--Events
of Default" above or because of the failure of the Company to comply with
clause (iii) or (iv) of the first paragraph under "--Certain Covenants--Merger
and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust with the Trustee money or U.S. Government Obligations for the
payment of principal and interest and Special Interest, if any, on the Notes
to redemption or maturity, as the case may be, and must comply with certain
other conditions, including delivery to the Trustee of (i) an Opinion of
Counsel to the effect that (x) holders of the Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit and
defeasance and will be subject to federal income tax on the same amounts and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal
Revenue Service or other change in applicable federal income tax law) and (y)
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar law affecting creditors
rights generally under any United States federal or state law and that the
Trustee has a perfected security interest in such trust funds for the ratable
benefit of the Holders and (ii) an opinion of counsel in the Company's
jurisdiction of incorporation to the effect that holders of the Notes will not
recognize income, gain or loss for tax purposes in such jurisdiction as a
result of such deposit and defeasance and will be subject to taxes in such
jurisdiction on the same amounts and in the same manner and at the same time
as would have been the case if such deposit and defeasance had not occurred.
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.
103
<PAGE>
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.
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.
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 Security Agreement (defined below) and the Note
Pledge 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 the laws of
the State of New York without regard to principles of conflict of laws.
COLLATERAL SECURITY
Pursuant to a Pledge and Security Agreement between the Company and the
Collateral Agent (the "Security Agreement"), the Acquired Slot Trust Agreement
between the Company and the Collateral Agent, as slot trustee (the "Slot Trust
Agreement"), the Master Sub-License Agreement between the Company and the
Collateral Agent, as slot trustee (the "Master Sub-License Agreement") and the
Note Pledge Agreement (collectively, the "Collateral Documents"), as
applicable, the indebtedness evidenced by the Notes will be secured by a lien
on (i) the Pledged Spare Parts (as defined below), (ii) a beneficial ownership
certificate (the "Beneficial Interest Certificate") evidencing the Company's
beneficial interest in 30 FAA-designated take-off and landing slots at
Washington National Airport ("DCA") in Washington D.C. and (iii) the Pledged
Collateral, the Pledged Spare Parts, the Beneficial Interest Certificate and
the other collateral under the Pledge Agreement are sometimes referred to
herein collectively as the "Collateral" and, together with the Pledged
Collateral, the "Collateral Security."
Spare Parts
The term "Pledged Spare Parts" refers to the pool of aircraft spare parts
including expendables, "pipeline" spares and capital units at locations in the
United States designated from time to time by the Company at which the Pledged
Spare Parts are located; provided that such designated locations (i) shall
(except as described below under "--Use of Collateral; Release and Termination
of Lien") at all times include the four locations in the United States at
which are located the Company's highest dollar value of spare parts that may
be pledged under the Security Agreement, and (ii) shall at no time exclude
locations at which are located inventories of spare parts of the Company which
are materially disproportionally newer or more valuable (as shown in the
Company's system for tracking and valuing spare parts (the "Inventory Control
System")) than the Pledged Spare Parts, in light of the aircraft types on
which spare parts may be used. As of the Issue Date, the Pledged Spare Parts
will constitute substantially all of the aircraft spare parts of the Company.
104
<PAGE>
Pledged Spare Parts include:
1. Expendables, which are those Pledged Spare Parts that are used (consumed)
in the routine operation of an airline and are generally items which are used
only once and then discarded such as gaskets, light bulbs, raw metal stock,
general hardware and fabric;
2. "Pipeline" spares, which is a term used by the Company to refer to non-
capital, rotable airframe and engine components; and
3. Capital units, which are those Pledged Spare Parts that will, subject to
maintenance, repair and overhaul, normally last the life of the aircraft, such
as spare control surfaces, landing gears, avionics units and engine
accessories.
In the day-to-day operation of the airline, the composition of its Pledged
Spare Parts inventory is continually changing: new parts (including parts for
new types of aircraft placed into service) are purchased and placed into
stock; expendable parts are taken from inventory and utilized; used rotable
and repairable units are removed from aircraft and placed in a hold status
awaiting eventual repair; other rotables are sent to outside vendors for
overhaul and processing; at the conclusion of the overhaul/repair process,
inventory is either re-installed on aircraft, returned to stock for reuse; and
spare parts no longer used or usable in the airline's operations may be
scrapped or sold.
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. A total of 30 slots which TWA currently holds at DCA
have been placed in a "Slot Trust" governed by a Slot Trust Agreement (the
"Slots"). The Company's interest in the Slot Trust is evidenced by the
Beneficial Interest Certificate which has been pledged to the Trustee under
the 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 DCA or at the affected
hour or by amending or revoking the regulations or practices with respect to
the sale, lease or transfer of slots. Such actions could adversely affect the
value of the Collateral. The Company retains a reversionary interest in the
Slots. In addition, the Slot Trust has sub-licensed the right to operate the
Slots to TWA for a period equal to the term of the Notes, subject to the terms
of the Master Sub-License Agreement. The Master Sub-License Agreement, subject
to certain restrictions, permits TWA to, among other things, further sub-
license, directly or indirectly, to other air carriers the right to use Slots.
These transactions, which have been confirmed by the FAA, permit TWA to
continue to operate the Slots.
105
<PAGE>
Upon the acceleration of TWA's obligations under the terms of the 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 reversionary 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 operator of
record at the FAA) in connection with any third party license of the right to
operate any of the Slots.
Pledged Securities
The Indenture provides that upon the closing of the Offering, the Company
deposit and pledge to the Trustee for the benefit of the Trustee and the
holders of the Notes, cash, and/or purchase and so pledge the Pledged
Securities in such amount as will when combined be sufficient (upon receipt of
scheduled interest and principal payments of such securities, if any), to
provide for payment in full of the first three scheduled interest payments on
the Notes when and as due. The Company used approximately $23.1 million of the
net proceeds of the Offering to make such deposit and/or acquire the Pledged
Securities. The Pledged Collateral has been pledged by the Company to the
Trustee for the benefit of the Trustee and the holders of Notes pursuant to
the Note Pledge Agreement and is held by the Trustee in the Interest Escrow
Account. Pursuant to the Note Pledge Agreement, immediately prior to an
interest payment date on the Notes, the Company may either deposit with the
Trustee from funds otherwise available to the Company cash sufficient to pay
the interest scheduled to be paid on such date or the Company may direct the
Trustee to release from the Interest Escrow Account proceeds sufficient to pay
interest then due. In the event that the Company exercises the former option,
the Note Pledge Agreement provides that the Company may thereafter direct the
Trustee to release to the Company Pledged Collateral from the Interest Escrow
Account in like amount.
Interest earned on the Pledged Securities will be added to the Interest
Escrow Account. In the event that the Pledged Collateral held in the Interest
Escrow Account exceeds the amount sufficient to provide for payment in full of
the first three scheduled interest payments due on the Notes (or, in the event
an interest payment or payments have been made, an amount sufficient to
provide for payment in full of any interest payment remaining, up to and
including the third scheduled interest payment), the Trustee will be permitted
to release to the Company at the Company's request any such excess amount. The
Notes are secured by a first priority security interest in the Pledged
Collateral and in the Interest Escrow Account and, accordingly, the Pledged
Collateral and the Interest Escrow Account also secure repayment of the
principal amount of the Notes to the extent of such security.
Prior to the purchase of the Pledged Securities for the Interest Escrow
Account, and prior to the release to the Company of any excess amount from the
Interest Escrow Account with respect to or based on Pledged Securities, the
Company delivered to the Trustee a written certification of a nationally
recognized firm of independent public accountants selected by the Company
which states that the Pledged Securities in the Interest Escrow Account
together with the cash, if any, are sufficient upon receipt of scheduled
interest and principal payments of such securities to provide for payment in
full of the first three scheduled interest payments on the Notes when and as
due. Under the Note Pledge Agreement, assuming that the Company makes the
first three scheduled interest payments on the Notes in a timely manner, all
of the Pledged Collateral will have been released from the Interest Escrow
Account.
Use of Collateral; Release and Termination of Lien
The Indenture and the Collateral Documents provide, among other things, that
the Company may (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 applicable Collateral Documents and (iii)
unless an Event of Default has occurred and is
106
<PAGE>
continuing, cause Collateral to be released from the lien of the Security
Agreement and the applicable Collateral Documents upon providing specified
substitute collateral of equal or greater appraised value at the time of
substitution, cash or U.S. Government Obligations and/or acquired or canceled
Notes.
Upon the payment in full of all amounts outstanding under the Notes and the
Indenture, the liens created by Collateral Documents will terminate.
In addition, such Collateral Documents permit the release of the relevant
Collateral from the lien created thereby if certain collateral coverage ratios
are satisfied. Generally, the Company may dispose of Pledged Spare Parts in
the ordinary course of its business so long as the value of the remaining
Pledged Spare Parts (including the value of all Pledged Spare Parts acquired
subsequent to the issuance of the Notes and not previously disposed of) as
determined by reference to the Inventory Control System (as defined)
(adjusting the value of 747 and L-1011 Pledged Spare Parts by a 31% reduction
to reflect their lower appraised values due to the Company's phasing out of
these aircraft types) is not less than 85% of their initial value as so
determined as of November 30, 1997 (the "Spare Parts Threshold"). The Company
maintains a system of tracking and valuing its aircraft spare parts, including
the Pledged Spare Parts (the "Inventory Control System") based, in general, on
historical costs, adjusted to the extent that the actual unit price paid for
newly purchased spare parts varies 20% more or less, or is $500 more or less,
than such historical cost. The Spare Parts Threshold can be reduced by
providing specified substitute collateral of equal or greater appraised value
at the time of substitution, cash and/or acquired or canceled Notes. The
Pledged Spare Parts do not include spare parts the purchase price of which has
been financed and which have been pledged to secure such purchase money
financing. However, the Company will not be permitted to pledge new spare
parts to secure purchase money financing unless the Spare Parts Threshold is
satisfied. The Collateral Documents also provide that at such time as the
aggregate outstanding principal amount of the Notes has been reduced to $100.0
million, the Company will be entitled to the release of all of the Slots,
subject to the conditions that (i) after giving effect to such release, the
ratio of the aggregate fair market value of the Pledged Spare Parts (and
permitted substitutes) (based on an appraisal not more than 20 months old and
a current Company officer's certificate) to the aggregate outstanding
principal amount of the Notes (less cash collateral), would equal or exceed
2.0 to 1 and (ii) no Event of Default or Default of the type described in
clauses (ii), (v), (vi), (viii) or (ix) under the heading "Description of
Notes--Events of Default") shall have occurred and be continuing. The
Collateral Documents also provide that at such time as the aggregate
outstanding principal amount of the Notes has been reduced to $60.0 million,
the Company will be entitled to reduce the number of designated locations for
Pledged Spare Parts to the one or two locations in the United States at which
are located the Company's highest dollar value of Pledged Spare Parts. The
reduction of designated locations referred to in the immediately preceding
sentence will occur on the first date, on or after the satisfaction of the
foregoing Note retirement threshold, when (i) after giving effect to such
release, the ratio of the aggregate fair market value of the Pledged Spare
Parts at such remaining designated location or locations (based on an
appraisal not more than 20 months old and a current Company certificate) to
the aggregate outstanding principal amount of the Notes (less cash
collateral), would equal or exceed 2.5 to 1 and (ii) no Event of Default or
Default of the type described in clauses (ii), (v), (vi), (viii) or (ix) under
the heading "Description of Notes--Events of Default") shall have occurred and
be continuing.
The Company will provide monthly reports of the Inventory Control System
value of the Pledged Spare Parts to the Collateral Agent. Such value will
include an adjustment to reflect a 31% discounted value for existing Parts
related to L-1011 and 747 aircraft, since the Company has retired its last L-
1011 aircraft as of September 1997 and intends to discontinue flying 747
aircraft in February 1998.
The Company can sell Pledged Spare Parts in the ordinary course of business
for any form of consideration at any time if the Spare Parts Threshold is met
after giving effect to such sale. The Company can sell Pledged Spare Parts for
cash in the ordinary course of business at any time if the cash is deposited
with the Collateral Agent as cash collateral or the Spare Parts Threshold is
met after giving effect to such sale. The Company can sell Pledged Spare Parts
for cash other than in the ordinary course of business (i.e. sales or series
of related sales for $10 million or more) if the cash is deposited as cash
collateral with the Collateral Agent. Such cash collateral will be released if
the ratio of the fair market value of Pledged Spare Parts and Slots to the
aggregate principal
107
<PAGE>
balance of outstanding Notes (less cash collateral) is equal to at least 1.93
to 1, after giving effect to such release, as evidenced by a current (within
30 days of release) appraisal (the "Appraised Value Ratio"). Such appraisal
may be a "desk top" appraisal, not involving a physical inspection of the
Pledged Spare Parts, if it is based on a full appraisal conducted by the same
appraiser within the 20 months preceding such "desk top" appraisal.
Maintenance Test. If the Inventory Control System value of Pledged Spare
Parts as shown on any monthly report is less than 60% of the Inventory Control
System value as of November 30, 1997, the Company must, within 60 days,
provide an officers' certificate setting forth the calculation of the
Appraised Value Ratio as of the date of such certificate, based on an
appraisal which will be attached to such certificate. Such appraisal may be a
"desk top" appraisal, not involving a physical inspection of the Pledged Spare
Parts, if it is based on a full appraisal conducted by the same appraiser
within the 20 months preceding such "desk top" appraisal. The appraisal must
show the fair market values of all assets required for calculation of the
Appraised Value Ratio and setting forth the Appraised Value Ratio, in each
case as of a date no earlier than the last day of the month to which such
inventory report relates. If the Appraised Value Ratio is less than 1.2 to 1,
the Company must, within 30 days, make an Offer to Purchase Notes at 101% or
provide additional Pledged Spare Parts, Slots or cash collateral (or any
combination of the foregoing) to cause the Appraised Value Ratio to be at or
above 1.2 to 1. Cash collateral provided to cause the Appraised Value Ratio to
be at or above 1.2 to 1 may be released only if, after giving effect to such
release, the Appraised Value Ratio is at least 1.5 to 1 as evidenced by an
appraisal.
Under the terms of the Collateral Documents, the Trustee, acting upon
instructions from holders of at least 66 2/3% in aggregate principal amount of
Notes then outstanding will determine the circumstances under and the manner
in which the Collateral Security may be disposed of, including, but not
limited to, the determination of whether to release all or any portion of the
Collateral Security from the liens created by the Collateral Documents other
than in accordance with the terms thereof. The holders of at least a majority
in aggregate principal amount of the Notes then outstanding may determine
whether and under what circumstances to foreclose on the Collateral Security.
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 Collateral Documents 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 Security, 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.
Appraisals
Simat, Helliesen & Eichner, Inc. ("SH&E") prepared appraisals, dated
December 3, 1997 and November 17, 1997 (the " Appraisals"), of the Pledged
Spare Parts, as constituted at August 31, 1997, and the Slots, respectively
(such Pledged Spare Parts and Slots, collectively the "Appraised Assets"),
which indicated fair market values, as therein defined, for such Collateral of
$234.6 million and $36.0 million, respectively. In determining fair market
value, SH&E, among other things, estimated 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 Slots made by them in 1994 and 1995, and the
Pledged Spare Parts made by them in 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 and samplings 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, reflect the assumptions
and limitations stated therein 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 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 such
assets are sought to be sold, the availability of buyers, the existence of
liens and/or claims with respect to such Collateral and similar factors. A
substantial portion of the Pledged Spare Parts component of the Collateral
consists of spare parts for Lockheed L-1011 and Boeing 747 aircraft. The
108
<PAGE>
Company retired its last L-1011 aircraft in September 1997 and its last 747
aircraft is scheduled to leave active service in February 1998, which factors
have been taken into consideration in determining the fair market value of the
spare parts relating to such aircraft in the appraisal. In addition, given
that the Collateral Documents contain provisions permitting the use, release,
substitution and sale of Collateral, the composition and amount of Collateral
will continually change. Accordingly, there can be no assurances that the
proceeds of any sale of Collateral pursuant to the Indenture and Collateral
Documents following a default would be sufficient to satisfy all 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 (particularly the Slots),
significant restrictions imposed by governmental authorities including the DOT
and FAA.
FILING AND PERFECTION REQUIREMENTS FOR COLLATERAL SECURITY
The security interest in the Collateral Security has been 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 has been
noted by the FAA in its records.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Trustee to repossess and dispose of the Collateral
Security, 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 (as determined by the Bankruptcy Court) 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 Security or whether or to what extent Holders would be compensated
for any delay in payment or loss or value of the Collateral Security through
the requirement of "adequate protection." Furthermore, in the event that the
bankruptcy court determines the value of the Collateral Security 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.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person became a Restricted Subsidiary and not Incurred in connection
with, or in contemplation of, such Person becoming a Restricted Subsidiary.
109
<PAGE>
"Additional Assets" means (i) any property or assets utilized in the airline
business or any business that is substantially related, ancillary or
complementary thereto (including an Investment in any Person engaged in any
such business); (ii) the Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock by the Company
or another Restricted Subsidiary or (iii) Capital Stock constituting a
minority interest in any Person that at such time is a Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the provisions described under "--Certain
Covenants--Limitation on Restricted Payments", "--Certain Covenants--
Limitation on Affiliate Transactions", and "--Certain Covenants--Limitation on
Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also mean any
beneficial owner of Capital Stock representing 10% or more of the total voting
power of the Voting Stock (on a fully diluted basis) of the Company or of
rights or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Aircraft Acquisition Debt" means Indebtedness Incurred by the Company or
any of its Restricted Subsidiaries in connection with an acquisition of
aircraft, related engines or spare engines, spare parts or other related
equipment (including ground equipment) which Indebtedness either constitutes
all or part of the purchase price thereof, or is Incurred prior to, at the
time of or within one year after the acquisition thereof for the purpose of
financing or refinancing part of the purchase price thereof, and which
equipment was not owned by the Company or a Restricted Subsidiary of the
Company prior to such purchase provided, however, that in either case the
proportion (expressed as a percentage) of such Indebtedness to the purchase
price or Appraised Value of such equipment at the time of such financing does
not exceed 90% (except that the foregoing limitation shall not apply to
aircraft under order or option on the Issue Date for which vendor financing
(including by way of vendor guarantee) is initially obtained).
"Applicable Premium" means, with respect to a Note at any redemption or
repurchase date, the greater of (i) 1.0% of the principal amount of such Note
and (ii) the excess of (A) the present value on such redemption or repurchase
date of the principal amount of such Note plus all required interest and
Special Interest payments due on such Note through its Stated Maturity, such
present value computed using a discount rate equal to the Treasury Rate plus
50 basis points over (B) the principal amount of such Note.
"Appraised Value" means the fair market sale value as of a specified date of
the appraised assets that would be obtained in an arm's length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer under no compulsion to buy, as determined by an
Independent Appraiser.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of
this definition as a "disposition") in one transaction or a series of related
transactions, of (i) any shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares or shares required by applicable law
to be held by a Person other than the Company or a Restricted Subsidiary),
(ii) all or substantially all the assets of any division or line of business
of the Company or any Restricted Subsidiary or (iii) sales of aircraft,
engines and related equipment (and leasehold interests therein) and any other
assets of the Company or any Restricted Subsidiary outside of the ordinary
course of business of the Company or such Restricted Subsidiary; provided that
"Asset Disposition" shall not include (A) any sale, lease, transfer or other
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Restricted Subsidiary, (B) any sale, lease,
transfer or other disposition that constitutes a Restricted Payment permitted
by the covenant described under "--Certain Covenants--Limitation on Restricted
Payments", (C) any sale, lease, transfer or other dispositions of
(i) inventory, (ii) Receivables or (iii) other current assets in the ordinary
course of business, (D) any sale, lease,
110
<PAGE>
transfer or other dispositions of assets for consideration at least equal to
the fair market value of the assets sold or disposed of, to the extent that
the consideration received would constitute Additional Assets, (E) any sale,
lease, transfer or other disposition of the Company's direct or indirect
interest in Worldspan, (F) any sale, lease, transfer or other disposition of
aircraft and related engines, spare parts and equipment (including ground
equipment) or leasehold interests therein which are obsolete or which have
been grounded and held for resale or are of a type no longer used by the
Company in the ordinary course of business, (G) any Sale/Leaseback Transaction
permitted by clause (i) of the "Sale and Leaseback" covenant, (H) any sale,
lease, transfer or other disposition of maintenance bases, hangars and engine
shops or (I) any disposition of Collateral Security permitted by the
Collateral Documents.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes) of the total obligations of the lessee for rental payments
during the remaining term of the lease included in such Sale/Leaseback
Transaction (including any period for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee of such board duly authorized to act in respect of any particular
matter.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented
by such obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP; and the Stated Maturity thereof shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty.
"Capital Stock" of any Person means any and all shares interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Change in Control" means the occurrence of any of the following events: (i)
any person (including any entity or group deemed to be a "person" under
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) is or becomes the
direct or indirect beneficial owner (as determined in accordance with Rule
13d-3 under the Exchange Act) of shares of the Company's Capital Stock
representing greater than 50% of the total voting power of all shares of
Capital Stock of the Company entitled to vote in the election of directors
under ordinary circumstances or to elect a majority of the Board of Directors,
(ii) the Company sells, transfers or otherwise disposes of all or
substantially all of its assets, (iii) when, during any period of 12
consecutive months after the Issue Date, individuals who at the beginning of
any such 12-month period constituted the Board of Directors (together with any
new directors whose election by such Board or whose nomination for election by
the stockholders of the Company was approved by a vote of a majority of the
directors still in office 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 Issue Date), cease for any
reason to constitute a majority of the Board of Directors then in office or
(iv) the date of the consummation of the merger or consolidation of the
Company with another corporation where the stockholders of the Company,
immediately
111
<PAGE>
prior to the merger or consolidation, would not beneficially own, immediately
after the merger or consolidation, shares entitling such stockholders to 50%
or more of all votes (without consideration of the rights of any class of
stock to elect directors by a separate class vote) to which all stockholders
of the corporation issuing cash or securities in the merger or consolidation
would be entitled in the election of directors or where members of the Board
of Directors, immediately prior to the merger or consolidation, would not,
immediately after the merger or consolidation, constitute a majority of the
board of directors of the corporation issuing cash or securities in the merger
or consolidation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agent" means the Trustee.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending prior to the date of such
determination for which financial statements have been made publicly available
to (ii) Consolidated Fixed Charges for such four fiscal quarters; provided,
however, that
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and
Consolidated Fixed Charges for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness
had been Incurred on the first day of such period and the discharge of any
other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period,
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of
such period or if any Indebtedness is to be repaid, repurchased, defeased
or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio, EBITDA and Consolidated Fixed Charges for such period shall be
calculated on a pro forma basis as if such discharge had occurred on the
first day of such period,
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the EBITDA
(if negative), directly attributable thereto for such period and
Consolidated Fixed Charges for such period shall be reduced by an amount
equal to the Consolidated Fixed Charges directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company
and its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Fixed Charges for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the
extent the Company and its continuing Restricted Subsidiaries are no longer
liable for such Indebtedness after such disposition),
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring
in connection with a transaction requiring a calculation to be made
hereunder, which constitutes all or substantially all of an operating unit
of a business, EBITDA and Consolidated Fixed Charges for such period shall
be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period, and
(5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of such period)
112
<PAGE>
shall have made any Asset Disposition, any Investment or acquisition of
assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Fixed Charges for such period shall be calculated
after giving pro forma effect thereto as if such Asset Disposition,
Investment or acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets, the amount of income or earnings relating thereto
and the amount of Consolidated Fixed Charges associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting officer of
the Company. If any Indebtedness bears a floating rate of interest and is
being given pro forma effect, the interest of such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has
a remaining term in excess of one year).
"Consolidated Fixed Charges" means, for any period, the sum of (i) the
Consolidated Interest Expense for such period plus (ii) dividends declared
during such period with respect to Preferred Stock that is Disqualified Stock.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, plus, to the
extent not included in such total interest expense, and to the extent incurred
by the Company or its Restricted Subsidiaries, without duplication, (i)
interest expense attributable to capital leases, (ii) amortization of debt
discount and debt issuance cost, (other than in respect of the Notes) (iii)
capitalized interest, (iv) non-cash interest expense, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) interest incurred in
connection with Investments in discontinued operations, (viii) interest
accruing on any Indebtedness of any other Person to the extent such
Indebtedness is Guaranteed by (or secured by the assets of) the Company or any
Restricted Subsidiary and (ix) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(i) any net income of any Person (other than the Company) if such Person
is not a Restricted Subsidiary, except that (A) subject to the exclusion
contained in clause (iv) below, the Company's equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained
in clause (iii) below) and (B) the Company's equity in a net loss of any
such Person for such period shall be included in determining such
Consolidated Net Income;
(ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject
to the exclusion contained in clause (iv) below, the Company's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such period to
the Company or another Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid
to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
113
<PAGE>
(iv) any gain or loss realized upon the sale or other disposition of any
assets of the Company or its consolidated Subsidiaries (including pursuant
to any sale-and-leaseback arrangement) which is not sold or otherwise
disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any
Person;
(v) extraordinary, unusual and non-recurring gains or losses; and
(vi) the cumulative effect of a change in accounting principles since the
Issue Date.
Notwithstanding the foregoing, for the purposes of the covenant described
under "Certain Covenants--Limitation on Restricted Payments" only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenants pursuant to clause (a)(3)(C) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company for which financial statements have been made
publicly available prior to the taking of any action for the purpose of which
the determination is being made, as (i) the par or stated value of all
outstanding Capital Stock of the Company plus (ii) paid-in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit and (B) only to the extent
otherwise included in the amount specified in clauses (i), (ii) or (iii) of
this definition, any amounts attributable to Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary designed to protect such Person against
fluctuations in currency values and not for the purpose of speculation.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise prior to the first anniversary of the Stated Maturity
of the Notes, (ii) is convertible or exchangeable for Indebtedness with a
Stated Maturity prior to the first anniversary of the Stated Maturity of the
Notes or Disqualified Stock or (iii) is redeemable at the option of the holder
thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Notes; provided, however, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase
or redeem such Capital Stock upon the occurrence of an "asset disposition" or
"change of control" occurring prior to the first anniversary of the Stated
Maturity of the Notes shall not constitute Disqualified Stock if the "asset
disposition" or "change of control" provisions applicable to such Capital
Stock are not more favorable to the holders of such Capital Stock than the
provisions described under "--Certain Covenants --Limitation on Sales of
Assets and Subsidiary Stock" and "Repurchase of Notes Upon Change in Control".
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company and its consolidated Restricted Subsidiaries, (b) depreciation expense
of the Company and its consolidated Restricted Subsidiaries, (c) amortization
expense of the Company and its consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period) and (d) all other noncash charges of the Company and its
consolidated Restricted Subsidiaries (excluding any such noncash charge to the
extent that it represents an accrual of or reserve for cash expenditures in
any future period), in each case for such period. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization and noncash charges of, a Restricted Subsidiary
shall be
114
<PAGE>
added to Consolidated Net Income to compute EBITDA only to the extent (and in
the same proportion) that the net income of such Restricted Subsidiary was
included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Restricted Subsidiary without prior approval (that has not
been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to such Restricted Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fuel Protection Agreements" means in respect to a Person any fuel
protection agreement or other financial agreement or arrangement designed to
protect such Person against fluctuations in market prices of aircraft fuels
and not for the purpose of speculation.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation of such Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain financial
statement condition or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole
or in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning. The term
"Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Fuel Protection Agreement or Currency
Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by
such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence"
when used as a noun shall have a correlative meaning. The accretion of
principal of a non-interest bearing or other discount security shall be deemed
the Incurrence of Indebtedness. Neither the accrual of interest, the accretion
of original issue discount or fluctuations in exchange rates of currencies
shall be considered an Incurrence of Indebtedness. Any change in GAAP that
results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal of and premium (if any) in respect of (A) indebtedness
of such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable, including, in each case, any premium
on such indebtedness to the extent such premium has become due and payable;
115
<PAGE>
(ii) all Capital Lease Obligations of such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, the liquidation preference
with respect to, any Preferred Stock (but excluding, in each case, any
accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through (v)
above of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii) all obligations of the type referred to in clauses (i) through (vi)
above of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The "amount" or "principal amount" of Indebtedness at any time of
determination as used herein represented by (a) any contingent Indebtedness,
shall be the maximum principal amount thereof, (b) any Indebtedness issued at
a price that is less than the principal amount at maturity thereof, shall be
the amount of the liability in respect thereof determined in accordance with
GAAP and (c) any Disqualified Stock, shall be the maximum fixed redemption or
repurchase price in respect thereof.
"Independent Appraiser" means a Person (i) engaged in a business which
includes appraising aircraft and assets and rights related to the operation
and maintenance of aircraft from time to time and (ii) who (a) is in fact
independent of the parties to the transaction in question and their Affiliate;
(b) does not have any direct financial interest or any material indirect
financial interest in the Company or any of the Restricted Subsidiaries or any
of their respective Affiliates and (c) is not connected with the Company, any
of the Restricted Subsidiaries or any of such Affiliates as an officer,
director, employee, promoter, underwriter, trustee, partner or person
performing similar functions.
"Interest Escrow Account" means an account established with the Trustee
pursuant to the terms of the Note Pledge Agreement for the deposit of the
Pledged Securities purchased by the Company with a portion of the net proceeds
from the Offering.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates and not for the purpose of speculation.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of transfer of cash or other property to
others or any payment for property or other services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or
other similar instruments issued by such Person. For purposes of the
definition of "Unrestricted Subsidiary", the definition of "Restricted
116
<PAGE>
Payment" and the covenant described under "--Certain Covenants--Limitation on
Restricted Payments", (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the
fair market value of the net assets of any Subsidiary of the Company at the
time that such Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of
such Subsidiary at the time of such redesignation; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Issue Date" means the date on which the Old Notes were originally issued.
"Legal Holiday" means a Saturday, Sunday or any other day on which banks
located in New York City are authorized or obligated by law to remain closed.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof)
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and
proceeds from the sale or other disposition of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring Person of
indebtedness or other obligations relating to such properties or assets or
received in any other noncash form), in each case net of (i) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred,
and all Federal, state, provincial, foreign and local taxes required to be
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security agreement of any kind with respect to such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law, be repaid out of the proceeds from
such Asset Disposition, (iii) all distributions and other payments required to
be made to minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition and (iv) the deduction of appropriate amounts
provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the property or other assets disposed in such
Asset Disposition and retained by the Company or any Restricted Subsidiary
after such Asset Disposition.
"Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock, the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Note Pledge Agreement" means the Collateral Pledge and Security Agreement,
dated as of the date of the Indenture, by and between the Trustee and the
Company, providing for, among other things, the governing of the disbursement
of funds from the Interest Escrow Account.
"Offer to Purchase" means an offer to purchase all or a pro rata portion, as
the case may be, of the Notes by the Company from the Holders commenced by the
mailing (by first class mail, postage prepaid) by the Company (or, if
requested by the Company on at least five Business Days prior notice to the
Trustee and at the Company's expense, by the Trustee) of a notice to each
Holder (and, if mailed by the Company, to the Trustee) at such Holder's
address appearing in the Note register, stating: (i) the covenant pursuant to
which the offer is being made and that all Notes validly tendered will be
accepted for payment on a pro rata basis; (ii) the purchase price and the date
of purchase (which shall be a Business Day no earlier than 30 days nor later
than 60 days from the date such notice is mailed) (the "Payment Date"); (iii)
that any Note not tendered will continue to
117
<PAGE>
accrue interest pursuant to its terms; (iv) that, unless the Company defaults
in the payment of the purchase price, any Note accepted for payment pursuant
to the Offer to Purchase shall cease to accrue interest on and after the
Payment Date; (v) that Holders electing to have a Note purchased pursuant to
the Offer to Purchase will be required to surrender the Note, together with
the form entitled "Option of the Holder to Elect Purchase" on the reverse side
of the Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately
preceding the Payment Date (or, if such day is a Legal Holiday, on the next
subsequent day which is not a Legal Holiday), and such Holder shall be
entitled to receive from the Paying Agent a non-transferable receipt of
deposit evidencing such deposit; (vi) that, unless the Company defaults in
making the payment of the purchase price or shall otherwise, in its sole
discretion, consent thereto, Holders will be entitled to withdraw their
election only if the Trustee receives, not later than the close of business on
the fifth Business Day immediately preceding the Payment Date, a telegram,
facsimile transmission or letter setting forth the name of such Holder, the
principal amount at maturity of Notes delivered for purchase and a statement
that such Holder is withdrawing his election to have such Notes purchased; and
(vii) that Holders whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered: provided that each Note purchased and each new Note issued shall
be in a principal amount at maturity of $1,000 or integral multiples thereof.
The Company shall 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 Holder's right to exercise a repurchase right. On the
Payment Date, the Company shall (i) accept for payment on a pro rata basis
Notes or portions thereof tendered pursuant to an Offer to Purchase; (ii)
deposit with the Trustee money sufficient to pay the purchase price of all
Notes or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the Trustee all Notes or portions thereof so accepted together
with an officers' certificate specifying the Notes or portions thereof
accepted for payment by the Company. The Trustee shall promptly mail to the
Holders of Notes so accepted payment in an amount equal to the purchase price,
and the Trustee shall promptly authenticate, and the Company shall promptly
execute and mail (or cause to be mailed) to such Holders a new Note equal in
principal amount at maturity to any unpurchased portion of the Note
surrendered; provided that each Note purchased and each new Note issued shall
be in a principal amount at maturity of $1,000 or integral multiples thereof;
provided further that if the Payment Date is between a regular record date and
the next succeeding interest payment date, Notes to be repurchased must be
accompanied by payment of an amount equal to the interest and Special
Interest, 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 Special Interest, 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
such payment, and the interest on the principal amount of the Note being
repurchased and Special Interest, 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. The Company will publicly announce the results of
an Offer to Purchase as soon as practicable after the Payment Date. The
Trustee shall act as the Paying Agent for an Offer to Purchase. The Company
will comply with Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable, in the event that the Company is required to repurchase Notes
pursuant to an Offer to Purchase. Both the notice of the Company and the
notice of the Holder having been given as specified above, the Notes so to be
repurchased shall, on the Payment Date become due and payable at the purchase
price applicable thereto and from and after such date (unless the Company
shall default in the payment of such purchase price) such Notes shall cease to
bear interest. If any Note shall not be paid upon surrender thereof for
repurchase, the principal shall, until paid, bear interest from the Payment
Date at the rate borne by such Note. Any Note which is to be submitted for
repurchase only in part shall be delivered pursuant to the above provisions
with (if the Company or 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 such Holder's attorney duly authorized
in writing.
"Payment Date" with respect to any Offer to Purchase, has the meaning
specified in the definition of Offer to Purchase.
118
<PAGE>
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; (ii)
another Person if as a result of such Investment such other Person is merged
or consolidated with or into, or transfers or conveys all or substantially all
its assets to, the Company or a Restricted Subsidiary; (iii) Temporary Cash
Investments; (iv) receivables owing to the Company or any Restricted
Subsidiary if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as
the Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary in
an aggregate amount outstanding at any time of not more than $1.0 million;
(vii) any Investment arising as a result of any Hedging Obligations; (viii)
stock, obligations or securities received in settlement of debts created in
the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (ix) any Investment to the extent
such Investment represents the non-cash portion of the consideration received
for an Asset Disposition as permitted pursuant to the covenant described under
"--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" and
(x) Investments in the normal course of business in any Persons the primary
business of which is substantially related, ancillary or complementary to the
airline business.
"Permitted Collateral Liens" means the Liens permitted under the terms of
the Pledge Agreement.
"Permitted Liens" means, with respect to any Person,
(a) Liens existing or securing Indebtedness existing (or for which a
written commitment has been made on or prior to the Issue Date) on the
Issue Date;
(b) Liens granted on or after the Issue Date in favor of the holders of
the Old Notes or the Exchange Notes;
(c) Liens with respect to the assets of a Restricted Subsidiary granted
by such Restricted Subsidiary to the Company to secure Indebtedness owing
to the Company by such Restricted Subsidiary;
(d) Liens for employee wages and pledges or deposits by such Person under
worker's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which
such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States government
bonds to secure surety or appeal bonds to which such Person is a party, or
deposits as security for contested taxes or import duties or for the
payment of rent, in each case Incurred in the ordinary course of business;
(e) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, in each case for sums not yet due or being contested in
good faith by appropriate proceedings or other Liens arising out of
judgments or awards against such Person with respect to which such Person
shall then be proceeding with an appeal or other proceedings for review;
(f) Liens for property taxes not yet subject to penalties for non-payment
or which are being contested in good faith and by appropriate proceedings;
(g) Liens in favor of issuers of surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the
ordinary course of business; provided, however, that such letters of credit
do not constitute Indebtedness;
(h) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, licenses, rights-of-way, sewers,
electric lines, telegraph and telephone lines and other similar purposes,
or zoning or other restrictions as to the use of real property or Liens
incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection with
119
<PAGE>
Indebtedness and which do not in the aggregate materially adversely affect
the value of said properties or materially impair their use in the
operation of the business of such Person;
(i) any Lien securing Aircraft Acquisition Debt, which Lien is Incurred
when such Indebtedness is Incurred and which Lien does not extend to
property other than aircraft, related engines or spare engines, spare parts
or related equipment (including ground equipment) financed thereby;
(j) Liens on property or shares of Capital Stock of another Person at the
time such other Person becomes a Subsidiary of such Person; provided,
however, that such Liens are not created, incurred or assumed in connection
with, or in contemplation of, such other Person becoming such a Subsidiary;
provided further, however, that such Lien may not extend to any other
property owned by such Person or any of its Subsidiaries;
(k) Liens on property at the time such Person or any of its Subsidiaries
acquires the property, including any acquisition by means of a merger or
consolidation with or into such Person or a Subsidiary of such Person;
provided, however, that such Liens are not created, incurred or assumed in
connection with, or in contemplation of, such acquisition; provided
further, however, that the Liens may not extend to any other property owned
by such Person or any of its Subsidiaries;
(l) Liens securing Hedging Obligations permitted under the Indenture;
(m) any Lien or pledge created or subsisting in the ordinary course of
business over documents of title, insurance policies or sale contracts in
relation to commercial goods to secure the purchase price thereof;
(n) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Indebtedness secured by any Lien referred to in
clauses (a), (i), (j), (k) and (r); provided, however, that (x) such new
Lien shall be limited to all or part of the same property that secured the
original Lien (plus improvements to or on such property) and (y) the
Indebtedness secured by such Lien at such time is not increased to any
amount greater than the sum of (A) the outstanding principal amount, or, if
greater, committed amount of the Indebtedness described under clause (a),
(i), (j), (k) and (r) at the time the original Lien became a Permitted Lien
and (B) an amount necessary to pay any fees and expenses, including
premiums, related to such Refinancing;
(o) Liens with respect to Indebtedness permitted pursuant to clauses
(b)(5), (b)(12) or (b)(16) of "--Certain Covenants--Limitation on
Indebtedness" above;
(p) Liens securing any future interest payable with respect to any
Indebtedness on cash and cash equivalents which constituted a portion of
the net proceeds to the Company or a Restricted Subsidiary from the
issuance of such Indebtedness;
(q) Liens securing Indebtedness or other obligations of a Subsidiary of
such Person owing to such Person or a wholly owned Subsidiary of such
Person;
(r) Liens on Receivables (or on the Capital Stock and assets of any
special purpose Subsidiary formed solely for the purpose of effecting a
Receivables based financing transaction) securing Indebtedness permitted
under clause (b)(15) of the covenant described under "--Certain Covenants--
Limitation on Indebtedness" above; and
(s) any judgment Lien, unless the judgment it secures shall not, within
sixty (60) days after the entry thereof, have been discharged, vacated or
reversed or the execution thereof stayed pending appeal, or shall not have
been discharged, vacated or reversed within sixty (60) days after the
expiration of any such stay.
"Person" means any individual, corporation, partnership, limited liability
issuer, joint venture, association, joint-stock issuer, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Pledged Collateral" means the collateral covered by the Note Pledge
Agreement.
"Pledged Securities" means the U.S. Government Obligations purchased by the
Company with a portion of the net proceeds from the sale of the Notes and
deposited in the Interest Escrow Account in accordance with the terms of the
Note Pledge Agreement.
120
<PAGE>
"Preferred Stock" as applied to the Capital Stock of any Person means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Receivables" means accounts receivables, chattel paper, instruments,
documents or general intangibles evidencing or relating to the right to
payment of money and other similar assets, in each case, relating to such
receivables, including any interest in merchandise or goods, the sale or lease
of which gave rise to such receivables, related contractual rights,
guarantees, insurance proceeds, collections, other related assets and proceeds
of all of the foregoing.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange for, such indebtedness. "Refinanced" or "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or
if Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Restricted Payment" with respect to any Person means (i) the declaration or
payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation)), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company held by any Person
or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of
the Company (other than a Restricted Subsidiary and other than pro rata
purchases, redemptions, acquisitions or retirements made by a Subsidiary that
is not a Wholly-Owned Subsidiary), including the exercise of any option to
exchange any Capital Stock (other than into Capital Stock of the Company that
is not Disqualified Stock), (iii) the purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) the
making of any Investment in any Person (other than a Permitted Investment).
Any purchase or redemption of Capital Stock by an employee stock ownership or
benefit plan shall not constitute a
121
<PAGE>
Restricted Payment except to the extent, if any, that such purchase or
redemption is financed by the Company or its Restricted Subsidiaries.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" of any Person means (i) Indebtedness of such Person,
whether outstanding on the Issue Date or thereafter Incurred and (ii) accrued
interest (including interest accruing on or after the filing of any petition
in bankruptcy or for reorganization relating to the Company to the extent
post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable unless, in the case of (i) and (ii), in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinate in right of
payment to the Notes; provided, however, that Senior Indebtedness shall not
include (1) any obligation of such Person to any Subsidiary of such Person,
(2) any liability for Federal, state local or other taxes owed or owing by
such Person, (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities), (4) any Indebtedness of such Person
(and any accrued interest in respect thereof) which is subordinate or junior
in any respect to any other Indebtedness or other obligation of such Person or
(5) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indenture.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to
that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total
voting power of shares of Capital Stock or other interests (including
membership or partnership interests) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries
of such Person or (iii) one or more Subsidiaries of such Person.
"Subsidiary Guaranty" means the Guarantee by a Restricted Subsidiary of the
Company's obligations with respect to the Notes. The form of such Guarantee is
provided for in the Indenture. Each Subsidiary Guaranty will be limited in
amount to an amount not to exceed the maximum amount that can be guaranteed by
the applicable Restricted Subsidiary without rendering the Subsidiary
Guaranty, as it relates to such Restricted Subsidiary, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.
"Temporary Cash Investments" means any of the following: (i) any investment
in U.S. Government Obligations; (ii) investments in time deposit accounts,
certificates of deposit and money market deposits maturing within 180 days of
the date of acquisition thereof issued by a bank or trust issuer which is
organized under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States,
122
<PAGE>
and which bank or trust issuer has capital, surplus and undivided profits
aggregating in excess of $50.0 million (or the foreign currency equivalent
thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money market fund sponsored by a registered broker dealer or mutual fund
distributor; (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above;
(iv) investments in commercial paper, maturing not more than 90 days after the
date of acquisition, issued by corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with
a rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc., or "A-1" (or higher)
according to Standard & Poor's Ratings Group; and (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the
United States of America, or by any political subdivision or taxing authority
thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by
Moody's Investors Service, Inc.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to such
redemption or repurchase date (or, if such Statistical Release is no longer
published, any publicly available source or similar market data)) most nearly
equal to the period from such redemption or repurchase date to the Stated
Maturity of the Notes; provided, however, that if the period from such
redemption or repurchase date to the Stated Maturity of the Notes is less than
one year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of
its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien
on any property of, the Company or any other Subsidiary of the Company that is
not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either (A) the Subsidiary to be so designated has total assets of $1,000
or less or (B) if such Subsidiary has assets greater than $1,000, such
designation would be permitted under the covenant described under "--Certain
Covenants--Limitation on Restricted Payments". The Board of Directors may
designate any Unrestricted Subsidiary to a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation (x) the
Company could Incur $1.00 of additional Indebtedness under paragraph (a) of
the covenant described under "--Certain Covenants--Limitation on Indebtedness"
and (y) no Default shall have occurred and be continuing. Any such designation
by the Board of Directors shall be made by the Company to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
of America (including any agency or instrumentality thereof) for the payment
of which the full faith and credit of the United States of America is pledged
and which are not callable at the Company's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding
and normally entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the
Company or one or more Wholly Owned Subsidiaries.
123
<PAGE>
BOOK-ENTRY, DELIVERY AND FORM
GENERAL
Each of the Old Notes was issued in the form of one or more fully registered
Old Notes in global form ("Old Global Notes"). All Exchange Notes issued in
the Exchange Offer for Old Notes represented by Old Global Notes will be
represented by one or more Exchange Notes in global form (the "Global Exchange
Note," and together with the Old Global Notes, the "Global Notes"), which will
be deposited with, or on behalf of, the DTC and registered in the name of the
DTC or its nominee.
Holders of Exchange Notes who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange
Note (collectively referred to herein as the "Non-Global Holders") will be
issued in registered form a certificated Exchange Note ("Certificated Exchange
Note"). Upon the transfer of any Certificated Exchange Note initially issued
to a Non-Global Holder, such Certificated Exchange Note will, unless the
transferee requests otherwise or the Global Exchange Note has previously been
exchanged in whole for Certificated Exchange Notes, be exchanged for an
interest in the Global Exchange Note.
GLOBAL NOTES
Upon deposit of the Global Exchange Note, DTC will credit, on its book-entry
registration and transfer system interests in the Global Exchange Note to the
accounts of institutions that have accounts with DTC (including Euroclear and
Cedel) ("participants"). Ownership of beneficial interests in the Global
Exchange Note will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests in the
Global Exchange Note will be shown on, and the transfer of that ownership will
be effected only through, records maintained by DTC (with respect to
participants' interests) for the Global Exchange Note, 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 Exchange
Note.
So long as DTC, or its nominee, is the registered holder of any Global
Notes, DTC 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 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 of certificates representing Notes
in definitive, fully registered form bearing a legend containing the
applicable restrictions on transfers ("Definitive 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 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 DTC, as the holder of such Global Note, is entitled to take, DTC 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, interest or Special Interest due on the 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 DTC or its nominee, as the case may be, as the
registered owner of the Global Notes representing such Notes in accordance
with existing arrangements between the Trustee and DTC.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, interest or Special 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 DTC. 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.
124
<PAGE>
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 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 DTC 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 Notes are represented by a Global Note, DTC's nominee will be
the holder of the Notes and therefore will be the only entity that can
exercise a right to repayment or repurchase of the Notes. See "Description of
Notes--Repurchase of Notes Upon a Change in 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 Note, the beneficial owner of
such 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 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 Notes in definitive form
in accordance with the terms of the Notes, the Global Notes may not be
transferred except as a whole by DTC to a nominee of DTC, or by a nominee of
DTC to DTC or another nominee of DTC, or by DTC or any such nominee to a
successor of DTC or a nominee of each successor.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among its participants, 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 DTC 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 DTC for all purposes.
DEFINITIVE NOTES
Upon transfer of Old Notes in definitive, fully registered form bearing a
legend containing restrictions on transfers ("Definitive Old Notes") to a
Qualified Institutional Buyer, such Definitive Notes will be transferred to
the corresponding Old Global Note. Old Global Notes and the Global Exchange
Note shall be exchangeable for corresponding Definitive Old Notes and
Certificated Exchange Notes, respectively, registered in the name of persons
other than DTC or its nominee if (A) DTC (i) notifies the Company that it is
unwilling or unable to continue as DTC 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 Definitive 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 Definitive Notes issued in exchange for a
Global Note will be registered in such names and in such denominations as DTC
shall request.
THE CLEARING SYSTEM
DTC has advised the Company as follows: DTC 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. DTC 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 eliminating
the need for physical movement
125
<PAGE>
of securities certificates. DTC's participants include securities brokers and
dealers (which may include the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC'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
Investors holding their Notes through DTC will follow settlement practices
applicable to United States corporate debt obligations. The Indenture requires
that payments in respect of Notes (including principal, premium, interest and
Special 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.
126
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Pursuant to TWA's Certificate of Incorporation, the Company has the
authority to issue 287.5 million shares of capital stock, consisting of 150
million shares of Common Stock, and 137.5 million additional shares of
preferred stock. The Certificate of Incorporation authorizes the Board of
Directors to establish one or more series of preferred stock and to establish
such relative voting, dividend, redemption, liquidation, conversion and other
powers, preferences, rights, qualifications, limitations and restrictions as
the Board of Directors may determine without further approval of the
stockholders of the Company. The issuance of preferred stock by the Board of
Directors could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more
difficult for a person or group to gain control of the Company. See "Certain
Provisions of the Certificate of Incorporation, the By-laws and Delaware Law."
The issuance of any series of preferred stock, and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, the
future capital needs of the Company, the then existing market conditions and
other factors that, in the judgment of the Board of Directors, might warrant
the issuance of preferred stock. At the date of this Offering Memorandum,
there are no plans, agreements or understandings relative to the issuance of
any additional series of preferred stock other than the Series A Preferred
Stock issuable pursuant to the Rights.
DESCRIPTION OF COMMON STOCK
The holders of the Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors, and,
except for the voting rights of the holders of Employee Preferred Stock (who
are entitled to elect a total of four directors to the Board) and, under
certain circumstances, the 1997 Preferred Stock and 8% Preferred Stock, and as
otherwise required by law or provided in any resolution adopted by the Board
of Directors with respect to any series of the preferred stock, the holders of
such shares exclusively possess all voting power. The Certificate of
Incorporation does not provide for cumulative voting in the election of
directors but the Board is classified, which means that the holders of a
majority of the shares entitled to vote at a meeting at which a quorum is
present can elect all of the directors of the class then to be elected (except
that the holders of a majority of the shares of Employee Preferred Stock are
exclusively entitled to elect four labor directors) and the holders of the
remaining shares would not be able to elect any directors at that meeting.
Subject to any preferential rights of the 8% Preferred Stock, the 1997
Preferred Stock or any other outstanding series of Preferred Stock entitled to
vote in the election of directors, the holders of Common Stock are entitled to
such dividends as may be declared from time to time by the Board of Directors
from funds available therefor, and upon liquidation are entitled to receive
pro rata all assets of the Company available for distribution to such holders.
The holders of Common Stock have no preemptive rights and no rights to convert
their shares of Common Stock into any other security. It is not presently
anticipated that dividends will be paid on the Common Stock in the foreseeable
future. All outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock issuable upon conversion of the
1997 Preferred Stock and the 8% Preferred Stock and, if issued, upon
conversion of the 9 1/4% Convertible Subordinated Debentures due 2007 (the
"2007 Debentures") and the 8% Convertible Subordinated Debentures due 2006
(the "2006 Debentures") will be, upon issuance, fully paid and nonassessable.
As of November 12, 1997, 50,883,869 shares of Common Stock were issued and
outstanding and were held by approximately 18,506 holders of record.
RIGHTS PLAN
The Board of Directors of the Company declared a dividend distribution of
one right (a "Right") for each outstanding share of Common Stock and Employee
Preferred Stock (collectively, the "Voting Stock") payable to holders of
record as of the close of business on January 12, 1996 (the "Record Date")
and, thereafter, all Common Stock issued by the Company has had an equivalent
number of Rights attendant to it. Each Right entitles the holder to purchase,
after the Distribution Date (as defined below), from the Company one one-
hundredth of a share of Series A Preferred Stock of the Company at a price of
$47.50 (the "Purchase Price"). The description and terms of the Rights are set
forth in a Rights Agreement, dated as of December 19, 1995 between the Company
and American Stock Transfer & Trust Company, as Rights Agent (the "Rights
Agent") as supplemented. The Rights Plan is set forth in full in the Rights
Agreement and the description thereof herein is qualified in its entirety by
reference to such Rights Agreement.
127
<PAGE>
Until the earlier to occur of (a) the tenth day after public announcement
that any person or group has become the beneficial owner of at least 15% of
the Company's Voting Stock (other than pursuant to a "Permitted Offer," as
defined below) and (b) the tenth business day after the date of the
commencement of a tender or exchange offer (other than a Permitted Offer) by
any person which would, if consummated, result in such person becoming the
beneficial owner of at least 20% of the Voting Stock (the earlier of such
dates being hereinafter called the "Distribution Date"), the Rights will be
evidenced, with respect to any of the Voting Stock certificates outstanding as
of the Record Date, by such Voting Stock certificates.
Each share of Voting Stock issued or delivered by the Company after the
Record Date but prior to the earlier of the Distribution Date or the
expiration of the Rights shall be accompanied by one Right.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Voting Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender or transfer of any certificates for Voting Stock in respect of which
Rights have been issued will also constitute the transfer of the Rights
associated with the Voting Stock represented by such certificates. As soon as
practicable after the Distribution Date, separate certificates evidencing the
Rights (the "Right Certificates") will be mailed to holders of record of the
Voting Stock as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
No Right is exercisable at any time prior to the Distribution Date. The
Rights will expire on January 12, 2006 (the "Final Expiration Date") unless
earlier exchanged or redeemed by the Company as described below. Until a Right
is exercised, the holder thereof, as such, will have no rights as a
stockholder of the Company, including without limitation the right to vote or
to receive dividends.
Upon exercise, each Right shall be converted into one one-hundredth of a
share of the Series A Preferred Stock. Holders of shares of Series A Preferred
Stock are entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available therefor, quarterly dividends in an
amount per share equal to the greater of (a) $1.00 and (b) 100 times the
aggregate per share amount of all cash dividends or other distributions (other
than dividends payable solely in shares of Common Stock), declared on the
Common Stock since the first dividend payment date with respect to the Series
A Preferred Stock. Dividends payable on the Series A Preferred Stock are
cumulative. In addition, in the event the Company enters into any
consolidation, merger, combination or other transaction in which shares of
Common Stock are exchanged for or changed into other stock or securities,
shares of Series A Preferred Stock shall be similarly exchanged for or changed
into 100 times the aggregate amount of stock, securities, cash or other
consideration.
Subject to the rights of holders of the 1997 Preferred Stock and the 8%
Preferred Stock, holders of shares of Series A Preferred Stock are entitled to
100 votes on all matters submitted to a vote of the stockholders of TWA,
voting together as a single class, except as otherwise required by applicable
law. In the event dividends payable on the Series A Preferred Stock shall be
in arrears in an amount equal to six quarterly payments, all holders of the
Series A Preferred Stock together with other holders of preferred stock
entitled to vote, shall, voting together as a single class be entitled to
elect one director to the Company's Board of Directors.
In the event that any person or group (an "Acquiring Person") becomes the
beneficial owner of at least 15% of the Company's Voting Stock, then each
Right (other than Rights beneficially owned by the Acquiring Person and
certain affiliated persons) will entitle the holder to elect to receive,
without payment of the Purchase Price, a number of shares of the Company's
Common Stock having a market value equal to the Purchase Price. The term
"Acquiring Person" does not include (i) the Company, any of its subsidiaries
or any employee benefit plan of the Company, except for any such employee
benefit plan acting in concert with a third party (other than another employee
benefit plan of the Company) or (ii) any person or group which becomes the
beneficial owner of at least 15% of the Voting Stock pursuant to a "Permitted
Offer" (as defined below).
"Permitted Offer" means a tender or exchange offer by a Person for all
outstanding shares of Voting Stock, which is made at a price and on such other
terms determined by at least a majority of the Continuing Directors (as
defined below) to be in the best interests of the Company and its
stockholders.
128
<PAGE>
In the event that, after any person has become an Acquiring Person, (i) the
Company is involved in a merger or other business combination in which the
Company is not the surviving corporation or its Voting Stock is exchanged for
other securities or assets or (ii) the Company and/or one or more of its
subsidiaries sell or otherwise transfer assets or earning power aggregating
more than 50% of the assets or earning power of the Company and its
subsidiaries, taken as a whole, then each Right will entitle the holder to
purchase, for the Purchase Price, a number of shares of common stock of the
other party to such business combination or sale (or in certain circumstances,
an affiliate) having a market value of two times the Purchase Price.
At any time after any person has become an Acquiring Person (but before any
person becomes the beneficial owner of at least 50% of the Voting Stock), a
majority of the Company's Continuing Directors may exchange all or part of the
Rights (other than the Rights beneficially owned by the Acquiring Person and
certain affiliated persons) for shares of Common Stock at an exchange ratio of
one share of Common Stock per Right.
"Continuing Director" means (i) any member of the Board of Directors who was
a member of the Board prior to the time an Acquiring Person becomes such or
(ii) any person subsequently elected to the Board if he is recommended or
approved by a majority of the Continuing Directors or, in the case of a
successor to a director elected by holders of a series of Employee Preferred
Stock, if such person is elected pursuant to the applicable terms of such
Employee Preferred Stock. Continuing Directors do not include an Acquiring
Person, an affiliate or associate of an Acquiring Person or any representative
or nominee of the foregoing.
The Company may redeem the Rights, in whole but not in part, at a price of
$.01 per Right at any time prior to the close of business on the tenth day
after public announcement that any person has become an Acquiring Person
(subject to extension by a majority of the Continuing Directors).
After the Distribution Date, the Rights Agreement may be amended in any
respect that does not adversely affect the Rights holders (other than any
Acquiring Person and certain affiliated persons). In addition, after any
person has become an Acquiring Person, the Rights Agreement may be amended
only with the approval of a majority of the Continuing Directors.
DESCRIPTION OF EMPLOYEE PREFERRED STOCK
Pursuant to the '95 Reorganization, the Company issued an aggregate of
6,425,118 shares of Employee Preferred Stock to employee stock trusts for the
benefit of certain domestic employees of the Company then represented by ALPA,
IFFA and IAM pursuant to the terms of the '94 Labor Agreements (collectively,
the "Employee Stock Trusts"). The Employee Preferred Stock was issued in three
series designated ALPA Preferred Stock, IAM Preferred Stock and IFFA Preferred
Stock. Except for an exclusive right to elect a certain number of directors to
the Board of Directors and the liquidation preference described below under
"--Liquidation Preference and Other Rights," the Employee Preferred Stock is
the functional equivalent of Common Stock. The Employee Preferred Stock is
junior to the 1997 Preferred Stock and the 8% Preferred Stock, as to the
payment of dividends and the distribution of assets upon Liquidation.
Dividends
Subject to the issuance by the Company of preferred stock with senior rights
(including the 1997 Preferred Stock and the 8% Preferred Stock), the holders
of the Employee Preferred Stock are entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available therefor,
dividends payable in cash, stock or otherwise. No dividends may be paid on the
Common Stock unless an equivalent dividend is paid on the Employee Preferred
Stock, and no dividends may be paid on the Employee Preferred Stock unless an
equivalent dividend is paid on the Common Stock. It is not presently
anticipated that dividends will be paid on the Employee Preferred Stock in the
foreseeable future.
129
<PAGE>
Liquidation Preference and Other Rights
Subject to the issuance by the Company of preferred stock with senior rights
(including the 1997 Preferred Stock and the 8% Preferred Stock), upon any
liquidation of the Company, holders of the Employee Preferred Stock will be
entitled to a liquidation preference equal to $.01 per share from TWA's net
assets before any amounts are paid to, or on account of, the holders of Common
Stock, and thereafter the remaining net assets of the Company will be
distributed pro rata to the holders of the Employee Preferred Stock, the
Common Stock and other equity securities of the Company which rank on a parity
with such stock and with respect to such rights, all in accordance with their
respective rights and interests. The Employee Preferred Stock does not have
redemption rights.
Automatic Conversion
Each share of Employee Preferred Stock will automatically convert into one
share of Common Stock upon the withdrawal of such share of Employee Preferred
Stock from the Employee Stock Trust in which such share is held.
Voting
So long as any shares of ALPA Preferred Stock are outstanding, the holders
of the ALPA Preferred Stock are entitled to one vote per share (i) on each
matter submitted to a vote at a meeting of stockholders other than the
election of directors and (ii) for the ALPA Director (defined below) to be
elected at an annual meeting of stockholders. Such holders have the exclusive
right to elect to the Board one director (the "ALPA Director"), which director
shall be a Class II director.
So long as any shares of IFFA Preferred Stock are outstanding, the holders
of the IFFA Preferred Stock are entitled to one vote per share (i) on each
matter submitted to a vote at a meeting of stockholders other than the
election of directors and (ii) for the IFFA Director (defined below) to be
elected at an annual meeting of stockholders. Such holders have the exclusive
right to elect to the Board one director (the "IFFA Director"), which director
shall be a Class II director.
So long as any shares of IAM Preferred Stock are outstanding, the holders of
the IAM Preferred Stock are entitled to one vote per share (i) on each matter
submitted to a vote at a meeting of stockholders other than the election of
directors and (ii) for the IAM Directors (defined below) to be elected at an
annual meeting of stockholders. Such holders have the exclusive right to elect
to the Board two directors (the "IAM Directors"), one of which directors shall
be a Class II director and one of which shall be a Class III director.
Amendment
The Certificate of Designations, Preferences and Rights relating to each
series of Employee Preferred Stock may be amended only upon the unanimous
approval of the holders of the outstanding shares of such series of Employee
Preferred Stock.
DESCRIPTION OF THE 8% PREFERRED STOCK
The 8% Preferred Stock ranks on a parity with the 1997 Preferred Stock and
on a parity with all other Preferred Stock, the terms of which expressly
provide that it ranks on a parity with the 8% Preferred Stock with respect to
dividends and amounts payable upon Liquidation. The 8% Preferred Stock ranks
senior to the Common Stock, the Series A Preferred Stock, if issued, and the
Employee Preferred Stock with respect to payment of dividends and amounts
payable upon Liquidation.
Dividends
The holders of the 8% Preferred Stock are entitled to receive cumulative
cash dividends at the rate of 8% per annum (equivalent to $4.00 per share per
annum), when, as and if declared by the Board of Directors out of funds
legally available therefor. Dividends and liquidated damages, if any, are
payable quarterly in arrears on March 15, June 15, September 15 and December
15 of each year (and, in the case of any accrued but unpaid dividends, at such
additional times and for such interim periods, if any, as determined by the
Board of Directors) to the holders of record on the record dates, which shall
be not more than 30 days nor less than 10 days preceding the payment dates.
Dividends on the 8% Preferred Stock commenced to accrue on March 18, 1996.
130
<PAGE>
If dividends are not paid in full upon the 8% Preferred Stock and any other
preferred stock ranking on a parity as to dividends with the 8% Preferred
Stock, all dividends declared upon shares of 8% Preferred Stock and such other
preferred stock ranking on a parity as to dividends with the 8% Preferred
Stock will be declared pro rata so that in all cases the amount of dividends
declared per share on the 8% Preferred Stock and such other preferred stock
bear to each other the same ratio that accrued and unpaid dividends per share
on the shares of the 8% Preferred Stock and such other preferred stock bear to
each other. Except as set forth above, unless full cumulative dividends or the
8% Preferred Stock have been paid and funds set aside, and all liquidated
damages, if any, paid, dividends (other than dividends paid solely in Common
Stock or other stock ranking junior as to dividends and liquidation
preference) may not be paid or declared and set aside for payment and other
distributions may not be made upon the Common Stock or on any other stock of
the Company ranking junior to or on a parity with the 8% Preferred Stock as to
dividends and liquidation preference. Under such circumstances, such stock may
not be redeemed, purchased, or otherwise acquired for any consideration by the
Company.
Conversion Rights
Each share of 8% Preferred Stock may be converted at any time at the option
of the holder, unless previously redeemed or exchanged, into fully paid,
nonassessable shares of Common Stock at an initial conversion price of $20.269
per share of Common Stock (equivalent to a conversion rate of approximately
2.467 shares of Common Stock for each share of 8% Preferred Stock), subject to
adjustments in certain circumstances. The right to convert 8% Preferred Stock
called for redemption will expire at the close of business on the fifth
business day prior to the redemption date. Whenever the Company issues shares
of Common Stock upon conversion of 8% Preferred Stock, the Company will,
subject to certain conditions, issue, together with each share of Common
Stock, one Right, entitling the holder to purchase one one-hundredth of a
share of Series A Preferred Stock under certain circumstances.
No fractional shares of Common Stock will be issued upon conversion but, in
lieu thereof, an appropriate amount will be paid in cash based on the closing
price on the last trading day before the conversion date. The conversion price
is subject to adjustment upon the occurrence of certain events.
Optional Redemption by the Company
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 a redemption price of $52.80 in 1999
and at a redemption price decreasing by $0.40 increments each March 15
thereafter until 2006, from which time the redemption price shall be and
remain $50.00, in each case, plus accrued and unpaid dividends thereon to the
date fixed for redemption.
Liquidation Rights
Upon any Liquidation of the Company, and after provision is made for any
preferential amounts to which the holders of any senior preferred stock may be
entitled, holders of 8% Preferred Stock will be entitled to receive from the
Company's assets available for distribution to all stockholders $50.00 per
share plus all accrued and unpaid dividends through the date of distribution
or determination whether or not declared, and liquidated damages, if any,
before any distribution is made on the Employee Preferred Stock or Common
Stock, Series A Preferred Stock (if issued) or any other capital stock ranking
junior to the 8% Preferred Stock and will be entitled to such amount on a
parity with the 1997 Preferred Stock and every other series of the Company's
preferred stock that ranks on a parity with the 8% Preferred Stock in respect
of distributions of assets upon Liquidation. Neither a consolidation or merger
of the Company with another corporation nor a sale or transfer of all or
substantially all of the Company's assets for cash, securities or other
property will be considered a liquidation, dissolution or winding up of the
Company for these purposes.
131
<PAGE>
Voting Rights
Except as indicated below or otherwise required by law, holders of 8%
Preferred Stock have no voting rights. If at any time the equivalent of six
quarterly dividends payable on the 8% Preferred Stock are accrued and unpaid,
the holders of all outstanding shares of 8% Preferred Stock and any stock
ranking on a parity as to dividends with the shares of 8% Preferred Stock and
having similar voting rights then exercisable, voting separately as a class
without regard to series, will be entitled to elect at the next annual or
special meeting of the stockholders of the Company, two directors to serve
until all dividends accumulated and unpaid have been paid or declared and
funds set aside to provide for payment in full. In exercising any such vote,
each outstanding share of 8% Preferred Stock will be entitled to one vote,
excluding shares held by the Company or any entity controlled by the Company,
which shares shall have no vote.
Exchange Provisions
Provided that all accrued and unpaid dividends and liquidated damages, if
any, then owing on the 8% Preferred Stock have been paid, the 8% Preferred
Stock is exchangeable in whole, but not in part, at the Company's option for
the Company's 2006 Debentures on any dividend payment date, beginning on March
15, 1998, at the rate of $50.00 principal amount thereof for each share of 8%
Preferred stock outstanding at the time of exchange. The 2006 Debentures are
issuable in denominations of $1,000 and integral multiples thereof. The 2006
Debentures, if issued, will be unsecured, subordinated obligations of the
Company and will mature on March 15, 2006. The 2006 Debentures are convertible
into fully paid non assessable shares of Common Stock and may be redeemed on
and after March 15, 1999 at the option of the Company.
DESCRIPTION OF THE 1997 PREFERRED STOCK
The 1997 Preferred Stock ranks on a parity with the 8% Preferred Stock and
on a parity with all other Preferred Stock, the terms of which expressly
provide that it ranks on a parity with the 1997 Preferred Stock with respect
to dividends and amounts payable upon Liquidation. The 1997 Preferred Stock
ranks senior to the Common Stock, the Series A Preferred Stock, if issued, and
the Employee Preferred Stock with respect to payment of dividends and amounts
payable upon Liquidation.
Dividends
The holders of the 1997 Preferred Stock are entitled to receive cumulative
cash dividends at the rate of 9 1/4% per annum (equivalent to $4.625 per share
per annum), when, as and if declared by the Board of Directors out of funds
legally available therefor. Dividends and liquidated damages, if any, are
payable quarterly in arrears on March 15, June 15, September 15 and December
15 of each year (and, in the case of any accrued but unpaid dividends, at such
additional times and for such interim periods, if any, as determined by the
Board of Directors) to the holders of record on the record dates, which shall
be not more than 30 days nor less than 10 days preceding the payment dates.
Dividends on the 1997 Preferred Stock commenced accruing on December 2, 1997.
If dividends are not paid in full upon the 1997 Preferred Stock and any
other preferred stock ranking on a parity as to dividends with the 1997
Preferred Stock, all dividends declared upon shares of 1997 Preferred Stock
and such other preferred stock ranking on a parity as to dividends with the
1997 Preferred Stock will be declared pro rata so that in all cases the amount
of dividends declared per share on the 1997 Preferred Stock and such other
preferred stock bear to each other the same ratio that accrued and unpaid
dividends per share on the shares of the 1997 Preferred Stock and such other
preferred stock bear to each other. Except as set forth above, unless full
cumulative dividends or the 1997 Preferred Stock have been paid and funds set
aside, and all liquidated damages, if any, paid, dividends (other than
dividends paid solely in Common Stock or other stock ranking junior as to
dividends and liquidation preference) may not be paid or declared and set
aside for payment and other distributions may not be made upon the Common
Stock or on any other stock of the Company ranking junior to or on a parity
with the 1997 Preferred Stock as to dividends and liquidation preference.
Under such
132
<PAGE>
circumstances, such stock may not be redeemed, purchased, or otherwise
acquired for any consideration by the Company.
Conversion Rights
Each share of 1997 Preferred Stock may be converted at any time at the
option of the holder, unless previously redeemed or exchanged, into fully
paid, nonassessable shares of Common Stock at an initial conversion price of
$7.90 per share of Common Stock (equivalent to a conversion rate of
approximately 6.329 shares of Common Stock for each share of 1997 Preferred
Stock), subject to adjustments in certain circumstances. The right to convert
1997 Preferred Stock called for redemption will expire at the close of
business on the second business day prior to the redemption date. Whenever the
Company issues shares of Common Stock upon conversion of 1997 Preferred Stock,
the Company will, subject to certain conditions, issue, together with each
share of Common Stock, one Right, entitling the holder to purchase one one-
hundredth of a share of Series A Preferred Stock under certain circumstances.
No fractional shares of Common Stock will be issued upon conversion but, in
lieu thereof, an appropriate amount will be paid in cash based on the closing
price on the last trading day before the conversion date. The conversion price
is subject to adjustment upon the occurrence of certain events.
Optional Redemption by the Company
The 1997 Preferred Stock may not be redeemed prior to December 15, 2000. On
or after December 15, 2000, the 1997 Preferred Stock may be redeemed, in whole
or in part, at the option of the Company, at a redemption price of $53.24 in
2000 and at a redemption price decreasing by approximately $0.46 each December
15 thereafter until 2007, from which time the redemption price shall be and
remain $50.00, in each case, plus accrued and unpaid dividends thereon to the
date fixed for redemption.
Liquidation Rights
Upon any Liquidation of the Company, and after provision is made for any
preferential amounts to which the holders of any senior preferred stock may be
entitled, holders of 1997 Preferred Stock will be entitled to receive from the
Company's assets available for distribution to all stockholders $50.00 per
share plus all accrued and unpaid dividends through the date of distribution
or determination whether or not declared, and liquidated damages, if any,
before any distribution is made on the Employee Preferred Stock or Common
Stock, Series A Preferred Stock (if issued) or any other capital stock ranking
junior to the 1997 Preferred Stock and will be entitled to such amount on a
parity with the 8% Preferred Stock and every other series of the Company's
preferred stock that ranks on a parity with the 1997 Preferred Stock in
respect of distributions of assets upon Liquidation. Neither a consolidation
or merger of the Company with another corporation nor a sale or transfer of
all or substantially all of the Company's assets for cash, securities or other
property will be considered a liquidation, dissolution or winding up of the
Company for these purposes.
Voting Rights
Except as indicated below or otherwise required by law, holders of 1997
Preferred Stock have no voting rights. If at any time the equivalent of six
quarterly dividends payable on the 1997 Preferred Stock are accrued and
unpaid, the holders of all outstanding shares of 1997 Preferred Stock and any
stock ranking on a parity as to dividends with the shares of 1997 Preferred
Stock and having similar voting rights then exercisable, voting separately as
a class without regard to series, will be entitled to elect at the next annual
or special meeting of the stockholders of the Company, two directors to serve
until all dividends accumulated and unpaid have been paid or declared and
funds set aside to provide for payment in full. In exercising any such vote,
each outstanding share of 1997 Preferred Stock will be entitled to one vote,
excluding shares held by the Company or any entity controlled by the Company,
which shares shall have no vote.
133
<PAGE>
Exchange Provisions
Provided that all accrued and unpaid dividends and liquidated damages, if
any, then owing on the 1997 Preferred Stock have been paid, the 1997 Preferred
Stock is exchangeable in whole, but not in part, at the Company's option for
the 2007 Debentures on any dividend payment date, beginning on December 15,
1999, at the rate of $50.00 principal amount thereof for each share of 1997
Preferred Stock outstanding at the time of exchange. The 2007 Debentures are
issuable in denominations of $1,000 and integral multiples thereof. The 2007
Debentures, if issued, will be unsecured, subordinated obligations of the
Company and will mature on December 15, 2007. The 2007 Debentures are
convertible into fully paid non assessable shares of Common Stock and may be
redeemed on and after December 15, 2000 at the option of the Company.
134
<PAGE>
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION,
THE BY-LAWS AND DELAWARE LAW
The Certificate of Incorporation and the By-laws contain certain provisions
that could make more difficult the acquisition of the Company by means of a
tender offer, a proxy contest or otherwise. These provisions are expected to
discourage certain types of coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control of the
Company first to negotiate with the Company. The Company believes that the
benefits of increased protection of the Company's potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to
acquire or restructure the Company outweigh the disadvantages of discouraging
such proposals because, among other things, negotiation of such proposals
could result in an improvement of their terms. In addition, pursuant to the
'95 Reorganization and in connection with the adoption of the '94 Labor
Agreements, the Company adopted certain amendments, both to the Certificate of
Incorporation and the By-laws, relating to corporate governance matters. These
amendments are designed to enhance the input of the Company's union employees
or the directors nominated by them in the governance of the Company and to
limit the ability to change the provisions of the Certificate of Incorporation
in general and the By-laws in particular without broad support from the
Company's voting stockholders. Such provisions will also make it more
difficult to enact any change in the By-laws or to take any of the specified
actions, if such changes or actions are opposed by a substantial constituency,
including the Company's employees who are represented by organized labor. The
description set forth below is intended as a summary only and is qualified in
its entirety by reference to the Certificate of Incorporation and the By-laws.
BOARD OF DIRECTORS
The Certificate of Incorporation and the By-laws provide that the number of
directors constituting the entire Board of Directors will be fifteen. The By-
laws also provide for the Board of Directors to be divided into three classes
consisting of five directors each, with the term of each class expiring in a
different year. Subject to any rights of holders of any class or series of the
Company's preferred stock, a majority of the remaining directors then in
office has the sole authority to fill any vacancies on the Board of Directors,
provided, however, that any vacancies arising during the first or second term
of a director will be filled by a nominee of the remaining directors who were
nominated by the same Original Nominating Entity (as defined below) as the
vacating director in accordance with the Certificate of Incorporation. See
"Business--Employees" and "Description of Capital Stock--Description of
Employee Preferred Stock." Any director elected to fill a vacancy will hold
office for the remainder of the full term of the class of directors in which
the vacancy occurred and until the director's successor is elected and
qualified. The Certificate of Incorporation provides that directors may be
removed only by the affirmative vote of at least a majority of the voting
power of all the then outstanding shares of stock entitled to vote generally
in the election of directors, voting together as a single class. The
affirmative vote of at least 80% of the Voting Stock, voting together as a
single class, is required to amend or repeal, or adopt any provision
inconsistent with, the provision of the Certificate of Incorporation relating
to the number, election and terms of directors.
"Original Nominating Entity" means, as applicable, each of the management of
the Company, ALPA, IAM, and IFFA. Upon being certified to replace IFFA as the
bargaining representative for the Company's flight attendants, the IAM became
the nominating entity with respect to the director to be elected by holders of
the IFFA Preferred Stock.
STOCKHOLDER ACTIONS AND SPECIAL MEETINGS
The Certificate of Incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders, and prohibits,
subject to the rights of holders of any class or series of the Company's
preferred stock to the contrary, stockholder action by written consent in lieu
of a meeting. The Certificate of Incorporation and By-laws provide that,
subject to the rights of holders of any series of preferred stock, special
meetings of stockholders can be called only by (i) the Chairman of the Board
of Directors of the Company, (ii) the Corporate Secretary of the Company
within ten calendar days after receipt of the written request of a majority
135
<PAGE>
of the total number of directors that the Corporation would have if there were
no vacancies, and (iii) the Board of Directors after receipt by the Company of
a written request executed by the holders of at least 35% of the outstanding
Voting Stock of the Company, provided, however, that no separate special
meeting will be required to be convened if the Board of Directors calls an
annual or special meeting to be held no later than ninety (90) calendar days
after receiving the request for a meeting and the purposes of such annual or
special meeting of stockholders called by the Board of Directors include the
purposes specified in the request. Business permitted to be conducted at a
special meeting of stockholders is limited to the business (x) specified in
the notice of meeting given by or at the direction of the chairman of the
meeting or a majority of the entire Board of Directors or (y) otherwise
properly brought before the meeting by the chairman of the meeting or at the
direction of a majority of the entire Board of Directors. Moreover, the
chairman of the annual or special meeting of the stockholders will determine
whether any business sought to be brought before the meeting is properly
brought.
Pursuant to the Certificate of Incorporation, the By-laws establish an
advance notice procedure with regard to the nomination, other than by or at
the direction of the Board of Directors, of candidates for election as
directors and with regard to business to be brought before an annual meeting
of stockholders of the Company.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation contains provisions requiring the
affirmative vote of the holders of at least 80% of the Voting Stock, voting
together as a single class, to amend certain provisions of the Certificate of
Incorporation, primarily those related to anti-takeover provisions. In
addition, the Certificate of Incorporation requires the affirmative vote of at
least three-fourths of its issued and outstanding Voting Stock, voting as a
single class and not as separate classes, to amend the By-laws by stockholder
action. "Voting Stock" means the outstanding shares of all classes and series
of capital stock of the Company entitled to vote generally in the election of
directors of the Company and does not include any class or series of preferred
stock of the Company unless the certificate of designations, preferences and
rights for such class or series specifically states that such class or series
shall be deemed "Voting Stock" for purposes of the Certificate of
Incorporation. Employee Preferred Stock has been deemed Voting Stock and the
1997 Preferred Stock and the 8% Preferred Stock are not Voting Stock. See
"Description of Capital Stock."
BLOCKING COALITION
Pursuant to the '94 Labor Agreements and in connection with the '95
Reorganization, the Company amended the By-laws to provide that certain
actions (as set forth in the next paragraph) may not be approved by the Board
of Directors if votes are cast against such actions by directors sufficient to
constitute a "Blocking Coalition." A Blocking Coalition is defined as the
negative votes of (i) a total of the four directors elected by the holders of
the Employee Preferred Stock plus (ii) the negative votes of any two of the
Company's other directors.
Actions subject to disapproval by the Blocking Coalition include: (a) any
sale, transfer or disposition, in a single or series of transactions, of at
least 20% of the Company's assets, except for transactions in the ordinary
course of business including aircraft transactions as part of a fleet
management plan; (b) any merger of the Company into or with, or consolidation
of the Company with any other entity; (c) any business combination within the
meaning of Section 203 of the DGCL; (d) any dissolution or liquidation of the
Company; (e) any filing of a petition for bankruptcy, reorganization or
receivership under any state or federal bankruptcy, reorganization or
insolvency law; (f) any repurchase, retirement or redemption of the Company's
capital stock or other equity securities prior to their scheduled maturity or
expiration, except for redemptions out of the proceeds of any substantially
concurrent offering of comparable or junior securities and mandatory
redemptions of any redeemable preferred stock of the Company; (g) any
acquisition of assets, not related to the Company's current business as an air
carrier, in a single transaction or a series of related transactions exceeding
$50 million adjusted annually by the consumer price index; or (h) any sale of
the Company's capital stock or securities convertible into capital stock of
the Company to any person if (i) at the time of issuance or (ii) assuming
conversion of all
136
<PAGE>
outstanding securities of the Company convertible into capital stock, such
person or entity would beneficially own at least 20% of the capital stock of
the Company.
SUPER MAJORITY VOTING PROVISIONS
At all times before September 1, 2000, the Company must obtain the approval
of at least two-thirds of the issued and outstanding Voting Stock of the
Company, voting as a single class and not as separate classes, for the holders
of such Voting Stock to approve certain actions, unless such matters have been
approved by a vote of at least 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.
PREFERRED STOCK
The Company believes that the ability of the Board of Directors to issue one
or more series of preferred stock of the Company provides TWA with increased
flexibility in structuring possible future financings and in meeting other
corporate needs that might arise. The authorized shares of preferred stock, as
well as shares of Common Stock, will be available for issuance without further
action by TWA's stockholders, unless such action is required by applicable law
or the rules of any stock exchange on which TWA securities may be listed. If
the approval of TWA's stockholders is not required for the issuance of shares
of preferred stock or Common Stock, the Board of Directors does not intend to
seek stockholder approval. Although the Board of Directors has no intention of
doing so, it could issue a series of preferred stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Board of Directors will make any determination to
issue such shares based on its judgment as to the best interests of TWA and
its stockholders. The Board of Directors, in so acting, could issue preferred
stock having terms that could discourage an acquisition attempt or other
transaction that some, or a majority, of the stockholders might believe to be
in their best interests or in which stockholders might receive a premium for
their stock over the then current market price of such stock.
RIGHTS TO PURCHASE STOCK
The Rights are intended to protect TWA's stockholders from certain non-
negotiated takeover attempts which present the risk of a change of control on
terms which may be less favorable to TWA's stockholders than would be
available in a transaction negotiated with and approved by the Board of
Directors of the Company. Although there can be no certainty as to the results
of any particular negotiation, the Board of Directors believes that the
interests of the stockholders are best served if any acquisition of TWA or a
substantial percentage of the Common Stock results from arms-length
negotiations and reflects the Board's or stockholders' careful consideration
of the proposed terms of a transaction. In particular, the Rights are intended
to help (a) reduce the risk of coercive, two-tiered, front-end loaded or
partial offers which may not offer fair value to all stockholders, (b)
mitigate against market accumulators who through open market or private
purchases may achieve a position of substantial influence or control without
paying to selling or remaining stockholders a fair control premium, and (c)
deter market accumulators who are simply interested in putting a company "in
play." See "Description of Capital Stock--Rights Plan."
ANTI-TAKEOVER STATUTE
Section 203 of the DGCL is applicable to corporate takeovers in Delaware.
Subject to certain exceptions set forth therein, Section 203 of the DGCL
provides that a corporation shall not engage in any business combination with
any "interested stockholder" for a three-year period following the date that
such stockholder becomes an
137
<PAGE>
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.
138
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of material United States federal
income tax considerations applicable to the initial holders of the Old Notes
who purchased the Old Notes at their "issue price," that is, the first price
at which a substantial amount of the Old Notes is sold for money to the public
(not including bond houses, brokers or similar persons or organizations acting
in the capacity of underwriters, placement agents or wholesalers). 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 the United States
federal taxation that may be relevant to particular investors in light of
their particular 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 the United
States federal income tax considerations applicable to certain types of
investors subject to special treatment under the federal income tax laws (for
example, insurance companies, tax-exempt organizations, financial institutions
and persons who are not United States Holders or United States Alien Holders
(each as defined below)). In addition, the discussion does not consider the
effect of any foreign, state, local 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. The
Company intends to treat the Notes as indebtedness and not as equity for
United States federal income tax purposes, and the United States federal
income tax considerations described below are based on that characterization.
PROSPECTIVE INVESTORS CONSIDERING THE EXCHANGE OFFER SHOULD CONSULT THEIR
TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE UNITED STATES FEDERAL
INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
As used herein, the term "United States Holder" means an owner of a Note
that is, for United States federal income tax purposes, (i) a citizen or
resident of the United States, (ii) a corporation created or organized in or
under the laws of the United States or of any political subdivision thereof,
or (iii) an estate or trust the income of which is subject to United States
federal income taxation regardless of its source. The term also includes
certain former citizens and certain former long-term residents of the United
States.
As used herein, the term "United States Alien Holder" means an owner of a
Note that is, for United States federal income tax purposes, (i) a nonresident
alien individual, (ii) a foreign corporation, (iii) a nonresident alien
fiduciary of a foreign estate or trust or (iv) a foreign partnership one or
more of the members of which is, for United States federal income tax
purposes, a nonresident alien individual, a foreign corporation or a
nonresident alien fiduciary of a foreign estate or trust.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
Exchange Offer
The exchange of the Old Notes for Exchange Notes pursuant to the Exchange
Offer will not result in any United States federal income tax consequences to
the United States Holders. When a United States Holder exchanges an Old Note
for an Exchange Note pursuant to the Exchange Offer, the Holder will have the
same adjusted tax basis and holding period in the Exchange Note as in the Old
Note immediately before the exchange.
Interest on a Note
The Old Notes were not issued with original issue discount for United States
federal income tax purposes. Accordingly, interest on a Note will generally be
taxable to a United States Holder as ordinary interest income at the time it
accrues or is received in accordance with the United States Holder's method of
accounting for United States federal income tax purposes.
Sale or Retirement of a Note
Upon the sale or retirement of a Note, a United States Holder will recognize
taxable gain or loss equal to the difference between the amount realized on
the sale or retirement and such Holder's adjusted tax basis in the Note.
139
<PAGE>
Backup Withholding and Information Reporting
Certain noncorporate United States Holders may be subject to backup
withholding at a rate of 31% on payments of principal, premium and interest
(including original issue discount, if any) on, and the proceeds of
disposition of, a Note. Backup withholding will apply only if the United
States Holder (i) fails to furnish its Taxpayer Identification Number ("TIN")
which, for an individual, would be his Social Security number, (ii) furnishes
an incorrect TIN, (iii) is notified by the Internal Revenue Service that it
has failed to properly report payments of interest or dividends or (iv) under
certain circumstances, fails to certify, under penalties of perjury, that it
has furnished a correct TIN and has not been notified by the Internal Revenue
Service that it is subject to backup withholding for failure to report
interest and dividend payments. United States Holders should consult their tax
advisors regarding their qualification for exemption from backup withholding
and the procedure for obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a United States
Holder will be allowed as a credit against such Holder's United States federal
income tax liability and may entitle such Holder to a refund, provided that
the required information is furnished to the Internal Revenue Service.
TAX CONSEQUENCES TO UNITED STATES ALIEN HOLDERS
Under present United States federal law, and subject to the discussion below
concerning backup withholding, payments of principal, interest and premium on
the Notes by the Company or any paying agent to any United States Alien
Holder, and gain realized on the sale, exchange or other disposition of such
Note, will not be subject to United States federal income or withholding tax,
provided that: (i) such Holder does not own, actually or constructively, 10
percent or more of the total combined voting power of all classes of stock of
the Company entitled to vote, is not a controlled foreign corporation related,
directly or indirectly, to the Company through stock ownership, and is not a
bank receiving interest described in Section 881(c)(3)(A) of the Code; (ii)
the statement requirement set forth in Section 871(h) or Section 881(c) of the
Code has been fulfilled with respect to the beneficial owner, as discussed
below; (iii) such Holder is not an individual who is present in the United
States for 183 days or more in the taxable year of disposition, or such
individual does not have a "tax home" (as defined in Section 911(d)(3) of the
Code) or an office or other fixed place of business in the United States; and
(iv) such payments and gain are not effectively connected with the conduct by
such Holder of a trade or business in the United States.
As noted above, the Company intends to treat the Notes as indebtedness for
United States federal income tax purposes. No assurance can be given, however,
that Company's treatment will not be challenged by the Internal Revenue
Service. If the Notes were ultimately treated as equity rather than debt for
United States federal income tax purposes, the portfolio interest exception
would not apply and withholding tax at a flat rate of 30% (or a lower rate
under an applicable income tax treaty) would be imposed on the interest
payments on Notes to the extent of the Company's current or accumulated
earnings and profits or on the entire amounts of the interest payments if the
withholding agent does not know or cannot reasonably estimate the amount of
such earnings and profits. Further, any such withholding could commence when
the Internal Revenue Service first asserted that the Notes constituted equity;
in such event, if the Internal Revenue Service did not ultimately prevail, the
United States Alien Holders would be able to recover the tax withheld by
filing a claim for refund with the Internal Revenue Service.
Certain Certification Requirements
Sections 871(h) and 881(c) of the Code require that, in order to obtain the
portfolio interest exemption from the withholding tax described in the
paragraphs above, either the beneficial owner of the Note, or a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"Financial Institution") and that is holding the Note on behalf of such
beneficial owner, file a statement with the withholding agent to the effect
that the beneficial owner of the Note is not a United States Holder. Under
current United States Treasury Regulations, such requirement will be fulfilled
if the
140
<PAGE>
beneficial owner of a Note certifies on Internal Revenue Service Form W-8,
under penalties of perjury, that it is not a United States Holder and provides
its name and address, and any Financial Institution holding the Note on behalf
of the beneficial owner files a statement with the withholding agent to the
effect that it has received such a statement from the Holder (and furnishes
the withholding agent with a copy thereof). Under recently finalized United
States Treasury Regulations, which are generally applicable to payments made
after December 31, 1998, certain United States Alien Holders would also need
to provide their United States taxpayer identification numbers on such forms
in order to fulfill such requirement.
If a United States Alien Holder of a Note is engaged in a trade or business
in the United States, and if interest on the Note is effectively connected
with the conduct of such trade or business, the United States Alien Holder,
although exempt from the withholding tax discussed in the preceding
paragraphs, will generally be subject to regular United States income tax on
interest and on any gain realized on the sale, exchange or other disposition
of a Note in the same manner as if it were a United States Holder. In lieu of
the certificate described in the preceding paragraph, such a Holder will be
required to provide to the withholding agent a properly executed Internal
Revenue Service Form 4224 (or the successor W-8 Form), in order to claim an
exemption from withholding tax. Under recently finalized United States
Treasury Regulations, a United States Alien Holder may also need to provide a
United States taxpayer identification number on such form in order to fulfill
such requirement. In addition, if such United States Alien Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or such
lower rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments. For
purposes of the branch profits tax, interest on and any gain recognized on the
sale, exchange or other disposition of a Note will be included in the
effectively connected earnings and profits of such United States Alien Holder
if such interest or gain, as the case may be, is effectively connected with
the conduct by the United States Alien Holder of a trade or business in the
United States.
Estate Taxes
Under Section 2105(b) of the Code, a Note held by an individual who is not a
citizen or resident of the United States at the time of his death will not be
subject to United States federal estate tax as a result of such individual's
death, provided that the individual does not own, actually or constructively,
10 percent or more of the total combined voting power of all classes of stock
of the Company entitled to vote and, at the time of such individual's death,
payments with respect to such Note would not have been effectively connected
to the conduct by such individual of a trade or business in the United States.
As noted above, the Company intends to treat the Notes as indebtedness for
United States federal income tax purposes. No assurance can be given, however,
that the Company's treatment will not be challenged by the Internal Revenue
Service. If the Notes were ultimately treated as equity rather than debt for
United States federal income tax purposes, a United States Alien Holder who is
treated as the owner of, or has made certain lifetime transfers of, an
interest in the Notes will be required to include the value thereof in his or
her gross estate for United States federal estate tax purposes, and may be
subject to United States federal estate tax unless an applicable estate tax
treaty provides otherwise.
Backup Withholding and Information Reporting
Under current Treasury Regulations, backup withholding (31%) will not apply
to payments by the Company made on a Note if the certifications required by
Sections 871(h) and 881(c) of the Code are received, provided in each case
that the Company or such paying agent, as the case may be, does not have
actual knowledge that the payee is a United States person.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a Note made to or through a foreign office of a broker
generally will not be subject to backup withholding. However, if such broker
is a United States person, a controlled foreign corporation for United States
tax purposes, a foreign person 50 percent or more of whose gross income is
effectively connected with a United States trade or business for a
141
<PAGE>
specified three-year period or another United States related person described
in Section 1.6049-5(c)(5) of the Treasury Regulations, information reporting
will be required unless the broker has in its records documentary evidence
that the beneficial owner is not a United States person and certain other
conditions are met or the beneficial owner otherwise establishes an exemption.
Under recently finalized Treasury Regulations, backup withholding may apply to
any payment made after December 31, 1998 which such broker is required to
report if such broker has actual knowledge that the payee is a United States
person. Payments to or through the United States office of a broker will be
subject to backup withholding and information reporting unless the Holder
certifies, under penalties of perjury, that it is not a United States person
or otherwise establishes an exemption.
United States Alien Holders of Notes should consult their tax advisors
regarding the application of information reporting and backup withholding in
their particular situations, the availability of an exemption therefrom, and
the procedure for obtaining such an exemption, if available. Any amounts
withheld from a payment to a United States Alien Holder under the backup
withholding rules will be allowed as a credit against such Holder's United
States federal income tax liability and may entitle such Holder to a refund,
provided that the required information is furnished to the Internal Revenue
Service.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
("Participating Broker-Dealer") pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer in connection
with resales of Exchange 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 Participating Broker-Dealer for use in
connection with any such resale. In addition, until , 1998 (90 days
after the date of this Prospectus), all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
Participating Broker-Dealers. Exchange Notes received by Participating 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 Exchange 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 Participating Broker-Dealer or the
purchasers of any such Exchange Notes. Any Participating Broker-Dealer that
resells Exchange 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 Exchange Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange 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 Participating 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 Participating 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.
142
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Davis Polk & Wardwell, New York, New York.
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.
143
<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
Unaudited Statements of Consolidated Operations for the Three Months
and Nine Months Ended September 30, 1997 and 1996 ................... F-44
Consolidated Balance Sheets, September 30, 1997 (unaudited) and
December 31, 1996.................................................... F-45
Unaudited Statements of Consolidated Cash Flows for the Nine Months
Ended September 30, 1997 and 1996.................................... F-47
Notes to Unaudited Consolidated Financial Statements.................. F-49
</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 income 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............................. 93,424 63,136
---------- ----------
Total.............................................. 625,745 737,301
---------- ----------
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)............ 149,028 156,693
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.............................................. 1,441,987 1,530,844
---------- ----------
$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............................. 174,753 174,575
---------- ----------
Total accrued expenses........................... 364,128 355,633
---------- ----------
Total............................................ 962,161 819,214
---------- ----------
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.... 150,511 178,452
---------- ----------
Total............................................ 1,481,673 1,684,712
---------- ----------
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.............................. (28,288) 23,241 (8,894) 2,734
Other assets........................................................... 111 (3,088) (1,586) (10,079)
Increase (decrease) in:
Accounts payable and accrued expenses.................................. 83,840 (41,989) 108,669 48,499
Advance ticket sales................................................... 19,698 (39,350) 81,598 (33,890)
Benefits, other noncurrent liabilities and deferred credits............ (7,505) (6,387) (28,160) 65,182
--------- -------- --------- ---------
Net cash provided (used).............................................. (5,688) 44,913 172,009 1,627
--------- -------- --------- ---------
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............ 10,941 842 26,064 27,962
--------- -------- --------- ---------
Net cash provided (used).............................................. (107,372) (35,062) 11,731 59,305
--------- -------- --------- ---------
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) -- -- --
--------- -------- --------- ---------
Net cash provided (used).............................................. (9,694) 34,376 (62,158) (110,118)
--------- -------- --------- ---------
Net increase (decrease) in cash and cash equivalents..................... (122,754) 44,227 121,582 (49,186)
Cash and cash equivalents at beginning of period......................... 304,340 260,113 138,531 187,717
--------- -------- --------- ---------
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 -- -- 53 172 269,775 -- 270,000
of Reorganization...... ---- ---- ---- ---- -------- --------- --------
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 -- -- -- -- -- (30,138) (30,138)
December 31, 1995...... ---- ---- ---- ---- -------- --------- --------
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
discounted 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 reasonably estimated. As potential
environmental liabilities are identified and assessments and remediation
proceed, these
F-13
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 Code") in the
U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
TWA's subsidiary
F-14
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 System Tickets may not be marketed or sold to the general
public either directly or through travel agents. Karabu, however, has been
marketing System Tickets to the general public. 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
F-16
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. 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
====== ======
</TABLE>
<TABLE>
<S> <C> <C>
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 1, DECEMBER 1,
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 benefitted 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
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
F-20
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
obligation to make annual payments of $30 million to the PBGC for a period of
eight years. Mr. Icahn has 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
----------------------- ----------------------------
ACCUMULATED
ASSETS BENEFITS
EXCEED EXCEED ACCUMULATED
ACCUMULATED ACCUMULATED ASSETS BENEFITS
BENEFITS ASSETS EXCEED 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 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
F-22
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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
F-25
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
(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
F-27
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$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.
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>
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.
F-28
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
F-29
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
YEAR LEASES LEASES
---- ---------- ------------
(AMOUNT 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 Company paid an aggregate of $84.9 million in redemption of the
12% Preferred Stock and payment of accrued dividends.
F-30
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. CAPITAL STOCK:
The Company has the authority to issue 287.5 million shares of capital
stock, consisting of 150 million shares of Common 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 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
F-31
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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
F-32
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
F-33
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 14% 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>
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.
F-34
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about fixed stock options at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
RANGE NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
OF OUTSTANDING REMAINING AVERAGE EXERCISABLE 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.
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.
F-35
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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).
F-36
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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
F-37
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 equiva-
lents................. $ 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 affili-
ated 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 un-
der capital leases.... 42,643 -- (647) -- 41,996
Advance ticket sales... 253,642 -- -- -- 253,642
Accounts payable and
other accrued ex-
penses................ 518,030 24,466 3,739 -- 546,235
---------- --------- --------- -------- ----------
Total.................. 1,286,825 (380,199) 3,092 -- 909,718
---------- --------- --------- -------- ----------
Liabilities Subject To
Chapter 11
Reorganization Proceed-
ings................... 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 lia-
bilities 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 cap-
ital.................. 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 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.
F-39
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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 items............ $ -- $ -- $ -- (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
F-42
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of such debt was approximately $126.0 million and $160.4 million on those
dates, respectively. The Company 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>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
1997 1996 1997 1996
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues:
Passenger...................... $799,203 $ 874,275 $2,211,253 $2,391,207
Freight and mail............... 32,106 38,548 94,913 111,495
All other...................... 77,072 90,044 208,963 248,406
-------- ---------- ---------- ----------
Total........................ 908,381 1,002,867 2,515,129 2,751,108
-------- ---------- ---------- ----------
Operating expenses:
Salaries, wages and benefits... 304,344 317,527 922,160 923,288
Earned stock compensation...... 1,106 (735) 4,179 4,306
Aircraft fuel and oil.......... 122,234 162,382 369,509 432,849
Passenger sales commissions.... 65,960 75,960 188,954 213,548
Aircraft maintenance materials
and repairs................... 27,507 53,529 109,636 158,485
Depreciation and amortization.. 36,623 39,518 112,154 118,347
Operating lease rentals........ 94,439 77,270 268,849 222,083
Passenger food and beverages... 21,552 31,218 61,411 84,052
All other...................... 170,859 220,179 508,074 560,294
-------- ---------- ---------- ----------
Total........................ 844,624 976,848 2,544,926 2,717,252
-------- ---------- ---------- ----------
Operating income (loss).......... 63,757 26,019 (29,797) 33,856
-------- ---------- ---------- ----------
Other charges (credits):
Interest expense............... 27,404 30,864 85,518 95,483
Interest and investment income. (2,944) (5,421) (8,962) (17,247)
Disposition of assets, gains
and losses--net............... (2,828) 87 (15,208) 62
Other charges and credits--net. (5,057) (9,481) (22,873) (26,185)
-------- ---------- ---------- ----------
Total........................ 16,575 16,049 38,475 52,113
-------- ---------- ---------- ----------
Income (loss) before income taxes
and extraordinary items......... 47,182 9,970 (68,272) (18,257)
Provision (credit) for income
taxes........................... 33,906 16,875 479 493
-------- ---------- ---------- ----------
Income (loss) before
extraordinary items............. 13,276 (6,905) (68,751) (18,750)
Extraordinary items, net of
income taxes.................... (6,985) (7,420) (10,922) (7,420)
-------- ---------- ---------- ----------
Net income (loss)................ 6,291 (14,325) (79,673) (26,170)
Preferred stock dividend
requirements.................... 3,869 3,869 11,607 32,681
-------- ---------- ---------- ----------
Income (loss) applicable to
common shares................... $ 2,422 $ (18,194) $ (91,280) $ (58,851)
======== ========== ========== ==========
Per share amounts:
Earnings (loss) before
extraordinary item and special
dividend requirement.......... $ .17 $ (.24) $ (1.54) $ (.73)
Extraordinary item and special
dividend requirement.......... (.13) (.16) (.21) (.63)
-------- ---------- ---------- ----------
Net income (loss).............. $ .04 $ (.40) $ (1.75) $ (1.36)
======== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-44
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 104,565 $ 181,586
Receivables, less allowance for doubtful accounts,
$10,275 in 1997 and $12,939 in 1996.............. 251,347 239,496
Spare parts, materials and supplies, less
allowance for obsolescence, $12,212 in 1997 and
$11,563 in 1996.................................. 101,774 111,239
Prepaid expenses and other........................ 135,606 93,424
---------- ----------
Total........................................... 593,292 625,745
---------- ----------
Property:
Property owned:
Flight equipment................................ 488,409 339,150
Prepayments on flight equipment................. 14,037 39,072
Land, buildings and improvements................ 61,034 59,879
Other property and equipment.................... 63,957 60,750
---------- ----------
Total owned property.......................... 627,437 498,851
Less accumulated depreciation................... 102,137 71,810
---------- ----------
Property owned--net........................... 525,300 427,041
---------- ----------
Property held under capital leases:
Flight equipment................................ 168,403 172,812
Land, buildings and improvements................ 49,443 54,761
Other property and equipment.................... 7,185 6,570
---------- ----------
Total property held under capital leases...... 225,031 234,143
Less accumulated amortization................... 71,833 46,977
---------- ----------
Property held under capital leases--net....... 153,198 187,166
---------- ----------
Total property--net........................... 678,498 614,207
---------- ----------
Investments and other assets:
Investments in affiliated companies............... 118,290 108,173
Investments, receivables and other................ 151,839 149,028
Routes, gates and slots--net...................... 383,033 401,659
Reorganization value in excess of amounts
allocable
to identifiable assets--net...................... 751,661 783,127
---------- ----------
Total......................................... 1,404,823 1,441,987
---------- ----------
Total............................................... $2,676,613 $2,681,939
========== ==========
</TABLE>
See notes to consolidated financial statements
F-45
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt ............. $ 66,184 $ 92,447
Current obligations under capital leases.......... 38,423 42,501
Advance ticket sales.............................. 272,148 241,516
Accounts payable, principally trade............... 268,795 216,675
Accounts payable to affiliated companies.......... 5,996 4,894
Accrued expenses:
Employee compensation and vacations earned...... 115,392 116,846
Contributions to retirement and pension trusts.. 11,779 14,091
Interest on debt and capital leases............. 31,173 39,420
Taxes........................................... 17,665 19,018
Other accrued expenses.......................... 191,595 174,753
---------- ----------
Total accrued expenses........................ 367,604 364,128
---------- ----------
Total......................................... 1,019,150 962,161
---------- ----------
Long-term liabilities and deferred credits:
Long-term debt, less current maturities........... 593,825 608,485
Obligations under capital leases, less current
obligations...................................... 189,622 220,790
Postretirement benefits other than pensions....... 475,374 471,171
Noncurrent pension liabilities.................... 31,452 30,716
Other noncurrent liabilities and deferred credits. 147,359 150,511
---------- ----------
Total......................................... 1,437,632 1,481,673
---------- ----------
Shareholders' equity
8% cumulative convertible exchangeable preferred
stock, $50 liquidation preference; 3,869 shares
issued and outstanding........................... 39 39
Employee preferred stock, $0.01 liquidation
preference; special voting rights; shares issued
and outstanding: 1997-6,943; 1996-5,681.......... 69 57
Common stock, $0.01 par value, shares issued and
outstanding: 1997-50,666; 1996-41,763 ........... 507 418
Additional paid-in capital........................ 613,842 552,544
Accumulated deficit............................... (394,626) (314,953)
---------- ----------
Total......................................... 219,831 238,105
---------- ----------
Total............................................... $2,676,613 $2,681,939
========== ==========
</TABLE>
See notes to consolidated financial statements
F-46
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(79,673) $(26,170)
Adjustments to reconcile net loss to net cash used by
operating activities:
Employee earned stock compensation....................... 4,179 4,306
Depreciation and amortization............................ 112,154 118,347
Amortization of discount and expense on debt............. 10,905 8,096
Extraordinary loss on extinguishment of debt............. 10,922 7,420
Interest paid in common stock............................ 4,125 11,332
Equity in undistributed earnings of affiliates not
consolidated............................................ (10,424) (9,733)
Revenue from Icahn ticket program........................ (90,878) (52,169)
Net (gains)-losses on disposition of assets.............. (15,208) 62
Change in operating assets and liabilities:
Decrease (increase) in:
Receivables............................................. (12,618) (73,224)
Inventories............................................. 8,479 (3,326)
Prepaid expenses and other current assets............... (34,569) (48,826)
Other assets............................................ (9,723) 5,831
Increase (decrease) in:
Accounts payable and accrued expenses................... 58,897 83,430
Advance ticket sales.................................... 20,247 83,962
Other noncurrent liabilities and deferred credits....... 2,228 (61,412)
-------- --------
Net cash provided (used)............................... (20,957) 47,926
-------- --------
Cash flows from investing activities:
Proceeds from sales of property.......................... 22,186 5,916
Capital expenditures, including aircraft pre-delivery
deposits................................................ (58,161) (109,885)
Return of pre-delivery deposits related to leased
aircraft................................................ 10,740 --
Net decrease (increase) in investments, receivables and
other................................................... 7,632 (4,924)
-------- --------
Net cash used.......................................... (17,603) (108,893)
-------- --------
Cash flows from financing activities:
Net proceeds from long-term debt and warrants issued..... 47,175 2,750
Proceeds from sale and leaseback of certain aircraft..... 12,000 --
Repayments on long-term debt and capital lease
obligations............................................. (92,867) (91,696)
Refund due to retirement of 1967 bonds................... 5,318 --
Net proceeds from sale of preferred stock................ -- 186,163
Redemption of 12% Preferred Stock........................ -- (81,749)
Cash dividends paid on preferred stock................... (11,607) (10,620)
Net proceeds from exercise of equity rights, warrants and
options................................................. 1,520 301
-------- --------
Net cash provided (used)............................... (38,461) 5,149
-------- --------
Net decrease in cash and cash equivalents................. (77,021) (55,818)
Cash and cash equivalents at beginning of period.......... 181,586 304,340
-------- --------
Cash and cash equivalents at end of period................ $104,565 $248,522
======== ========
</TABLE>
See notes to consolidated financial statements
F-47
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
--------- --------
<S> <C> <C>
Cash paid during the period for:
Interest.................................................. $ 74,247 $ 86,465
========= ========
Income taxes.............................................. $ 80 $ 127
========= ========
Information about noncash operating, investing and financing
activities:
Promissory notes issued to finance aircraft acquisitions.. $ 112,121 $ 10,565
========= ========
Promissory note issued to finance aircraft predelivery
payments................................................. $ 4,654 $ 12,202
========= ========
Common Stock issued in lieu of cash dividends............. $ -- $ 3,255
========= ========
Property acquired and obligations recorded under new
capital transactions..................................... $ 619 $ 2,333
========= ========
Exchange of long-term debt for common stock:
Debt cancelled including accrued interest, net of
unamortized discount..................................... $ 48,835 $ 38,229
========= ========
Common Stock issued, at fair value........................ $ 56,028 $ 45,649
========= ========
Extraordinary loss........................................ $ 7,193 $ 7,420
========= ========
</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-48
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Trans World
Airlines, Inc. ("TWA" or the "Company") and its subsidiaries. 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).
The unaudited consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission but do not include all information and
footnotes required by generally accepted accounting principles pursuant to
such rules and regulations. The consolidated financial statements include all
adjustments, which are of a normal recurring nature and are necessary, in the
opinion of management, for a fair presentation of the results for these
interim periods. These consolidated financial statements and related notes
should be read in conjunction with the Consolidated Financial Statements. The
consolidated balance sheet at December 31, 1996 has been derived from the
audited consolidated financial statements at that date. Certain amounts
previously reported have been reclassified to conform with the current
presentation.
The airline industry generally, and TWA specifically, has historically
experienced seasonal changes between quarterly periods, with the second and
third quarters usually out-performing the first and fourth. Accordingly, the
results for the three months and nine months ended September 30, 1997, should
not be read as indicators of future results for the full year.
2. INCOME TAXES
Income tax expense is recorded each quarter based on the estimated annual
effective rate. The tax provision recorded in the third quarter reflects the
reversal of previously recorded tax benefits as management currently expects a
taxable loss at year-end and the realization of the benefits of any tax loss
in future periods is presently subject to substantial uncertainty.
3. EXTRAORDINARY ITEMS
In the nine months ended September 30, 1996 the Company consummated a series
of privately negotiated exchanges with a significant holder of 12% Senior
Secured Reset Notes which resulted in the return to the Company of $42.0
million in 12% Senior Secured Reset Notes and approximately $1.4 million in
accrued interest thereon in exchange for the issuance of approximately 4.0
million shares of Company Common Stock. As a result of the exchange of the 12%
Senior Secured Reset Notes, the Company incurred an extraordinary non-cash
charge of $7.4 million in the third quarter of 1996 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 the exchanges net
of purchaser's discount) and the carrying value of the 12% Senior Secured
Reset Notes retired.
During the nine months ended September 30, 1997 the Company continued the
series of privately negotiated exchanges with a significant holder of 12%
Senior Secured Reset Notes which resulted in the return to the Company of
$51.8 million in 12% Senior Secured Reset Notes and approximately $1.4 million
in accrued interest thereon in exchange for the issuance of approximately 7.7
million shares of Company Common Stock. All 12% Senior Secured Reset Notes
returned will be canceled leaving an outstanding principal balance of such
notes of approximately $72.5 million. As a result of the exchange of the 12%
Senior Secured Reset Notes, the Company incurred an extraordinary non-cash
charge of $7.2 million in the first nine months of 1997.
F-49
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
An additional extraordinary non-cash charge of $3.7 million was recorded
during the third quarter of 1997 relating to a $38.8 million extinguishment of
PBGC Notes under an agreement entered into by the Company with Karabu
Corporation, an entity affiliated with Carl C. Icahn ("Karabu"), in connection
with the '95 Reorganization.
4. LOSS PER SHARE
In computing the income (loss) applicable to common shares for the three
months and nine months ended September 30, 1997, the net income (loss) has
been decreased (increased) by dividend requirements on the 8% Cumulative
Convertible Exchangeable Preferred Stock (the "8% Preferred Stock"). In
computing the related net income (loss) per share, the income (loss)
applicable to common shares has been divided by the average aggregate number
of outstanding shares of Common Stock (49.3 million and 45.8 million for the
three months and nine months ended September 30, 1997, respectively) and
Employee Preferred Stock (6.8 million and 6.2 million for the three months and
nine months ended September 30, 1997, respectively) which, with the exception
of certain special voting rights, is the functional equivalent of Common
Stock. When dilutive, effect has been given to stock options, warrants or
potential issuances of additional Common Stock or Employee Preferred Stock.
The loss applicable to common shares for the three months and nine months
ended September 30, 1996 was similarly computed with the net loss being
increased by dividend requirements on the Mandatorily Redeemable 12% Preferred
Stock (the "12% Preferred Stock") (including amortization of the difference
between the fair value of the 12% Preferred Stock on the date of issuance and
the redemption value plus, with respect to the March 22, 1996 call for the
redemption, a special dividend requirement of approximately $20.0 million to
reflect the excess of the early redemption price over the carrying value of
the 12% Preferred Stock) and on the 8% Preferred Stock issued in March 1996.
In computing the related net loss per share, the loss applicable to common
shares was divided by the average aggregate number of outstanding shares of
Common Stock (39.3 million and 37.5 million for the three months and nine
months ended September 30, 1996, respectively) and Employee Preferred Stock
(5.7 million and 5.6 million for the three months and nine months ended
September 30, 1996, respectively). When dilutive, effect has been given to
stock options, warrants or potential issuances of additional Common Stock or
Employee Preferred Stock.
5. SENIOR SECURED NOTES AND REDEEMABLE WARRANTS
In March 1997, the Company offered 50,000 Units ("Units"), with each Unit
consisting of (i) one 12% Senior Secured Note due 2002 (a "Note"), in the
principal amount of $1,000, and (ii) one Redeemable Warrant (a "Warrant") to
purchase 126.26 shares of Common Stock at an exercise price of approximately
$7.92 per share (the "Offering"). The Notes are secured by a lien on certain
assets of the Company, including 1) the Company's beneficial interest in its
FAA designated take-off and landing slots at three high-density, capacity-
controlled airports, 2) currently owned and hereafter acquired defined ground
equipment of the Company used at certain domestic airports and 3) all of the
issued and outstanding stock of (a) a wholly-owned subsidiary of TWA holding
the leasehold interest in hangar at Los Angeles International Airport 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.
The Company realized approximately $47.2 million (net of discounts and
commissions and estimated expenses) in proceeds from the Offering. The Company
used approximately $0.5 million of the proceeds from the Offering to release
certain of the collateral to be used to secure the Notes from a prior existing
lien and the remainder of the proceeds for general corporate purposes.
F-50
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Offering was made pursuant to Rule 144A of the Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly, the Units, Notes and
Warrants and underlying shares of Common Stock issuable upon exercise of the
Warrants were not registered under the Federal and state securities laws. The
Company filed registration statements with respect to (i) an offer to exchange
registered Notes for any and all outstanding Notes, and (ii) the Warrants and
underlying shares of Common Stock, and to thereby register the Notes and the
Warrants under the Securities Act. These registration statements became
effective on July 29, 1997.
6. PREFERRED STOCK
In March 1996, the Company completed an offering 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 at the option of the Company, in
whole but not in part, 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 on the 8% Preferred Stock to the date of
exchange, whether or not earned or declared, have been paid or set aside for
payment and certain other conditions are met.
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. Such shares were redeemed 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 Company paid an aggregate of
$84.9 million in redemption of the 12% Preferred Stock.
7. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" which revises the calculation and presentation
provisions of Accounting Principles Board Opinion 15 and related
interpretations. While statement No. 128 is effective for the Company's fiscal
year ending December 31, 1997, retroactive application will be required. The
Company believes that the adoption of Statement No. 128 will not have a
significant effect on its reported earnings per share.
8. CONTINGENCIES
For a description of various contingencies and other legal actions against
TWA, see "Managements' Discussion and Analysis of Financial Condition and
Results of Operations" and "--Business Legal Proceedings."
F-51
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER
OF TRANSMITTAL CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 4
FORWARD-LOOKING STATEMENTS................................................ 5
PROSPECTUS SUMMARY........................................................ 6
RISK FACTORS.............................................................. 17
USE OF PROCEEDS........................................................... 29
THE EXCHANGE OFFER........................................................ 29
THE COMPANY............................................................... 38
CAPITALIZATION............................................................ 46
SELECTED CONSOLIDATED FINANCIAL DATA...................................... 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 50
BUSINESS.................................................................. 67
MANAGEMENT................................................................ 80
PRINCIPAL HOLDERS OF CAPITAL STOCK........................................ 84
DESCRIPTION OF NOTES...................................................... 88
BOOK-ENTRY, DELIVERY AND FORM............................................. 124
DESCRIPTION OF CAPITAL STOCK.............................................. 127
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION, THE BY-LAWS AND
DELAWARE LAW............................................................. 135
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 139
PLAN OF DISTRIBUTION ..................................................... 142
LEGAL MATTERS ............................................................ 143
EXPERTS................................................................... 143
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TRANS WORLD AIRLINES, INC.
OFFER TO EXCHANGE
11 1/2% SENIOR SECURED NOTES DUE 2004,
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
11 1/2% SENIOR SECURED NOTES DUE 2004
------------------
PROSPECTUS
------------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Delaware General Corporation Law (the "DGCL"), directors,
officers, 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 reasonably 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.
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.
II-1
<PAGE>
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
(a) Exhibits
<TABLE>
<S> <C>
*2.1 --Joint Plan of Reorganization, dated May 12, 1995 (Appendix B to the Registrant'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 12/31/95 Form 10-K)
*3(i) --Third Amended and Restated Certificate of Incorporation of the Registrant (Exhibit
3(i) to the Registrant's Registration Statement on Form S-4, Registration Number
333-26645)
*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)
*4.2 --IAM Trans World 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 Trans World 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 --Trans World Airlines, Inc. 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)
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
*4.7 --Registration Rights Agreement, dated November 3, 1993, between TWA and the Initial
Significant Holders (Exhibit 4.9 to 9/93 10-Q)
*4.8 --Indenture between TWA and Harris Trust and Savings Bank, dated November 3, 1993
relating to TWA's 8% Senior Secured Notes Due 2000 (Exhibit 4.11 to 9/93 10-Q)
</TABLE>
<TABLE>
<S> <C>
*4.9 --Indenture between TWA and American National Bank and Trust Company of Chicago,
N.A., dated November 3, 1993 relating to TWA's 8% Secured Notes Due 2001 (Exhibit
4.12 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, 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 (Exhibit 4.15 to
Registrant's Registration Statement on Form S-4, No. 333-26645)
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 relating to the 12% Senior Secured Notes due 2002 and the
warrants to purchase 126.26 shares of TWA Common Stock (Exhibit 4.17 to
Registrant's Registration Statement on Form S-4, No. 333-26645)
*4.18 --Warrant Agreement dated as of March 31, 1997 between the Company and American
Stock Transfer & Trust Company, as Warrant Agent, relating to warrants to purchase
126.26 shares of TWA Common Stock (Exhibit 4.18 to Registrant's Registration
Statement on Form S-4, No. 333-26645)
4.19 --Form of Indenture relating to TWA's 9 1/4% Convertible Subordinated Debentures due
2007(1)
4.20 --Registration Rights Agreement dated as of December 2, 1997 between the Company and
the Initial Purchases(1)
4.21 --Indenture dated as of December 9, 1997 by and between TWA and First Security Bank,
National Association, as Trustee, relating to TWA's 11 1/2% Senior Secured Notes
due 2004
4.22 --Form of 11 1/2% Senior Secured Note due 2004 (contained in Indenture filed as
Exhibit 4.21)
4.23 --Registration Rights Agreement dated as of December 9, 1997 among the Company and
Lazard Freres & Co. LLC and PaineWebber Incorporated, as initial purchasers,
relating to TWA's 11 1/2% Senior Secured Notes due 2004
4.24 --Sale and Service Agreement dated as of December 30, 1997 between TWA and
Constellation Finance LLC, as purchaser, relating to TWA's receivables
5 --Opinion of Davis Polk & Wardell, Counsel of the Registrant, regarding the validity
of the securities being registered
*10.1.1 --Asset Purchase Agreement, dated as of November 4, 1993, between TWA and St. Louis
(Exhibit 10.2 to 9/93 10-Q)
*10.1.2 --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>
<S> <C>
*10.1.3 --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)
*10.1.4 --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)
*10.2.1 --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)
*10.2.2 --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)
*10.3 --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)
*10.4.1 --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)
*10.4.2 --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)
*10.4.3 --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)
*10.4.4 --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)
*10.5.1 --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)
*10.5.2 --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)
*10.5.3 --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)
*10.5.4 --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)
*10.6.1 --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)
*10.6.2 --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)
*10.6.3 --Lease Agreement 108, dated October 5, 1993, between Pacific AirCorp 747, Inc. and
TWA with respect to aircraft N93108 (Exhibit 10.7 to 9/93 10-Q)
*10.7 --'92 Labor Agreements (Exhibits 2.1, 2.2 and 2.3 to 9/92 8-K)
*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 between TWA and Karabu Corp. dated
as of March 28, 1994 (Exhibit 10. 9.1 to Registrant's Registration Statement on
Form S-4, No, 33-84944)
*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)
*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 (Exhibit 10.20.1 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
*10.11.2 --Lease Agreement 927, dated as of December 15, 1993, between Pacific AirCorp DC9,
Inc. and TWA with respect to aircraft N927L (Exhibit 10.20.2 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*10.11.3 --Lease Agreement 928, dated as of December 15, 1993, between Pacific AirCorp DC9,
Inc. and TWA with respect to aircraft N928L (Exhibit 10.20.3 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*10.12.1 --Aircraft Purchase Agreement between TWA and Mitsui & Co. (U.S.A.), Inc. dated
March 31, 1994, with respect to aircraft N950U (Exhibit 10.21.1 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*10.12.2 --Aircraft Purchase Agreement between TWA and Mitsui & Co. (U.S.A.), Inc., dated
March 31, 1994, with respect to aircraft N953U (Exhibit 10.21.2 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*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 (Exhibit 10.21.3 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*10.12.4 --Aircraft Purchase Agreement between TWA and McDonnell Douglas Finance Corporation,
dated March 31, 1994, with respect to aircraft N951U (Exhibit 10.21.4 to
Registrant's Registration Statement on Form S-4, No. 33-84944)
*10.12.5 --Aircraft Purchase Agreement between TWA and McDonnell Douglas Finance Corporation,
dated March 31, 1994, with respect to aircraft N952U (Exhibit 10.21.5 to
Registrant's Registration Statement on Form S-4, No. 33-84944)
*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 (Exhibit 10.21.6 to
Registrant's Registration Statement on Form S-4, No. 33-84944)
*10.13.1 --Aircraft Purchase Agreement, dated March 31, 1994, between McDonnell Douglas
Finance Corporation and TWA with respect to aircraft N306TW (formerly N534AW)
(Exhibit 10.22.1 to Registrant's Registration Statement on Form S-4, No. 33-84944)
*10.13.2 --Purchase Money Chattel Mortgage, dated as of March 31, 1994, by TWA, as Mortgagor,
and McDonnell Douglas Finance Corporation, as Mortgagee, with respect to N306TW
(formerly N534AW) (Exhibit 10.22.2 to Registrant's Registration Statement on Form
S-4, No. 33-84944)
*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) (Exhibit 10.22.3 to Registrant's Registration Statement on
Form S-4, No. 33-84944)
*10.14 --Commuter Air Service Agreement dated July 22, 1992, between TWA and Trans World
Express, Inc. (Exhibit 10.23 to Registrant's Registration Statement on Form S-4,
No. 33-84944)
*10.15 --Commuter Air Service Agreement dated October 27, 1993, between TWA and Alpha Air
(Exhibit 10.24 to Registrant's Registration Statement on Form S-4, No. 33-84944)
*10.16 --Air Service Agreement dated October 1, 1994, between TWA and Trans States
Airlines, Inc. (Exhibit 10.25 to Registrant's Registration Statement on Form S-4,
No. 33-84944)
*10.17 --Consulting Agreement between TWA and Fieldstone, Private Capital Group, L.P. dated
July 11, 1994 (Exhibit 10.26 to Registrant's Registration Statement on Form S-4,
No. 33-84944)
*10.18 --Consulting Agreement dated July 15, 1994, between TWA and Simat, Helliesen &
Eichner, Inc. (Exhibit 10.27 to Registrant's Registration Statement on Form S-4,
No. 33-84944)
*10.19.1 --Agreement for Purchase and Sale dated as of August 29, 1994, between TWA and
Browsh & Associates, Inc. (Exhibit 10.28.1 to Registrant's Registration Statement
on Form S-4, No. 33-84944)
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
*10.19.2 --Agreement for Purchase and Sale dated as of August 29, 1994, between TWA and
Travel Marketing Holding Corporation (Exhibit 10.28.2 to Registrant's Registration
Statement on Form S-4, No. 33-84944)
*10.20.1 --Addendum to Stock Purchase Agreement (identified in 10.29.2) dated October 31,
1994 (Exhibit 10.29.3 to 9/94 10-Q)
*10.20.2 --Addendum to Stock Purchase Agreement (identified in 10.29.2) dated November 2,
1994 (Exhibit 10.29.4 to 9/94 10-Q)
*10.21.1 --Form of Agreement dated as of August 31, 1994, between TWA and the Air Line Pilots
Association, International (Exhibit 10.31.1 to Registrant's Registration Statement
on Form S-4, No. 33-84944)
*10.21.2 --Form of Agreement dated as of September 1, 1994, between TWA and the International
Association of Machinists and Aerospace Workers (Exhibit 10.31.2 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*10.21.3 --Form of Agreement dated as of September 1, 1994, between TWA and the Independent
Federation of Flight Attendants (Exhibit 10.31.3 to Registrant's Registration
Statement on Form S-4, No. 33-84944)
*10.21.4 --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)
*10.22.1 --Trust Agreement dated as of August 24, 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 (Exhibit 10.32.1 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*10.22.2 --Stock Pledge and Intercreditor Agreement dated as of August 24, 1994 among TWA,
TWA Stock Holding Company, Inc. and United States Trust Company of New York
(Exhibit 10.32.2 to Registrant's Registration Statement on Form S-4, No. 33-84944)
*10.23.1 --Key Employee Stock Incentive Plan (Exhibit 10.33.1 to Registrant's Registration
Statement on Form S-4, No. 33-84944)
*10.23.2 --Form of Option Agreements for options issued pursuant to the 1994 Key Employee
Stock Incentive Plan (Exhibit 10.33.2 to Registrant's Registration Statement on
Form S-4, No. 33-84944)
*10.24 --Extension, Refinancing and Consent Agreement between TWA, Karabu Corp, Pichin
Corp, and Carl C. Icahn and the "Icahn Entities" dated as of June 14, 1995 (Exhibit
10.37 to 9/95 10-Q)
*10.24.1 --Karabu Ticket Program Agreement between TWA and Karabu Corp. dated as of June 14,
1995 (Exhibit 10.37.1 to 12/95 10-K)
*10.25 --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)
*10.26 --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)
*10.27 --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)
*10.28 --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Elliott
Associates L.P., a Delaware limited partnership (Exhibit 10.41 to 9/95 10-Q)
*10.29 --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and
Westgate International L.P., a Cayman Islands limited partnership (Exhibit 10.42 to
9/95 10-Q)
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C>
*10.30 --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and United
Equities (Commodities) Company, a New York general partnership (Exhibit 10.43 to
9/95 10-Q)
*10.31 --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Grace
Brothers, Ltd., an Illinois limited partnership (Exhibit 10.44 to 9/95 10-Q)
*10.32 --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and First
Capital Alliance, L.P., an Illinois limited partnership (Exhibit 10.45 to 9/95 10-
Q)
*10.33 --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Romulus
Holdings Corp. a Delaware Corporation (Exhibit 10.46 to 9/95 10-Q)
*10.34 --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 12/31/95 Form 10-K/A)
*10.35 --Employee Stock Incentive Program dated as of August 23, 1995 by TWA (Exhibit 10.49
to 12/31/95 Form 10-K)
*10.36 --Trans World Airlines, Inc. 1995 Outside Directors' Stock Ownership and Stock
Option Plan (Exhibit 10.51 to Registrant's Registration Statement on Form S-3, No.
333-04977)
*10.37 --Letter Agreement dated July 30, 1996 between Trans World Airlines, Inc. and Robert
A. Peiser (Exhibit 10.52 to Registrant's Registration Statement on Form S-3, No.
333-04977)
*10.38 --Letter Agreement dated July 26, 1996 between Trans World Airlines, Inc. and Mark
J. Coleman (Exhibit 10.53 to Registrant's Registration Statement on Form S-3, No.
333-04977)
*10.39 --Agreement dated as of September 3, 1996 between the Company and Roden A. Brandt
(Exhibit 10.6 to 9/96 Form 10-Q)
*10.40 --Letter Agreement dated January 6, 1997 between the Company and Edward Soule
(Exhibit 10.33 to 12/31/96 Form 10-K)
*10.41 --Agreement dated as of October 1, 1996 between the Company and Michael J. Palumbo
(Exhibit 10.34 to 12/31/96 Form 10-K)
*10.42 --Agreement dated as of November 11, 1996 between the Company and Jeffrey H.
Erickson (Exhibit 10.35 to 12/31/96 Form 10-K)
*10.43 --Consulting Agreement between the Company and David M. Kennedy dated as of June 6,
1997 (Exhibit 10.1 to 6/97 Form 10-Q)
*10.44 --Separation Agreement dated July 25, 1997 between the Company and Charles J.
Thibaudeau (Exhibit 10.2 to 6/97 form 10-Q)
*10.45 --Agreement between the Company and Gerald L. Gitner dated as of February 12, 1997
(Exhibit 10.1 to 9/97 Form 10-Q)
10.46.1 --Pledge and Security Agreement dated as of December 9, 1997 from the Company to
First Security Bank, National Association, as Collateral Agent, in connection with
the 11 1/2% Senior Secured Notes due 2004
10.46.2 --Acquired Slot Trust Agreement Declaration of Trust dated as of December 9, 1997
between the Company and First Security Bank, National Association, as Slot Trustee,
in connection with the 11 1/2% Senior Secured Notes due 2004
10.46.3 --Master Sub-License Agreement dated as of December 9, 1997 between the Company and
First Security Bank, National Association, in connection with the 11 1/2% Senior
Secured Notes due 2004
10.46.4 --Collateral Pledge and Security Agreement dated as of December 9, 1997 between the
Company and First Security Bank, National Association, as Trustee, in connection
with the 11 1/2% Senior Secured Notes due 2004
*11 --Statement of Computation of Per Share Earnings (included in 12/31/96 Form 10-K)
</TABLE>
II-7
<PAGE>
<TABLE>
<S> <C>
12 --Statement of Computation of Ratio of Earnings to Fixed Charges
*13.1 --1996 Annual Report to Stockholders (Exhibit 13 to 12/31/96 10-K)
*13.2 --The Company's Quarterly Reports for the quarters ended March 31, 1997, June 30,
1997 and September 30, 1997
23.1 --Consent of KPMG Peat Marwick LLP
23.2 --Consent of Davis Polk & Wardwell, counsel of the Registrant (included in Exhibit
5)
24 --Powers of Attorney
25 --Statement of Eligibility of First Security Bank, National Association
*27 --Financial Data Schedule (included in Company's 12/31/96 Form 10-K)
99.1 --Form of Letter of Transmittal
99.2 --Form of Notice of Guaranteed Delivery
99.3 --Form of Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Owner of Old Notes
99.4 --Form of Letter to Clients of Depository Trust Company Participants
99.5 --Form of Letter to Registered Holders and Depository Trust Company Participants
</TABLE>
- --------
* Incorporated by reference
(1) Incorporation herein by reference to exhibit of the same number in the
Registrant's Registration Statement on Form S-3, Registration Number .
(b) Schedules
All supplementary schedules relating to the Registration Statement are
omitted because they are not required or because the required information,
where material, is contained in the Financial Statements.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period is 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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(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, Form S-8 or Form F-3, 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.
II-8
<PAGE>
(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
preceeding) 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-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, 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 JANUARY 21, 1998.
TRANS WORLD AIRLINES, INC.
January 21, 1998
/s/ Michael J. Palumbo
By___________________________________
MICHAEL J. PALUMBO, SENIOR VICE
PRESIDENT AND CHIEF FINANCIAL
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT ON FORM S-4 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
/s/ Gerald L. Gitner Director, Chairman January 21,
- ------------------------------------ of the Board and 1998
GERALD L. GITNER Chief Executive
Officer (Principal
Executive Officer)
/s/ Michael J. Palumbo Senior Vice January 21,
- ------------------------------------ President and Chief 1998
MICHAEL J. PALUMBO Financial Officer
(Principal
Financial Officer
and Principal
Accounting Officer)
* Director January 21,
- ------------------------------------ 1998
JOHN W. BACHMANN
* Director January 21,
- ------------------------------------ 1998
WILLIAM F. COMPTON
* Director January 21,
- ------------------------------------ 1998
EUGENE P. CONESE
* Director January 21,
- ------------------------------------ 1998
WILLIAM M. HOFFMAN
* Director January 21,
- ------------------------------------ 1998
THOMAS H. JACOBSEN
* Director January 21,
- ------------------------------------ 1998
MYRON KAPLAN
* Director January 21,
- ------------------------------------ 1998
DAVID M. KENNEDY
<PAGE>
SIGNATURES TITLE DATE
Director January 21,
- ------------------------------------- 1998
MERRILL A. MCPEAK
* Director January 21,
- ------------------------------------- 1998
THOMAS F. MEAGHER
* Director January 21,
- ------------------------------------- 1998
WILLIAM O'DRISCOLL
* Director January 21,
- ------------------------------------- 1998
G. JOSEPH REDDINGTON
* Director January 21,
- ------------------------------------- 1998
BLANCHE M. TOUHILL
* Director January 21,
- ------------------------------------- 1998
STEPHEN M. TUMBLIN
/s/ Richard P. Magurno January 21,
*By: 1998
- -------------------------------------
RICHARD P. MAGURNO, AS ATTORNEY-IN-
FACT
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
*2.1 --Joint Plan of Reorganization, dated May 12, 1995 (Appendix B to the Registrant'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 12/31/95 Form 10-K)
*3(i) --Third Amended and Restated Certificate of Incorporation of the Registrant (Exhibit
3(i) to the Registrant's Registration Statement on Form S-4, Registration Number
333-26645)
*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)
*4.2 --IAM Trans World 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 Trans World 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 --Trans World Airlines, Inc. 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 --Registration Rights Agreement, dated November 3, 1993, between TWA and the Initial
Significant Holders (Exhibit 4.9 to 9/93 10-Q)
*4.8 --Indenture between TWA and Harris Trust and Savings Bank, dated November 3, 1993
relating to TWA's 8% Senior Secured Notes Due 2000 (Exhibit 4.11 to 9/93 10-Q)
*4.9 --Indenture between TWA and American National Bank and Trust Company of Chicago,
N.A., dated November 3, 1993 relating to TWA's 8% Secured Notes Due 2001 (Exhibit
4.12 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, No. 333-
04977)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
*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 (Exhibit 4.15 to
Registrant's Registration Statement on Form S-4, No. 333-26645)
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 relating to the 12% Senior Secured Notes due 2002 and the
warrants to purchase 126.26 shares of TWA Common Stock (Exhibit 4.17 to
Registrant's Registration Statement on Form S-4, No. 333-26645)
*4.18 --Warrant Agreement dated as of March 31, 1997 between the Company and American
Stock Transfer & Trust Company, as Warrant Agent, relating to warrants to purchase
126.26 shares of TWA Common Stock (Exhibit 4.18 to Registrant's Registration
Statement on Form S-4, No. 333-26645)
4.19 --Form of Indenture relating to TWA's 9 1/4% Convertible Subordinated Debentures due
2007(1)
4.20 --Registration Rights Agreement dated as of December 2, 1997 between the Company and
the Initial Purchases(1)
4.21 --Indenture dated as of December 9, 1997 by and between TWA and First Security Bank,
National Association, as Trustee, relating to TWA's 11 1/2% Senior Secured Notes
due 2004
4.22 --Form of 11 1/2% Senior Secured Note due 2004 (contained in Indenture filed as
Exhibit 4.21)
4.23 --Registration Rights Agreement dated as of December 9, 1997 among the Company and
Lazard Freres & Co. LLC and PaineWebber Incorporated, as initial purchasers,
relating to TWA's 11 1/2% Senior Secured Notes due 2004
4.24 --Sale and Service Agreement dated as of December 30, 1997 between TWA and
Constellation Finance LLC, as purchaser, relating to TWA's receivables
5 --Opinion of Davis Polk & Wardell, Counsel of the Registrant, regarding the validity
of the securities being registered
*10.1.1 --Asset Purchase Agreement, dated as of November 4, 1993, between TWA and St. Louis
(Exhibit 10.2 to 9/93 10-Q)
*10.1.2 --Equipment Operating Lease Agreement, dated November 4, 1993, between TWA and St.
Louis (Exhibit 10.2 to 9/93 10-Q)
*10.1.3 --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)
*10.1.4 --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)
*10.2.1 --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)
*10.2.2 --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)
*10.3 --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)
*10.4.1 --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)
*10.4.2 --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)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
*10.4.3 --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)
*10.4.4 --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)
*10.5.1 --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)
*10.5.2 --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)
*10.5.3 --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)
*10.5.4 --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)
*10.6.1 --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)
*10.6.2 --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)
*10.6.3 --Lease Agreement 108, dated October 5, 1993, between Pacific AirCorp 747, Inc. and
TWA with respect to aircraft N93108 (Exhibit 10.7 to 9/93 10-Q)
*10.7 --'92 Labor Agreements (Exhibits 2.1, 2.2 and 2.3 to 9/92 8-K)
*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 between TWA and Karabu Corp. dated
as of March 28, 1994 (Exhibit 10. 9.1 to Registrant's Registration Statement on
Form S-4, No, 33-84944)
*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)
*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 (Exhibit 10.20.1 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*10.11.2 --Lease Agreement 927, dated as of December 15, 1993, between Pacific AirCorp DC9,
Inc. and TWA with respect to aircraft N927L (Exhibit 10.20.2 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*10.11.3 --Lease Agreement 928, dated as of December 15, 1993, between Pacific AirCorp DC9,
Inc. and TWA with respect to aircraft N928L (Exhibit 10.20.3 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*10.12.1 --Aircraft Purchase Agreement between TWA and Mitsui & Co. (U.S.A.), Inc. dated
March 31, 1994, with respect to aircraft N950U (Exhibit 10.21.1 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*10.12.2 --Aircraft Purchase Agreement between TWA and Mitsui & Co. (U.S.A.), Inc., dated
March 31, 1994, with respect to aircraft N953U (Exhibit 10.21.2 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*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 (Exhibit 10.21.3 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
*10.12.4 --Aircraft Purchase Agreement between TWA and McDonnell Douglas Finance Corporation,
dated March 31, 1994, with respect to aircraft N951U (Exhibit 10.21.4 to
Registrant's Registration Statement on Form S-4, No. 33-84944)
*10.12.5 --Aircraft Purchase Agreement between TWA and McDonnell Douglas Finance Corporation,
dated March 31, 1994, with respect to aircraft N952U (Exhibit 10.21.5 to
Registrant's Registration Statement on Form S-4, No. 33-84944)
*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 (Exhibit 10.21.6 to
Registrant's Registration Statement on Form S-4, No. 33-84944)
*10.13.1 --Aircraft Purchase Agreement, dated March 31, 1994, between McDonnell Douglas
Finance Corporation and TWA with respect to aircraft N306TW (formerly N534AW)
(Exhibit 10.22.1 to Registrant's Registration Statement on Form S-4, No. 33-84944)
*10.13.2 --Purchase Money Chattel Mortgage, dated as of March 31, 1994, by TWA, as Mortgagor,
and McDonnell Douglas Finance Corporation, as Mortgagee, with respect to N306TW
(formerly N534AW) (Exhibit 10.22.2 to Registrant's Registration Statement on Form
S-4, No. 33-84944)
*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) (Exhibit 10.22.3 to Registrant's Registration Statement on
Form S-4, No. 33-84944)
*10.14 --Commuter Air Service Agreement dated July 22, 1992, between TWA and Trans World
Express, Inc. (Exhibit 10.23 to Registrant's Registration Statement on Form S-4,
No. 33-84944)
*10.15 --Commuter Air Service Agreement dated October 27, 1993, between TWA and Alpha Air
(Exhibit 10.24 to Registrant's Registration Statement on Form S-4, No. 33-84944)
*10.16 --Air Service Agreement dated October 1, 1994, between TWA and Trans States
Airlines, Inc. (Exhibit 10.25 to Registrant's Registration Statement on Form S-4,
No. 33-84944)
*10.17 --Consulting Agreement between TWA and Fieldstone, Private Capital Group, L.P. dated
July 11, 1994 (Exhibit 10.26 to Registrant's Registration Statement on Form S-4,
No. 33-84944)
*10.18 --Consulting Agreement dated July 15, 1994, between TWA and Simat, Helliesen &
Eichner, Inc. (Exhibit 10.27 to Registrant's Registration Statement on Form S-4,
No. 33-84944)
*10.19.1 --Agreement for Purchase and Sale dated as of August 29, 1994, between TWA and
Browsh & Associates, Inc. (Exhibit 10.28.1 to Registrant's Registration Statement
on Form S-4, No. 33-84944)
*10.19.2 --Agreement for Purchase and Sale dated as of August 29, 1994, between TWA and
Travel Marketing Holding Corporation (Exhibit 10.28.2 to Registrant's Registration
Statement on Form S-4, No. 33-84944)
*10.20.1 --Addendum to Stock Purchase Agreement (identified in 10.29.2) dated October 31,
1994 (Exhibit 10.29.3 to 9/94 10-Q)
*10.20.2 --Addendum to Stock Purchase Agreement (identified in 10.29.2) dated November 2,
1994 (Exhibit 10.29.4 to 9/94 10-Q)
*10.21.1 --Form of Agreement dated as of August 31, 1994, between TWA and the Air Line Pilots
Association, International (Exhibit 10.31.1 to Registrant's Registration Statement
on Form S-4, No. 33-84944)
*10.21.2 --Form of Agreement dated as of September 1, 1994, between TWA and the International
Association of Machinists and Aerospace Workers (Exhibit 10.31.2 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*10.21.3 --Form of Agreement dated as of September 1, 1994, between TWA and the Independent
Federation of Flight Attendants (Exhibit 10.31.3 to Registrant's Registration
Statement on Form S-4, No. 33-84944)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
*10.21.4 --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)
*10.22.1 --Trust Agreement dated as of August 24, 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 (Exhibit 10.32.1 to Registrant's
Registration Statement on Form S-4, No. 33-84944)
*10.22.2 --Stock Pledge and Intercreditor Agreement dated as of August 24, 1994 among TWA,
TWA Stock Holding Company, Inc. and United States Trust Company of New York
(Exhibit 10.32.2 to Registrant's Registration Statement on Form S-4, No. 33-84944)
*10.23.1 --Key Employee Stock Incentive Plan (Exhibit 10.33.1 to Registrant's Registration
Statement on Form S-4, No. 33-84944)
*10.23.2 --Form of Option Agreements for options issued pursuant to the 1994 Key Employee
Stock Incentive Plan (Exhibit 10.33.2 to Registrant's Registration Statement on
Form S-4, No. 33-84944)
*10.24 --Extension, Refinancing and Consent Agreement between TWA, Karabu Corp, Pichin
Corp, and Carl C. Icahn and the "Icahn Entities" dated as of June 14, 1995 (Exhibit
10.37 to 9/95 10-Q)
*10.24.1 --Karabu Ticket Program Agreement between TWA and Karabu Corp. dated as of June 14,
1995 (Exhibit 10.37.1 to 12/95 10-K)
*10.25 --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)
*10.26 --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)
*10.27 --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)
*10.28 --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Elliott
Associates L.P., a Delaware limited partnership (Exhibit 10.41 to 9/95 10-Q)
*10.29 --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and
Westgate International L.P., a Cayman Islands limited partnership (Exhibit 10.42 to
9/95 10-Q)
*10.30 --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and United
Equities (Commodities) Company, a New York general partnership (Exhibit 10.43 to
9/95 10-Q)
*10.31 --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Grace
Brothers, Ltd., an Illinois limited partnership (Exhibit 10.44 to 9/95 10-Q)
*10.32 --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and First
Capital Alliance, L.P., an Illinois limited partnership (Exhibit 10.45 to 9/95 10-
Q)
*10.33 --Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Romulus
Holdings Corp. a Delaware Corporation (Exhibit 10.46 to 9/95 10-Q)
*10.34 --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 12/31/95 Form 10-K/A)
*10.35 --Employee Stock Incentive Program dated as of August 23, 1995 by TWA (Exhibit 10.49
to 12/31/95 Form 10-K)
*10.36 --Trans World Airlines, Inc. 1995 Outside Directors' Stock Ownership and Stock
Option Plan (Exhibit 10.51 to Registrant's Registration Statement on Form S-3, No.
333-04977)
*10.37 --Letter Agreement dated July 30, 1996 between Trans World Airlines, Inc. and Robert
A. Peiser (Exhibit 10.52 to Registrant's Registration Statement on Form S-3, No.
333-04977)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
*10.38 --Letter Agreement dated July 26, 1996 between Trans World Airlines, Inc. and Mark
J. Coleman (Exhibit 10.53 to Registrant's Registration Statement on Form S-3, No.
333-04977)
*10.39 --Agreement dated as of September 3, 1996 between the Company and Roden A. Brandt
(Exhibit 10.6 to 9/96 Form 10-Q)
*10.40 --Letter Agreement dated January 6, 1997 between the Company and Edward Soule
(Exhibit 10.33 to 12/31/96 Form 10-K)
*10.41 --Agreement dated as of October 1, 1996 between the Company and Michael J. Palumbo
(Exhibit 10.34 to 12/31/96 Form 10-K)
*10.42 --Agreement dated as of November 11, 1996 between the Company and Jeffrey H.
Erickson (Exhibit 10.35 to 12/31/96 Form 10-K)
*10.43 --Consulting Agreement between the Company and David M. Kennedy dated as of June 6,
1997 (Exhibit 10.1 to 6/97 Form 10-Q)
*10.44 --Separation Agreement dated July 25, 1997 between the Company and Charles J.
Thibaudeau (Exhibit 10.2 to 6/97 form 10-Q)
*10.45 --Agreement between the Company and Gerald L. Gitner dated as of February 12, 1997
(Exhibit 10.1 to 9/97 Form 10-Q)
10.46.1 --Pledge and Security Agreement dated as of December 9, 1997 from the Company to
First Security Bank, National Association, as Collateral Agent, in connection with
the 11 1/2% Senior Secured Notes due 2004
10.46.2 --Acquired Slot Trust Agreement Declaration of Trust dated as of December 9, 1997
between the Company and First Security Bank, National Association, as Slot Trustee,
in connection with the 11 1/2% Senior Secured Notes due 2004
10.46.3 --Master Sub-License Agreement dated as of December 9, 1997 between the Company and
First Security Bank, National Association, in connection with the 11 1/2% Senior
Secured Notes due 2004
10.46.4 --Collateral Pledge and Security Agreement dated as of December 9, 1997 between the
Company and First Security Bank, National Association, as Trustee, in connection
with the 11 1/2% Senior Secured Notes due 2004
*11 --Statement of Computation of Per Share Earnings (included in 12/31/96 Form 10-K)
12 --Statement of Computation of Ratio of Earnings to Fixed Charges
*13.1 --1996 Annual Report to Stockholders (Exhibit 13 to 12/31/96 10-K)
*13.2 --The Company's Quarterly Reports for the quarters ended March 31, 1997, June 30,
1997 and September 30, 1997
23.1 --Consent of KPMG Peat Marwick LLP
23.2 --Consent of Davis Polk & Wardwell, counsel of the Registrant (included in Exhibit
5)
24 --Powers of Attorney
25 --Statement of Eligibility of First Security Bank, National Association
*27 --Financial Data Schedule (included in Company's 12/31/96 Form 10-K)
99.1 --Form of Letter of Transmittal
99.2 --Form of Notice of Guaranteed Delivery
99.3 --Form of Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Owner of Old Notes
99.4 --Form of Letter to Clients of Depository Trust Company Participants
99.5 --Form of Letter to Registered Holders and Depository Trust Company Participants
</TABLE>
- --------
* Incorporated by reference
(1) Incorporation herein by reference to exhibit of the same number in the
Registrant's Registration Statement on Form S-3, Registration Number .
<PAGE>
EXHIBIT 4.21
[CONFORMED COPY]
================================================================================
TRANS WORLD AIRLINES, INC.
and
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
as Trustee
INDENTURE
Dated as of December 9, 1997
$140,000,000
11 1/2% Senior Secured Notes due 2004
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1.
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1 Definitions................................................ 1
Section 1.2 Rules of Construction...................................... 1
ARTICLE 2.
THE SECURITIES
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......................................... 11
Section 2.12 CUSIP Numbers.............................................. 11
ARTICLE 3.
REDEMPTIONS AND CERTAIN REPURCHASES
Section 3.1 Optional Redemption General.............................. 11
Section 3.2 Redemption Notice to Trustee............................. 12
Section 3.3 Selection of Securities to be Redeemed................... 12
Section 3.4 Notice of Redemption..................................... 12
Section 3.5 Effect of Notice of Redemption........................... 13
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 3.6 Deposit of Redemption Price.............................. 13
Section 3.7 Securities Redeemed in Part.............................. 13
Section 3.8 Optional Redemption upon Public Equity Offering.......... 14
Section 3.9 Use of Temporary Cash Collateral or Cash Collateral for
Purchase................................................ 14
ARTICLE 4.
COVENANTS, REPRESENTATIONS AND WARRANTIES
Section 4.1 Payment of Securities.................................... 15
Section 4.2 Maintenance of Office or Agency.......................... 15
Section 4.3 Limitation on Restricted Payments........................ 16
Section 4.4 Corporate Existence...................................... 19
Section 4.5 Payment of Taxes and other Claims........................ 19
Section 4.6 Notices.................................................. 20
Section 4.7 Maintenance of Properties and Insurance.................. 20
Section 4.8 Default Notices and Compliance Certificates.............. 21
Section 4.9 SEC Reports.............................................. 21
Section 4.10 Waiver of Stay, Extension or Usury Laws.................. 22
Section 4.11 Amendment to Certain Agreements.......................... 22
Section 4.12 Title to Collateral; Limitations on Liens................ 23
Section 4.13 Books, Records, Access; Confidentiality.................. 23
Section 4.14 Security Interests....................................... 24
Section 4.15 Repurchase of Securities Upon a Change in Control........ 24
Section 4.16 Restrictions on Becoming an Investment Company........... 25
Section 4.17 Limitation on Indebtedness............................... 25
Section 4.18 Limitation on Restrictions on Distributions from
Restricted Subsidiaries................................. 28
Section 4.19 Limitation on Sales of Assets and Subsidiary Stock....... 30
Section 4.20 Limitation on Affiliate Transactions..................... 31
Section 4.21 Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries................................. 32
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 4.22 Limitation on Guarantees by Restricted Subsidiaries...... 33
Section 4.23 Limitation on Sale/Leaseback Transactions................ 33
Section 4.24 Application for Rating................................... 34
Section 4.25 Listing.................................................. 34
ARTICLE 5.
SUCCESSOR CORPORATION
Section 5.1 Covenant Not to Consolidate, Merge, Convey or Transfer
Except Under Certain Conditions......................... 34
Section 5.2 Successor Person Substituted............................. 35
Section 5.3 Optional Right of Redemption............................. 36
ARTICLE 6.
DEFAULT AND REMEDIES
Section 6.1 Events of Default........................................ 36
Section 6.2 Acceleration............................................. 38
Section 6.3 Other Remedies........................................... 39
Section 6.4 Waiver of Past Defaults.................................. 39
Section 6.5 Control by Majority...................................... 39
Section 6.6 Limitation on Suits...................................... 40
Section 6.7 Rights of Holders to Receive Payment..................... 40
Section 6.8 Collection Suit by Trustee............................... 41
Section 6.9 Trustee May File Proofs of Claim......................... 41
Section 6.10 Application of Proceeds.................................. 42
Section 6.11 Undertaking for Costs.................................... 43
Section 6.12 Restoration of Rights on Abandonment of Proceedings...... 43
Section 6.13 Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default....................................... 43
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 7.
TRUSTEE
Section 7.1 Duties of Trustee........................................ 44
Section 7.2 Rights of Trustee........................................ 45
Section 7.3 Individual Rights of Trustee............................. 45
Section 7.4 Trustee's Disclaimer..................................... 45
Section 7.5 Notice of Defaults....................................... 46
Section 7.6 Reports by Trustee to Holders............................ 46
Section 7.7 Compensation and Indemnity............................... 46
Section 7.8 Replacement of Trustee................................... 47
Section 7.9 Successor Trustee by Merger, etc......................... 48
Section 7.10 Eligibility; Disqualification............................ 48
Section 7.11 Preferential Collection of Claims Against Company........ 49
Section 7.12 Other Capacities......................................... 49
ARTICLE 8.
DISCHARGE OF INDENTURE; DEFEASANCE
Section 8.1 Discharge of Liability on Securities; Defeasance......... 49
Section 8.2 Conditions to Defeasance................................. 50
Section 8.3 Application of Trust Money............................... 51
Section 8.4 Repayment to Company..................................... 52
Section 8.5 Indemnity for Government Obligations..................... 52
Section 8.6 Reinstatement............................................ 52
ARTICLE 9.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.1 Without Consent of Holders............................... 53
Section 9.2 With Consent of Holders.................................. 53
Section 9.3 Compliance with Trust Indenture Act...................... 54
</TABLE>
-iv-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 9.4 Revocation and Effect of Consents........................ 54
Section 9.5 Notation on or Exchange of Securities.................... 55
Section 9.6 Trustee to Sign Amendments, etc.......................... 55
Section 9.7 Effect of Supplement and/or Amendment.................... 56
ARTICLE 10.
SECURITY
Section 10.1 Other Operative Documents................................ 56
Section 10.2 Pledged Securities....................................... 56
Section 10.3 Opinions, Certificates and Appraisals.................... 58
Section 10.4 Authorization of Actions to be Taken by the Trustee
Under the Operative Documents........................... 59
Section 10.5 Payment of Expenses...................................... 60
Section 10.6 Authorization of Receipt of Funds by the Trustee Under
the Operative Documents................................. 60
Section 10.7 Agreement as to Appraised Value and Fair Market Value.... 60
ARTICLE 11.
MISCELLANEOUS
Section 11.1 Conflict with Trust Indenture Act of 1939................ 61
Section 11.2 Notices; Waivers......................................... 61
Section 11.3 Communications By Holders With Other Holders............. 62
Section 11.4 Certificate and Opinion as to Conditions Precedent....... 62
Section 11.5 Statements Required In Certificate or Opinion............ 62
Section 11.6 Rules By Trustee, Paying Agent, Registrar................ 64
Section 11.7 Holidays................................................. 64
Section 11.8 Governing Law; Waiver of Jury Trial...................... 64
Section 11.9 No Adverse Interpretation of Other Agreements............ 64
Section 11.10 No Recourse Against Others............................... 64
Section 11.11 Benefits of Indenture and the Securities Restricted...... 65
</TABLE>
-v-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 11.12 Successors and Assigns................................... 65
Section 11.13 Counterpart Originals.................................... 65
Section 11.14 Severability............................................. 65
Section 11.15 Rating Agencies.......................................... 65
Section 11.16 Effect of Headings....................................... 66
ARTICLE 12.
RELEASE OF COLLATERAL
Section 12.1 Release of Collateral.................................... 66
</TABLE>
APPENDIX I Definitions
APPENDIX II Rule 144A/Regulation S Appendix (including form of 11 1/2% Senior
Secured Note as Exhibit 2 thereto)
EXHIBIT A 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 B Form of Pledge and Security Agreement
EXHIBIT C Form of Subsidiary Guaranty
-vi-
<PAGE>
INDENTURE dated as of December 9, 1997 between TRANS WORLD AIRLINES, INC.,
a Delaware corporation (the "Company"), and FIRST SECURITY BANK, NATIONAL
ASSOCIATION, a national banking 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 11 1/2% Senior Secured
Notes due 2004 (the "Initial Securities") and, if and when issued pursuant to a
registered exchange for Initial Securities, the Company's 11 1/2%
Senior Secured Notes due 2004 (the "Exchange Securities", and, if and when
issued pursuant to a private exchange for Initial Securities, the Company's 11
1/2% Senior Secured Notes due 2004 (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 herein 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) and are 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 2 to
<PAGE>
2
the Rule 144A Appendix and are 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 Special Interest, if any, payable on such
Interest Payment Date to the extent provided by such Security, except if and to
the extent the Company shall default in the payment of the interest or Special
Interest due on such Interest Payment Date, in which case defaulted interest or
Special Interest, 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 by 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 $140,000,000 except for Securities
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu
<PAGE>
3
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 "11 1/2% Senior Secured
Notes due 2004" of the Company. Their Stated Maturity shall be December 15,
2004, and they shall bear interest at the rate of 11 1/2% per annum, from
December 9 1997 or from the most recent Interest Payment Date to which interest
and Special Interest, if any, have been paid or duly provided for, as the case
may be, payable semi-annually in arrears on June 15 and December 15, commencing
June 15, 1998, 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 10.3 and 11.4
and 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 and the Trustee, by assignment,
pledge, or otherwise pursuant to the Pledge Agreement and the Note Pledge
Agreement, respectively, of a security interest in the Collateral and the
Pledged Collateral, as the case may be, 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 and the Note Pledge Agreement
and the Pledged Collateral, that the Company is the legal and beneficial owner
of the Collateral and the Pledged Collateral, free and clear of all Liens
except, in the case of the Collateral, Permitted Collateral 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 4.14 hereof and Section 7.01(b)(i) of the
Master Sub-License Agreement;
(c) compliance with all applicable provisions of Sections 4.12 and 4.14
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 value of the Pledged
Spare Parts as reflected in the Inventory Control System, and (B) as of the date
of such Certificate, the Acquired Slots then held by the Slot Trust; and (ii)
stating that (1) no dispositions of Pledged Spare Parts outside of the Ordinary
Course except in compliance with the terms of the Operative Documents have
occurred since the date of such list nor has any amount of Pledged Spare
<PAGE>
4
Parts, as described on such list, been moved from the location 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, 2) no material changes in the information provided have
occurred from the last day of the preceding month to the date hereof; (3) each
Pledged Spare Part described on such list is either a "spare part" or an
"appliance" as such terms are defined in the Federal Aviation Act; and (4)
confirming all representations and warranties of the Company contained in the
Indenture and the other 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 and the other Operative Documents; 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 other 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 the
Global Securities 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
<PAGE>
5
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.
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"). 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. The term "Paying Agent" includes any additional paying 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 or Paying Agent, the Trustee shall act as such.
The Company initially appoints First Security Bank, National Association,
as Registrar and Paying 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, repurchase or redemption price, if any, of, interest on, and Special
Interest, 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, repurchase or redemption price, if
any, of, interest on, or Special Interest, 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, repurchase or redemption
price, if any, of, interest or Special Interest, if any, so becoming
<PAGE>
6
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, repurchase or redemption price, if any, of, interest on, or
Special Interest, if any, with respect to any of the Securities, deposit with a
Paying Agent Payments (in same day funds) sufficient to pay the principal,
repurchase or redemption price, if any, of, interest or Special Interest, if
any, so becoming due, such Payments to be held in trust for the benefit of the
Persons entitled to such principal, repurchase or redemption price, if any, of,
interest, or Special Interest, 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, repurchase or redemption price, if any, of, interest on, or
Special Interest, if any, with respect to the 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,
repurchase or redemption price, if any, of, interest on, or Special Interest, 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, redemption or
repurchase price, if any, of, interest on or Special Interest, if any, with
respect to, any Security and unclaimed for two (2) years after such principal,
redemption or repurchase price, if any, of, interest or Special Interest, 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
<PAGE>
7
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 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, 3.7, 4.15 or 9.5 or
any other 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.
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.
<PAGE>
8
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 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 any of the provisions hereof (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 (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
<PAGE>
9
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 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).
<PAGE>
10
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 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 and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange (including without
limitation, Initial Securities exchanged for Exchanged Securities, Private
Exchange Securities or both), repurchase or payment. All Securities purchased
pursuant to Section 3.9 or pursuant to any Offer to Purchase shall be canceled.
The Trustee and no one else shall cancel all Securities surrendered for
transfer, exchange, repurchase 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 Special Interest,
if any, with respect to, the Securities, it shall pay the defaulted interest,
plus interest on the defaulted interest or Special Interest, 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
<PAGE>
11
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 Special Interest, as the case may be, to be paid.
Section 2.12 CUSIP Numbers.
-------------
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided, however, that any such
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
ARTICLE 3.
REDEMPTIONS AND CERTAIN REPURCHASES
Section 3.1 Optional Redemption-General.
---------------------------
Except as set forth in Sections 3.8 and 5.3, the Securities Outstanding
shall not be subject to redemption in whole or in part at the option of the
Company prior to December 15, 2001. On or after December 15, 2001, the
Securities may be redeemed at any time in whole or in part (in any integral
multiple of $1,000) by the Company at its sole option at redemption prices
(expressed as a percentage of principal amount) as set forth below during the
twelve month periods beginning December 15 of the years shown below, plus in
each case an amount equal to accrued and unpaid interest and Special Interest,
if any, with respect to, the Securities to and including the redemption date:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
----
<S> <C>
2001 105.750%
2002 102.875%
2003 and thereafter 100.000%
</TABLE>
Section 3.2 Redemption Notice to Trustee.
----------------------------
If the Company elects to redeem Securities as provided in Section 3.1, 3.8
or 5.3, it shall notify the Trustee of the redemption date, the principal amount
of Securities and all other information needed for the notice to be given by the
Trustee pursuant to Section 3.4.
<PAGE>
12
The Company shall give the notice provided for in this Section at least ten
(10) days (unless a shorter notice shall be satisfactory to the Trustee) prior
to the date the Trustee must give notice pursuant to Section 3.4.
Section 3.3 Selection of Securities to be Redeemed.
--------------------------------------
If less than all the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed on either a pro rata basis or by lot or by
any other equitable manner determined by the Trustee in its sole discretion.
The Trustee shall make the selection from Securities outstanding not previously
called for redemption. The Trustee may select for redemption portions of the
principal of Securities that have denominations larger than $1,000. Securities
and portions of them it selects shall be in amounts of $1,000 or whole multiples
of $1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
Section 3.4 Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail by first-class mail a notice of redemption to each Holder
whose Securities are to be redeemed.
The notice shall identify the Securities and the principal amount thereof
to be redeemed and shall state:
(1) the principal amount of each Security held by each such Holder to
be redeemed;
(2) the redemption date;
(3) the redemption price (including the amount of accrued and unpaid
interest, Special Interest and Applicable Premium, if any, to be paid on
the Securities called for redemption);
(4) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
redemption date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion will be
issued;
(5) the name and address of the Paying Agent;
(6) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(7) that, unless the Company defaults in making the redemption
payment, interest on the Securities to be redeemed ceases to accrue on and
after the redemption date and the only remaining right of the Holders of
such Securities
<PAGE>
13
is to receive payment of the redemption price upon
surrender to the Paying Agent of the Securities.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at the Company's expense.
Section 3.5 Effect of Notice of Redemption.
------------------------------
Once a notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date at the redemption price and, on
and after such date (unless the Company shall default in the payment of the
redemption price), such Securities shall cease to bear interest. Upon surrender
to the Paying Agent, such Securities shall be paid at the redemption price plus
accrued interest, Special Interest and Applicable Premium, if any, to the
redemption date.
Section 3.6 Deposit of Redemption Price.
---------------------------
On or before 10:00 a.m., Eastern Time, on the redemption date, the Company
shall deposit with the Paying Agent money in funds immediately available on the
redemption date sufficient to pay the redemption price of and accrued interest
on and Special Interest and Applicable Premium, if any, with respect to, all
Securities to be redeemed on that date.
Section 3.7 Securities Redeemed in Part.
---------------------------
Upon surrender of a Security that is redeemed in part, the Trustee shall
authenticate for the Holder a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
Section 3.8 Optional Redemption upon Public Equity Offering.
-----------------------------------------------
The Securities may be redeemed in part by the Company at its sole option
if, on or before December 15, 2000, the Company receives Net Cash Proceeds of
one or more Public Equity Offerings. The Company may use all or a portion of
any such Net Cash Proceeds to redeem up to $49,000,000 aggregate principal
amount of the Securities, within 90 days of such Public Equity Offering, at a
redemption price (expressed as a percentage of the aggregate principal amount of
Securities Outstanding) of 111 1/2% plus accrued and unpaid interest and Special
Interest, if any, to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest and Special Interest, if
any, due on the relevant Interest Payment Date); provided, however, that at
least $91,000,000 million aggregate principal amount of the Securities shall
remain Outstanding after each such redemption. Any such redemption shall be
subject to the provisions of Sections 3.2 - 3.7, inclusive.
<PAGE>
14
Section 3.9 Use of Temporary Cash Collateral or Cash Collateral for
-------------------------------------------------------
Purchase.
- --------
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 and
unpaid interest and Special Interest, 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 Special Interest, 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 Special Interest, 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 and unpaid interest on, and Special
Interest, 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 and unpaid interest and Special Interest, 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 an Offer to Purchase. 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, REPRESENTATIONS AND WARRANTIES
Section 4.1 Payment of Securities.
---------------------
The Company shall pay the principal of, interest on and Special Interest,
if any, with respect to, the Securities on the dates and in the manner provided
in this Indenture and in the Securities.
The Company shall pay interest semi-annually in arrears on each Interest
Payment Date, commencing June 15, 1998. Interest shall be paid on each Interest
Payment Date in an amount equal to the interest accrued for the period beginning
from the Issue Date, or
<PAGE>
15
from the most recent date to which interest and Special Interest, if any, have
been paid. All interest and Special Interest, if any, due and payable on the
Securities shall be paid in cash, except that the Company may at its option,
make such Payments by check mailed to the address of the Person entitled thereto
as it appears in the Register.
An installment of principal, interest or Special Interest, 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 such 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.
The Company shall pay interest at the rate set forth in the Securities and
the Company shall pay interest on unpaid interest or Special Interest, 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 or repurchase 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.
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 Restricted Payments.
---------------------------------
(a) The Company shall not, and shall not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall
have occurred and be continuing (or would result therefrom); (2) the Company is
not able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a)
of Section 4.17; or (3) the
<PAGE>
16
aggregate amount of such Restricted Payment and all other Restricted Payments
since the Issue Date (the amount of any such Restricted Payment, if other than
cash, as determined in good faith by the Company, whose determination shall be
conclusive and evidenced by a resolution of the Board of Directors or a
certificate of the chief financial or accounting officer of the Company
delivered to the Trustee prior to the making of such Restricted Payment) would
exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Securities are
originally issued to the end of the most recent fiscal quarter for which
financial statements are publicly available prior to the date of such Restricted
Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100%
of such deficit);
(B) the aggregate net proceeds (including 50% of the fair market value
of property other than cash (as determined in good faith by the Company, whose
determination shall be conclusive and evidenced by a resolution of the Board of
Directors or a certificate of the chief financial or accounting officer of the
Company delivered to the Trustee prior to the making of such Restricted
Payment)) received by the Company or any Restricted Subsidiary from the issuance
or sale, subsequent to the Issue Date, of its Capital Stock (other than
Disqualified Stock) and Indebtedness of the Company or any Restricted Subsidiary
that has been converted into or exchanged for its Capital Stock (other than
Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale
to a Restricted Subsidiary and other than an issuance or sale to an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); and
(C) an amount equal to the sum of (i) the net reduction in Investments
in Unrestricted Subsidiaries resulting from dividends, repayments of loans or
advances or other transfers of assets, in each case to the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; provided,
however, that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and treated
as a Restricted Payment) by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any Restricted Payment made by exchange for, or out of the net
proceeds (including 50% of the fair market value of property other than
cash (as determined in good faith by the Company, whose determination shall
be conclusive and evidenced by a resolution of the Board of Directors or a
certificate of the chief financial or accounting officer of the Company
delivered to the Trustee prior to the making of such Restricted Payment))
of the substantially
<PAGE>
17
concurrent sale of, Capital Stock of the Company (other than Disqualified
Stock and other than Capital Stock issued or sold to a Subsidiary of the
Company or an employee stock ownership plan or to a trust established by
the Company or any of its Subsidiaries for the benefit of their employees);
provided, however, that (A) such Restricted Payment shall be excluded in
the calculation of the amount of Restricted Payments and (B) to the extent
used to make such Restricted Payment, the net proceeds from such sale shall
be excluded from the calculation of amounts under clause (3)(B) of
paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company which is permitted to be Incurred pursuant
to Section 4.17; provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value shall
be excluded in the calculation of the amount of Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this Section 4.3; provided, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments;
(iv) the declaration or payment of dividends on or payment of
liquidated damages with respect to (A) any Preferred Stock outstanding on
the Issue Date or (B) any Preferred Stock (other than Disqualified Stock)
issued after the Issue Date that ranks on parity with or junior to
Preferred Stock outstanding on the Issue Date; provided, however, that any
dividend referred to in the foregoing clause (A) or, subject to the
following proviso, clause (B), shall be included in the calculation of the
amount of Restricted Payments and provided further, that the Company may
elect to exclude from the calculation of amounts under clause 3(B) of
paragraph (a) above any Net Cash Proceeds received by the Company from the
issue or sale of Preferred Stock pursuant to the foregoing clause (B)
(which election must be made by written notice to the Trustee within ten
(10) Business Days of the receipt of such Net Cash Proceeds) and, if such
election is made, any dividend, distribution, purchase, redemption,
acquisition or retirement on or of the Preferred Stock for which such
election is made shall not be a Restricted Payment;
(v) (A) the payment of cash in lieu of issuing fractional shares of
Capital Stock of the Company in connection with the exercise of options or
warrants, the conversion of convertible securities or the redemption of
interests in employee stock ownership or benefits plans, (B) the purchase
or redemption of its Capital Stock by the Company from employee stock
ownership or benefit plans subject to ERISA to the extent required by
ERISA, (C) repurchases of its Capital Stock which occur upon the exercise
of stock options if such Capital Stock represents a portion of the exercise
price of such options, (D) the purchase,
<PAGE>
18
redemption, acquisition, cancellation or other retirement for value of
shares of Capital Stock of the Company or any Restricted Subsidiary,
options on any such shares or related stock appreciation rights or similar
securities held by officers or employees or former officers or employees
(or their estates or beneficiaries under their estates), upon their death,
disability, retirement, termination of employment or pursuant to any
agreement under which such shares of stock or related rights were issued;
provided that the aggregate cash consideration paid pursuant to this clause
(D) for such purchase, redemption, acquisition, cancellation or other
retirement of such shares of Capital Stock or related rights after the
Issue Date does not exceed an aggregate amount of $10,000,000; provided
further that the amount of any payment, purchase, redemption, repurchase,
acquisition, cancellation or other retirement paid pursuant to this clause
(D) shall be included in the amount of Restricted Payments;
(vi) any purchase or redemption of Capital Stock of the Company
resulting from the consolidation or merger with or into any Person or
conveyance, transfer or lease of all or substantially all of the Company's
or any Restricted Subsidiary's property to one or more Persons
substantially as an entirety not prohibited by Section 5.1 (other than any
consolidation, merger or other transactions involving only the Company and
a Restricted Subsidiary of the Company or involving only Restricted
Subsidiaries of the Company); provided that the amount of such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments; or
(vii) the exchange of Preferred Stock (other than Disqualified
Capital Stock) for Indebtedness of the Company permitted to be incurred
under Section 4.17; provided that the liquidation value of the Preferred
Stock exchanged shall be included in the calculation of the amount of
Restricted Payments but only to the extent of the Net Cash Proceeds of such
Preferred Stock received after the Issue Date.
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 Restricted
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 Restricted 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.
<PAGE>
19
(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 GAAP, 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
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 that any other Indebtedness of the Company or any
Significant Subsidiary 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
<PAGE>
20
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
(b) 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 and Insurance.
---------------------------------------
Except as otherwise provided in this Indenture, the Company shall, and
shall cause each of its Subsidiaries to, cause all Collateral and Properties
owned by or leased to it and used or useful in the conduct of the business of
the Company or any such Subsidiary, as the case may be, to be maintained and
kept in good repair, working order and condition, 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 such 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 such Subsidiary from discontinuing the use, operation
or maintenance of any such Properties, or disposing of any of them, if such
Property or Properties are, 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), no
longer necessary or useful in the conduct of the Company's business or that of
its Subsidiaries.
For so long as any Collateral or Property is deemed to be useful to the
conduct of the business of the Company or its Subsidiaries, the Company shall,
or shall cause such Subsidiaries to, maintain appropriate insurance, in
accordance with industry practice, on such Collateral and Properties and as
required under the provisions of the applicable Operative Documents.
Section 4.8 Default Notices and Compliance Certificates.
-------------------------------------------
Contemporaneously with furnishing reports to the Trustee pursuant to
Section 4.9, the Company shall furnish to the Trustee a Certifying 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
<PAGE>
21
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.
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 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. The first certificate 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 file with the Trustee and provide, or cause the
Trustee to provide, Holders of Securities, within 30 days after it files with,
or furnishes to, the SEC, copies of its annual report 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 Section 13 or 15(d) of the Exchange Act or is
required to furnish to the SEC pursuant to Section 4.9(b). The Company shall
also comply with the other provisions of TIA (S) 314(a).
(b) Notwithstanding that the Company may not be required to remain subject
to the reporting requirements of Section 13 or l5(d) of the Exchange Act or
otherwise report on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and regulations promulgated by
the SEC, the Company shall continue to file with, or furnish to, the SEC (i)
within 90 days after the end of each fiscal year (or such shorter period as the
SEC may in the future prescribe), annual reports on Form 10-K (or any successor
form) containing the information required to be contained therein (or required
in such successor form), including annual financial statements audited by an
internationally recognized independent public accountant with respect to such
year and prepared in accordance with GAAP and all applicable exhibits, (ii)
within 45 days after the end of each of the first three fiscal quarters of each
fiscal year (or such shorter period as the SEC may in the future prescribe),
reports on Form 10-Q (or any successor form) containing substantially the same
information required to be contained therein prepared in accordance with GAAP
and (iii) promptly from time to time after the occurrence of an event required
to be therein reported, such other reports on Form 8-K (or any successor form)
containing substantially the same information required to be contained therein.
<PAGE>
22
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 Special Interest, 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 Title to Collateral; Limitation on 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, 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 Restricted Subsidiaries to, directly or
indirectly, Incur or suffer to exist any Lien of any nature whatsoever upon or
with respect to (i) any of its properties other than the Collateral and the
Pledged Collateral (including Capital Stock of a Restricted Subsidiary), whether
owned at the Issue Date or thereafter acquired, other than Permitted Liens,
without effectively providing that the Securities shall be secured equally and
ratably with (or prior to) the obligations so secured for so long as such
obligations are so secured or (ii) any Pledged Collateral or Collateral, other
than, with respect to Collateral, Permitted Collateral Liens. 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.
<PAGE>
23
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 GAAP 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 or the Pledged Collateral and the Acquired Slots, including the
records, logs, and other materials referred to in Section 4.08 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.
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,
<PAGE>
24
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.
Section 4.15 Repurchase of Securities Upon a Change in Control.
-------------------------------------------------
(a) In the event that there shall occur a Change in Control, the Company
shall make an Offer to Purchase all of the Outstanding Securities, at a purchase
price equal to 101% of the aggregate principal amount of the Securities
Outstanding, plus accrued and unpaid interest and Special Interest, if any, to
and including the repurchase date. The right to require such 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) The Company shall commence such Offer to Purchase within thirty (30)
days after the occurrence of a Change in Control.
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.
Section 4.17 Limitation on Indebtedness.
--------------------------
(a) Neither the Company nor the Restricted Subsidiaries shall Incur,
directly or indirectly, any Indebtedness; provided, however, that the Company
may Incur Indebtedness so long as, on the date of such Incurrence and after
giving effect thereto, the Consolidated Coverage Ratio exceeds (i) 2.00 to 1 for
Indebtedness Incurred on or prior to December 31, 1999, (ii) 2.25 to 1 for
Indebtedness Incurred after December 31, 1999 and on or prior to December 31,
2001 and (iii) 2.50 to 1 for Indebtedness Incurred after December 31, 2001.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness of the Company Incurred subsequent to the Issue Date;
provided, however, that (A) after giving effect to any such Incurrence, the
aggregate principal amount of such Indebtedness then outstanding does not
exceed $400,000,000, (B) the Stated Maturity of any such Indebtedness is at
least one year after the Stated Maturity of the Securities, (C) the Average
Life of any such Indebtedness at the time that it is Incurred is not less
than the Average Life of the
<PAGE>
25
Securities at such time and (D) except for Liens permitted by clause (p) of
the definition of Permitted Liens, such Indebtedness is not secured by a
Lien on any asset of the Company or its Restricted Subsidiaries;
(2) Aircraft Acquisition Debt;
(3) Indebtedness of the Company owed to and held by a Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or a Restricted Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock which results in any
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or
another Restricted Subsidiary) shall be deemed in each case, to constitute
the Incurrence of such Indebtedness by the Company;
(4) the Securities and the Exchange Securities;
(5) Indebtedness Incurred to finance the cost (including the cost of
design, development, acquisition, construction, installation, improvement,
transportation or integration) of plant, property and equipment used or to
be used in the airline business or any other business that is substantially
related, ancillary or complementary thereto (including any Capital Lease
Obligation and the cost of the Capital Stock of a Person that becomes a
Restricted Subsidiary to the extent of the fair market value of the plant,
property and equipment of such Person at the time it becomes a Restricted
Subsidiary) to be acquired by the Company or a Restricted Subsidiary after
the Issue Date; provided that such Indebtedness is incurred within 270 days
after such plant, property and equipment has been placed into service; and
provided further that (A) the principal amount of such Indebtedness does
not exceed 80% of the cost of such plant, property or equipment financed
thereby and (B) the aggregate principal amount of all Indebtedness Incurred
pursuant to the provisions described under this clause (5) shall not exceed
$70,000,000 at any time outstanding; and provided further that the
limitations described in clauses (A) and (B) of the immediately preceding
proviso shall not apply to Indebtedness Incurred to finance the cost of (i)
airport facilities, reservations centers or maintenance facilities or (ii)
information technology systems, including all related hardware and
software;
(6) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2), (3), (4) or (5) of this Section
4.17);
(7) Indebtedness of the Company not to exceed, at any time
outstanding, 2.0 times the Net Cash Proceeds received by the Company after
the Issue Date from the issuance and sale of its Capital Stock (other than
Disqualified Stock) to a Person that is not a Subsidiary of the Company, to
the extent such Net Cash Proceeds are not included in the calculation of
amounts under clause (3)(B) of Section 4.3(a) or used to make a Restricted
Payment pursuant to clause (i) of
<PAGE>
26
Section 4.3(b); provided that such Indebtedness (A) is Incurred within 180
days following receipt of such Net Cash Proceeds and (B) does not have a
Stated Maturity that is prior to the first anniversary of the Stated
Maturity of the Securities and has an Average Life longer than the
Securities at the time of Incurrence of such Indebtedness;
(8) Acquired Indebtedness; provided that prior to the Incurrence
thereof the Company shall have (i) made an Offer to Purchase all of the
Outstanding Securities at a purchase price equal to 100% of the principal
amount thereof, plus the Applicable Premium as of, and accrued and unpaid
interest and Special Interest, if any, to, the Payment Date, and (ii) such
Payment Date shall have occurred and money sufficient to pay the purchase
price of all Securities or portions thereof tendered for purchase pursuant
to such Offer to Purchase shall have been deposited with the Trustee. Any
such Offer to Purchase shall contain information concerning the business of
the Company which the Company in good faith believes will enable the
Holders of the Securities to make an informed decision with respect to such
Offer to Purchase and will include (A) the most recent annual and quarterly
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the documents required to
be filed with the Trustee pursuant to Section 4.9 (which requirements may
be satisfied by delivery of such documents together with the Offer to
Purchase), (B) a description of material developments, if any, in the
Company's business subsequent to the date of the latest of such financial
statements referred to in clause (A) (including a description of the events
requiring the Company to make such Offer to Purchase), (C) if applicable,
appropriate pro forma financial information concerning such Offer to
Purchase and the events requiring the Company to make the Offer to Purchase
and (D) any other information required by applicable law to be included
therein.
(9) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (1), (2), (3), (4), (5),
(6), (7), (8) above or this clause (9);
(10) Indebtedness (A) in respect of performance, surety, appeal or
similar bonds provided in the ordinary course of business, and (B) arising
from agreements providing for indemnification, adjustment of purchase price
or similar obligations, or from Guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or any
of the Restricted Subsidiaries pursuant to such agreements, in any case
Incurred in connection with the disposition of any business, assets of the
Company or any of the Restricted Subsidiaries, including all or any
interest in any Restricted Subsidiary, and not exceeding the gross proceeds
therefrom, other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary or any of the Restricted Subsidiaries for the purpose of
financing such acquisition;
<PAGE>
27
(11) Hedging Obligations consisting of Interest Rate Agreements, Fuel
Protection Agreements or Currency Agreements;
(12) Indebtedness Incurred in satisfaction of payment obligations
arising out of collective bargaining agreements with labor unions
representing employees of the Company or its Restricted Subsidiaries;
(13) Indebtedness arising from aircraft lessor financing of
improvements to or maintenance of aircraft, engines or related parts and
equipment leased by the Company or its Restricted Subsidiaries;
(14) Indebtedness Incurred in satisfaction of "return condition"
obligations of the Company or its Restricted Subsidiaries under aircraft
leases in an aggregate principal amount not to exceed $25,000,000 at any
time outstanding;
(15) Indebtedness under working capital and/or Receivables financing
facilities in an aggregate principal amount not to exceed $150,000,000 at
any time outstanding and Guarantees thereof by Restricted Subsidiaries not
prohibited under Section 4.22; provided that such Indebtedness is not
secured by a Lien on any assets of the Company or its Restricted
Subsidiaries other than Receivables and Capital Stock of special purpose
Subsidiaries of the Company formed to effect a Receivables-based financing;
(16) Indebtedness issued in satisfaction of trade payables arising in
the ordinary course of business; provided that (A) the principal amount of
such Indebtedness does not exceed the amount of such trade payables
(including accrued interest or finance charges), (B) the Stated Maturity of
such Indebtedness is no more than 180 days after the date of Incurrence
thereof and (C) the aggregate principal amount of such Indebtedness does
not exceed $50,000,000 at any time outstanding; and
(17) Indebtedness of the Company or any Restricted Subsidiary in an
aggregate principal amount which, together with all other Indebtedness of
the Company and the Restricted Subsidiaries outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (1) through (16)
above or paragraph (a) of this Section 4.17) does not exceed $100,000,000.
(c) Notwithstanding the foregoing, neither the Company nor any Restricted
Subsidiary shall Incur any Indebtedness pursuant to the foregoing paragraph (b)
if the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations unless such Indebtedness shall be subordinated to the
Securities, to at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with this Section 4.17, (i) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item
<PAGE>
28
of Indebtedness and only be required to include the amount and type of such
Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be
divided and classified in more than one of the types of Indebtedness described
above.
Section 4.18 Limitation on Restrictions on Distributions from Restricted
-----------------------------------------------------------
Subsidiaries.
- ------------
The Company shall not, and shall not permit any Restricted Subsidiary to
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or (c) transfer any of its
property or assets to the Company except:
(i) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary or its property or assets pursuant to an agreement relating to
any Indebtedness or Preferred Stock Incurred by such Restricted Subsidiary
on or prior to the date on which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company (other than
Indebtedness or Preferred Stock Incurred as consideration in, or to provide
all or any portion of the funds or credit support utilized to consummate,
the transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness or Preferred Stock Incurred
pursuant to an agreement referred to in clause (i) or (ii) of this Section
4.18 or this clause (iii) or contained in any amendment to an agreement
referred to in clause (i) or (ii) of this Section 4.18 or this clause
(iii); provided, however, that the encumbrances and restrictions with
respect to such Restricted Subsidiary contained in any such refinancing
agreement or amendment are in the aggregate no less favorable to the
Securityholders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such predecessor agreements;
(iv) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition;
(v) any encumbrances and restrictions existing under or by reason
of applicable law or regulation;
<PAGE>
29
(vi) any encumbrances and restrictions (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or
asset that is a lease, license, conveyance or contract or similar property
or asset, (B) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by the
Indenture or the other Operative Documents or (C) arising or agreed to in
the ordinary course of business not relating to any Indebtedness, and that
do not (as determined by the Company and certified in a resolution of the
Board of Directors or a certificate of the chief financial or chief
accounting officer of the Company delivered to the Trustee prior to or
promptly following such encumbrance or restriction becoming effective),
individually or in the aggregate, (1) detract from the value of property or
assets of the Company or any Restricted Subsidiary in any manner material
to the Company or any Restricted Subsidiary or (2) materially adversely
affect the Company's ability to make principal or interest (including
Special Interest, if any) payments on the Securities;
(vii) any encumbrance or restriction contained in the terms of any
Indebtedness or any agreement pursuant to which such Indebtedness was
issued if (A) the encumbrance or restriction applies only in the event of a
payment default or default with respect to a financial covenant contained
in such Indebtedness or agreement, (B) the encumbrance or restriction is
not materially more disadvantageous to the Holders of the Securities than
is customary in comparable financings (as determined by the Company and
certified in a resolution of the Board of Directors or a certificate of the
chief financial or chief accounting officer of the Company delivered to the
Trustee prior to or promptly following such encumbrance or restriction
becoming effective), and (C) such encumbrance or restriction will not
materially adversely affect the Company's ability to make principal or
interest (including Special Interest, if any) payments on the Securities
(as determined by the Company and certified in a resolution of the Board of
Directors or a certificate of the chief financial or chief accounting
officer of the Company delivered to the Trustee prior to or promptly
following such encumbrance or restriction becoming effective); and
(viii) any encumbrance or restriction resulting from any financing
transaction involving the sale of Receivables or aircraft and/or related
engines, spare parts and equipment to a special purpose Subsidiary of the
Company formed to effect such financing and which applies only to such
special purpose Subsidiary and its assets.
Nothing contained in this Section 4.18 shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in Section 4.12 or (2) restricting the sale
or other disposition of property or assets of the Company or any of its
Restricted Subsidiaries that secure Indebtedness of the Company or any of its
Restricted Subsidiaries.
<PAGE>
30
Section 4.19 Limitation on Sales of Assets and Subsidiary Stock.
--------------------------------------------------
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, consummate (x) any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or other
dispositions) of any Collateral or Pledged Collateral, except as permitted under
the other Operative Documents or (y) any Asset Disposition unless the Company or
such Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (including as to the value
of all non-cash consideration), as determined in good faith by the Board of
Directors or by the chief financial or accounting officer of the Company, of the
shares and assets subject to such Asset Disposition and at least 80% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents. If the Company or any Restricted
Subsidiary engages in an Asset Disposition, the Company may use the Net
Available Cash from such Asset Disposition, within one year after the later of
such Asset Disposition and the receipt of such Net Available Cash (such later
date, the "Trigger Date"), to (i) permanently repay or prepay any then
outstanding Senior Indebtedness of the Company or any Restricted Subsidiary or
(ii) invest in or acquire (or enter into a legally binding commitment to invest
in or acquire) Additional Assets; provided that the transaction subject to any
such commitment be consummated within 180 days after the date of such
commitment. If any such legally binding commitment to invest in or acquire such
Additional Assets is terminated, then the Company may, within 90 days of such
termination or the Trigger Date, whichever is later, use such Net Available Cash
as provided in clause (i) or (ii) (without giving effect to the parenthetical
contained in such clause (ii)) above. The amount of such Net Cash Proceeds not
so used as set forth above in this paragraph constitutes "Excess Proceeds."
(b) When the aggregate amount of Excess Proceeds exceeds $10,000,000, the
Company shall, within 30 days thereof, apply such aggregate Excess Proceeds (1)
first, to make an Offer to Purchase Outstanding Securities at 100% of their
principal amount plus accrued and unpaid interest and Special Interest, if any,
to the Purchase Date and, to the extent required by the terms thereof, any other
Indebtedness of the Company that is pari passu with the Securities at a price no
greater than 100% of the principal amount thereof plus accrued interest to the
date of purchase and (2) second, to the extent of any remaining Excess Proceeds
following the completion of the Offer to Purchase, to any other use as
determined by the Company which is not otherwise prohibited by the Indenture.
Upon the completion of an Offer to Purchase pursuant to this paragraph (b), the
amount of Excess Proceeds shall be reset to zero.
(c) For purposes of this Section 4.19, the following are deemed to be cash
or cash equivalents: (x) the assumption of Indebtedness of the Company or any
Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash.
<PAGE>
31
Section 4.20 Limitation on Affiliate Transactions.
------------------------------------
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property or employee compensation arrangements) with
any Affiliate of the Company (an "Affiliate Transaction") unless the terms
thereof (1) are no less favorable to the Company or such Restricted Subsidiary
than those that could be obtained at the time of such transaction in arm's-
length dealings with a Person who is not such an Affiliate and (2) if such
Affiliate Transaction involves an amount in excess of $2,000,000 (i) are set
forth in writing and (ii) have been approved by a majority of the members of the
Board of Directors having no personal stake in such Affiliate Transaction. If
such Affiliate Transaction involves an amount in excess of $10,000,000, a
fairness opinion must be obtained from an internationally recognized investment
banking firm, appraisal firm or auditing firm with respect to the financial
terms of such Affiliate Transaction.
(b) The provisions of the foregoing paragraph (a) shall not prohibit or
apply to (i) any Restricted Payment permitted to be paid pursuant to Section
4.3, (ii) loans or advances to employees in the ordinary course of business and
in an amount that does not exceed $1,000,000 in the aggregate outstanding at any
one time, (iii) the payment of reasonable fees to directors of the Company and
its Restricted Subsidiaries who are not employees of the Company or its
Restricted Subsidiaries, (iv) any Affiliate Transaction between the Company and
a Restricted Subsidiary or between Restricted Subsidiaries, (v) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (vi) the grant of stock
options or similar rights to employees and directors of the Company pursuant to
plans approved by the Board of Directors and (vii) any Affiliate Transaction
entered into pursuant to agreements with labor unions.
Section 4.21 Limitation on the Sale or Issuance of Capital Stock of
------------------------------------------------------
Restricted Subsidiaries.
- -----------------------
The Company shall not sell or otherwise dispose of any Capital Stock of a
Restricted Subsidiary, and shall not permit any such Restricted Subsidiary,
direct or indirectly, to issue or sell or otherwise dispose of any of its
Capital Stock except (i) to the Company or a Wholly Owned Subsidiary, (ii) the
issuance and sale of directors' qualifying shares, (iii) if, immediately after
giving effect to any such issuance, sale or other disposition, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect thereto would have been permitted
to be made under Section 4.3 if made on the date of such issuance, sale or other
disposition, (iv) if such sale or other disposition is of all or any portion of
the Capital Stock of a Restricted Subsidiary and the Net Available Cash received
from such sale or other disposition are applied in accordance with Section 4.19,
or (v) to the extent the ownership by a Person other than the Company or a
Wholly Owned Subsidiary is required by applicable law and except that any
Restricted Subsidiary may issue or permit to exist (x) Preferred Stock issued to
and held by the Company or a Wholly Owned
<PAGE>
32
Subsidiary; provided, however, that upon either (A) the transfer or other
disposition by the Company or such Wholly Owned Subsidiary of any Preferred
Stock so permitted to a Person other than the Company or another Wholly Owned
Subsidiary or (B) such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary, the provisions of this clause (x) will no longer be applicable to
such Preferred Stock and such Preferred Stock will be deemed to have been issued
at the time of such transfer or other disposition or such cessation; and (y)
Preferred Stock issued by a Person prior to the time such Person becomes a
Restricted Subsidiary (including by way of a merger or consolidation with
another Restricted Subsidiary), which Preferred Stock was not issued in
anticipation of and was outstanding prior to such transaction; provided,
however, that on the date of such acquisition and after giving effect thereto,
the Company would have been able to Incur at least $1.00 of additional
Indebtedness pursuant to Section 4.17(a).
Section 4.22 Limitation on Guarantees by Restricted Subsidiaries.
---------------------------------------------------
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu
with or subordinate in right of payment to the Securities ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a Subsidiary Guaranty of payment of the Securities by such
Restricted Subsidiary and (ii) such Restricted Subsidiary waives and will not in
any manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guaranty; provided that this paragraph shall not
be applicable to (1) any Guarantee by any Restricted Subsidiary that existed at
the time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary or (2) Guarantees of Indebtedness under working capital facilities of
the Company in an aggregate principal amount not exceeding $50,000,000 at any
time outstanding or, if less, the amount by which $150,000,000 exceeds the
aggregate outstanding principal amount of Indebtedness of the Company under
clause (15) of paragraph (b) of Section 4.17 which is secured by a Lien. If the
Guaranteed Indebtedness is (A) pari passu with the Securities, then the
Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guaranty or (B) subordinated to the Securities,
then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guaranty at least to the extent that the Guaranteed Indebtedness is
subordinated to the Securities.
Notwithstanding the foregoing, any Subsidiary Guaranty by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guaranty, except a discharge
or release by, or as a result of, payment under such Guarantee.
<PAGE>
33
Section 4.23 Limitation on Sale/Leaseback Transactions.
-----------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary to,
enter into any Sale/Leaseback Transaction with respect to any property unless
(i) the Company or such Restricted Subsidiary would be entitled to (A) Incur
Indebtedness in an amount equal to the Attributable Debt with respect to such
Sale/Leaseback Transaction pursuant to Section 4.17 and (B) create a Lien on
such property securing such Attributable Debt without equally and ratably
securing the Securities pursuant to Section 4.12, or (ii) the Sale/Leaseback
Transaction is treated as an Asset Disposition and the Company applies the
proceeds of such transaction in compliance with Section 4.19.
Section 4.24 Application for Rating.
----------------------
The Company shall, within 180 days after the Issue Date, apply to Moody's
Investors Service, Inc. and Standard & Poor's Ratings Group, to obtain a rating
for the Securities.
Section 4.25 Listing.
-------
No later than the earliest to occur of (i) the effectiveness of the initial
Exchange Offer Registration Statement and (ii) the effectiveness of the initial
Shelf Registration Statement, in either case, filed under (and as defined in)
the Registration Rights Agreement, the Company shall cause the Exchange
Securities to be listed on the American Stock Exchange, or such other stock
exchange or market as the Common Stock of the Company is then principally traded
provided, that such Securities meet the minimum requirements for listing on any
such exchange or market, and, if applicable, to maintain such listing for so
long as any of the Exchange Securities is Outstanding.
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,
transfer or lease, in one transaction or a series of transactions, all or
substantially all of its assets to, any Person unless:
(i) The resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the U.S., any state
thereof or the District of Columbia and the Successor Company (if not the
Company) shall expressly assume, by an indenture supplemental hereto, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Securities, the Indenture and the other
Operative Documents;
<PAGE>
34
(ii) Immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary of the Company as a result of such transaction as having been
Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(iii) Immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of Section 4.17;
(iv) Immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less than the
Consolidated Net Worth of the Company immediately prior to such transaction; and
(v) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that (i) such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
terms of this Indenture, (ii) this Indenture and the Securities constitute the
valid and legally binding obligations of the Successor Company, and (iii) the
Indenture and the other Operative Documents are enforceable against the
Successor Company in accordance with their terms.
Section 5.2 Successor Person Substituted.
----------------------------
The Successor Company shall be the successor to the Company and 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 the
Indenture, but the predecessor Company in the case of a conveyance, transfer or
lease shall not be released from the obligation to pay the principal of,
interest on, and Special Interest, if any, with respect to, the Securities.
The Successor Company 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 the Successor
Company, 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 to the Trustee for authentication, and
any Securities which such Successor Company 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 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.
<PAGE>
35
Section 5.3 Optional Right of Redemption.
----------------------------
The Company shall have the right, without the consent of the Holders, to
redeem the Securities in whole, but not in part, at a redemption price equal to
100% of the unpaid principal amount of the Outstanding Securities plus the
Applicable Premium as of, and accrued and unpaid interest and Special Interest
if any, to, the date of redemption in the event that the Company enters into a
binding agreement to consummate any transaction which would be prohibited by
Section 5.1. Such redemption date must occur prior to or simultaneously with
the consummation of such prohibited transaction. Any such redemption shall be
subject to the provisions of Sections 3.2-3.7, inclusive.
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 Special
Interest, 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 of, premium, if
any, on, or purchase price, if any, with respect to, any Security when the same
becomes due and payable at maturity, upon acceleration, redemption or otherwise;
(c) the Company fails to comply with any of the covenants contained in
Sections 4.04(a), 4.04(c), 4.09, or 4.14 of the Pledge Agreement or Section
5.01(e) of the Master Sub-License Agreement within the time periods, if any,
provided therein, or fails to pay over amounts required under Section 4.12(c) of
the Pledge Agreement;
(d) the Company takes any action prohibited by Section 5.1;
(e) the Company fails to comply with any of the covenants contained in
Sections 4.3, 4.7, 4.9, 4.12, 4.18, 4.20-4.25, inclusive, or (except, in each
case, for a failure to Pay the purchase price of Securities in connection with
an Offer to Purchase) 4.15, 4.17 or 4.19, and in any such case such default
continues for the period and after the notice specified below;
(f) any representation or warranty of the Company in this Indenture, any of
the other 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
material respect when made, or the Company fails in any material respect to
comply with any covenant or agreement (other than as specified in clauses (a)-
(e) above) contained in the Securities,
<PAGE>
36
the Indenture or any of the other Operative Documents, and in any such case such
default continues for the period and after the notice specified below;
(g) an event of default shall have occurred and be continuing under any
other evidence of Indebtedness of the Company or any Significant Subsidiary 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
$15,000,000;
(h) the Company or any Restricted 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;
(i) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against the Company or any Restricted Subsidiary
in an involuntary case or proceeding,
(ii) appoints a Custodian of the Company or any Restricted
Subsidiary for all or substantially all of its properties, or
(iii) orders the liquidation of the Company or any Restricted
Subsidiary,
and in each case the order and decree remains unstayed and in effect
for sixty (60) consecutive days;
(j) 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 Restricted Subsidiary by a court of competent jurisdiction and
remain undischarged, unstayed and unsatisfied for the period and after the
notice specified below; or
(k) 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
<PAGE>
37
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 (e), (f), (j) or, with respect to a Restricted
Subsidiary that is not a Significant Subsidiary, (h) or (i) 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 (f) and (j), or within thirty (30) days with respect to clauses (e) and,
with respect to a Restricted Subsidiary that is not a Significant Subsidiary,
(h) and (i), 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 other 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(h) or (i) with respect to the Company or a Restricted Subsidiary that is a
Significant Subsidiary) 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, premium, if any, accrued interest and Special Interest,
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(h) or (i) occurs with respect to the Company or a
Restricted Subsidiary that is a Significant Subsidiary, all unpaid principal of,
premium, if any, accrued interest on and Special Interest, 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
Special Interest, if any, all of the Company's obligations under the Securities
and this Indenture, other than obligations under Sections 7.7, 8.5 and 8.6,
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 Special Interest, 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
<PAGE>
38
decree of a court of competent jurisdiction, and (d) all payments due to the
Trustee and any predecessor Trustee under Section 7.7 have been made.
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 Special Interest, 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
other 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 6.01 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
aggregate 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 Special Interest 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 aggregate 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 other Operative Documents) or exercising any trust or power
conferred on it; provided that the Trustee
<PAGE>
39
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.
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 aggregate
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
Special Interest, 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 other
Operative Documents, including the right to foreclose upon and
<PAGE>
40
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 trustee of an express trust against the
Company or any other obligor on the Securities for the whole amount of
principal, accrued interest and Special Interest, 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
Special Interest, if any, upon presentation of the several Securities and
stamping (or otherwise noting) thereon the
<PAGE>
41
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;
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 Special Interest, if any, in default in the order
of the maturity of the installments of such interest and Special Interest,
if any, with interest (to the extent that such interest has been collected
by the Trustee) upon the overdue installments of interest or Special
Interest, 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 Special Interest, 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 Special Interest,
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 Special Interest, if any, without
preference or priority of any of principal, interest or Special Interest,
if any, over the other, or any installment of interest or Special Interest,
if any, over any other installment of interest or Special Interest, if any,
or of any Security over any other Security, ratably to the aggregate of
such principal, and accrued and unpaid interest and Special Interest; 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, Special Interest 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.
<PAGE>
42
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.
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.
<PAGE>
43
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.
(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 other 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
<PAGE>
44
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.
(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, premium,
if any, or interest on, or Special Interest, 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.
<PAGE>
45
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 or
delisted from any stock exchange or other recognized trading market.
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 other
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).
<PAGE>
46
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(h) or (i) 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 aggregate 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:
(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 aggregate 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.
<PAGE>
47
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.
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 other 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.
<PAGE>
48
ARTICLE 8.
DISCHARGE OF INDENTURE; DEFEASANCE
Section 8.1 Discharge of Liability on Securities; Defeasance.
------------------------------------------------
(a) When (i) the Company delivers to the Trustee all outstanding Securities
(other than Securities replaced pursuant to Section 2.7) for cancellation or
(ii) all outstanding Securities have become due and payable, whether at maturity
or as a result of the mailing of a notice of redemption pursuant to Article 3
hereof and the Company irrevocably deposits with the Trustee funds sufficient to
pay at maturity or upon redemption all outstanding Securities, including
interest thereon to maturity or such redemption date (other than Securities
replaced pursuant to Section 2.7), and if in either case the Company pays all
other sums payable hereunder by the Company, then this Indenture shall, subject
to Section 8.1(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture by executing and delivering to the
Company on demand of the Company accompanied by an Officers' Certificate and an
Opinion of Counsel, a written instrument to such effect prepared by the Company
at its sole cost and expense.
(b) Subject to Sections 8.1(c) and 8.2, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Article 3, Sections
4.3, 4.7, 4.9, 4.12, 4.15 and 4.17 through 4.25, inclusive, and the operation of
Sections 6.1(g), 6.1(h), 6.1(i), 6.1(j) (but, in the case of Sections 6.1(h) and
(i), with respect only to Restricted Subsidiaries) and the limitations contained
in Sections 5.1(iii) and (iv) ("covenant defeasance option"). The Company may
exercise its legal defeasance option notwithstanding its prior exercise of its
covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance option, payment of
the Securities may not be accelerated because of an Event of Default specified
in Sections 6.1(c), 6.1(e), 6.1(f), 6.1(g), 6.1(h), 6.1(i) and 6.1(j) (but, in
the case of Sections 6.1(h) and (i), with respect only to Restricted
Subsidiaries) or because of the failure of the Company to comply with Section
5.1(iii) or (iv).
Upon satisfaction of the conditions set forth herein and upon request of
the Company, the Trustee shall acknowledge in a writing prepared by the Company
at its sole cost and expense the discharge of those obligations that the Company
terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's obligations in
Sections 2.3 through 2.8, inclusive, 7.7 and 7.8 and in this Article 8 shall
survive until the Securities have been paid in full. Thereafter, the Company's
obligations in Sections 7.7, 8.4 and 8.5 shall survive.
<PAGE>
49
Section 8.2 Conditions to Defeasance. The Company may exercise its
------------------------
legal defeasance option or its covenant defeasance option only if:
(a) the Company irrevocably deposits in trust with the Trustee money or
U.S. Government Obligations for the payment of principal and interest and
Special Interest, if any, on the Securities to redemption or maturity, as the
case may be;
(b) the Company delivers to the Trustee a certificate from a nationally
recognized firm of independent accountants expressing their opinion that the
payments of principal and interest when due and without reinvestment on the
deposited U.S. Government Obligations plus any deposited money without
investment will provide cash at such times and in such amounts as will be
sufficient to pay when due all of the principal of, interest on and Special
Interest, if any, on all the Securities to redemption or maturity, as the case
may be;
(c) 123 days pass after the deposit is made and during the 123-day period
no Default specified in Sections 6.1(h) or (i) with respect to the Company or
any Restricted Subsidiary that is a Significant Subsidiary occurs which is
continuing at the end of the period;
(d) the deposit does not constitute a default under any other agreement
binding on the Company;
(e) the Company delivers to the Trustee an Opinion of Counsel to the effect
that the trust resulting from the deposit does not constitute, or is qualified
as, a regulated investment company under the Investment Company Act of 1940;
(f) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling, or (ii) since the date of this Indenture there has been a change in the
applicable Federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that , the Securityholders will
not recognize income, gain or loss for Federal income tax purposes as a result
of such defeasance 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 defeasance had not occurred;
(g) in the case of the covenant defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders will not recognize income, gain or loss for Federal income tax
purposes as a result of such covenant defeasance 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 covenant defeasance had not occurred;
(h) the Company shall have delivered an Opinion of Counsel to the effect
that the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency,
<PAGE>
50
reorganization or similar law affecting creditors rights generally under any
United States federal or state law and that the Trustee has a perfected security
interest in such trust funds for the ratable benefit of the Holders;
(i) the Company shall have delivered an Opinion of Counsel in the Company's
jurisdiction of incorporation to the effect that the Securityholders will not
recognize income, gain or loss for such jurisdiction's tax purposes as a result
of such defeasance and will be subject to taxes in such jurisdiction on the same
amounts, in the same manner and at the same times as would have been the case if
such defeasance had not occurred; and
(j) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent to the defeasance
and discharge of the Securities as contemplated by this Article 8 have been
complied with.
Before or after a deposit, the Company may make arrangements satisfactory
to the Trustee for the redemption of Securities at a future date in accordance
with Article 3.
Section 8.3 Application of Trust Money. The Trustee shall hold in trust
--------------------------
money or U.S. Government Obligations deposited with it pursuant to this Article
8. It shall apply the deposited money and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this Indenture to
the payment of principal of, interest on, and Special Interest, if any, on the
Securities.
Section 8.4 Repayment to Company. The Trustee and the Paying Agent
--------------------
shall promptly turn over to the Company, upon request accompanied by a
certificate from a nationally recognized firm of independent accountants
expressing their opinion that any money or U.S. Government Obligations are in
excess of the amounts sufficient to pay when due all of the principal of,
interest on, and Special Interest, if any, on the Securities to redemption or
maturity, as the case may be, any such excess money or securities held by them.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal, interest or Special Interest that remains unclaimed
for two years, and, thereafter, Securityholders entitled to the money must look
to the Company for payment as general creditors.
Section 8.5 Indemnity for Government Obligations. The Company shall pay
------------------------------------
and shall indemnify the Trustee against any tax, fee or other charge imposed on
or assessed against deposited U.S. Government Obligations or the principal and
interest received on such U.S. Government Obligations.
Section 8.6 Reinstatement. If the Trustee or Paying Agent is unable to
-------------
apply any money or U.S. Government Obligations in accordance with this Article 8
by reason of any legal proceeding or by reason of any order or judgment of any
court or
<PAGE>
51
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had occurred pursuant to
this Article 8 until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance with this
Article 8; provided, however, that, if the Company has made any payment of
-------- -------
principal of, premium, if any, interest or Special Interest, if any, on, any
Securities because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment form the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
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
other 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 other 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 other
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:
<PAGE>
52
(a) reduce the amount of Securities whose Holders must consent to an
amendment, supplement or waiver;
(b) reduce the rate or extend the time for payment of interest on, or
Special Interest, if any, with respect to, any Security;
(c) reduce the principal of, or the amount of Special Interest, if any,
with respect to (in each case, whether on redemption, repurchase or otherwise),
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 or redemption price thereof), interest thereon,
or Special Interest, if any, with respect thereto is payable;
(e) waive a default in the payment of the principal of, or interest on, or
Special Interest 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 change the time at which any Security may be
redeemed hereunder;
(g) reduce any amount payable upon exercise of any repurchase rights
thereof or otherwise change any repurchase right provision or impair the right
of any Holder to institute suit for the enforcement of any such payment on any
Security when due or adversely effect any repurchase rights hereunder; or
(h) make any change in any Subsidiary Guaranty that would adversely affect
any Holder.
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 a brief notice
describing such 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
<PAGE>
53
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 (h) of Section 9.2. 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 other 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 such 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 other 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
<PAGE>
54
terms and conditions of any such supplemental indenture and/or any such
amendment or supplement to the other Operative Documents shall be and be deemed
to be part of the terms and conditions of this Indenture and the other Operative
Documents for any and all purposes.
ARTICLE 10.
SECURITY
Section 10.1 Other Operative Documents.
-------------------------
To secure the due and punctual payment, performance and observance of the
Obligations, and the Obligations under (and as defined in) the Note Pledge
Agreement, the Company has simultaneously with the execution of this Indenture
entered into or caused to be assigned to the Collateral Agent, the Trustee
and/or Slot Trustee the other 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, the Pledged Collateral and the Acquired
Slots to the Collateral Agent, the Trustee, and the Slot Trustee, respectively,
pursuant to the other 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, the Pledged
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 Pledged Collateral and the ownership
of the Acquired Slots contemplated hereby and by the other 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 Pledged Securities.
------------------
Upon the Issue Date the Company shall deposit with the Trustee for the
benefit of the Holders of the Securities, cash and/or purchase and pledge to the
Trustee for the benefit of the Holders of the Securities, Pledged Securities, in
such amount as will when combined be sufficient (upon receipt of scheduled
interest and principal payments of such Pledged Securities, if any, in the
opinion (expressed in a written certification thereof delivered to the Trustee)
of a nationally recognized firm of independent public accountants selected by
the Company), provide for payment in full of the first three scheduled interest
payments due on the Securities. The Company may at any time
<PAGE>
55
thereafter substitute Pledged Securities for all or any part of such cash, or
cash for all or any part of such Pledged Securities, provided that the Pledged
Securities and/or cash, as the case may be, so substituted are in such amount as
will, together with the other Pledged Collateral, be sufficient (upon receipt of
scheduled interest and principal payments of Pledged Securities, if any, in the
opinion (expressed in written certification thereof delivered to the Trustee) of
a nationally recognized firm of independent public accountants selected by the
Company), to provide for payment in full of the first three scheduled interest
payments due on the Securities. Upon any substitution, the Pledged Securities
and/or cash so substituted shall be pledged by the Company to the Trustee for
the benefit of the Holders of Securities, and the Trustee shall release from the
Interest Escrow Account, to or upon the order of the Company, all or the
appropriate portion as set forth in a Request, of the cash or Pledged
Securities, as the case may be, initially deposited by the Company. The Pledged
Securities or cash required by this Section 10.2 shall be pledged by the Company
to the Trustee for the benefit of the Holders of Securities pursuant to the Note
Pledge Agreement and will be held by the Trustee in the Interest Escrow Account,
subject to and in accordance with the Note Pledge Agreement. Pursuant to the
Note Pledge Agreement, immediately prior to an interest payment date on the
Securities, the Company may either (i) deposit with the Trustee from funds
otherwise available to the Company cash sufficient to pay the interest scheduled
to be paid on such date or (ii) may direct the Trustee to release from the
Interest Escrow Account proceeds sufficient to pay interest then due. In the
event that the Company exercises the former option, the Company may thereafter
direct the Trustee to release to the Company proceeds from the Interest Escrow
Account in like amount.
Interest earned on the Pledged Securities will be added to the Interest
Escrow Account. In the event that the funds held in the Interest Escrow Account
exceed the amount sufficient, in the opinion (expressed in a written
certification thereof delivered to the Trustee) of a nationally recognized firm
of independent public accountants selected by the Company, to provide for
payment in full of the first three scheduled interest payments due on the
Securities (or, in the event the first such interest payment has been made, an
amount sufficient to provide for payment in full of the second and third
scheduled interest payment on the Securities and so on) the Trustee will be
permitted to release to the Company at the Company's request any such excess
amount. The Securities will be secured by a first priority security interest in
the Pledged Securities and Interest Escrow Account.
Pursuant to the Note Pledge Agreement, provided that the Company makes the
first three scheduled interest payments on the Securities in a timely manner,
all of the cash or Pledged Securities held in the Interest Escrow Account will
be released from the Interest Escrow Account.
Section 10.3 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
Opinions of Counsel covering such jurisdictions as the listed Purchasers may
reasonably request
<PAGE>
56
(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 other Operative Documents,
financing statements or other instruments to make effective and to perfect the
Liens intended to be created by the Pledge Agreement and the Note Pledge
Agreement have been taken and reciting with respect to the security interests in
the Collateral and the Pledged Collateral, the details of such actions, or (ii)
stating that, in the opinion of such Counsel, no such action is necessary to
make such Liens effective and 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.
(b) The Company shall furnish to the Collateral Agent and the Trustee one
hundred and twenty (120) days after January 1 in each year beginning with
January 1, 1999, 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 the Note Pledge Agreement (if not then terminated pursuant to its terms) and
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 and the
Note Pledge Agreement with respect to the security interest in the Collateral
and the Pledged Collateral and the perfection thereof, or (b) stating that, in
the opinion of such Counsel, no such action is necessary to maintain such Lien
and 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, 1999, 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
<PAGE>
57
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 or Pledged Collateral from the terms of
the Pledge Agreement or the Note Pledge Agreement, as the case may be, 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, Pledged Collateral and the Slot Trust Assets are released
pursuant to the Pledge Agreement, the Note 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
Note Pledge Agreement, as the case may be, 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 or the Note Pledge Agreement, as the case may be, 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, which person shall meet the
requirements set forth in clauses (a) through (c) of the definition of the term
"Independent Appraiser."
Section 10.4 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 other 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, the Pledged Collateral and the Acquired Slots by
any acts which may be unlawful or in violation of the other 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, the Pledged 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).
<PAGE>
58
Section 10.5 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 10.6 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 other Operative Documents, and to make
further distributions of such funds to the Holders according to the provisions
of this Indenture.
Section 10.7 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 other 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 other 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
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.
ARTICLE 11.
MISCELLANEOUS
Section 11.1 Conflict with Trust Indenture Act of 1939.
------------------------------------------
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.
<PAGE>
59
Section 11.2 Notices; Waivers.
----------------
Any request, demand, authorization, direction, notice, consent, waiver or
other document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with
(a) the Company shall be sufficient for every purpose hereunder if in
writing (including telecopied communications) and made, given, furnished or
filed by personal delivery or mailed by first-class mail or by nationally
recognized overnight courier, postage or courier charges, as the case may be,
prepaid, to the Company at:
Trans World Airlines, Inc.
One City Centre
515 N. 6th Street
St. Louis, Missouri 63101
Attention: Senior Vice President & General Counsel
Telecopier No.: (314) 589-3267
(b) the Trustee shall be sufficient for every purpose hereunder if in
writing (including telecopied communications) and made, given, furnished or
filed by personal delivery or mailed by registered or certified mail or by
nationally recognized overnight courier, postage or courier charges, as the case
may be, prepaid, to or with the Trustee at:
First Security Bank, National Association
79 South Main Street
Salt Lake City, UT 84111
Attention: Corporate Trust Services
Telecopier No.: (801) 246-5053
or to any of the above parties at any other address or telecopier number
subsequently furnished in writing by it to each of the other parties listed
above. An affidavit by any person representing or acting on behalf of the
Company or the Trustee as to such mailing, having any registry receipt required
by this Section attached, shall be conclusive evidence of the giving of such
demand, notice or communication.
Any notice or communication mailed to a Holder shall be mailed to such
holder by first-class mail or by nationally recognized overnight courier,
postage or courier charges, as the case may be, prepaid, at such holder's
address as it appears on the Register and shall be sufficiently given to such
holder if so mailed within the time prescribed.
Failure to mail a notice or send a communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. Notices to
the Trustee or to the Company are deemed given only when received. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the
<PAGE>
60
equivalent of such notice. Waivers of notice by the Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
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 other 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 of this Indenture
or the other 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 other 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.
<PAGE>
61
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 other 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 other 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 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 other Operative Document he may, but
need not, consolidate such instruments into one.
Section 11.6 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.
<PAGE>
62
Section 11.7 Holidays.
--------
In the event that any date for the payment of any amount due hereunder
shall not be a Business Day, then (notwithstanding any other provision of this
Indenture) such payment need not be made on such date, but may be made on the
next succeeding Business Day with the same force and effect as if made on the
due date, and no interest or Special Interest, if any, shall accrue from such
due date to and including the next succeeding Business Day.
Section 11.8 Governing Law; Waiver of Jury Trial.
-----------------------------------
(a) The laws of the State of New York shall govern this Indenture and the
Securities without regard to principles of conflict of laws.
(b) The Company and the Trustee each waive any right to have a jury
participate in resolving any dispute, whether sounding in contract, tort, or
otherwise arising out of, connected with, related to or incidental to the
relationship established between them in connection with this Indenture.
Instead, any disputes resolved in court will be resolved in a bench trial
without a jury.
Section 11.9 No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret any agreement of the Company or
any of its Subsidiaries which is unrelated to this Indenture, the Securities or
the other Operative Documents. Any such agreement may not be used to interpret
this Indenture.
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. The waiver and release are part of the
consideration for the issue of the Securities.
Section 11.11 Benefits of Indenture and the Securities Restricted.
---------------------------------------------------
Subject to the provisions of Section 11.12 hereof, nothing in this
Indenture or the Securities, express or implied, shall give or be construed to
give to any Person, firm or corporation, other than the parties hereto and the
Holders, any legal or equitable right, remedy or claim under or in respect of
this Indenture or under any covenant, condition, or provision herein contained,
all such covenants, conditions and provisions, subject to Section 11.12 hereof,
being for the sole benefit of the parties hereto and of the Holders.
<PAGE>
63
Section 11.12 Successors and Assigns.
----------------------
This Indenture and all obligations of the Company hereunder shall be
binding upon the successors and permitted assigns of the Company, and shall,
together with the rights and remedies of the Trustee hereunder, inure to the
benefit of the Trustee, the Holders, and their respective successors and
assigns. Any assignment in violation of this Agreement shall be null and void ab
initio.
Section 11.13 Counterpart Originals.
---------------------
This Indenture may be signed in two or more counterparts, each of which
shall be deemed an original, but all of which shall together constitute one and
the same agreement.
Section 11.14 Severability.
------------
The provisions of this Indenture are severable, and if any clause or
provision shall be held invalid, illegal or unenforceable in whole or in part in
any jurisdiction, then such invalidity or unenforceability shall affect in that
jurisdiction only such clause or provision, or part thereof, and shall not in
any manner affect such clause or provision in any other jurisdiction or any
other clause or provision of this Indenture in any jurisdiction, 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 other Operative Documents to
Moody's Investors Service, Inc. or Standard & Poor's Ratings Group (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 and the Table of Contents contained in
this Indenture have been inserted for convenience of reference only, and are and
shall be without substantive meaning or content of any kind whatsoever and are
not a part of this Indenture.
<PAGE>
64
ARTICLE 12.
RELEASE OF COLLATERAL
Section 12.1 Release of Collateral.
---------------------
The Collateral and the Pledged Collateral securing the obligations
evidenced by the Securities shall be subject to release from the Lien of this
Indenture and the other 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:/s/ Michael J. Lichty
----------------------------------------
Name: Michael J. Lichty
--------------------------------------
Title: Vice President Corporate Finance
-------------------------------------
FIRST SECURITY BANK,
NATIONAL ASSOCIATION,
as Trustee
By:/s/ Nancy M. Dahl
----------------------------------
Name: Nancy M. Dahl
--------------------------------
Title: Vice President
-------------------------------
<PAGE>
DEFINITIONS APPENDIX
Appendix I
To the Indenture between
Trans World Airlines, Inc.
and
First Security Bank, National Association, as Trustee
dated as of December 9, 1997
for the Company's 11 1/2% Senior Secured Notes due 2004
and the Pledge and Security Agreement
dated an even date therewith
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS......................................... 1
Acquired Indebtedness............................ 1
Acquired Securities.............................. 1
Acquired Slot Trust Agreement.................... 1
Acquired Slots................................... 1
Additional Acquired Slots........................ 1
Additional Assets................................ 1
Affiliate........................................ 1
Agent............................................ 2
Aircraft Acquisition Debt........................ 2
Applicable Percentage............................ 2
Applicable Premium............................... 2
Appraised Value.................................. 2
Asset Disposition................................ 4
Attributable Debt................................ 5
Average Life..................................... 5
Bankruptcy Law................................... 5
Beneficial Interest.............................. 5
Beneficial Interest Certificate.................. 5
Board of Directors............................... 5
Business Day..................................... 5
Capital Lease Obligations........................ 5
Capital Stock.................................... 6
Capital Units.................................... 6
Cash Collateral.................................. 6
Certifying Officer............................... 6
Change in Control................................ 6
Code............................................. 7
Collateral....................................... 7
Collateral Agent................................. 7
Common Stock..................................... 7
Company.......................................... 7
Company Appraiser................................ 7
Company Appraiser's Certificate.................. 7
Consolidated Coverage Ratio...................... 7
Consolidated Fixed Charges....................... 9
Consolidated Interest Expense.................... 9
Consolidated Net Income.......................... 9
Consolidated Net Worth........................... 10
Corporate Trust Office........................... 10
Currency Agreement............................... 10
Custodian........................................ 11
</TABLE>
(i)
<PAGE>
TABLE OF CONTENTS
-----------------
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Declaration...................................... 11
Deed of Conveyance............................... 11
Default.......................................... 11
Definitions Appendix............................. 11
Designated Locations............................. 11
Dispute Threshold................................ 12
Disqualified Stock............................... 12
EBITDA........................................... 13
ERISA............................................ 13
Event of Default................................. 13
Event of Loss.................................... 13
Exchange Act..................................... 14
Existing L-1011/747 Spare Parts.................. 14
Expendables...................................... 14
FAA.............................................. 14
FAA Slot Regulations............................. 14
Fair Market Value................................ 14
Federal Aviation Act............................. 15
Fuel Protection Agreements....................... 15
GAAP............................................. 15
Global Security.................................. 15
Guarantee........................................ 15
Hedging Obligations.............................. 16
Holder........................................... 16
Holder of Securities............................. 16
Securityholder................................... 16
Noteholder....................................... 16
Incur............................................ 16
Indebtedness..................................... 16
Indenture........................................ 17
Indenture Discharge Date......................... 17
Indenture Trustee................................ 17
Independent Appraiser............................ 17
Independent Appraiser's Certificate.............. 17
Interest Escrow Account.......................... 18
Interest Payment Date............................ 18
Interest Rate Agreement.......................... 18
Inventory Control System......................... 18
Investment....................................... 19
Investment Security.............................. 19
Issue Date....................................... 19
Legal Holiday.................................... 19
Lien............................................. 20
Liquidation Value................................ 20
</TABLE>
(ii)
<PAGE>
TABLE OF CONTENTS
-----------------
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Maintenance Ratio................................ 20
Master Sub-License Agreement..................... 20
NASDAQ National Market........................... 20
Net Available Cash............................... 20
Net Cash Proceeds................................ 21
Non-Slot Collateral.............................. 21
Note Pledge Agreement............................ 21
Notes............................................ 21
Obligations...................................... 21
Offer to Purchase................................ 21
Officer.......................................... 23
Officers' Certificate............................ 23
Operative Collateral............................. 23
Operative Documents.............................. 23
Opinion of Counsel............................... 23
Ordinary Course.................................. 23
Ordinary Course Of Business...................... 23
Original Issue Date.............................. 23
Outstanding or outstanding....................... 24
Paying Agent..................................... 24
Payment Date..................................... 24
Payments......................................... 24
Permitted Collateral Liens....................... 24
Permitted Investment............................. 24
Permitted Liens.................................. 25
Permitted Substitutes............................ 27
Person........................................... 27
Pipeline Spares.................................. 27
Pledge Agreement................................. 27
Pledged Collateral............................... 27
Pledged Parts Threshold.......................... 27
Pledged Securities............................... 28
Pledged Spare Parts.............................. 28
Preconditions.................................... 29
Preferred Stock.................................. 29
Primary Locations................................ 29
principal........................................ 29
Prior Third Party License........................ 29
Property......................................... 29
Public Equity Offering........................... 29
Receivables...................................... 29
Record Date...................................... 29
Redemption Date.................................. 29
Refinance........................................ 29
</TABLE>
(iii)
<PAGE>
TABLE OF CONTENTS
-----------------
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Refinancing Indebtedness......................... 29
Register......................................... 30
Registrar........................................ 30
Registration Rights Agreement.................... 30
Remaining Term................................... 30
Request.......................................... 30
Required Holders................................. 30
Restricted Payment............................... 30
Restricted Subsidiary............................ 31
Sale/Leaseback Transaction....................... 31
SEC.............................................. 31
Securities....................................... 31
Securities Act................................... 31
Security Interest................................ 31
Security Ratio................................... 31
Senior Indebtedness.............................. 32
Significant Subsidiary........................... 32
Slot............................................. 32
Slot Collateral.................................. 32
Slot Trade....................................... 32
Slot Trust....................................... 33
Slot Trust Assets................................ 33
Slot Trustee..................................... 33
Spare Parts...................................... 33
Special Interest................................. 33
Special Record Date.............................. 33
Stated Maturity.................................. 33
Sublease......................................... 33
Sub-License...................................... 33
Subordinated Obligation.......................... 33
Subsequent Deed of Conveyance.................... 33
Subsidiary....................................... 34
Subsidiary Guaranty.............................. 34
Substitution Requirements........................ 34
Supplemental Pledge Agreement.................... 37
Temporary Cash Collateral........................ 37
Temporary Cash Investments....................... 37
Tender........................................... 38
Third-Party Appraiser............................ 38
Third-Party License.............................. 38
TIA.............................................. 38
Title 14......................................... 38
Trading Day...................................... 38
Treasury Rate.................................... 38
</TABLE>
(iv)
<PAGE>
TABLE OF CONTENTS
-----------------
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Trust Officer.................................... 38
Trustee.......................................... 38
Trustee Appraiser................................ 39
Trustee Appraiser's Certificate.................. 39
TWA.............................................. 39
U.S. or United States............................ 39
U.S. Government Obligations...................... 39
Unrestricted Subsidiary.......................... 39
Voting Stock..................................... 39
Wholly Owned Subsidiary.......................... 39
SECTION 2. RULES OF CONSTRUCTION............................... 39
</TABLE>
(v)
<PAGE>
DEFINITIONS APPENDIX
SECTION 1. DEFINITIONS. Unless the context otherwise requires, each of the
terms included in Section 1(A) and referred to in Section 1(B) shall have the
respective meanings given in Section 1(A) or in the definitions referred to in
Section 1(B) for all purposes of the Indenture, the Pledge Agreement, the Note
Pledge Agreement, the Acquired Slot Trust Agreement and the Master Sub-License
Agreement (including this appendix and any other exhibits or schedules to any
thereof) and of such other agreements as may incorporate this appendix by
reference except as otherwise specifically provided herein or therein.
A. TERMS DEFINED IN APPENDIX
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person became a Restricted Subsidiary and not Incurred in connection with,
or in contemplation of, such Person becoming a Restricted Subsidiary.
"Acquired Securities" means Outstanding Securities acquired by the Company
or any Affiliate of the Company (other than Initial Securities acquired in
exchange for Private Exchange Securities or Exchange Securities, as such terms
are defined in the Indenture).
"Acquired Slot Trust Agreement" means the Acquired Slot Trust Agreement
Declaration of Trust, dated as of December 9, 1997, between the Company and the
Slot Trustee.
"Acquired Slots" means all Slots assigned, transferred and conveyed by the
Company to the Slot Trust pursuant to the Deed of Conveyance, and all Additional
Acquired Slots acquired by the Slot Trustee thereafter but shall not include any
Acquired Slots which shall have been released from the Slot Trust as permitted
under the Master Sub-License Agreement (unless later reassigned, retransferred
and reconveyed to the Slot Trust).
"Additional Acquired Slots" means all Slots which may subsequently be
designated by the Company from time to time as Acquired Slots which are
assigned, transferred and conveyed by the Company to the Slot Trust pursuant to
one or more Subsequent Deeds of Conveyance.
"Additional Assets" means (i) any property or assets utilized in the
airline business or any business that is substantially related, ancillary or
complementary thereto (including an Investment in any Person engaged in any such
business); (ii) the Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock by the Company
or another Restricted Subsidiary; or (iii) Capital Stock constituting a minority
interest in any Person that at such time is a Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of
<PAGE>
2
Sections 4.3, 4.19 and 4.20 of the Indenture only, "Affiliate" shall also mean
any beneficial owner of Capital Stock representing 10% or more of the total
voting power of the Voting Stock (on a fully diluted basis) of the Company or of
rights or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Agent" means any Registrar, Paying Agent or co-Registrar or co-Paying
Agent.
"Aircraft Acquisition Debt" means Indebtedness Incurred by the Company or
any of its Restricted Subsidiaries in connection with an acquisition of
aircraft, related engines or spare engines, spare parts or other related
equipment (including ground equipment) which Indebtedness either constitutes all
or part of the purchase price thereof, or is Incurred prior to, at the time of
or within one year after the acquisition thereof for the purpose of financing or
refinancing part of the purchase price thereof, and which equipment was not
owned by the Company or a Restricted Subsidiary of the Company prior to such
purchase; provided, however, that in either case the proportion (expressed as a
percentage) of such Indebtedness to the purchase price or Appraised Value of
such equipment at the time of such financing does not exceed 90% (except that
the foregoing limitation shall not apply to aircraft under order or option on
the Issue Date for which vendor financing (including by way of vendor guarantee)
is initially obtained).
"Applicable Percentage" means (i) with respect to any amendment, supplement
or waiver of the Indenture or any other Operative Document that would (A)
terminate the Lien of the Pledge Agreement with respect to any Collateral or the
Note Pledge Agreement with respect to the Pledged Collateral or permit the
release of any Collateral or Pledged Collateral (other than releases permitted
by the applicable Operative Document, which releases shall not require any
consent of the Holders) or permit the creation of any Lien on any Collateral
(other than Permitted Collateral Liens) or Pledged Collateral, (B) increase the
aggregate principal amount of Securities that may be issued under the Indenture
or (C) modify this definition, 66 2/3%, and (ii) otherwise, a majority.
"Applicable Premium" means, with respect to a Note at any redemption or
repurchase date, the greater of (i) 1.0% of the principal amount of such Note
and (ii) the excess of (A) the present value on such redemption or repurchase
date of the principal amount of such Note plus all required interest and Special
Interest payments due on such Note through its Stated Maturity, such present
value computed using a discount rate equal to the Treasury Rate plus 50 basis
points over (B) the principal amount of such Note.
"Appraised Value" means the fair market sale value as of a specified date
of the appraised assets that would be obtained in an arm's length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer under no compulsion to buy, as determined by an
Independent Appraiser; provided, however, that with respect to any Collateral or
-------- -------
Acquired Slots or Permitted Substitutes (except Cash Collateral), at any time,
"Appraised Value" shall mean:
<PAGE>
3
(a) Liquidation Value as determined by and as of the date set forth in a
Company Appraiser's Certificate, as adjusted by the factors set forth in
paragraph (b) of this definition and by the procedure set forth in paragraph (c)
of this definition.
(b) (i) In the case of any Operative Collateral being released in
connection with any of the following events or transactions with respect to
which Operative Collateral or Slots are being furnished as a Permitted
Substitute: the Liquidation Value of any such Collateral (A) to be released
upon an Event of Loss in respect of which insurance proceeds or proceeds of a
condemnation or other taking are payable (or in the case of insurance proceeds
would be payable if all insurance required by the Pledge Agreement were in
effect) shall be the Fair Market Value of such Collateral; (B) to be released
upon a sale thereof, shall be the Fair Market Value of such Collateral; and (C)
to be released upon a deemed sale thereof described in Section 4.04(c) of the
Pledge Agreement, shall be the Fair Market Value of such Collateral (each as
determined and adjusted under paragraph (c) of this definition); provided,
however, that if, upon any Event of Loss with respect to any Operative
Collateral which Operative Collateral is being released in connection with an
Event of Loss not described in clause (b)(i)(A), above, the Company shall
receive any payment, recovery or other proceeds in excess of the Liquidation
Value of such Operative Collateral, the Liquidation Value of such Collateral to
be released shall be increased by an amount equal to such excess, but not
exceeding the Fair Market Value of such Collateral.
(ii) In the case of any Operative Collateral or Slots being furnished
as a Permitted Substitute for Operative Collateral the Liquidation Value of
which has been adjusted under subparagraph (b)(i)(A), (B) or (C), above: the
Liquidation Value of such Permitted Substitute (to the extent so substituted)
shall be its Fair Market Value.
(c) Whenever such Company Appraiser's Certificate is filed with the
Indenture Trustee:
(i) the Trustee shall have the right at the Company's expense and
within the times set forth in Section 4.13(b) of the Pledge Agreement to
obtain a Trustee Appraiser's Certificate with respect to any or all assets
(or if the Trustee Appraiser determines that any assets are more
appropriately valued as a group, groups of assets) valued by the Company
Appraiser's Certificate;
(ii) the average of the Liquidation Values of each such asset or
group of assets specified in the Company Appraiser's Certificate and the
Trustee Appraiser's Certificate shall be the Appraised Value of such asset
or group unless the difference between the Liquidation Values specified for
any such asset or group exceeds the Dispute Threshold; and
(iii) if the difference between such Liquidation Values specified
for any such asset or group exceeds the Dispute Threshold, the Company
Appraiser and the Trustee Appraiser shall select the Third Party Appraiser,
whose determination of the Liquidation Value of such asset or group of
assets shall be the Appraised Value of such asset or group.
<PAGE>
4
(d) Notwithstanding the foregoing:
(i) "Appraised Value" means the amount thereof when applied to cash
and the bid price therefor (as reported in the then-most-current issue of
The Wall Street Journal or, if not so reported, as quoted by a dealer in
-----------------------
the Investment Security being valued reasonably acceptable to the Trustee)
when applied to Investment Securities;
(ii) except as expressly provided elsewhere, "Appraised Value" shall
be determined currently in the case of cash and Investment Securities and
as of a date within 30 days of the date of the applicable substitution or
other action in all other cases;
(iii) any diminution of the proceeds, price or value of Property
resulting from any failure of the Company to perform or comply with any
condition, covenant, representation, warranty, or undertaking in the
Indenture or any Operative Document shall be disregarded in determining the
value of any Collateral or Acquired Slot to be released; and
(iv) references in this and related definitions and provisions of
the Operative Documents to the price upon any sale or deemed sale of any
Collateral or Acquired Slot shall be equal to the full consideration
therefor, whether in cash or in value received or to be received, directly
or indirectly, by the Company, its Affiliates or Persons having other
contractual relationships with the Company or its Affiliates.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition") in one transaction or a series of related
transactions, of (i) any shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares or shares required by applicable law to
be held by a Person other than the Company or a Restricted Subsidiary), (ii) all
or substantially all the assets of any division or line of business of the
Company or any Restricted Subsidiary or (iii) sales of aircraft, engines and
related equipment (and leasehold interests therein) and any other assets of the
Company or any Restricted Subsidiary outside of the ordinary course of business
of the Company or such Restricted Subsidiary; provided that "Asset Disposition"
shall not include (A) any sale, lease, transfer or other disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary, (B) any sale, lease, transfer or other
disposition that constitutes a Restricted Payment permitted by Section 4.3 of
the Indenture, (C) any sale, lease, transfer or other disposition of (i)
inventory, (ii) Receivables or (iii) other current assets in the ordinary course
of business, (D) any sale, lease, transfer or other disposition of assets for
consideration at least equal to the fair market value of the assets sold or
disposed of, to the extent that the consideration received would constitute
Additional Assets, (E) any sale, lease, transfer or other disposition of the
Company's direct or indirect interest in Worldspan, (F) any sale, lease,
transfer or other disposition of aircraft and related engines, spare parts and
equipment (including ground equipment) or leasehold interests therein which are
obsolete or which have been grounded and held for resale or are of a type no
longer used by the Company in the ordinary course of business, (G) any
Sale/Leaseback Transaction permitted by clause (i) of Section 4.23 of
<PAGE>
5
the Indenture, (H) any sale, lease, transfer or other disposition of maintenance
bases, hangars and engine shops or (I) any disposition of Collateral or Pledged
Collateral permitted by the other Operative Documents.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes) of the total obligations of the lessee for rental payments
during the remaining term of the lease included in such Sale/Leaseback
Transaction (including any period for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bankruptcy Law" has the meaning provided in Section 6.1 of the Indenture.
"Beneficial Interest" means the unit of interest representing the entire
beneficial interest in the Slot Trust.
"Beneficial Interest Certificate" means the certificate in substantially
the form of Exhibit B attached to the Acquired Slot Trust Agreement representing
the Beneficial Interest issued by the Slot Trustee.
"Board of Directors" means the Board of Directors of the Company or any
committee of such board duly authorized to act in respect of any particular
matter.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capital Units" means those Spare Parts which will normally last the life
of the aircraft on which they are to be placed, such as spare control surfaces,
landing gears, avionic units and engine accessories.
"Cash Collateral" means cash and/or Investment Securities of the types
described in Section 2.01(d),(e) and (g) of the Pledge Agreement deposited or to
be deposited with the
<PAGE>
6
Collateral Agent, and may at the Company's election include cash held by the
Trustee as additional Collateral under Section 5.05 of the Pledge Agreement.
"Certifying Officer" means an Officer or an assistant secretary of the
Company.
"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 of the Company 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 thereof), (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 (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 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 Issue Date), cease for any reason to constitute a majority of
the Board of Directors then in office or (iv) the date of the consummation of
the merger or consolidation of the 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.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning specified in Section 2.01 of the Pledge
Agreement (or when used with respect to Property which is to become a Permitted
Substitute, such Property).
"Collateral Agent" means the Trustee acting in the capacity of collateral
agent on behalf of the Holders under the Pledge Agreement.
"Common Stock" includes any stock of any class of the Company which has no
preference in respect to dividends or of amounts payable in the event of any
voluntary or
<PAGE>
7
involuntary liquidation, dissolution or winding up of the Company and which is
not subject to redemption by the Company.
"Company" means the party named as such in the Indenture or any obligor on
the Securities until a successor replaces it pursuant to the Indenture and
thereafter means the successor.
"Company Appraiser" means an Independent Appraiser selected by the Company.
"Company Appraiser's Certificate" means an Independent Appraiser's
Certificate signed by a Company Appraiser.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending prior to the date of such determination
for which financial statements have been made publicly available to (ii)
Consolidated Fixed Charges for such four fiscal quarters; provided, however,
that
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and
Consolidated Fixed Charges for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness
had been Incurred on the first day of such period and the discharge of any
other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period,
(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the
date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Fixed Charges for such
period shall be calculated on a pro forma basis as if such discharge had
occurred on the first day of such period,
(3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the EBITDA
(if negative), directly attributable thereto for such period and
Consolidated Fixed Charges for such period shall be reduced by an amount
equal to the Consolidated Fixed Charges directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company
and its continuing Restricted Subsidiaries in connection with
<PAGE>
8
such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Fixed Charges for such
period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such
disposition),
(4) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring
a calculation to be made hereunder, which constitutes all or substantially
all of an operating unit of a business, EBITDA and Consolidated Fixed
Charges for such period shall be calculated after giving pro forma effect
thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period, and
(5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition, any Investment or acquisition of
assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Fixed Charges for such period shall be calculated
after giving pro forma effect thereto as if such Asset Disposition,
Investment or acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating thereto
and the amount of Consolidated Fixed Charges associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest of such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of one year).
"Consolidated Fixed Charges" means, for any period, the sum of (i) the
Consolidated Interest Expense for such period plus (ii) dividends declared
during such period with respect to Preferred Stock that is Disqualified Stock.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, determined
on a consolidated basis in accordance with GAAP, plus, to the extent not
included in such total interest expense, and to the extent incurred by the
Company or its Restricted Subsidiaries, without duplication, (i) interest
expense attributable to capital leases, (ii) amortization of debt discount and
debt issuance cost (other than in respect of the Notes), (iii) capitalized
interest, (iv) non-cash interest expense, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and
<PAGE>
9
bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) interest incurred in
connection with Investments in discontinued operations, (viii) interest accruing
on any Indebtedness of any other Person to the extent such Indebtedness is
Guaranteed by (or secured by the assets of) the Company or any Restricted
Subsidiary and (ix) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Company) in connection
with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(i) any net income of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution paid to a Restricted Subsidiary,
to the limitations contained in clause (iii) below) and (B) the Company's
equity in a net loss of any such Person for such period shall be included
in determining such Consolidated Net Income;
(ii) any net income (or loss) of any Person acquired by the Company
or a Subsidiary in a pooling of interests transaction for any period prior
to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject
to the exclusion contained in clause (iv) below, the Company's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such period to
the Company or another Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid
to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(iv) any gain or loss realized upon the sale or other disposition of
any assets of the Company or its consolidated Subsidiaries (including
pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Capital Stock of
any Person;
(v) extraordinary, unusual and non-recurring gains or losses; and
<PAGE>
10
(vi) the cumulative effect of a change in accounting principles
since the Issue Date.
Notwithstanding the foregoing, for the purposes of Section 4.3 of the
Indenture only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenants pursuant to clause (a)(3)(C) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company for which financial statements have been made
publicly available prior to the taking of any action for the purpose of which
the determination is being made, as (i) the par or stated value of all
outstanding Capital Stock of the Company plus (ii) paid-in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit and (B) only to the extent
otherwise included in the amount specified in clauses (i), (ii) or (iii) of this
definition, any amounts attributable to Disqualified Stock.
"Corporate Trust Office" when used with respect to the Trustee means the
office of the Trustee at which at any particular time its corporate trust
business is administered and which, at the Issue Date, is located at First
Security Bank, National Association, as Trustee, 79 South Main Street, Salt Lake
City, UT 84117, Attention: Corporate Trust Services.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary designed to protect such Person against
fluctuations in currency values and not for the purpose of speculation.
"Custodian" has the meaning provided in Section 6.1 of the Indenture.
"Declaration" means the Acquired Slot Trust Agreement Declaration of Trust
between the Company and the Slot Trustee dated as of December 9, 1997.
"Deed of Conveyance" is defined in Section 3.01 of the Declaration.
"Default" means any event which is, or after notice or passage of time, or
both, would be, an Event of Default.
"Definitions Appendix" means the Definitions Appendix attached as Appendix
I to the Indenture and the Pledge Agreement and constituting a part of the
Indenture and each Operative Document.
"Designated Locations" means the locations in the U.S. designated from time
to time by the Company at which the Pledged Spare Parts are located; provided
that Designated Locations (i) shall at all times include the four (or, after the
Designated Location Release Date (as defined below) the one or two) locations in
the U.S. at which are located the Company's highest dollar
<PAGE>
11
value of Spare Parts that may be pledged under the Pledge Agreement (such four
or one or two locations, as the case may be, shall be referred to as the
"Primary Locations"), and (ii) shall at no time exclude locations at which are
located inventories of Spare Parts which are materially and disproportionally
newer or more valuable (or as shown in the Inventory Control System, more
active), in light of the aircraft types on which Spare Parts may be used, than
the Pledged Spare Parts. The Designated Locations and the Primary Locations
initially shall be the facilities of the Company set forth on Schedule 1 to the
Pledge Agreement.
Following the initial designation by the Company of Designated Locations
and so long as the Pledged Parts Threshold is maintained, a non-Designated
Location may become a Designated Location: (i) if such non-Designated Location
becomes a Primary Location, provided that upon such non-Designated Location
becoming a Primary Location, the Designated Location previously designated a
Primary Location with the fourth highest dollar value of Pledged Spare Parts
(based on the aggregate values of such Pledged Spare Parts as reflected on the
Inventory Control System at the time such non-Designated Location is to become a
Designated Location) shall, at the election of the Company, cease to be a
Primary Location but shall not cease to be a Designated Location unless such
cessation (x) is permitted by clause (ii) of the preceding paragraph and (y)
shall not cause the Company to fail to maintain the Pledged Parts Threshold;
provided that if such cessation is prevented under clauses (x) or (y) of this
paragraph, the Company at its election may cause any other single Designated
Location with a lower dollar value of Pledged Spare Parts than that of such
previously designated Primary Location and whose cessation as a Designated
Location would not be prevented under said clause (x) or (y) to cease to be a
Designated Location; provided further that neither such previously designated
Primary Location nor any other Designated Location may thereafter cease to be a
Designated Location except as permitted under this paragraph upon some
additional non-Designated Location becoming a Primary Location or as permitted
under the last paragraph of this definition; and (ii) for the purpose of using
the Spare Parts at such location as Permitted Substitutes, complying with
clauses (i) or (ii) of the preceding paragraph, maintaining the Pledged Parts
Threshold or otherwise. In the case of a Designated Location (which is not a
Primary Location) becoming a Primary Location, the Primary Location with the
fourth highest dollar value of Pledged Spare Parts (based on the aggregate
values of such Pledged Spare Parts as reflected on the Inventory Control System
at the time such Spare Parts become subject to the Lien of the Pledge Agreement)
shall cease to be a Primary Location, but shall continue to be a Designated
Location.
At such time as the aggregate principal amount of the Securities
Outstanding has been reduced to $60,000,000, the Company will be entitled to
reduce the number of Designated Locations to the one or two locations in the
U.S. at which are located the Company's highest dollar value of Pledged Spare
Parts (based on the aggregate values of such Pledged Spare Parts as reflected on
the Inventory Control System as of the Designated Location Release Date). The
reduction of Designated Locations referred to in the immediately preceding
sentence will occur on the first date (the "Designated Location Release Date"),
on or after such reduction of such principal amount of Securities, when (i)
after giving effect to such release, the ratio of the aggregate Fair Market
Value of the Pledged Spare Parts at such remaining Designated Location or
Locations (based on a Company Appraiser's Certificate) to the aggregate
principal amount of the Securities Outstanding (less Cash Collateral), would
equal or exceed 2.5 to 1 and (ii) the applicable Preconditions have been
satisfied. Upon Request by the Company, payment by the
<PAGE>
12
Company of the Collateral Agent's costs (including reasonable legal fees and
disbursements) incurred in complying with such Request and satisfaction of all
the conditions in the immediately preceding sentence, the Collateral Agent shall
release from the Lien of the Pledge Agreement, assign and transfer to the
Company or its designee at any time, all the right, title and interest of the
Collateral Agent in and to any Operative Collateral that is located at any
locations other than such one or two remaining Designated Locations.
"Dispute Threshold" means a difference in the valuation set forth in a
Company Appraiser's Certificate and in a Trustee Appraiser's Certificate of more
than (a) $5,000,000 or (b) twenty percent (20%) of the lower of the two
valuations.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise
prior to the first anniversary of the Stated Maturity of the Notes, (ii) is
convertible or exchangeable for Indebtedness with a Stated Maturity prior to the
first anniversary of the Stated Maturity of the Notes or Disqualified Stock or
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the first anniversary of the Stated Maturity of the
Notes; provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of a "change of control" or "asset disposition" occurring prior to
the first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "change of control" or "asset disposition" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions under Sections 4.15 and 4.19, respectively, of
the Indenture.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company and its consolidated Restricted Subsidiaries, (b) depreciation expense
of the Company and its consolidated Restricted Subsidiaries, (c) amortization
expense of the Company and its consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period) and (d) all other noncash charges of the Company and its
consolidated Restricted Subsidiaries (excluding any such noncash charge to the
extent that it represents an accrual of or reserve for cash expenditures in any
future period), in each case for such period. Notwithstanding the foregoing,
the provision for taxes based on the income or profits of, and the depreciation
and amortization and noncash charges of, a Restricted Subsidiary shall be added
to Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
<PAGE>
13
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time
"Event of Default" is defined in Section 6.1 of the Indenture.
"Event of Loss" means (a) with respect to Pledged Spare Parts: a single
occurrence of any of the following events with respect to any portion of the
Pledged Spare Parts having an Appraised Value of five percent (5%) or greater of
the total Appraised Value of such Pledged Spare Parts: (i) the loss of any such
portion of the Pledged Spare Parts or the use thereof due to destruction, damage
beyond repair or rendition of any such portion of the Pledged Spare Parts
permanently unfit for normal use for any reason whatsoever; (ii) any damage to
any such portion of the Pledged Spare Parts which results in the receipt of
insurance proceeds with respect to any such portion of the Pledged Spare Parts
on the basis of an actual or constructive loss; (iii) the loss of possession of
any such portion of the Pledged Spare Parts by the Company for ninety (90)
consecutive days as a result of the theft or disappearance of any such portion
of the Pledged Spare Parts; (iv) the loss of possession of any such portion of
the Pledged Spare Parts by the Company for one hundred and twenty (120)
consecutive days as a result of the condemnation, confiscation, seizure or
requisition for use of any such portion of the Pledged Spare Parts by the United
States Government or any instrumentality or agency thereof; or (v) the
institution of bankruptcy, insolvency or similar proceedings with respect to a
sublessee of any such portion of the Pledged Spare Parts and the inability of
the Company, as a result thereof, to repossess any such portion of the Pledged
Spare Parts within one hundred and eighty (180) days following a failure by such
sublessee to pay the rent due under the applicable sublease; and (b) with
respect to Acquired Slots: (i) the loss of any Acquired Slot resulting from the
withdrawal from the Company or the Slot Trust of any such Acquired Slot by the
United States Government or any instrumentality or agency thereof for any
reason, including, but not limited to, violation of the requirements for usage
set forth in Section 93.227 of Title 14, international operations, essential air
services (as defined by the Department of Transportation of the U.S.),
operational needs or elimination of Slots; (ii) the institution of bankruptcy,
insolvency or similar proceedings with respect to a third party sub-licensee
possessing the right to use any Acquired Slot pursuant to a Third Party License,
Prior Third Party License (as defined in the Declaration), or Slot Trade and the
inability of the Slot Trust, as a result thereof, to reacquire the right to use
any such Acquired Slot within thirty (30) days after the rejection of such Third
Party License, Prior Third Party License or Slot Trade; (iii) the repeal of the
right to transfer Slots set forth in section 93.221 of Title 14; or (iv) the
imposition of any law, rule or regulation prohibiting or restricting in any
respect materially adverse to the Holders of the Securities the ability of the
Slot Trust to hold, sell or otherwise transfer the right to hold or use Slots.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Existing L-1011/747 Spare Parts" means Spare Parts owned by the Company on
the Issue Date which are appropriate for use on Lockheed L-1011 or Boeing 747
model airframe types and which are specific to such airframes because of their
non-compatibility with other types of airframes.
<PAGE>
14
"Expendables" means those Spare Parts which are used (consumed) in the
Company's routine operations and are generally items which either are used only
once and then discarded or are held in inventory until such time as they are
designated as Pipeline Spares, and include aircraft and airframe parts, such as
blades, gears and panels, and general hardware items such as gaskets, light
bulbs, raw metal stock and fabric.
"FAA" means the Federal Aviation Administration or similar regulatory
authority established to replace it.
"FAA Slot Regulations" is defined in Section 7.01(b)(i) of the Master
Sub-License Agreement.
"Fair Market Value" (a) means with respect to any Collateral, or Acquired
Slots or Permitted Substitutes, at any time, the fair market value (on the basis
of a hypothetical sale negotiated in an arm's length free market transaction
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure to complete the transaction) as determined by and as of the date
set forth in a Company Appraiser's Certificate; provided that (i) the Fair
Market Value of cash and Investment Securities shall be equal to their Appraised
Value, (ii) the Fair Market Value of any Collateral that has been the subject of
a condemnation or similar taking, or of a contemporaneous sale thereof to a
third party occurring under the same circumstances as such hypothetical sale,
shall equal the amount of all proceeds of such condemnation or taking (assuming
reasonable efforts to achieve a fair recovery) net of reasonable expenses of
obtaining the same or, in the case of such a sale, the sale price net of all
reasonable expenses incurred in connection therewith, and (iii) the
determination of Fair Market Value will be subject to the procedures governing
determinations of Appraised Value set forth in paragraph (c) and the provisions
of paragraph (d) of the definition thereof; provided that the Company Appraisers
--------
Certificate (x) for purposes of the Substitution Requirements for Acquired Slots
or for the reduction of Designated Locations pursuant to the last paragraph of
the definition thereof, may be up to twenty (20) months old, and (y) for
purposes of the release of Acquired Slots upon partial prepayment under Section
6.02(b) of the Master Sub-License Agreement, may be up to twelve (12) months
old, in the case of each of (x) and (y) only if such Company Appraiser's
Certificate is accompanied by an Officers' Certificate described in clause (ii)
of the definition of the term "Preconditions".
"Federal Aviation Act" means Title 49 of the United States Code,
"Transportation," as amended from time to time, or any similar legislation of
the United States enacted in substitution or replacement thereof. In the event
there is enacted any legislation replacing, modifying or repealing, in whole or
in part, the Federal Aviation Act, then the term "certificated," when used with
reference to the Federal Aviation Act or any particular provision thereof, shall
mean authorized to provide, or not prohibited from providing, air transportation
services.
"Fuel Protection Agreements" means in respect to a Person any fuel
protection agreement or other financial agreement or arrangement designed to
protect such Person against fluctuations in market prices of aircraft fuels and
not for the purpose of speculation.
<PAGE>
15
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Global Security" means a Security that evidences all or part of the
Securities of any series and bears the legend set forth in Exhibit 1 to the Rule
144A/Regulation S Appendix to the Indenture.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
condition or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Fuel Protection Agreement or Currency
Agreement.
"Holder", "Holder of Securities", "Securityholder" or "Noteholder" means
the Person in whose name a Security is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a non-
interest bearing or other discount security shall be deemed the Incurrence of
Indebtedness. Neither the accrual of interest, the accretion of original issue
discount or fluctuations in exchange rates of currencies shall be considered an
Incurrence of Indebtedness. Any change in GAAP that results in an obligation of
such Person that exists at such time becoming Indebtedness shall not be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
<PAGE>
16
(i) the principal of and premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such Person is responsible or liable, including, in each
case, any premium on such indebtedness to the extent such premium has
become due and payable;
(ii) all Capital Lease Obligations of such Person;
(iii) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations of
such Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business);
(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than the
tenth Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to
the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, the liquidation preference
with respect to, any Preferred Stock (but excluding, in each case, any
accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) above of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including by
means of any Guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) above of other Persons secured by any Lien on any property or asset of
such Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The "amount" or "principal amount" of Indebtedness at any time of
determination as used herein represented by (a) any contingent Indebtedness,
shall be the maximum principal amount thereof, (b) any Indebtedness issued at a
price that is less than the principal amount at maturity thereof, shall be the
amount of the liability in respect thereof determined in accordance with
<PAGE>
17
GAAP and (c) any Disqualified Stock, shall be the maximum fixed redemption or
repurchase price in respect thereof.
"Indenture" means the Indenture dated as of December 9, 1997, between the
Company and the Trustee under which the Securities are issued, as amended or
supplemented from time to time.
"Indenture Discharge Date" means the date of the effectiveness of the
termination of the Company's obligations under the Indenture pursuant to Section
8.1(a) or (b) thereof.
"Indenture Trustee" means the Trustee.
"Independent Appraiser" means a Person (i) engaged in a business which
includes appraising aircraft and assets and rights related to the operation and
maintenance of aircraft from time to time and (ii) who (a) is in fact
independent of the parties to the transaction in question and their Affiliate;
(b) does not have any direct financial interest or any material indirect
financial interest in the Company or any of the Restricted Subsidiaries or any
of their respective Affiliates and (c) is not connected with the Company, any of
the Restricted Subsidiaries or any of such Affiliates as an officer, director,
employee, promoter, underwriter, trustee, partner or person performing similar
functions.
"Independent Appraiser's Certificate'" means a certificate signed by an
Independent Appraiser and delivered to the Trustee, the Collateral Agent and/or
the Slot Trustee pursuant to the Indenture or the applicable Operative Document,
which shall include the statements provided for in Section 11.05 of the
Indenture if and to the extent required by the provisions thereof.
"Interest Escrow Account" means an account established with the Trustee
pursuant to the terms of the Note Pledge Agreement for the deposit of cash
and/or the Pledged Securities purchased by the Company with a portion of the net
proceeds from the Offering.
"Interest Payment Date" means June 15 and December 15 of each year during
which any Security is Outstanding (commencing June 15, 1998) and the date on
which the Securities mature, if different.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates and not for the purpose of speculation.
"Inventory Control System" means the method in effect on the Issue Date by
which the Company tracks and values its inventory of Expendables and Pipeline
Spares. On the Issue Date, the Inventory Control System valued Expendables and
Pipeline Spares in accordance with the Company's standard pricing method,
pursuant to which units of Expendables or Pipeline Spares of a particular type
are valued initially at the actual purchase price of such unit ("Standard
Cost"), provided, that the existing Standard Cost of a particular type of
Expendable or Pipeline Spare is revised by the Company at the end of each month
whenever either (a) the actual unit price paid for newly purchased Expendables
or Pipeline Spares of such particular type varies twenty percent (20%) more or
less than the currently established Standard Cost per unit or (b) the aggregate
<PAGE>
18
purchase price of the newly purchased Expendables or Pipeline Spares (i.e., the
purchase price per unit multiplied by the quantity of the units purchased) is
$500 more or less than the product of the existing Standard Cost per unit and
the quantity of units purchased. Capital Units are not included in the Company's
Inventory Control System and are tracked and valued in the Company's Maintenance
and Operational Cost System. For purposes of the Pledge Agreement, however, the
valuation of Capital Units in the Maintenance and Operational Cost System shall
be deemed to be included in the Inventory Control System and, on the Issue Date,
Capital Units were valued in accordance with the Company's average acquisition
pricing method, pursuant to which each type of Capital Unit is valued at the
average of the original acquisition cost for such type of Capital Unit at a
prior date with no re-evaluation to reflect the actual purchase price of newly
purchased Capital Units. The Company's financial statement valuations
attributable to Expendables and Pipeline Spares are generated from the Inventory
Control System valuations but are not so related in the case of Capital Units.
All such factors may be considered by the Independent Appraiser who conducts any
valuations with respect to Spare Parts. The value of Existing L-1011/747 Spare
Parts set forth or deemed to be set forth in the Inventory Control System has
been reduced by 31% of the Standard Cost with respect to such Parts.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of transfer of cash or other property to
others or any payment for property or other services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and Section
4.3 of the Indenture, (i) "Investment" shall include the portion (proportionate
to the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Investment Security" means (a) any bond, note or other obligation which is
a direct obligation of or guaranteed by the U.S. or any agency thereof; (b) any
obligation which is a direct obligation of or guaranteed by any state of the
U.S. or any subdivision thereof or any agency of any such state or subdivision,
and which has the highest rating published by Moody's Investors Service or
Standard & Poor's Corporation; (c) any commercial paper issued by a U.S. obligor
and having the highest rating published by Moody's Investors Service or Standard
& Poor's Corporation; (d) any money market investment instrument relying upon
the credit and backing of any bank or trust company which is a member of the
Federal Reserve System and which has a combined capital (including capital
reserves to the extent not included in capital) and surplus and undivided
profits of not less than $250,000,000 (including the Collateral Agent and its
Affiliates
<PAGE>
19
if such requirements as to Federal Reserve System membership and combined
capital and surplus and undivided profits are satisfied), including, without
limitation, certificates of deposit, time and other interest-bearing deposits,
bankers' acceptances, commercial paper, loan and mortgage participation
certificates and documented discount notes accompanied by irrevocable letters of
credit and money market fund investing solely in securities backed by the full
faith and credit of the United States; or (e) repurchase agreements
collateralized by any of the foregoing.
"Issue Date" means the date on which the Securities are originally issued.
"Legal Holiday" means a Saturday, Sunday or any other day on which banks
located in New York City or Salt Lake City, Utah are authorized or obligated by
law to remain closed.
"Lien" means any conveyance in trust, assignment, mortgage, pledge,
security interest, encumbrance, lien or charge of any kind (including any
conditional sale or other title retention agreement or lease in the nature
thereof).
"Liquidation Value" means with respect to any Collateral or Acquired Slots,
or any Operative Collateral or Slots to become Permitted Substitutes, at any
time, the value thereof on the basis of a hypothetical individual sale (not an
auction or distress sale or a fleet or bulk sale) at arm's length between a
willing buyer and a seller who is perceived to be under the compulsion to
complete the sale within a period of 15 months.
"Maintenance and Operational Cost System" means the inventory system used
by the Company to track and value Capital Units. Capital Units are valued in
accordance with the Company's average acquisition pricing method, pursuant to
which each type of Capital Unit is valued at the average of the original
acquisition cost for such type of Capital Unit at a prior date with no re-
evaluation to reflect the actual purchase price of newly purchased Capital
Units. The value of Existing L1011/B747 Spare Parts set forth or deemed to be
set forth in the Inventory Control System have been reduced by 31% of the
average acquisition price.
"Maintenance Ratio" means the ratio of (i) the sum of the aggregate Fair
Market Values of the Pledged Spare Parts and the Acquired Slots to (ii) the
aggregate principal amount of the Securities Outstanding minus the Fair Market
Value of any existing Cash Collateral.
"Master Sub-License Agreement" means the Master Sub-License Agreement dated
as of December 9, 1997, between the Slot Trustee and the Company in
substantially the form attached as Exhibit C to the Acquired Slot Trust
Agreement.
"NASDAQ National Market" means the National Association of Securities
Dealers' Automated Quotation National Market System.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of indebtedness or other
obligations relating to such properties or assets or received in any other
<PAGE>
20
noncash form), in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition
and (iv) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock, the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Slot Collateral" means all Collateral other than the Slot Collateral.
"Note Pledge Agreement" means the Collateral Pledge and Security Agreement,
dated as of the date of the Indenture, by and between the Trustee and the
Company, providing for, among other things, the governing of the disbursement of
funds from the Interest Escrow Account.
"Notes" means the Securities.
"Obligations" is defined in Section 2.01 of the Pledge Agreement.
"Offer to Purchase" means an offer to purchase all or a pro rata portion,
as the case may be, of the Notes by the Company from the Holders commenced by
the mailing (by first class mail, postage prepaid) by the Company (or, if
requested by the Company on at least five Business Days' prior notice to the
Trustee and at the Company's expense, by the Trustee) of a notice to each Holder
(and, if mailed by the Company, to the Trustee) at such Holder's address
appearing in the Register, stating: (i) the covenant pursuant to which the offer
is being made and that all Notes validly tendered will be accepted for payment
on a pro rata basis; (ii) the purchase price and the date of purchase (which
shall be a Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed) (the "Payment Date"); (iii) that any Note not
tendered will continue to accrue interest pursuant to its terms; (iv) that,
unless the Company defaults in the payment of the purchase price, any Note
accepted for payment pursuant to the Offer to Purchase shall cease to accrue
interest on and after the Payment Date; (v) that Holders electing to have a Note
purchased pursuant to the Offer to Purchase will be required to surrender the
Note, together with the form entitled "Option of the Holder to Elect Purchase"
on the reverse side of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
immediately preceding the Payment Date (or, if such day is a Legal
<PAGE>
21
Holiday, on the next subsequent day which is not a Legal Holiday), and such
Holder shall be entitled to receive from the Paying Agent a non-transferable
receipt of deposit evidencing such deposit; (vi) that, unless the Company
defaults in making the payment of the purchase price or shall otherwise, in its
sole discretion, consent thereto, Holders will be entitled to withdraw their
election only if the Trustee receives, not later than the close of business on
the fifth Business Day immediately preceding the Payment Date, a telegram,
facsimile transmission or letter setting forth the name of such Holder, the
principal amount at maturity of Notes delivered for purchase and a statement
that such Holder is withdrawing his election to have such Notes purchased; and
(vii) that Holders whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered: provided that each Note purchased and each new Note issued shall be
in a principal amount at maturity of $1,000 or integral multiples thereof. The
Company shall 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 Holder's right to exercise a repurchase right. On the Payment Date,
the Company shall (i) accept for payment on a pro rata basis Notes or portions
thereof tendered pursuant to an Offer to Purchase; (ii) deposit with the Trustee
money sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Trustee shall promptly mail to the Holders of Notes so accepted payment in
an amount equal to the purchase price, and the Trustee shall promptly
authenticate, and the Company shall promptly execute and mail (or cause to be
mailed) to such Holders a new Note equal in principal amount at maturity to any
unpurchased portion of the Note surrendered; provided that each Note purchased
and each new Note issued shall be in a principal amount at maturity of $1,000 or
integral multiples thereof; provided further that if the Payment Date is between
a regular Record Date and the next succeeding Interest Payment Date, Notes to be
repurchased must be accompanied by payment of an amount equal to the interest
and Special Interest, 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 Special Interest, 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 such
payment, and the interest on the principal amount of the Note being repurchased
and Special Interest, 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. The Company will publicly announce the results of an Offer to
Purchase as soon as practicable after the Payment Date. The Trustee shall act as
the Paying Agent for an Offer to Purchase. The Company will comply with Rule
14e-l under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable, in the event
that the Company is required to repurchase Notes pursuant to an Offer to
Purchase. Both the notice of the Company and the notice of the Holder having
been given as specified above, the Notes so to be repurchased shall, on the
Payment Date become due and payable at the purchase price applicable thereto and
from and after such date (unless the Company shall default in the payment of
such purchase price) such Notes shall cease to bear interest. If any Note shall
not be paid upon surrender thereof for repurchase, the principal shall, until
paid, bear interest from the Payment Date at the rate borne by such Note. Any
Note which is to be submitted for repurchase only in
<PAGE>
22
part shall be delivered pursuant to the above provisions with (if the Company or
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 such Holder's attorney duly authorized in writing.
"Officer" means the Chairman of the Board, the President, any Vice
President of any grade, the Chief Financial Officer, the Treasurer, any
Assistant Treasurer, the Secretary or the Controller of the Company.
"Officers' Certificate'" means a certificate signed by an Officer and by a
Certifying Officer satisfying the requirements of Sections 11.4 and 11.5 of the
Indenture.
"Operative Collateral" means the Pledged Spare Parts and (when used with
respect to Permitted Substitutes) Spare Parts which are to become Permitted
Substitutes.
"Operative Documents" means the Deed of Conveyance, the Indenture, the
Acquired Slot Trust Agreement, the Master Sub-License Agreement, the Note Pledge
Agreement and the Pledge Agreement.
"Opinion of Counsel" means a written opinion from the General Counsel of
the Company, legal counsel to the Company or another legal counsel who is
reasonably acceptable to the Trustee, which Opinion of Counsel shall comply with
Sections 11.4 and 11.5 of the Indenture. The counsel may be an employee of the
Company. The acceptance by the Trustee (without written objection to the Company
during the fifteen (15) Business Days following receipt) of, or its action on,
an opinion of counsel not specifically referred to above shall be sufficient
evidence that such counsel is acceptable to the Trustee.
"Ordinary Course" means, when applied to any one or any related group or
series of sales, or deemed sales in the case of certain leases or other
dispositions of Collateral, including transfers of Pledged Spare Parts from
Designated Locations to, or locations at, locations which are not Designated
Locations (each a "disposition" and collectively "dispositions"), that such
disposition or dispositions (as of the date, or if a group or series the last
date, thereof) (a) are in the Ordinary Course Of Business and (b) in the case of
dispositions of Pledged Spare Parts (in a single transaction or related group or
series of transactions as aforesaid), (i) are not dispositions (in such single
or related transactions) of Pledged Spare Parts having aggregate value as
reflected on the Inventory Control System in excess of $10,000,000, and (ii) are
dispositions (in such single or related transactions) which do not occur at a
time when the aggregate value of the remaining Pledged Spare Parts as so
reflected is less, and which will not cause such aggregate value to be less,
than the Pledged Parts Threshold.
"Ordinary Course Of Business" means (i) in the Company's ordinary course of
business and (ii) without limitation of the generality of clause (i), (x) in
good faith, (y) for business reasons other than meeting the cash requirements of
the Company and its Subsidiaries and (z) not for the purpose of circumventing
the provisions of the Operative Documents.
<PAGE>
23
"Original Issue Date" means with respect to any Note the date such Note is
first issued pursuant to the Indenture.
"Outstanding or outstanding" when used with respect to Notes or a Note,
means all Notes theretofore authenticated and delivered under the Indenture,
except:
(a) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Notes for which payment has been deposited with the Trustee or
any Paying Agent in trust other than deposits pursuant to Section 8.1 of
the Indenture; and
(c) Notes which have been paid, or for which other Notes shall have
been authenticated and delivered in lieu thereof or in substitution
therefor pursuant to the terms of Section 2.7 of the Indenture, unless
proof satisfactory to the Trustee is presented that any such Securities are
held by holders in due course.
A Note does not cease to be Outstanding because the Company or one of its
Affiliates holds the Note; provided, however, that in determining whether the
Holders of the requisite aggregate principal amount of Notes Outstanding have
given any request, demand, authorization, direction, notice, consent or waiver
under the Indenture, Section 2.8 of the Indenture shall be applicable.
"Paying Agent" has the meaning provided in Section 2.3 of the Indenture,
except that for the purposes of Article 8 of the Indenture and any Offer to
Purchase, the Paying Agent shall not be the Company.
"Payment Date" with respect to any Offer to Purchase, has the meaning
specified in the definition of Offer to Purchase.
"Payments" means such monies as the Company shall cause to be delivered to
the Trustee or any Paying Agent for the purpose of paying principal, purchase
price or redemption price of, or interest on, or Special Interest with respect
to, the Notes on any Interest Payment Date, Payment Date, redemption date or
acceleration; and "Pay" means paying such monies.
"Permitted Collateral Liens" means those Liens permitted under Section 4.09
of the Pledge Agreement. "Permitted Investment" means an Investment by the
Company or any Restricted Subsidiary in (i) the Company, a Restricted Subsidiary
or a Person that will, upon the making of such Investment, become a Restricted
Subsidiary; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary; (iii)
Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
<PAGE>
24
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary in
an aggregate amount outstanding at any time of not more than $1,000,000; (vii)
any Investment arising as a result of any Hedging Obligations; (viii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (ix) any Investment to the extent
such Investment represents the non-cash portion of the consideration received
for an Asset Disposition as permitted pursuant to Section 4.19 of the Indenture
and (x) Investments in the normal course of business in any Persons the primary
business of which is substantially related, ancillary or complementary to the
airline business.
"Permitted Liens" means, with respect to any Person and subject in all
cases to any applicable provisions of the Operative Documents,
(a) Liens existing or securing Indebtedness existing (or for which a
written commitment has been made on or prior to the Issue Date) on the
Issue Date;
(b) Liens granted on or after the Issue Date in favor of the holders
of the Notes or the Exchange Notes;
(c) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company to secure Indebtedness
owing to the Company by such Restricted Subsidiary;
(d) Liens for employee wages and pledges or deposits by such Person
under worker's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which
such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States government
bonds to secure surety or appeal bonds to which such Person is a party, or
deposits as security for contested taxes or import duties or for the
payment of rent, in each case Incurred in the ordinary course of business;
(e) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, in each case for sums not yet due or being contested in
good faith by appropriate proceedings or other Liens arising out of
judgments or awards against such Person with respect to which such Person
shall then be proceeding with an appeal or other proceedings for review;
(f) Liens for property taxes not yet subject to penalties for non-
payment or which are being contested in good faith and by appropriate
proceedings;
<PAGE>
25
(g) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of business; provided, however, that such letters of credit
do not constitute Indebtedness;
(h) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, licenses, rights-of-way, sewers,
electric lines, telegraph and telephone lines and other similar purposes,
or zoning or other restrictions as to the use of real property or Liens
incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect
the value of said properties or materially impair their use in the
operation of the business of such Person;
(i) any Lien securing Aircraft Acquisition Debt, which Lien is
Incurred when such Indebtedness is Incurred and which Lien does not extend
to property other than aircraft, related engines or spare engines, spare
parts or related equipment (including ground equipment) financed thereby;
(j) Liens on property or shares of Capital Stock of another Person
at the time such other Person becomes a Subsidiary of such Person;
provided, however, that such Liens are not created, incurred or assumed in
connection with, or in contemplation of, such other Person becoming such a
Subsidiary; provided further, however, that such Lien may not extend to any
other property owned by such Person or any of its Subsidiaries;
(k) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such
Person; provided, however, that such Liens are not created, incurred or
assumed in connection with, or in contemplation of, such acquisition;
provided further, however, that the Liens may not extend to any other
property owned by such Person or any of its Subsidiaries;
(l) Liens securing Hedging Obligations permitted under the
Indenture;
(m) any Lien or pledge created or subsisting in the ordinary course
of business over documents of title, insurance policies or sale contracts
in relation to commercial goods to secure the purchase price thereof;
(n) Liens to secure any Refinancing (or successive Refinancings) as
a whole, or in part, of any Indebtedness secured by any Lien referred to in
clauses (a), (i), (j), (k), and (r); provided, however, that (x) such new
Lien shall be limited to all or part of the same property that secured the
original Lien (plus improvements to or on such property) and (y) the
Indebtedness secured by such Lien at such time is not increased to any
amount greater than the sum of (A) the outstanding principal amount, or, if
greater, committed amount of the Indebtedness described under clause (a),
(i), (j), (k), and (r) at the time the original Lien became a Permitted
Lien and (B) an amount necessary to pay any fees and expenses, including
premiums, related to such Refinancing;
<PAGE>
26
(o) Liens with respect to Indebtedness permitted pursuant to clauses
(b)(5), (b)(12) or (b)(16) of Section 4.17 of the Indenture;
(p) Liens securing any future interest payable with respect to any
Indebtedness on cash and cash equivalents which constituted a portion of
the net proceeds to the Company or a Restricted Subsidiary from the
issuance of such Indebtedness;
(q) Liens securing Indebtedness or other obligations of a Subsidiary
of such Person owing to such Person or a wholly owned Subsidiary of such
Person;
(r) Liens on Receivables (or on the Capital Stock and assets of any
special purpose Subsidiary formed solely for the purpose of effecting a
Receivables-based financing transaction) securing Indebtedness permitted
under clause (b)(15) of Section 4.17 of the Indenture; and
(s) any judgment Lien, unless the judgment it secures shall not,
within sixty (60) days after the entry thereof, have been discharged,
vacated or reversed or the execution thereof stayed pending appeal, or
shall not have been discharged, vacated or reversed within sixty (60) days
after the expiration of any such stay.
"Permitted Substitutes" means with respect to (a) Acquired Slots ("old
Slots"): Slots ("new Slots"); (b) Pledged Spare Parts: Spare Parts or (prior to
the release of all Slots pursuant to Section 4.04(f) of the Pledge Agreement)
Slots; and (c) any Collateral or Acquired Slots (if permitted by the Master Sub-
License Agreement): cash or Investment Securities; provided, in each case, that
the Collateral to be substituted (the "new Collateral") is subject to no Liens
except Permitted Collateral Liens, that there has been compliance (to the extent
applicable) with Section 4.04(e) of the Pledge Agreement and Section 7.01 of the
Master Sub-License Agreement, and that the Appraised Value of the new Collateral
or new Slots equals or exceeds the Appraised Value of the old Collateral or old
Slots.
"Person" means any individual, corporation, partnership, limited liability
issuer, joint venture, association, joint-stock issuer, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Pipeline Spares" means certain semi-rotable Spare Parts consisting
principally of engine components.
"Pledge Agreement" means the Pledge and Security Agreement dated as of
December 9, 1997, between the Company and the Collateral Agent in substantially
the form attached to the Indenture as Exhibit C.
"Pledged Collateral" has the meaning specified in Section 1 of the Note
Pledge Agreement.
"Pledged Parts Threshold" means an amount, expressed in dollars, equal to
85% of the aggregate value, as reflected in the Inventory Control System as of
November 30, 1997, of all Pledged Spare Parts which will be subject to the Lien
of the Pledge Agreement on the Issue Date
<PAGE>
27
(established by the Officers' Certificate provided under clause (d) of Section
2.2 of the Indenture), less any reductions in such amount accomplished under
Section 4.04(c) of the Pledge Agreement and paragraph (b) of the Substitution
Requirements.
"Pledged Securities" means the U.S. Government Obligations purchased by the
Company with a portion of the net proceeds from the sale of the Notes and
deposited in the Interest Escrow Account in accordance with the terms of the
Note Pledge Agreement, together with any replacement or substitute securities
therefor.
"Pledged Spare Parts" means the Spare Parts included in the Company's
Inventory Control System, now or hereafter owned or acquired by the Company,
located at Designated Locations and, except with respect to the Existing L-
1011/747 Spare Parts, used or usable on the models of aircraft and engines in
the Company's fleet as constituted from time to time while the Securities are
outstanding; provided, however, that the term "Pledged Spare Parts" does not
include (a) Spare Parts that are installed on an aircraft or engine; (b) Spare
Parts leased or sold to the Company by unaffiliated parties under purchase money
installment sales or other purchase money financing arrangements or refinancings
thereof in each case, as permitted under the Indenture, but only until the
Company acquires title to such Spare Parts free of such arrangements or any
refinancings thereof at arm's length and with Persons who are not Affiliates of
the Company (provided, however, that no financing of Spare Parts shall occur if
the aggregate value of Pledged Spare Parts as reflected on the Inventory Control
System is less than the Pledged Parts Threshold); and (c) Spare Parts leased to,
loaned to or held on consignment by, the Company. The Pledged Spare Parts on the
Issue Date include, without limitation, Expendables, Pipeline Spares and Capital
Units. Except as provided in the Pledge Agreement, particular Pledged Spare
Parts will cease to be Pledged Spare Parts if disposed of in the Ordinary
Course.
"Preconditions" (quoted terms herein below being defined only for purposes
of this definition), when applied to releases of Collateral or Acquired Slots
under Section 4.04(f) of the Pledge Agreement or Section 6.02(b) of the Master
Sub-License Agreement ("releases") or to the reduction of Designated Locations
pursuant to the last paragraph of the definition thereof (the "Reduction"),
means (i) no Event of Default, no Default pursuant to Section 6.1(a), (e), (f),
(h), (i) or (j) of the Indenture has occurred and is continuing or will result
therefrom, and the Company so certifies to the Trustee in an Officers'
Certificate, (ii) the Company has delivered an Officers' Certificate to the
Indenture Trustee, the Collateral Agent (in the case of the Reduction, a release
of Collateral pursuant to Section 4.04(f) of the Pledge Agreement or a
determination of Substitution Requirements with respect to any Event of Loss)
and the Slot Trustee (in the case of a release of Collateral pursuant to Section
6.02(b) of the Master Sub-License Agreement or a determination of Substitution
Requirements with respect to any Event of Loss, or sale, with respect to an
Acquired Slot) certifying that the Company complies with the Security Ratio
requirements set forth in the definition thereof or, with respect to the
Reduction, the ratio set forth in the last paragraph of the definitions of
"Designated Locations", assuming, in each case, that the definition of "Fair
Market Value" was "with respect to any Collateral or Acquired Slots, the fair
market value (on the basis of a hypothetical sale negotiated in an arm's length
free market transaction between a willing seller and a willing and able buyer,
neither of whom is under undue pressure to complete the transaction) as
determined by and as of the date set forth in an Officers' Certificate", and
(iii) the Company has complied with any applicable requirements of the TIA.
<PAGE>
28
"Preferred Stock" as applied to the Capital Stock of any Person means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"Primary Locations" is defined in the definition of Designated Locations.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Prior Third Party License" means a Third Party License in effect on the
Issue Date and listed on Schedule II to the Declaration.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, present or future, or tangible or intangible.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Receivables" means accounts receivables, chattel paper, instruments,
documents or general intangibles evidencing or relating to the right to payment
of money and other similar assets, in each case, relating to such receivables,
including any interest in merchandise or goods, the sale or lease of which gave
rise to such receivables, related contractual rights, guarantees, insurance
proceeds, collections, other related assets and proceeds of all of the
foregoing.
"Record Date" means the fifteenth (15th) day preceding any Interest Payment
Date or Redemption Date, whether or not a Business Day.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to the Indenture and
such Security.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange for, such indebtedness. "Refinanced" or "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x)
<PAGE>
29
Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (y)
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Register" has the meaning provided in Section 2.3 of the Indenture.
"Registrar" has the meaning provided in Section 2.3 of the Indenture.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of December 9, 1997, among the Company, Lazard Freres & Co. LLC and
PaineWebber Incorporated.
"Remaining Term" means, with respect to any Acquired Slot (or any Slot to
be used as a Permitted Substitute), the period of time remaining from the date
of calculation until expiration of the term (including any possible renewal
term) of the Third Party License or Slot Trade with respect to such Slot as to
which the Company is committed (including any time of commitment prior to the
commencement of the term of such Third Party License or Slot Trade).
"Request" means a written request for the action therein specified signed
on behalf of the Company by any Officer and delivered to the Trustee. Each
Request shall be accompanied by an Officers' Certificate if and to the extent
required by Section 11.4 of the Indenture.
"Required Holders" means from time to time the Holders of the Applicable
Percentage in principal amount of the Notes then Outstanding.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation)), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company held by any Person
or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary and other than pro rata purchases,
redemptions, acquisitions or retirements made by a Subsidiary that is not a
Wholly-Owned Subsidiary), including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition) or (iv) the making of any Investment in any
Person (other than a Permitted Investment). Any purchase or redemption of
Capital Stock by an employee stock ownership or benefit plan shall
<PAGE>
30
not constitute a Restricted Payment except to the extent, if any, that such
purchase or redemption is financed by the Company or its Restricted
Subsidiaries.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission and any government
agency succeeding to its functions.
"Securities" means the "Securities" (as defined in the Indenture), as
amended or supplemented from time to time, that are issued under the Indenture.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Security Interest" means the Lien granted to the Collateral Agent by the
Company pursuant to the Pledge Agreement in all of the Company's right, title
and interest in and to the Collateral.
"Security Ratio" means for purposes of determining the Company's
obligations in the case of an Event of Loss or a sale, deemed sale, disposition,
or release of Collateral (collectively for the purposes of this definition,
"disposition"), a fraction (i) the numerator of which is the sum of the
aggregate Fair Market Value of the Pledged Spare Parts and Acquired Slots
remaining or to be remaining after such disposition and (ii) the denominator of
which is the aggregate principal amount of the Securities Outstanding minus the
-----
Fair Market Value of the existing Cash Collateral, which fraction, for purposes
of the Substitution Requirements, Section 6.02(b) of the Master Sub-License
Agreement and Section 4.04(f) of the Pledge Agreement shall be at least 2.0 over
1.
"Senior Indebtedness" of any Person means (i) Indebtedness of such Person,
whether outstanding on the Issue Date or thereafter Incurred and (ii) accrued
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company to the extent post-
filing interest is allowed in such proceeding) in respect of (A) indebtedness
for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is responsible or
liable unless, in the case of (i) and (ii), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Notes;
provided, however, that Senior Indebtedness shall not include (1) any obligation
of such Person to any Subsidiary of such Person, (2) any liability for Federal,
state, local or other taxes owed or owing by such Person, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of such Person (and any accrued interest in
respect thereof) which is subordinate or junior in any respect to any other
Indebtedness or other obligation of
<PAGE>
31
such Person or (5) that portion of any Indebtedness which at the time of
Incurrence is Incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary which is a Significant
Subsidiary within the meaning of Article I of Regulation S-X under the Exchange
Act.
"Slot" means all of the rights, titles, interests and privileges of an air
carrier in and to the primary operating authority granted by the FAA pursuant to
Title 14, to conduct one Instrument Flight Rule (as defined under the Federal
Aviation Act) take-off or landing in a specified one-hour or half-hour period.
The term "Slot" shall also include all Slots created after the Issue Date
pursuant to Title 14.
"Slot Collateral" means (i) the Collateral described in clauses (b) and (c)
of Section 2.01 of the Pledge Agreement and (ii) any Collateral described in
clause (g) of Section 2.01 of the Pledge Agreement which arises from the use,
operation, storage, control or management of the Collateral described in clauses
(b) or (c) of Section 2.01 of the Pledge Agreement.
"Slot Trade" means a temporary "swap" of operating authority with respect
to an Acquired Slot in exchange for operating authority with respect to another
Slot, to accommodate seasonal schedule changes, or a temporary "slide"
transaction with the FAA with respect to an Acquired Slot, in each case provided
that (i) such transaction (x) is entered into in the Ordinary Course Of Business
in accordance with standard airline industry practice, (y) has a Remaining Term
of no longer than six (6) months, and (ii) the terms of such transaction are
such that operating authority with respect to such Acquired Slot automatically
reverts to the Company at the end of such Remaining Term.
"Slot Trust" means the trust created under the Declaration solely to
acquire and hold the Acquired Slots transferred to the Slot Trust pursuant to
the Deed of Conveyance.
"Slot Trust Assets" is defined in Section 4.01 of the Acquired Slot Trust
Agreement.
"Slot Trustee" means the Trustee, in its capacity as trustee under the
Acquired Slot Trust Agreement.
"Spare Parts" means all appliances, spare parts, instruments,
appurtenances, accessories, furnishings; all expendable parts, appliances,
modules, apparatus and assemblies; all rotable and repairable nonconsumable
parts, appliances, apparatus, assemblies and materials which are interchangeable
for use or useable, and other equipment of whatever nature (other than engines)
maintained for installation or use or useable in aircraft, airframes, engines or
any appliance or propeller useable thereon, and any and all substitutions for
any of the foregoing and replacements thereto. The terms "spare parts" and
"appliances" (as used in this definition) shall include, but not be limited to,
the definitions assigned to those terms by Section 40102 of Title 49 of the
United States Code as amended from time to time or any recodification thereof in
any regulation.
"Special Interest" has the meaning assigned to such term in the
Registration Rights Agreement.
<PAGE>
32
"Special Record Date" has the meaning provided in Section 2.1 of the
Indenture.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Sublease" is defined in Section 4.05(b) of the Pledge Agreement.
"Sub-License" is defined in the Recitals to the Master Sub-License
Agreement.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect.
"Subsequent Deed of Conveyance" is defined in Section 3.01 of the
Declaration.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including membership or
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Subsidiary Guaranty" means the Guarantee by a Restricted Subsidiary of the
Company's obligations with respect to the Notes. The form of such Guarantee is
provided for in the Indenture. Each Subsidiary Guaranty will be limited in
amount to an amount not to exceed the maximum amount that can be guaranteed by
the applicable Restricted Subsidiary without rendering the Subsidiary Guaranty,
as it relates to such Restricted Subsidiary, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
"Substitution Requirements" means furnishing to the Collateral Agent, the
Indenture Trustee or the Slot Trustee, as appropriate:
(a) within forty-five (45) days after any Event of Loss (provided, that if
the applicable appraisal procedures are not yet completed, the amount
of Collateral and/or Acquired Securities to be furnished shall be
established by the Company Appraiser's Certificate, subject to upward
adjustment or refund upon completion of the applicable appraisal
procedures):
(i) if, (A) the Company elects to establish the Security Ratio to
determine if it is entitled to limit its obligation to furnish
Permitted Substitutes, (I) a Company Appraiser's Certificate
stating, as of a date within the time frame contemplated by the
proviso to clause (iii) of the definition of "Fair Market
Value", in the opinion of the Company Appraiser, (1) the Fair
<PAGE>
33
Market Values, by type and category and in reasonable detail,
of all assets or groups of assets required for the computation
of the Security Ratio, and (2) the Security Ratio, determined
after giving effect to such Event of Loss and to the furnishing
by the Company of such Permitted Substitutes under paragraph
(c) of this definition as the Company may elect to furnish and
(II) an Officers' Certificate described in clause (ii) of the
definition of "Preconditions"; and
(ii) unless the Security Ratio, determined as provided in clause (i)
and as adjusted pursuant to the appraisal procedures applicable
to determinations of Fair Market Value, meets the Security
Ratio requirements (A) if available earlier, any Temporary Cash
Collateral arising from or in connection with such Event of
Loss (subject to replacement by any combination of Collateral
furnished under paragraph (c) of this definition or Cash
Collateral or Acquired Securities furnished under paragraph (d)
of this definition, all as provided by paragraph (f) of this
definition), (B) the Collateral described in said paragraph
(c), or the Cash Collateral or Acquired Securities described in
said paragraph (d), or any combination thereof, (C) a Company
Appraiser's Certificate as to the Appraised Values and Fair
Market Values (as of an appraisal date which shall be the
Business Day next preceding the date of such Event of Loss and
determined without regard to any prospect or expectation of the
event giving rise to such Event of Loss), described in
paragraph (e) of this definition, which are applicable to
Property of the kind described in said paragraph (c) or
paragraph (d), as the case may be, or which may be needed for
purposes of paragraph (f) of this definition, and (D) such
certificates and opinions, if any, as may be required by the
TIA, all as shall be designated in an Officers' Certificate
delivered to the Collateral Agent;
(b) simultaneously with any Request under 6.02(a) of the Master Sub-
License Agreement for the release of Acquired Slots (collectively, a
"Requested Release") or any request under Section 4.04(c) of the
Pledge Agreement to lower the Pledged Parts Threshold or to release
Operative Collateral:
(i) if, with respect to any Requested Release the Company elects to
establish the Security Ratio to determine if it is entitled to
limit its obligation to furnish Permitted Substitutes, (A) a
Company Appraiser's Certificate stating, as of a date within
the time frame contemplated by the proviso to clause (iii) of
the definition of "Fair Market Value" and furnished at least 15
days before the applicable Requested Release, in the opinion of
the Company Appraiser, (I) the Fair Market Values, by type and
category and in reasonable detail, of all assets or groups of
assets required for the computation of the Security Ratio, and
(II) the Security Ratio, determined after giving effect to such
Requested Release and to the furnishing by the Company of such
Permitted Substitutes under paragraph (c) of this
<PAGE>
34
definition as the Company may elect to furnish and (B) an
Officers' Certificate described in clause (ii) of the
definition of "Preconditions"; and
(ii) unless, with respect to any Requested Release, the Security
Ratio, determined as provided in clause (i) and as adjusted
pursuant to the appraisal procedures applicable to
determinations of Fair Market Value, meets the Security Ratio
requirements, (A) the Operative Collateral or Slots described
in paragraph (c) of this definition or the Cash Collateral or
Acquired Securities described in paragraph (d) of this
definition, or any combination thereof, (B) a Company
Appraiser's Certificate stating, as of an appraisal date not
more than 30 days before, and furnished at least 15 days
before, the Requested Release, the Appraised Values and Fair
Market Values described in paragraph (e) of this definition
which are applicable to the Property of the kind described in
said paragraph (c) or paragraph (d), as the case may be, or
which may be needed for purposes of paragraph (f) of this
definition, and (C) such certificates and opinions, if any, as
may be required by the TIA, all as shall be designated in an
Officers' Certificate delivered to the Collateral Agent; and
(iii) simultaneously with any Request under Section 4.04(c) of the
Pledge Agreement to lower the Pledged Parts Threshold or to
release Operative Collateral, (A) a Company Appraiser's
Certificate stating, as of an appraisal date not more than 30
days before, and furnished at least 15 days before, the
applicable lowering of the Pledged Parts Threshold or release
of Operative Collateral, the Appraised Values and Fair Market
Values described in paragraph (e) of this definition which are
applicable to Property of the kind described in said paragraph
(c) or paragraph (d), as the case may be, or which may be
needed for purposes of paragraph (f) of this definition and (B)
such certificates and opinions, if any, as may be required by
the TIA, all as shall be designated in an Officers' Certificate
delivered to the Collateral Agent;
(c) new Operative Collateral or Slots of the types and Appraised Values
necessary to constitute Permitted Substitutes for all or the
applicable proportion of the Collateral or Acquired Slots subject to
the Event of Loss, the Requested Release or the release of Operative
Collateral or equal to the amount of the requested reduction of the
Pledged Parts Threshold, as the case may be;
(d) Cash Collateral with a Fair Market Value or a face amount of Acquired
Securities (for cancellation), together equal to all or the equivalent
remaining proportion of the Fair Market Value of the Collateral or
Acquired Slots subject to such Event of Loss, Requested Release or
release of Operative Collateral or to the amount of the requested
reduction of the Pledged Parts Threshold;
<PAGE>
35
(e) a Company Appraiser's Certificate meeting the requirements of clause
(a)(ii)(C) or clause (b)(ii)(B) or clause (b)(iii)(A) or clause
(f)(ii) of this definition, as appropriate, which shall state:
(i) the Appraised Value of (A) any Collateral or Acquired Slot
which is the subject of the Event of Loss or proposed release
and for which the Permitted Substitutes will be Operative
Collateral or Slots, and (B) the Operative Collateral or Slots
to be furnished as Permitted Substitutes therefor;
(ii) the Fair Market Value of any Collateral or Acquired Slot which
is the subject of the Event of Loss or proposed release and for
which the Permitted Substitutes will be Cash Collateral or on
account of which a face amount of Acquired Securities will be
furnished in lieu of Permitted Substitutes; and
(iii) the Appraised Value of any Operative Collateral or Acquired
Slot, the Fair Market Value of any Cash Collateral or the face
amount of Acquired Securities equal to the requested reduction
in the Pledged Parts Threshold.
(f) in connection with any Request for return to the Company of Temporary
Cash Collateral (i) the Operative Collateral or Slots described in
paragraph (c) of this definition, (ii) a Company Appraiser's
Certificate stating the Appraised Value of such Operative Collateral
or Slots as of a date within thirty (30) days of the date such
Temporary Cash Collateral is to be returned and, unless previously
determined under paragraph (a)(ii)(C) or paragraph (b)(ii)(B) of this
definition, the Appraised Value, as of the applicable appraisal date
there specified, of the Operative Collateral or Acquired Slots on
account of whose loss, sale or deemed sale the Temporary Cash
Collateral was furnished, and (iii) such certificates and opinions, if
any, as may be required by TIA, all as shall be designated in an
Officers' Certificate delivered to the Collateral Agent.
"Supplemental Pledge Agreement" means a pledge agreement supplemental to
the Pledge Agreement substantially in the form of Exhibit A or Exhibit B
thereto.
"Temporary Cash Collateral" means Cash Collateral required to be deposited
with the Collateral Agent or the Trustee upon or after an Event of Loss but
before Operative Collateral or Slots are required to be provided as Permitted
Substitutes, including at the Company's election Cash Collateral deposited by
the Company or held by the Collateral Agent as additional Collateral under
Section 5.05 of the Pledge Agreement.
"Temporary Cash Investments" means any of the following: (i) any
investment in U.S. Government Obligations; (ii) investments in time deposit
accounts, certificates of deposit and money market deposits maturing within 180
days of the date of acquisition thereof issued by a bank or trust issuer which
is organized under the laws of the United States of America, any state thereof
or any foreign country recognized by the United States, and which bank or trust
issuer has
<PAGE>
36
capital, surplus and undivided profits aggregating in excess of $50,000,000 (or
the foreign currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money market fund sponsored by a registered broker dealer
or mutual fund distributor; (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above; (iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-l"
(or higher) according to Moody's Investors Service, Inc., or "A-l" (or higher)
according to Standard & Poor's Ratings Group; and (v) investments in securities
with maturities of six months or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors
Service, Inc.
"Tender" means, with respect to any Security, the effective tender of such
Security (in whole or in part) for repurchase in accordance with the provisions
of the Indenture.
"Third-Party Appraiser" means an Independent Appraiser jointly selected by
the Company Appraiser and the Trustee Appraiser.
"Third-Party License" means a sub-license and/or agreement to sublicense
directly or indirectly from the Company to air carriers the right to use
Acquired Slots in accordance with Sections 5.01(b) and (c) of the Master Sub-
License Agreement.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-
77bbbb) as in effect on the date of the Indenture; provided, however, that in
-------- -------
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Title 14" means Title 14 of the Code of Federal Regulations, Part 93,
Subparts K & S, as amended from time to time or any recodification thereof in
any regulation.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and Friday,
other than any day on which securities are not traded on the applicable
securities exchange or in the applicable securities market.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to such
redemption or repurchase date (or, if such Statistical Release is no longer
published, any publicly available source or similar market data)) most nearly
equal to the period from such redemption or repurchase date to the Stated
Maturity of the Notes; provided, however, that if the period from such
redemption or repurchase date to the Stated Maturity of the
<PAGE>
37
Notes is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year shall be
used.
"Trust Officer" means any officer in the corporate trust department of the
Trustee, or any other officer or assistant officer of the Trustee assigned by
the Trustee to administer its corporate trust matters.
"Trustee" means the party named as such in the Indenture until a successor
replaces it in accordance with the provisions of the Indenture and thereafter
means the successor.
"Trustee Appraiser" means an Independent Appraiser selected by the Trustee.
"Trustee Appraiser's Certificate'" means an Independent Appraiser's
Certificate signed by a Trustee Appraiser.
"TWA" means the Company.
"U.S. or United States" means the United States of America.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the option of the issuer thereof.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under Section 4.3 of the Indenture. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under paragraph (a) of Section 4.17 of the
Indenture and (y) no Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be made by the Company to the
Trustee by promptly filing with the Trustee a copy of the resolution of the
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
<PAGE>
38
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or one or more Wholly Owned Subsidiaries.
SECTION 2. RULES OF CONSTRUCTION. Unless the context otherwise requires, the
following rules of construction shall apply to all purposes of the Indenture,
the Pledge Agreement, the Note Pledge Agreement, the Acquired Slot Trust
Agreement and the Master Sub-License Agreement (including this appendix) and of
such agreements as may incorporate this appendix by reference.
(a) a term has the meaning assigned to it;
(b) whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms;
(c) the words "include", "includes" and "including" shall be deemed
to be followed by the phrase "without limitation";
(d) all terms used in Article 9 of the Uniform Commercial Code as
in effect in the State of New York that are used but not defined herein
shall have the meaning assigned to such terms therein;
(e) references to documents, contracts, or agreements shall include
any and all supplements and amendments thereto;
(f) references to a specific Person shall include the Person and
(except as limited by any agreement by which such Person is bound) the
successors and assigns of such Person;
(g) references to "applicable laws" shall include statutes,
ordinances, rules, regulations, court and administrative decisions and
conditions, restrictions and limitations in licenses, permits, approvals
and authorizations issued or granted by federal, state or local United
States or foreign governmental bodies and agencies;
(h) unless otherwise specified in the computation of a period of
time from a specified date to a later specified date, the word "from" means
"from and including", and the words "to" and "until" each mean "to but
excluding";
(i) words in the singular include the plural, and words in the
plural include the singular;
(j) provisions apply to successive events and transactions.
(k) "herein", "hereto" and other words of similar import in any
agreement refer to that agreement as a whole and not to any particular
Article, Section or other subsection of that agreement;
<PAGE>
(l) unless otherwise specified, all references in any Operative
Document to Sections, Articles, Exhibits and Schedules are to Sections of,
Articles of, Exhibits to and Schedules to such Operative Document;
(m) all accounting terms used herein and not expressly defined
shall have the meanings given to them in accordance with GAAP; and
(n) unless otherwise specified, references in this Definitions
Appendix to any instrument, agreement or other document shall be deemed to
be references to such instrument, agreement or other document as it may be
amended, restated, supplemented or otherwise modified from time to time
pursuant to and as permitted by the terms thereof, whether or not so stated
in any particular definition.
<PAGE>
RULE 144A/REGULATION S APPENDIX
Appendix II
To the Indenture between
Trans World Airlines, Inc.
and
First Security Bank, National Association
dated December 9, 1997
for the Company's 11 1/2% Senior Secured Notes
<PAGE>
RULE 144A/REGULATION S APPENDIX
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO
RULE 144A, INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED
IN RULE 501(A)(1), (2), (3) or (7)) AND TO CERTAIN PERSONS
IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S
PROVISIONS RELATING TO INITIAL SECURITIES,
------------------------------------------
PRIVATE EXCHANGE SECURITIES
---------------------------
AND EXCHANGE SECURITIES
-----------------------
1. Definitions
-----------
1.1 Definitions
-----------
For the purposes of this Appendix the following terms shall have the
meanings indicated below:
"Definitive Security" means a certificated Security bearing the restricted
securities legend set forth in Section 2.3(d) and which is held by an IAI.
"Depository" means The Depository Trust Company, its nominees and their
respective successors.
"Exchange Securities" means the 11 1/2% Senior Secured Notes Due 2004 to be
issued pursuant to the Indenture in connection with a Registered Exchange Offer
pursuant to the Registration Rights Agreement.
"IAI" means an institutional "accredited investor" as described in Rule
501(a)(1), (2), (3) or (7) under the Securities Act.
"Initial Purchasers" mean Lazard Freres & Co. LLC and PaineWebber
Incorporated.
"Initial Securities" means the 11 1/2% Senior Secured Notes Due 2004,
issued under the Indenture on or about the date of the Indenture.
"Private Exchange" means the offer by the Company, pursuant to the
Registration Rights Agreement, to the Initial Purchasers to issue and deliver to
the Initial Purchasers, in exchange for the Initial Securities held by the
Initial Purchasers as part of their initial distribution, a like aggregate
principal amount of Private Exchange Securities.
"Private Exchange Securities" means the 11 1/2% Senior Secured Notes Due
2004 to be issued pursuant to the Indenture to the Initial Purchasers in a
Private Exchange.
"Purchase Agreement" means the Purchase Agreement, dated as of December 4,
1997, among the Company and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
<PAGE>
2
"Registered Exchange Offer" means the offer by the Company, pursuant to the
Registration Rights Agreement, to certain Holders of Initial Securities, to
issue and deliver to such Holders, in exchange for the Initial Securities, a
like aggregate principal amount of Exchange Securities registered under the
Securities Act.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of December 9, 1997, between the Company and the Initial Purchasers.
"Securities" means the Initial Securities, the Exchange Securities and the
Private Exchange Securities, treated as a single class.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to a Global
Security (as appointed by the Depository), or any successor person thereto and
shall initially be the Trustee.
"Shelf Registration Statement" means the registration statement of the
Company, in connection with the offer and sale of Initial Securities or Private
Exchange Securities, pursuant to the Registration Rights Agreement.
"Transfer Restricted Securities" means Definitive Securities and Securities
that bear or are required to bear the legend set forth in Section 2.3(d) hereto.
1.2 Other Definitions
-----------------
<TABLE>
<CAPTION>
Defined in this Rule 144A/Regulation S
--------------------------------------
Term Appendix in the Section indicated below
- ---- ---------------------------------------
<S> <C>
"Agent Members"............................................................................................... 2.1(b)
"Global Security"............................................................................................. 2.1(b)
"Regulation S"................................................................................................ 2.1(a)
"Rule 144A"................................................................................................... 2.1(a)
</TABLE>
Unless otherwise indicated, all Section numbers referenced herein are to
Sections of this Rule 144A/Regulations S Appendix.
2. The Securities.
--------------
2.1 Form and Dating.
---------------
The Initial Securities are being offered and sold by the Company pursuant
to the Purchase Agreement.
(a) Global Securities. Initial Securities offered and sold to a QIB
-----------------
in reliance on Rule 144A under the Securities Act ("Rule 144A") as provided in
the Purchase Agreement, shall be issued initially in the form of one permanent
global Security in definitive, fully registered form without interest coupons
with the global securities legend and restricted
<PAGE>
3
securities legend set forth in Exhibit 1 hereto (the "144A Global Security"),
which shall be deposited on behalf of the purchasers of the Initial Securities
represented thereby with the Trustee, at its New York office, as custodian for
the Depository (or with such other custodian as the Depository may direct), and
registered in the name of the Depository or a nominee of the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the 144A Global Security may from
time to time be increased or decreased by adjustments made on the records of the
Trustee and the Depository or its nominee as hereinafter provided.
Initial Securities offered and sold in reliance on Regulation S under
the Securities Act ("Regulation S"), as provided in the Purchase Agreement,
shall be issued initially in the form of one permanent global Security in
definitive, fully registered form without interest coupons with the global
securities legend and restricted securities legend set forth in Exhibit 1 hereto
(the "Regulation S Global Security"), which shall be deposited on behalf of the
purchasers of the Initial Securities represented thereby with the Trustee, as
custodian, for the Depository (or with such other custodian as the Depository
may direct), and registered in the name of the Depository or the nominee of the
Depository duly executed by the Company and authenticated by the Trustee as
hereinafter provided. On or prior to the 40th day after the later of the
commencement of the offering and the Closing Date (as defined in the Purchase
Agreement), beneficial interests in the Regulation S Global Security may only be
held for the accounts of designated agents holding on behalf of Morgan Guaranty
Trust Company of News York, Brussels office, as operator of the Euroclear System
("Euroclear") or Cedel Bank, societe anonyme. ("Cedel"). Following such 40 day
period, beneficial interests in the Regulation S Global Security may be held
through Euroclear, Cedel or other participants having accounts at the
Depository. The aggregate principal amount of the Regulation S Global Security
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depository or its nominee, as the case may be, as
hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to
---------------------
the 144A Global Security and the Regulation S Global Security (each a "Global
Security") deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.1(b), authenticate and deliver initially one Global Security in
respect of Initial Securities issued pursuant to Rule 144A and one Global
Security in respect of Initial Securities issued pursuant to Regulation S that
(a) shall each be registered in the name of the Depository for such Global
Security or the nominee of such Depository and (b) shall each be delivered by
the Trustee to such Depository or pursuant to such Depository's instructions or
held by the Trustee as custodian for the Depository.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository or by the Trustee as the custodian of the
Depository or under any Global Security, and the Depository may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of any Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any
<PAGE>
4
agent of the Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depository or
impair, as between the Depository and its Agent Members, the operation of
customary practices of such Depository governing the exercise of the rights of a
holder of a beneficial interest in any Global Security.
(c) Certificated Securities. Except as provided in this Section 2.1
-----------------------
or Section 2.3 or 2.4, owners of beneficial interests in any Global Security
will not be entitled to receive physical delivery of certificated Securities.
Purchasers of Initial Securities who are IAI's and are neither QIBs nor non-U.S.
persons within the meaning of Regulation S will receive Definitive Securities;
provided, however, that upon transfer of such Definitive Securities to a QIB in
- -------- -------
reliance on Rule 144A or a non-U.S. person in reliance on Regulation S, such
Definitive Securities will, unless the applicable Global Security has previously
been exchanged for Definitive Securities, be exchanged for an interest in the
applicable Global Security pursuant to the provisions of Section 2.3.
2.2 Authentication. The Trustee shall authenticate and deliver: (1)
--------------
Initial Securities for original issue on the Issue Date in an aggregate
principal amount of $140,000,000 and (2) Exchange Securities or Private Exchange
Securities for issue only in a Registered Exchange Offer or a Private Exchange,
respectively, pursuant to the Registration Rights Agreement, for a like
principal amount at maturity of Initial Securities, in each case upon a written
order of the Company signed by two Officers or by an Officer and either an
Assistant Treasurer or an Assistant Secretary of the Company. Such order shall
specify the amount of the Securities to be authenticated and the date on which
the original issue of Securities is to be authenticated and whether the
Securities are to be Initial Securities, Exchange Securities or Private Exchange
Securities. The aggregate principal amount at maturity of Securities
Outstanding at any time may not exceed $140,000,000 except as provided in
Section 2.7 of the Indenture of which this appendix forms a part.
2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive
--------------------- -----------------------------------
Securities. When Definitive Securities are presented to the Registrar or a co-
- ----------
registrar with a request:
(x) to register the transfer of such Definitive Securities; or
(y) to exchange such Definitive Securities for an equal principal
amount at maturity of Definitive Securities of other authorized
denominations,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Securities surrendered for transfer or
- -----------------
exchange shall be accompanied by a duly executed Assignment Form in the form
attached to Exhibit 1 hereto.
(b) Restrictions on Transfer of a Definitive Security for a Beneficial
------------------------------------------------------------------
Interest in a Global Security. A Definitive Security may not be exchanged for a
- -----------------------------
beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive
Security, duly endorsed or accompanied by appropriate instruments of transfer,
in form satisfactory to the Trustee, together with:
<PAGE>
5
(i) certification that such Definitive Security is being transferred
(x) to a QIB in accordance with Rule 144A or (y) to a non-U.S. person in
reliance on Regulation S; and
(ii) written instructions directing the Trustee to make, or to direct
the Securities Custodian to make, an adjustment on its books and records
with respect to the applicable Global Security to reflect an increase in
the aggregate principal amount at maturity of the Securities represented by
such Global Security, such instructions to contain information regarding
the Depository account to be credited with such increase,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount at maturity of Securities represented by the
applicable Global Security to be increased by the aggregate principal amount at
maturity of the Definitive Security to be exchanged and shall credit or cause to
be credited to the account of the Person specified in such instructions a
beneficial interest in the applicable Global Security equal to the principal
amount at maturity of the Definitive Security so canceled. If no Global
Security is then outstanding, the Company shall issue and the Trustee shall
authenticate, upon written order of the Company in the form of an Officers'
Certificate, a new Global Security in the appropriate principal amount at
maturity.
(c) Transfer and Exchange of a Global Security.
------------------------------------------
(i) The transfer and exchange of a Global Security or beneficial
interests therein shall be effected through the Depository, in accordance
with this Indenture (including applicable restrictions on transfer set
forth herein, if any) and the procedures of the Depository therefor. A
transferor of a beneficial interest in a Global Security shall deliver to
the Registrar a written order given in accordance with the Depository's
procedures containing information regarding the participant account of the
Depository to be credited with a beneficial interest in the applicable
Global Security. The Registrar shall, in accordance with such
instructions, instruct the Depository to credit to the account of the
Person specified in such instructions a beneficial interest in the
applicable Global Security and to debit the account of the Person making
the transfer the beneficial interest in the applicable Global Security
being transferred.
(ii) Notwithstanding any other provisions of this Rule
144A/Regulation S Appendix (other than the provision set forth in Section
2.4 hereof), neither Global Security may be transferred as a whole except
by the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor Depository or a nominee of
such successor Depository.
(iii) In the event that either Global Security is exchanged for
Securities in definitive registered form pursuant to Section 2.4 hereof or
Section 2.9 of the Indenture prior to the consummation of a Registered
Exchange Offer or the effectiveness of a Shelf
Registration Statement with respect to such Securities, such Securities may
be exchanged
<PAGE>
6
only in accordance with such procedures as are substantially consistent
with the provisions of this Section 2.3 (including the certification
requirements intended to ensure that such transfers comply with Rule 144A
or Regulation S, as the case may be) and such other procedures as may from
time to time be adopted by the Company.
(d) Legends.
-------
(i) Except as permitted by the following paragraphs (ii), (iii) and
(iv), each Security certificate evidencing the Global Securities and the
Definitive Securities (and all Securities issued in exchange therefor or in
substitution thereof) shall bear a legend in substantially the following
form:
"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 OF THESE SECURITIES AND THE LAST DATE ON
WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THESE
SECURITIES (OR ANY PREDECESSOR OF THESE SECURITIES) ONLY (A) TO THE
COMPANY, (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 A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE
IN RELIANCE ON RULE 144A 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), (3) OR (7) OF RULE 501
<PAGE>
7
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 COMPANY'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 BELOW 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."
"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."
Each Regulation S Global Security will also bear the following additional
legend:
ON OR PRIOR TO THE 40TH DAY AFTER THE LATER OF THE COMMENCEMENT OF THE
OFFERING AND THE CLOSING DATE, TRANSFERS OF INTERESTS IN THE REGULATION S
GLOBAL SECURITY TO U.S. PERSONS SHALL BE LIMITED TO TRANSFERS TO QUALIFIED
INSTITUTIONAL BUYERS PURSUANT TO RULE 144A UNDER THE SECURITIES ACT.
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global
Security) pursuant to Rule 144 under the Securities Act:
(A) in the case of any Transfer Restricted Security that is a
Definitive Security, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a certificated Security
that does not bear the legend set forth above and rescind any
restriction on the transfer of such Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security that is
represented by a Global Security, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Security for a
certificated Security that does not bear the
<PAGE>
8
legend set forth above and rescind any restriction
on the transfer of such Transfer Restricted Security, if the Holder
certifies in writing to the Registrar that its request for such
exchange was made in reliance on Rule 144.
(iii) After a transfer of any Initial Securities or Private Exchange
Securities during the period of the effectiveness of a Shelf Registration
Statement with respect to such Initial Securities or Private Exchange
Securities, as the case may be, all requirements pertaining to legends on
such Initial Security or such Private Exchange Security will cease to
apply, the requirements requiring any such Initial Security or such Private
Exchange Security issued to certain Holders to be issued in global form
will cease to apply, and a certificated Initial Security or Private
Exchange Security without legends will be available to the transferee of
the Holder of such Initial Securities or Private Exchange Securities upon
exchange of such transferring Holder's certificated Initial Security or
Private Exchange Security or directions to transfer such Holder's interest
in the applicable Global Security, as applicable.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Securities pursuant to which Holders of such Initial
Securities are offered Exchange Securities in exchange for their Initial
Securities, all requirements pertaining to such Initial Securities that
Initial Securities issued to certain Holders be issued in global form will
cease to apply and certificated Initial Securities with the Restricted
Securities Legend set forth in Exhibit 1 hereto will be available to
Holders of such Initial Securities that do not exchange their Initial
Securities, and Exchange Securities in certificated or global form will be
available to Holders that exchange such Initial Securities in such
Registered Exchange Offer.
(v) Upon consummation of a Private Exchange with respect to the
Initial Securities pursuant to which Holders of such initial Securities are
offered Private Exchange Securities in exchange for their Initial
Securities, all requirements pertaining to such Initial Securities that
Initial Securities issued to certain Holders be issued in global form will
still apply, and Private Exchange Securities in global form with the
Restricted Securities Legend set forth in Exhibit 1 hereto will be
available to Holders that exchange such Initial Securities in such Private
Exchange.
(e) Cancellation or Adjustment of the Global Security. At such time
-------------------------------------------------
as all beneficial interests in any Global Security have either been exchanged
for certificated or Definitive Securities, redeemed, repurchased or canceled,
such Global Security shall be returned to the Depository for cancellation or
retained and canceled by Trustee. At any time prior to such cancellation, if
any beneficial interest in a Global Security is exchanged for certificated or
Definitive Securities, redeemed, repurchased or canceled, the principal amount
at maturity of Securities represented by such Global Security shall be reduced
and an adjustment shall be made on the books and records of the Trustee (if it
is then the Securities Custodian for such Global Security) with respect to
Custodian, to reflect such reduction.
(f) Obligations with Respect to Transfers and Exchanges of
Securities.
<PAGE>
9
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate certificated Securities,
Definitive Securities and any Global Security at the Registrar's or co-
registrar's request.
(ii) No service charge shall be made for any registration of transfer
or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax, assessments or similar governmental charge payable
in connection therewith (other than any such transfer taxes, assessment or
similar governmental charge payable upon exchange or transfer pursuant to
Sections 3.7, 4.10 and 9.5 of the Indenture).
(iii) The Registrar or co-registrar shall not be required to register
the transfer or exchange of any certificated or Definitive Security
tendered for repurchase in whole or in part pursuant to an Offer to
Purchase (as defined in Appendix I to the Indenture), except the unredeemed
portion of any certificated or Definitive Security being repurchased in
part and except to the Company.
(iv) Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent, the Registrar or
any co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of
receiving payment of principal of, interest on, or Special Interest, if
any, with respect to, such Security and for all other purposes whatsoever,
whether or not such Security is overdue and none of the Company, the
Trustee, the Paying Agent, the Register or any co-registrar shall be
affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
(g) No Obligation of the Trustee.
----------------------------
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of any Global Security, a member of or a participant in
the Depository or other Person with respect to the accuracy of the records
of the Depository or its nominee or of any participant or member thereof
with respect to any ownership interest in the Securities or with respect to
the delivery to any participant, member, beneficial owner or other Person
(other than the Depository) of any notice (including any notice of
redemption) or the payment of any amount under or with respect to such
Securities. All notices and communications to be given to the Holders and
all payments to be made to Holders under the Securities shall be given or
made only to or upon the order of the registered Holders (which shall be
the Depository or its nominee in the case of each Global Security). The
rights of beneficial owners in each Global Security shall be exercised only
through the Depository subject to the applicable rules and procedures of
the Depository. The Trustee may rely and shall be fully protected in
relying upon information furnished by the Depository with respect to its
members, participants and any beneficial owners.
<PAGE>
10
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers between
or among Depository participants, members or beneficial owners in a Global
Security) other than to require delivery of such certificates and other
documentation or evidence as are expressly required by, and to do so if and
when expressly required by, the terms of this Indenture, and to examine the
same to determine substantial compliance as to form with the express
requirements hereof.
2.4 Certificated Securities.
-----------------------
(a) All or any portion of any Global Security deposited with the
Depository or with the Trustee as custodian for the Depository pursuant to
Section 2.1 shall be transferable to the beneficial owners thereof in the form
of certificated Securities in an aggregate principal amount equal to the
principal amount of such certificated security, in exchange for such interest in
the applicable Global Security, only if such transfer complies with Section 2.3
and (i) the Depository notifies the Company that it is unwilling or unable to
continue as Depository for such Global Security or if at any time such
Depository ceases to be a "clearing agency" registered under the Exchange Act,
or (ii) an Event of Default has occurred and is continuing or (iii) the Company,
in its sole discretion, notifies the Trustee in writing such Global Security or
Global Securities shall be exchangeable.
(b) Any Global Security that is transferable to the beneficial owners
thereof pursuant to this Section shall be surrendered by the Depository to the
Trustee located in the Borough of Manhattan, The City of New York, to be so
transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Security, an equal aggregate principal amount at maturity of
certificated Initial Securities of authorized denominations. Any portion of a
Global Security transferred pursuant to this Section shall be executed,
authenticated and delivered only in denominations of $1,000 principal amount at
maturity and any integral multiple thereof (except that any Global Security may
be issued in a different denomination) and registered in such names as the
Depository shall direct. Any certificated Initial Security delivered in
exchange for an interest in a Global Security shall, except as otherwise
provided by Section 2.3, bear the legend set forth in Section 2.3(d).
(c) Subject to the provision of Section 2.4(b), the registered Holder
of a Global Security may grant proxies and otherwise authorize any Person,
including Agent Members and Persons that may hold interests through Agent
Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
(d) In the event of the occurrence of any of the events specified in
Section 2.4(a), the Company will promptly make available to the Trustee a
reasonable supply of certificated Securities in definitive, fully registered
form without interest coupons.
<PAGE>
EXHIBIT 4.22
EXHIBIT 1
to
RULE 144A/REGULATION S APPENDIX
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
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 OF 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.
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 TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
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 OF THESE SECURITIES AND THE LAST DATE ON
WHICH THE COMPANY OR ANY AFFILIATE
<PAGE>
2
OF THE COMPANY WAS THE OWNER OF THESE SECURITIES (OR ANY PREDECESSOR OF THESE
SECURITIES) ONLY (A) TO THE COMPANY, (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 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) (3), 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 COMPANY'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 THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING BELOW 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.
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.
[Regulation S Global Security Legend]
ON OR PRIOR TO THE 40TH DAY AFTER THE LATER OF THE COMMENCEMENT OF THE
OFFERING AND THE CLOSING DATE, TRANSFERS OF INTERESTS IN THE REGULATION S GLOBAL
SECURITY TO U.S. PERSONS SHALL BE LIMITED TO TRANSFERS TO QUALIFIED
INSTITUTIONAL BUYERS PURSUANT TO RULE 144A UNDER THE SECURITIES ACT.
<PAGE>
3
No. CUSIP No.
$
11 1/2% Senior Secured Notes Due 2004
TRANS WORLD AIRLINES, INC., a Delaware corporation promises to pay to
__________, or registered assigns, the principal sum of __________ Dollars on
December 15, 2004.
Interest Payment Dates: June 15 and December 15.
Record Dates: June 1 and December 1.
Additional provisions of this Security are set forth on the other side
of this Security.
Dated:
TRANS WORLD AIRLINES, INC.
By:____________________________________
Name:
Title:
Attest:
____________________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
as Trustee, certifies that this is one of the Securities referred to in the
Indenture.
By:____________________________
Authorized Signatory
<PAGE>
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
11 1/2% Senior Secured Notes due 2004
This Security is one of a duly authorized issue of securities of the
Company designated as its 11 1/2% Senior Secured Notes due 2004 (hereinafter
called the Securities"), limited in aggregate principal amount Outstanding to
$140,000,000, issued or to be issued pursuant to an Indenture, dated as of
December 9, 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).
1. Interest; Special Interest. The Company promises to pay interest on
--------------------------
the principal amount of this Security at the rate of Eleven and one-half percent
(11 1/2%) per annum; provided, however, that if a Registration Default (as
defined in the Registration Rights Agreement) occurs (each period during which a
Registration Default has occurred and is continuing referred to herein as a
"Registration Default Period"), additional interest will accrue on this Security
at a per annum rate of 0.50% for the first 90 days of the Registration Default
Period, at a per annum rate of 1.0% for the second 90 days of the Registration
Default Period, at a per annum rate of 1.5% for the third 90 days of the
Registration Default Period and at a per annum rate of 2.0% thereafter for the
remaining portion of the Registration Default Period (such additional interest
is referred to herein as "Special Interest"). The Company will pay interest and
Special Interest, if any, semi-annually on the Interest Payment Dates set forth
on the face of this Security, commencing June 15, 1998. Interest on the
Securities will accrue from December 9, 1997 or the most recent Interest Payment
Date to which interest and Special Interest, if any, have been paid. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment. Except as otherwise set forth herein with respect
-----------------
to a Security that is subject to an Offer to Purchase, the Company will pay
interest on and Special Interest, 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. Defaulted
interest will be paid by the Company in accordance with the applicable
provisions of the Indenture. Holders must surrender Securities to a Paying Agent
to collect principal payments. The Company will pay principal, interest and
Special Interest, 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 Special Interest, 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, the Trustee will
----------------------------------------
act as Registrar and Paying Agent. The Company may change any Paying Agent or
Registrar or co-
<PAGE>
2
registrar without prior notice to any Securityholder. The Company may act in any
such capacity, except in certain circumstances.
4. Indenture. The Company issued the Securities under the Indenture. The
---------
terms of the Securities include those stated in the Indenture and those made
applicable to the Indenture by the TIA. 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 senior secured obligations of the
Company limited to $140,000,000 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 Section 1 of the
Definitions Appendix attached as Appendix 1 to the Indenture, which shall be a
part of this Security as if fully set forth in this place. The rules of
construction for this Security are set forth in Section 2 of the Definitions
Appendix.
5. Optional Redemption. Except as set forth in the second and third
-------------------
paragraphs under this paragraph 5, the Securities may not be redeemed prior to
December 15, 2001. On and after that date, the Company may redeem the
Securities in whole at any time or in part from time to time at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest and Special Interest, if any, with respect to, the
Securities to and including the redemption date:
if redeemed during the 12-month period beginning December 15,
<TABLE>
<CAPTION>
Period Percentage
------------ ----------
<S> <C>
2001 105.750%
2002 102.875%
2003 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, the Company shall have the right, without
the consent of the Holders, to redeem the Securities in whole, but not in part,
at a redemption price equal to 100% of the unpaid principal amount of the
Outstanding Securities plus the Applicable Premium as of, and accrued and unpaid
interest and Special Interest if any, to, the date of redemption in the event
that the Company enters into a binding agreement to consummate any transaction
which would be prohibited by Section 5.1 of the Indenture. Such redemption date
must occur prior to or simultaneously with the consummation of such prohibited
transaction.
In addition, the Securities may be redeemed in part by the Company at its
sole option if, on or before December 15, 2000, the Company receives Net Cash
Proceeds of one or more Public Equity Offerings. The Company may use all or a
portion of any such Net Cash Proceeds to redeem up to $49,000,000 aggregate
principal amount of the Securities, within 90 days of such Public Equity
Offering, at a redemption price (expressed as a percentage of the aggregate
principal amount of Securities Outstanding) of 111 1/2 plus accrued and unpaid
interest and Special Interest, if any, to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest and
Special Interest, if any, due on the relevant Interest Payment Date); provided,
however, that at least $91,000,000 aggregate principal amount of the Securities
shall remain Outstanding after each such redemption.
<PAGE>
3
6. Notice of Redemption. Notice of any redemption will be mailed at least
--------------------
30 days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on, and Special Interest, if any, with respect to, all
Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to accrue
on such Securities (or such portions thereof) called for redemption.
7. Security. The Securities are secured by Liens on certain Properties of
--------
the Company pursuant to the Operative Documents described in the Indenture.
8. Change in Control. In the event that there shall occur a Change in
-----------------
Control, the Company shall make an Offer to Purchase all of the Outstanding
Securities, at a purchase price equal to 101% of the aggregate principal amount
of the Securities Outstanding, plus accrued and unpaid interest and Special
Interest, if any, to and including the repurchase date. The right to require
such 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 of the Indenture. The Company shall commence such Offer to Purchase
within thirty (30) days after the occurrence of a Change in Control.
The Company shall also be required to make an Offer to Purchase all of the
Outstanding Securities at a purchase price equal to 100% of the principal amount
thereof, plus the Applicable Premium as of, and accrued and unpaid interest and
Special Interest, if any, to, the Payment Date, prior to any Incurrence of any
Acquired Indebtedness.
In addition, under certain circumstances in connection with certain Asset
Dispositions, the Company may be required to make an Offer to Purchase
Outstanding Securities at 100% of their principal amount plus accrued and unpaid
interest and Special Interest, if any, to the Purchase Date.
"Offer to Purchase" means an offer to purchase all or a pro rata portion,
as the case may be, of the Securities by the Company from the Holders commenced
by the mailing (by first class mail, postage prepaid) by the Company (or, if
requested by the Company on at least five Business Days' prior notice to the
Trustee and at the Company's expense, by the Trustee) of a notice to each Holder
(and, if mailed by the Company, to the Trustee) at such Holder's address
appearing in the Register, stating: (i) the covenant pursuant to which the
offer is being made and that all Securities validly tendered will be accepted
for payment on a pro rata basis; (ii) the purchase price and the date of
purchase (which shall be a Business Day no earlier than 30 days nor later than
60 days from the date such notice is mailed) (the "Payment Date"); (iii) that
any Security not tendered will continue to accrue interest pursuant to its
terms; (iv) that, unless the Company defaults in the payment of the purchase
price, any Security accepted for payment pursuant to the Offer to Purchase shall
cease to accrue interest on and after the Payment Date; (v) that Holders
electing to have a Security purchased pursuant to the Offer to Purchase will be
required to surrender the Security, together with the form entitled "Option of
the Holder to Elect Purchase"
<PAGE>
4
attached to this Security completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
immediately preceding the Payment Date (or, if such day is a Legal Holiday, on
the next subsequent day which is not a Legal Holiday), and such Holder shall be
entitled to receive from the Paying Agent a non-transferable receipt of deposit
evidencing such deposit; (vi) that, unless the Company defaults in making the
payment of the purchase price or shall otherwise, in its sole discretion,
consent thereto, Holders will be entitled to withdraw their election only if the
Trustee receives, not later than the close of business on the fifth Business Day
immediately preceding the Payment Date, a telegram, facsimile transmission or
letter setting forth the name of such Holder, the principal amount at maturity
of Securities delivered for purchase and a statement that such Holder is
withdrawing his election to have such Securities purchased; and (vii) that
Holders whose Securities are being purchased only in part will be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered: provided that each Security purchased and each new
Security issued shall be in a principal amount at maturity of $1,000 or integral
multiples thereof. The Company shall 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 Holder's right to exercise a repurchase right.
On the Payment Date, the Company shall (i) accept for payment on a pro rata
basis Securities or portions thereof tendered pursuant to an Offer to Purchase;
(ii) deposit with the Trustee money sufficient to pay the purchase price of all
Securities or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the Trustee all Securities or portions thereof so accepted
together with an Officers' Certificate specifying the Securities or portions
thereof accepted for payment by the Company. The Trustee shall promptly mail to
the Holders of Securities so accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate, and the Company shall
promptly execute and mail (or cause to be mailed) to such Holders a new Security
equal in principal amount at maturity to any unpurchased portion of the Security
surrendered; provided that each Security purchased and each new Security issued
shall be in a principal amount at maturity of $1,000 or integral multiples
thereof; provided further that if the Payment Date is between a regular Record
Date and the next succeeding Interest Payment Date, Securities to be repurchased
must be accompanied by payment of an amount equal to the interest and Special
Interest, 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 Security being repurchased, and Special Interest, if any, with respect
thereto, will be paid on such next succeeding Interest Payment Date to the
registered holder of such Security on the immediately preceding Record Date. A
Security repurchased on an Interest Payment Date need not be accompanied by any
such payment, and the interest on the principal amount of the Security being
repurchased and Special Interest, if any, with respect thereto, will be paid on
such Interest Payment Date to the registered holder of such Security on the
corresponding Record Date. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-l under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Securities pursuant to
an Offer to Purchase. Both the notice of the Company and the notice of the
Holder having been given as specified above, the Securities so to be repurchased
shall, on the Payment Date become due and payable at the purchase price
applicable thereto and from and after such date (unless the
<PAGE>
5
Company shall default in the payment of such purchase price) such Securities
shall cease to bear interest. If any Security shall not be paid upon surrender
thereof for repurchase, the principal shall, until paid, bear interest from the
Payment Date at the rate borne by such Security. Any Security which is to be
submitted for repurchase only in part shall be delivered pursuant to the above
provisions with (if the Company or 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 such Holder's attorney duly
authorized in writing.
9. 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.
10. 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.
11. Discharge and Defeasance. Subject to certain conditions, the Company
------------------------
at any time may terminate some or all of its obligations under the Securities
and the Indenture if the Company deposits with the Trustee money or U.S.
Government Obligations for the payment of principal of, interest on, and Special
Interest, if any, with respect to, the Securities to Stated Maturity.
12. Amendments and Waivers. Subject to certain exceptions, the Indenture,
----------------------
the Securities, or the other 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.
13. 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 Special Interest, if any, with respect to the Securities;
default in payment of principal when due on the Securities (at maturity, upon
acceleration, redemption, repurchase or otherwise); failure by the Company to
comply with specific covenants of the Indenture or the other Operative
Documents; 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, the other Operative Documents 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; the rendering or domestication of final
judgments by a court of competent jurisdiction against the Company or any
Restricted 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
<PAGE>
6
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 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.
14. 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.
15. 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.
16. Authentication. This Security shall not be valid until authenticated
--------------
by the manual signature of the Trustee or an authenticating agent.
17. Unclaimed Money. If money for the payment of principal of, interest
---------------
on, or Special Interest, with respect to, or the purchase 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.
18. 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).
19. CUSIP Numbers. The Company in issuing this Security may use a
-------------
"CUSIP" number (if then generally in use) and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities
<PAGE>
7
or as contained in any notice of a redemption and that reliance may be placed
only on the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
20. Holders' Compliance with Registration Rights Agreement. Each Holder
------------------------------------------------------
of a Security, by acceptance hereof, acknowledges and agrees to the provisions
of the Registration Rights Agreement, including, without limitation, the
obligations of the Holders with respect to a registration and the
indemnification of the Company to the extent provided therein.
21. Governing Law. THIS SECURITY SHALL BE GOVERNED BY THE LAWS OF THE
-------------
STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
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
<PAGE>
8
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)
<TABLE>
<S> <C>
and irrevocably appoint ______________ agent to Signature(s):____________________________________
transfer this Security on the books of the Company.
The agent may substitute another to act for him.
Date:_____________________________________________ Signature(s):____________________________________
____________________________________
(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)
</TABLE>
<PAGE>
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF NOTES
Re: 11 1/2% Senior Secured Notes due 2004 (the "Notes") of Trans World
Airlines, Inc. (the "Company")
This Certificate relates to Notes held in definitive form by
___________ (the "Transferor")
The Transferor has requested the Registrar by written order to
exchange or register the transfer of a Note or Notes. In connection with such
request and in respect of each such Note, the Transferor does hereby certify
that the Transferor is familiar with the Indenture relating to the above
captioned Notes and that the transfer of this Note does not require registration
under the Securities Act of 1933 (the "Securities Act"), because:*
[_] Such Note is being transferred to the Company.
[_] Such Note is being transferred pursuant to an effective
Registration Statement under the Securities Act.
[_] Such Note is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Securities Act) in reliance on Rule
144A.
[_] Such Note is being transferred pursuant to an offshore
transaction in accordance with Rule 904 under the Securities Act.
[_] Such Note is being transferred to an Institutional "Accredited
Investor" within the meaning of Subparagraph (a)(1), (2), (3) or (7) of Rule 501
under the Securities Act.
[_] Such Note is being transferred in a transaction meeting the
requirements of Rule 144 under the Securities Act.
The Registrar and the Company are entitled to rely upon this
Certificate and are irrevocably authorized to produce this Certificate or a copy
hereof to any interest party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby.
______________________________________
[INSERT NAME OF TRANSFEROR]
By: __________________________________
Date:______________________________
___________________________________
* Please check applicable box.
<PAGE>
OPTION OF THE HOLDER TO ELECT PURCHASE
If you want to elect to have this Security repurchased by the Company
pursuant to any Offer to Purchase under the Indenture, check the box:
If you want to elect to have only part of this Security repurchased by the
Company pursuant to any Offer to Purchase under the Indenture, state the
principal amount to be repurchased:
$___________________________________
(in an integral multiple of $1,000)
Date:_______________________________ Signature(s):_____________________
<TABLE>
<S> <C>
(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)
</TABLE>
<PAGE>
EXHIBIT 2
to
RULE 144A/REGULATION S APPENDIX
[FORM OF FACE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE SECURITY]
[*/]
-
[**/]
--
No. CUSIP No.
$
11 1/2% Senior Secured Notes Due 2004
TRANS WORLD AIRLINES, INC., a Delaware corporation, promises to pay to
__________, or registered assigns, the principal sum of __________ Dollars on
December 15, 2004.
Interest Payment Dates: June 15 and December 15.
Record Dates: June 1 and December 1.
Additional provisions of this Security are set forth on the other side
of this Security.
<PAGE>
2
Dated:
TRANS WORLD AIRLINES, INC.
By:_________________________________
Name:
Title:
Attest:
_______________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
as Trustee, certifies that this is one of
the Securities referred to in the
Indenture.
By:__________________________
Authorized Signatory
______________________
*/ If the Security is to be issued in global form add the Global Securities
- -
Legend from Exhibit 1 to Appendix A.
**/ If the Security is a Private Exchange Security issued in a Private Exchange
- --
to an Initial Purchaser holding an unsold portion of its initial allotment, add
the Restricted Securities Legend from Exhibit 1 to Appendix A and replace the
Assignment Form included in this Exhibit 2 to Appendix A with the Assignment
Form included in such Exhibit 1.
<PAGE>
[FORM OF REVERSE SIDE OF EXCHANGE OR PRIVATE EXCHANGE SECURITY]
11 1/2% Senior Secured Notes due 2004
This Security is one of a duly authorized issue of securities of the
Company designated as its 11 1/2% Senior Secured Notes due 2004 (hereinafter
called the Securities"), limited in aggregate principal amount Outstanding to
$140,000,000, issued or to be issued pursuant to an Indenture, dated as of
December 9, 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).
1. Interest; Special Interest. The Company promises to pay interest on
--------------------------
the principal amount of this Security at the rate of Eleven and one-half percent
(11 1/2%) per annum; provided, however, that if a Registration Default (as
defined in the Registration Rights Agreement) occurs (each period during which a
Registration Default has occurred and is continuing referred to herein as a
"Registration Default Period"), additional interest will accrue on this Security
at a per annum rate of 0.50% for the first 90 days of the Registration Default
Period, at a per annum rate of 1.0% for the second 90 days of the Registration
Default Period, at a per annum rate of 1.5% for the third 90 days of the
Registration Default Period and at a per annum rate of 2.0% thereafter for the
remaining portion of the Registration Default Period (such additional interest
is referred to herein as "Special Interest"). The Company will pay interest and
Special Interest, if any, semi-annually on the Interest Payment Dates set forth
on the face of this Security, commencing June 15, 1998. Interest on the
Securities will accrue from December 9, 1997 or the most recent Interest Payment
Date to which interest and Special Interest, if any, have been paid. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment. Except as otherwise set forth herein with respect
-----------------
to a Security that is subject to an Offer to Purchase, the Company will pay
interest on and Special Interest, 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. Defaulted
interest will be paid by the Company in accordance with the applicable
provisions of the Indenture. Holders must surrender Securities to a Paying Agent
to collect principal payments. The Company will pay principal, interest and
Special Interest, 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 Special Interest, 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, the Trustee will
----------------------------------------
act as Registrar and Paying Agent. The Company may change any Paying Agent or
Registrar or co-
<PAGE>
2
registrar without prior notice to any Securityholder. The Company may act in any
such capacity, except in certain circumstances.
4. Indenture. The Company issued the Securities under the Indenture. The
---------
terms of the Securities include those stated in the Indenture and those made
applicable to the Indenture by the TIA. 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 senior secured obligations of the
Company limited to $140,000,000 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 Section 1 of the
Definitions Appendix attached as Appendix 1 to the Indenture, which shall be a
part of this Security as if fully set forth in this place. The rules of
construction for this Security are set forth in Section 2 of the Definitions
Appendix.
5. Optional Redemption. Except as set forth in the second and third
-------------------
paragraphs under this paragraph 5, the Securities may not be redeemed prior to
December 15, 2001. On and after that date, the Company may redeem the
Securities in whole at any time or in part from time to time at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest and Special Interest, if any, with respect to, the
Securities to and including the redemption date:
if redeemed during the 12-month period beginning December 15,
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
2001 105.750%
2002 102.875%
2003 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, the Company shall have the right, without
the consent of the Holders, to redeem the Securities in whole, but not in part,
at a redemption price equal to 100% of the unpaid principal amount of the
Outstanding Securities plus the Applicable Premium as of, and accrued and unpaid
interest and Special Interest if any, to, the date of redemption in the event
that the Company enters into a binding agreement to consummate any transaction
which would be prohibited by Section 5.1 of the Indenture. Such redemption date
must occur prior to or simultaneously with the consummation of such prohibited
transaction.
In addition, the Securities may be redeemed in part by the Company at its
sole option if, on or before December 15, 2000, the Company receives Net Cash
Proceeds of one or more Public Equity Offerings. The Company may use all or a
portion of any such Net Cash Proceeds to redeem up to $49,000,000 aggregate
principal amount of the Securities, within 90 days of such Public Equity
Offering, at a redemption price (expressed as a percentage of the aggregate
principal amount of Securities Outstanding) of 111 1/2 plus accrued and unpaid
interest and Special Interest, if any, to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest and
Special Interest, if any, due on the relevant Interest Payment Date); provided,
however, that at least $91,000,000 aggregate principal amount of the Securities
shall remain Outstanding after each such redemption.
<PAGE>
3
6. Notice of Redemption. Notice of any redemption will be mailed at
--------------------
least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on, and Special Interest, if any, with respect to, all
Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to accrue
on such Securities (or such portions thereof) called for redemption.
7. Security. The Securities are secured by Liens on certain Properties
--------
of the Company pursuant to the Operative Documents described in the Indenture.
8. Change in Control. In the event that there shall occur a Change in
-----------------
Control, the Company shall make an Offer to Purchase all of the Outstanding
Securities, at a purchase price equal to 101% of the aggregate principal amount
of the Securities Outstanding, plus accrued and unpaid interest and Special
Interest, if any, to and including the repurchase date. The right to require
such 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 of the Indenture. The Company shall commence such Offer to Purchase
within thirty (30) days after the occurrence of a Change in Control.
The Company shall also be required to make an Offer to Purchase all of the
Outstanding Securities at a purchase price equal to 100% of the principal amount
thereof, plus the Applicable Premium as of, and accrued and unpaid interest and
Special Interest, if any, to, the Payment Date, prior to any Incurrence of any
Acquired Indebtedness.
In addition, under certain circumstances in connection with certain Asset
Dispositions, the Company may be required to make an Offer to Purchase
Outstanding Securities at 100% of their principal amount plus accrued and unpaid
interest and Special Interest, if any, to the Purchase Date.
"Offer to Purchase" means an offer to purchase all or a pro rata portion,
as the case may be, of the Securities by the Company from the Holders commenced
by the mailing (by first class mail, postage prepaid) by the Company (or, if
requested by the Company on at least five Business Days' prior notice to the
Trustee and at the Company's expense, by the Trustee) of a notice to each Holder
(and, if mailed by the Company, to the Trustee) at such Holder's address
appearing in the Register, stating: (i) the covenant pursuant to which the
offer is being made and that all Securities validly tendered will be accepted
for payment on a pro rata basis; (ii) the purchase price and the date of
purchase (which shall be a Business Day no earlier than 30 days nor later than
60 days from the date such notice is mailed) (the "Payment Date"); (iii) that
any Security not tendered will continue to accrue interest pursuant to its
terms; (iv) that, unless the Company defaults in the payment of the purchase
price, any Security accepted for payment pursuant to the Offer to Purchase shall
cease to accrue interest on and after the Payment Date; (v) that Holders
electing to have a Security purchased pursuant to the Offer to Purchase will be
required to surrender the Security, together with the form entitled "Option of
the Holder to Elect Purchase"
<PAGE>
4
attached to this Security completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
immediately preceding the Payment Date (or, if such day is a Legal Holiday, on
the next subsequent day which is not a Legal Holiday), and such Holder shall be
entitled to receive from the Paying Agent a non-transferable receipt of deposit
evidencing such deposit; (vi) that, unless the Company defaults in making the
payment of the purchase price or shall otherwise, in its sole discretion,
consent thereto, Holders will be entitled to withdraw their election only if the
Trustee receives, not later than the close of business on the fifth Business Day
immediately preceding the Payment Date, a telegram, facsimile transmission or
letter setting forth the name of such Holder, the principal amount at maturity
of Securities delivered for purchase and a statement that such Holder is
withdrawing his election to have such Securities purchased; and (vii) that
Holders whose Securities are being purchased only in part will be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered: provided that each Security purchased and each new
Security issued shall be in a principal amount at maturity of $1,000 or integral
multiples thereof. The Company shall 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 Holder's right to exercise a repurchase right.
On the Payment Date, the Company shall (i) accept for payment on a pro rata
basis Securities or portions thereof tendered pursuant to an Offer to Purchase;
(ii) deposit with the Trustee money sufficient to pay the purchase price of all
Securities or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the Trustee all Securities or portions thereof so accepted
together with an Officers' Certificate specifying the Securities or portions
thereof accepted for payment by the Company. The Trustee shall promptly mail to
the Holders of Securities so accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate, and the Company shall
promptly execute and mail (or cause to be mailed) to such Holders a new Security
equal in principal amount at maturity to any unpurchased portion of the Security
surrendered; provided that each Security purchased and each new Security issued
shall be in a principal amount at maturity of $1,000 or integral multiples
thereof; provided further that if the Payment Date is between a regular Record
Date and the next succeeding Interest Payment Date, Securities to be repurchased
must be accompanied by payment of an amount equal to the interest and Special
Interest, 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 Security being repurchased, and Special Interest, if any, with respect
thereto, will be paid on such next succeeding Interest Payment Date to the
registered holder of such Security on the immediately preceding Record Date. A
Security repurchased on an Interest Payment Date need not be accompanied by any
such payment, and the interest on the principal amount of the Security being
repurchased and Special Interest, if any, with respect thereto, will be paid on
such Interest Payment Date to the registered holder of such Security on the
corresponding Record Date. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-l under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Securities pursuant to
an Offer to Purchase. Both the notice of the Company and the notice of the
Holder having been given as specified above, the Securities so to be repurchased
shall, on the Payment Date become due and payable at the purchase price
applicable thereto and from and after such date (unless the
<PAGE>
5
Company shall default in the payment of such purchase price) such Securities
shall cease to bear interest. If any Security shall not be paid upon surrender
thereof for repurchase, the principal shall, until paid, bear interest from the
Payment Date at the rate borne by such Security. Any Security which is to be
submitted for repurchase only in part shall be delivered pursuant to the above
provisions with (if the Company or 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 such Holder's attorney duly
authorized in writing.
9. 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.
10. 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.
11. Discharge and Defeasance. Subject to certain conditions, the Company
------------------------
at any time may terminate some or all of its obligations under the Securities
and the Indenture if the Company deposits with the Trustee money or U.S.
Government Obligations for the payment of principal of, interest on, and Special
Interest, if any, with respect to, the Securities to Stated Maturity.
12. Amendments and Waivers. Subject to certain exceptions, the Indenture,
----------------------
the Securities, or the other 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.
13. 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 Special Interest, if any, with respect to the Securities;
default in payment of principal when due on the Securities (at maturity, upon
acceleration, redemption, repurchase or otherwise); failure by the Company to
comply with specific covenants of the Indenture or the other Operative
Documents; 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, the other Operative Documents 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; the rendering or domestication of final
judgments by a court of competent jurisdiction against the Company or any
Restricted 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
<PAGE>
6
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 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.
14. 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.
15. 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.
16. Authentication. This Security shall not be valid until authenticated
--------------
by the manual signature of the Trustee or an authenticating agent.
17. Unclaimed Money. If money for the payment of principal of, interest
---------------
on, or Special Interest, with respect to, or the purchase 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.
18. 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).
19. CUSIP Numbers. The Company in issuing this Security may use a
-------------
"CUSIP" number (if then generally in use) and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities
<PAGE>
7
or as contained in any notice of a redemption and that reliance may be placed
only on the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
20. Holders' Compliance with Registration Rights Agreement. Each Holder
------------------------------------------------------
of a Security, by acceptance hereof, acknowledges and agrees to the provisions
of the Registration Rights Agreement, including, without limitation, the
obligations of the Holders with respect to a registration and the
indemnification of the Company to the extent provided therein.
21. Governing Law. THIS SECURITY SHALL BE GOVERNED BY THE LAWS OF THE
-------------
STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
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
<PAGE>
8
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 ______________ Signature(s):_____________________
agent to transfer this
Security on the books of the Company.
The agent may substitute
another to act for him.
Date:_________________________________ Signature(s):_____________________
_____________________
(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)
<PAGE>
9
OPTION OF THE HOLDER TO ELECT PURCHASE
If you want to elect to have this Security repurchased by the Company
pursuant to any Offer to Purchase under the Indenture, check the box:
[_]
If you want to elect to have only part of this Security repurchased by the
Company pursuant to any Offer to Purchase under the Indenture, state the
principal amount to be repurchased:
$__________________________________
(in an integral multiple of $1,000)
Date:________________________________ Signature(s):__________________________
(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)
<PAGE>
EXHIBIT A TO INDENTURE
________________________________________________________________________________
ACQUIRED SLOT TRUST AGREEMENT
DECLARATION OF TRUST
DATED AS OF DECEMBER 9, 1997
BY AND BETWEEN
TRANS WORLD AIRLINES, INC.
AND
FIRST SECURITY BANK, NATIONAL ASSOCIATION
AS
SLOT TRUSTEE
11 1/2% SENIOR SECURED NOTES DUE 2004
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE......................... 2
Section 1.01. Definitions............................................... 2
Section 1.02. Rules of Construction..................................... 2
ARTICLE 2 NAME............................................................... 2
Section 2.01. Name...................................................... 2
ARTICLE 3 PURPOSE OF SLOT TRUST.............................................. 2
Section 3.01. Purpose................................................... 2
ARTICLE 4 CONVEYANCE OF SLOTS, ORIGINAL ISSUANCE OF CERTIFICATE.............. 2
Section 4.01. Holding and Conveyance of Slots........................... 2
Section 4.02. Acceptance by Slot Trustee................................ 3
Section 4.03. Execution of Beneficial Interest Certificate.............. 3
ARTICLE 5 OWNERSHIP AND TRANSFER OF SLOT TRUST ASSETS........................ 3
Section 5.01. Ownership of Slot Trust Assets............................ 3
Section 5.02. Transfer of Slot Trust Assets............................. 4
ARTICLE 6 BENEFICIAL INTEREST IN THE SLOT TRUST.............................. 4
Section 6.01. Ownership of Beneficial Interest.......................... 4
Section 6.02. Transfer of Beneficial Interest........................... 4
ARTICLE 7 THE SLOT TRUSTEE................................................... 5
Section 7.01. Management of the Slot Trust.............................. 5
Section 7.02. Powers.................................................... 5
Section 7.03. Principal Transactions.................................... 6
Section 7.04. Service in Other Capacities............................... 6
Section 7.05. Resignation and Removal of Slot Trustee................... 6
Section 7.06. Successor Slot Trustee.................................... 6
ARTICLE 8 LIMITATION OF LIABILITY AND INDEMNIFICATION........................ 6
Section 8.01. Limitation of Slot Trustee Liability...................... 6
Section 8.02. Indemnification of Slot Trustee........................... 7
Section 8.03. Duties of Slot Trustee.................................... 7
Section 8.04. Rights of Slot Trustee.................................... 8
ARTICLE 9 VOTING POWERS OF HOLDER OF RECORD OF BENEFICIAL INTEREST........... 9
Section 9.01. No Voting Power........................................... 9
ARTICLE 10 MISCELLANEOUS...................................................... 9
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
Section 10.01. Slot Trust Expenses, Etc.................................. 9
Section 10.02. Term of Slot Trust; Filing of Copies...................... 9
Section 10.03. Discharge of Slot Trustee; Termination of Slot Trust...... 9
Section 10.04. Amendment Procedure....................................... 10
Section 10.05. References to Slot Trust and Slot Trustee................. 10
Section 10.06 Notices; Waivers.......................................... 10
Section 10.07. Amendments, Etc........................................... 11
Section 10.08. No Waiver; Remedies....................................... 11
Section 10.09. Conflict with Trust Indenture Act of 1939................. 12
Section 10.10. Holidays.................................................. 12
Section 10.11. Successors and Assigns.................................... 12
Section 10.12. Governing Law; Waiver of Jury Trial....................... 12
Section 10.13. Indemnification........................................... 12
Section 10.14. Effect of Headings........................................ 13
Section 10.15. No Adverse Interpretation of Other Agreement.............. 13
Section 10.16. No Recourse Against Others................................ 13
Section 10.17. Counterpart Originals..................................... 13
Section 10.18. Severability.............................................. 13
Section 10.19. Benefits of Agreement Restricted.......................... 13
Section 10.20. Survival Provisions....................................... 13
SIGNATURE PAGE........................................................... 14
Schedule I - Acquired Slots.............................................. I-1
Schedule II - Prior Third Party Licenses.................................. II-1
Exhibit A - Form of Deed of Conveyance............................. A-1 to A3
Exhibit B - Form of Beneficial Interest Certificate and Power...... B-1 to B3
Exhibit C - Form of Master Sub-License Agreement................. C-1 to C-15
Exhibit 1 - Form of Monthly Report to Slot Trustee............... C-16
Exhibit 2 - Instruction to Transfer Operator Status.............. C-17
Schedule 1 - Slot Release Schedule................................ C-18
</TABLE>
(ii)
<PAGE>
ACQUIRED SLOT TRUST AGREEMENT
DECLARATION OF TRUST
DATED AS OF DECEMBER 9, 1997
DECLARATION OF TRUST (together with all amendments and supplements hereto,
this "Agreement"), made as of December 9, 1997, executed by TRANS WORLD
AIRLINES, INC., a Delaware corporation, having an office at 515 N. 6th Street,
St. Louis, Missouri 63101 (herein, together with its successors and assigns,
"TWA"), and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking
association organized under the laws of the United States, having an office at
79 South Main Street, Salt Lake City, Utah 84111, as trustee (or its successor
in interest or any successor trustee appointed as hereinafter provided and its
assigns, the "Slot Trustee");
R E C I T A L S:
WHEREAS, TWA has duly authorized the issuance of $140,000,000 aggregate
principal amount outstanding of its 11 1/2% Senior Secured Notes due 2004
pursuant to an Indenture (together with all amendments, modifications and
supplements thereto, the "Indenture") dated as of December 9, 1997 between TWA
and First Security Bank, National Association (the "Trustee"); and
WHEREAS, the Indenture requires TWA to establish the Slot Trust for the
purpose of holding the Acquired Slots described in Schedule I for the benefit of
the Holders of the Securities; and
WHEREAS, this Agreement establishes the Slot Trust for the purpose of
holding the Acquired Slots for the benefit of Holders of the Securities (as
defined in the Definitions Appendix described below); and
WHEREAS, as a result of the foregoing, pursuant to the terms of the
Indenture and in order to secure the due and punctual payment, performance and
observance in full of the Obligations (as defined in the Definitions Appendix),
the Beneficial Interest and the Beneficial Interest Certificate, among other
things, will be pledged to the Collateral Agent pursuant to the Pledge Agreement
for the equal and ratable benefit of the Holders of the Securities; and
WHEREAS, TWA has duly authorized the execution and delivery of this
Agreement.
NOW, THEREFORE, both parties agree as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Securities:
<PAGE>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. 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 to the Indenture as Appendix I, which shall be
a part of this Acquired Slot Trust Agreement as if fully set forth in this
place.
Section 1.02. Rules of Construction. The rules of construction for
---------------------
this Acquired Slot Trust Agreement are set forth in Section 2 of the Definitions
Appendix.
ARTICLE 2. NAME
Section 2.01. Name. The Slot Trust established by this Agreement shall
----
be known as the ACQUIRED SLOT TRUST NO. 2 (together with all amendments and
supplements hereto, the "Slot Trust").
ARTICLE 3. PURPOSE OF SLOT TRUST
Section 3.01. Purpose. The purpose for which the Slot Trust has been
-------
formed is (i) to acquire and hold, for the benefit of the holder of the
Beneficial Interest and the Beneficial Interest Certificate, the Acquired Slots
assigned, transferred and conveyed to the Slot Trust pursuant to the Deed of
Conveyance, dated as of December 9, 1997, delivered by TWA to the Slot Trustee
in substantially the form attached as Exhibit A hereto (the "Deed of
Conveyance"), and subsequent deeds of conveyance substantially similar in form
and substance to the Deed of Conveyance (each a "Subsequent Deed of Conveyance")
pursuant to which TWA has transferred and may transfer Slots to the Slot Trust,
the pledge of the Beneficial Interest therein to serve as security for the
payment and performance of the Obligations, and (ii) to transfer such Acquired
Slots, all in accordance with the terms and conditions set forth in this
Agreement, the Master Sub-License Agreement and the Indenture.
ARTICLE 4. CONVEYANCE OF SLOTS, ORIGINAL ISSUANCE OF CERTIFICATE
Section 4.01. Holding and Conveyance of Slots. TWA by the execution
-------------------------------
and delivery hereof, confirms that pursuant to the Deed of Conveyance, it is
assigning, transferring and conveying to the Slot Trust the Acquired Slots
described in Schedule I, in each case free and clear of liens, encumbrances and
rights of others (except for (i) Acquired Slots which are subject to the Prior
Third Party Licenses listed in Schedule II hereto, and (ii) Acquired Slots
subject to Slot Trades) and without recourse (such Acquired Slots, together with
all other Slots which may, from time to time, be assigned, transferred and
conveyed to the Slot Trust from TWA pursuant to the Master Sub-License Agreement
or otherwise, but excluding any Acquired Slots which have been released and
assigned, transferred and reconveyed to TWA from the Slot Trust (unless later
reassigned, retransferred and reconveyed to the Slot Trust) pursuant to the
Master Sub-License
2
<PAGE>
Agreement, herein being collectively referred to as the "Acquired Slots" or the
"Slot Trust Assets"), subject to the terms hereof.
Section 4.02. Acceptance by Slot Trustee. The Slot Trustee
--------------------------
acknowledges the prior or concurrent assignment, transfer and conveyance to it
of the Acquired Slots referred to in Section 4.01 hereof and declares that it
holds and will hold all Slot Trust Assets received by it hereunder in trust, in
accordance with, and subject to, the terms herein set forth.
Section 4.03. Execution of Beneficial Interest Certificate. The Slot
--------------------------------------------
Trustee shall execute and record the ownership of the Beneficial Interest
Certificate in accordance with Section 6.01 and deliver it to the Collateral
Agent, whereafter the Beneficial Interest shall be represented by the Beneficial
Interest Certificate, subject to all the terms hereof.
ARTICLE 5. OWNERSHIP AND TRANSFER OF SLOT TRUST ASSETS
Section 5.01. Ownership of Slot Trust Assets. The Slot Trust Assets
------------------------------
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as trustee hereunder by the Slot Trustee. All the assets of
the Slot Trust shall at all times be considered as vested in the Slot Trustee.
For so long as the Slot Trust Assets are held by the Slot Trust, TWA shall not,
and shall not be deemed to, have ownership in, or any rights of the holder of
record at the FAA with respect to, any Slot Trust Asset or any right of
partition or possession thereof, but TWA or its permitted assignee shall have an
undivided beneficial ownership interest in the entire Slot Trust. It is the
intent hereof that by the Deed of Conveyance, any Subsequent Deed of Conveyance,
this Agreement and the Master Sub-License Agreement, TWA (for all purposes other
than tax purposes) has assigned, transferred and conveyed (or in the case of any
Subsequent Deed of Conveyance, will have assigned, transferred and conveyed) its
entire interest in the Acquired Slots to the Slot Trust subject to no Liens
except Permitted Collateral Liens, and that TWA can only acquire an interest
therein upon satisfaction of all the Obligations or under the limited
circumstances set forth in Article 6 of the Master Sub-License Agreement. If,
notwithstanding TWA's failure to satisfy all the Obligations or comply with said
Article 6, it is held or determined that any present or future right or interest
in any Acquired Slot does so exist in TWA by contingent right of reverter,
expectancy or otherwise, TWA agrees that such holding or determination is
contrary to the intent hereof and that it has no right to, and shall not,
transfer or otherwise place any Lien upon such interest or make any agreement or
understanding to do so unless and until all the Obligations have been satisfied
or such Acquired Slot shall have ceased to be an Acquired Slot for all purposes
hereof and of the Master Sub-License Agreement.
Section 5.02. Transfer of Slot Trust Assets. Except as provided in the
-----------------------------
Master Sub-License Agreement, including Section 6.02 thereof, until such time as
the Slot Trust receives notice from the Indenture Trustee that (i) TWA has
satisfied all of its Obligations or (ii) acceleration of TWA's obligations under
the Securities has occurred, the Slot Trust shall not transfer any of the Slot
Trust Assets. Upon receipt of notice from the Indenture Trustee that no Event of
Default exists and TWA has satisfied all of the Obligations, the Slot Trustee
shall, subject to the provisions of Section 9.02 of the Master Sub-License
Agreement, and except as otherwise provided in Section 9.02 thereof, reassign,
retransfer and reconvey to TWA or its
3
<PAGE>
designee by deed of conveyance, without recourse, representation or warranty,
all of the Acquired Slots then held as Slot Trust Assets. Upon receipt of notice
from the Indenture Trustee that acceleration of TWA's obligations under the
Securities has occurred, the Slot Trust, upon direction from the Indenture
Trustee, shall take all such actions as are appropriate and necessary, in the
exercise of its sole and exclusive discretion, to protect the interests of the
Holders of the Securities, including without limitation, to deny TWA use of the
Acquired Slots (the Master Sub-License Agreement having terminated), to cause or
allow the termination of, enforce attornment obligations under or otherwise deal
with Third-Party Licenses and to transfer by deed of conveyance without
recourse, representation or warranty any or all of the Acquired Slots.
Notwithstanding the foregoing, if the Slot Trust or the Slot Trustee (in
its capacity as Slot Trustee) receives any Property other than Slot Trust Assets
(including, without limitation, cash and/or Investment Securities) such Property
shall be immediately delivered to the Collateral Agent.
ARTICLE 6. BENEFICIAL INTEREST IN THE SLOT TRUST
Section 6.01. Ownership of Beneficial Interest. TWA shall be the holder
--------------------------------
of record of the Beneficial Interest Certificate; provided however that upon
acceleration of the Securities in accordance with the Indenture, the Collateral
Agent may at any time in its discretion and without notice to TWA request that
the Slot Trustee transfer to or register in its name the Beneficial Interest
Certificate, and thereupon shall become holder of record of such certificate.
The ownership of the Beneficial Interest and the Beneficial Interest Certificate
shall be recorded by the Slot Trustee on the books of the Slot Trust. The record
books of the Slot Trust shall be conclusive as to who is the holder of record of
the Beneficial Interest and the Beneficial Interest Certificate.
Section 6.02. Transfer of Beneficial Interest. So long as TWA is
-------------------------------
recorded on the books of the Slot Trust as the holder of record of the
Beneficial Interest and the Beneficial Interest Certificate, TWA shall not
transfer or assign the Beneficial Interest and/or the Beneficial Interest
Certificate to any Person, except that TWA may pledge, transfer or assign the
Beneficial Interest and the Beneficial Interest Certificate to the Collateral
Agent under the Pledge Agreement and to no other Person. At such time as the
Collateral Agent becomes the holder of record of the Beneficial Interest and the
Beneficial Interest Certificate, the Beneficial Interest and the Beneficial
Interest Certificate shall be fully transferable and assignable. Any assignment
of the Beneficial Interest or Beneficial Interest Certificate in violation of
this Agreement shall be null and void ab initio.
ARTICLE 7. THE SLOT TRUSTEE
Section 7.01. Management of the Slot Trust. The business and affairs of
----------------------------
the Slot Trust shall be managed by the Slot Trustee, and the Trustee shall have
all powers granted to it pursuant to applicable law and under this Agreement.
4
<PAGE>
Section 7.02. Powers. The Slot Trustee in all instances shall carry out
------
its duties under this Agreement without interference by TWA. The Slot Trustee
shall have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments necessary in connection with its
duties under this Agreement. In addition to the powers granted to the Slot
Trustee pursuant to applicable law and subject to any applicable limitation in
this Agreement, the Slot Trustee shall have power and authority:
(a) To enter into and perform on behalf of the Slot Trust
the Master Sub-License Agreement, under substantially the terms and
conditions set forth in the form of such agreement attached as Exhibit
C hereto;
(b) To hold on behalf of the Slot Trust the Acquired Slots
assigned, transferred and conveyed to the Slot Trust from TWA pursuant
to the Deed of Conveyance or any Subsequent Deed of Conveyance from
TWA;
(c) To cancel, terminate and declare null and void the
Master Sub- License Agreement pursuant to the terms of such agreement;
(d) After acceleration of TWA's obligations under the
Securities in accordance with the Indenture (i) to take such actions
as are appropriate and necessary in the exercise of its sole and
exclusive discretion, to enter into, cause or allow the termination
of, enforce attornment obligations under or otherwise deal with
sublicenses and Third-Party Licenses and (ii) to assign, transfer and
convey by deed of conveyance, without recourse, representation or
warranty, any or all of the Acquired Slots, upon direction of the
Indenture Trustee;
(e) To transfer to the Collateral Agent any property other
than Slot Trust Assets (including, without limitation, cash and/or
Investment Securities) delivered to it; and
(f) To reassign, retransfer and reconvey by deed of
conveyance without recourse, representation or warranty (except as
otherwise provided in Section 9.02 of the Master Sub-License
Agreement) to TWA the Acquired Slots held as Slot Trust Assets, upon
receipt of notice from the Indenture Trustee of satisfaction by TWA of
all its Obligations or under certain circumstances with respect to
certain Acquired Slots as set forth in the Master Sub-License
Agreement.
Section 7.03. Principal Transactions. The Slot Trustee shall not on
----------------------
behalf of the Slot Trust, or otherwise, transfer any Slot Trust Assets or any
other property delivered to the Slot Trustee or the Slot Trust from the Slot
Trust or sell or lend any Slot Trust Assets or any other property delivered to
the Slot Trustee or the Slot Trust to any person, except as set forth in
Sections 5.02 and 7.02 hereof.
Section 7.04. Service in Other Capacities. The Slot Trustee may serve
---------------------------
in any other capacity on its own behalf or on behalf of others (and must serve
as Indenture Trustee and as
5
<PAGE>
Collateral Agent), and may engage in such other business activities in addition
to its services on behalf of the Slot Trust as may be desirable and permissible
under any applicable law. The Slot Trustee agrees to, and shall have the
benefit of, all provisions of the Indenture and the Operative Documents stated
therein to be agreements of or applicable to the Slot Trustee.
Section 7.05. Resignation and Removal of Slot Trustee. The Slot Trustee
---------------------------------------
may resign or be removed and a successor Slot Trustee appointed in accordance
with the terms of Section 7.8 of the Indenture; provided, however, that upon the
occurrence of an Event of Default, the Slot Trustee shall, if required under
applicable law to preserve the existence of the Slot Trust, resign and/or
appoint a successor individual trustee who shall be an individual person and
shall for all purposes be the Slot Trustee hereunder.
Section 7.06. Successor Slot Trustee. Any successor Slot Trustee
----------------------
appointed as provided in Section 7.05 hereof or which became a successor Slot
Trustee in accordance with Section 7.8 of the Indenture shall execute,
acknowledge and deliver to TWA and to its predecessor Slot Trustee an instrument
accepting such appointment hereunder, and thereupon the resignation or removal
of the predecessor Slot Trustee shall become effective, and such successor Slot
Trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as Slot Trustee herein. The
predecessor Slot Trustee shall deliver to the successor Slot Trustee all
documents and statements held by it hereunder, and TWA and the predecessor Slot
Trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for more fully, and certainty in, vesting and
confirming in the successor Slot Trustee all such rights, powers, duties and
obligations.
ARTICLE 8. LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 8.01. Limitation of Slot Trustee Liability. Every act or thing
--------------------------------------
done or omitted, and every power exercised or obligation incurred by the Slot
Trustee in the administration of the Slot Trust or in connection with any
business, property or concerns of the Slot Trust, whether ostensibly in its own
name or in its capacity as Slot Trustee, shall be done, omitted, exercised or
incurred by it as Slot Trustee; and every person contracting or dealing with the
Slot Trustee or having any debt, claim or judgment against it shall look only to
TWA for payment or satisfaction; and the Slot Trustee shall not be personally
liable for or on account of any contract, debt, tort, claim, damage, judgment or
decree arising out of or connected with the administration or preservation of
the Slot Trust Assets or the conduct of any business of the Slot Trust.
Except as provided in Section 9.01 of the Master Sub-License Agreement, the
Slot Trustee does not make and shall not be deemed to have made any
representation or warranty, expressed or implied, as to the title,
merchantability, compliance with specifications, condition, design, operation,
fitness for use or for a particular purpose, or any other representation or
warranty whatsoever, expressed or implied, with respect to the Slot Trust
Assets.
The Slot Trustee shall not be subject to any personal liability whatsoever
to any person for any action or failure to act (including, without limitation,
the failure to compel in any way any
6
<PAGE>
former or acting Slot Trustee to redress any breach of trust) and all Persons
shall look solely to TWA for satisfaction of claims of any nature arising in
connection with the affairs of the Slot Trust, except for the Slot Trustee's own
bad faith or negligence.
Section 8.02. Indemnification of Slot Trustee. TWA shall indemnify and
-------------------------------
hold harmless the Slot Trustee to the same extent provided for the Indenture
Trustee under Section 7.7 of the Indenture, and the Slot Trustee shall have
those rights set forth in such Section 7.7 for the Indenture Trustee.
Section 8.03. Duties of Slot Trustee. If an Event of Default has
----------------------
occurred and is continuing, the Slot Trustee shall exercise such of the rights
and powers vested in it by this Agreement and use the same degree of care and
skill in such exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
Except during the continuance of an Event of Default:
(a) The Slot Trustee need perform only those duties as
specifically set forth in this Agreement and no others.
(b) In the absence of bad faith on its part, the Slot 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 Slot Trustee and conforming to the requirements
of this Agreement. However, the Slot Trustee shall examine the certificates
and opinions to determine whether or not they conform to the requirements
of this Agreement.
(c) The Slot 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 8.03 or of Section 8.04 hereof;
(ii) The Slot Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is
proved that the Slot Trustee was negligent in ascertaining the
pertinent facts;
(iii) The Slot 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 5.02 hereof;
and
(iv) The Slot 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.
(d) Every provision of this Agreement that in any way relates
to the Slot Trustee is subject to paragraphs (a), (b), (c) and (d) of this
Section 8.03.
7
<PAGE>
(i) Except as specifically set forth herein, in the Master Sub-
License Agreement or in the Pledge Agreement, the Slot Trustee shall have
no duty (i) to perform any recording or filing in connection with the Slot
Trust Assets, (ii) to see to the payment or discharge of any tax,
assessment or other governmental charge or any lien owing with respect to,
or assessed or levied against, any part of the Slot Trust Assets, or (iii)
to take any other actions in connection with the use, operation, management
or maintenance of the Slot Trust Assets.
Section 8.04. Rights of Slot Trustee . (a) The Slot Trustee may rely on
----------------------
any document believed by it to be genuine and to have been signed or presented
by the proper person. The Slot Trustee need not investigate any fact or matter
stated in any such document.
(b) Before the Slot Trustee acts or refrains from acting, it
may require an Opinion of Counsel, satisfactory to the Slot Trustee in its
reasonable discretion, which shall conform to Section 11.5 of the
Indenture. The Slot 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 Slot Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Slot Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers. The Slot Trustee shall have the right at any
time to seek instruction concerning the administration of this Agreement or
the trust created thereby from any court of competent jurisdiction.
(e) The Slot Trustee may consult with counsel and the advice or
opinion of such counsel as to matters of law shall be full and complete
authorization and protection in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
ARTICLE 9. VOTING POWERS OF HOLDER OF RECORD OF BENEFICIAL INTEREST
Section 9.01. No Voting Power. So long as TWA is the holder of record
---------------
of the Beneficial Interest and the Beneficial Interest Certificate, TWA shall
have no voting power with respect to any matter relating to the Slot Trust,
unless, and only to the extent, required by law, which vote shall be exercised
by the Collateral Agent. At such time as the Collateral Agent becomes the holder
of record of the Beneficial Interest and the Beneficial Interest Certificate,
the Collateral Agent shall have all voting power with respect to any and all
matters relating to the Slot Trust, including, without limitation, the
dissolution of the Slot Trust, any direction to the Slot Trustee to make
distributions, in kind or otherwise, or any direction to the Slot Trustee to
sell, lease or otherwise dispose of the Slot Trust Assets; provided these powers
are not in derogation of any powers or rights exercisable by the Slot Trustee
under Section 7.02.
8
<PAGE>
ARTICLE 10. MISCELLANEOUS
Section 10.01. Slot Trust Expenses, Etc. TWA shall pay all reasonable
------------------------
expenses and disbursements of the Slot Trust and the Slot Trustee, including,
without limitation, taxes (to the extent provided in Section 4.02 of the Pledge
Agreement), fees and commissions of every kind incurred in connection with the
activities of the Slot Trust; expenses of registering and qualifying the Slot
Trust and the Beneficial Interest under Federal and State laws and regulations,
legal expenses, and such non-recurring items as may arise, including litigation
to which the Slot Trust or the Slot Trustee is a party, and for all losses and
liabilities incurred in administering the Slot Trust.
Section 10.02. Term of Slot Trust; Filing of Copies. The term of the
------------------------------------
Slot Trust shall be from the date of this Agreement to and including such time
as all of the Slot Trust Assets have been assigned, transferred and conveyed
pursuant to the terms set forth herein. The original or a copy of this
instrument and of each Declaration of Trust supplemental hereto shall be kept at
the office of the Slot Trustee.
Section 10.03. Discharge of Slot Trustee; Termination of Slot Trust. Upon
----------------------------------------------------
completion of the assignment, transfer and conveyance of the Slot Trust Assets
pursuant to the terms set forth herein, the Slot Trustee shall be discharged of
any and all further liabilities and duties hereunder and this Slot Trust and the
right, title and interest of all parties hereto shall be canceled and
discharged.
Section 10.04. Amendment Procedure. (a) Except as provided in Section
-------------------
10.04(b) hereof and subject to Section 4.11 of the Indenture and Article 9 of
the Indenture, this Agreement may be amended by TWA and the Slot Trustee only
with the affirmative vote of the Required Holders; provided, however, that the
--------
affirmative vote of each Holder shall be required to amend this Section 10.04.
(b) TWA and the Slot Trustee may also amend this Agreement
without the vote of the Holders of the Securities if such parties each deem
it necessary to cure any ambiguity, defect or inconsistency or conform the
Slot Trust and/or this Agreement to the requirements of applicable laws, so
long as such amendment or amendments do not have a material adverse effect
on the interests of the Holders, but the Slot Trustee shall not be liable
for failing so to do.
(c) Notwithstanding the foregoing, nothing contained in this
Agreement shall permit any amendment of this Agreement which would impair
the exemption from personal liability of the Slot Trustee.
Section 10.05. References to Slot Trust and Slot Trustee. All references
-----------------------------------------
in this Agreement and all other Operative Documents to the Slot Trust or the
Slot Trustee shall be to both the Slot Trust and the Slot Trustee unless such a
reference would render the provision in which it is contained meaningless or
ambiguous.
9
<PAGE>
Section 10.06. Notices; Waivers. Any request, demand, authorization,
----------------
direction, notice, consent, waiver or other document provided or permitted by
this Agreement to be made upon, given or furnished to, or filed with
(a) TWA shall be sufficient for every purpose hereunder if in
writing (including telecopied communications) and made, given, furnished or
filed by personal delivery or mailed by first-class mail, or by a
nationally recognized overnight courier, postage or courier charges, as the
case may be, prepaid, to TWA at:
Trans World Airlines, Inc.
One City Centre
515 N. 6th Street
St. Louis, Missouri 63101
Attention: Senior Vice President & General Counsel
Telecopier No.: (314) 589-3267
(b) the Slot Trustee shall be sufficient for every purpose
hereunder if in writing (including telecopied communications) and made,
given, furnished or filed by personal delivery or mailed by registered or
certified mail, or by a nationally recognized overnight courier, postage or
courier charges, as the case may be, prepaid, to or with the Slot Trustee
at:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Telecopier No.: (801) 246-5528
or to any of the above parties at any other address or telecopier number
subsequently furnished in writing by it to each of the other parties listed
above. An affidavit by any person representing or acting on behalf of TWA or
the Slot Trustee as to such mailing, having any registry receipt required by
this Section attached, shall be conclusive evidence of the giving of such
demand, notice or communication.
Any notice or communication mailed to a Holder shall be mailed to such
Holder by first-class mail or by nationally recognized overnight courier,
postage or courier charges, as the case may be, prepaid, at such Holder's
address as it appears on the Register and shall be sufficiently given to such
Holder if so mailed within the time prescribed.
Failure to mail a notice or send a communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. Notices to
the Slot Trustee or to TWA are deemed given only when received. Where this
Agreement provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by
10
<PAGE>
the Holders shall be filed with the Slot Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver.
Section 10.07. Amendments, Etc. No amendment or waiver of any provision
---------------
of this Agreement nor consent to any departure by TWA therefrom shall in any
event be effective unless the same shall be in writing, approved by the Required
Holders (to the extent required herein or by the Indenture) and signed by the
Slot Trustee, and then any such waiver or consent shall only be effective in the
specific instance and for the specific purpose for which given.
Section 10.08. No Waiver; Remedies. (a) No failure on the part of he
-------------------
Slot Trustee to exercise, and no delay in exercising any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right, or constitute an election precluding any other or further
exercise of any alternative right, of the Slot Trustee, the Collateral Agent or
the Indenture Trustee under the Indenture or any Operative Document. The
remedies herein provided are cumulative, may be exercised singly or
concurrently, and are not exclusive of any remedies provided by law or the
Indenture, the Securities or any of the other Operative Documents.
(b) Failure by the Slot Trustee at any time or times hereafter to
require strict performance by TWA or any other Person of any of the provisions,
warranties, terms or conditions contained herein or in any of the Indenture, the
Securities or any other Operative Documents now or at any time or times
hereafter executed by TWA or any such other Person and delivered to the Slot
Trustee shall not waive, affect or diminish any right the Slot Trustee at any
time or times hereafter to demand strict performance thereof, and such right
shall not be deemed to have been modified or waived by any course of conduct or
knowledge of the Slot Trustee or any agent, officer or employee of the Slot
Trustee.
Section 10.09. Conflict with Trust Indenture Act of 1939. If and to the
-----------------------------------------
extent any provision of this Agreement limits, qualifies or conflicts with the
duties imposed by Sections 310 to 317, inclusive, of the TIA, such imposed
duties shall control.
Section 10.10. Holidays. In the event that any date for the payment of
--------
any amount due hereunder shall not be a Business Day, such payments
(notwithstanding any other provision of this Agreement) need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the due date, and no interest shall accrue for the
period from such due date to and including the next succeeding Business Day.
Section 10.11. Successors and Assigns. This Agreement and all
----------------------
obligations of TWA hereunder shall be binding upon the successors and permitted
assigns of TWA and shall, together with the rights and remedies of the Slot
Trustee hereunder, inure to the benefit of the Slot Trustee, the Holders, and
their respective successors and assigns. TWA and the Slot Trustee understand
and agree that the interest of TWA under this Agreement is not assignable and
that any attempt to assign all or any portion of this Agreement by TWA shall be
null and void except for an assignment in connection with a merger,
consolidation or sale of substantially all TWA's assets permitted under the
Indenture.
11
<PAGE>
Section 10.12. Governing Law; Waiver of Jury Trial.
-----------------------------------
(a) The laws of the State of New York shall govern this Agreement
without regard to principles of conflict of laws.
(b) TWA and the Slot Trustee each waive any right to have a jury
participate in resolving any dispute, whether sounding in contract, tort, or
otherwise arising out of, connected with, related to or incidental to the
relationship established between them in connection with this Agreement.
Instead, any disputes resolved in court will be resolved in a bench trial
without a jury.
Section 10.13. Indemnification. TWA agrees to pay, and to save the Slot
---------------
Trustee harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all excise, sales or other similar taxes which
may be payable or determined to be payable in connection with any of the
transactions contemplated by this Agreement.
Section 10.14. Effect of Headings. The Article and Section headings and
------------------
the Table of Contents contained in this Agreement have been inserted for
convenience of reference only, and are and shall be without substantive meaning
or content of any kind whatsoever and are not a part of this Agreement.
Section 10.15. No Adverse Interpretation of Other Agreement. This
--------------------------------------------
Agreement may not be used to interpret any security agreement of TWA or any of
its Subsidiaries which is unrelated to the Indenture, the Securities or the
other Operative Documents. Any such security agreement may not be used to
interpret this Agreement.
Section 10.16. No Recourse Against Others. A director, officer,
--------------------------
employee or stockholder, as such, of TWA shall not have any liability for any
obligations of TWA under this Agreement or for any claim based on, in respect of
or by reason of such obligations or its creation.
Section 10.17. Counterpart Originals. This Agreement may be signed in
---------------------
two or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same agreement.
Section 10.18. Severability. The provisions of this Agreement are
------------
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction, and a Holder shall have no claim therefor against
any party hereto.
Section 10.19. Benefits of Agreement Restricted. Subject to the
--------------------------------
provisions of Section 10.11 hereof, nothing in this Agreement, express 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, any legal or
equitable right, remedy or claim under or in respect of this Agreement or
12
<PAGE>
under any covenant, condition, or provision herein contained, all such
covenants, conditions and provisions being for the sole benefit of the parties
hereto and their successors and of the Holders.
Section 10.20. Survival Provisions. Notwithstanding any right of the
-------------------
Collateral Agent, the Initial Purchasers or any of the Holders to investigate
the affairs of TWA, and notwithstanding any knowledge of facts determined or
determinable by any of them pursuant to such investigation or right of
investigation, all representations, warranties and covenants of TWA contained
herein shall survive the execution and delivery of this Agreement, and shall
terminate only upon the termination of this Agreement.
13
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Acquired Slot Trust
Agreement to be duly executed, all as of the date first above written.
TRANS WORLD AIRLINES, INC.
By: _______________________________
Name:
Title:
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
as Slot Trustee
By: _______________________________
Name:
Title:
14
<PAGE>
SCHEDULE I
TO ACQUIRED SLOT TRUST AGREEMENT
ACQUIRED SLOTS
--------------
The Acquired Slots consist of thirty (30) slots at Washington National
Airport more particularly identified by number, time and frequency as follows:
<TABLE>
<CAPTION>
Slot Number Slot Time A/D Frequency
<S> <C> <C> <C>
DCA A 1521 0700 N DLY
DCA A 1585 0700 N DLY
DCA A 1496 0800 N DLY
DCA A 1051 0900 N DLY
DCA A 1616 1000 N DLY
DCA A 1139 1100 N DLY
DCA A 1272 1200 N DLY
DCA A 1481 1200 N DLY
DCA A 1381 1300 N DLY
DCA A 1420 1300 N DLY
DCA A 1543 1400 N DLY
DCA A 1666 1400 N DLY
DCA A 1208 1500 N DLY
DCA A 1345 1500 N DLY
DCA A 1312 1600 N DLY
DCA A 1460 1600 N DLY
DCA A 1473 1600 N DLY
DCA A 1625 1600 N DLY
DCA A 1221 1700 N DLY
DCA A 1411 1700 N DLY
DCA A 1561 1700 N DLY
DCA A 1074 1800 N DLY
DCA A 1100 1800 N DLY
DCA A 1292 1900 N DLY
DCA A 1353 1900 N DLY
DCA A 1396 1900 N DLY
DCA A 1441 2000 N DLY
DCA A 1559 2000 N DLY
DCA A 1575 2200 N DLY
DCA A 1642 2200 N DLY
</TABLE>
I-1
<PAGE>
SCHEDULE II
TO ACQUIRED SLOT TRUST AGREEMENT
PRIOR THIRD PARTY LICENSES
--------------------------
<TABLE>
<CAPTION>
END OF
SLOT REMAINING
SLOT NUMBER TIME A/D FREQUENCY CARRIER TERM
- ----------- ------ ---- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
DCA A 1208 1500 N DLY American 6/30/98
Airlines
DCA A 1345 1500 N DLY American 6/30/98
Airlines
</TABLE>
II-1
<PAGE>
EXHIBIT A
TO ACQUIRED SLOT TRUST AGREEMENT
________________________________________________________________________________
FORM OF
DEED OF CONVEYANCE
AND
ASSIGNMENT OF SLOTS
FROM
TRANS WORLD AIRLINES, INC.
TO
FIRST SECURITY BANK, NATIONAL ASSOCIATION
AS SLOT TRUSTEE OF THE ACQUIRED SLOT TRUST NO. 2
11 1/2% SENIOR SECURED NOTES DUE 2004
________________________________________________________________________________
<PAGE>
EXHIBIT A
FORM OF
DEED OF CONVEYANCE AND
ASSIGNMENT OF SLOTS
FOR VALUE RECEIVED the undersigned TRANS WORLD AIRLINES, INC. ("TWA") on
behalf of itself and for its successors and assigns does hereby assign, transfer
and convey to the ACQUIRED SLOT TRUST NO. 2 (together with all amendments and
supplements thereto, the "Slot Trust") created by that certain Acquired Slot
Trust Agreement Declaration of Trust dated as of December 9, 1997 (as the same
may be amended and supplemented from time to time, the "Acquired Slot Trust
Agreement"), with First Security Bank, National Association, a national banking
association, as trustee (together with its successors in trust and assigns the
"Slot Trustee") all of the rights, titles, interests and privileges of TWA in
and to the primary operating authority granted by the Federal Aviation
Administration (the "FAA") pursuant to Title 14 of the Code of Federal
Regulations, Part 93, Subparts K & S, as amended from time to time, or any
recodification thereof in any regulation ("Title 14"), to conduct certain
Instrument Flight Rule (as defined under the Federal Aviation Act of 1958, as
amended) take-offs or landings in specified one-hour or half-hour periods (the
"Slots," each of which is set forth on Schedule I.). Capitalized terms used
herein and not otherwise defined have the respective meanings ascribed to them
in the Acquired Slot Trust Agreement or incorporated therein by reference.
The reference to the Slot Trustee having "transferred" to TWA the Acquired
Slots in the parties' facsimile transmittal to the Office of Slot
Administration, Office of the Chief Counsel - Slot Transfers, Federal Aviation
Administration, dated December 8, 1997, refers to the transfer made by the
execution and delivery of this DEED OF CONVEYANCE.
This Conveyance is an absolute and complete conveyance of all of the Slots.
TWA shall have the exclusive temporary leasehold or sub-license for the use
of the Slots during the period set forth in that certain Master Sub-License
Agreement between the Slot Trustee and TWA, dated as of December 9, 1997 (as the
same may be amended and supplemented from time to time, the "Master Sub-License
Agreement"), subject to the terms thereof. The Slot Trustee, as trustee of the
Slot Trust, shall continue to be the holder of record at the FAA with respect to
the Slots, subject to the regulations adopted by the FAA pursuant to
authorization of the Secretary of Transportation of the United States.
TWA does hereby warrant and represent to the Slot Trust and the Slot
Trustee that it has been granted the Slots by the FAA pursuant to Title 14,
subject only to regulation by the FAA, that TWA holds the Slots free and clear
of any liens or other encumbrances or rights of others, subject only to (i) Slot
Trades in effect on the date hereof, and (ii) the Third Party Licenses in effect
on the date hereof and listed on Schedule II to the Acquired Slot Trust
Agreement.
TWA further warrants and represents that it has, at all times since
obtaining each Slot, complied in all material respects with all of the terms,
conditions and regulations set forth in
A-1
<PAGE>
Title 14. With specificity, TWA warrants and represents that there are existing
at this time no violations of the terms, conditions and regulations of the
aforesaid regulatory enactments adopted by the FAA, the result of which would
give the FAA in the exercise of its powers the right to terminate, cancel,
withdraw or revoke any of the Slots.
TWA further warrants and represents that it has used all of the Slots in
accordance with Section 93.227 of Title 14 since the date that it obtained each
of the Slots.
TWA further warrants and represents that the Slots are not Slots which have
been categorized as "essential air service Slots," "international Slots" or
"temporary Slots" by the FAA.
TWA further warrants and represents that the execution and delivery of this
DEED OF CONVEYANCE and the execution of the related documents shall not and does
not create a default or an event of default under any existing loan agreement,
mortgage, deed of trust, indenture, contract or other material agreement to
which TWA is a party, and does not violate any term, covenant and condition of
any other material agreement with any regulatory authority or any of the
provisions of the Certificate of Incorporation or By-Laws of TWA as in effect on
the date hereof.
IN WITNESS WHEREOF, the undersigned, TWA, by and through its duly
undersigned authorized officer does hereby execute this DEED OF CONVEYANCE as of
this 9th day of December, 1997.
TRANS WORLD AIRLINES, INC.
By: _______________________________
Name:
Title:
A-2
<PAGE>
Before me personally appeared this 9th day of
---
December, 1997,___________, _____________, as
______________________________ of TRANS WORLD
AIRLINES,INC., a Delaware corporation, who in
my presence did execute this DEED OF
CONVEYANCE and acknowledged that he/she
executed this DEED OF CONVEYANCE for the
purpose stated herein as an act and deed of said
corporation.
_____________________________________________
Name:
_____________________________________________
Notarial Seal _____________________________
Acknowledged and Agreed to as of this 9th
day of December, 1997.
ACQUIRED SLOT TRUST NO. 2
First Security Bank, National Association,
as Slot Trustee on behalf of the Acquired Slot Trust
No. 2
By: ____________________________________
Name:
Title:
After recording and confirmation please return to First Security Bank, National
Association, 79 South Main Street, Salt Lake City, Utah 84111, Attention:
Corporate Trust Department
A-3
<PAGE>
EXHIBIT B
TO ACQUIRED SLOT TRUST AGREEMENT
________________________________________________________________________________
BENEFICIAL INTEREST CERTIFICATE
UNDER
ACQUIRED SLOT TRUST AGREEMENT
BETWEEN
TRANS WORLD AIRLINES, INC.
AND
FIRST SECURITY BANK, NATIONAL ASSOCIATION
AS SLOT TRUSTEE
11 1/2% SENIOR SECURED NOTES DUE 2004
________________________________________________________________________________
<PAGE>
TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN
RESTRICTIONS AND LIMITATIONS SET FORTH IN SECTIONS 5.02 AND
6.02 OF THE ACQUIRED SLOT TRUST AGREEMENT REFERRED TO BELOW
FIRST SECURITY BANK, NATIONAL ASSOCIATION
AS
SLOT TRUSTEE UNDER THE ACQUIRED SLOT
TRUST AGREEMENT DATED DECEMBER 9, 1997
BENEFICIAL INTEREST CERTIFICATE No. 1
December 9, 1997
FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Slot Trustee (the "Slot
Trustee") under the Acquired Slot Trust Agreement Declaration of Trust, dated as
of December 9, 1997 (as the same may be amended and supplemented from time to
time, the "Acquired Slot Trust Agreement") between TRANS WORLD AIRLINES, INC.
("TWA") and the Slot Trustee (capitalized terms used herein and not otherwise
defined have the respective meanings ascribed to them in the Acquired Slot Trust
Agreement or incorporated therein by reference), hereby certifies as follows:
(i) this Beneficial Interest Certificate is the Beneficial Interest Certificate
referred to in the Acquired Slot Trust Agreement, which Beneficial Interest
Certificate has been executed by the Slot Trustee; and (ii) TWA, as the holder
of record of this Beneficial Interest Certificate (the "Holder"), has an
undivided beneficial ownership interest in the entire Slot Trust; however, all
the assets of the Slot Trust shall at all times be considered as vested in the
Slot Trustee.
The ownership of this Beneficial Interest Certificate shall be recorded by
the Slot Trustee on the books of the Slot Trust, at the corporate trust office
of the Slot Trustee at 79 South Main Street, Salt Lake City, Utah 84111,
Attention: Corporate Trust Department, or at the office of any successor Slot
Trustee, in accordance with Section 6.01 of the Acquired Slot Trust Agreement.
Reference is hereby made to the Acquired Slot Trust Agreement, the Pledge
and Security Agreement dated as of December 9, 1997 between TWA and the
Collateral Agent thereunder, the Indenture dated as of December 9, 1997 between
TWA and the Trustee (as defined therein) and the Master Sub-License Agreement
dated as of December 9, 1997 between TWA and the Slot Trustee for a statement of
the rights of the Holder of this Beneficial Interest Certificate, as well as for
a statement of the terms and conditions of the trust created by the Acquired
Slot Trust
B-1
<PAGE>
Agreement, to all of which terms and conditions the Holder hereof agrees by its
acceptance of this Beneficial Interest Certificate.
THIS BENEFICIAL INTEREST CERTIFICATE MAY BE TRANSFERRED, SOLD, ASSIGNED OR
OTHERWISE DISPOSED OF BY THE HOLDER HEREOF ONLY IN ACCORDANCE WITH THE
PROVISIONS OF SECTIONS 5.02 AND 6.02 OF THE ACQUIRED SLOT TRUST AGREEMENT. The
Holder hereof, by its acceptance of this Beneficial Interest Certificate, agrees
not to transfer, sell, assign or otherwise dispose of this Beneficial Interest
Certificate except in accordance with the terms of Sections 5.02 and 6.02 of the
Acquired Slot Trust Agreement. Upon surrender of this Beneficial Interest
Certificate for registration of transfer, duly endorsed, or accompanied by a
written instrument of transfer duly executed by the registered Holder hereof or
his attorney duly authorized in writing, and after compliance with the
provisions of Sections 5.02 and 6.02 of the Acquired Slot Trust Agreement, a new
Beneficial Interest Certificate representing the undivided beneficial interest
in the entire Slot Trust will be executed and delivered to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Slot Trustee may treat the Person in whose name this Beneficial
Interest Certificate is registered as the owner hereof for all purposes set
forth in the Acquired Slot Trust Agreement.
IN WITNESS WHEREOF, the Slot Trustee has caused this Beneficial Interest
Certificate to be duly executed by an authorized officer of the Slot Trustee as
of the date first above written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
as Slot Trustee
By: ______________________________
Name:
Title:
B-2
<PAGE>
BENEFICIAL INTEREST CERTIFICATE POWER
FOR VALUE RECEIVED, ____________________________________________________ hereby
sells, assigns and transfers unto _____________________________________________
(_________) percent of the ownership of the beneficial interest in the ACQUIRED
SLOT TRUST NO. 2 (the "Slot Trust") created pursuant to that certain Acquired
Slot Trust Agreement Declaration of Trust, dated as of December 9, 1997 (the
"Acquired Slot Trust Agreement"), made by Trans World Airlines, Inc., a Delaware
corporation (the "Company"), and First Security Bank, National Association, a
national bank, as slot trustee (the "Slot Trustee"), standing in the Company's
name on the books of the Slot Trustee represented by Beneficial Interest
Certificate No. 1, herewith, and do hereby irrevocably constitute and appoint
____________________________________ attorney to transfer said beneficial
interest certificate on the books of said Trust with full power of substitution
in the premises.
Dated:
TRANS WORLD AIRLINES INC.
By: ______________________________
Name:
Title:
B-3
<PAGE>
EXHIBIT C
TO ACQUIRED SLOT TRUST AGREEMENT
________________________________________________________________________________
MASTER SUB-LICENSE AGREEMENT
BETWEEN
TRANS WORLD AIRLINES, INC.
("TWA")
AND
FIRST SECURITY BANK, NATIONAL ASSOCIATION
PURSUANT TO THE ACQUIRED SLOT TRUST AGREEMENT
DATED AS OF DECEMBER 9, 1997
11 1/2% SENIOR SECURED NOTES DUE 2004
________________________________________________________________________________
<PAGE>
MASTER SUB-LICENSE AGREEMENT
THIS MASTER SUB-LICENSE AGREEMENT dated as of December 9, 1997 (herein,
together with all supplements and amendments hereto, this "Agreement"), made by
TRANS WORLD AIRLINES, INC., a Delaware corporation, having an office at 515 N.
6th Street, St. Louis, Missouri 63101 (herein, together with its successors and
assigns, "TWA") and the trust existing under the Acquired Slot Trust Agreement
Declaration of Trust, dated as of December 9, 1997 (the "Slot Trust"), with
FIRST SECURITY BANK, NATIONAL ASSOCIATION, a banking association organized under
the laws of the United States, having an office at 79 South Main Street, Salt
Lake City, Utah 84111 (herein, together with its successors in trust and
assigns, the "Slot Trustee").
R E C I T A L S:
WHEREAS, TWA and First Security Bank, National Association, as Trustee,
have contemporaneously herewith entered into that certain Indenture dated as of
December 9, 1997 (the "Indenture") providing for the issuance of $140,000,000
aggregate principal amount outstanding of 11 1/2% Senior Secured Notes due 2004;
and
WHEREAS, TWA granted, assigned, transferred and conveyed to the Slot Trust
by the Deed of Conveyance (as defined in the Definitions Appendix described
below) all of the Acquired Slots set forth in Schedule I to the Acquired Slot
Trust Agreement; and from time to time hereafter TWA may assign, transfer and
convey to the Slot Trust other Slots pursuant to any Subsequent Deed of
Conveyance. All Slots so conveyed to the Slot Trust by the Deed of Conveyance
and Subsequent Deeds of Conveyance (as defined in the Definitions Appendix)
together constitute the "Acquired Slots"; and
WHEREAS, the Slot Trustee has agreed to grant to TWA an exclusive sub-
license (the "Sub-License") to use the Acquired Slots in accordance with this
Agreement; and
WHEREAS, as security for the due and punctual payment, performance and
observance in full of the Obligations (as defined in the Definitions Appendix),
TWA pledged, among other things, the Beneficial Interest and the Beneficial
Interest Certificate, to the Collateral Agent on behalf of the holders of the
Securities; and
WHEREAS, TWA has duly authorized the execution and delivery of this
Agreement.
NOW, THEREFORE, both parties agree as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Securities
(the "Holders").
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. 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 to
C-1
<PAGE>
the Indenture as Appendix I, which shall be a part of this Master Sub-License
Agreement as if fully set forth in this place.
Section 1.02. Rules of Construction. The rules of construction for this
---------------------
Master Sub-License Agreement are set forth in Section 2 of the Definitions
Appendix.
ARTICLE 2. SUB-LICENSE
Section 2.01. Grant of Sub-License. The Slot Trust does hereby grant unto
--------------------
TWA an exclusive Sub-License to use the Acquired Slots, subject to the terms
hereof and, except as otherwise provided herein, TWA shall not be required to
pay any fee for such Sub-License. The reference to the Slot Trustee having
"licensed-back" to TWA the Acquired Slots in the parties' facsimile transmittal
to the Office of Slot Administration, Office of the Chief Counsel - Slot
Transfers, Federal Aviation Administration, dated December 8, 1997, refers to
the Sub-License granted unto TWA by this Section 2.01.
ARTICLE 3. NATURE OF SUB-LICENSE
Section 3.01. Non-Proprietary Nature. The Sub-License shall be deemed to
----------------------
be in the nature of a usufruct and not a proprietary right, and the interest of
TWA under this Agreement shall be terminable in accordance with the terms and
conditions hereof.
ARTICLE 4. REPRESENTATION AND WARRANTY
Section 4.01. Representation and Warranty. TWA represents and warrants
---------------------------
that it is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware with corporate power and authority under
such laws to own, lease and operate its properties and conduct its business as
conducted on the date hereof, and has all such power and authority as is
necessary to enter into this Agreement.
ARTICLE 5 COVENANTS
Section 5.01. Covenants. TWA covenants and agrees that:
---------
(a) It shall use the Acquired Slots, or cause the Acquired Slots to be
used, in a manner consistent with Title 14 (including the percentage use
requirement contained therein) or other regulations established by any
lawful authority (unless noncompliance with such provision or regulations
is otherwise waived or consented to by the FAA or such authority, as the
case may be). TWA shall not use the Acquired Slots for international or
essential air service operations as defined by the FAA. TWA shall file all
such reports as are required by the FAA or by any other lawful authority to
protect each Acquired Slot in form and content in compliance with the
provisions of Title 14 or other regulations established by any other lawful
authority, which reports shall be delivered to
C-2
<PAGE>
the FAA or such other lawful authority on a timely basis. On or before the
tenth Business Day of each month TWA shall furnish to the Slot Trustee a
certificate as to its compliance with this Agreement for the immediately
preceding three months in substantially the form of Exhibit 1 to this
Agreement.
(b) Except as expressly permitted in this Section 5.01(b), TWA shall
not transfer, sub-license or otherwise grant to others rights with respect
to the Acquired Slots, and any such non-permitted transfer, sub-license or
other grant by TWA shall be null and void. TWA may, in the Ordinary Course
Of Business, (i) enter into Slot Trades, and (ii) sub-license and agree to
sub-license, directly or indirectly, to air carriers the right to use
Acquired Slots (such licenses in this clause (ii) hereinafter referred to
as the "Third Party Licenses"), provided that, (A) TWA shall not have
outstanding at any one time Third Party Licenses with a Remaining Term of
longer than twenty-four (24) months with respect to more than forty percent
(40%) of the number of Acquired Slots; (B) in the case of an indirect Third
Party License with respect to an Acquired Slot, the direct third party
sublicensee shall contractually bind itself with TWA to promptly sub-
license the right to use any such Acquired Slot to an air carrier; (C) TWA
shall not enter into or agree to enter into any Third Party License with a
Remaining Term of longer than fifteen (15) months after its receipt of
notice of a Default under Section 6.01(f) of the Indenture or after the
occurrence of any other Default under the Indenture and so long as any such
Default shall continue and (D) TWA shall not accept prepayments of rentals
in connection with Third Party Licenses.
(c) The rights of all sub-licensees claiming from or under TWA under
any and all Third Party Licenses, except as otherwise provided with respect
to Prior Third-Party Licenses, are subject and subordinate in all respects
to the terms of this Master Sub-License Agreement and the Slot Trust. TWA
shall use commercially reasonable efforts to obtain, as promptly as
practicable, from each licensee under a Prior Third Party License an
agreement (for the express benefit of the Slot Trustee) that, and as a
condition to entering into any Third Party License, TWA will require each
prospective sub-licensee to agree (for the express benefit of the Slot
Trustee) that, upon receipt of notice from the Slot Trustee that this
Master Sub-License Agreement has been terminated, it will promptly either
(i) (A) attorn to the Slot Trustee for the then scheduled Remaining Term of
the Third-Party License and acknowledge that, thereafter, its rights with
respect to the relevant Acquired Slot have terminated, and (B) agree that
for the Remaining Term of such Third Party License it will make license
payments directly to the Slot Trustee in an amount equal to the higher of
(1) the payments that, from time to time, would have been due and payable
under the terms of the Third-Party License, or (2) monthly fair market
value license payments with respect to the relevant Acquired Slot, or (ii)
acknowledge that such Third Party License, and the Third-Party Licensee's
rights with respect to the relevant Acquired Slot, shall terminate sixty
(60) days after notice from the Slot Trustee to such licensee of the Slot
Trustee's election to terminate such license. TWA shall not extend and
shall not, in any material respect, amend the Prior Third Party Licenses
described in Schedule II to the Acquired Slot Trust Agreement, except on
terms complying with this paragraph and Section 5.01(b).
C-3
<PAGE>
(d) TWA shall pay any reasonable fees or expenses incurred by the Slot
Trust or Slot Trustee in connection with being the holder of record at the
FAA of any Acquired Slot or the right to use any Acquired Slot.
(e) TWA shall take any action necessary to maintain the Slot Trust as
the holder of record at the FAA of the Acquired Slots.
ARTICLE 6. EVENT OF LOSS; RELEASE OF ACQUIRED SLOTS
Section 6.01. Event of Loss. (a) On the occurrence of an Event of Loss
-------------
with respect to an Acquired Slot, TWA shall give the Slot Trustee prompt notice
thereof and shall satisfy the Substitution Requirements.
(b) Upon compliance by TWA with its obligations above, with Article 7
hereof and with any applicable requirements of the TIA, and upon Request
and payment by TWA of the Slot Trustee's costs (including reasonable legal
fees and disbursements) incurred in connection with the foregoing, and
provided that any Slot which may be assigned, transferred and conveyed to
the Slot Trust as provided above shall immediately upon such assignment,
transfer and conveyance for all purposes under the Indenture, the Pledge
Agreement, the Declaration, any Subsequent Deed of Conveyance and this
Agreement become and be an Acquired Slot, the Slot Trust shall execute and
deliver the required documents, assigning, transferring and conveying the
Acquired Slot which was the subject of the Event of Loss to TWA or its
designee, without recourse, whereupon such Acquired Slot shall cease to be
an Acquired Slot for all purposes of the Indenture and the Operative
Documents, including this Agreement.
Section 6.02. Release of Acquired Slots. Upon Request and payment by TWA
-------------------------
of the Slot Trustee's costs (including reasonable legal fees and disbursements)
incurred in complying with such Request:
(a) Sale to Third Parties. So long as no Event of Default has
occurred and is continuing or would result therefrom, the Slot Trust shall
assign, transfer and convey to TWA or its designee, without recourse, any
Acquired Slot that is the subject of a contract of sale pursuant to which
TWA has agreed to sell such Acquired Slot in the Ordinary Course, on an
arm's-length basis to an unaffiliated third party within ninety (90) days
after the date of such release, which contract contains only closing
conditions that are customary to a sale of that kind at that time and which
sale is not a "sale/leaseback" or other similar transaction used by TWA as
a financing vehicle, but only if TWA shall comply with the Substitution
Requirements.
(b) Release of Acquired Slots Upon Partial Prepayment. Simultaneously
with or promptly following the cancellation of any Securities, whether
pursuant to a partial repurchase of any Securities pursuant to any Offer
to Purchase under the Indenture, following a tender of Securities in
connection with a tender offer therefor or otherwise and subject to
compliance by the Company with the Preconditions, and provided that
C-4
<PAGE>
after giving effect to such release of Acquired Slots, the Company will be
in compliance with the Security Ratio requirements set forth in the
definition thereof, the Slot Trustee shall assign, transfer and convey to
TWA or its designee without recourse the Acquired Slots set forth in
Schedule 1 hereto (the "Released Slots") based upon the reduction in the
amount of Securities Outstanding to an amount equal to or less than the
level specified for the release of particular Acquired Slots as set forth
in said Schedule 1 (the "Release Trigger").
(c) Release of Acquired Slot. Subject to the conditions and upon
compliance with all of the requirements of this Section 6.02 and Article 7
hereof and any applicable requirements of the TIA, and provided that any
Slot which may be assigned, transferred and conveyed to the Slot Trust
shall immediately upon such assignment, transfer and conveyance, for all
purposes under the Indenture, the Pledge Agreement, the Declaration, any
Subsequent Deed of Conveyance and this Agreement become and be an Acquired
Slot, the Acquired Slot or Acquired Slots, as the case may be, released
pursuant to Section 6.02(a) or 6.02(b), as the case may be, shall cease to
be Acquired Slots for all purposes hereof and of the Indenture and the
Operative Documents (unless later reassigned, retransferred and reconveyed
to the Slot Trust).
ARTICLE 7. SUBSEQUENT DEEDS OF CONVEYANCE
Section 7.01. Subsequent Deeds of Conveyance. If and whenever TWA shall
------------------------------
be required to assign, transfer and convey Slots to the Slot Trust or if TWA
shall at any time desire to assign, transfer and convey Slots to the Slot Trust,
TWA will furnish to the Slot Trustee the following:
(a) a Subsequent Deed of Conveyance duly executed by TWA,
appropriately describing and identifying such Slots; and
(b) an Opinion of Counsel, dated the date of execution of said
Subsequent Deed of Conveyance, stating that:
(i) all necessary filings have been made with the FAA to effect the
transfer of such Slots from TWA to the Slot Trust pursuant to
Title 14, Code of Federal Regulations, Part 93.221 (the "FAA Slot
Regulations"), and TWA has received confirmation from the FAA of
the transfer of such Slots to the Slot Trust and of the license-
back to TWA pursuant to the Subsequent Deed of Conveyance and
this Agreement; the Slot Trust owns such Slots subject to the
transfers permitted under the Subsequent Deed of Conveyance and
this Agreement and owns such Slots free and clear of all liens
and interests of others except as may be provided herein and the
Slot Trust has been identified as the owner and holder of record
of each such Slot pursuant to the FAA Slot Regulations; TWA has
been identified as the operator of record of such Slots (subject
to transfers permitted under the Subsequent Deed of Conveyance
and this Agreement) and such right to
C-5
<PAGE>
use such Slots has been duly recorded in the name of TWA pursuant
and subject to the FAA Slot Regulations; and
(ii) except as described in subsection 7.01(b)(i) above, no
authorization, approval, consent or license of the FAA or the
Department of Transportation of the United States is required for
the execution, delivery, or performance of the Subsequent Deed of
Conveyance by TWA; and
(c) Such Officers' Certificates, Opinions of Counsel or other
documents, if any, as the TIA may require or the Slot Trustee may
reasonably require.
ARTICLE 8. REMEDIES UPON DEFAULT OR FAA ACTION
Section 8.01. Remedies upon Default or FAA Action. (a) The parties
-----------------------------------
acknowledge and agree that the primary operating authority represented by a Slot
exists at the discretion of the FAA, acting pursuant to Title 14 and statutory
authority, and that the FAA may terminate, cancel, withdraw or revoke a Slot or
amend or revoke the regulation which permits Slots to be bought and sold and
thereby gives them value (any of the foregoing, an "FAA Action"). The parties
further acknowledge and agree that any of these actions by the FAA would
substantially impair the rights of the Slot Trustee and the value of the
Collateral.
(b) It is understood and agreed between the parties that:
(i) UPON THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER THE INDENTURE OR
AN FAA ACTION AND DURING THE CONTINUANCE THEREOF, TWA SHALL DELIVER TO THE
COLLATERAL AGENT, ALL CONSIDERATION TO BE RECEIVED BY TWA AFTER SUCH EVENT
OF DEFAULT OR FAA ACTION (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 A THIRD PARTY LICENSE OR SLOT TRADE; PROVIDED THAT IF SUCH
CONSIDERATION IS A SLOT, AS TO WHICH TWA BECAME THE HOLDER OF RECORD AT THE
FAA, SUCH SLOT SHALL BE ASSIGNED, TRANSFERRED AND CONVEYED TO THE SLOT
TRUST AND SHALL BE HELD BY THE SLOT TRUST AS A SLOT TRUST ASSET;
(ii) UPON THE ACCELERATION OF TWA'S OBLIGATIONS UNDER THE SECURITIES
IN ACCORDANCE WITH THE INDENTURE, THIS AGREEMENT WILL, WITHOUT ANY ACTION
BY ANY PARTY THERETO, TERMINATE AND TWA SHALL HAVE NO FURTHER RIGHT OR
INTEREST IN THE ACQUIRED SLOTS AND THE SLOT TRUSTEE MAY TAKE SUCH ACTIONS
AS NECESSARY TO CAUSE OR ALLOW THE TERMINATION OF OR ENFORCE ATTORNMENT
OBLIGATIONS UNDER OR OTHERWISE DEAL WITH THIRD PARTY LICENSES AND SLOT
TRADES, AND TO ASSIGN, TRANSFER AND CONVEY BY DEED OF CONVEYANCE, WITHOUT
RECOURSE, WARRANTY OR REPRESENTATION THE ACQUIRED SLOTS; PROVIDED, THAT, IF
SUCH
C-6
<PAGE>
ACCELERATION IS RESCINDED IN ACCORDANCE WITH SECTION 6.2 OF THE INDENTURE
PRIOR TO THE SLOT TRUSTEE'S HAVING DISPOSED OF ANY OF THE ACQUIRED SLOTS,
THIS AGREEMENT WILL, WITHOUT ANY ACTION BY ANY PARTY THERETO, BE REINSTATED
WITH RESPECT TO THOSE SLOTS STILL HELD BY THE SLOT TRUSTEE AFTER TAKING ANY
SUCH ACTION; AND
(iii) IN FURTHERANCE OF THE FOREGOING, THE SLOT TRUSTEE IS HEREBY
IRREVOCABLY APPOINTED THE TRUE AND LAWFUL ATTORNEY OF TWA, IN ITS NAME AND
STEAD, TO THE EXTENT PERMITTED BY LAW, TO EXECUTE, FILE, REGISTER AND/OR
RECORD ALL DOCUMENTS AND INSTRUMENTS OF ASSIGNMENT, TRANSFER AND SURRENDER
OF THE ACQUIRED SLOTS (INCLUDING, WITHOUT LIMITATION, AN INSTRUCTION TO
TRANSFER OPERATOR STATUS IN THE FORM ATTACHED HERETO AS EXHIBIT 2, A COPY
OF WHICH HAS BEEN EXECUTED IN BLANK BY AN AUTHORIZED OFFICER OF TWA AND
DELIVERED TO THE SLOT TRUSTEE, BUT WHICH MAY ALSO BE EXECUTED ON BEHALF OF
TWA BY THE SLOT TRUSTEE PURSUANT TO THIS POWER OF ATTORNEY), AND ALL OTHER
DOCUMENTS AND INSTRUMENTS, NECESSARY, OR IN THE GOOD FAITH OPINION OF THE
SLOT TRUSTEE DESIRABLE, IN ORDER TO (X) RECORD OF RECORD WITH THE FAA ANY
TERMINATION OF TWA'S RIGHTS OR INTERESTS IN THE ACQUIRED SLOTS UPON THE
ACCELERATION OF TWA'S OBLIGATIONS UNDER THE SECURITIES IN ACCORDANCE WITH
THE INDENTURE, (Y) UPON OR AT ANY TIME AFTER SUCH ACCELERATION, EFFECT THE
TRANSFER OF TWA'S OPERATOR STATUS WITH RESPECT TO ANY OR ALL OF THE
ACQUIRED SLOTS TO THE SLOT TRUSTEE OR A THIRD PARTY DESIGNATED BY THE SLOT
TRUSTEE AND/OR (Z) OTHERWISE EFFECT THE ACTIONS THAT THE SLOT TRUSTEE IS
AUTHORIZED, OR INTENDED TO BE AUTHORIZED, TO TAKE PURSUANT TO THE FOREGOING
CLAUSES (I) AND (II) OF THIS SECTION 8.01(B), AND MAY SUBSTITUTE ONE OR
MORE PERSONS, FIRMS OR CORPORATIONS WITH LIKE POWER, TWA HEREBY RATIFYING
AND CONFIRMING ALL THAT ITS SAID ATTORNEY OR SUCH SUBSTITUTE OR SUBSTITUTES
SHALL LAWFULLY DO BY VIRTUE HEREOF; BUT IF SO REQUESTED BY THE SLOT
TRUSTEE, TWA SHALL RATIFY AND CONFIRM ANY SUCH ACTION TAKEN IN ACCORDANCE
WITH THIS POWER OF ATTORNEY AS MAY BE DESIGNATED IN ANY SUCH REQUEST. THE
FOREGOING POWER OF ATTORNEY IS COUPLED WITH AN INTEREST, IS IRREVOCABLE AND
SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT, PROVIDED ONLY THAT THE
FOREGOING POWER OF ATTORNEY WILL TERMINATE UPON RECONVEYANCE OF THE
ACQUIRED SLOTS TO TWA IN ACCORDANCE WITH SECTION 9.01 HEREOF.
(c) In view of the nature of a Slot and the discretion given to the
FAA with respect to Slots, the parties understand and agree that the
termination, cancellation, withdrawal or revocation of the Acquired Slots
or the amendment or revocation of the
C-7
<PAGE>
regulation which permits Slots to be bought and sold would cause a
immediate and permanent detrimental effect upon the Slot Trust and the
ability of the Holders to look to the pledge by TWA of the Beneficial
Interest and the Beneficial Interest Certificate to secure TWA's
obligations under the Securities and the Indenture. In accordance with the
foregoing, upon the acceleration of TWA's obligations under the Securities
in accordance with the Indenture, the Slot Trustee and TWA shall (unless
such action on the part of the Slot Trustee is not consistent with action a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs or is not required to authorize and permit the Slot Trustee
to take the actions described in this sentence) apply for and use their
best efforts to obtain a temporary restraining order and preliminary and
final injunctive or other equitable relief authorizing and permitting the
Slot Trustee to cancel, or confirming the cancellation of, this Agreement
in accordance with Section 8.01(b) hereof, and authorizing and permitting
the Slot Trustee to sell, assign, transfer and convey the Acquired Slots
for a price and under such terms and conditions as may be commercially
reasonable and/or to preserve, to the maximum extent possible, the value of
the Acquired Slots.
(d) In accordance with the foregoing, TWA further recognizes,
understands and agrees that in the event of either a filing by TWA or a
entry of an order or decree against TWA of a petition under the Bankruptcy
Law then, and in either such event, the Slot Trust will only be protected
adequately with respect to the Acquired Slots upon the immediate entry of
an order providing either (i) for immediate abandonment of the Acquired
Slots to the Slot Trust and a grant of authority to the Slot Trust to
assign, transfer and convey the Acquired Slots and have the Collateral
Agent hold any proceeds thereof for the benefit of the Holders or (ii)
permitting TWA, at the sole discretion of the Slot Trustee, which may be
revoked at any time as to any one or more or all of the Acquired Slots, to
continue to use all of the Acquired Slots on a daily basis so as to
prohibit the FAA from immediately terminating, canceling, withdrawing or
revoking the rights thereunder.
It is the position of the Slot Trust and TWA that under the terms of the
Deed of Conveyance, any Subsequent Deed of Conveyance and this Agreement, TWA
(for all purposes other than tax purposes) has assigned, transferred and
conveyed (or, in the case of any Subsequent Deed of Conveyance, will have
assigned, transferred and conveyed) its entire property interest, if any, in the
Acquired Slots and can only acquire an interest therein upon satisfaction of all
of the Obligations or under limited circumstances set forth in Article 6 hereof.
In the event, however, that it is determined by a court of competent
jurisdiction that a property interest in the Acquired Slots does so exist in TWA
notwithstanding the failure of TWA to satisfy all of the Obligations or the
existence of certain circumstances set forth in Article 6 hereof, then and in
that event, the Slot Trustee and TWA agree that an order for adequate protection
pertaining to the foregoing rights of the Slot Trust with respect to the
Acquired Slots shall be immediately entered and TWA does hereby for itself and
its successors and assigns, including without limitation a trustee in any
proceeding instituted by or against TWA under the Bankruptcy Law, consent to the
entry of a order providing for such adequate protection of the Slot Trust's
interest in the Acquired Slots.
C-8
<PAGE>
ARTICLE 9. TERMINATION AND RECONVEYANCE OF ALL ACQUIRED SLOTS
Section 9.01. Reconveyance of All Acquired Slots. In the event that no
----------------------------------
Default or Event of Default exists under the Indenture, and TWA satisfies all of
the Obligations, then, and in that event, upon receipt by the Indenture Trustee
of such satisfaction in immediately available funds, the Slot Trustee shall,
without cost or charge to TWA (except as otherwise provided herein), reassign,
retransfer and reconvey by deed of conveyance without recourse, representation
or warranty to TWA, all of the Acquired Slots, except that the Slot Trustee
shall represent and warrant that (except in accordance with Article 8 hereof),
it has made no transfers of, or knowingly permitted any liens to be imposed
upon, Acquired Slots other than the limited interest granted to TWA under this
Agreement, and thereupon this Agreement (other than Article 10 hereof) shall
terminate.
Section 9.02. Continued Effectiveness of Agreement. If the reassignment,
------------------------------------
retransfer or reconveyance referred to in Section 9.01 hereof is prohibited by
any then applicable law or regulation, this Agreement (including Section 5.01(e)
but otherwise excluding Articles 5, 6, 7, 11, 12, 13 and 14 hereof) will
continue in effect until such time as the reassignment, retransfer or
reconveyance of the primary operating authority with respect to the Acquired
Slots is permitted.
ARTICLE 10. INDEMNIFICATION
Section 10.01. Indemnification by TWA. TWA shall indemnify and hold
----------------------
harmless the Slot Trustee to the extent provided to the Indenture Trustee under
Section 7.7 of the Indenture, and the Slot Trustee shall have those rights set
forth in such Section 7.7 for the Indenture Trustee.
ARTICLE 11. AMENDMENTS
Section 11.01. Amendments. (a) Except as provided in Section 11.01(b)
----------
hereof, and subject to Section 4.11 of the Indenture and Article 9 of the
Indenture, this Agreement may be amended by TWA and the Slot Trustee only with
the affirmative vote of the Required Holders; provided, however, that the
-------- -------
affirmative vote of each Holder shall be required to amend this Section 11.01.
(b) TWA and the Slot Trustee may also amend this Agreement without
the vote of the Holders if such parties each deem it necessary to cure any
ambiguity, defect or inconsistency or conform this Agreement to the requirements
of applicable laws so long as such amendment does not have a material adverse
effect on the interests of the Holders.
ARTICLE 12. ASSIGNMENTS
Section 12.01. Rights of Assignment by TWA. TWA and the Slot Trustee
---------------------------
understand and agree that the interest of TWA under this Agreement is not
assignable and that any attempt to assign all or any portion of this Agreement
by TWA shall be null and void ab initio except for an
C-9
<PAGE>
assignment in connection with a merger, consolidation or sale of substantially
all TWA's assets permitted under the Indenture.
ARTICLE 13. INDEPENDENT APPRAISALS
Section 13.01. Independent Appraisal Required Under Certain Circumstances.
----------------------------------------------------------
Whenever a Permitted Substitute has been used or operated by a Person or Persons
other than TWA, in a business similar to that in which it has been or is to be
used or operated by TWA, within six (6) months prior to the date of its
acquisition by TWA, or the fair value of any Acquired Slots or Collateral to be
released, assigned or transferred by the Collateral Agent or the Slot Trust,
together with all other Property so released, assigned or transferred since the
commencement of the then-current calendar year or in any twelve (12) month
period, as set forth in the certificate or certificates required by this
Agreement, is ten percent (10%) or more of the aggregate principal amount of
Securities at the time Outstanding, TWA will provide to the Slot Trustee such
certificates and opinions, if any, as the TIA may require.
ARTICLE 14. RECEIPT OF CASH AND/OR INVESTMENT SECURITIES
BY THE SLOT TRUSTEE
Section 14.01. Receipt of Cash And/or Investment Securities. In the event
--------------------------------------------
the Slot Trust or the Slot Trustee (in its capacity as Slot Trustee) receives
any Property (including, without limitation, cash and/or Investment Securities)
other than Slots, such Property shall immediately be delivered to the Collateral
Agent (which shall be evidenced by a certificate of the Collateral Agent
delivered to the Slot Trustee, acknowledging receipt of such Property).
ARTICLE 15. SLOT TRUSTEE
Section 15.01. Rights and Duties of Slot Trustee. Except as specifically
---------------------------------
set forth herein, in the Pledge Agreement or in the Slot Trust Agreement, the
Slot Trustee shall have no duty (i) to perform any recording or filing in
connection with the Slot Trust Assets, (ii) to see to the payment or discharge
of any tax, assessment or other governmental charge or any lien owing with
respect to, or assessed or levied against, any part of the Slot Trust Assets, or
(iii) to take any other actions in connection with the use, operation,
management or maintenance of the Slot Trust Assets.
Except as provided in Section 9.01 hereof, the Slot Trustee does not make
and shall not be deemed to have made any representation or warranty, expressed
or implied, as to the title, merchantability, compliance with specifications,
condition, design, operation, fitness for use or for a particular purpose, or
any other representation or warranty whatsoever, expressed or implied, with
respect to the Slot Trust Assets.
Section 15.02. References to Slot Trust and Slot Trustee. All references
-----------------------------------------
in this Agreement and the other Operative Documents to the Slot Trust or the
Slot Trustee shall be to
C-10
<PAGE>
both the Slot Trust and the Slot Trustee unless such a reference would render
the provision in which it is contained meaningless or ambiguous.
ARTICLE 16. MISCELLANEOUS
Section 16.01 Notices; Waivers. Any request, demand, authorization,
----------------
direction, notice, consent, waiver or other document provided or permitted by
this Agreement to be made upon, given or furnished to, or filed with
(a) TWA shall be sufficient for every purpose hereunder if in writing
(including telecopied communications) and made, given, furnished or filed
by personal delivery or mailed by first-class mail, or by a nationally
recognized overnight courier, postage or courier charges, as the case may
be, prepaid, to TWA at:
Trans World Airlines, Inc.
One City Centre
515 N. 6th Street
St. Louis, Missouri 63101
Attention: Senior Vice President & General Counsel
Telecopier No.: (314) 589-3267
(b) the Slot Trustee shall be sufficient for every purpose hereunder
if in writing (including telecopied communications) and made, given,
furnished or filed by personal delivery or mailed by registered or
certified mail, or by a nationally recognized overnight courier, postage or
courier charges, as the case may be, prepaid, to or with the Slot Trustee
at:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Telecopier No.: (801) 246-5528
or to any of the above parties at any other address or telecopier number
subsequently furnished in writing by it to each of the other parties listed
above. An affidavit by any person representing or acting on behalf of TWA or
the Slot Trustee as to such mailing, having any registry receipt required by
this Section attached, shall be conclusive evidence of the giving of such
demand, notice or communication.
Any notice or communication mailed to a Holder shall be mailed to such
Holder by first-class mail or by nationally recognized overnight courier,
postage or courier charges, as the case may be, prepaid, at such Holder's
address as it appears on the Register and shall be sufficiently given to such
Holder if so mailed within the time prescribed.
C-11
<PAGE>
Failure to mail a notice or send a communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. Notices
to the Slot Trustee or to TWA are deemed given only when received. Where this
Agreement provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by the Holders shall be filed with the Slot Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
Section 16.02. Amendments, Etc. Subject to Section 11.01, no amendment or
---------------
waiver of any provision of this Agreement nor consent to any departure by TWA
therefrom shall in any event be effective unless the same shall be in writing,
and signed by the Slot Trustee and approved by the Required Holders if required
hereby or by the Indenture, and then any such waiver or consent shall only be
effective in the specific instance and for the specific purpose for which given.
Section 16.03. No Waiver; Remedies. (a) No failure on the part of the
-------------------
Slot Trustee to exercise, and no delay in exercising any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative, may be
exercised singly or concurrently, and are not exclusive of any remedies provided
by law or the Indenture, the Securities or any of the other Operative Documents.
(b) Failure by the Slot Trustee at any time or times hereafter to
require strict performance by TWA or any other Person of any of the provisions,
warranties, terms or conditions contained herein or in any of the Indenture, the
Securities or any other Operative Documents now or at any time or times
hereafter executed by TWA or any such other Person and delivered to the Slot
Trustee shall not waive, affect or diminish any right of the Slot Trustee at any
time or times hereafter to demand strict performance thereof, and such right
shall not be deemed to have been modified or waived by any course of conduct or
knowledge of the Slot Trustee or any agent, officer or employee of the Slot
Trustee.
Section 16.04. Conflict with Trust Indenture Act of 1939. If and to the
-----------------------------------------
extent any provision of this Agreement limits, qualifies or conflicts with the
duties imposed by Sections 310 to 317, inclusive of the TIA, such imposed duties
shall control.
Section 16.05. Holidays. In the event that any date for the payment of
--------
any amount due hereunder shall not be a Business Day, then (notwithstanding any
other provision of this Agreement) such payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the due date, and no interest shall accrue on such payment
for the period from such due date to and including the next succeeding Business
Day.
Section 16.06. Successors and Assigns. This Agreement and all obligations
----------------------
of TWA hereunder shall be binding upon the successors and if permitted assigns
of TWA, and shall, together with the rights and remedies of the Slot Trustee
hereunder, inure to the benefit of the
C-12
<PAGE>
Slot Trustee, the Holders, and their respective successors and assigns. Any
assignment of this Agreement in violation of Section 12.01 herein shall be null
and void ab initio.
Section 16.07. Governing Law; Waiver of Jury Trial. (a) The laws of the
-----------------------------------
State of New York shall govern this Agreement without regard to principles of
conflict of laws.
(b) TWA and the Slot Trustee each waive any right to have a jury
participate in resolving any dispute, whether sounding in contract, tort, or
otherwise arising out of, connected with, related to or incidental to the
relationship established between them in connection with this Agreement.
Instead, any disputes resolved in court will be resolved in a bench trial
without a jury.
Section 16.08. Indemnification. TWA agrees to pay, and to save the Slot
---------------
Trustee harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all excise, sales or other similar taxes which
may be payable or determined to be payable with respect to any of the Collateral
or Slot Trust Assets or in connection with any of the transactions contemplated
by this Agreement.
Section 16.09. Effect of Headings. The Article and Section headings and
------------------
the Table of Contents contained in this Agreement have been inserted for
convenience of reference only, and are and shall be without substantive meaning
or content of any kind whatsoever and are not a part of this Agreement.
Section 16.10. No Adverse Interpretation of Other Agreement. This
--------------------------------------------
Agreement may not be used to interpret any agreement of TWA or any of its
Subsidiaries which is unrelated to the Indenture, the Securities or the other
Operative Documents. Any such other agreement may not be used to interpret this
Agreement.
Section 16.11. No Recourse Against Others. A director, officer, employee
--------------------------
or stockholder, as such, of TWA shall not have any liability for any obligations
of TWA under the Agreement or for any claim based on, in respect of or by reason
of such obligations or its creation.
Section 16.12. Counterpart Originals. This Agreement may be signed in two
---------------------
or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same agreement.
Section 16.13. Severability. The provisions of this Agreement are
------------
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction, and a Holder shall have no claim therefor against
any party hereto.
Section 16.14. Benefits of Agreement Restricted. Subject to the
--------------------------------
provisions of Sections 12.01 and 16.06, nothing in this Agreement, express 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
C-13
<PAGE>
Holders, any legal or equitable right, remedy or claim under or in respect of
this Agreement or under any covenant, condition, or provision herein contained,
all such covenants, conditions and provisions being for the sole benefit of the
parties hereto and their successors and of the Holders.
Section 16.15. Survival Provisions. Notwithstanding any right of the
-------------------
Collateral Agent, the Initial Purchasers or any of the Holders to investigate
the affairs of TWA, and notwithstanding any knowledge of facts determined or
determinable by any of them pursuant to such investigation or right of
investigations all representations, warranties and covenants of TWA contained
herein shall survive the execution and delivery of this Agreement, and shall
terminate only upon the termination of this Agreement.
C-14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Master Sub-License
Agreement to be duly executed as of the date first written above.
TRANS WORLD AIRLINES, INC.
By: ______________________________
Name:
Title:
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
as Slot Trustee on behalf of the Slot Trust
By: ______________________________
Name:
Title:
C-15
<PAGE>
EXHIBIT 1 TO
EXHIBIT C
CERTIFICATE
-----------
The undersigned, [Manager of Current Schedules and Industry Affairs] of
Trans World Airlines, Inc. ("TWA"), DOES HEREBY CERTIFY THAT:
1. This Certificate is delivered to the Slot Trustee pursuant to Article
5, Section 5.01(a) of the Master Sub-License Agreement dated as of December
9, 1997 (the "Master Sub-License Agreement") between TWA and First Security
Bank, National Association, as Slot Trustee pursuant to the Acquired Slot
Trust Agreement, dated as of December 9, 1997. All capitalized terms used
herein and not otherwise defined have the respective meanings ascribed to
them in the Master Sub-License Agreement or incorporated therein by
reference.
2. I am responsible for maintaining and managing the operation of slots
(as such term is defined in 14 C.F.R. 93) for TWA.
3. Except as noted on Schedule A attached hereto, during each of the one-
month, two-month and three-month periods ending the last day of the month
preceding the date of this Certificate:
(a) all the Acquired Slots were operated by TWA or other carriers or
both; and
(b) (i) the Acquired Slots operated by TWA, and
(ii) to the best of my knowledge based upon due inquiry, the
Acquired Slots operated by all other carriers, and
(iii) accordingly, to the best of my knowledge, all the Acquired
Slots
were used in a manner consistent with the usage and other requirements
of 14 C.F.R. 93 and Section 5.01(a) of the Master Sub-License
Agreement; and
(c) no notice of non-compliance with FAA Slot Regulations has been
received from the FAA with respect to any Acquired Slot.
DATED:_____________________ BY:___________________________________
NAME:
Att: Schedule A (None - No Exceptions)
C-16
<PAGE>
EXHIBIT 2 TO
EXHIBIT C
INSTRUCTION TO TRANSFER OPERATOR STATUS
The undersigned TRANS WORLD AIRLINES, INC. ("TWA") hereby authorizes and
directs the Federal Aviation Administration, Office of Slot Administration (and
any successor federal agency or office thereof, the "FAA") to assign, transfer
and convey operator status of the right to conduct Instrument Flight Rule (as
defined under the Federal Aviation Act of 1958, as amended) take-offs or
landings in specified one-hour or half-hour periods set forth on Schedule A
hereto (the "Slots") to __________________________________, and to record such
assignment, transfer and conveyance of operator status on the records of the
FAA.
IN WITNESS WHEREOF, the undersigned, TWA, by and through its duly
authorized officer does hereby execute this instruction to transfer the Slots
("Instruction") as of this ___ day of ____________, ________.
TRANS WORLD AIRLINES, INC.
By: _______________________________
Name:
Title:
____________________________________
(Name of Transferee)
By: _______________________________
Name:
Title:
By execution below, the Federal Aviation Administration
Office of Slot Administration, acknowledges receipt of
this Instruction, this ___ day of __________, ________.
By: _______________________________
Name:
Title:
C-17
<PAGE>
SCHEDULE 1
TO EXHIBIT C
SLOT RELEASE SCHEDULE
<TABLE>
<CAPTION>
Released Slots Slot Release Trigger
-------------- --------------------
<S> <C>
All Slots listed on Schedule $100,000,000.00
I to the Acquired Slot Trust
Agreement
</TABLE>
Note: Slots referred to are as of the date of the Master Sub-License Agreement.
If additional or substitute Slots are conveyed to the Slot Trust in satisfaction
of the Substitution Requirements, such substitute Acquired Slots shall be
subject to release at the same time and under the same circumstances (and only
at the same time and under the same circumstances) as the Acquired Slots for
which they were substituted could have been released under the Master Sub-
License Agreement.
C-18
<PAGE>
EXHIBIT B TO INDENTURE
PLEDGE AND SECURITY AGREEMENT
FROM
TRANS WORLD AIRLINES, INC.
TO
FIRST SECURITY BANK,
NATIONAL ASSOCIATION
AS COLLATERAL AGENT
Dated as of December 9, 1997
11 1/2% Senior Secured Notes due 2004
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 - Definitions and Rules of Construction
Section 1.01 Definitions................................................ 1
Section 1.02 Rules of Construction...................................... 1
ARTICLE 2 - Collateral
Section 2.01 Grant of Security Interest................................. 2
Section 2.02 Substitution of Collateral................................. 3
ARTICLE 3 - Representations and Warranties
Section 3.01 Representations and Warranties of the Company.............. 3
ARTICLE 4 - Covenants
Section 4.01 Further Assurances......................................... 5
Section 4.02 Taxes...................................................... 5
Section 4.03 Maintenance................................................ 7
Section 4.04 Event of Loss; Use in the Ordinary Course of Business;
Release; Thresholds; Effect of Release; Substitution...... 7
Section 4.05 Possession, Sublease and Assignment........................ 12
Section 4.06 Recording; Registration; Compliance with Laws and Rules.... 13
Section 4.07 Indemnities................................................ 13
Section 4.08 FAA Records................................................ 14
Section 4.09 Restrictions on Liens; Permitted Contests.................. 14
Section 4.10 Warranty of Title.......................................... 15
Section 4.11 Inventory Control System................................... 16
Section 4.12 Actions Regarding the Beneficial Interest Certificates..... 16
Section 4.13 Reports Regarding Collateral............................... 16
Section 4.14 Maintenance Ratio.......................................... 17
Section 4.15 Change in Location of Principal Office, Records or Name.... 18
ARTICLE 5 - Insurance
Section 5.01 Insurance to Be Carried.................................... 19
Section 5.02 Alteration of Insurance.................................... 19
Section 5.03 Additional Insurance....................................... 20
Section 5.04 Insurance Certificates..................................... 20
Section 5.05 Proceeds of Insurance...................................... 20
ARTICLE 6 - Remedies
Section 6.01 Remedies................................................... 21
Section 6.02 Application of Proceeds.................................... 22
Section 6.03 Obligations of Company Not Affected by Remedies............ 22
Section 6.04 Remedies Cumulative and Subject to Applicable Law.......... 23
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
ARTICLE 7 - Termination
<S> <C>
Section 7.01 Termination................................................ 23
ARTICLE 8 - Collateral Agent
Section 8.01 Collateral Agent........................................... 23
ARTICLE 9 - Miscellaneous
Section 9.01 Benefits of Pledge Agreement Restricted.................... 24
Section 9.02 Funds May Be Held by the Collateral Agent; Investments in
Investment Securities..................................... 24
Section 9.03 Certificates and Opinions of Counsel; Statements to Be
Contained Therein; Basis Therefor......................... 26
Section 9.04 Appraiser's Certificate.................................... 26
Section 9.05 Notices; Waiver............................................ 26
Section 9.06 Amendments, Etc............................................ 27
Section 9.07 No Waiver; Remedies........................................ 28
Section 9.08 Conflict with Trust Indenture Act of 1939.................. 28
Section 9.09 Holidays................................................... 28
SECTION 9.10 Successors and Assigns..................................... 28
SECTION 9.11 Governing Law; Submission to Jurisdiction; Waiver of Jury
Trial; Waiver of Damages.................................. 29
Section 9.12 Indemnification............................................ 30
SECTION 9.13 Effect of Headings......................................... 30
SECTION 9.14 No Adverse Interpretation of Other Agreements.............. 30
Section 9.15 No Recourse Against Others................................. 30
SECTION 9.16 Counterpart Originals...................................... 30
SECTION 9.17 Severability............................................... 30
SECTION 9.18 Survival Provisions........................................ 31
SECTION 9.19 Waivers.................................................... 31
</TABLE>
EXHIBIT A FORM OF SUPPLEMENTAL PLEDGE AGREEMENT (To Add Collateral)
EXHIBIT B FORM OF SUPPLEMENTAL PLEDGE AGREEMENT (To Release Collateral
EXHIBIT C FORM OF MONTHLY INVENTORY REPORT
SCHEDULE 1 DESIGNATED LOCATIONS
SCHEDULE 2 COLLATERAL RELEASE SCHEDULE
SCHEDULE 3 UCC FILING JURISDICTIONS
(ii)
<PAGE>
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of December 9, 1997 by and
between TRANS WORLD AIRLINES, INC., a Delaware corporation (together with its
successors and assigns, the "Company"), and FIRST SECURITY BANK, NATIONAL
ASSOCIATION, a national banking association organized under the laws of the
United States of America, having an office at 79 South Main Street, Salt Lake
City, Utah 84111, as Collateral Agent appointed pursuant to the Indenture
referred to below (together with its successors in such capacity, the
"Collateral Agent").
RECITALS
WHEREAS, the Company and the Trustee have entered into an Indenture
dated as of the date hereof (as at any time amended or supplemented or otherwise
modified, the "Indenture"), providing for the issuance of its securities
consisting of $140,000,000 aggregate principal amount of 11 1/2% Senior Secured
Notes due 2004 (collectively, the "Securities"); and
WHEREAS, in order to secure the payment of the principal amount of and
interest and Special Interest, if any, on the Securities and all other
Obligations of the Company under the Indenture, the Securities and the Operative
Documents, the Company has agreed to pledge and grant a security interest in the
Collateral, as provided for herein; and
WHEREAS, the Company and the Collateral Agent wish to set forth herein
their respective rights, liabilities and obligations with respect to the
Collateral.
NOW, THEREFORE, in consideration of the premises and other benefits to
the Company, the receipt and sufficiency of which are hereby acknowledged, the
Company hereby makes the following representations and warranties and hereby
covenants and agrees as follows:
ARTICLE 1
Definitions and Rules of Construction
Section 1.01 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 part of
this Pledge Agreement as if fully set forth in this place.
Section 1.02 Rules of Construction. The rules of construction for
---------------------
this Pledge Agreement are set forth in Section 2 of the Definitions Appendix.
ARTICLE 2
Collateral
Section 2.01 Grant of Security Interest. To secure the prompt
--------------------------
payment, performance and observance in full of any and all of the Company's
indebtedness and obligations evidenced
<PAGE>
by or set forth in the Securities or the Indenture (including, without
limitation, the principal of, premium, if any, on and interest and Special
Interest, if any, with respect to, the Securities) and all of its obligations to
perform acts or refrain from taking any action under the Indenture, the
Securities, this Pledge Agreement and the other Operative Documents (all the
foregoing hereinafter called the "Obligations"), the Company hereby pledges and
assigns to the Collateral Agent, and grants to the Collateral Agent for the
benefit of the Holders a continuing general, valid, perfected security interest
(senior in right and priority to all Liens except Permitted Collateral Liens) in
all right, title and interest of the Company in, to and under the following
whether now owned or hereafter acquired (collectively, the "Collateral"):
(a) The Pledged Spare Parts.
(b) The Beneficial Interest and the Beneficial Interest Certificate.
(c) The Slot Trust Assets, but only to the extent, if any, of any
right, title or interest that the Company notwithstanding the agreements of the
Company set forth in Section 5.01 of the Declaration, may have in, to or under
the Slot Trust Assets (it being acknowledged and understood by the parties
hereto that pursuant to the Declaration and the Deed of Conveyance, the Company
has agreed that all right, title and interest in and to the Slots specified in
the Deed of Conveyance has been assigned, transferred and conveyed, and that all
right, title and interest in and to any Slots that hereafter are the subject of
any Subsequent Deed of Conveyance will be assigned, transferred and conveyed, to
the Slot Trustee, and it being further acknowledged and agreed that the pledge,
assignment and grant set forth in this Section 2.01(c) does not in any way limit
the Deed of Conveyance or any Subsequent Deed of Conveyance).
(d) All cash and/or Investment Securities deposited with the
Collateral Agent to be held by the Collateral Agent as security for the
Obligations as provided herein or in the Master Sub-License Agreement.
(e) All other Property which may be granted, bargained, sold,
conveyed, transferred, assigned or pledged pursuant to the terms of this Pledge
Agreement by the Company to the Collateral Agent at any time and all proceeds
(as such term is defined in Article 9 of the New York Uniform Commercial Code in
effect on the date hereof) of and to any of the Property in which a security
interest is granted under this Section 2.01.
(f) All repair, maintenance and inventory records, logs, manuals and
all other documents and materials similar thereto (including, without
limitation, any such records, logs, manuals, documents and materials that are
computer print-outs) at any time maintained, created or used by the Company, and
all records, logs, documents and other materials required at any time to be
maintained by the Company pursuant to the FAA or under the Federal Aviation Act,
in each case with respect to any of the Spare Parts included in any of the
foregoing.
(g) The tolls, rents, revenues, issues, income, distributions,
products and profits, and all the estate, right, title, interest and claim
whatsoever, at law, as well as in equity, which the Company has or possesses on
the date of delivery of this Pledge Agreement or to which the Company may
thereafter become legally or equitably entitled, from, in or to the Collateral
or the
2
<PAGE>
Slot Trust Assets (excluding any cash on hand or in banks, instruments and
accounts receivable arising from the conduct of the Company's business which do
not arise either from the use, operation, storage, control or management of the
Collateral or the Slot Trust Assets by the Collateral Agent pursuant to Article
6 hereof or through distributions, if any, made by the Slot Trust).
It is the true, clear, and express intention of the Company that the
continuing grant of the security interests provided for in this Pledge Agreement
remain as security for payment and performance of the Obligations until such
Obligations are satisfied and performed in full. The notice of the continuing
grant of this security interest therefor shall not be required to be stated on
the face of any Security, nor shall the Company otherwise be required to
identify such Security as being secured hereby.
Section 2.02 Substitution of Collateral. The Company may from time
--------------------------
to time substitute Permitted Substitutes for any Non-Slot Collateral then
subject to the Lien of this Pledge Agreement to the extent permitted by and in
accordance with Section 4.04 and the Substitution Requirements and, upon the
consummation of such substitution, the Collateral Agent, upon Request of the
Company, shall release its Lien on the Collateral for which Permitted
Substitutes are so substituted.
ARTICLE 3
Representations and Warranties
Section 3.01 Representations and Warranties of the Company. The
---------------------------------------------
Company represents and warrants to the Collateral Agent as follows:
(a) The Company is an air carrier certificated under Section 44705 of
the Federal Aviation Act.
(b) The Company owns, and has full right, title and interest in, the
Collateral, free and clear of all Liens, except Permitted Collateral Liens.
(c) The Company maintains public liability, property damage and
workers' compensation insurance and insurance on all its insurable property,
including the Collateral, against fire and other hazards with responsible
insurance carriers to the extent usually maintained by similarly situated
companies.
(d) This Pledge Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or general principles of equity and commercial
reasonableness.
(e) Upon the delivery to the Collateral Agent of Beneficial Interest
Certificate, the filing of this Pledge Agreement with the FAA and the filing of
financing statements under the
3
<PAGE>
Uniform Commercial Code (the "UCC") in the offices of the Secretaries of State
and (to the extent required by the UCC) the county clerks in each Designated
Location, in each case as set forth in Schedule 3 hereto, the pledge of the
Collateral, securing the payment of the Obligations for the benefit of the
Collateral Agent and the Holders, will constitute a first priority perfected
security interest in such Collateral, enforceable as such against all creditors
of the Company and any Persons purporting to purchase any of the Collateral from
the Company other than Permitted Collateral Liens, except as such enforceability
may be limited by the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally or general principles of equity and commercial reasonableness.
(f) No consent of any other Person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required either for (i) the pledge by the
Company of the Collateral pursuant to this Pledge Agreement or for the
execution, delivery or performance of this Pledge Agreement by the Company
(except, in the case of any Collateral a security interest in which can only be
perfected by filing of a financing statement under the UCC, for the filing of
the UCC financing statements in all Designated Locations as described in Section
3.01(e) and, with respect to Pledged Spare Parts, the filing of this Pledge
Agreement with the FAA or (ii) the exercise by the Collateral Agent of the
rights provided for in this Pledge Agreement or the remedies in respect of the
Collateral pursuant to this Pledge Agreement.
(g) No litigation investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the knowledge of the
Company, threatened by or against the Company with respect to this Pledge
Agreement, any of the Collateral or any of the transactions contemplated hereby.
(h) The pledge of the Collateral pursuant to this Pledge Agreement is
not prohibited by any applicable law or governmental regulation, release,
interpretation or opinion of the Board of Governors of the Federal Reserve
System or other regulatory agency (including, without limitation, Regulations G,
T, U and X of the Board of Governors of the Federal Reserve System).
(i) The execution, delivery and performance by the Company of the
Operative Documents to which it is a party do not and will not (i) violate any
provision of any law or any governmental rule or regulation applicable to the
Company, the Certificate of Incorporation or Bylaws of the Company or any order,
judgment or decree of any court or other agency of government binding on the
Company, (ii) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any material contractual
obligation of the Company, (iii) result in or require the creation or imposition
of any Lien upon any of the properties or assets of the Company (other than any
Liens contemplated hereunder and under the other Operative Documents in favor of
the Collateral Agent, the Slot Trustee or the Trustee, as the case may be, on
behalf of the Holders), or (iv) require any approval of stockholders, or any
approval or consent of any Person under any material contractual obligation, of
the Company.
(j) The Company's chief executive office and principal place of
business is at its address set forth for notices in Section 9.05(a), and the
originals of its records pertaining to the
4
<PAGE>
Collateral are kept at such address and the Designated Locations. The Company's
name as set forth in such Section is its correct legal name and the Company has
not within the past five years had any other legal name, nor has the Company
done within such five years nor is the Company now doing business under any
other name. The Company's correct U.S. tax identification number is 43-1145889.
ARTICLE 4
Covenants
Section 4.01 Further Assurances. From time to time, the Company
------------------
shall perform any and all acts and execute any and all additional instruments
and documents as may be reasonably requested by the Collateral Agent, the
Indenture Trustee or the Slot Trustee, to carry out the intention of or to
facilitate the performance of the terms of this Pledge Agreement or to secure
the rights and remedies hereunder or thereunder of the Holders including,
without limitation, the execution and delivery of instruments of title, any
supplemental agreements and any financing statement or continuation of any
financing statement or other appropriate instrument of recording under the
Uniform Commercial Code as in effect in the jurisdictions in which the
Collateral is located, under the Federal Aviation Act and the rules and
regulations promulgated thereunder or under any other appropriate law or
regulatory scheme applicable to the Collateral.
Section 4.02 Taxes. The Company will promptly pay and discharge all
-----
taxes, assessments, fees, charges, fines and penalties of any kind which may be
imposed (a) upon any of the Collateral, the Acquired Slots or upon the Slot
Trust and (b) for the use or operation thereof by the Company, and will at all
times keep the Collateral and the Acquired Slots free and clear of all taxes,
assessments, fees, charges, fines and penalties of any kind which might in any
way affect the title thereto or result in a Lien which is not a Permitted
Collateral Lien upon any part or the whole of the Collateral or the Acquired
Slots; provided, however, that the Company shall not be required to pay or
discharge any taxes, assessments, fees, charges, fines or penalties of any kind
(i) whose amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which adequate provision has been made if
required in accordance with GAAP, as in effect from time to time, or (ii) if the
Company delivers to the Collateral Agent an Officers' Certificate stating that
such non-payment and non-discharge is in the interest of the Company, presents
no material risk of sale, forfeiture or loss of any Collateral, and is not
prejudicial in any material respect to the Holders, except that the Company will
pay all such taxes, assessments, fees, charges, fines or penalties forthwith
upon the commencement of proceedings to foreclose any Lien on any Collateral or
Acquired Slot which may have attached as security therefor. If any expenses,
taxes, assessments, fees, charges, fines or penalties which are payable by the
Company hereunder shall have been charged or levied against the Collateral
Agent, the Indenture Trustee or the Slot Trustee directly and, after notice to
the Company and opportunity to contest as aforesaid, paid by the Collateral
Agent, the Indenture Trustee or the Slot Trustee, the Company shall reimburse
the Collateral Agent, the Indenture Trustee or the Slot Trustee on presentation
of an invoice therefor.
5
<PAGE>
For purposes of this Section 4.02 and notwithstanding any other
provision of this Pledge Agreement, the Collateral Agent, the Indenture Trustee
or the Slot Trustee are the sole parties to, from, or with whom the Company
shall be obligated to communicate or receive any communication or notice,
negotiate, settle, or enter into any stipulation, agree upon or make factual
determinations, elections, or payments regarding any matter arising under this
Section 4.02. Any and all notices received or served by the Company from or upon
the Collateral Agent, the Indenture Trustee or the Slot Trustee shall be deemed
notice duly served from or upon the Company. The Company shall have no
obligation to communicate or deal with any parties except the Collateral Agent,
the Indenture Trustee or the Slot Trustee regarding any matter arising under
this Section 4.02.
The Company will, except as otherwise permitted under the first
paragraph of this Section 4.02, pay, and will save the Collateral Agent, the
Indenture Trustee and the Slot Trustee and the Holders harmless from, any stamp
taxes which shall be payable in connection with this Pledge Agreement, any
supplement or amendment hereof or the original issuance of the Securities.
If a written claim is made against the Collateral Agent, the Indenture
Trustee or the Slot Trustee or the Holders of Securities for any taxes,
assessments, fees, charges, fines, or penalties which are subject to payment or
indemnification by the Company under this Section 4.02, the Collateral Agent,
the Indenture Trustee or the Slot Trustee shall promptly notify the Company
thereof in writing. If requested by the Company in writing within thirty (30)
days (but twenty (20) days if the Collateral Agent, the Indenture Trustee or the
Slot Trustee received a 30-day statutory notice) of the notice to the Company,
the Collateral Agent, the Indenture Trustee or the Slot Trustee shall, at the
Company's expense and direction, for so long as the Collateral Agent, the
Indenture Trustee or the Slot Trustee reasonably believes that the Company is
acting in good faith and the Collateral Agent, the Indenture Trustee or the Slot
Trustee have received adequate indemnification therefor, contest such taxes,
assessments, fees, charges, fines or penalties. The Company shall select the
forum for such contest and shall determine whether such contest shall be by:
(a) resisting or refusing payment of such taxes, assessments, fees,
charges, fines or penalties; or
(b) not paying such taxes, assessments, fees, charges, fines or
penalties except under protest; or
(c) paying such taxes, assessments, fees, charges, fines, or penalties
and seeking a refund thereof.
If permissible under applicable law, the Collateral Agent, the
Indenture Trustee or the Slot Trustee shall assign its right to contest the
imposition or levy of any such tax, assessment, fees, charges, fines or
penalties to the Company.
Section 4.03 Maintenance. The Company, at its own cost or expense:
-----------
6
<PAGE>
(a) shall maintain, or cause to be maintained, at all times all
Pledged Spare Parts in accordance with all applicable laws, rules, regulations,
orders, directives and instructions issued by the FAA or any other governmental
authority having jurisdiction over the Company or any such Collateral, including
making any modifications, alterations, replacements and additions necessary
therefor;
(b) shall maintain, or cause to be maintained, all records, logs and
other materials required by the FAA or under the Federal Aviation Act to be
maintained in respect of any Pledged Spare Parts and shall retain complete
copies thereof to the extent necessary to insure that the value of such Pledged
Spare Parts will not be materially diminished for lack of a full maintenance
history;
(c) shall maintain, or cause to be maintained, every Pledged Spare
Part in good order and condition, shall perform all maintenance thereon
necessary for that purpose and shall obtain all necessary recertification
thereof and shall maintain generally the quality and makeup (by type and class)
thereof in accordance with applicable laws.
Section 4.04 Event of Loss; Use in the Ordinary Course of Business;
------------------------------------------------------
Release; Thresholds; Effect of Release; Substitution.
- ----------------------------------------------------
(a) Event of Loss. Upon the occurrence of an Event of Loss with
respect to any Operative Collateral, the Company shall give the Collateral Agent
prompt notice thereof and shall satisfy the applicable Substitution
Requirements.
Upon compliance by the Company with its obligations above and upon
Request by the Company, payment by the Company of the Collateral Agent's and
Slot Trustee's costs (including reasonable legal fees and disbursements) in
connection therewith and satisfaction of any applicable requirements of the TIA,
the Collateral Agent shall execute and deliver the required documents releasing,
assigning and transferring all of the right, title and interest of the
Collateral Agent in and to the Collateral which is the subject of such Event of
Loss to the Company or its designee, whereupon such Collateral shall cease to be
Collateral for all purposes hereof.
(b) Use in the Ordinary Course of Business. So long as no Event of
Default shall exist, the Company shall have the right, at any time and from time
to time at its own cost and expense, without any release from or consent by the
Collateral Agent, to deal with (but not, except as expressly otherwise permitted
under this Pledge Agreement, to sell, lease, transfer or otherwise dispose of,
or relinquish possession of) the Operative Collateral in any manner consistent
with the Company's Ordinary Course Of Business, including without limitation any
of the following:
With respect to the Pledged Spare Parts:
(A) to dismantle any Pledged Spare Part that has become worn out
or obsolete or unfit for use, and either in the Ordinary Course or
pursuant to sales permitted under Section 4.04(c), to sell or dispose
of other parts thereof not reasonably
7
<PAGE>
repairable or usable or any salvage resulting from such dismantling,
free from the Lien of this Pledge Agreement;
(B) to apply and use in the Ordinary Course Of Business, free
from the Lien of this Pledge Agreement, any Pledged Spare Parts for
installation or use in or for use in connection with any aircraft,
aircraft engines, propellers or appliances or spare parts owned or
operated by the Company; and
(C) to transfer any or all of the Pledged Spare Parts located at
one or more Designated Locations to one or more other Designated
Locations or one or more additional locations that are to be
designated as Designated Locations or either in the Ordinary Course or
pursuant to sales permitted under Section 4.04(c), to one or more
locations which are not Designated Locations.
(c) Release of Non-Slot Collateral. (i) The Company shall comply with this
Section 4.04(c) and the Substitution Requirements in connection with and (except
as provided in Section 4.05(a)(iv)) at or prior to the completion of any sale
(other than sales permitted under paragraphs (ii) or (iii) of this Section
4.04(c)) or deemed sale of Operative Collateral under this Pledge Agreement.
Upon Request by the Company, payment by the Company of the Collateral Agent's
costs (including reasonable legal fees and disbursements) incurred in complying
with such Request and satisfaction of the applicable Substitution Requirements,
and so long as no Event of Default has occurred and is continuing or would
result therefrom, the Collateral Agent shall release from the Lien of this
Pledge Agreement, assign and transfer to the Company or its designee at any
time, all the right, title and interest of the Collateral Agent in and to any
Operative Collateral that is the subject of (A) a contract of sale pursuant to
which the Company in the Ordinary Course has agreed to sell such Operative
Collateral on an arm's-length basis to an unaffiliated third party within ninety
(90) days after the date of such release, which contract contains only closing
conditions that are customary to a sale of that kind at that time and which sale
is not a "sale/leaseback" or other similar transaction used by the Company as a
financing vehicle, or (B) a deemed sale under this Section or Section
4.05(a)(iv) or 4.05(c) hereof; provided, however, that, so long as no Event of
Default then exists, (1) the Company shall not be so required to satisfy the
Substitution Requirements with respect to Pledged Spare Parts disposed of in the
Ordinary Course or pursuant to sales permitted by paragraphs (ii) or (iii) of
this Section 4.04(c), (2) the lien hereof shall automatically be released
concurrently with such disposition described in clause (1) above and without any
further action, and (3) such disposition shall be free and clear of any lien or
security interest created hereby. If Pledged Spare Parts cannot conveniently be
disposed of in the Ordinary Course because the Company has not maintained the
Pledged Parts Threshold or if the Company otherwise elects to reduce the Pledged
Parts Threshold, the Company may reduce the Pledged Parts Threshold upon
satisfying the applicable Substitution Requirements.
(ii) The Company may sell for cash Pledged Spare Parts in the Ordinary
Course of Business (other than any sale, whether in a single transaction
8
<PAGE>
or a related group or series of transactions, of Pledged Spare Parts having an
aggregate value as reflected on the Inventory Control System in excess of
$10,000,000), so long as either (A) the net proceeds of any such sale are
deposited with the Collateral Agent to be held as additional Cash Collateral
hereunder or (B) the aggregate value as reflected on the Inventory Control
System of the Pledged Spare Parts remaining after giving effect to such sale is
equal to or greater than the Pledged Parts Threshold.
(iii) The Company may sell for cash Pledged Spare Parts having an
aggregate value as reflected on the Inventory Control System in excess of
$10,000,000 (whether in a single transaction or a related group or series of
transactions), if the net proceeds in excess of $10,000,000 of such sale or
sales are deposited with the Collateral Agent to be held as additional Cash
Collateral hereunder.
(iv) The Collateral Agent shall return to the Company any net
proceeds deposited pursuant to paragraphs (ii) or (iii) above upon Request
therefor if at any time the Security Ratio requirements are met (which, for this
purpose shall be at least 1.93 over 1), and the Collateral Agent has received a
Company Appraiser's Certificate (which, for purposes of this Section
4.04(c)(iv), need not be based on an actual physical inspection of the
Collateral so long as it is based on a full appraisal which included such
physical inspection performed by the same Independent Appraiser furnishing such
Company Appraiser's Certificate and such physical inspection was conducted no
earlier than 20 months prior to the date of such Company Appraiser's
Certificate) dated as of a date within thirty (30) days of the date such net
proceeds are to be returned, stating (A) the Fair Market Values, by type and
category and in reasonable detail, of all assets or groups of assets required
for the computation of the Security Ratio and (B) the Security Ratio, in each
case after giving effect to the return of such proceeds.
(d) Effect of Release. No purchaser in good faith of property purporting
to be released, assigned and transferred pursuant hereto shall be bound to
ascertain the authority of the Collateral Agent to execute the release,
assignment and transfer or to inquire as to the existence of any conditions
herein prescribed for the exercise of such authority; nor shall any purchaser or
grantee of any property or rights permitted by this Article 4 to be sold,
granted or otherwise disposed of by the Company be under any obligation to
ascertain or inquire into the authority of the Company to make any such sale,
grant or other disposition. Any release, assignment and transfer executed by the
Collateral Agent under this Section 4.04 shall be sufficient for the purposes of
this Pledge Agreement and shall constitute a good and valid release, assignment
and transfer of the Property therein described from ownership of the Collateral
Agent and the Lien of this Pledge Agreement.
(e) Substitution. If and whenever the Company shall be required or
permitted to subject any additional Property to the Lien of this Pledge
Agreement that is not already so subject pursuant to any provision of this
Pledge Agreement or pursuant to the terms of the Master Sub-
9
<PAGE>
License Agreement or the Indenture, the Company will furnish to the Collateral
Agent the following:
(i) a Supplemental Pledge Agreement duly executed by the Company,
appropriately describing, identifying and locating such Property or the
location that is to become a Designated Location and specifically
subjecting the same to the Lien of this Pledge Agreement;
(ii) in the case of Spare Parts, cash, Investment Securities or
Property being subjected to the Lien of this Pledge Agreement, an Opinion
of Counsel, dated the date of execution of said Supplemental Pledge
Agreement, stating that:
(1) said Supplemental Pledge Agreement: (a) has been duly
authorized, executed and delivered by the Company, and (b) except
in the case of a Supplemental Pledge Agreement relating to
Pledged Spare Parts, validly subjects to the Lien of this Pledge
Agreement under applicable Federal and State laws all the right,
title and interest of the Company in and to the Property
specifically described in said Supplemental Pledge Agreement, or
in the case of a Supplemental Pledge Agreement relating to
Pledged Spare Parts, validly subjects to the Lien of this Pledge
Agreement under applicable Federal and State laws all the right,
title and interest of the Company in and to such of the Pledged
Spare Parts described in said Supplemental Pledge Agreement as
may from time to time be situated at the Designated Locations
within the United States, and only while so situated; and
(2) said Supplemental Pledge Agreement has been duly filed
for recording in accordance with the provisions of the Federal
Aviation Act, and either: (a) is not required to be filed or
recorded in any other place within the United States in order to
perfect and preserve the Lien of this Pledge Agreement under the
laws of the United States on (i) except in the case of a
Supplemental Pledge Agreement relating to Pledged Spare Parts,
the Property specifically described in said Supplemental Pledge
Agreement, or (ii) in the case of a Supplemental Pledge Agreement
relating to Pledged Spare Parts, Spare Parts described in said
Supplemental Pledge Agreement as may from time to time be
situated at the Designated Locations within the United States,
and only while so situated; or (b) if any such other filing or
recording shall be required that
10
<PAGE>
said filing or recording has been accomplished in such other
manner and places, which shall be specified in such Opinion of
Counsel, as are necessary to perfect and preserve the Lien of
this Pledge Agreement; and
(iii) An Officers' Certificate stating that (A) the Company is the
legal and beneficial owner of the Property specifically described in said
Supplemental Pledge Agreement, free and clear of all Liens, except
Permitted Collateral Liens; and (B) in the opinion of the Officers
executing the Officers' Certificate, all conditions precedent provided for
in this Pledge Agreement relating to the subjection of such property to the
Lien of this Pledge Agreement have been complied with.
(f) Release of Collateral Upon Partial Prepayment. Simultaneously with or
promptly following the cancellation of any Securities, whether pursuant to a
partial redemption of any Securities pursuant to Article 3 of the Indenture, a
partial repurchase of any Securities pursuant any Offer to Purchase under the
Indenture, following a tender of Securities in connection with a tender offer
therefor or otherwise and subject to compliance by the Company with the
Preconditions, and provided that after giving effect to the release of such
--------
Collateral the Company will be in compliance with the Security Ratio, the
Collateral Agent shall release from the Lien of this Pledge Agreement and assign
and transfer to the Company or its designee all of the right, title and interest
of the Collateral Agent in designated Collateral as set forth in Schedule 2
hereto (the "Released Collateral") based upon the reduction in the amount of
Securities Outstanding to an amount equal to or less than the level specified
for the release of particular Collateral as set forth in Schedule 2 (the
"Collateral Release Trigger"). The Collateral Agent shall execute and deliver to
the Company the proper instrument or instruments (including, without limitation,
a Supplemental Pledge Agreement in the form of Exhibit B and Uniform Commercial
Code statements on form UCC-3) to evidence the release of the Lien on the
Released Collateral and to assign, transfer and deliver to the Company against
receipt but without recourse, warranty or representation the Released Collateral
and any other Property or proceeds received in respect thereof and then in the
possession of the Collateral Agent.
Section 4.05 Possession, Sublease and Assignment. (a) The Company shall
-----------------------------------
have the right, in the Ordinary Course Of Business, to (i) sublease (which in
this Section includes lease) any Pledged Spare Part to any "air carrier" (as
defined in the Federal Aviation Act) or to any manufacturer of such Pledged
Spare Part, or any Affiliate of such manufacturer, provided that the term of
--------
such sublease does not exceed twelve (12) months; (ii) sublease any Pledged
Spare Part to any Person as permitted by Section 4.05(c) hereof; (iii) transfer
possession of any Pledged Spare Part to the manufacturer thereof or any other
organization for testing, overhaul, repairs, maintenance, alterations,
modifications or promotional purposes; or (iv) subject any Pledged Spare Part to
an interchange or pooling, exchange, borrowing or maintenance servicing
agreement arrangement customary in the airline industry and entered into in the
Ordinary Course Of Business which does not contemplate or require the transfer
of title to such Pledged Spare Part and that requires such Pledged Spare Part to
be returned to the Company upon termination or expiration of such agreement or
arrangement (provided, however, that if the Company's title
11
<PAGE>
to any such Pledged Spare Part shall be divested under any such agreement or
arrangement, such divestiture shall be deemed to be a sale with respect to such
Pledged Spare Part and the Company shall immediately comply with Section 4.04(c)
hereof in respect thereof); provided, however, that the Company shall not have
the right to enter into any sublease or other arrangement pursuant to this
Section 4.05(a) if an Event of Default shall have occurred and be continuing.
Without the prior written consent of the Collateral Agent, the Company will not
otherwise sell, sublease, transfer or relinquish possession of any Pledged Spare
Part to anyone other than the Collateral Agent and will not assign any of its
rights hereunder, except as permitted by the provisions of this Section 4.05 and
Sections 4.03 and 4.04 hereof.
(b) Any sublease of any Pledged Spare Part permitted under Section 4.05(a)
(a "Sublease") shall be fully subject to the following conditions:
(i) Each Sublease of any Pledged Spare Part shall contain an
express agreement by the sublessee to the effect that: (A) such Sublease is
fully subject and subordinate in all respects to this Pledge Agreement and
to the Collateral Agent's rights and remedies with respect to such Pledged
Spare Part, (B) upon notice of the occurrence of an Event of Default given
by the Collateral Agent to such sublessee, the Collateral Agent may avoid
such Sublease, and the sublessee shall forthwith deliver such Pledged Spare
Part to the Collateral Agent and (C) such Pledged Spare Part shall be
located in the United States.
(ii) All necessary action shall have been taken which is
required to continue the perfection of the Collateral Agent's security
interest in such Pledged Spare Part and the Collateral Agent's rights under
this Pledge Agreement and the Sublease and all other necessary documents
shall have been filed, registered or recorded in such public offices as may
be required to fully preserve the priority of the interest of the
Collateral Agent in such Pledged Spare Part under the laws of the United
States and any relevant state law; and the Company shall have furnished an
Opinion of Counsel with respect to such matters satisfactory to the
Collateral Agent.
(iii) The Company shall deliver to the Collateral Agent, promptly
after execution thereof, a duly executed copy of such Sublease.
(iv) Each Sublease of Pledged Spare Parts pursuant to Section
4.05(a) hereof shall be assigned by the Company to the Collateral Agent as
security for the Company's obligations hereunder, and the sublessee shall
be required upon the occurrence and during the continuance of an Event of
Default to make all payments under such Sublease directly to the Collateral
Agent; provided that if such Event of Default shall cease or shall be
waived pursuant to the provisions of the Indenture, the Collateral Agent
shall immediately pay all funds so received and deliver all Investment
Securities acquired with such funds to the Company.
12
<PAGE>
(c) Notwithstanding the foregoing, the Company may at its option, with
respect to any Sublease, decline to comply with the requirements set forth in
this Section 4.05 in which case the Sublease shall be deemed a sale with respect
to the Pledged Spare Part covered thereunder and the Company shall first comply
with Section 4.04(c) hereof in respect thereof.
(d) No Sublease, interchange or pooling, exchange, borrowing or maintenance
servicing arrangement or other transfer or relinquishment of the possession of
any Pledged Spare Part or of any of the Company's rights hereunder shall in any
way discharge or diminish any of the Company's obligations to the Collateral
Agent hereunder, cause the sublessee, transferee, assignee or any other Person
(other than the Company) to be deemed to be the "Company" or an obligor on the
Securities for purposes of this Pledge Agreement, or constitute a waiver of any
of the Collateral Agent's rights or remedies hereunder, except to the extent
such obligations, rights or remedies may be inapplicable during the period of
any Sublease as elsewhere herein provided.
Section 4.06 Recording; Registration; Compliance with Laws and Rules. The
-------------------------------------------------------
Company will cause this Pledge Agreement and all agreements supplemental hereto
to be filed and recorded (and to the extent required by law, refiled and re-
recorded) under the Federal Aviation Act (with respect to supplements, only if
such supplement involves Pledged Spare Parts) and the Uniform Commercial Code as
in effect in the jurisdictions in which the Collateral is located; and the
Company will from time to time do and perform any other acts and execute,
acknowledge, deliver, file and record any and all further instruments required
under the laws of the United States or any other applicable jurisdiction for the
purpose of proper protection of the Collateral Agent's and the Holders of the
Securities rights under this Pledge Agreement or for the purpose of carrying out
the intention of this Pledge Agreement; and the Company will promptly furnish to
the Collateral Agent certificates or other evidences of such filing, recording,
refiling and re-recording satisfactory to the Collateral Agent.
Section 4.07 Indemnities. The Company agrees to indemnify, and hold
-----------
harmless the Collateral Agent to the same extent provided to the Indenture
Trustee under Section 7.7 of the Indenture, and the Collateral Agent shall have
those rights set forth in such Section 7.7 for the Indenture Trustee. This
covenant of indemnity shall continue in full force and effect notwithstanding
the full payment of principal of and interest on the Securities or the
termination of this Pledge Agreement in any manner whatsoever.
In addition, the Company shall indemnify, protect and hold harmless the
Collateral Agent from and against any and all liabilities, claims, demands,
costs, charges and expenses, including royalty payments and reasonable counsel
fees, in any manner imposed upon or accruing against the Collateral Agent
because of any design, article or material in respect of the Collateral which
infringes, or is claimed to infringe, any patent or other industrial property
right. The Collateral Agent will give notice to the Company of any such claim
known to the Collateral Agent in respect of which liability may be charged
against the Company.
Section 4.08 FAA Records. The Company will maintain or cause to be
-----------
maintained all records, logs and other materials required by the FAA to be
maintained in respect of the Collateral, the Acquired Slots and any other Slot
Trust Assets regardless of whether such
13
<PAGE>
requirements are, by their terms, imposed upon the Company, the Collateral
Agent, the Indenture Trustee or the Slot Trustee, and in the event that any
Collateral is repossessed by the Collateral Agent pursuant to Article 6 hereof,
will forthwith deliver to the Collateral Agent all such records, logs and other
materials relating thereto.
Section 4.09 Restrictions on Liens; Permitted Contests. (a) Restrictions
----------------------------------------- ------------
on Liens. The Company will not create, incur, assume or suffer to exist or
- --------
permit to be created or incurred or assumed or to exist any Lien upon or against
the Collateral, the Acquired Slots or other Slot Trust Assets except for the
following (collectively, the "Permitted Collateral Liens"): (i) this Pledge
Agreement and the other Operative Documents and the rights of the Collateral
Agent, the Indenture Trustee, the Slot Trustee, the Holders of Securities and
the Company hereunder and thereunder, (ii) in the case of Operative Collateral
or the Beneficial Interest (to the extent the Beneficial Interest constitutes a
general intangible under the New York Uniform Commercial Code as in effect from
time to time), Liens for taxes or other governmental charges or levies not yet
due, the payment of which shall not at the time be required to be made in
accordance with Section 4.02 hereof, (iii) in the case of Operative Collateral,
materialmen's, mechanics', workmen's, repairmen's, employees', other like Liens
and other Liens arising in the Ordinary Course Of Business and which are not
overdue for more than 45 days, except to the extent that any such Lien is being
contested in good faith and by appropriate legal proceedings which, in the
opinion of the Company, do not involve any material danger of the sale,
forfeiture or loss of any Collateral or any interest therein, (iv) in the case
of Operative Collateral or the Beneficial Interest (to the extent the Beneficial
Interest constitutes a general intangible under the New York Uniform Commercial
Code as in effect from time to time) any judgment Lien, unless the judgment it
secures shall not, within sixty (60) days after the entry thereof, have been
discharged, vacated or reversed or the execution thereof stayed pending appeal,
or shall not have been discharged, vacated or reversed within sixty (60) days
after the expiration of any such stay, (v) in the case of Operative Collateral,
Subleases and other transfers of possession permitted under Sections 4.03 and
4.05 hereof, (vi) in the case of Acquired Slots, the Prior Third Party Licenses,
Third-Party Licenses and Slot Trades, (vii) executory contracts for sale or
lease by the Company of any Operative Collateral or Acquired Slots under which
consummation of such sale or lease, or delivery of such Operative Collateral or
Acquired Slots is conditioned on release of such Operative Collateral or
Acquired Slots from this Pledge Agreement or the Slot Trust and (viii) in the
case of Pledged Spare Parts subject to arrangements or agreements referred to in
Section 4.05(a) (iv), the right of any Person other than the Company to claim a
portion of the insurance proceeds received or receivable by the Collateral Agent
as a result of an Event of Loss.
(b) Permitted Contests. If no Event of Default shall be continuing, the
------------------
Company shall not be required, nor shall the Collateral Agent have the right,
without prior agreement of the Company, to discharge or remove, as the case may
be, any Lien on or against the whole or any part of any Collateral or the
Acquired Slots, the discharge or removal of which would otherwise be required by
the terms of this Pledge Agreement, the Slot Trust or the Master Sub-License
Agreement, or to comply with any legal requirements, compliance with which would
otherwise be required by this Pledge Agreement, or to pay any charge or other
amount the Company may be obligated to pay to any Person pursuant to this Pledge
Agreement other than an indemnification payment to a Person entitled to such
indemnification pursuant to the terms of Section 4.07
14
<PAGE>
hereof, so long as the Company shall at its own expense contest the existence,
amount, applicability, extent or validity thereof in good faith by an
appropriate proceeding timely instituted, which, in the case of any Lien so
contested, shall operate to prevent the collection or satisfaction of such Lien,
and, in all cases in which the sale or forfeiture of the whole or any part of
such Collateral or the Acquired Slots shall be at issue, shall operate to
prevent such sale or forfeiture; provided, however, that such proceeding
presents no material danger of the sale, forfeiture or loss of any Collateral or
Acquired Slot which has not been provided for by the Company giving such
security as may be required in the proceeding; and, provided, further, that
nether the Collateral Agent, the Indenture Trustee nor the Slot Trustee (as
fiduciaries or in their individual capacities) nor any holder of Securities
would be in any danger of criminal liability, or any other liability or
obligation for which no indemnification is provided hereunder, by reason of such
nonpayment or noncompliance. The Collateral Agent hereby agrees to execute and
deliver at the Company's expense such documents, including powers of attorney,
as the Company may reasonably request in order that the Company shall be enabled
effectively to conduct any such proceeding.
Section 4.10 Warranty of Title. The Company warrants that (subject to the
-----------------
parenthetical phrase in Section 2.01(c)) as of the date of delivery of this
Pledge Agreement it is the legal and beneficial owner of the Collateral
(excluding any Property which may become Collateral hereafter) and has good
right to mortgage or transfer, as the case may be, the same. The Company will at
the time it subjects any Property to the Lien of this Pledge Agreement by
supplemental agreement be the legal and beneficial owner of such Property and
will have good right to mortgage the same, subject to Permitted Collateral
Liens. The Company warrants that all the Collateral (except Property which may
become Collateral hereafter) is, and at the time the Company subjects any
Property acquired hereafter to the Lien of this Pledge Agreement by supplemental
agreement, the Property so subjected will be, free and clear of all Liens,
except Permitted Collateral Liens.
The Company will, at or before the time it subjects any Property to the
Lien of this Pledge Agreement, cause evidence of its title to be duly recorded,
filed, or filed for recording, to the extent permitted under the Federal
Aviation Act or required under any other applicable law, by the Company as
owner. The Company will at all times defend and protect its title to the
Collateral, against the enforcement against such Collateral of all claims,
Liens, penalties and rights asserted by any and all parties whatsoever.
Section 4.11 Inventory Control System. The Company shall not change in
------------------------
any material respect the methods and practices (including, without limitation,
any change in the designation of any Spare Parts as "active" or "excess" which
change would be inconsistent with practices as in effect on the Issue Date)
relating to the valuation of Spare Parts as reflected in its Inventory Control
System as in effect on the Issue Date unless such change is consented to by the
Collateral Agent (such consent not to be unreasonably withheld or delayed).
Section 4.12 Actions Regarding the Beneficial Interest Certificates. (a)
------------------------------------------------------
The Collateral Agent shall be entitled to exercise any and all voting and
consensual rights and powers relating or
15
<PAGE>
pertaining to the Beneficial Interest Certificate or any part thereof, subject
to Section 9.01 of the Acquired Slot Trust Agreement.
(b) All distributions with respect to the Beneficial Interest Certificate
shall be paid directly to and shall be retained by the Collateral Agent subject
to the Lien of this Pledge Agreement.
(c) The Company will take all action necessary or appropriate to cause the
Collateral Agent to obtain the benefit of the provisions in clauses (a) and (b)
above and if any payments or distributions on the Beneficial Interest
Certificate are made to the Company, the Company will immediately deliver the
same to the Collateral Agent.
(d) The Beneficial Interest Certificate delivered to the Collateral Agent
on the date hereof shall be accompanied by an irrevocable stock power or powers
(or trust equivalent) executed by the Company and the Company further agrees to
execute any and all additional documents and instruments deemed necessary or
appropriate by the Collateral Agent to facilitate the Collateral Agent's
exercise of remedies pursuant to the terms of this Pledge Agreement; provided,
however, that unless and until there shall occur an acceleration of the
obligations of the Company under the Securities and the Indenture, the Company
shall continue to be the holder of record of the Beneficial Interest and the
Beneficial Interest Certificate on the books of the Slot Trust.
Section 4.13 Reports Regarding Collateral. (a) The Company shall deliver
----------------------------
to the Indenture Trustee and the Collateral Agent (i) on the Issue Date (as of
November 30, 1997) an inventory of the Pledged Spare Parts that will be subject
to the Lien of the Pledge Agreement at the Designated Locations describing the
values of such Pledged Spare Parts, as reflected on the Inventory Control System
and (ii) as of the last day of each month thereafter (within 20 days of the end
of each such month) an inventory of the Pledged Spare Parts at the Designated
Locations describing, among other things, the values of such Pledged Spare
Parts, as reflected on the Inventory Control System, in the form of the report
attached hereto as Exhibit C. The Company shall promptly respond to any request
of the Indenture Trustee or Collateral Agent for an explanation concerning any
discrepancies or changes in values reflected in such reports. The Collateral
Agent shall have the right to appoint and be reimbursed for expenses of a
technical adviser, and to have the Company deliver documentation to it and such
technical adviser as either of them may reasonably request.
(b) If (i) within fifteen (15) days after the delivery of a Company
Appraiser's Certificate for purposes of satisfying the Substitution
Requirements, the Indenture Trustee gives notice that it desires to have a
Trustee Appraiser redetermine the matters set forth in such Company Appraiser's
Certificate, and (ii) a Trustee Appraiser delivers to the Company, the Indenture
Trustee and the Collateral Agent an Independent Appraiser's Certificate as to
such matters signed by such Trustee Appraiser within fifteen (15) days after the
date of delivery of such Indenture Trustee's notice, the Appraised Values (or
Fair Market Values) of the Collateral subject to such Event of Loss or Request
for release and the Permitted Substitutes evidenced by such Independent
Appraiser's Certificates shall be determined as provided in the definition of
16
<PAGE>
Appraised Value (or Fair Market Value). If (i) within thirty (30) days after the
delivery of a Company Appraiser's Certificate for purposes of establishing the
Security Ratio in connection with an Event of Loss, the Indenture Trustee gives
notice that it desires to have a Trustee Appraiser redetermine the matters set
forth in such Company Appraiser's Certificate, and (ii) a Trustee Appraiser
delivers to the Company, the Indenture Trustee and the Collateral Agent an
Independent Appraiser's Certificate as to such matters signed by the Trustee
Appraiser within thirty (30) days after the delivery of such Indenture Trustee's
notice, the Security Ratio shall be established as provided in paragraph (a) of
the Substitution Requirements. The Company and the Indenture Trustee may but
shall be under no obligation to join in the appointment of a single Independent
Appraiser for purposes of making any determination of Liquidation Value,
Appraised Value or Fair Market Value or establishing the Security Ratio, and if
they do so, the resulting determination of the Independent Appraiser so selected
shall be delivered to the Company, the Indenture Trustee and the Collateral
Agent at such time as the Company and Indenture Trustee shall agree and shall be
final and binding upon all parties.
Section 4.14 Maintenance Ratio. (a) The Company shall, (i) within 60 days
-----------------
after delivery (or deemed delivery pursuant to Section 4.14 (b) below) of a
monthly inventory report pursuant to Section 4.13 which indicates that the
aggregate value of Pledged Spare Parts is less than 60% of the value of the
Pledged Spare Parts shown on the inventory report delivered on the Issue Date,
deliver to the Collateral Agent an Officers' Certificate showing a calculation
of the Maintenance Ratio as of the date of such Officers' Certificate (a
"Maintenance Ratio Officers' Certificate") which Maintenance Ratio Officers'
Certificate shall be based on, and have attached thereto, a Company Appraiser's
Certificate (which, for purposes of this Section 4.14, need not be based on an
actual physical inspection of the Collateral so long as it is based on a full
appraisal which included such physical inspection performed by the same
Independent Appraiser furnishing such Company Appraiser's Certificate and such
physical inspection was conducted no earlier than 20 months prior to the date of
such Company Appraiser's Certificate) stating (A) the Fair Market Value, by type
and category and in reasonable detail, of all assets or groups of assets
required for the computation of the Maintenance Ratio, and (B) the Maintenance
Ratio (a "Maintenance Appraisal Certificate"), in each case as of the last day
of the month to which such monthly inventory report relates and (ii) if the
Maintenance Ratio shown in such Maintenance Appraisal Certificate is less than
1.2 to 1, within 30 days after the date on which such Maintenance Ratio
Officers' Certificate is delivered, (A) commence an Offer to Purchase a
principal amount of the Notes and furnish to the Trustee the Acquired Securities
(for cancellation) immediately upon such purchase, (B) furnish additional
Operative Collateral, (C) furnish Additional Acquired Slots or (D) furnish Cash
Collateral (or any combination of the foregoing), that would (on the basis of
such certificate) be required to be delivered or pledged hereunder for the
Maintenance Ratio to be at or above 1.2 to 1.0. Any such Offer to Purchase
shall be made at a purchase price equal to 101% of the principal amount of
Securities subject thereto, plus accrued and unpaid interest and Special
Interest, if any, with respect thereto.
(b) If the Company fails to deliver a monthly inventory report within
twenty days after the end of a month as required by Section 4.13(a), then, until
such time as it actually delivers an inventory report for such month, the
Company shall be deemed to have delivered a monthly inventory report for such
month which indicates that the aggregate value of Pledged
17
<PAGE>
Spare Parts is less than 60% of the value of the Pledged Spare Parts shown on
the inventory report delivered on the Issue Date.
(c) If (i) pursuant to Section 4.14(a)(ii), the Company elects to increase
the amount of Cash Collateral so that the Maintenance Ratio is at or above 1.2
to 1 and (ii) at any time thereafter the Maintenance Ratio is at or above 1.5 to
1 then, so long as no Event of Default has occurred and is continuing or would
result therefrom, upon Request by the Company the liens and security interests
created hereby in such Cash Collateral held hereunder (in an aggregate amount
not to exceed the amount of such increase) shall be released and terminated, but
only to the extent that, after giving effect to any such release, the
Maintenance Ratio is at or above 1.5 to 1 as evidenced by a Maintenance Ratio
Officers' Certificate dated the date of the requested release, together with a
Maintenance Appraisal Certificate as of a date no earlier than 30 days prior to
the date of such requested release, delivered to the Collateral Agent. Upon any
release of Collateral or termination of a lien or security interest pursuant to
his subsection (c), the Collateral Agent shall, at the expense of the Company,
execute and deliver all such releases, termination statements and other
documents or instruments as the Company may reasonably request evidencing or
confirming such release or termination and shall return to the Company all such
cash and securities no longer required to be held as Cash Collateral.
Section 4.15 Change in Location of Principal Office, Records or Name. The
-------------------------------------------------------
Company will not change the location of its principal office or chief executive
office or the location of the offices where the records with respect to the
Collateral are kept from that set forth in Section 3.01(j) unless 20 days' prior
written notice of such change is given to the Collateral Agent. The Company
will not change its legal name, use any other name nor change the form of its
organization without giving the Collateral Agent 20 days' prior written notice
thereof.
ARTICLE 5
Insurance
Section 5.01 Insurance to Be Carried. (a) The Company will at all times
-----------------------
carry and maintain, at its own expense, with responsible insurers valid and
collectible insurance (subject to deductibles and self-insurance consistent with
the Company's current practices as of the Issue Date) on the Pledged Spare Parts
covering all-risk of physical loss or damage to such Pledged Spare Parts. The
Company will at all times carry and maintain on each aircraft or engine on which
a Spare Part that was a Pledged Spare Part is installed, at its own cost and
expense public liability and passenger liability and property damage liability
insurance.
All insurance required hereunder shall be of such type as is customarily
carried by corporations engaged in the same or a similar business, similarly
situated with the Company, and owning and operating similar Property and shall
be placed with responsible insurance companies, underwriters or funds.
All-risk of physical loss or damage insurance on Spare Parts required
hereunder shall provide for payment in the United States in U.S. Dollars.
18
<PAGE>
(b) Without limiting anything set forth in this Article 5:
(i) all liability policies shall: (A) be primary without right
of contribution from any other insurance carried by the Collateral Agent,
and (B) name the Collateral Agent as additional insured under a standard
mortgagee clause, provided that the inclusion of more than one insured
shall not operate to increase the insurer's limit of liability or to avoid
the coverage of an insured as respects claims against said insured by the
other insured or the employees of such other insured; and
(ii) all policies (other than liability policies) required
hereunder covering loss or damage to any Collateral shall name the
Collateral Agent as loss payee under a standard mortgagee clause and shall
provide that proceeds payable under such policies shall be paid exclusively
to the Collateral Agent as loss payee.
Section 5.02 Alteration of Insurance. All policies (other than war-risk
-----------------------
policies) required by Section 5.01 hereof shall provide for not less than thirty
(30) days' prior written notice to the Collateral Agent before any material
alteration which adversely affects the interests of the Collateral Agent, or
cancellation of the insurance evidenced thereby, shall be effective as to the
Collateral Agent, or if it is not commercially possible at the time to obtain
the notice specified above, shall provide for as long a period of prior notice
as shall then be commercially possible to obtain (it being understood that in
the case of cancellation for non-payment of premium, ten (10) days prior notice
is the longest notice commercially possible to obtain on the date hereof).
Section 5.03 Additional Insurance. Nothing contained herein shall prevent
--------------------
the Company from carrying additional insurance in excess of that required
hereunder in respect of any Collateral at its own expense.
Section 5.04 Insurance Certificates. On the Issue Date and annually on or
----------------------
before the anniversary date of each insurance policy required hereunder, the
Company will furnish to the Collateral Agent a report from the Company's
independent insurance broker describing in reasonable detail the insurance then
carried and maintained on the Collateral, certifying that such insurance
complies with the terms hereof and stating the opinion of such broker that such
insurance is adequate for the protection of the interests of the Company and the
Collateral Agent in accordance with the terms hereof.
Section 5.05 Proceeds of Insurance. (a) So long as no Event of Default
---------------------
has occurred and is continuing, all proceeds of insurance required hereby which
are received by the Collateral Agent or the Company as the result of the
occurrence of an Event of Loss with respect to any Collateral shall be
immediately paid over to or retained by the Company, provided that the Company
has fully complied with the terms of Section 4.04 and has made all payments then
due and required to be made by the Company under the Indenture, and otherwise
shall be paid over to or retained by the Collateral Agent to be held as
Temporary Cash Collateral or if the Company so notifies the Collateral Agent at
any time, Cash Collateral hereunder.
19
<PAGE>
(b) So long as no Event of Default has occurred and is continuing, all
proceeds of insurance required hereby which are received by the Collateral Agent
or the Company as the result of any property damage or loss to any Collateral
not constituting an Event of Loss will be immediately applied in payment for
repair (whether such payment be for repair or partial repair already made or for
advance payments or deposits requested by the person making such repair) or
replacement in accordance with the terms of Section 4.03, if not already paid
for by the Company, or, if already paid for by the Company, will be immediately
applied to reimburse the Company for such payment, and any balance remaining
after such application or payment shall be immediately paid over to or retained
by the Company.
(c) All proceeds of insurance required hereby which are received by the
Collateral Agent or the Company as a result of any property damage or loss to
Spare Parts or other Property not constituting Pledged Spare Parts or other
Collateral shall be immediately paid over to or retained by the Company.
(d) All proceeds of insurance received by the Collateral Agent hereunder
and not then required to be paid over to the Company shall be held by the
Collateral Agent as Temporary Cash Collateral or, if the Company so notifies the
Collateral Agent at any time, Cash Collateral hereunder.
ARTICLE 6
Remedies
Section 6.01 Remedies. In case of the happening and during the
--------
continuance of any Event of Default (as applied to the Non-Slot Collateral) and
upon the acceleration of the obligations of the Company under the Securities and
the Indenture (as applied to the Slot Collateral) and so long as such Event of
Default shall not have been cured or waived and/or such acceleration shall not
have been rescinded, as the case may be, the Collateral Agent shall have, in
addition to all other rights given by law or by the Pledge Agreement or the
other Operative Documents, all the rights and remedies with respect to the
Collateral of a secured party under the Uniform Commercial Code in effect in the
State of New York and any other applicable jurisdiction at that time. In
addition the Collateral Agent may transfer to or register in its name as
Collateral Agent the Beneficial Interest Certificate and may take possession of
the Collateral or any part or the whole of any type of the Collateral, and may
by its agents enter upon the premises of the Company or of any sublessee where
any part or the whole of such type of the Collateral may be and take possession
of any part or the whole of such type of the Collateral and withdraw the same
from said premises, retaining all payments which up to that time may have been
made on account of such type of the Collateral and otherwise, and shall be
entitled to collect, receive and retain all unpaid charges of any kind earned by
such type of the Collateral or any part thereof, and may lease such portion of
the Collateral or any part thereof, or with or without retaking possession
thereof sell the same or any part thereof, free from any and all claims of the
Company at law or in equity, in one lot and as an entirety or in separate lots,
insofar as may be necessary to perform and fulfill the Obligations, at public or
private sale with or without advertisement, for cash or upon credit, in its
discretion, and may proceed otherwise to enforce
20
<PAGE>
rights and the rights of the Holders of Securities in the manner herein
provided. Upon any such sale, the Collateral Agent itself may bid for the
Property offered for sale or any part thereof. Any such sale may be held or
conducted at such place and at such time as the Collateral Agent may specify, or
as may be required by law, and without gathering at the place of sale the
Collateral to be sold, and in general in such manner as the Collateral Agent may
determine, but so that the Company may and shall have a reasonable opportunity
to bid at any such sale. Subject to the second paragraph of Section 6.02 hereof
and to Section 6.03 hereof, upon such taking possession or withdrawal or lease
or sale of part or the whole of such type of the Collateral, the Company shall
cease to have any rights or remedies in respect of such type of the Collateral
hereunder, but all such rights and remedies shall be deemed thenceforth to have
been waived and surrendered by the Company, and no payments theretofore made by
the Company for the rent or use of such type of the Collateral shall, in case of
the happening of any Event of Default and such taking possession, withdrawal,
lease or sale by the Collateral Agent, give to the Company any legal or
equitable interest or title in or to such type of the Collateral or any part of
it or any cause or right of action at law or in equity in respect of such type
of the Collateral against the Collateral Agent or the Holders of Securities. No
such taking possession, withdrawal, lease or sale of such type of the Collateral
by the Collateral Agent and no omission of or delay in taking any such action
shall be a bar to the recovery by the Collateral Agent from the Company of the
Obligations and the Collateral Agent may sue for and collect, and the Company
shall be and remain liable for, the Obligations until such sums shall have been
realized as, with the proceeds of the lease or sale of such portion of the
Collateral if any shall be sufficient for the discharge of all of the
Obligations whether or not they shall have then matured. The Company hereby
expressly waives any and all claims against the Collateral Agent and its agent
or agents for damages of whatever nature in connection with any retaking of
Collateral in any commercially reasonable manner.
Upon any sale of the Collateral pursuant to this Section 6.01, whether made
under the power of sale hereby given or pursuant to judicial proceedings, to the
extent permitted by law:
A. the Collateral Agent may make and deliver to the purchaser or
purchasers a good and sufficient deed, bill of sale and instrument of assignment
and transfer of the property sold; and
B. the Collateral Agent is hereby irrevocably appointed the true and
lawful attorney of the Company, in its name and stead, to make all necessary
deeds, bills of sale and instruments of assignment and transfer of the property
thus sold; and for that purpose it may execute all necessary deeds, bills of
sale and instruments of assignment and transfer, and may substitute one or more
persons, firms or corporations with like power, the Company hereby ratifying and
confirming all that its said attorney or such substitute or substitutes shall
lawfully do by virtue hereof; but if so requested by the Collateral Agent or by
any purchaser, the Company shall ratify and confirm any such sale or transfer by
executing and delivering to the Collateral Agent or to such purchaser or
purchasers all proper deeds, bills of sale, instruments of assignment and
transfer and releases as may be designated in any such request.
Section 6.02 Application of Proceeds. If, in the case of the happening of
-----------------------
any Event of Default or acceleration, the Collateral Agent shall exercise any of
the powers conferred upon it
21
<PAGE>
by Section 6.01 hereof, all payments made by the Company to the Collateral Agent
hereunder after such Event of Default, and the proceeds of any judgment
collected by the Collateral Agent hereunder, and the proceeds of every sale or
lease by the Collateral Agent hereunder of any part or the whole of the
Collateral, together with any other sums which may then be held by the
Collateral Agent under any of the provisions hereof, shall be applied by the
Collateral Agent in the manner set forth in Section 6.10 of the Indenture.
After all such payments shall have been made in full, the title to any part
or the whole of the Collateral remaining unsold and abandoned by the Collateral
Agent shall be conveyed by the Collateral Agent to the Company or its named
designee free from any further liabilities or obligations to the Collateral
Agent hereunder. If after applying all such sums of money realized by the
Collateral Agent as aforesaid there shall remain any amount due to the
Collateral Agent under the provisions hereof, the Company agrees to pay the
amount of such deficit to the Collateral Agent.
Section 6.03 Obligations of Company Not Affected by Remedies. No retaking
-----------------------------------------------
of possession of part or the whole of the Collateral by the Collateral Agent,
nor any withdrawal, lease or sale thereof, nor any action or failure or omission
to act against the Company or in respect of the Collateral, on the part of the
Collateral Agent or on the part of the Holder of any Securities, nor any delay
or indulgence granted to the Company by the Collateral Agent or by any such
Holder, shall affect the obligations of the Company hereunder. The Collateral
Agent may at any time upon notice in writing to the Company apply to any court
of competent jurisdiction for instructions as to the application and
distribution of the property held by it.
Section 6.04 Remedies Cumulative and Subject to Applicable Law. No right,
-------------------------------------------------
power or remedy herein conferred upon or reserved to the Collateral Agent, the
Indenture Trustee and the Slot Trustee and/or the Holders of the Securities is
intended to be exclusive of any other right, power or remedy conferred upon or
reserved to any one or more of them and every right, power and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right,
power and remedy given hereunder or under the Indenture or the other Operative
Documents or now or hereafter existing at law or in equity or otherwise
(including, without limitation, under the Uniform Commercial Code as in effect
in any applicable jurisdiction) and may be exercised from time to time and as
often and in such order as may be deemed expedient by the Collateral Agent, the
Indenture Trustee, the Slot Trustee and/or the Holders of the Securities. The
exercise by any of them of any right, power or remedy shall not be construed as
a waiver of the right of any of them to exercise at the same time or thereafter
any other right, power or remedy, nor as an election precluding exercise at the
same time or thereafter of any alternative right, power or remedy. The exercise
of any right, power or remedy shall be subject to applicable law.
22
<PAGE>
ARTICLE 7
Termination
Section 7.01 Termination. The Company agrees that this is a continuing
-----------
agreement and shall remain in full force and effect until the earlier of (i) the
date the Company pays in full and performs all of its Obligations hereunder and
under the Securities and (ii) (x) the occurrence of the Indenture Discharge Date
and (y) the payment of all Obligations then due and payable, at which time the
Collateral Agent shall have no further interest in and to the Collateral or the
Slot Trust Assets, and will at the Company's expense release all of the
Collateral Agent's interest in and to the Collateral and the Slot Trust Assets,
including any cash and/or Investment Securities held in accordance with the
terms of this Pledge Agreement and/or the Master Sub-License Agreement.
ARTICLE 8
Collateral Agent
Section 8.01 Collateral Agent. The Collateral Agent has been appointed as
----------------
Collateral Agent hereunder. The Collateral Agent shall be obligated, and shall
have the right, hereunder to make demands, to give notices, to exercise or
refrain from exercising any rights, and to take or refrain from taking action
(including, without limitation, the release of Collateral or the substitution of
Permitted Substitutes) solely in accordance with this Pledge Agreement and the
Indenture. The Collateral Agent may resign and a successor Collateral Agent may
be appointed in the manner provided for a successor Trustee in the Indenture.
Upon the acceptance of any appointment as a Collateral Agent by a successor
Collateral Agent, that successor Collateral Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Collateral Agent under this Pledge Agreement, and the retiring Collateral Agent
shall thereupon be discharged from its duties and obligations under this Pledge
Agreement. After any retiring Collateral Agent's resignation, the provisions of
this Pledge Agreement shall inure to its benefit as to any actions taken or
omitted to be taken by it under this Pledge Agreement while it was Collateral
Agent. The Collateral Agent agrees to and shall have the benefit of all
provisions of the Indenture and the other Operative Documents stated therein to
be applicable to the Collateral Agent.
ARTICLE 9
Miscellaneous
Section 9.01 Benefits of Pledge Agreement Restricted. Subject to the
---------------------------------------
provisions of Section 9.10 hereof, nothing in this Pledge Agreement or the
Securities, express or implied, shall give or be construed to give to any
Person, other than the parties hereto and the Holders of the Securities, any
legal or equitable right, remedy or claim under or in respect of this Pledge
Agreement or under any covenant, condition or provision herein contained, all
such covenants, conditions and provisions, subject to Section 9.10 hereof, being
for the sole benefit of the parties hereto and the Holders of the Securities.
23
<PAGE>
Section 9.02 Funds May Be Held by the Collateral Agent; Investments in
---------------------------------------------------------
Investment Securities. (a) (i) Subject to the provisions of Section 9.02(b),
- ---------------------
any money at any time paid to or held by the Collateral Agent hereunder until
paid out by the Collateral Agent as herein provided may be carried by the
Collateral Agent on deposit with itself, or on deposit or invested with one or
more banks or investment banking or brokerage institutions acting on its behalf,
and the Collateral Agent shall not have any liability for interest upon any such
money except as otherwise agreed with the Company.
(ii) At any time and from time to time, if no Event of Default
shall have occurred and be continuing and subject to Section 9.02(b), the
Collateral Agent shall invest and reinvest any funds held by it in
Investment Securities to be held by the Collateral Agent in trust for the
benefit of the Holders of the Securities. Any such investments may be made
by the Collateral Agent through its own bond or investment department, or
through one or more banks or investment banking or brokerage institutions
acting on its behalf.
(iii) Funds held in trust for the benefit of the Holders of the
Securities by the Collateral Agent on deposit with itself or elsewhere,
Investment Securities held in trust for the benefit of the Holders of the
Securities, funds and/or Investment Securities held for the Company by the
Collateral Agent, and funds or Investment Securities held under Section
9.02(b) shall each be held in distinct, identifiable accounts, and no other
funds or investments of any nature or from any source whatsoever may be
held in such accounts.
(iv) The Collateral Agent may sell any Investment Securities
held by it and retain the proceeds of such a sale as Collateral hereunder.
(v) The Collateral Agent shall retain, for the benefit of the
Holders of the Securities (a) any interest earned on deposits carried
pursuant to clause (i) of this Section 9.02(a), and (b) any interest (other
than accrued interest paid for at the time of purchase of an investment) or
other profit which may accrue upon, or be realized from any sale or
redemption of, Investment Securities.
(b) Notwithstanding the foregoing and so long as no Event of Default shall
have occurred and be continuing, any funds or Investment Securities held by the
Collateral Agent as Temporary Cash Collateral shall be held for the benefit of
the Holders of the Securities and shall be invested and reinvested by the
Collateral Agent in Investment Securities as specified in a Request. Any such
investments may be made by the Collateral Agent through its own bond or
investment department, or through one or more banks or investment banking or
brokerage institutions acting on its behalf if specified in such Request. No
later than six (6) months after the Event of Loss or proposed release
occasioning the deposit with the Collateral Agent of such Temporary Cash
Collateral, if no Event of Default shall have occurred and be continuing and
upon satisfaction by the Company of the applicable Substitution Requirements,
the Collateral Agent shall return to the Company Temporary Cash Collateral in an
amount equal to the entire amount of the related deposit, plus or minus any net
earnings or loss thereon during the time it
24
<PAGE>
was held as Temporary Cash Collateral, or, if the Appraised Value of the
Operative Collateral or Slots being substituted for such Temporary Cash
Collateral (determined under paragraph (f)(ii) of the Substitution Requirements)
is less than the Appraised Value of the Operative Collateral or Acquired Slots
on account of whose loss, sale or deemed sale such Temporary Cash Collateral was
furnished (determined under paragraph (a)(ii)(C), (b)(ii) or (f)(ii) of the
Substitution Requirements), in an amount equal to such portion of such deposit,
plus or minus such net earnings or loss, as is allocable to such lesser
Appraised Value. If an Event of Default shall have occurred and be continuing or
six (6) months shall have elapsed since the date of such Event of Loss or
release, such Temporary Cash Collateral shall cease to be such and shall be held
by the Collateral Agent for the benefit of the Holders of the Securities under
Section 9.02(a).
(c) All Investment Securities shall be issued in the name of the
Collateral Agent and held by it, or, if not so held, the Collateral Agent shall
be reflected as the owner of, or secured party in respect of, such Investment
Securities in the register of the issuer of such Investment Securities. In no
event shall the Collateral Agent invest in, or hold, Investment Securities in a
manner which would cause the Collateral Agent not to have a Lien on, and first
priority perfected security interest in, such Investment Securities under the
applicable provisions of the Uniform Commercial Code in effect where the
Collateral Agent holds such Investment Securities, or if not held by it, in
effect where the registrar is located, or other applicable law then in effect,
and in no event shall the Collateral Agent hold cash other than in a manner
which would cause the Collateral Agent to have a Lien on, and first priority
perfected security interest in, such cash.
(d) The Collateral Agent shall deliver to the Company within five (5)
Business Days after December 31 of each year (commencing December 31, 1998) a
statement which sets forth the amount of cash and/or Investment Securities held
by the Collateral Agent and, with respect to Investment Securities, a schedule
identifying each Investment Security and the face or principal amount thereof.
(e) If the Company elects to repurchase the Securities, the Collateral
Agent shall release the Temporary Cash Collateral and Cash Collateral and
cooperate with the Company and the Indenture Trustee in connection with
applications of Temporary Cash Collateral and Cash Collateral to the purchase or
redemption of Securities in accordance with, and to the extent permitted by, the
provisions of Section 3.9 of the Indenture.
Section 9.03 Certificates and Opinions of Counsel; Statements to Be
------------------------------------------------------
Contained Therein; Basis Therefor. Subject to the next sentence, upon any
- ---------------------------------
application or Request by the Company to the Collateral Agent to take any action
under any of the provisions of this Pledge Agreement, the Company shall furnish
to the Collateral Agent an Officers' Certificate and an Opinion of Counsel in
compliance with, but only if required by Sections 11.04 and/or 11.05 of the
Indenture. Subject to Section 4.04(c) hereof, as a condition to the proposed
release or exclusion of any Spare Parts from the Lien of this Pledge Agreement
in accordance with the terms hereof, which Spare Parts remain located at a
Designated Location, the Company shall furnish to the Collateral Agent an
Opinion of Counsel, in form and substance satisfactory to the Collateral Agent
to the effect that the Collateral Agent's security interest in the other Spare
Parts which are Pledged Spare Parts at such Designated Location remains
unaffected as to validity,
25
<PAGE>
perfection and priority under applicable federal and state law and that such
release (including, without limitation, all documents created and filings made
with respect thereto) will not have an adverse effect on the Collateral Agent's
security interest in and to the Pledged Spare Parts.
Section 9.04 Appraiser's Certificate. Unless otherwise specifically
-----------------------
provided, an Independent Appraiser's Certificate shall be sufficient evidence of
the Appraised Value and Fair Market Value to the Company of any Property under
this Pledge Agreement.
SECTION 9.05 Notices; Waiver. Any request, demand, authorization,
---------------
direction, notice, consent, waiver or other document provided or permitted by
this Pledge Agreement to be made upon, given or furnished to, or filed with
(a) the Company shall be sufficient for every purpose hereunder if in
writing (including telecopied communications) and made, given, furnished or
filed by personal delivery or mailed by first-class mail or by nationally
recognized overnight courier, postage or courier charges, as the case may be,
prepaid, to the Company at:
Trans World Airlines, Inc.
One City Centre
515 N. 6th Street
St. Louis, Missouri 63101
Attention: Senior Vice President & General Counsel
Telecopier No.: (314) 589-3267
(b) the Collateral Agent shall be sufficient for every purpose
hereunder if in writing (including telecopied communications) and made, given,
furnished or filed by personal delivery or mailed by registered or certified
mail or by nationally recognized overnight courier, postage or courier charges,
as the case may be, prepaid, to or with the Collateral Agent at:
First Security Bank, National Association
79 South Main Street
Salt Lake City, UT 84111
Attention: Corporate Trust Services
Telecopier No.: (801) 246-5053
or to any of the above parties at any other address or telecopier number
subsequently furnished in writing by it to each of the other parties listed
above. An affidavit by any person representing or acting on behalf of the
Company or the Collateral Agent as to such mailing, having any registry receipt
required by this Section attached, shall be conclusive evidence of the giving of
such demand, notice or communication.
Any notice or communication mailed to a Holder shall be mailed to such
Holder by first-class mail or by nationally recognized overnight courier,
postage or courier charges, as the case
26
<PAGE>
may be, prepaid, at such Holder's address as it appears on the Register and
shall be sufficiently given to such Holder if so mailed within the time
prescribed.
Failure to mail a notice or send a communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. Notices to
the Collateral Agent or to the Company are deemed given only when received.
Where this Pledge Agreement provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by the Holders shall be filed with the Collateral
Agent, but such filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.
Section 9.06 Amendments, Etc. (a) Except as provided in Section 9.06(b)
---------------
hereof and subject to Section 4.11 of the Indenture and Article 9 of the
Indenture, this Pledge Agreement may be amended by the Company and the
Collateral Agent only with the affirmative vote of the Required Holders;
provided, however, that the affirmative vote of each Holder shall be required to
- -------- -------
amend this Section 9.06 or the definition of Required Holders or Applicable
Percentage.
(b) The Company and the Collateral Agent may also amend this Pledge
Agreement without the vote of the Holders of the Securities if such parties each
deem it necessary to cure any ambiguity, defect or inconsistency or conform this
Pledge Agreement to the requirements of applicable Federal or State laws or
regulations; provided that such amendments or amendment do not have any adverse
effect on the interests of the Holders.
Section 9.07 No Waiver; Remedies. (a) No failure on the part of the
-------------------
Collateral Agent to exercise, and no delay in exercising any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative, may be
exercised singly or concurrently, and are not exclusive of any remedies provided
by law or the Indenture, the Securities or any of the other Operative Documents.
(b) Failure by the Collateral Agent at any time or times hereafter to
require strict performance by the Company or any other Person of any of the
provisions, warranties, terms or conditions contained herein or in any of the
Indenture, the Securities or any other Operative Documents now or at any time or
times hereafter executed by the Company or any such other Person and delivered
to the Collateral Agent shall not waive, affect or diminish any right of the
Collateral Agent at any time or times hereafter to demand strict performance
thereof, and such right shall not be deemed to have been modified or waived by
any course of conduct or knowledge of the Collateral Agent or any agent, officer
or employee of the Collateral Agent.
Section 9.08 Conflict with Trust Indenture Act of 1939. If and to the
-----------------------------------------
extent that any provision of this Pledge Agreement limits, qualifies or
conflicts with the duties imposed by Sections 310 to 317, inclusive, of the TIA,
such imposed duties shall control.
Section 9.09 Holidays. In the event that any date for the payment of any
--------
amount due hereunder shall not be a Business Day, then (notwithstanding any
other provision of this Pledge Agreement) such payment need not be made on such
date, but may be made on the next
27
<PAGE>
succeeding Business Day with the same force and effect as if made on the due
date, and no interest shall accrue for the period from such due date to and
including the next succeeding Business Day.
SECTION 9.10 Successors and Assigns. This Pledge Agreement and all
----------------------
obligations of the Company hereunder shall be binding upon the successors and
permitted assigns of the Company, and shall, together with the rights and
remedies of the Collateral Agent hereunder, inure to the benefit of the
Collateral Agent, the Indenture Trustee, the Holders, and their respective
successors and assigns. The Company and the Collateral Agent understand and
agree that the interest of the Company under this Pledge Agreement is not
assignable and that any attempt to assign all or any portion of this Pledge
Agreement by the Company shall be null and void except for an assignment in
connection with a merger, consolidation or sale of substantially all the
Company's assets permitted under the Indenture.
SECTION 9.11 Governing Law; Submission to Jurisdiction; Waiver of Jury
---------------------------------------------------------
Jury Trial; Waiver of Damages.
- -----------------------------
(a) The laws of the State of New York shall govern this Pledge Agreement
without regard to principles of conflict of laws.
(b) The Company agrees that the Collateral Agent shall, in its capacity as
Collateral Agent or in the name and on behalf of any Holder, have the right, to
the extent permitted by applicable law, to proceed against the Company or its
property in a court in any location reasonably selected in good faith (and
having personal or in rem jurisdiction over the Company or its property, as the
case may be) to enable the Collateral Agent to realize on such property, or to
enforce a judgment or other court order entered in favor of the Collateral
Agent. The Company agrees that it will not assert any counterclaims, setoffs or
crossclaims in any proceeding brought by the Collateral Agent to realize on such
property or to enforce a judgment or other court order in favor of the
Collateral Agent, except for such counterclaims, setoffs or crossclaims which,
if not asserted in any such proceeding, could not otherwise be brought or
asserted. The Company waives any objection that it may have to the location of
the court in which the Collateral Agent has commenced a proceeding described in
this paragraph including, without limitation, any objection to the laying of
venue or based on the grounds of forum non conveniens.
(c) The Company and the Collateral Agent each waive any right to have a
jury participate in resolving any dispute, whether sounding in contract, tort,
or otherwise arising out of, connected with, related to or incidental to the
relationship established between them in connection with this Pledge Agreement.
Instead, any disputes resolved in court will be resolved in a bench trial
without a jury.
(d) The Company agrees that neither the Collateral Agent nor any Holder
shall have any liability to the Company (whether sounding in tort, contract or
otherwise) for losses suffered by the Company in connection with, arising out
of, or in any way related to, the transactions contemplated and the relationship
established by this Pledge Agreement, or any act, omission or event occurring in
connection therewith, unless it is determined by a final and nonappealable
28
<PAGE>
judgment of a court that is binding on the Collateral Agent or such Holder, as
the case may be, that such losses were the result of acts or omissions on the
part of the Collateral Agent or such Holder, as the case may be, constituting
bad faith, gross negligence or willful misconduct.
(e) To the extent permitted by applicable law, and except as otherwise
provided in this Pledge Agreement, the Company waives all rights of notice and
hearing of any kind prior to the exercise by the Collateral Agent or any Holder
of rights during the continuance of any Event of Default to repossess the
Collateral with judicial process or to replevy, attach or levy upon the
Collateral or other security for the Obligations. To the extent permitted by
applicable law, the Company waives the posting of any bond otherwise required of
the Collateral Agent or any Holder in connection with any judicial process or
proceeding to obtain possession of replevy, attach or levy upon the Collateral
or other security for the Obligations, to enforce any judgment or other court
order entered in favor of the Collateral Agent or any Holder, or to enforce by
specific performance, temporary restraining order or preliminary or permanent
injunction, this Pledge Agreement or any other agreement or document between the
Company on the one hand and the Collateral Agent and/or the Holders on the other
hand.
Section 9.12 Indemnification. The Company agrees to pay, and to save the
---------------
Indenture Trustee and the Collateral Agent harmless from, any and all
liabilities with respect to, or resulting from any delay in paying, any and all
excise, sales or other similar taxes which may be payable or determined to be
payable with respect to any of the Collateral or in connection with any of the
transactions contemplated by this Pledge Agreement.
SECTION 9.13 Effect of Headings. The Article and Section headings and
------------------
the Table of Contents contained in this Pledge Agreement have been inserted for
convenience of reference only, and are and shall be without substantive meaning
or content of any kind whatsoever and are not a part of this Pledge Agreement.
SECTION 9.14 No Adverse Interpretation of Other Agreements. This Pledge
---------------------------------------------
Agreement may not be used to interpret any agreement of the Company or any of
its Subsidiaries which is unrelated to the Indenture, the Securities or the
other Operative Documents. Any such agreement may not be used to interpret this
Pledge Agreement.
Section 9.15 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 this Pledge Agreement or for any claim based
on, in respect of or by reason of such obligations or their creation.
SECTION 9.16 Counterpart Originals. This Pledge Agreement may be signed
---------------------
in two or more counterparts, each of which shall be deemed an original, but all
of which shall together constitute one and the same agreement.
SECTION 9.17 Severability. The provisions of this Pledge Agreement are
------------
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in
29
<PAGE>
any other jurisdiction or any other clause or provision of this Pledge Agreement
in any jurisdiction, and a Holder shall have no claim therefor against any party
hereto.
SECTION 9.18 Survival Provisions. Notwithstanding any right of the
-------------------
Collateral Agent, the Initial Purchasers or any of the Holders to investigate
the affairs of the Company, and notwithstanding any knowledge of facts
determined or determinable by any of them pursuant to such investigation or
right of investigation, all representations, warranties and covenants of the
Company contained herein shall survive the execution and delivery of this Pledge
Agreement, and shall terminate only upon the termination of this Pledge
Agreement.
SECTION 9.19 Waivers. The Company waives presentment and demand for
-------
payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices which the Company
might otherwise be entitled, except as otherwise expressly provided for herein
or in the Indenture.
[SIGNATURE PAGE FOLLOWS]
30
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be
duly executed, all as of the date first above written.
TRANS WORLD AIRLINES, INC.
By: _________________________________________
Name:
Title:
Agreed and accepted as of the date first written above:
FIRST SECURITY BANK,
NATIONAL ASSOCIATION,
as Collateral Agent
By: ________________________________
Name:
Title:
31
<PAGE>
EXHIBIT A
FORM OF SUPPLEMENTAL PLEDGE AGREEMENT
(To Add Collateral)
SUPPLEMENTAL PLEDGE AGREEMENT No. _____
SUPPLEMENTAL PLEDGE AGREEMENT NO. _______ , dated as of __________between
TRANS WORLD AIRLINES, INC., a Delaware corporation (together with its successors
and assigns, the "Company"), having an office at One City Centre, 515 N. 6th
Street, St. Louis, Missouri 63101, and ____________________________________, as
Collateral Agent under the Pledge Agreement described below, having its
principal office at _____________________________, (together with its successors
in trust, the "Collateral Agent").
WHEREAS, the Company has heretofore executed and delivered to the
Collateral Agent a Pledge and Security Agreement, dated as of December 9, 1997
(the "Pledge Agreement"), covering the property of the Company therein
described, to secure (subject to the provisions of the Pledge Agreement and the
Indenture) the payment of the Securities (as defined in the Pledge Agreement)
outstanding from time to time;
WHEREAS, the Pledge Agreement (and any Supplemental Pledge Agreements) has
(have) been duly recorded with the Federal Aviation Administration at Oklahoma
City, Oklahoma, pursuant to the Federal Aviation Act of 1958, as amended, on the
following date as a document or conveyance bearing the following number:
DOCUMENT OR
DATE OF RECORDING CONVEYANCE NO.
Pledge Agreement......
WHEREAS, the Company, as provided in the Pledge Agreement, is hereby
executing and delivering or heretofore has executed and delivered, to the
Collateral Agent one or more Supplemental Pledge Agreements for the purposes of
specifically subjecting to the Lien of the Pledge Agreement certain property
herein described[, or subjecting to the Lien of the Pledge Agreement appliances
and spare parts maintained by the Company or on its behalf for installation or
use in or useable on any model of aircraft or engine, at designated locations
other than the locations designated in the Pledge Agreement and in Supplemental
Pledge Agreements thereto, previously delivered). (Recite any other filing or
recording data.)
WHEREAS, the Company is the legal and beneficial owner of the property
specifically described in Schedule I annexed hereto (and located at the
(Designated Location) (location) described in Schedule I annexed hereto), free
and clear of all mortgages, security interests, pledges, liens, claims, charges
and encumbrances of every kind whatsoever, except only
A-1
<PAGE>
Permitted Collateral Liens (as defined in the Definitions Appendix referred to
in the Pledge Agreement) and desires to execute and deliver this Supplemental
Pledge Agreement for the purpose of specifically subjecting said property to the
Lien of the Pledge Agreement;
WHEREAS, all things necessary to make this Supplemental Pledge Agreement
the valid, binding and legal obligation of the Company, including all proper
corporate action on the part of the Company, have been done and performed and
have happened;
NOW, THEREFORE, THIS SUPPLEMENTAL PLEDGE AGREEMENT WITNESSETH, that, to
secure (subject to the provisions of the Pledge Agreement) the payment of the
principal of, premium, if any, and interest and Special Interest (as defined in
such Definitions Appendix), if any, on the Securities at any time secured under
the Pledge Agreement and issued by the Company and outstanding, and the
performance of the covenants therein and herein, the Company does hereby
transfer, grant, bargain, sell, assign, convey, mortgage, hypothecate and pledge
to the Collateral Agent the property described in Schedule I annexed hereto.
TO HAVE AND TO HOLD all and singular the aforesaid property described in
Schedule I annexed hereto unto the Collateral Agent in trust and for the uses
and purposes and subject to the terms, provisions, agreements and covenants set
forth in the Pledge Agreement.
This Supplemental Pledge Agreement shall be construed as supplemental to
the Pledge Agreement and shall form a part thereof, and the Pledge Agreement is
hereby incorporated by reference herein and is hereby ratified, approved and
confirmed.
This Supplemental Pledge Agreement is intended to be delivered in the State
of New York and shall be governed by the laws of that State without regard to
principles of conflicts of laws.
This Supplemental Pledge Agreement may be signed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Supplemental Pledge Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Pledge
Agreement to be duly executed, all as of the date first above written.
TRANS WORLD AIRLINES, INC.
By: __________________________________
Name:
Title:
Agreed and accepted as of the date first written above:
[Name of Collateral Agent],
as Collateral Agent
By: ___________________________________
Name:
Title:
A-3
<PAGE>
STATE OF MISSOURI )
) ss.:
COUNTY OF __________ )
On the ______ day of ___________, ______, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that he resides at ______________________; that he is a
___________ of TRANS WORLD AIRLINES, INC., the corporation described in and that
executed the above instrument; and that he signed his/her name thereto by order
of the Board of Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
Notary Public
STATE OF ____________ )
) ss.:
COUNTY OF __________ )
On the ____ day of ___________, ______, before me personally came
_____________________________, to me known, who, being by me duly sworn, did
depose and say that he/she resides at ________________________________; that
he/she is a ____________ of _________________, the ___________________________
described in and that executed the above instrument as Collateral Agent; and
that he/she signed his/her name thereto by order of the Board of Directors of
said __________________________.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
Notary Public
A-4
<PAGE>
SCHEDULE 1 to EXHIBIT A
A-5
<PAGE>
EXHIBIT B
FORM OF SUPPLEMENTAL PLEDGE AGREEMENT
(To Release Collateral)
SUPPLEMENTAL PLEDGE AGREEMENT NO. _____
SUPPLEMENTAL PLEDGE AGREEMENT NO. ___, dated as of ____________ between
TRANS WORLD AIRLINES, INC., a Delaware corporation (together with its successors
and assigns, the "Company"), having an office at One City Centre, 515 N. 6th
Street, St. Louis, Missouri 63101, and _____________________________, a
___________________________, as Collateral Agent under the Pledge Agreement
described below, having its principal office at
____________________________________________, (together with its successors in
trust, the "Collateral Agent").
WHEREAS, the Company has heretofore executed and delivered to the
Collateral Agent a Pledge and Security Agreement, dated as of December 9, 1997
(the "Pledge Agreement"), covering the property of the Company therein
described, to secure (subject to the provisions of the Pledge Agreement and the
Indenture) the payment of the Securities (as defined in the Pledge Agreement)
outstanding from time to time;
WHEREAS, the Pledge Agreement [and any Supplemental Pledge Agreements] has
[have] been duly recorded with the Federal Aviation Administration at Oklahoma
City, Oklahoma, pursuant to the Federal Aviation Act of 1958, as amended, on the
following date as a document or conveyance bearing the following number:
DOCUMENT OR
DATE OF RECORDING CONVEYANCE NO.
Pledge Agreement......
WHEREAS, the Company, as provided in the Pledge Agreement, is hereby
executing and delivering or heretofore has executed and delivered, to the
Collateral Agent one or more Supplemental Pledge Agreements for the purposes of
specifically releasing from the Lien of the Pledge Agreement certain property
herein described. [Recite any other filing or recording data.]
WHEREAS, the Company desires to execute and deliver this Supplemental
Pledge Agreement for the purpose of specifically releasing said property from
the Lien of the Pledge Agreement;
WHEREAS, all things necessary to make this Supplemental Pledge Agreement
the valid, binding and legal obligation of the Company, including all proper
corporate action on the part of the Company, have been done and performed and
have happened;
NOW, THEREFORE, THIS SUPPLEMENTAL PLEDGE AGREEMENT WITNESSETH, that, the
Collateral Agent releases from the Lien of the Pledge Agreement the
B-1
<PAGE>
2
property described in Schedule I annexed hereto. This Supplemental Pledge
Agreement shall be construed as supplemental to the Pledge Agreement and shall
form a part thereof, and the Pledge Agreement is hereby incorporated by
reference herein and is hereby ratified, approved and confirmed.
This Supplemental Pledge Agreement is intended to be delivered in the State
of New York and shall be governed by the laws of that State without regard to
principles of conflicts of laws.
This Supplemental Pledge Agreement may be signed in two or more
counterparts, each of which shall be deemed an original, but all shall together
constitute one and the same Supplemental Pledge Agreement.
This release is made without covenant or warranty, without recourse, and
without affecting the rights of the Collateral Agent to any and all Collateral
other than that specifically released hereby.
B-2
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Pledge
Agreement to be duly executed, as of the date and year first above written.
TRANS WORLD AIRLINES, INC.
By:________________________________
Name:
Title:
Agreed and accepted as of the date first written above:
[Name of Collateral Agent],
as Collateral Agent
By:__________________________
Name:
Title:
B-3
<PAGE>
4
STATE OF MISSOURI )
) ss.:
COUNTY OF ________ )
On the ____ day of ______________, ______ before me personally came
____________________to me known, who, being by me duly sworn, did depose and say
that he resides at __________; that he is a _____________________of TRANS WORLD
AIRLINES, INC., the corporation described in and that executed the above
instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
Notary Public
STATE OF _________ )
) ss.:
COUNTY OF ________ )
On the ___ day of _________________, __________ before me personally came
_________________________________ to me known, who, being by me duly sworn, did
depose and say that he/she resides at _______________________________________;
that he/she is _________________ of _____________________________; the
_________________ described in and that executed the above instrument as
Collateral Agent; and that he/she signed his/her name thereto by order of the
Board of Directors of said ___________________________.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
Notary Public
B-4
<PAGE>
5
SCHEDULE I to EXHIBIT B
B-5
<PAGE>
EXHIBIT C
FORM OF MONTHLY INVENTORY REPORT
TRANS WORLD AIRLINES, INC.
CERTIFICATE AS TO PLEDGED SPARE PARTS
[Date]
First Security Bank, National Association, as
Collateral Agent under Pledge
and Security Agreement
from Trans World Airlines, Inc.
dated as of December 9, 1997
Trans World Airlines, Inc. certifies that attached hereto is a summary of
certain transactions and the inventory of the Pledged Spare Parts at the
Designated Locations describing the values of such Pledged Spare Parts, as
reflected upon the Inventory Control System, as of the last day of the month
shown on the attachment. The full inventory as of the same date in the form
required by the Pledge and Security Agreement is being delivered concurrently to
the Collateral Agent or, if designated by the Collateral Agent, to the entity
selected by the Collateral Agent to assist in evaluating Pledged Spare Parts,
and the Pledged Spare Parts shown therein correspond to the Pledged Spare Parts
and values shown on the attached summary.
This Certificate, the summary attached hereto and the full inventory
delivered to the Collateral Agent or, if designated by the Collateral Agent, to
the entity selected by the Collateral Agent to assist in evaluating Pledged
Spare Parts, are provided under Section 4.13 of the Pledge Agreement referenced
above. The undersigned is familiar with the definitions of Pledged Spare Parts,
Designated Location, Inventory Control System and other terms contained in the
Definitions Appendix to the Indenture and Pledge Agreement and the Pledged Spare
Parts shown on the attached summary are limited to those included in and are
valued as required under those definitions.
TRANS WORLD AIRLINES, INC.
By: ________________________________
[Name]
[Title]
C-1
<PAGE>
TRANS WORLD AIRLINES, INC.
SUMMARY OF CERTAIN TRANSACTIONS
AND OF PLEDGED SPARE PARTS
AT DESIGNATED LOCATIONS AS SHOWN ON
INVENTORY CONTROL SYSTEM
AS OF THE LAST DAY OF
[NAME OF MONTH IMMEDIATELY PRECEDING DATE OF REPORT]
DESIGNATED LOCATIONS INVENTORY CONTROL SYSTEM VALUE
- -------------------- ------------------------------
$
TOTAL $
The following (as checked below) has occurred since the date of the last Report:
1. Sales of Pledged Spare Parts pursuant to Section 4.04(c)(iii) of the Pledge
Agreement:
___ None.
___ Description:
Note: The Company will send the magnetic tape referenced in the letter to which
this Summary is attached to the Collateral Agent directly (and the Collateral
Agent will spot check same in their discretion with a firm of their choice).
Once the issue has been finally determined the letter to which this Summary is
attached will need to be revised accordingly.
C-2
<PAGE>
SCHEDULE 1
DESIGNATED LOCATIONS
<TABLE>
<CAPTION>
CITY/AIRPORT AIRPORT STATE
----------------- -------------------------------- --------------------
<S> <C> <C>
1. New York Kennedy International New York
2. New York La Guardia New York
3. Boston Logan International Massachusetts
4. Philadelphia Philadelphia International Pennsylvania
5. Baltimore Baltimore-Washington Maryland
International
6. Arlington Washington (National) Virginia
7. Herndon Dulles International Virginia
8. Pittsburgh Pittsburgh International Pennsylvania
9. Chicago O'Hare International Illinois
10. St. Louis Lambert International Missouri
11. Kansas City Kansas City International Missouri
12. Las Vegas McCarran International Nevada
13. San Diego San Diego California
14. Los Angeles Los Angeles International California
15. San Francisco San Francisco International California
</TABLE>
S1-1
<PAGE>
SCHEDULE 2
COLLATERAL RELEASE SCHEDULE
<TABLE>
<CAPTION>
Released Collateral Collateral Release Trigger (Securities Outstanding)
- ------------------- ---------------------------------------------------
<S> <C>
All Acquired Slots and the related $100,000,000
Beneficial Interest, Beneficial Interest
Certificate and Slot Trust Assets
</TABLE>
Note: Collateral referred to is as of the date of the Pledge Agreement. If
additional Collateral is pledged to the Collateral Agent in satisfaction
of the Substitution Requirements, such additional Collateral shall be
subject to release at the same time and under the same circumstances (and
only at the same time and under the same circumstances) as the Collateral
for which it was substituted could have been released under this
Schedule.
S2-1
<PAGE>
SCHEDULE 3
UCC FILING JURISDICTIONS
<TABLE>
<CAPTION>
SECRETARY OF STATE LOCAL FILING OFFICE
---------------------------------------------------------------------------
<S> <C>
1. New York Queens County Register
2. Massachusetts Boston City Clerk
3. Pennsylvania Philadelphia County
Allegheny County
4. Maryland None
5. Virginia Alexandria County
Arlington County
Loudoun County
Fairfax County
6. Illinois None
7. Missouri St. Louis County
Platte County
8. Nevada None
9. California None
10. District of Columbia None
(Commissioner of Deeds)
</TABLE>
S3-1
<PAGE>
EXHIBIT C TO INDENTURE
EXHIBIT C TO INDENTURE
FORM OF SUBSIDIARY GUARANTY
This Subsidiary Guaranty (the "Guaranty") is made and entered into as
of __________________ by __________________________, a __________________ (the
"Guarantor"), having its principal office at __________________________________,
in favor of [name of Trustee], having an office at ____________________________,
as Trustee (in such capacity, together with its successors and assigns, the
"Trustee") for the holders (the "Holders") of the Notes (as defined herein)
issued by Trans World Airlines, Inc. (the "Company") under the Indenture
referred to below.
W I T N E S S E T H
WHEREAS, the Company and First Security Bank, National Association, as
Trustee, have entered into that certain Indenture dated as of December 9, 1997
(as amended, restated, supplemented or otherwise modified from time to time, the
"Indenture"), pursuant to which the Company issued $140,000,000 in original
aggregate principal amount of 11 1/2% Senior Secured Notes due 2004 (the
"Notes"). Capitalized terms used herein and not otherwise defined herein shall
have the meanings given to such terms in the Definitions Appendix to the
Indenture which shall be a part of this Guaranty as if fully set forth in this
place, and the rules of construction for this Guaranty are set forth in Section
2 of such Definitions Appendix; and
WHEREAS, the Company agreed, pursuant to Section 4.22 of the
Indenture, not to permit any Restricted Subsidiary, directly or indirectly, to
Guarantee any Indebtedness of the Company which is pari passu with or
subordinate in right of payment to the Notes unless (i) such Restricted
Subsidiary simultaneously executes and delivers a Subsidiary Guaranty of payment
of the Notes by such Restricted Subsidiary and (ii) such Restricted Subsidiary
waives and will not in any manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any other
rights against the Company or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Subsidiary Guaranty; and
WHEREAS, the Guarantor is a Restricted Subsidiary and intends to incur
a Guarantee of Indebtedness of the Company which is [pari passu with]
[subordinate in right of payment to] the Notes.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, the Guarantor hereby
agrees with the Trustee for its benefit and for the ratable benefit of the
Holders of Notes as follows:
<PAGE>
2
SECTION 1. Guarantee. Subject to Section 2, Guarantor hereby
---------
unconditionally and irrevocably guarantees, to each Holder and to the Trustee
and their respective successors and assigns (a) the full and punctual payment
within applicable grace periods of principal of, interest and Special Interest,
if any, on and the redemption or repurchase prices with respect to, the Notes
when due, whether at maturity, by acceleration, by redemption, by Offer to
Purchase or otherwise, and all other monetary obligations of the Company under
the Indenture and the Notes and (b) the full and punctual performance within
applicable grace periods of all other obligations of the Company under the
Indenture and the Notes (all the foregoing being hereinafter collectively called
the "Obligations"). Subject to Section 2, the Guarantor further agrees that the
Obligations may be extended or renewed, in whole or in part, without notice or
further assent from the Guarantor and that the Guarantor will remain bound under
this Guaranty notwithstanding any extension or renewal of any Obligation.
The Guarantor waives presentation to, demand of, payment from and
protest to the Company of any of the Obligations and also waives notice of
protest for nonpayment. The Guarantor waives notice of any default under the
Notes or the Obligations. The obligations of the Guarantor hereunder shall not
be affected by (a) the failure of any Holder or the Trustee to assert any claim
or demand or to enforce any right or remedy against the Company or any other
Person under the Indenture, the Notes or any other agreement or otherwise; (b)
any extension or renewal of any thereof; (c) any rescission, waiver, amendment
or modification of any of the terms or provisions of the Indenture, the Notes or
any other agreement; (d) the release of any security held by a Holder, the
Trustee, the Collateral Agent, the Slot Trustee or the Slot Trust for the
Obligations or any of them; (e) the failure of any Holder or the Trustee to
exercise any right or remedy against any other guarantor of the Obligations; or
(f) any change in the ownership of the Guarantor.
The Guarantor further agrees that its guarantee herein constitutes a
guarantee of payment, performance and compliance when due (and not a guarantee
of collection) and waives any right to require that any resort be had by any
Holder, the Trustee, the Collateral Agent, the Slot Trustee or the Slot Trust to
any security held for payment of the Obligations.
Except as expressly set forth in Section 2 and 4.13, the obligations
of the Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense of setoff, counterclaim, recoupment or termination whatsoever or by
reason of the invalidity, illegality or unenforceability of the Obligations or
otherwise. Without limiting the generality of the foregoing, the obligations of
the Guarantor herein shall not be discharged or impaired or otherwise affected
by the failure of any Holder or the Trustee to assert any claim or demand or to
enforce any remedy under the Indenture, the Notes or any other agreement, by any
waiver or modification of any thereof, by any default, failure or delay, willful
or otherwise, in the performance of the obligations, or by any other act or
thing or omission or delay to do any other act or thing which may or might in
any manner or to any extent vary the risk of the Guarantor or would otherwise
operate as a discharge of the Guarantor as a matter of law or equity.
<PAGE>
3
The Guarantor further agrees that its guarantee herein shall continue
to be effective or be reinstated as the case may be, if at any time payment, or
any part thereof, of principal of or interest or Special Interest, if any, on
any Obligation is rescinded or must otherwise be restored by any Holder or the
Trustee upon the bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against the
Guarantor by virtue hereof, upon the failure of the Company to pay the principal
of redemption or repurchase price of, or interest or Special Interest, if any,
on any Obligation when and as the same shall become due, whether at maturity, by
acceleration, by redemption, by Offer to Purchase or otherwise, or to perform or
comply with any other Obligation, the Guarantor hereby promises to and will,
upon receipt of written demand by the Trustee, forthwith pay, or cause to be
paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i)
the unpaid amount of such Obligations, (ii) accrued and unpaid interest and
Special Interest, if any, on such Obligations (but only to the extent not
prohibited by law) and (iii) all other monetary Obligations of the Company to
the Holders and the Trustee.
The Guarantor agrees that it shall not be entitled to and hereby
expressly waives, and will not in any manner whatsoever claim or take the
benefit or advantage of, any right of reimbursement, indemnity or subrogation in
respect of any Obligations guaranteed hereby or any other rights against the
Company or any Restricted Subsidiary as a result of any payment by the Guarantor
hereunder until payment in full of all Obligations.
The Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorney's fees) incurred by the Trustee or any Holder in
enforcing any rights under this Section.
SECTION 2. Limitation of Liability. Any term or provision of this
-----------------------
Guaranty to the contrary notwithstanding, the maximum, aggregate amount of the
Obligations guaranteed hereunder by the Guarantor shall not exceed the maximum
amount, if any, that can be hereby guaranteed without rendering this Guaranty,
as it relates to the Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
SECTION 3. Representations and Warranties. The Guarantor hereby
------------------------------
represents and warrants that:
(a) The execution, delivery and performance by the Guarantor of this
Guaranty are within the Guarantor's [corporate] [partnership] powers, have
been duly authorized by all necessary [corporate] [partnership] action, and
do not contravene, or constitute a default under, any provision of
applicable law or regulation or of the [certificate of incorporation or
bylaws] [partnership agreement] of the Guarantor or of any agreement,
judgment, injunction, order, decree or other instrument binding upon the
Guarantor or result in the creation or imposition of any Lien on any assets
of the Guarantor.
<PAGE>
4
(b) This Guaranty has been duly executed and delivered by the
Guarantor and constitutes a valid and binding obligation of the Guarantor,
enforceable against the Guarantor in accordance with its terms, except as
such enforceability may be limited by the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or general principles of equity and
commercial reasonableness.
(c) No consent of any other Person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for the execution,
delivery or performance of this Guaranty by the Guarantor.
(d) No litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the knowledge of the
Guarantor, threatened by or against the Guarantor with respect to this
Guaranty, or any of the transactions contemplated hereby.
(e) The guarantee pursuant to this Guaranty is not prohibited by any
applicable law or governmental regulation, release, interpretation or
opinion of the Board of Governors of the Federal Reserve System or other
regulatory agency (including, without limitation, Regulations G, T, U and X
of the Board of Governors of the Federal Reserve System).
SECTION 4. Miscellaneous Provisions.
------------------------
Section 4.1 Notices; Waivers. Any request, demand, authorization,
----------------
direction, notice, consent, waiver or other document provided or permitted by
this Guaranty to be made upon, given or furnished to, or filed with
(a) the Guarantor shall be sufficient for every purpose hereunder if
in writing (including telecopied communications) and made, given, furnished
or filed by personal delivery or mailed by first-class mail or by
nationally recognized overnight courier, postage or courier charges, as the
case may be, prepaid, to the Guarantor at:
______________________________
______________________________
______________________________
______________________________
Attention: __________________
Telecopier No.: _____________
(b) the Trustee shall be sufficient for every purpose hereunder if in
writing (including telecopied communications) and made, given, furnished or
filed by personal recognized overnight courier, postage or courier charges,
as the case may be, prepaid, to or with the Trustee at:
<PAGE>
5
_____________________________
_____________________________
_____________________________
Attention: _________________
Telecopier No.: ____________
or to any of the above parties at any other address or telecopier number
subsequently furnished in writing by it to each of the other parties listed
above. An affidavit by any person representing or acting on behalf of the
Guarantor or the Trustee as to such mailing, having any registry receipt
required by this Section attached, shall be conclusive evidence of the giving of
such demand, notice or communication.
Notices to the Trustee or to the Guarantor are deemed given only when
received. Where this Guaranty provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice.
Section 4.2 No Adverse Interpretation of Other Agreements. This
---------------------------------------------
Guaranty may not be used to interpret any agreement of Guarantor or any of its
Subsidiaries which is unrelated to the Indenture, the Notes or the other
Operative Documents. Any such agreement may not be used to interpret this
Guaranty.
Section 4.3 Severability. The provisions of this Guaranty are
------------
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Guaranty in any jurisdiction.
Section 4.4 Effect of Headings. The Section headings contained in
------------------
this Guaranty have been inserted for convenience of reference only, and are and
shall be without substantive meaning or content of any kind whatsoever and are
not a part of this Guaranty.
Section 4.5 Benefits of Guaranty Restricted. Subject to the
-------------------------------
provisions of Section 4.12, nothing in this Guaranty, express or implied, shall
give or be construed to give to any Person, firm or corporation, other than the
Trustee and the Holders, acting through the Trustee, any legal or equitable
right, remedy or claim under or in respect of this Guaranty or under any
covenant, condition, or provision herein contained, all such covenants,
conditions and provisions, subject to Section 4.12 hereof, being for the sole
benefit of the Trustee and the Holders.
Section 4.6 Amendments, Waivers and Consents. The Guarantor and the
--------------------------------
Trustee may amend or agree to waive any of the provisions of this Guaranty;
provided however, that without the consent of the Required Holders, no such
amendment or waiver shall be made which adversely affects the interests of the
Holders of the Notes in any material respect. Any amendment or waiver of any
provision of this Guaranty and any consent to any departure by the Guarantor
from any provision of this Guaranty shall be effective only if made or duly
given in
<PAGE>
6
compliance with all of the terms and provisions of this Section 4.6 and neither
the Trustee nor any Holder of Notes shall be deemed, by any act, delay,
indulgence, omission or otherwise, to have waived any right or remedy hereunder
or to have acquiesced in any default hereunder or in any breach of any of the
terms and conditions hereof. Failure of the Trustee or any Holder of Notes to
exercise, or delay in exercising, any right, power or privilege hereunder shall
not preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Trustee or any Holder of Notes of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy that the Trustee or such Holder of Notes would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
rights or remedies provided by law.
Section 4.7 Survival Provisions. Notwithstanding any right of the
-------------------
Trustee, the Initial Purchasers or any of the Holders to investigate the affairs
of the Company or the Guarantor, and notwithstanding any knowledge of facts
determined or determinable by any of them pursuant to such investigation or
right of investigation, all representations, warranties and covenants of the
Guarantor contained herein shall survive the execution and delivery of this
Guaranty, and shall terminate only upon the termination of this Guaranty.
Section 4.8 Waivers. The Guarantor waives presentment and demand for
-------
payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Guarantor might otherwise be entitled, except as otherwise expressly provided
herein.
Section 4.9 Final Expression. This Guaranty, together with any other
----------------
agreement executed in connection herewith, is intended by the parties as a final
expression of this Guaranty and is intended as a complete and exclusive
statement of the terms and conditions thereof.
Section 4.10 Rights of Holders of Notes. No Holder of Notes shall
--------------------------
have any independent rights hereunder other than those rights granted to
individual Holders of Notes pursuant to the Indenture; provided that nothing in
--------
this subsection shall limit any rights granted to the Trustee under the Notes or
the Indenture.
Section 4.11 Governing Law; Submission to Jurisdiction; Waiver of Jury
---------------------------------------------------------
Trial; Waiver of Damages.
- ------------------------
(a) The laws of the State of New York shall govern this Guaranty
without regard to principles of conflicts of laws.
(b) The Guarantor agrees that the Trustee shall, in its capacity as
Trustee or in the name and on behalf of any Holder of Notes, have the right, to
the extent permitted by applicable law, to proceed against the Guarantor or its
property in a court in any location reasonably selected in good faith (and
having personal or in rem jurisdiction over the Guarantor or its property, as
the case may be) to enable the Trustee to realize on such property, or to
enforce a judgment or other court order entered in favor of the Trustee. The
Guarantor agrees that it will
<PAGE>
7
not assert any counterclaims, setoffs or crossclaims in any proceeding brought
by the Trustee to realize on such property or to enforce a judgment or other
court order in favor of the Trustee, except for such counterclaims, setoffs or
crossclaims which, if not asserted in any such proceeding, could not otherwise
be brought or asserted. The Guarantor waives any objection that it may have to
the location of the court in which the Trustee has commenced a proceeding
described in this paragraph including, without limitation, any objection to the
laying of venue or based on the grounds of forum non conveniens.
(c) The Guarantor and the Trustee each waive any right to have a jury
participate in resolving any dispute, whether sounding in contract, tort, or
otherwise arising out of, connected with, related to or incidental to the
relationship established between them in connection with this Guaranty.
Instead, any disputes resolved in court will be resolved in a bench trial
without a jury.
(d) The Guarantor agrees that neither the Trustee nor any Holder of
Notes shall have any liability to the Guarantor (whether sounding in tort,
contract or otherwise) for losses suffered by the Guarantor in connection with,
arising out of, or in any way related to, the transactions contemplated and the
relationship established by this Guaranty, or any act, omission or event
occurring in connection therewith, unless it is determined by a final and
nonappealable judgment of a court that is binding on the Trustee or such Holder
of Notes, as the case may be, that such losses were the result of acts or
omissions on the part of the Trustee or such Holder of Notes, as the case may
be, constituting bad faith, gross negligence or willful misconduct.
Section 4.12 Successors and Assigns. This Guaranty and all
----------------------
obligations of the Guarantor hereunder shall be binding upon the successors of
the Guarantor, and shall, together with the rights and remedies of the Trustee
hereunder, inure to the benefit of the Trustee and the Holders, and their
respective successors and assigns. The obligations of the Guarantor hereunder
are not assignable and any attempt to assign all or any portion of such
obligations shall be null and void.
Section 4.13 Termination of Guaranty. This Guaranty shall be
-----------------------
automatically and unconditionally released and discharged upon (i) any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Company's and each Restricted Subsidiary's Capital Stock in, or all or
substantially all the assets of, the Guarantor (which sale, exchange or transfer
is not prohibited by the Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of this Subsidiary Guaranty, except a
discharge or release by, or as a result of, payment under such Guarantee.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered as of the date first above written.
[Name of Guarantor]
By:___________________________________
Name:
Title:
<PAGE>
EXHIBIT 4.23
[CONFORMED COPY]
TRANS WORLD AIRLINES, INC.
11 1/2% Senior Secured Notes Due 2004
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of December 9, 1997, by Trans World Airlines, Inc., a Delaware
corporation (the "Company"), and Lazard Freres & Co. LLC and PaineWebber
Incorporated (the "Initial Purchasers"). Subject to the terms and conditions
stated in the Purchase Agreement dated as of December 4, 1997 between the
Company and the Initial Purchasers (the "Purchase Agreement"), the Company shall
issue and sell to the Initial Purchasers, severally, $140,000,000 aggregate
principal amount 11 1/2% Secured Notes Due 2004 (the "Notes"). The Notes will be
issued pursuant to an indenture dated as of December 9, 1997 (the "Indenture"),
between the Company and First Security Bank, National Association, as trustee
(the "Trustee"). As an inducement to the Initial Purchasers, the Company hereby
agrees with the Initial Purchasers, for the benefit of the holders of the Notes
(including, without limitation, the Initial Purchasers), the Exchange Notes (as
defined below) and the Private Exchange Notes (as defined below) (collectively,
the "Holders"), as follows:
SECTION 1. EXCHANGE OFFER REGISTRATION
The Company shall, at its cost, use its best efforts to prepare and,
not later than 60 days after (or if the 60th day is not a business day, the
first business day thereafter) the Issue Date (as defined in the Indenture) of
the Notes, file with the Securities and Exchange Commission (the "Commission"),
a registration statement (the "Exchange Offer Registration Statement") on an
appropriate form under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to a proposed offer (the "Registered Exchange Offer") to the
Holders of Transfer Restricted Notes (as defined below), who are not prohibited
by any law or policy of the Commission from participating in the Registered
Exchange Offer, to issue and deliver to such Holders, in exchange for the Notes,
a like aggregate principal amount of debt securities (the "Exchange Notes") of
the Company issued under the Indenture and identical in all material respects to
the Notes (except for the transfer restrictions relating to the Notes) that
would be registered under the Securities Act. The Company shall use its best
efforts to cause such Exchange Offer Registration Statement to become effective
under the Securities Act within 150 days (or if the 150th day is not a business
day, the first business day thereafter) after the Issue Date of the Notes and
shall keep the Exchange Offer Registration Statement effective for not less than
30 days (or longer if required by applicable law) after the date on which notice
of the Registered Exchange Offer is mailed to the Holders (such period being
called the "Exchange Offer Registration Period").
If the Company effects the Registered Exchange Offer, the Company will
be entitled to close the Registered Exchange Offer 30 days after the
commencement thereof;
<PAGE>
2
provided, however, that the Company has accepted all the Notes theretofore
- -------- -------
validly tendered in accordance with the terms of the Registered Exchange Offer.
Following the declaration of the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Registered
Exchange Offer, it being the objective of such Registered Exchange Offer to
enable each Holder of Transfer Restricted Notes electing to exchange the Notes
for Exchange Notes (assuming that such Holder is not an affiliate of the Company
within the meaning of the Securities Act, acquires the Exchange Notes in the
ordinary course of such Holder's business, has no arrangements with any person
to participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes and is not prohibited by any law or policy of the Commission
from participating in the Registered Exchange Offer) to trade such Exchange
Notes from and after their receipt without any limitations or restrictions under
the Securities Act and without material restrictions under the securities laws
of the several states of the United States. In connection with such Registered
Exchange Offer, the Company shall take such further action, including, without
limitation, appropriate filings under state securities laws, as may be necessary
to realize the foregoing objective subject to the proviso of Section 3(h).
The Company acknowledges that, pursuant to current interpretations by
the Commission's staff of Section 5 of the Securities Act, in the absence of an
applicable exemption therefrom, (i) each Holder that is a broker-dealer electing
to exchange Notes, acquired for its own account as a result of market making
activities or other trading activities, for Exchange Notes (an "Exchanging
Dealer"), is required to deliver a prospectus containing the information set
forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section, and in
Annex C hereto in the "Plan of Distribution" section of such prospectus in
connection with a sale of any such Exchange Notes received by such Exchanging
Dealer pursuant to the Registered Exchange Offer and (ii) the Initial Purchasers
selling Exchange Notes acquired in exchange for Notes constituting any portion
of an unsold allotment are required to deliver a prospectus containing the
information required by Items 507 or 508 of Regulation S-K under the Securities
Act, as applicable, in connection with such sale.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein in order to permit such prospectus to be lawfully delivered by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Notes; provided, however, that (i) in the case
-------- -------
where such prospectus and any amendment or supplement thereto must be delivered
by an Exchanging Dealer or the Initial Purchasers, such period shall be the
lesser of 180 days after the expiration date of the Registered Exchange Offer
and the date on which all Exchanging Dealers and the Initial Purchasers have
sold all Exchange Notes held by them (unless such period is extended pursuant to
Section 3(j) below), and (ii) the Company shall make such prospectus and any
amendment or supplement thereto available to any broker-dealer for use in
connection with any resale of any Exchange Notes for a period not less than 90
days after the consummation of the Registered Exchange Offer.
<PAGE>
3
If, upon consummation of the Registered Exchange Offer, the Initial
Purchasers hold Notes acquired by them as part of their initial distribution,
the Company, simultaneously with the delivery of the Exchange Notes pursuant to
the Registered Exchange Offer, shall issue and deliver to such Initial
Purchasers upon the written request of such Initial Purchasers, in exchange (the
"Private Exchange") for the Notes held by such Initial Purchasers, a like
principal amount of debt securities of the Company issued under the Indenture
and identical in all material respects (including the existence of restrictions
on transfer under the Securities Act and the securities laws of the several
states of the United States) to the Notes (the "Private Exchange Notes"). The
Notes, the Exchange Notes and the Private Exchange Notes are herein collectively
called the "Securities".
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter of
transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30 days
(or longer, if required by applicable law) after the date notice thereof is
mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York, which
may be the Trustee or an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last business day on which the
Registered Exchange Offer shall remain open; and
(e) otherwise comply in all material respects with all applicable law.
As soon as practicable after the close of the Registered Exchange
Offer or the Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all the Notes validly tendered and not
withdrawn pursuant to the Registered Exchange Offer or the Private
Exchange, as the case may be;
(ii) deliver to the Trustee for cancellation all the Notes so
accepted for exchange; and
(iii) cause the Trustee to authenticate and promptly deliver to
each Holder of the Notes, Exchange Notes or Private Exchange Notes, as the
case may be, equal in principal amount to the Notes of each Holder so
accepted for exchange.
The Indenture will provide that the Exchange Notes will not be subject
to the transfer restrictions set forth in the Indenture and that all the
Securities will vote and consent together on all matters as one class and that
none of the Securities will have the right to vote or consent as a class
separate from one another on any matter.
<PAGE>
4
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Notes received by such Holder will be
acquired in the ordinary course of business, (ii) such Holder will have no
arrangements or understanding with any person to participate in the distribution
of the Notes or the Exchange Notes within the meaning of the Securities Act,
(iii) such Holder is not an "affiliate", as defined in Rule 405 of the
Securities Act, of the Company or, if it is an affiliate, such Holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if such Holder is not a broker-
dealer, that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Notes, and (v) if such Holder is a broker-dealer,
that it will receive Exchange Notes for its own account in exchange for Notes
that were acquired as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such Exchange Notes.
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto will comply in
all material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Exchange Offer Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any prospectus
forming part of any Exchange Offer Registration Statement, and any supplement to
such prospectus, will not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that in no such case shall the
-------- -------
Company be responsible for information concerning the Initial Purchasers
included in the Exchange Offer Registration Statement, the prospectus contained
therein, or any amendment or supplement thereto, as the case may be.
SECTION 2. SHELF REGISTRATION STATEMENT
(a) If (i) because of any change in law or in applicable
interpretations thereof by the staff of the Commission, the Company is not
permitted to effect a Registered Exchange Offer, as contemplated by Section 1
hereof, (ii) the Registered Exchange Offer is not consummated within 180 days of
the date of this Agreement, (iii) the Initial Purchasers so request with respect
to the Notes (or the Private Exchange Notes) not eligible to be exchanged for
Exchange Notes in the Registered Exchange Offer and held by it following
consummation of the Registered Exchange Offer or (iv) any Holder (other than an
Exchanging Dealer) is not eligible to participate in the Registered Exchange
Offer or, in the case of any Holder (other than an Exchanging Dealer) that
participates in the Registered Exchange Offer, such Holder does not receive
freely tradeable Exchange Notes on the date of the exchange, the Company shall
take the following actions:
(i) The Company shall use its best efforts , at its cost, as
promptly as practicable (but in no event more than the later of (i) 60 days
after the Issue Date and (ii) 30 days after so required or requested
pursuant to this Section 2) to file with the
<PAGE>
5
Commission and thereafter shall use its best efforts to cause to be
declared effective a registration statement (the "Shelf Registration
Statement" and, together with the Exchange Offer Registration Statement, a
"Registration Statement") on an appropriate form under the Securities Act
relating to the offer and sale of the Transfer Restricted Notes by the
Holders thereof from time to time in accordance with the methods of
distribution set forth in the Shelf Registration Statement and Rule 415
under the Securities Act (hereinafter, the "Shelf Registration"); provided,
--------
however, that no Holder (other than the Initial Purchasers) shall be
-------
entitled to have the Securities held by it covered by such Shelf
Registration Statement unless such Holder agrees in writing to be bound by
all the provisions of this Agreement applicable to such Holder (including
certain indemnification obligations).
(ii) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus included therein to be lawfully delivered by the Holders of the
relevant Securities, for a period of two years (or for such longer period
if extended pursuant to Section 3(j) below) from the Issue Date or such
shorter period that will terminate when all the Securities covered by the
Shelf Registration Statement have been sold pursuant thereto or can be sold
pursuant to Rule 144(k) thereof. Subject to Section 6(b), the Company
shall be deemed not to have used its best efforts to keep the Shelf
Registration Statement effective during the requisite period if it
voluntarily takes any action that would result in Holders of Securities
covered thereby not being able to offer and sell such Securities during
that period, unless such action is required by applicable law; provided,
--------
however, that the Company shall not be deemed to have voluntarily taken any
-------
such action if it enters, in good faith, into negotiations concerning, or
executes and delivers any agreement or other document relating to, any
business combination, acquisition or disposition.
(iii) Notwithstanding any other provision of this Agreement to
the contrary, the Company shall cause the Shelf Registration Statement and
the related prospectus and any amendment or supplement thereto, as of the
effective date of the Shelf Registration Statement, amendment or
supplement, (i) to comply in all material respects with the applicable
requirements of the Securities Act and the rules and regulations of the
Commission and (ii) not to contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(b) No Holder of Securities may include any of its Securities in the
Shelf Registration Statement unless such Holder furnishes to the Company in
writing, within 10 business days after receipt of a request therefor (which
initial request shall be made within 40 days after the Closing to the Holders of
record on a date not more than 5 days prior to such request), such information
and representations and warranties as the Company may reasonably request for use
in connection with the Shelf Registration Statement or prospectus or preliminary
prospectus included therein. No Holder of Securities shall be entitled to
Special Interest, pursuant to Section 6 hereof, if such Holder's Securities are
excluded from the Shelf Registration Statement because such Holder failed to
furnish the Company in writing such information and representations and
warranties reasonably requested by the Company for use in connection with
<PAGE>
6
the Shelf Registration Statement or prospectus or preliminary prospectus
included therein. Each Holder as to which the Shelf Registration Statement is
being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously provided to
the Company by such Holder not misleading.
SECTION 3. REGISTRATION PROCEDURES
In connection with the Shelf Registration contemplated by Section 2
hereof and, to the extent applicable, any Registered Exchange Offer contemplated
by Section 1 hereof, the following provisions shall apply:
(a) The Company shall (i) furnish to the Initial Purchasers, prior to
the filing thereof with the Commission, a copy of the Registration Statement and
each amendment thereof and each supplement, if any, to the prospectus included
therein and, in the event that the Initial Purchasers (with respect to any
portion of an unsold allotment from the original offering) are participating in
the Registered Exchange Offer or the Shelf Registration Statement, shall use its
best efforts to reflect in each such document, when so filed with the
Commission, such comments as the Initial Purchasers reasonably may propose; (ii)
include the information set forth in Annex A hereto on the cover, in Annex B
hereto in the "Exchange Offer Procedures" section and the "Purpose of the
Exchange Offer" section and in Annex C hereto in the "Plan of Distribution"
section of the prospectus forming a part of the Exchange Offer Registration
Statement and include the information set forth in Annex D hereto in the Letter
of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if
requested by the Initial Purchasers, include the information required by Items
507 or 508 of Regulation S-K under the Securities Act, as applicable, in the
prospectus forming a part of the Exchange Offer Registration Statement; (iv)
include within the prospectus contained in the Exchange Offer Registration
Statement a section entitled "Plan of Distribution", reasonably acceptable to
the Initial Purchasers, which shall contain a summary statement of the positions
taken or policies made by the staff of the Commission with respect to the
potential "underwriter" status of any broker-dealer that is the beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of Exchange Notes received by such broker-dealer in the
Registered Exchange Offer (a "Participating Broker-Dealer"), whether such
positions or policies have been publicly disseminated by the staff of the
Commission or such positions or policies, in the reasonable judgment of the
Initial Purchasers based upon advice of counsel (which may be in-house counsel),
represent the prevailing views of the staff of the Commission; and (v) in the
case of a Shelf Registration Statement, include the names of the Holders who
propose to sell Securities pursuant to the Shelf Registration Statement as
selling securityholders.
(b) The Company shall give written notice to the Initial Purchasers,
the Holders of the Securities and any Participating Broker-Dealer from whom the
Company has received prior written notice that it will be a Participating
Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the
prospectus until the requisite changes have been made):
<PAGE>
7
(i) when the Registration Statement or any amendment thereto
has been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included
therein or for additional information (provided, however, that with respect
to any requests prior to the effectiveness of the Registration Statement,
the Company shall be required to give written notice only to the Initial
Purchasers and their counsel, Hughes Hubbard & Reed LLP);
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company or its legal counsel of any
notification with respect to the suspension of the qualification of the
Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and
(v) of the happening of any event that requires the Company to
make changes in the Registration Statement or the prospectus in order that
the Registration Statement or the prospectus does not contain an untrue
statement of a material fact nor omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(c) The Company shall use its best efforts to obtain the withdrawal at
the earliest possible time of any order suspending the effectiveness of the
Registration Statement.
(d) The Company shall furnish to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, at least one copy
of the Shelf Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
(e) The Company shall deliver to each Exchanging Dealer, to the
Initial Purchasers, and to any other Holder who so requests, without charge, at
least one copy of the Exchange Offer Registration Statement and any post-
effective amendment thereto, including financial statements and schedules, and,
if the Initial Purchasers or any such Holder requests, all exhibits thereto
(including those incorporated by reference).
(f) The Company shall deliver to each Holder of Securities included
within the coverage of the Shelf Registration, without charge, as many copies of
the prospectus (including each preliminary prospectus) included in the Shelf
Registration Statement and any amendment or supplement thereto as such person
may reasonably request. The Company consents, subject to the provisions of this
Agreement, to the use of the prospectus or any amendment or supplement thereto
included in the Shelf Registration Statement by each of the selling Holders of
the
<PAGE>
8
Securities in connection with the offering and sale of the Securities covered by
such prospectus, or any such amendment supplement.
(g) The Company shall deliver to the Initial Purchasers, any
Exchanging Dealer, any Participating Broker-Dealer and such other persons
required to deliver a prospectus following the Registered Exchange Offer,
without charge, as many copies of the final prospectus included in the Exchange
Offer Registration Statement and any amendment or supplement thereto as such
persons may reasonably request. The Company consents, subject to the provisions
of this Agreement, to the use of the prospectus or any amendment or supplement
thereto by the Initial Purchasers, if necessary, any Participating Broker-Dealer
and such other persons required to deliver a prospectus following the Registered
Exchange Offer in connection with the offering and sale of the Exchange Notes
covered by the prospectus, or any amendment or supplement thereto, included in
such Exchange Offer Registration Statement.
(h) Prior to any public offering of the Securities, pursuant to any
Registration Statement, the Company shall use its best efforts to register or
qualify or cooperate with the Holders of the Securities included therein and
their respective counsel in connection with the registration or qualification of
the Securities for offer and sale under the securities or "blue sky" laws of
such states of the United States as any Holder of the Securities reasonably
requests in writing and do any and all other acts or things necessary or
advisable to enable the offer and sale in such jurisdictions of the Securities
covered by such Registration Statement; provided, however, that the Company
-------- -------
shall not be required to (i) qualify generally to do business in any
jurisdiction where it is not then so qualified, (ii) take any action which would
subject it to general service of process or to taxation in any jurisdiction
where it is not then so subject or (iii) register or qualify Securities or take
any other action under the securities or "blue sky" laws of any jurisdiction if,
in the judgment of the Board of Directors of the Company, the consequences of
such registration, qualification or other action would be unduly burdensome to
the Company.
(i) The Company shall cooperate with the Holders of the Securities to
facilitate the timely preparation and delivery of certificates representing the
Securities to be sold pursuant to any Registration Statement free of any
restrictive legends and in such denominations and registered in such names as
the Holders may request a reasonable period of time prior to sales of the
Securities pursuant to such Registration Statement.
(j) Upon the occurrence of any event contemplated by paragraphs (ii)
through (v) of Section 3(b) above during the period for which the Company is
required to maintain an effective Registration Statement, the Company shall
promptly prepare and file a post-effective amendment to the Registration
Statement or a supplement to the related prospectus and any other required
document so that, as thereafter delivered to Holders of the Notes or the
Exchange Notes or purchasers of Securities, the prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. If the Company
notifies the Initial Purchasers, the Holders of the Securities and any known
Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of
Section 3(b) above to suspend the use of the prospectus until the requisite
changes to the prospectus have been made, then the Initial Purchasers, the
Holders of the Securities and any such Participating
<PAGE>
9
Broker-Dealers shall suspend use of such prospectus, and the period of
effectiveness of the Shelf Registration Statement provided for in Section 2
above and the Exchange Offer Registration Statement provided for in Section 1
above shall each be extended (i) by the number of days from and including the
date of the giving of such notice to and including the date when the Initial
Purchasers, the Holders of the Securities and any known Participating Broker-
Dealer shall have received such amended or supplemented prospectus pursuant to
this Section 3(j) or (ii) if earlier, until the date when none of the Securities
represent Transfer Restricted Notes (as defined in Section 6(d)).
(k) Not later than the effective date of the applicable Registration
Statement, the Company will provide a CUSIP number for the Notes, the Exchange
Notes or the Private Exchange Notes, as the case may be, and provide the
applicable trustee with printed certificates for the Notes, the Exchange Notes
or the Private Exchange Notes, as the case may be, in a form eligible for
deposit with The Depository Trust Company.
(l) The Company will comply with all rules and regulations of the
Commission to the extent and so long as they are applicable to the Registered
Exchange Offer or the Shelf Registration and will make generally available to
its security holders (or otherwise provide in accordance with Section 11(a) of
the Securities Act) an earnings statement satisfying the provisions of Section
11(a) of the Securities Act, no later than 45 days after the end of a 12-month
period (or 90 days, if such period is a fiscal year) beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of the Registration Statement, which statement shall cover such 12-month period.
(m) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended, in a timely manner and containing such
changes, if any, as shall be necessary for such qualification. In the event that
such qualification would require the appointment of a new trustee under the
Indenture, the Company shall appoint a new trustee thereunder pursuant to the
applicable provisions of the Indenture.
(n) The Company may require each Holder of Securities to be sold
pursuant to the Shelf Registration Statement to furnish to the Company such
information regarding the Holder and the distribution of the Securities as the
Company may from time to time reasonably require for inclusion in the Shelf
Registration Statement, and the Company may exclude from such registration the
Securities of any Holder that unreasonably fails to furnish such information
within a reasonable time after receiving such request.
(o) The Company shall enter into such customary agreements (including
if requested an underwriting agreement in customary form) and take all such
other action, if any, as may be required in order to facilitate the disposition
of the Securities pursuant to any Shelf Registration.
(p) In the case of any Shelf Registration, subject to appropriate
confidentiality arrangements being entered into, the Company shall (i) make
available at reasonable times for inspection by the Holders of the Securities,
any underwriter participating in any disposition pursuant to the Shelf
Registration Statement and any attorney, accountant or other agent retained
<PAGE>
10
by the Holders of the Securities or any such underwriter all relevant financial
and other records, pertinent corporate documents and properties of the Company
and (ii) cause the Company's officers, directors, employees, accountants and
auditors to supply all relevant information reasonably requested by the Holders
of the Securities or any such underwriter, attorney, accountant or agent in
connection with the Shelf Registration Statement, in each case, as shall be
reasonably necessary, in the judgment of the Holder or any such underwriter,
attorney, accountant or agent referred to in this paragraph, to conduct a
reasonable investigation within the meaning of Section 11 of the Securities Act.
(q) In the case of any Shelf Registration, the Company, if requested
by any Holder of Securities covered thereby, shall cause (i) its counsel to
deliver an opinion and updates thereof relating to the Securities in customary
form addressed to such Holders and the managing underwriters, if any, thereof
and dated, in the case of the initial opinion, the effective date of such Shelf
Registration Statement covering the matters customarily covered in opinions of
counsel requested in underwritten offerings and such other matters as may be
reasonably requested by the managing underwriter or underwriters; (ii) its
officers to execute and deliver all customary documents and certificates and
updates thereof reasonably requested by any underwriters of the applicable
Securities; and (iii) its independent public accountants to provide to the
selling Holders of the applicable Securities and any underwriter therefor a
comfort letter in customary form and covering matters of the type customarily
covered in comfort letters in connection with primary underwritten offerings,
subject to receipt of appropriate documentation as contemplated, and only if
permitted, by Statement of Auditing Standards No. 72.
(r) In the case of the Registered Exchange Offer, if requested by the
Initial Purchasers or any known Participating Broker-Dealer, the Company shall
cause (i) its counsel to deliver to the Initial Purchasers or such Participating
Broker-Dealer, signed opinions in the forms set forth in Section 5(e) of the
Purchase Agreement with such changes as are customary in connection with the
preparation of a Registration Statement and (ii) its independent public
accountants to deliver to the Initial Purchasers or such Participating Broker-
Dealer a comfort letter, in customary form, meeting the requirements as to the
substance thereof as set forth in Section 5(i) of the Purchase Agreement, with
appropriate date changes.
(s) If a Registered Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Notes by Holders to the Company (or to such
other Person as directed by the Company) in exchange for the Exchange Notes or
the Private Exchange Notes, as the case may be, the Company shall mark, or cause
to be marked, on the Notes so exchanged that such Notes are being cancelled in
exchange for the Exchange Notes or the Private Exchange Notes, as the case may
be; in no event shall the Notes be marked as paid or otherwise satisfied.
(t) In the event that any broker-dealer registered under the Exchange
Act shall underwrite any Securities or participate as a member of an
underwriting syndicate or selling group or "assist in the distribution" (within
the meaning of the Rules of Fair Practice and the By-Laws of the National
Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder
of such Securities or as an underwriter, a placement or sales agent or a broker
or dealer in respect thereof, or otherwise, the Company shall assist such
broker-dealer in complying with the
<PAGE>
11
requirements of such Rules and By-Laws (including without limitation the
indemnification of any "qualified independent underwriter" required thereby).
(u) The Company will use its best efforts to cause the Transfer
Restricted Notes to be eligible for inclusion in the National Association of
Securities Dealers, Inc. Private Offerings, Resales and Trading through
Automated Linkages trading system.
(v) The Company shall use its best efforts to take all other steps
necessary to effect the registration of the Securities covered by a Registration
Statement contemplated hereby.
(w) The Company agrees that it will not include in the registration
contemplated by the Shelf Registration Statement any securities other than the
Securities.
(x) The Company hereby agrees to list the Notes on the American Stock
Exchange or on such other stock exchange or market as the Common Stock is then
principally traded no later than the earliest to occur of (i) the effectiveness
of the initial Exchange Offer Registration Statement and (ii) the effectiveness
of the initial Shelf Registration Statement, provided that such Notes meet the
minimum requirements for listing on any such exchange or market, and, if
applicable, to maintain such listing for so long as any of the Notes is
outstanding.
SECTION 4. REGISTRATION EXPENSES
The Company shall bear all fees and expenses incurred in connection
with the performance of its obligations under Sections 1 through 3 hereof
(including the reasonable fees and expenses of Hughes Hubbard & Reed LLP,
counsel for the Initial Purchasers, incurred in connection with the Registered
Exchange Offer), whether or not the Registered Exchange Offer or a Shelf
Registration is filed or becomes effective, and, in the event of a Shelf
Registration, shall bear, or reimburse the Holders of the Securities covered
thereby for, the reasonable fees and disbursements of one firm of counsel
designated by the Holders of a majority in principal amount of the Securities
covered thereby to act as counsel for the Holders of the Securities in
connection therewith, it being understood that the Company shall not be
responsible for the fees and expenses of more than one counsel employed at any
one time.
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, and the
fees and expenses of any Person, including special experts, retained by the
Company. The Holders shall bear the expense of any broker's commission or
underwriters' discount or commission.
SECTION 5. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each Holder of
the Securities, any Participating Broker-Dealer and each person, if any, who
controls such Holder or such Participating Broker-Dealer within the meaning of
the Securities Act or the Exchange Act (each Holder, any Participating Broker-
Dealer and such controlling persons being referred to in this Section 5(a)
collectively as the "indemnified parties" from and against any losses, claims,
damages or liabilities, joint or several, or any actions in respect thereof
(including, but not
<PAGE>
12
limited to, any losses, claims, damages, liabilities or actions relating to
purchases and sales of the Securities) to which each indemnified party may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in a Registration Statement or prospectus or in any amendment or
supplement thereto, or arise out of, or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and shall reimburse the indemnified
parties for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action in respect thereof; provided, however, that (i) the Company
-------- -------
shall not be liable in any such case to the extent that such loss, claim, damage
or liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in a Registration
Statement or prospectus or in any amendment or supplement thereto or in any
preliminary prospectus relating to a Shelf Registration in reliance upon and in
conformity with written information pertaining to such Holder and furnished to
the Company by or on behalf of such Holder specifically for inclusion therein,
(ii) with respect to any untrue statement or omission or alleged untrue
statement or omission made in any prospectus relating to such Registration
Statement, the indemnity agreement contained in this subsection (a) shall not
inure to the benefit of any person as to which there is a prospectus delivery
requirement (a "Delivering Seller") that sold the Securities to the person
asserting any such losses, claims, damages or liabilities to the extent that any
such loss, claim, damage or liability of such Delivering Seller results from the
fact that there was not sent or given to such person, on or prior to the written
confirmation of such sale, a copy of the relevant prospectus, as amended and
supplemented, provided that (I) the Company shall have previously furnished
copies thereof to such Delivering Seller in accordance with this Agreement and
(II) such furnished prospectus, as amended and supplemented, would have
corrected any such untrue statement or omission or alleged untrue statement or
omission, and (iii) this indemnity agreement will be in addition to any
liability which the Company may otherwise have to such indemnified party. The
Company shall also indemnify underwriters, selling brokers, dealer-managers and
similar securities industry professionals participating in the distribution (in
each case as described in the Registration Statement), their officers and
directors and each person who controls such persons within the meaning of the
Securities Act or the Exchange Act to the same extent as provided above with
respect to the indemnification of the Holders of the Securities if requested by
such Holders; provided, however, that the Company shall not indemnify any such
-------- -------
party to the extent its liability arises from its failure to comply with the
requirements described in Annexes A, B and C hereto.
(b) Each Holder of the Securities, severally and not jointly, will
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of the Securities Act or the Exchange Act from
and against any losses, claims, damages or liabilities or any actions in respect
thereof to which the Company or any such controlling person may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating
<PAGE>
13
to a Shelf Registration, or arise out of or are based upon the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, but in each case only to the extent that the untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information pertaining to such Holder and
furnished to the Company by or on behalf of such Holder specifically for
inclusion therein; and, subject to the limitation set forth immediately
preceding this clause, shall reimburse, as incurred, the Company for any legal
or other expenses reasonably incurred by the Company or any such controlling
person in connection with investigating or defending any loss, claim, damage,
liability or action in respect thereof. This indemnity agreement will be in
addition to any liability which such Holder may otherwise have to the Company or
any of its controlling persons.
(c) Promptly after receipt by an indemnified party under this Section
5 of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 5,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above, except to the
extent that it is prejudiced or harmed in any material respect by failure to
give such prompt notice. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with one counsel (and local counsel as
necessary) reasonably satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof the indemnifying party will not
be liable to such indemnified party under this Section 5 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof. No indemnifying
party shall, without the prior written consent of the indemnified party, not to
be unreasonably withheld, effect any settlement of any pending or threatened
action in respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified party unless
such settlement includes an unconditional release of such indemnified party from
all liability on any claims that are the subject matter of such action and does
not include any injunctive relief against such indemnified party. No
indemnifying party shall be liable for any amounts paid in settlement of any
action or claim without its written consent, which consent shall not be
unreasonably withheld.
(d) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless an indemnified party under
subsections (a) or (b) above for any reason, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to in subsection (a) or (b) above (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties on the one hand and the indemnified party on the other from the
exchange of the Notes, pursuant to the Registered Exchange Offer, or (ii) if the
allocation provided by the foregoing clause (i) is not permitted by
<PAGE>
14
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect thereof) as well
as any other relevant equitable considerations. The relative fault of the
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or such Holder or such other indemnified person, as the case may
be, on the other, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities referred to in the first sentence of this subsection (d)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any action
or claim which is the subject of this subsection (d). Notwithstanding any other
provision of this Section 5(d), the Holders of the Securities shall not be
required to contribute any amount in excess of the amount by which the net
proceeds received by such Holders from the sale of the Securities pursuant to a
Registration Statement exceeds the amount of damages which such Holders have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (d), each officer,
director, employee, representative and agent of an indemnified party and each
person, if any, who controls such indemnified party within the meaning of the
Securities Act or the Exchange Act shall have the same rights to contribution as
such indemnified party, and each officer, director, employee, representative and
agent of the Company and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act shall have the same rights
to contribution as the Company.
(e) The agreements contained in this Section 5 shall survive the sale
of the Securities pursuant to a Registration Statement and shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any indemnified party.
SECTION 6. SPECIAL INTEREST
(a) If any of the following events occurs (each such event in clauses
(i) through (iii) below a "Registration Default"):
(i) if by February 9, 1998, neither the Exchange Offer
Registration Statement nor a Shelf Registration Statement has been filed
with the Commission;
(ii) if by May 8, 1998, neither the Exchange Offer Registration
Statement nor the Shelf Registration Statement is declared effective;
<PAGE>
15
(iii) if by June 8, 1998, neither the Registered Exchange Offer
is consummated nor, if required in lieu thereof, the Shelf Registration
Statement is declared effective by the Commission; or
(iv) if after either the Exchange Offer Registration Statement or
the Shelf Registration Statement is declared effective (A) such
Registration Statement thereafter ceases to be effective; or (B) such
Registration Statement or the related prospectus ceases to be usable
(except as permitted in paragraph (b)) in connection with resales of
Transfer Restricted Notes during the periods specified herein,
the Company will pay special interest ("Special Interest") to each Holder of
Transfer Restricted Notes, during the first 90-day period immediately following
such Registration Default at a per annum rate of 0.50% per Transfer Restricted
Note held by such Holder. The amount of Special Interest will increase by an
additional 0.50% per annum per Transfer Restricted Note, for each subsequent 90-
day period until the date on which the Exchange Offer Registration Statement or
Shelf Registration Statement is filed or declared effective, as the case may be,
or such Registration Statement again becomes effective, or such Registration
Statement prospectus becomes usable as the case may be, up to a maximum Special
Interest with respect to any Registration Default of 2.00% per annum per
Transfer Restricted Note. Such Special Interest is payable in addition to any
other interest payable from time to time with respect to the Securities.
(b) A Registration Default referred to in Section 6(a)(iv) shall be
deemed not to have occurred and be continuing in relation to a Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to such Shelf Registration Statement to incorporate annual audited or,
if required by the rules and regulations under the Securities Act, quarterly
unaudited financial information with respect to the Company where such post-
effective amendment is not yet effective and needs to be declared effective to
permit Holders to use the related prospectus or (y) other material events or
developments with respect to the Company that would need to be described in such
Shelf Registration Statement or the related prospectus and (ii) in the case of
clause (y), the Company is proceeding promptly and in good faith to amend or
supplement such Shelf Registration Statement and related prospectus to describe
such events; provided, however, that in no event shall the Company be required
-------- -------
to disclose the business purpose for such suspension if the Company determines
in good faith that such business purpose must remain confidential; provided
--------
further, however, that in any case if such Registration Default occurs for a
- ------- -------
continuous period in excess of 45 days, Special Interest shall be payable in
accordance with the above paragraph from the day following such 45 day period
until the date on which such Registration Default is cured.
(c) All accrued Special Interest shall be payable by the Company in
cash on the regular interest payment dates with respect to the Notes or the
Exchange Notes to the Holders of record on the applicable record dates. The
parties hereto agree that Special Interest provided in this Section constitutes
a reasonable estimate of the damages that will be incurred by the Holders by
reason of the failure of the Exchange Offer Registration Statement or the Shelf
Registration Statement to be filed, declared effective or to remain effective or
such Registration Statement or related prospectus to be usable, as the case may
be.
<PAGE>
16
(d) "Transfer Restricted Notes" means each Note until (i) the date on
which such Transfer Restricted Note has been exchanged by a person other than a
broker-dealer for a freely transferable Exchange Note in the Registered Exchange
Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange
Offer of a Transfer Restricted Note for an Exchange Note, the date on which such
Exchange Note is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Transfer
Restricted Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the date
on which such Transfer Restricted Note is distributed to the public pursuant to
Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under
the Securities Act.
SECTION 7. RULE 144 AND RULE 144A
The Company shall use its reasonable best efforts to file on a timely
basis all such reports required to be filed under the Securities Act as, and
endeavor in good faith to take such other actions as, are reasonably necessary
to enable Holders to sell Transfer Restricted Notes without registration under
the Securities Act within the limitation of the exemptions provided under (a)
Rule 144 under the Securities Act, as such Rule may be amended from time to
time, (b) Rule 144A under the Securities Act, as such Rule may be amended from
time to time, and (c) any similar rules or regulations hereafter adopted by the
Commission. Upon request of any Holder of Transfer Restricted Notes, the
Company will provide a written statement as to whether it has complied with such
requirements and will, at its expense, forthwith upon the request of the Initial
Purchasers, deliver to the Initial Purchasers a certificate, signed by the
Company's principal financial officer, stating (a) the Company's name, address
and telephone number (including area code), (b) the Company's Internal Revenue
Service identification number, (c) the Company's Commission file number, (d) the
number of shares of each class of capital stock outstanding as shown by the most
recent report or statement published by the Company, and (e) whether the Company
has filed the reports required to be filed under the Exchange Act for a period
of at least ninety (90) days prior to the date of such certificate and in
addition has filed the most recent annual report required to be filed
thereunder.
SECTION 8. UNDERWRITING
If any of the Transfer Restricted Notes covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker(s) and manager(s) that will manage the offering will be
selected by the Holders of a majority of the then outstanding Transfer
Restricted Notes (determined in accordance with Section 9(d)) included in such
offering (after consultation with the Company as to such selection and upon the
written consent of the Company, which consent will not be unreasonably withheld
or delayed). If requested by the underwriters, the Company will promptly enter
into an underwriting agreement reasonably acceptable to the Company with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and conditions as are
customary for underwriting agreements with respect to secondary offerings,
including without limitation, indemnities to the effect and to the extent
provided in Section 5 hereof. The Holders of Transfer Restricted Notes on whose
behalf such securities are being distributed shall be party
<PAGE>
17
to any such underwriting agreement. Such Holders shall not be required by the
Company to make any representations or warranties to the underwriters with
respect to the Company or the Transfer Restricted Notes (other than that the
Holders are conveying such securities free and clear of all pledges, securities
interests, liens, charges, encumbrances, agreements, equities, claims and
options of whatever nature), and the Holders shall not be required to indemnify
the Company or the underwriters (other than with respect to the matters, and to
the extent, provided in Section 5). Furthermore, the Company shall make
available for inspection by the Holders, any underwriter participating in any
disposition pursuant to such Shelf Registration Statement, and any attorney,
accountant or other agent retained by the Holders or underwriter, all financial
and other records and other information, pertinent corporate documents and
properties of the Company as shall be reasonably necessary to enable them to
exercise their due diligence responsibilities.
No Holder of Transfer Restricted Notes may participate in any
underwritten distribution hereunder unless such holder (a) agrees to sell such
Holder's Transfer Restricted Notes on the basis provided in any underwriting
arrangements approved in accordance with the terms hereof, and (b) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
SECTION 9. MISCELLANEOUS
(a) Remedies. Each Holder of Securities, in addition to being
--------
entitled to exercise all rights provided herein, and as provided in the Purchase
Agreement and granted by law, including the recovery of damages, shall be
entitled to specific performance of such Holder's rights under this Agreement.
Except with respect to the payment of Special Interest in the event of the
occurrence of a Registration Default, the Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Agreement and hereby agrees in any action for
specific performance to waive the defense that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. The Company has not and shall not on
--------------------------
or after the date of this Agreement enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders of
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders of Securities hereunder do not and will not in
any way conflict with and are not and will not be inconsistent with the rights
granted to the holders of the Company's other securities under any other
agreements. No Holder of any securities of the Company has rights to the
registration of any securities of the Company because of the execution, delivery
or performance by the Company of this Agreement or as a result of the filing of
the Exchange Offer Registration Statement or the Shelf Registration Statement.
(c) No Adverse Action Affecting the Securities. The Company has not
------------------------------------------
taken and will not take, any action, or permit any change to occur with respect
to the Securities which would adversely affect the ability of any of the Holders
of Securities to include such Securities in a registration undertaken pursuant
to this Agreement.
<PAGE>
18
(d) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of a majority of the outstanding principal amount of Transfer Restricted Notes.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders of Transfer
Restricted Notes whose Transfer Restricted Notes are being sold pursuant to the
Shelf Registration Statement and that does not directly or indirectly affect the
rights of other Holders of Transfer Restricted Notes may be given by the Holders
of a majority of the Transfer Restricted Notes being sold.
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder of Securities, at the address set forth on
the records of the Company or the Trustee under the Indenture, with a copy
to the Trustee, and if to the Initial Purchasers, at the address set forth
in the Purchase Agreement; and
(ii) if to the Company, initially at its address set forth in the
Purchase Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee under the
Indenture at the address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Securities.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
<PAGE>
19
YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Securities except as provided in the Indenture and in the Purchase
Agreement. Except as set forth in the prior sentence this Agreement supersedes
all prior agreements and understandings between the parties with respect to the
subject matter hereof.
<PAGE>
20
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TRANS WORLD AIRLINES, INC.
By: /s/ Michael J. Lichty
----------------------------------------
Name: Michael J. Lichty
Title: Vice President Corporate Finance
LAZARD FRERES & CO. LLC
PAINEWEBBER INCORPORATED
By: Lazard Freres & Co. LLC
By: /s/ Michael S. Liss
-------------------------------
Name: Michael S. Liss
Title: Managing Director
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange 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 Exchange Notes. 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 Exchange Notes received in exchange for Notes where such 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 (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account in
exchange for 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 any resale of such Exchange
Notes. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Registered Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange 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 Exchange Notes received in
exchange for Existing Notes where such Existing 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 Exchange Notes may be required to deliver a
prospectus./*/
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange 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 Exchange 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 Exchange Notes. Any broker-dealer
that resells Exchange 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 Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
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 Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
_____________________
/*/ In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE>
ANNEX D
[_] 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:___________________________________________________________________
___________________________________________________________________
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 Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange 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.
<PAGE>
EXHIBIT 4.24
[CONFORMED COPY]
TRANS WORLD AIRLINES, INC.,
as Originator, Seller, and Servicer
and
CONSTELLATION FINANCE LLC,
as Purchaser
_____________________________
SALE AND SERVICING AGREEMENT
____________________________
Dated as of December 30, 1997
<PAGE>
TABLE OF CONTENTS
- -----------------
Section Page
- ------- ----
ARTICLE IDEFINITIONS
1.1 Defined Terms 1
1.2 Other Definitional Provisions 6
ARTICLE IIPURCHASE AND SALE OF RECEIVABLES
2.1 Purchase and Sale of Receivables 6
2.2 Purchase Price 8
2.3 Payment of Purchase Price 8
2.4 No Repurchase 9
2.5 Adjustments 9
2.6 Limited Repurchase Obligation 10
2.7 Purchase of Purchaser's Interest in Receivable Pool 10
2.8 Certain Charges 11
2.9 Certain Allocations 11
2.10 Further Action 11
2.11 Further Assurances by Purchaser 12
ARTICLE IIICONDITIONS TO PURCHASE AND SALE
3.1 Conditions Precedent to the Purchaser's Initial Purchase of Receivables 13
3.2 Conditions Precedent to All the Purchaser's Purchases of Receivables 14
ARTICLE IVREPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company Relating to the Company 15
4.2 Representations and Warranties of the Company Relating to the Receivables
and the Contracts 25
ARTICLE VCOVENANTS
5.1 Affirmative Covenants of the Company 26
5.2 Negative Covenants of the Company 27
ARTICLE VIADMINISTRATION AND SERVICINGOF RECEIVABLES
6.1 Acceptance of Appointment and Other Matters Relating to the Servicer 29
6.2 Servicing Compensation. 31
6.3 Representations, Warranties and Covenants of the Servicer. 32
6.4 Notices to Initial Servicer 35
<PAGE>
ARTICLE VII
OTHER MATTERS RELATING TO THE SERVICER
7.1 Liability of the Servicer 35
7.2 Merger or Consolidation of, or Assumption of the Obligations of,
the Servicer 35
7.3 Limitation on Liability of the Servicer and Others 36
7.4 Servicer Indemnification of the Trustee 36
7.5 The Servicer Not to Resign 37
7.6 Access to Certain Documentation and Information Regarding the
Receivables 37
ARTICLE VIII
PURCHASE TERMINATION EVENTS
8.1 Purchase Termination Events 37
ARTICLE IX
SERVICER DEFAULTS
9.1 Servicer Defaults 38
9.2 Covenants of the Servicer 39
ARTICLE X
THE NOTE
10.1 Note 40
10.2 Prepayments 40
10.3 Maturity Date 40
10.4 Restrictions on Transfer of Note 40
ARTICLE XI
MISCELLANEOUS
11.1 Annual Certificate 41
11.2 Payments 41
11.3 Costs and Expenses 41
11.4 Successors and Assigns 41
11.5 GOVERNING LAW 41
11.6 No Waiver; Cumulative Remedies 42
11.7 Amendments and Waivers 42
11.8 Severability 42
11.9 Notices 42
11.10 Counterparts 43
11.11 WAIVERS OF JURY TRIAL 43
11.12 Submission To Jurisdiction; Waivers 43
11.13 No Bankruptcy Petition 44
11.14 Limited Recourse 44
11.15 Termination 44
11.16 Confidentiality 44
<PAGE>
SCHEDULE 1 DISCOUNTED PERCENTAGE
SCHEDULE 2 CONSTELLATION FINANCE LLC
INITIAL SALE - OF RECEIVABLES
SCHEDULE 3 IDENTIFICATION OF LOCKBOXES AND CONCENTRATION AMOUNT
EXHIBIT A FORM OF NOTE
EXHIBIT B FORM OF ANNUAL OFFICER'S CERTIFICATE
<PAGE>
SALE AND SERVICING AGREEMENT, dated as of December 30, 1997 (this
"Agreement"), between TRANS WORLD AIRLINES, INC., a Delaware corporation (in its
capacity as originator and seller of the Receivables hereunder, the "Company";
-------
and in its capacity as servicer hereunder and under the Base Indenture (as
defined herein) and any Supplement thereto, the "Servicer", and CONSTELLATION
--------
FINANCE LLC, a Delaware limited liability company (the "Purchaser").
---------
W I T N E S S E T H:
-------------------
WHEREAS, in the ordinary course of business, the Company generates accounts
receivable;
WHEREAS, the Company desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Company, all the Company's right, title and
interest in, to and under the Receivables;
NOW, THEREFORE, for and in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
I ARTICLE
DEFINITIONS
(a) Defined Terms. Capitalized terms used in this Agreement shall have
-------------
the respective meanings assigned to such terms in the Base Indenture between
Constellation Finance LLC, as Issuer and The Chase Manhattan Bank, as trustee,
dated as of December 30, 1997 (the "Base Indenture") unless otherwise defined
--------------
herein.
(b) The following capitalized terms shall have the following meanings:
"Alternate Base Rate" shall mean, for any day, a rate per annum equal
-------------------
to the greater of (a) the Prime Rate in effect on such day, and (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For
----
purposes hereof: "Prime Rate" shall mean the rate of interest per annum
----------
publicly announced from time to time by Morgan Guaranty Trust Company of New
York as its prime rate in effect at its principal office in New York City
(each change in the Prime Rate to be effective on the date such change is
publicly announced); and "Federal Funds Effective Rate" shall mean, for any
----------------------------
day, the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for the day
of such transactions received by the Servicer from three federal funds
brokers of recognized
-1-
<PAGE>
standing selected by it. If the Servicer shall have determined (which
determination shall be conclusive absent manifest error) that it is unable
to ascertain the Federal Funds Effective Rate, for any reason, including the
inability or failure of the Servicer to obtain sufficient quotations in
accordance with the terms thereof, the Alternate Base Rate shall be
determined without regard to clause (b) of the first sentence of this
definition, as appropriate, until the circumstances giving rise to such
inability no longer exist. Any change in the Alternate Base Rate due to a
change in the Prime Rate, or the Federal Funds Effective Rate shall be
effective on the effective day of such change in the Prime Rate, or the
Federal Funds Effective Rate, respectively.
"Available Funds" shall mean, on any Business Day, an amount equal to
---------------
the excess, if any, of (i) the amount distributed to the Purchaser pursuant
to the Base Indenture and any Supplement thereto on such Business Day minus
-----
the aggregate Purchase Price due to the Company from the Purchaser on such
Business Day over (ii) the excess, if any, of (A) the sum of (x) the
aggregate amount of accrued and unpaid interest on the Note and (y) the
aggregate amount of accrued and unpaid Servicing Fee payable by the
Purchaser over (B) any amounts that have been previously set aside by the
Purchaser to pay such accrued and unpaid liabilities minus an amount
-----
reasonably determined by the Purchaser to be necessary to be set aside in
the ordinary course of its business to pay its expenses and other
liabilities, including, without limitation, taxes and operating expenses.
"Base Indenture" shall have the meaning specified in Section 1.1(a).
-------------- --------------
"Code" shall mean the Internal Revenue Code of 1986, as amended from
----
time to time.
"Commonly Controlled Entity" shall mean an entity, whether or not
--------------------------
incorporated, which is under common control with the Company within the
meaning of Section 4001 of ERISA or is part of a group which includes the
Company and which is treated as a single employer under Section 414 of the
Code.
"Company" shall have the meaning specified in the preamble.
-------
"Company Adjustment Payment" shall have the meaning specified in
--------------------------
Section 2.5(a).
--------------
"Company Payment" shall mean any of a Company Adjustment Payment,
---------------
Company Repurchase Payment or Tax Adjustment Amount.
"Company Repurchase Payment" shall have the meaning specified in
--------------------------
Section 2.6.
-----------
"Discounted Percentage" shall mean, with respect to each Category of
---------------------
Receivable, the percentage calculated in accordance with Schedule 1.
----------
"Documents" shall have the meaning specified in Section 2.10(c).
--------- ---------------
-2-
<PAGE>
"Effective Date" shall mean December 30, 1997.
--------------
"Effective Period" shall mean the period from and including the
----------------
Effective Date, up to but excluding the first to occur of (i) the latest
Series Termination Date under any effective Supplement and (ii) the
suspension or termination of the Purchaser's obligation to purchase
Receivables from the Company upon the occurrence of a Purchase Termination
Event in accordance with Section 8.1; provided, however, that if the
----------- -------- -------
Purchaser suspends its obligation to purchase Receivables hereunder in
accordance with Section 8.1, the Effective Period shall resume when and if
-----------
the Purchaser notifies the Company of its election to resume purchases of
Receivables hereunder.
"Eligible Servicer" shall mean a Person which, at the time of its
-----------------
appointment as Servicer, (i) is legally qualified and has the corporate
power and authority to service the Receivables and (ii) has demonstrated the
ability to service a portfolio of similar receivables in accordance with
high standards of skill and care.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
"Initial Report" shall have the meaning specified in Section 3.1(v).
-------------- --------------
"Insolvency" or "Insolvent" shall mean, with respect to any
---------- ---------
Multiemployer Plan, the condition that such Plan is insolvent within the
meaning of Section 4245 of ERISA.
"Material Adverse Effect" shall mean a material adverse effect (i) on
-----------------------
the validity or enforceability of the Sale Documents, (ii) the ability of
the Company to perform its obligations under the Sale Documents or (iii) the
value, enforceability or collectibility of the Purchased Receivables.
"Maturity Date" shall have the meaning specified in Section 10.3.
------------- ------------
"Multiemployer Plan" shall mean a multiemployer plan as defined in
------------------
Section 4001(a)(3) of ERISA and covered by Title IV thereof, and to which
the Company or any Commonly Controlled Entity contributes or was obligated
to contribute in the immediately preceding five years.
"New Receivables" shall mean, on any Receivables Payment Date, any and
---------------
all Receivables which have not been treated as or become Purchased
Receivables on any prior Receivables Payment Date.
"Note" shall have the meaning specified in Section 10.1.
---- ------------
"Opinion" shall have the meaning specified in Section 4.1(m).
------- --------------
-3-
<PAGE>
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
----
pursuant to Subtitle A of Title IV of ERISA.
"Plan" shall mean, at a particular time, any employee benefit plan
----
which is covered by ERISA and in respect of which the Company or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Potential Purchase Termination Event" shall mean any condition or act
------------------------------------
specified in Section 8.1 that, with the giving of notice or the lapse of
-----------
time or both, would become a Purchase Termination Event.
"Potential Servicer Default" shall mean an event which, with the
--------------------------
giving of notice and/or the lapse of time, would constitute a Servicer
Default.
"Private Placement Memorandum" shall mean the private placement
----------------------------
memorandum dated December 22, 1997 relating to the Series 1997-1 Notes (as
defined in the Series 1997-1 Supplement).
"Purchase Amount" shall mean with respect to each Category of
---------------
Receivables:
(i) on the Effective Date, the Face Amount with respect to each
Category of Receivables;
(ii) on the date of any resumption of the Effective Period with respect
to each Category of Receivables, the excess, if any, of (A) the sum of (x)
the aggregate Purchase Amounts with respect to such Category of Receivable
for each date that would have been a Receivables Payment Date but for the
suspension of the Effective Period, over (B) the sum of (x) all payments
received by the Company in respect of such amounts and (y) the aggregate
Company Payments that would have been payable by the Company in respect of
such amounts but for the suspension of the Effective Period; and
(iii) on any Receivables Payment Date, other than the Effective Date and
the date of any resumption of the Effective Period, with respect to a newly
created Receivable, the New Receivables Amount with respect to each Category
of Receivables.
"Purchase Price" shall have the meaning specified in Section 2.2.
-------------- -----------
"Purchased Receivable" shall mean any Receivable sold or transferred
--------------------
(as a contribution of capital) to the Purchaser by the Company pursuant to,
and in accordance with the terms of, this Agreement and not resold to the
Company pursuant to Section 2.6 or Section 2.7.
----------- -----------
"Purchase Termination Event" shall have the meaning specified in
--------------------------
Section 8.1.
-----------
"Purchaser" shall have the meaning specified in the preamble.
---------
-4-
<PAGE>
"Receivables Payment Date" shall have the meaning specified in Section
------------------------ -------
2.3.
---
"Receivables Purchase Date" shall have the meaning specified in
-------------------------
Section 2.1.
-----------
"Reorganization" shall mean, with respect to any Multiemployer Plan,
--------------
the condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event" shall mean any of the events set forth in Section
----------------
4043(b) of ERISA, other than those events as to which the thirty-day notice
period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC
Reg. (S) 2615.
"Repurchase Price" shall have the meaning specified in Section 2.6.
---------------- -----------
"Repurchase Receivable" shall have the meaning specified in Section
--------------------- -------
2.6.
- ---
"Sale Documents" shall mean this Agreement and the Note.
--------------
"Servicer" shall initially mean TWA, in its capacity as Servicer under
--------
this Agreement, and, after any service transfer, the Successor Servicer.
"Servicer Purchase Amount" shall have the meaning specified in Section
------------------------ -------
6.3.
---
"Servicing Fee" shall have the meaning specified in Section 6.2.
------------- -----------
"Servicing Fee Percentage" shall mean 1% per annum.
------------------------
"Servicing Officer" shall mean any officer of the Servicer involved
-----------------
in, or responsible for, the administration and servicing of the Receivables
whose name appears on a list of servicing officers furnished to the Trustee
annually by the Servicer as such list may from time to time be amended.
"Single Employer Plan" shall mean any Plan which is covered by Title
--------------------
IV of ERISA, but which is not a Multiemployer Plan.
"Tax Adjustment Amount" shall have the meaning specified in Section
--------------------- -------
2.5(b).
------
"Tax Lien" shall have the meaning specified in Section 2.5(b).
-------- --------------
"Tax Lien Amount" shall have the meaning specified in Section 2.5(b).
--------------- --------------
"Weighted Average Discounted Percentage" shall have the meaning
--------------------------------------
specified in Section 2.2.
-----------
-5-
<PAGE>
(c) Other Definitional Provisions. The words "hereof", "herein" and
-----------------------------
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and section, subsection, schedule and exhibit references are to this
Agreement unless otherwise specified.
(d) As used herein and in any certificate or other document made or
delivered pursuant hereto, accounting terms relating to the Company and the
Purchaser, unless otherwise defined herein, shall have the respective meanings
given to them under generally accepted accounting principles.
(e) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
II ARTICLE
PURCHASE AND SALE OF RECEIVABLES
(a) Purchase and Sale of Receivables. Subject to the terms and
--------------------------------
conditions of this Agreement, the Company hereby sells, assigns, transfers and
conveys to the Purchaser, and the Purchaser hereby purchases from the Company,
in each case to the extent the Purchaser pays the Purchase Price, as defined in
Section 2.2, therefor, on the Effective Date and from time to time thereafter
during the Effective Period (each such date, a "Receivables Purchase Date"), all
-------------------------
right, title and interest, in, to and under (i) all Receivables now existing and
hereafter arising from time to time, as provided in paragraph (b) below, and all
payment and enforcement rights (but none of the obligations) with respect to the
Receivables, (ii) all Related Security with respect to such Receivables and
(iii) all proceeds (including, without limitation, "proceeds" as defined in 9-
306 of the UCC as in effect in the State of New York) thereof (such property
listed in clauses (i) through (iii), the "Transferred Property").
--------------------
(b) All of the Company's right, title and interest in and to all then
existing Receivables and all payment and enforcement rights (but none of the
obligations) with respect to such Receivables and Related Security with respect
to such Receivables shall be immediately and automatically sold, assigned,
transferred and conveyed to the Purchaser pursuant to paragraph (a) above on the
Effective Date and, in the event of any suspension of the Effective Period (and
to the extent the same have not already been sold (or contributed by TWA, at its
option as provided in subsection (c) below), assigned, transferred and
conveyed), on the date of the resumption of the Effective Period without any
further action by the Company or any other Person. During the Effective Period,
all of the Company's right, title and interest in and to all such newly created
Receivables and all payment and enforcement rights (but none of the obligations)
with respect to such Receivables and all Related Security with respect to such
Receivables shall, on the date of creation of each newly created Receivable,
subject to Section 2.3 below, be immediately and automatically sold, assigned,
-----------
transferred and conveyed to the Purchaser pursuant to paragraph (a) above
without any further action by the Company or any other Person. The Company
shall furnish the Purchaser an Officer's Certificate on the Effective Date
specifying the aggregate
-6-
<PAGE>
outstanding amount due for each Category of Receivables being sold to the
Purchaser on such date.
(c) Notwithstanding anything herein to the contrary, if on any Receivables
Purchase Date occurring after the Company's satisfaction of its obligations
under Section 5.1(i), the Purchaser is unable to pay the Purchase Price for New
--------------
Receivables on such date in cash or by an increase in the outstanding balance of
the Note (subject to the limitation on increases in such Note set forth in
Section 2.3(b)(iv)) or through any other source of funds listed in Section
2.3(b), then the Purchaser shall not be obligated to purchase and the Company
shall not be obligated to sell such New Receivables on such Receivables Purchase
Date. The Company may, solely at its option, transfer such New Receivables
remaining unsold pursuant to the preceding sentence to the Purchaser through a
contribution to the Purchaser's capital in return for an increased value in the
Company's membership interests (direct or indirect) in the Purchaser.
(d) All sales and contributions of Receivables and Related Security by the
Company hereunder shall be without recourse to, or representation or warranty of
any kind (express or implied) by, the Company, except as otherwise specifically
provided herein. The foregoing sale, assignment, transfer, contribution and
conveyance does not constitute and is not intended to result in a creation or
assumption by the Purchaser of any obligation of the Company or any other Person
in connection with the Receivables, the Contracts, the Related Security or any
other agreement or instrument relating thereto, including any obligation to any
Obligor.
(e) In connection with the foregoing conveyances, the Company agrees to
record and file on or prior to the Effective Date, at its own expense, UCC-1
financing statements (and thereafter continuation statements with respect to
such financing statements when applicable) noting the sale of the Receivables
and Related Security now existing and hereafter acquired by the Purchaser from
the Company meeting the requirements of applicable state law in such manner and
in such jurisdictions as are necessary to perfect the purchases of the
Receivables and Related Security by the Purchaser from the Company and other
conveyances of the Receivables to the Purchaser hereunder, to obtain oral
confirmation of such filing on or prior to the Effective Date and to deliver
file-stamped copies of such financing statements or other evidence of such
filings within five Business Days of the Effective Date.
(f) In connection with the foregoing conveyances, the Company agrees at
its own expense to indicate on its computer files relating to the Receivables
sold hereunder that such Receivables and the Related Security have been sold to
the Purchaser in accordance with this Agreement.
(g) It is the express intent of the Company and the Purchaser that the
conveyance of the Receivables by the Company to the Purchaser pursuant to this
Agreement be construed as a sale of the Receivables by the Company to the
Purchaser. It is, further, not the intention of the Company and the Purchaser
that such conveyance be deemed a grant of a security interest in the Receivables
by the Company to the Purchaser to secure a debt or other obligation of the
Company. In the event, however, that the conveyance of Receivables and Related
Security hereunder were not construed of as a sale of such property by the
Company to the Purchaser, the
-7-
<PAGE>
Company does hereby transfer and grant to the Purchaser a first priority
security interest in all of its right, title and interest in, to and under the
Transferred Property to secure all of the Company's obligations hereunder.
II.1 Purchase Price. The amount payable by the Purchaser to the Company
--------------
(the "Purchase Price") for New Receivables and Related Security sold to the
--------------
Purchaser on any Receivables Payment Date therefor under this Agreement shall be
equal to the sum of (x) the sum of the Purchase Amounts of such New Receivables
for all Categories of Receivables for which payment is due on such Receivables
Payment Date, as set forth in the applicable Daily Detail Report, (y) only on
the Business Day following a date on which the Monthly True-up Amount is
calculated by the Servicer, and when such Monthly True-up Amount is a positive
number, the amount of such Monthly True-up, and (z) only on the Business Day
following any date on which the Tax Lien Amount is calculated by the Servicer,
and when the Tax Lien Amount has decreased since the last calculation thereof,
the amount of such decrease in the Tax Lien Amount.
(a) Payment of Purchase Price. Upon the fulfillment of the conditions
-------------------------
set forth in Article III, the Purchase Price for New Receivables and the Related
-----------
Security shall be due and payable on the day (including the Effective Date) on
which a Daily Detail Report identifies such New Receivables and is delivered to
the Purchaser (each such day, a "Receivables Payment Date"). The Purchase Price
------------------------
shall be paid or provided for on each Receivables Payment Date in the manner
provided in subsection (b) below.
--------------
(b) The Purchase Price for all Receivables and Related Security with
respect thereto purchased hereunder shall be paid by the Purchaser on each
Receivables Payment Date therefor from the following sources of funds in the
following priority:
(i) by netting the amount of any Company Payments pursuant to Section
-------
2.5 or Section 2.6 against such Purchase Price;
--- -----------
(ii) to the extent available for such purpose, in cash from amounts
distributed to the Purchaser pursuant to the Base Indenture and any
Supplement;
(iii) to the extent available for such purpose, in cash from the net
proceeds of the sale of an interest in such Purchased Receivables by the
Purchaser to other Persons;
(iv) on any Receivables Payment Date occurring after the Company's
satisfaction of its obligations under Section 5.1(i), at the option of the
--------------
Purchaser, by means of an addition to the principal amount of the Note in
an aggregate amount equal to the remaining portion of the Purchase Price,
provided, however, that in no event shall the Note be increased on any
-------- -------
Receivables Payment Date to an amount in excess of 10% of the aggregate
Face Amount of Purchased Receivables as of such date (such maximum amount,
the "Note Cap"). The Servicer shall evidence such payment by recording the
--------
date and amount of such increase in the Note on the grid attached to the
Note; provided,
--------
-8-
<PAGE>
that the failure to make any such recordation or any error in such grid
shall not adversely affect the Company's rights; and
(V) at the option of the Purchaser, in cash from any other cash available.
(c) Whenever any payment to be made under this Agreement shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day. Amounts not paid when due shall bear interest at
a rate equal at all times to the Alternate Base Rate plus 2%, payable on demand.
II.2 No Repurchase. Except to the extent expressly set forth herein, the
-------------
Company shall not have any right or obligation under this Agreement, by
implication or otherwise, to repurchase from the Purchaser any Purchased
Receivables or Related Security or to rescind or otherwise retroactively affect
any purchase of any Purchased Receivables or Related Security.
II.3 Adjustments. (a) The Company agrees to pay to the Purchaser, on the
-----------
Business Day following the calculation of the Monthly True-up Amount for each
Category of Receivables (when the sum of such amounts is a negative amount), the
absolute value of such negative amount (a "Company Adjustment Payment");
--------------------------
provided, that any such Company Adjustment Payment payable to the Purchaser
- --------
first, shall be netted against any Purchase Price of New Receivables, and
second, shall be netted against amounts due from the Purchaser under the Note.
When the sum of such Monthly True-up Amounts is positive, such Monthly True-up
Amount shall, on the Business Day next following the calculation of such Monthly
True-up Amount, be added to the Purchase Price of New Receivables pursuant to
Section 2.2.
- -----------
(b) The Company agrees to pay to the Purchaser an amount (the "Tax
---
Adjustment Amount") (i) equal to the aggregate amount of all federal, municipal
- -----------------
or other local taxes and charges, if any, due and payable by the Company that
have given rise to any Lien (a "Tax Lien") on the Purchased Receivables (such
--------
amount, the "Tax Lien Amount") as of the Effective Date; and (ii) on each date
---------------
after the Effective Date on which the Tax Lien Amount is recalculated, equal to
the amount of any increase in the Tax Lien Amount since the immediately
preceding date of calculation; provided, that any such Tax Adjustment Amount
--------
payable to the Purchaser first, shall be netted against any Purchase Price of
New Receivables, and second, shall be netted against amounts due from the
Purchaser under the Note. If on any date on which the Tax Lien Amount is
recalculated, the Tax Lien Amount decreases as compared to the corresponding
amount for the immediately preceding calculation date, an amount equal to the
amount of such decrease shall be added to the Purchase Price of New Receivables
pursuant to Section 2.2 on the Receivables Purchase Date next following such
-----------
calculation date. The Company shall calculate the Tax Lien Amount within five
(5) Business Days after the Company is notified, or otherwise becomes aware of,
a Tax Lien, and shall thereafter calculate a new Tax Lien Amount (or confirm by
such calculation that the previously calculated Tax Lien Amount has not changed)
at least once per month until such time as the Tax Lien Amount has been reduced
to zero.
-9-
<PAGE>
II.4 Limited Repurchase Obligation. If (i) any of the representations or
-----------------------------
warranties contained in Sections 4.2(a), (b) or (c) in respect of any Receivable
------ --- ---
is not true and correct in any material respect as of the applicable Receivables
Purchase Date or (ii) the Company shall have breached any covenant contained in
Section 5.2(a) or (b) with respect to any Receivable and such breach has a
- -------------- ---
material adverse effect on the Purchaser's interest in such Receivable (in any
such instance, a "Repurchase Receivable"), then, after the earlier to occur of
the discovery of such event by the Company or the Purchaser, the Company shall
repurchase such Repurchase Receivable on the terms and conditions set forth in
this Section 2.6. The Company shall repurchase such Repurchase Receivable by
-----------
paying to the Purchaser (a "Company Repurchase Payment") an amount equal to the
--------------------------
Purchase Price paid by the Purchaser for such Repurchase Receivable, less any
Collections on such Repurchase Receivable received by the Purchaser (such
remaining amount, the "Repurchase Price"), such payment to occur on the Business
----------------
Day after the day on which such repurchase obligation arises; provided that if,
--------
on such date the Repurchase Price is paid, the Available Receivables Amount
would be thereby reduced below the Allocated Receivables Amount, then, any such
Company Repurchase Payments to the Purchaser shall be netted against any
Purchase Price of New Receivables in accordance with Section 2.3(b) or applied
--------------
to reduce the principal amount of the Note in accordance with Section 10.2(c).
---------------
The obligation to repurchase any Receivable shall constitute the sole remedy
respecting the event giving rise to such obligation available to the Purchaser
or its transferees. Simultaneously with any Company Repurchase Payment with
respect to any Receivable, such Receivable and the Related Security with respect
thereto shall immediately and automatically be sold, assigned, transferred and
conveyed by the Purchaser to the Company, without recourse, representation or
warranty, without any further action by the Purchaser or any other Person.
II.5 Purchase of Purchaser's Interest in Receivable Pool. In the event
---------------------------------------------------
of any breach of any of the representations and warranties set forth in
subsections (a) through (g) of Section 4.1 or Section 4.2(a), which breach has a
- --------------- --- ----------- -------
material adverse effect on the interests of the Purchaser in the Receivables,
then
(a) the Purchaser, by notice then given in writing to the Company, may
direct the Company to purchase all Receivables conveyed to the Purchaser
hereunder and the Company shall be obligated to make such purchase on the next
Payment Date occurring at least five Business Days after receipt of such notice
on the terms and conditions set forth below; provided, however, that no such
-------- -------
purchase shall be required to be made if, by such Payment Date, the
representations and warranties contained in subsections (a) through (g) of
--------------- ---
Section 4.1 and Section 4.2(a) shall be satisfied in all material respects, and
- ----------- --------------
any material adverse effect on the Purchaser caused thereby has been cured; and
(b) the Company shall pay to the Purchaser, on the Business Day preceding
such Payment Date, an amount equal to the aggregate Repurchase Price for the
Receivables as of such Payment Date. Upon payment of such amount, in
immediately available funds, to the Purchaser, the Purchaser's rights with
respect to the Receivables shall terminate and such interest therein will be
transferred to the Company and the Purchaser shall have no further rights with
respect thereto. If the Purchaser gives notice directing the Company to
purchase the Receivables as provided above, the obligation of the Company to
purchase the Receivables pursuant to this
-10-
<PAGE>
Section 2.7 shall constitute the sole remedy respecting an event of the type
- -----------
specified in the first sentence of this Section 2.7 available to the Purchaser
-----------
or its transferees.
II.6 Certain Charges. The Company and the Purchaser agree that late
---------------
charge revenue, reversals of discounts, other fees and charges and other similar
items, whenever created, accrued in respect of Purchased Receivables shall be
the property of the Purchaser notwithstanding the occurrence of a Purchase
Termination Event and all Collections, with respect thereto shall continue to be
allocated and treated as Collections in respect of Purchased Receivables;
provided, however, that if such Receivable is repurchased by the Company, any
- -------- -------
and all Collections (including with limitation the foregoing described fees and
charges) shall be allocated to and retained by the Company.
II.7 Certain Allocations. Following a Purchase Termination Event, until
-------------------
the date, if any, of the resumption of the Effective Period, the Company agrees
that, unless the Company can identify a particular Collection to a specific
Receivable, all cash collections and other proceeds received in respect of an
Obligor not so identified with respect to both Purchased Receivables and
Receivables not sold to the Purchaser shall be applied first, to pay the
-----
outstanding balance of Purchased Receivables (as of the date of such Purchase
Termination Event) of such Obligor until all such Purchased Receivables are paid
in full and second, amounts in excess thereof shall be paid to the Company in
------
respect of Receivables of such Obligor not sold to the Purchaser.
II.8 Further Action. The Company agrees that:
--------------
(a) whether or not a Purchase Termination Event has occurred, the
Purchaser (and its assignees) shall have the right at any time to notify,
or require that the Company, at the Company's expense, notify (but not more
than once per year unless a Servicer Default or Early Amortization Event
has occurred and is continuing), the Obligors of the Purchaser's ownership
of the Purchased Receivables;
(b) the Purchaser (and its assignees) shall have the right to (i) sue
for collection on any Purchased Receivables or (ii) sell any Purchased
Receivables to any Person for a price that is acceptable to the Purchaser;
(c) upon the occurrence of a Service Transfer, the Company shall,
upon the Purchaser's request and at the Company's expense, (i) assemble all
the Company's documents, instruments and other records (including credit
files and computer tapes or disks) that (A) evidence or will evidence or
record Receivables sold by the Company and (B) are otherwise necessary to
effect Collections of such Purchased Receivables (collectively, the
"Documents"), (ii) deliver the Documents to the Purchaser or its designee
----------
at a place designated by the Purchaser, (iii) deliver to the Purchaser or a
party designated by the Purchaser all computer programs and related
material practically necessary for the immediate collection of the
Purchased Receivables by the Purchaser, with or without the participation
of the Company, together with a non-exclusive license to use all such
computer programs, and (iv) make such arrangements with respect to the
collection of the Purchased Receivables as may be reasonably required by
the Purchaser.
-11-
<PAGE>
In recognition of the Company's need to have access to any Documents which
may be transferred to the Purchaser hereunder, as a result of its
continuing business relationship with the Obligors, the Purchaser hereby
grants to the Company a license to access the Documents transferred by the
Company to the Purchaser and to access any such licensed computer software
in connection with any activity arising in the ordinary course of the
Company's business, provided that, the Company shall not disrupt or
--------
otherwise interfere with the Purchaser's use of and access to the Documents
and such licensed computer software during such license period;
(d) the Company hereby irrevocably authorizes the Purchaser or its
designee to take any and all steps in the Company's name necessary, in the
reasonable opinion of the Purchaser, to collect, in a timely manner, all
amounts due under the Purchased Receivables, including endorsing the
Company's name on checks and other instruments representing Collections,
enforcing the Purchased Receivables and exercising all rights and remedies
in respect thereof; and
(e) on or prior to the Effective Date, the Company shall have taken
all reasonably necessary steps to cause the Purchaser to be satisfied with
the Purchaser's ability to use any computer programs, material tapes,
disks, cassettes and data necessary or advisable to permit the timely
collection of the Receivables by a Servicer without the participation of
the Company.
II.9 Further Assurances by Purchaser. From time to time at the request
-------------------------------
of the Company, the Purchaser shall deliver to the Company such documents,
assignments, releases and instruments of termination as the Company may
reasonably request to evidence the reconveyance by the Purchaser to the Company
of a Receivable pursuant to the terms of Section 2.6 or 2.7, provided that, the
----------- --- --------
Purchaser shall have been paid all amounts due hereunder; and the Purchaser and
the Servicer shall take such action as the Company may reasonably request, at
the expense of the Company, to assure that any such Receivable, the Related
Security with respect thereto and the proceeds thereof do not remain commingled
with Collections.
III ARTICLE
CONDITIONS TO PURCHASE AND SALE
III.1 Conditions Precedent to the Purchaser's Initial Purchase of
-----------------------------------------------------------
Receivables. The obligation of the Purchaser to purchase the Receivables and
- -----------
the Related Security hereunder on the Effective Date from the Company is subject
to the conditions precedent, which may be waived by the Purchaser, that (a) each
of the Sale Documents shall be in full force and effect and (b) the conditions
set forth below shall have been satisfied on or before the Effective Date:
(i) the Purchaser shall have received copies of duly adopted
resolutions of the Board of Directors of the Company as in effect on the
Effective Date and in form and substance reasonably satisfactory to the
Purchaser, authorizing the execution, delivery and performance of this
Agreement, the documents to be delivered by the Company
-12-
<PAGE>
hereunder and the transactions contemplated hereby, certified by the
Secretary or Assistant Secretary of the Company;
(ii) the Purchaser shall have received duly executed certificates of
the Secretary or an Assistant Secretary of the Company, dated the Effective
Date, and in form and substance reasonably satisfactory to the Purchaser,
certifying the names and true signatures of the officers authorized on
behalf of the Company to sign this Agreement or any instruments or
documents to be delivered in connection with this Agreement;
(iii) the Purchaser shall have received reports of UCC-11 and other
searches of the Company with respect to the Receivables and the Related
Security reflecting the absence of Liens thereon, except (A) Liens created
in connection with the sale by the Purchaser of an interest in the
Purchased Receivables, (B) Liens as to which the Purchaser has received a
binding payoff letter which provides for the extinguishing of such Liens by
operation of law upon the payment of a sum certain in accordance with the
terms of such letter on or prior to the Effective Date, and (C) Liens
created in connection with the grant of a security interest to the Trustee
in the Receivables pursuant to the Indenture;
(iv) the Purchaser shall have received evidence reasonably
satisfactory to the Purchaser that the Company shall have obtained all
consents of Obligors (if any) required in connection with the sale of the
Receivables contemplated hereby;
(v) the Purchaser shall have received a report setting forth for the
Business Day immediately preceding the Effective Date the information
described on Schedule 2 (the "Initial Report");
----------- --------------
(vi) the Purchaser shall have received a certificate of a responsible
officer of the Company to the effect that the representations and
warranties of the Company contained in Sections 4.1 and 4.2 are true and
------------ ---
correct in all material respects on and as of the Effective Date;
(vii) the Purchaser shall have received from the Company all reports,
documents, certificates, schedules, statements and other information or
documentation required to be delivered by the Company in order that the
Purchaser can satisfy its obligations under the Indenture and the Note
Purchase Agreement for the issuance and sale of the Series 1997-1 Notes;
(viii) the Purchaser shall have received the proceeds from the issuance
and sale of the Series 1997-1 Notes; and
(ix) all corporate and other legal matters incident to the execution
and delivery of this Agreement and to the purchases by the Purchaser of the
Receivables from the Company shall be reasonably satisfactory to counsel
for the Purchaser.
-13-
<PAGE>
III.2 Conditions Precedent to All the Purchaser's Purchases of Receivables.
--------------------------------------------------------------------
The obligation of the Purchaser to pay the Company for any Receivable and the
Related Security with respect thereto on each Receivables Payment Date
(including the Effective Date) shall be subject to the further conditions
precedent, which may be waived by the Purchaser, that on such Receivables
Payment Date the following statements shall be true (and the acceptance by the
Company of the Purchase Price for any Receivables on any Receivables Payment
Date shall constitute a representation and warranty by the Company that on such
Receivables Payment Date such statements are true):
(a) the representations and warranties of the Company contained in
Sections 4.1 and 4.2 shall be true and correct in all material respects on
------------ ---
and as of such Receivables Payment Date as though made on and as of such
date, except insofar as such representations and warranties are expressly
made only as of another date; and
(b) no Purchase Termination Event shall have occurred and be
continuing.
If, on any Receivables Payment Date, any of the foregoing conditions precedent
set forth in this Section 3.2 with respect to any purchase of New Receivables
-----------
from the Company is not satisfied, the Purchaser shall have the option (A) to
make payment for such New Receivables pursuant to the terms hereof and retain
its interest therein or (B) to reassign to the Company without recourse,
representation or warranty its interest in such New Receivables and not make any
payment therefor on such date.
IV ARTICLE
REPRESENTATIONS AND WARRANTIES
IV.1 Representations and Warranties of the Company Relating to the Company.
---------------------------------------------------------------------
The Company hereby represents and warrants to the Purchaser on the date
hereof, on the Effective Date and on each Receivables Payment Date that:
(a) Organization and Good Standing. The Company is duly organized,
------------------------------
validly existing and in good standing under the laws of the State of
Delaware, and has, in all material respects, full corporate power,
authority and the legal right to own and operate its properties, to lease
the property it operates as lessee and to conduct the business in which it
is currently engaged, and to execute, deliver and perform its obligations
under the Sale Documents to which it is a party and to sell the Receivables
and the Related Security hereunder;
(b) Due Qualification. The Company is duly qualified to do business
-----------------
and is in good standing as a foreign corporation (or is exempt from such
requirements) and has obtained all necessary licenses and approvals in each
jurisdiction in which the conduct of its business requires such
qualification except where the failure to so qualify or obtain licenses or
approvals would not have a Material Adverse Effect;
-14-
<PAGE>
(c) Due Authorization. The execution and delivery of the Sale
-----------------
Documents to which it is a party and the consummation of the transactions
provided for therein have been duly authorized by all necessary corporate
action on the part of the Company;
(d) Binding Obligation. This Agreement and the other Sale Documents
------------------
to which it is a party constitute legal, valid and binding obligations of
the Company enforceable against the Company in accordance with their
respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws now or hereinafter in effect affecting the
enforcement of creditors' rights in general and except as such
enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity);
(e) No Violation or Conflict. The execution and delivery of this
------------------------
Agreement and the other Sale Documents to which it is a party by the
Company, the performance of the transactions contemplated hereby and
thereby and the fulfillment of the terms hereof and thereof applicable to
the Company will not conflict with, violate, result in any breach of any of
the material terms and provisions of, or constitute (with or without notice
or lapse of time or both) a material default under, any Requirement of Law
applicable to the Company or any indenture, contract, agreement, mortgage,
deed of trust, or other instrument to which the Company is a party or by
which it or its properties are bound, except where the violation, breach or
default would not have a Material Adverse Effect;
(f) Compliance with Requirements of Law. The Company is in
-----------------------------------
compliance in all material respects with all Requirements of Law with
respect to the Contracts and the Receivables except to the extent that the
failure to comply therewith would not have a Material Adverse Effect;
(g) No Proceedings. There are no proceedings or, to the best
--------------
knowledge of the Company, investigations, pending or threatened against the
Company before any Governmental Authority (i) asserting the invalidity of
this Agreement or any of the other Sale Documents, (ii) seeking to prevent
the sale of the Receivables hereunder or (iii) seeking any determination or
ruling that, in the reasonable judgment of the Company, would materially
and adversely affect the performance by the Company of its obligations
under this Agreement or any of the other Sale Documents to which it is a
party;
(h) Taxes. Each of the following statements is true, except to the
-----
extent that the potential liability to the Company as a result of the
circumstances causing any such statement to be untrue would not have a
Material Adverse Effect: it has filed or caused to be filed all tax returns
which are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
-15-
<PAGE>
property and all other taxes, fees or other charges imposed on it or any of
its property by any Governmental Authority (other than any the amount or
validity of which are currently being contested in good faith by
appropriate proceedings and with respect to which reserves in conformity
with generally accepted accounting principles have been provided on its
books); no tax Lien has been filed upon or with respect to any Receivables,
and, to the best knowledge of the Company, no claim (other than a claim
related to a current or potential Permitted Lien) is being asserted, with
respect to any such tax, fee or other charge;
(i) Solvency. On the Effective Date and on each Receivables Purchase
--------
Date (other than a Receivables Purchase Date following receipt of an
Acceptable Interim Order), the Company and its Subsidiaries taken as a
whole (excluding the Purchaser but including, without limitation, the
balance then due on the Note and the value of the membership interests of
the Purchaser and the capital stock of the Manager then owned by the
Company) are, and after giving effect to the transactions contemplated to
occur on or prior to the Effective Date or such Receivables Purchase Date,
as the case may be, will be Solvent;
(j) ERISA. Each of the following statements is true, except where
-----
the amount involved in any untrue statement, either individually or in the
aggregate, would not be reasonably likely to result in any liability having
a Material Adverse Effect and except as relating to the obligations to the
PBGC pursuant to the Settlement Agreement dated as of January 5, 1993, as
such obligations are described in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996: Neither a Reportable Event nor an
"accumulated funding deficiency" (within the meaning of Section 412, of the
Code or Section 302 of ERISA) has occurred during the five-year period
prior to the date on which this representation is made or deemed made with
respect to any Plan, and each Plan has complied in all material respects
with the applicable provisions of ERISA and the Code. No termination of a
Single Employer Plan has occurred, and no Lien in favor of the PBGC or a
Plan has arisen, during such five-year period. The present value of all
accrued benefits under each Single Employer Plan (based on those
assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or
deemed made, exceed the value of the assets of such Plan allocable to such
accrued benefits. Neither it nor any Commonly Controlled Entity has had a
complete or partial withdrawal from any Multiemployer Plan, and neither it
nor any Commonly Controlled Entity would become subject to any liability
under ERISA if it or any such Commonly Controlled Entity were to withdraw
completely from all Multiemployer Plans as of the valuation date most
closely preceding the date on which this representation is made or deemed
made. To its best knowledge, no such Multiemployer Plan is in
Reorganization or Insolvent;
(k) Lockboxes. Each of the Obligors has been directed to remit
---------
payments on account of the Receivables to one of the Lockboxes, Lockbox
Accounts or the Concentration Account set forth on Schedule 3 or to the
----------
Collection Account;
-16-
<PAGE>
(l) Location of Chief Executive Office. The chief executive office
----------------------------------
of the Company is located at One City Centre, 515 North Sixth Street, St.
Louis, Missouri, 63101, which office is the place where the Company is
"located" for the purposes of Section 9-103(3)(d) of the UCC of the State
of New York, and the office of the Company where the Company keeps its
records concerning the Receivables is located at 11500 Ambassador Drive,
Kansas City, Missouri, 64153, or, in either case, at such other location as
to which all action required by Section 5.2(d) has been taken and
--------------
completed; and
(m) Facts and Assumptions. The factual statements and
---------------------
representations relating to the Company, Manager, and Purchaser as set
forth herein in clauses (i) through (xxxv) below are and will continue to
----------- ------
be true and accurate in all material respects.
(i) The Purchase Price for the Receivables and the Transferred
Property sold on the Closing Date under the Sale and Servicing
Agreement has been paid and the Purchase Price under the Sale and
Servicing Agreement for future sales will be paid at the time of
transfer. Such Purchase Price represents fair consideration and
reasonably equivalent value to the Company under applicable law,
including applicable fraudulent conveyance or fraudulent transfer law,
for the transfer of the Receivables and the Transferred Property by the
Company.
(ii) The Purchaser and the Company expect that and have reasonable
grounds (based on the initial contribution of capital to the Purchaser)
to expect that the Purchaser will have sufficient funds, as a result of
payments on the Receivables and the cash-flows under the Indenture, to
repay the Note in accordance with its terms without loans from a third
party or additional capital contributions.
(iii) The Relevant Documents (as defined in the Opinion) reflect the
entire understanding of the Company and the Purchaser with respect to
the transactions described herein and, without limitation, there is no
understanding with respect to any recourse by reason of
uncollectability of any Receivables or with respect to any post-sale
price adjustment.
(iv) At and immediately after the Initial Closing Date, each of the
Company, the Manager and the Purchaser will be solvent, will have
adequate capital to carry on its businesses, and intends to and
believes that it will be able to pay its debts as such debts become
due. None of the transactions are being entered into with the intent
to hinder, defraud or delay any of the creditors of the Company, the
Manager or the Purchaser; for example, none of the Company, the
Purchaser or Manager presently intends to file a petition for relief
under the Bankruptcy Code or any similar insolvency law.
(v) At least one member of the board of directors of the Manager
will not be a member, stockholder, member of the board of directors,
officer, associate, employee, customer or supplier of the Company or
any parent, subsidiary,
-17-
<PAGE>
predecessor, successor or affiliate of the Company or a direct or
indirect holder of more than 5% of the voting securities of the Company
or any of its affiliates. Such independent director will be paid a fee
for his or her activities on behalf of the Manager in amounts
negotiated with such independent director on an arm's-length basis.
Whenever necessary, each of the Company and the Manager will obtain
proper corporate authorization from its directors or its stockholders
and the Purchaser from its members. For instance, without the
affirmative consent of the independent director, the Manager shall not
file or cause to be filed a petition in bankruptcy for itself or the
Purchaser, and the Purchaser, without the affirmative consent of the
Manager, will not file or cause to be filed a petition in bankruptcy
for itself. The Manager will observe all requirements of the General
Corporation Law of the State of Delaware, the Manager's certificate of
incorporation and its by-laws. The Manager and Purchaser on the one
hand and the Company on the other will engage in any transactions under
the Sale and Servicing Agreement in an arm's-length manner.
(vi) The Company, as the holder of all of the issued and outstanding
common stock of the Manager, will have the right to elect all of the
directors of the Manager, except as described in paragraph number (iv)
above.
(vii) Each of the Manager and the Purchaser will compensate all their
respective employees, consultants and agents directly, from their own
bank accounts, for services provided to them by such employees,
consultants and agents and, to the extent any employee, consultant or
agent of the Purchaser or the Manager is also an employee, consultant
or agent of the Company or any affiliate, the Purchaser and the
Manager, on the one hand, and the Company or such affiliate, on the
other hand, will allocate among themselves the services and attendant
salaries of shared employees, consultants, and agents on a basis which
reflects the actual services rendered.
(viii) The Purchaser and the Manager will lease such services as
accounting, payroll, employee benefits, and computer services from the
Company. Upon the execution of the Sale and Servicing Agreement, the
Purchaser will hire the Company, as servicer, to provide certain
services relating to the administering, servicing and collections of
Receivables.
(ix) The Company, the Purchaser and the Manager will share certain
overhead expenses, although the amount the Purchaser and Manager will
be charged for such use will be based on actual use to the extent
practicable and, to the extent such allocation is not practicable, on a
basis reasonably related to use.
(x) Each of the Purchaser and the Manager will use its own
letterhead and will hold itself out as a separate entity from each
other and from the Company and will require all full-time employees of
the Purchaser and the Manager to identify themselves as such and not as
employees of the Company.
-18-
<PAGE>
(xi) All corporate and other legal formalities of the Company, the
Purchaser and the Manager are and will continue to be observed and
maintained.
(xii) Separate financial records are and will continue to be
maintained to reflect the assets and liabilities of the Company, the
Purchaser and Manager, which financial records are and will be subject
to audit by independent public accountants.
(xiii) The audited consolidated financial statements of the Company
will contain notations clearly noting (a) the separate corporate
existence of the Purchaser and the Manager, (b) that the Transferred
Property is owned solely by Purchaser, and (c) that the assets of the
Purchaser and the Manager will be available first and foremost to
satisfy the claims of their respective creditors.
(xiv) The Manager is entitled to declare and pay dividends or other
distributions, direct or indirect, on account of any shares of any
class of stock of the Manager only out of net profits as determined
under Delaware law. All dividends declared and paid by the Manager
shall be declared and paid in accordance with applicable law.
(xv) The Purchaser is entitled to make distributions to its members
only out of net profits as determined under Delaware law and all
distributions paid by the Purchaser to its members will be paid in
accordance with applicable law.
(xvi) There is no, and will continue to be no, commingling of the
assets and liabilities of the Purchaser with those of the Company or
any affiliate except with respect to the Company's retention, in its
capacity as Servicer, of the books and records relating to the
Receivables and the Transferred Property.* All demand deposit accounts
and other bank accounts of the Purchaser or the Manager will be
maintained separately from those of the Company or any affiliate and
the Company's access to the Collection Account shall be pursuant to and
limited by the provisions of the Relevant Documents. Monetary
transactions (including transactions between the Purchaser or the
Manager and the Company or any affiliate) are, and will continue to be,
properly reflected in their respective financial records.
(xvii) The principal creditors of the Purchaser will be the holders
of the Notes. The Noteholders purchased the Notes, in each case, in
reliance on the Purchaser's
- ---------------
* Such books and records will not be physically segregated by the Company
from the books and records relating to its assets. However, the computer
records relating thereto will be marked to reflect the Purchaser's
ownership of the Transferred Property. Furthermore, the books and records
relating to the Transferred Property will not be made available to
creditors of the Company and other third parties except (a) in conjunction
with such marked computer records, and (b) for the purpose of verifying the
Company's capacity and performance of its duties as Servicer.
-19-
<PAGE>
and Manager's identity as a separate legal entity from the Company and
any affiliate, and the Noteholders believe that the substantive
consolidation of the assets and liabilities of the Company, on the one
hand, and the Purchaser or the Manager, on the other hand, would be
inequitable, harmful and prejudicial to them.
(xviii) The Company at all times will recognize, and will take all
steps within its power to maintain, the corporate existence of the
Purchaser and the Manager as being separate and apart from the
Company's own corporate existence and will not refer to the Purchaser
or the Manager as a department or division of the Company or any
affiliate. Neither Purchaser nor Manager will refer to itself as a
department or division of the Company or any affiliate of the Company.
(xix) The execution and delivery of the Sale and Servicing
Agreement, each of the other Transaction Documents and all documents
executed pursuant thereto by the Purchaser, the Manager and the Company
have been duly authorized, the pertinent financing statements have been
properly filed and recorded, and any necessary continuation statements
also have been filed, and the interest of the Purchaser in the
Receivables is valid and perfected.
(xx) The Purchaser and Manager will have their principal place of
business in the same facility with the Company, but such place of
business will be maintained separate and apart (including, without
limitation, through the use of appropriate demarcation) from the use of
such facility by the Company.
(xxi) The Purchaser and Manager were formed for the purpose of
purchasing various Receivables arising from the Company's airline
business.
(xxii) The transactions contemplated to take place between the
Purchaser and Manager, on the one hand, and the Company, on the other,
including the amount and payment of the Servicing Fee, are and will be
made upon commercially reasonable terms and shall be sufficiently
documented. Neither the Purchaser and Manager, on the one hand, nor
the Company or any other subsidiary or affiliate of the Company, on the
other hand, is or will be, or holds or will hold itself out to be,
responsible for the debts of the other or the decisions or actions
respecting the daily business and affairs of the other (including in
the form of any guaranty), except as provided (x) in the Sale and
Servicing Agreement with respect to the duties of the Servicer, and (y)
in the other Relevant Documents with respect to the expense
reimbursement and indemnification obligations of the Purchaser and the
Company thereunder. Any actual liability of the Purchaser or the
Company with respect to any such indemnities or other joint liability
is expected to be remote. Such reimbursement and indemnification
provisions referred to hereinabove generally provide for (A)
reimbursement by the Company and the Purchaser, jointly and severally,
of certain expenses of the Trustee incurred in connection with the
Relevant Documents, (B) indemnification by the Servicer to the Trustee
for liabilities arising from the transaction except to the extent such
liabilities result
-20-
<PAGE>
from the Trustee's gross negligence and (C) indemnification by the
Company and the Purchaser, jointly and severally, of the Initial
Purchasers (and any person controlling either Initial Purchaser and its
respective directors, officers, employees and agents (and those of any
such controlling persons)) from liability under the Securities Act or
otherwise arising from an untrue statement of or omission to state a
material fact in or from the Private Placement Memorandum (with certain
specific exclusions therefrom) for the Notes and reimbursement of
expenses incurred by the Initial Purchasers in connection with any such
liability.
(xxiii) The consolidation of the business operations of the
Purchaser or Manager with the business operations of the Company will
not result in any significant cost savings or in the significantly
greater efficiency of such combined business operation.
(xxiv) The separate assets and liabilities of the Purchaser and
Manager, on the one hand, and the Company on the other, can be quickly
and inexpensively identified and ascertained.
(xxv) The Purchaser and the Company will have effected all of the
provisions of the Sale and Servicing Agreement and will have taken all
the actions described in this statement of facts.
(xxvi) None of the Purchaser, the Company or the Manager has a
significant presence in the Tenth Circuit.
(xxvii) The Purchaser and the Manager will be held out to the public
as entities separate and apart from the Company.
(xxviii) In addition to and consistent with the foregoing, none of
the Purchaser, the Manager or the Company will take any actions that
are inconsistent with the terms of, or the expectations of the
creditors of the Purchaser underlying, the aforementioned provisions of
the Sale and Servicing Agreement or any of the foregoing assumptions.
(xxix) The Company has provided to the Purchaser capitalization in
the amount of $425,000 in cash on the Effective Date and, by January
31, 1998, will provide to the Purchaser capitalization of approximately
$10,000,000 in face amount of Receivables (the "Contribution) in
------------
exchange for 99% of the Purchaser's membership interests. The
Purchaser will apply the cash portion of the Contribution on the
Closing Date to closing expenses and to ordinary operating expenses of
the Purchaser and may in the future apply such funds to the Purchase
Price of the Receivables.
(xxx) Prior to the sale of the Receivables to the Purchaser, the
Receivables were subject to a lien ("Existing Lien") thereon to secure
-------------
certain indebtedness of
-21-
<PAGE>
the Company. Contemporaneously with the purchase and sale of the
Receivables, and the application by the Company of a portion of the
proceeds of the sale of the Receivables to be used by the Purchaser to
retire a portion of such indebtedness, such Existing Lien will be
released.
(xxxi) In connection with the sale of the Notes, the Purchaser has
provided the Private Placement Memorandum to potential investors for
the purpose of their evaluating the purchase of Notes. The Private
Placement Memorandum discloses that the Notes do not represent recourse
obligations of and are not guaranteed by the Company or any affiliate
thereof, and later restates that the Noteholders must rely solely upon
payments on the Receivables (rather than upon the Company) for the
payment of principal of and interest on the Notes.
(xxii) The Base Indenture requires the Purchaser to maintain
operations separate and apart from those of the Company or any of its
affiliates, and that the Purchaser's principal executive offices be
maintained conspicuously separate and apart from those of the Company
or any of its affiliates. The Base Indenture requires that all
formalities regarding the existence of the Purchaser will be
maintained; that the Purchaser indicate in its records and publicly
available financial statements the separateness of the Purchaser's
assets and liabilities; that the Purchaser's financial statements,
accounting records and other corporate documents will be maintained
separate and distinct from those of the Company or any of its
affiliates; and that the Purchaser may only act in its corporate name
and through its own authorized officers and agents .
(xxiii) The Base Indenture further provides that the Purchaser may
not commingle its assets with the assets of the Company or any of its
affiliates (except that the computer files in respect of the
Receivables, although separately identified to evidence the Purchaser's
interest therein, will be maintained by the Company in order to
facilitate the servicing of the Receivables); that all investments made
by the Purchaser shall be made in the Purchaser's name; that the
Purchaser may only make investments directly or by brokers engaged and
paid by the Purchaser or by its agents; that the Purchaser must pay all
of its liabilities with its own funds and may not assume or guarantee
any liabilities of the Company or any of its affiliates, nor allow the
Company or any of its affiliates to assume or guarantee any liabilities
of the Purchaser (except that the Company will have certain limited
indemnification obligations to the Purchaser and the Trustee under the
Relevant Documents); and that the Purchaser may not acquire the
obligations or securities of, or make loans or advances to, the Company
or any of its affiliates.
(xxiv) The Base Indenture also provides that all business
transactions between the Purchaser and the Company or any of its
affiliates shall be on terms and conditions that are not more or less
favorable to the Purchaser than those available to the Purchaser for
comparable transactions with unaffiliated persons or, if no such
comparable transaction exists, on terms that are otherwise fair and
reasonable.
-22-
<PAGE>
Any such transaction, and any dividend from the Purchaser to the
Parent, must be approved by a majority of the Board of Directors of the
Manager including each director who is an Independent Director.
(xxxv) The Purchaser has been formed to engage in the receivables
financing business. The principal activities of the Purchaser revolve
around the purchasing of Receivables from the Company pursuant to the
Sale and Servicing Agreement and the financing of those purchases. The
Purchaser is engaging in the receivables financing business in the
expectation of maintaining profitable operations. The Purchase Price
of the Receivables under the Sale and Servicing Agreement has been
structured such that the Purchaser's operations will generate income in
excess of the Purchaser's expected costs and expenses.
(xxxvi) All the parties to the Transaction Documents (as defined in
the Opinion) are duly organized, validly existing, and in good
standing under the laws of their respective jurisdictions of
organization and have power and authority to enter into such
Transaction Documents and to perform all of their respective
obligations thereunder.
(xxxvii) The execution and delivery of the Transaction Documents
have been duly authorized by all necessary corporate action and
proceedings on the part of all parties thereto, and each Transaction
Document has been duly authorized, executed and delivered by all
parties thereto and constitutes the legal, valid and binding
obligation of such parties, enforceable against such parties in
accordance with its respective terms, and there has been no (and there
will not be any) fraud in connection with any of the transactions
contemplated in the respective terms and provisions of the Transaction
Documents. The Transaction Documents do not, and the execution,
delivery and performance thereof by each of the parties thereto,
including the transfer under the Sale and Servicing Agreement, does
not, violate or conflict with the certificates of incorporation or by-
laws of any parties thereto, any contract or indenture to which such
party is a party or by which such party is created or bound, or any
law, regulation, order, writ, injunction, or decree of any court,
administrative agency or other governmental authority applicable to
such party.
(xxxviii) All matters and statements contained in the Sale and
Servicing Agreement are true and correct and there are no written or
oral terms or conditions agreed to among the parties thereto, which
could vary the truth, completeness, correctness, validity or effect of
any of the statements made in, or the provisions of, the Sale and
Servicing Agreement and the other Relevant Documents.
(xxxix) All of the consideration provided for in the Sale and
Servicing Agreement for the transfer of the Receivables on the Closing
Date has been paid in full (and, in any event, constitutes adequate
value for purposes of Section
-23-
<PAGE>
9-203(1)(b) of the UCC) and all of the conditions to such transfer
(whether precedent or subsequent) have been satisfied or effectively
waived.
(xl) The Company has rights (as defined in Section 9-203(1)(c) of
the UCC) in the Receivables it proposes to sell and transfer under the
Sale and Servicing Agreement, at the time such sale or transfer takes
place (although we do not express any opinion in this letter as to any
of such rights).
(xli) All of the Receivables are created under, and are evidenced
solely by, Contracts (as defined in the Indenture) in the form
delivered to us by the Company.
(xlii) Through the UCC financing statements, the Company and the
Purchaser have disclosed the transactions publicly, and none of the
Company or the Purchaser otherwise has concealed or will conceal from
any interested party any transfers contemplated by the Relevant
Documents. None of the Company, the Manager or the Purchaser has
itself removed or concealed, and will not itself remove or conceal,
from creditors any of its assets, and none of the Company, the Manager
or the Purchaser has participated or will participate in removing or
concealing the assets of any other entity. None of the Company, the
Manager or the Purchaser are entering into the transactions with the
actual intent to hinder, defraud or delay any creditors.
IV.2 Representations and Warranties of the Company Relating to the
-------------------------------------------------------------
Receivables and the Contracts. The Company hereby represents and warrants to
- -----------------------------
the Purchaser on the date hereof, on the Effective Date and on each Receivables
Payment Date with respect to the New Receivables being paid for as of such date,
that:
(a) The Company is the sole legal and beneficial owner of and has all
right, title and interest in and to the Receivables, and upon the sale of
the Receivables to the Purchaser, the Purchaser will become the sole legal
and beneficial owner of such Purchased Receivables, free and clear of any
Liens, encumbrances, charges and security interests, other than Permitted
Liens and Liens created by or otherwise first arising against the
Purchaser, and no effective financing statement or other instrument similar
in effect covering all or any part of such Purchased Receivables, the
Related Security or Collections with respect thereto will at such time be
on file against the Company in any filing or recording office except (i)
such as have been filed in favor of the Purchaser in accordance with this
Agreement and (ii) such as constitute Permitted Liens;
(b) On the Effective Date, each Receivable sold by it hereunder and
designated on the Initial Report to be an Eligible Receivable is an
Eligible Receivable and, in the case of Receivables sold by it thereafter,
each Receivable that is designated on a Daily Detail Report to be an
Eligible Receivable, will be on the Receivables Payment Date therefor an
Eligible Receivable; and
-24-
<PAGE>
(c) With respect to each Receivable existing on the Effective Date or,
in the case of Receivables sold to the Purchaser after such date, on the
date each such Receivable is sold to the Purchaser, all consents, licenses,
approvals, orders or other actions of any Person or any Governmental
Authority required to be obtained, effected or given by the Company in
connection with the sale of such Receivable to the Purchaser have been duly
obtained, effected or given and are in full force and effect except where
any such failure thereof would not have a Material Adverse Effect.
I ARTICLE
COVENANTS
V.1 Affirmative Covenants of the Company. The Company hereby agrees that,
------------------------------------
so long as there are any amounts outstanding with respect to Purchased
Receivables, the Company shall:
(a) Compliance with Contracts and Requirements of Law. Duly satisfy
-------------------------------------------------
all obligations on its part to be fulfilled under or in connection with the
Receivables and the Contracts and comply with all Requirements of Law
applicable to the Receivables and the Contracts the failure to satisfy or
to comply with which would have a Material Adverse Effect.
(b) Keeping of Records. Retain copies of the Records as custodian
------------------
and agent for the Purchaser and other Persons with interests in the
Purchased Receivables and at its own expense indicate on its computer files
relating to the Purchased Receivables that the Purchased Receivables have
been sold to the Purchaser in accordance with this Agreement.
(c) Credit and Collection Policy. Comply in all material respects
----------------------------
with the Credit and Collection Policy in regard to the Purchased
Receivables and the Contracts.
(d) Inspection of Property; Discussions. At any time and from time
-----------------------------------
to time during the Company's regular business hours, on reasonable advance
notice, permit the Purchaser or the agents or representatives of the
Purchaser or any transferee of the Purchaser to visit the offices of the
Company in order (i) to examine and make abstracts from any of the Records
and (ii) to discuss matters relating to the Receivables and the Contracts
and the Company's performance hereunder with officers and employees of the
Company having knowledge of such matters.
(e) Corporate Existence. Maintain its corporate existence in the
-------------------
jurisdiction of its incorporation, and qualify and remain qualified as a
foreign corporation in each jurisdiction where it does business, except
where the failure to maintain such existence and qualifications would not
have a Material Adverse Effect.
-25-
<PAGE>
(f) Notices. Furnish to the Purchaser:
-------
(i) promptly upon obtaining knowledge of the occurrence of any
Purchase Termination Event or Potential Purchase Termination Event,
written notice thereof;
(ii) promptly upon determining that any Purchased Receivable
designated as an Eligible Receivable on the applicable Daily Detail
Report was not an Eligible Receivable as of the date provided therefor,
written notice of such determination; and
(iii) promptly after becoming aware of any Lien on any
Purchased Receivable other than Permitted Liens.
(g) Further Action. At its expense, promptly execute and deliver all
--------------
further instruments and documents, and take all further action, that may be
necessary or, in the reasonable opinion of Purchaser, desirable in order to
fully effect the purposes of this Agreement and to protect or more fully
evidence the Purchaser's right, title and interest in the Purchased
Receivables, or to enable the Purchaser to exercise or enforce any of its
rights in respect thereof. Without limiting the generality of the
foregoing, the Company will execute and file such financing or continuation
statements relating to the Receivables for filing under the provisions of
the UCC, or amendments thereto, and such other instruments and documents,
and take all further action, that may be necessary or, in the reasonable
opinion of Purchaser, desirable in order to fully effect the purposes of
this Agreement and to protect or more fully evidence the Purchaser's right,
title and interest in the Purchased Receivables, or to enable the Purchaser
to exercise or enforce any of its rights in respect thereof. The Company
hereby irrevocably authorizes the Purchaser to file one or more financing
or continuation statements, and amendments thereto, relating to all or any
part of the Purchased Receivables sold or to be sold and the Related
Security without the signature of the Company.
(h) Treatment of Transfers. Treat each transfer of Receivables to
----------------------
the Purchaser pursuant to Article II hereof, as between the Company and the
----------
Purchaser, as a sale or contribution, as applicable for all tax and
accounting purposes.
(i) Initial Contribution of Capital. The Company hereby agrees that
-------------------------------
on the Effective Date, and on each Receivables Payment Date thereafter,
until the net worth of the Purchaser is at least $10,000,000, the Company
shall transfer to the Purchaser, as a contribution of capital, all New
Receivables remaining unsold on such date after the application of all cash
available for the payment of the Purchase Price for New Receivables on such
date pursuant to Section 2.3(b).
--------------
-26-
<PAGE>
V.2 Negative Covenants of the Company. The Company hereby agrees that,
---------------------------------
so long as there are any amounts outstanding with respect to Purchased
Receivables, the Company shall not, directly or indirectly:
(a) Liens. Except as otherwise herein provided, sell, pledge, assign
-----
or transfer to any other Person, or grant, create, incur, assume or suffer
to exist any Lien on, any Receivable or the Related Security, whether now
existing or hereafter created, with respect thereto, and the Company shall
defend the right, title and interest of the Purchaser in, to and under any
Purchased Receivable, whether now existing or hereafter created, against
all claims of third parties claiming through or under the Company;
provided, however, that nothing in this subsection (a) shall prevent or be
-------- ------- --------------
deemed to prohibit the Company from suffering to exist upon any of the
Receivables any Permitted Liens.
(b) Extension or Amendment of Receivables. Extend, rescind, cancel,
-------------------------------------
amend or otherwise modify, or attempt or purport to extend, amend or
otherwise modify, the terms of any Purchased Receivables (including,
without limitation, extending the due dates thereof or impairing the
collectibility thereof), except (i) in accordance with the terms of the
Credit and Collection Policy, (ii) as required by any Requirement of Law or
(iii) to the extent that any such extension, rescission, cancellation,
amendment or modification could not reasonably be expected to have a
material adverse effect on the interests of the Purchaser or any transferee
of the Purchaser.
(c) Change in Name. Change its name, identity or corporate structure
--------------
in any manner which would or might make any financing statement or
continuation statement relating to this Agreement seriously misleading
within the meaning of Section 9-402(7) of the UCC as in effect in the State
of New York without 20 days' prior written notice to the Purchaser.
(d) Location of Records. Move the location of its chief executive
-------------------
office or the location of the office where it keeps its records with
respect to the Receivables outside of Missouri, without 20 days' prior
written notice to the Purchaser, and the Company shall promptly take all
actions reasonably required (including but not limited to all filings and
other acts necessary or advisable under the UCC of each relevant
jurisdiction) in order to protect the Purchaser's interest in the Purchased
Receivables. The Company shall give the Purchaser prompt notice of a
change of the location of its chief executive office or any office where it
keeps its records with respect to the Receivables within the city or county
where such office is located.
(e) Accounting of Purchases. Prepare any financial statements which
-----------------------
shall account for the transactions contemplated hereby (other than capital
contributions and the Note) in any manner other than as sales of the
Purchased Receivables by the Company to the Purchaser or in any other
respect account for or treat the transactions contemplated hereby
(including for accounting purposes and, where taxes are not consolidated,
for tax purposes, except as required by law) (other than capital
contributions and the Note) in any manner other than as sales of the
Purchased
-27-
<PAGE>
Receivables by the Company to the Purchaser; provided, however, that
-------- -------
nothing contained in this subsection (e), or in subsection (h) of
-------------- --------------
Section 5.1, shall prevent or prohibit the Company from preparing,
-----------
presenting or filing consolidated financial statements or tax returns.
(f) Chattel Paper. Take any action to cause any Receivable to be
-------------
evidenced by any instrument (other than an instrument which constitutes
chattel paper) (each as defined in the UCC as in effect in the State of New
York) except in connection with its enforcement or collection of a
Receivable.
(g) Credit and Collection Policy. Make any change or modification to
----------------------------
the Credit and Collection Policy that could reasonably be expected to have
a material adverse effect on the interests of the Purchaser or any
transferee of the Purchaser in the Receivables. Prior to making any
material change or modification to the Credit and Collection Policy, the
Company hereby agrees to deliver to the Purchaser, any transferee of the
Purchaser and the Rating Agency a certificate signed by a Vice President
and a Treasurer, Secretary, Assistant Treasurer or Assistant Secretary of
the Company to the effect that in the opinion of TWA such change or
modification could not reasonably be expected to have a material adverse
effect on the interests of the Purchaser or any transferee of the Purchaser
in the Receivables.
(h) Amendment and Modification of Contracts. Make any amendment to
---------------------------------------
or modification of any contract that could reasonably be expected to have a
material adverse effect on the interests of the Purchaser or any transferee
of the Purchaser in the Receivables. Prior to making any material
amendment to or modification of any material Contract, the Company hereby
agrees to deliver to the Purchaser, and any transferee of the Purchaser a
certificate signed by a Vice President and a Treasurer, Secretary,
Assistant Treasurer or Assistant Secretary of the Company to the effect
that such amendment or modification could not reasonably be expected to
have a material adverse effect on the interests of the Purchaser or any
transferee of the Purchaser in the Receivables.
VI ARTICLE
ADMINISTRATION AND SERVICING
OF RECEIVABLES
(a) Acceptance of Appointment and Other Matters Relating to the Servicer.
--------------------------------------------------------------------
TWA hereby agrees, and is hereby appointed by the Purchaser, to act as
the Servicer under this Agreement. The Servicer will have responsibility for
servicing, managing and making collections on the Receivables and will have the
authority to make any management decisions relating to the Receivables to the
extent such authority is granted or contemplated to the Servicer
-28-
<PAGE>
under this Agreement. The Trustee shall treat TWA as the Servicer and may
conclusively rely on the instructions, notices and reports of TWA, as Servicer,
for so long as TWA is the Servicer.
(b) The Servicer shall service and administer the Receivables, shall collect
payments due under the Receivables and shall write off Receivables as
uncollectible, all in accordance with the Credit and Collection Policy and, to
the extent not covered thereby, in accordance with general industry standards.
The Servicer shall have full power and authority, acting alone or through any
party properly designated by it hereunder, to do any and all things in
connection with such servicing and administration which it may deem necessary or
desirable. Without limiting the generality of the foregoing and subject to
Section 11.1 of the Base Indenture, the Servicer is hereby authorized and
- ------------
empowered (i) to instruct the Trustee in writing to make withdrawals from, and
payments to the Collection Account as set forth in the Base Indenture and any
Supplements, including transfers of amounts on deposit in the Lockbox Accounts
and the Concentration Account related to the Purchased Receivables to the
Collection Account, (ii) unless such power and authority is revoked by the
Trustee on account of the occurrence of a Servicer Default pursuant to Section
-------
11.1 of the Base Indenture, to instruct the Trustee to take any action permitted
- ----
or required under any Enhancement at such time as set forth in the Base
Indenture or any Supplement, (iii) to execute and deliver, on behalf of the
Trustee for the benefit of the Noteholders, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge, and
all other comparable instruments, with respect to the Receivables and, after the
delinquency of any Receivable and to the extent permitted under and in
compliance with applicable Requirements of Law, to commence enforcement
proceedings with respect to such Receivables, (iv) to make any filings, reports,
notices, applications, registrations with, and to seek any consents or
authorizations from the Securities and Exchange Commission and any state
securities authority as may be necessary or advisable to comply with any federal
or state securities or reporting requirements or laws and (v) to delegate
certain of its servicing, collection, enforcement and administrative duties
hereunder with respect to the Receivables to a Person who agrees to conduct such
duties in accordance with the Credit and Collection Policy. No delegation of
duties by the Servicer permitted hereunder will relieve the Servicer of its
liability and responsibility with respect to such duties. The Trustee agrees
that it will promptly follow the written instructions of the Servicer with
regard to any Enhancement and shall be fully protected in relying thereon. The
Trustee shall furnish the Servicer with any documents reasonably necessary or
appropriate to carry out its servicing and administrative duties hereunder;
provided that in no event shall any such documents constitute a delegation of
- --------
any of the Trustee's duties hereunder to the Servicer.
(c) The Servicer shall not, and no Successor Servicer shall be obligated to,
use separate servicing procedures, offices, employees or accounts for servicing
the Receivables from the procedures, offices, employees and accounts used by the
Servicer or such Successor Servicer, as the case may be, in connection with
servicing other receivables.
(d) The Servicer shall maintain reasonable and customary fidelity bond
coverage insuring against losses through wrongdoing of its officers and
employees who are involved in the servicing of the Receivables, including,
without limitation, depositor's forgery.
-29-
<PAGE>
(e) The Servicer shall comply with and perform its servicing obligations with
respect to the Receivables in accordance with the Contracts relating to the
Receivables and the Credit and Collection Policy, except insofar as any failure
to so comply or perform would not materially and adversely affect the rights of
the Trustee or the Noteholders.
(f) The Servicer shall not take any action to cause any Receivable to be
evidenced by any instrument (other than an instrument which constitutes chattel
paper) (each as defined in the UCC as in effect in the State of Missouri) except
in connection with its enforcement or collection of a Receivable, in which event
the Servicer shall deliver such instrument to the Trustee as soon as reasonably
practicable but in no event more than 30 days after execution thereof. The
Servicer shall hold any chattel paper evidencing a Receivable as custodian for
the Trustee.
(g) Unless otherwise required by law or an Obligor designates that a payment
be applied to a specific Receivable, all Collections received from an Obligor
shall be applied to the Receivables of such Obligor in the order of the age of
such Receivables then outstanding, starting with the oldest of such Receivables.
During any period when purchases of Receivables by the Purchaser under the Sale
and Servicing Agreement have been suspended or terminated, payments from
Obligors of Purchased Receivables and other Receivables relating to an Obligor
will be allocated to the Receivables of such Obligor as provided in Section 2.9
-----------
hereof.
(h) The Servicer shall instruct all Obligors to make all payments in respect
of the Receivables to a Lockbox or a Lockbox Account. All Collections received
in a Lockbox shall, within one Business Day of receipt thereof be deposited in a
Lockbox Account. In the event that any payments in respect of the Receivables
are made directly to the Servicer, including, without limitation, any employees
thereof or independent contractors employed thereby, the Servicer shall, within
two Business Days of receipt thereof, deposit such amounts in a Lockbox Account.
(i) As soon as practicable but in any event not later than the Business Day
following the date of establishment by the Servicer that any of the collected
funds received in any of the Lockboxes or the Lockbox Accounts do not constitute
Collections on account of the Receivables, such monies which do not constitute
such Collections shall be remitted to the Purchaser, provided, that a
certification of such remittance shall be sent to the Trustee.
(j) All collections received or deposited in the Collection Account as
"Collections" shall be deemed, for purposes of this Agreement, to have been
received or deposited as of the Business Day Received (as defined in the
immediately succeeding sentence). As used herein, the term "Business Day
Received" shall mean if funds are deposited in the Collection Account by 4:30
p.m. (Eastern Standard Time), such day of deposit and (ii) if funds are
deposited in the Collection Account after 4:30 p.m. (Eastern Standard Time), the
Business Day next following such day of deposit.
VI.1 Servicing Compensation. As full compensation for its servicing
----------------------
activities hereunder and reimbursement for its expenses as set forth in the
immediately following paragraph, the Servicer shall be entitled to receive on
each Payment Date for the preceding Interest Period prior to the Termination
Date a servicing fee (the "Servicing Fee"). The
-------------
-30-
<PAGE>
Servicing Fee shall be payable to the Servicer solely pursuant to the terms of,
and to the extent amounts are available for payment under Article IV of the Base
----------
Indenture and any applicable Supplement.
The Servicer's expenses include the amounts due to the Trustee pursuant to
Section 12.5 of the Base Indenture and the reasonable fees and disbursements of
- ------------
independent accountants, and including all other fees and expenses of the
Trustee (including counsel fees, if any) not expressly stated in the Base
Indenture to be for the account of the Noteholders; provided, however, that in
-------- -------
no event shall the Servicer be liable for any federal, state or local income or
franchise tax, or any interest or penalties with respect thereto, assessed on
the Trustee or the Noteholders except as expressly provided herein or in the
Related Documents. The Servicer shall be required to pay expenses for its own
account, and shall not be entitled to any payment therefor other than the
Servicing Fee.
VI.2 Representations, Warranties and Covenants of the Servicer. As of (i)
---------------------------------------------------------
the Issuance Date of each Series and (ii) each Receivables Payment Date, TWA, as
initial Servicer, hereby makes, and any Successor Servicer by its appointment
hereunder shall make, the following representations, warranties and covenants on
which the Trustee shall be deemed to have relied upon in accepting the
Receivables in trust and in authenticating the Notes:
(a) Organization and Good Standing. Such Person is a corporation duly
------------------------------
organized, validly existing and in good standing under the applicable laws
of the jurisdiction of its incorporation, and has, in all material
respects, full corporate power, authority and legal right to own its
properties and conduct its servicing business as such properties are
presently owned and as such business is presently conducted, and to
execute, deliver and perform its obligations under this Agreement and the
Related Documents to which it is a party.
(b) Due Qualification. Such Person is duly qualified to do business and
-----------------
is in good standing as a foreign corporation (or is exempt from such
requirements) and has obtained all necessary licenses and approvals in each
jurisdiction in which the servicing of the Receivables as required by this
Agreement requires such qualification except where the failure to so
qualify or obtain licenses or approvals would not have a material adverse
effect on its ability to perform its obligations under this Agreement and
the Related Documents to which it is a party.
(c) Due Authorization. The execution and delivery of this Agreement and
-----------------
the Related Documents to which it is a party and the consummation of the
transactions provided for herein and therein have been duly authorized by
all necessary corporate action on the part of such Person.
(d) Binding Obligation. This Agreement and the Related Documents to which
------------------
it is a party constitute legal, valid and binding obligations of such
Person, enforceable against such Person in accordance with their respective
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization,
-31-
<PAGE>
moratorium, fraudulent transfer or other similar laws now or hereinafter in
effect affecting the enforcement of creditors' rights in general and except
as such enforceability may be limited by general principles of equity
(whether considered in a proceeding at law or in equity).
(e) No Violation or Conflict. The execution and delivery of this
------------------------
Agreement and the Related Documents to which it is a party by such Person,
the performance of the transactions contemplated hereby and thereby and the
fulfillment of the terms hereof and thereof applicable to such Person will
not conflict with, violate, result in any breach of any of the material
terms and provisions of, or constitute (with or without notice or lapse of
time or both) a material default under, any Requirement of Law applicable
to such Person or any indenture, contract, agreement, mortgage, deed of
trust, or other instrument to which such Person is a party or by which it
or its properties are bound, except where the violation, breach or default
would not have a material adverse affect on the validity or enforceability
of this Agreement and the Related Documents to which it is a party or the
ability of such Person to perform its obligations hereunder or thereunder.
(f) No Proceedings. There are no proceedings or, to the best knowledge of
--------------
such Person, investigations, pending or threatened against such Person
before any court, regulatory body, administrative agency or other tribunal
or governmental instrumentality (i) asserting the invalidity of this
Agreement or the Related Documents, (ii) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement or
any Related Documents, or (iii) seeking any determination or ruling that,
in the reasonable judgment of such Person, would materially and adversely
affect the performance by such Person of its obligations under this
Agreement or any of the Related Documents.
(g) Compliance with Requirements of Law. Such Person shall maintain in
-----------------------------------
effect all qualifications required under Requirements of Law applicable to
it in order to permit proper servicing of the Receivables and will comply
in all material respects with all Requirements of Law in connection with
servicing the Receivables the failure to comply with which would have a
material adverse effect on the Purchaser or the Noteholders.
(h) No Rescission or Cancellation. Such Person shall not extend, rescind,
-----------------------------
cancel, amend or otherwise modify, or attempt or purport to extend, amend
or otherwise modify, the terms of any Receivables, except (i) in accordance
with the terms of the Credit and Collection Policy, (ii) as required by any
Requirement of Law or (iii) to the extent that any such extension,
rescission, cancellation, amendment or modification could not reasonably be
expected to have a material adverse effect on the interests of the
Purchaser or the Noteholders.
(i) Protection of Purchaser's and Noteholders' Rights. Such Person shall
-------------------------------------------------
take no action, nor omit to take any action, which would substantially
impair the rights of the Purchaser or the Noteholders in the Receivables.
-32-
<PAGE>
(j) All Consents Required. All consents, licenses, approvals, orders or
---------------------
other actions of any Person or any Governmental Authority required to be
obtained, effected or given by such Person in connection with the execution
and delivery by such Person of this Agreement or the Related Documents, the
performance by such Person of the transactions contemplated by this
Agreement or the Related Documents, and the fulfillment by such Person of
the terms hereof and thereof, have been duly obtained, effected or given
and are in full force and effect.
(k) Security Interest. Except for the conveyance hereunder, such Person
-----------------
will not sell, pledge, assign or transfer to any other Person, or grant,
create, incur, assume or suffer to exist any Lien on, any Receivable sold
to the Purchaser, whether now existing or hereafter created, or any
interest therein, and such Person shall defend the right, title and
interest of the Trustee in, to and under any Receivable sold to the
Purchaser, whether now existing or hereafter created, against all claims of
third parties claiming through or under the Servicer, TWA or the Purchaser;
provided, however, that nothing in this subsection (k) shall prevent or be
-------- ------- --------------
deemed to prohibit the Servicer from suffering to exist upon any of the
Receivables any Permitted Liens.
(l) Location of Records. Such Person (i) will not move its chief
-------------------
executive office or any of the offices where it keeps its records with
respect to the Receivables outside of the State of Missouri without giving
20 days' prior written notice to the Trustee and (ii) will promptly take
all actions reasonably required (including but not limited to all filings
and other acts necessary or advisable under the UCC of each relevant
jurisdiction) in order to continue the first priority perfected ownership
interest of the Noteholders in all Receivables now owned or hereafter
created. Such Person will give the Trustee prompt notice of a change of
the location of its chief executive office or any office where it keeps its
records with respect to the Receivables within the city or county where
such office is located.
(m) Computer Systems. Such Person will maintain all licenses for computer
----------------
programs and systems that are necessary for the collection and
administration of the Receivables in accordance with this Agreement. Such
Person will not make any material changes to any of the computer programs
or computer systems necessary for the collection or administration of the
Receivables without giving written notice of such change to the Trustee and
the Rating Agency.
In the event of any breach by the Servicer of any of the representations,
warranties or covenants contained in Section 6.1(e) or (f) or Section 6.3(h),
-------------- --- --------------
(i) or (k) which materially and adversely affects the interests of the
- --- ---
Noteholders in any Receivable (which determination shall be made without regard
to the availability of any Enhancement) then, upon the earlier to occur of the
discovery of such event by any such Person, or receipt by the Servicer of
written notice of such event given by any Agent or the Trustee (in each case
whether such breach relates to such Person or to another Person bound by such
representations, warranties and covenants), the Servicer shall purchase such
Receivable from the Purchaser pursuant to the next succeeding paragraph.
-33-
<PAGE>
The Servicer shall purchase such Receivable by depositing into the Series
Principal Collection Subaccount with respect to each Outstanding Series in
immediately available funds on the Business Day following the date on which the
obligation to make such purchase arises pursuant to this Section 6.3 such
-----------
Series' pro rata share of an amount equal to the outstanding Repurchase Price of
--- ----
such Receivable (the "Servicer Purchase Amount"). Upon each such purchase by
------------------------
the Servicer, the Purchaser shall automatically and without further action be
deemed to sell, transfer, assign, and set over, and otherwise convey to the
Servicer, without recourse, representation or warranty, all right, title and
interest of the Purchaser in and to such Receivable, all monies due or to become
due with respect thereto and all proceeds thereof; and such Receivable shall be
treated by the Purchaser as collected in full as of the date on which it was
transferred. The Trustee shall execute such documents and instruments of
transfer or assignment and take such other actions as shall be reasonably
requested by the Servicer to effect the conveyance of any Receivable pursuant to
this Section 6.3. The obligation of the Servicer to purchase any such
-----------
Receivables shall constitute the sole remedy respecting any breach of the
representations, warranties and covenants set forth in subsection 6.1(e) or (f),
----------------- ---
6.3(h), (i) or (k) with respect to such Receivables available to Noteholders or
- ------ --- ---
the Trustee on behalf of Noteholders.
VI.3 Notices to Initial Servicer. In the event that TWA is no longer
---------------------------
acting as Servicer, any Successor Servicer appointed pursuant to Section 11.2 of
------------
the Base Indenture shall deliver or make available to TWA each certificate and
report required to be prepared, forwarded or delivered thereafter pursuant to
Sections 11.2, 11.3 and 11.4 of the Base Indenture.
- ------------- ---- ----
VII ARTICLE
OTHER MATTERS RELATING
TO THE SERVICER
VII.1 Liability of the Servicer. The Servicer shall be liable under this
-------------------------
Article VII only to the extent of the obligations specifically undertaken by the
- -----------
Servicer in its capacity as Servicer.
VII.2 Merger or Consolidation of, or Assumption of the Obligations of, the
--------------------------------------------------------------------
Servicer. The Servicer shall not consolidate with or merge into any other
- --------
corporation or convey or transfer its properties and assets substantially as an
entirety to any Person, unless:
(a) the corporation formed by such consolidation or into which the
Servicer is merged or the Person which acquires by conveyance or transfer
the properties and assets of the Servicer substantially as an entirety
shall be a corporation organized and existing under the laws of the United
States of America or any State or the District of Columbia, and, if the
Servicer is not the surviving entity, such corporation shall assume,
without the execution or filing of any paper or any further act on the part
of any of the parties hereto, the performance of every covenant and
obligation of the Servicer hereunder;
-34-
<PAGE>
(b) the Servicer has delivered to the Trustee an Officers' Certificate
executed by a Vice President or more senior officer and an opinion of
Counsel each stating that such consolidation, merger, conveyance or
transfer complies with this Section 7.2 and that all conditions precedent
-----------
herein provided for relating to such transaction have been complied with;
(c) the Rating Agencies shall have been given not less than 10 Business
Days' prior written notice thereof;
(d) the servicing of the Purchased Receivables shall not be materially
adversely affected thereby; and
(e) the rating of such Person shall not be less than the rating of TWA or
the Rating Agencies Condition shall have been satisfied.
VII.3 Limitation on Liability of the Servicer and Others. Except as
--------------------------------------------------
provided in Section 7.4 with respect to the Trustee, neither the Servicer nor
any of the directors, officers, employees or agents of the Servicer, shall be
under any liability to the Trustee, the Noteholders or any other person for any
action taken, or for refraining from the taking of any action in its capacity as
Servicer pursuant to this Agreement, the Base Indenture or any Supplement;
provided, however, that this provision shall not protect the Servicer or any
- -------- -------
such person against any liability which would otherwise be imposed by reason of
willful malfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder. The Servicer
or any director, officer, employee or agent of the Servicer may rely in good
faith on any document of any kind prima facie properly executed and submitted by
----- -----
any Person respecting any matters arising hereunder. The Servicer shall not be
under any obligation to appear in, prosecute or defend any legal action which is
not incidental to its duties to service the Receivables in accordance with this
Agreement which in its reasonable opinion would require the Servicer to incur
any expense or liability.
VII.4 Servicer Indemnification of the Trustee. The Servicer shall indemnify
---------------------------------------
and hold harmless, the Noteholders and for the benefit of the Noteholders, the
Trustee and its directors, officers, agents, and employees, from and against any
loss, liability, expense, damage or injury suffered or sustained by reason of
any acts, omissions or alleged acts or omissions arising out of activities of
the Trustee or the Servicer in its capacity as Servicer pursuant to the Base
Indenture and any Supplements, including those arising from acts or omissions of
the Servicer pursuant to this Agreement, including but not limited to any
judgment, award, settlement, reasonable attorneys' fees and other costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim; provided, however, that the Servicer shall not
-------- -------
indemnify the Trustee or its directors, officers, employees or agents if such
acts, omissions or alleged acts or omissions constitute fraud, negligence or
willful misconduct by the Trustee; and provided further, that the Servicer shall
-------- -------
not indemnify the Trustee or the Noteholders for any liabilities, costs or
expenses (i) with respect to any action taken by the Trustee at the request of
the Noteholders nor (ii) with respect to any federal, state or local income
-35-
<PAGE>
or franchise taxes (or any interest or penalties with respect thereto) required
to be paid by the Noteholders in connection herewith to any taxing authority nor
(iii) arising solely from the failure of an Obligor to make payment in respect
of a Receivable. The provisions of this indemnity shall run directly to, and be
enforceable by, an injured party and shall survive the termination of this
Agreement or the Indenture, or the resignation of a Servicer.
VII.5 The Servicer Not to Resign. The Servicer shall not resign from the
--------------------------
obligations and duties hereby imposed on it except upon determination that (a)
the performance of its duties hereunder is no longer permissible under
applicable law and (b) there is no reasonable action which the Servicer could
take to make the performance of its duties hereunder permissible under
applicable law. Any such determination permitting the resignation of the
Servicer shall be evidenced as to clause (a) above by an Opinion of Counsel to
such effect delivered to the Trustee. No such resignation shall become effective
until the Trustee or a Successor Servicer shall have assumed the
responsibilities and obligations of the Servicer in accordance with Section 11.2
------------
of the Base Indenture.
(a) Access to Certain Documentation and Information Regarding the
-------------------------------------------------------------
Receivables. The Servicer shall provide to the Trustee and its agents and
- -----------
attorneys access to the documentation regarding the Contracts and the
Receivables in such cases where the Trustee is required in connection with the
enforcement of the rights of the Noteholders, or by applicable statutes or
regulations to review such documentation, such access being afforded without
charge but only upon reasonable request, during normal business hours, subject
to the Servicer's normal and reasonable security and confidentiality procedures
and at offices designated by the Servicer. Nothing in this Section 7.6 shall
-----------
derogate from the obligation of the Purchaser, the Trustee or the Servicer to
observe any applicable law prohibiting disclosure of information regarding the
Obligors and the failure of the Servicer to provide access as provided in this
Section 7.6 as a result of such obligation shall not constitute a breach of this
- -----------
Section 7.6.
- -----------
VIII ARTICLE
PURCHASE TERMINATION EVENTS
VIII.1 Purchase Termination Events. If any of the following events (herein
---------------------------
called a "Purchase Termination Event") shall have occurred and be continuing:
--------------------------
(a) the Company shall fail to pay any amount required to be paid by
the Company hereunder when due and such failure continues for more than one
Business Day after the date on which written notice of such failure shall
have been given by the Purchaser to the Company;
(b) the Company shall fail to observe or perform in any material
respect any covenant or agreement applicable to it contained herein (other
than as specified in subsection (a) of this Section 8.1); provided, that no
----------- --------
such failure shall constitute a Purchase Termination Event under this
subsection (b) unless (i) such failure
--------------
-36-
<PAGE>
continues unremedied for a period of 30 days from the date on which written
notice of such failure, requiring the same to be remedied, shall have been
given to the Company and the Trustee by the Purchaser or (ii) such failure
is in respect of Section 5.2(a) and the Company shall have failed to
--------------
comply with the provisions of Section 2.6 in respect thereof within five
-----------
Business Days of when the Company was obligated to do so;
(c) any representation, warranty, certification or statement made or
deemed made by the Company in this Agreement shall prove to have been
incorrect in any material respect on or as of the date made or deemed made,
provided, that a Purchase Termination Event shall not be deemed to have
--------
occurred under this subsection (c) based upon a breach of any
representation or warranty set forth in Section 2.6 if the Company shall
-----------
have complied with the provisions of Section 2.6 in respect thereof within
-----------
five Business Days of when the Company was obligated to do so;
(d) a Suspension Period shall commence under the Base Indenture; or
(e) there shall have occurred an Early Amortization Event.
then, (x) if such event is a Purchase Termination Event described in subsection
----------
(d) or (e) above, automatically the obligation of the Purchaser to purchase
- --- ---
Receivables from the Company shall thereupon terminate without notice of any
kind, which is hereby waived by the Company or (y) if such event is any other
Purchase Termination Event, so long as such Purchase Termination Event shall be
continuing, the Purchaser may by notice to the Company suspend or terminate its
obligation to purchase Receivables from the Company. In respect of subsection
----------
(d) above, upon the termination of the Suspension Period (other than upon the
- ---
occurrence of an Early Amortization Event), the Purchaser may resume the
purchase of Receivables from the Company hereunder by giving written notice to
the Company. If the Purchaser suspends its obligation to purchase Receivables
from the Company hereunder pursuant to subsections (a), (b), (c) or (d) above,
--------------- --- --- ---
it may resume such purchases by giving written notice to the Company and the
Trustee.
IX ARTICLE
SERVICER DEFAULTS
IX.1 Servicer Defaults. If any of the following events (herein called a
-----------------
"Servicer Default") shall have occurred and be continuing, either the Trustee,
----------------
on behalf of the Noteholders or the Noteholders having more than 50% of the
aggregate Noteholders' interests of all outstanding Notes upon written notice,
shall have the right to terminate all of the rights and obligations of the
Servicer as Servicer under this Agreement and to appoint a new Servicer (the
"Successor Servicer") as provided in Section 11.2 of the Base Indenture. A
------------------ ------------
Successor Servicer must be legally qualified and have the corporate power and
authority to service the Receivables and must have demonstrated the ability to
service a portfolio of similar receivables in accordance with applicable
industry standards of skill and care. Servicer agrees to cooperate with the
Trustee and any Successor Servicer in effecting the termination of the
responsibilities and rights
-37-
<PAGE>
of the Servicer to conduct servicing hereunder, including, without limitation,
the transfer to such Successor Servicer of all authority of the Servicer to
service the Receivables provided for under this Agreement, including, without
limitation, all authority over all Collections which shall on the date of
transfer be held by the Servicer for deposit, or which have been deposited by
the Servicer, in the Collection Account, or which shall thereafter be received
with respect to the Receivables, and in assisting the Successor Servicer. The
Servicer shall promptly transfer all of its records relating to the Receivables
to the Successor Servicer in such form as the Successor Servicer may reasonably
request and shall promptly transfer to the Successor Servicer all other records,
correspondence and documents necessary for the continued servicing of the
Receivables in the manner and at such times as the Successor Servicer shall
reasonably request. The Servicer shall deliver, or cause to be delivered, to the
Successor Servicer licenses, or the Successor Servicer shall otherwise be
satisfied with its ability, to use any computer programs, material tapes, disks,
cassettes and data necessary to permit the collection of the Receivables by the
Successor Servicer without the participation of TWA. To the extent that
compliance with this Section 9.1 shall require the Servicer to disclose to the
Successor Servicer information of any kind which the Servicer reasonably deems
to be confidential, the Successor Servicer shall be required to enter into such
customary licensing and confidentiality agreements as the Servicer shall deem
necessary to protect its interest. Upon the event of a Servicer Default, the
Servicer shall provide to the Trustee access to its facilities, systems,
equipment and leasehold agreements.
IX.2 Covenants of the Servicer. The Servicer hereby agrees that:
-------------------------
(a) it shall observe each and every of its covenants (both
affirmative and negative) contained in this Agreement in all material
respects;
(b) it shall furnish the following documents to the Purchaser and the
Trustee (which shall make the same available to any Noteholder upon written
request therefrom):
(i) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the
Servicer (commencing with the quarter ended March 31, 1998) unaudited
quarterly financial statements (including a balance sheet and income
statement) for the Servicer, all of which financial statements shall be
prepared in accordance with generally accepted accounting principles
applied on a consistent basis, certified by the chief financial officer
or chief accounting officer of the Servicer as being fairly stated in
all material respects when considered as a whole (subject to normal
year-end audit adjustments); and
(ii) as soon as available and in any event within 120 days after the
end of each fiscal year of the Servicer (commencing with the fiscal
year ended December 31, 1998) audited annual financial statements
(including a balance sheet, income statement and statement of cash
flow) for the Servicer, together with the report of such firm on such
audit, all of which financial statements must be prepared in accordance
with generally accepted accounting principles applied on a consistent
-38-
<PAGE>
basis, and which firm shall be an nationally recognized independent
accounting firm; and
X ARTICLE
THE NOTE
X.1 Note. On the Effective Date, the Purchaser shall issue to the
----
Company a note substantially in the form of Exhibit A (the "Note"). The
----
aggregate principal amount of the Note at any time shall be equal to the
difference between (a) the aggregate principal amount on the issuance thereof
and each addition to the principal amount of the Note pursuant to the terms of
Section 2.3, including any amounts payable by the Purchaser pursuant to Section
- ----------- -------
2.5, minus (b) the aggregate amount of all payments made in respect of the
- ---- -----
principal of the Note pursuant to Section 10.2 or otherwise. Interest on the
------------
outstanding principal amount of the Note shall accrue at the per annum rate of
11% from and including the Effective Date and shall be paid on each Payment Date
with respect to amounts accrued and not paid as of the last day of the preceding
Interest Period and/or the Maturity Date.
(a) Prepayments. The Purchaser may, from time to time, on any Business
-----------
Day prepay the principal amount of the Note, in whole or in part, without
penalty.
(b) On each Business Day, the Purchaser shall pay to the Company in respect
of the principal amount of the Note an amount equal to the lesser of (i)
Available Funds on such Business Day and (ii) the principal amount of the Note
outstanding.
(c) On each Business Day prior to the suspension or termination of
purchases hereunder on which the aggregate amount of Company Adjustment Payments
and/or Company Repurchase Payments payable by the Company exceeds the aggregate
Purchase Price payable by the Purchaser on such Business Day, the principal
amount of the Note shall be reduced by an amount equal to such excess.
X.2 Maturity Date. The unpaid principal amount of the Note shall be due
-------------
and payable one year after the latest Series Termination Date under any
Supplement or such later date as may be agreed to by the Company and the
Purchaser (the "Maturity Date").
X.3 Restrictions on Transfer of Note. Neither the Note, nor any right of
--------------------------------
the Company to receive payments thereunder, shall be assigned, transferred,
exchanged, pledged, hypothecated, participated or otherwise conveyed, and any
purported assignment, transfer, exchange, pledge, hypothecation, participation
or other conveyance of this Note or any right of the Company to receive payments
hereunder shall be void ab initio and of no effect.
-39-
<PAGE>
XI ARTICLE
MISCELLANEOUS
XI.1 Annual Certificate. On or before January 31, in each calendar year,
------------------
commencing in 1999, the Company shall furnish to the Issuer and to the Rating
Agency an Officer's Certificate in the form of Exhibit B attached hereto.
XI.2 Payments. Each cash payment to be made by the Purchaser or the
--------
Company hereunder shall be made not later than 5:30 p.m. (Eastern Standard) on
the required payment date in Dollars by wire transfer to a bank account of the
Purchaser or the Company, as the case may be, designated in writing by the
Purchaser to the Company or the Company to the Purchaser, as the case may be.
XI.3 Costs and Expenses. The Company agrees (i) to pay or reimburse the
------------------
Purchaser for all its costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Agreement and any of the
other Sale Documents, including, without limitation, the reasonable fees and
disbursements of counsel to the Purchaser and (ii) to pay, indemnify, and hold
the Purchaser harmless from, (A) all claims, disputes, damages, penalties and
losses arising from the Receivables or the underlying collateral (including any
product warranty-related claims, but excluding write-offs) and (B) any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other similar taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement and any such
other documents.
XI.4 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the Company and the Purchaser and their respective
successors (whether by merger, consolidation or otherwise) and assigns. The
Company agrees that it will not assign or transfer all or any portion of its
rights or delegate any of its obligations hereunder without the prior written
consent of the Purchaser. The Company acknowledges that the Purchaser shall
assign all of its rights hereunder to the Trustee for the benefit of the
Noteholders. The Company consents to such assignment and agrees that the
Trustee, to the extent provided in the Base Indenture and any Supplement, shall
be entitled to enforce the terms of this Agreement and the rights (including,
without limitation, the right to grant or withhold any consent or waiver) of the
Purchaser directly against the Company, whether or not a Purchase Termination
Event has occurred. The Company further agrees that, in respect of its
obligations hereunder, it will act at the direction of and in accordance with
all requests and instructions from the Trustee until all amounts due to the
Noteholders are paid in full. The Trustee shall have the rights of a third-party
beneficiary under this Agreement.
XI.5 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED
-40-
<PAGE>
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.
XI.6 No Waiver; Cumulative Remedies. No failure to exercise and no delay
------------------------------
in exercising, on the part of the Purchaser, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exhaustive of any rights, remedies, powers and privileges
provided by law.
XI.7 Amendments and Waivers. Neither this Agreement nor any terms hereof
----------------------
may be amended, supplemented or modified except in a writing signed by the
Purchaser and the Company and acknowledged by the Trustee. The Company shall
provide written notice to the Rating Agency of any amendment to this Agreement.
XI.8 Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
XI.9 Notices. All demands, notices and communications hereunder shall be
-------
in writing delivered by hand or by facsimile and shall be deemed to have been
duly given, in the case of notice by facsimile, when telecopied to the following
number, or, in the case of notice by hand, if personally delivered at the
following addresses or to such other addresses as may be hereafter notified by
the respective parties hereto:
The Purchaser: CONSTELLATION FINANCE LLC
11500 Ambassador Drive
Kansas City, MO 64153
Attention: Christine R. Deister, President, Treasurer and
Assistant Secretary
Telecopy: (816) 464-5421
The Company: TRANS WORLD AIRLINES, INC.
One City Centre
515 N. Sixth Street
St. Louis, MO 63101
Attention: Chief Financial Officer
Telecopy: (314) 589-3074
-41-
<PAGE>
With a copy to: TRANS WORLD AIRLINES, INC.
One City Centre
515 N. Sixth Street
St. Louis, MO 63101
Attention: General Counsel
Telecopy: (314) 589-3267
THE CHASE MANHATTAN BANK
450 West 33rd Street, 15th Floor
New York, New York 10022
Attention: Joann Manieri
Telecopy: (212) 946-3916/3240
XI.10 Counterparts. This Agreement may be executed by one or more of the
------------
parties to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
XI.11 WAIVERS OF JURY TRIAL. THE COMPANY AND THE PURCHASER HEREBY
---------------------
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
XI.12 Submission To Jurisdiction; Waivers. The Company and the Purchaser
-----------------------------------
each hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Sale Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered mail (or any
substantially similar form of mail), postage prepaid, to the such Person at
its address set forth in Section 11.9 or at such other address of which the
------------
Purchaser shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
-42-
<PAGE>
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this subsection any special, exemplary, punitive or consequential
damages.
XI.13 No Bankruptcy Petition. The Company covenants and agrees that, prior
----------------------
to the date which is one year and one day after the date of termination of this
Agreement pursuant to Section 11.15, it will not institute against, or join any
-------------
other Person in instituting against, the Purchaser any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any federal or state bankruptcy or similar law.
XI.14 Limited Recourse. The obligations of the Purchaser hereunder shall
----------------
be due and payable only to the extent that the Purchaser's assets are sufficient
to pay such obligations. Without limitation of the obligations of the Purchaser,
no recourse shall be had for the payment of any amount owing in respect of this
Agreement or any other Related Document against any stockholder, employee,
officer, director or incorporator of the Purchaser based solely on their status
as such. The provisions of this Section 11.14 shall survive the termination of
-------------
this Agreement.
XI.15 Termination. This Agreement will terminate at such time as (a) the
-----------
Termination Date shall have occurred and (b) all Receivables sold hereunder have
been collected and the proceeds thereof turned over to the Purchaser and all
other amounts owing to the Purchaser hereunder shall have been paid in full or,
if Receivables sold hereunder have not been collected such Receivables have
become Defaulted Receivables and the Servicer shall have completed its
collection efforts in respect thereto; provided, however, that the indemnities
-------- -------
of the Company to the Purchaser and the Trustee set forth in this Agreement
shall survive such termination and provided further that the Purchaser shall
-------- -------
remain entitled to receive any collections on Receivables sold hereunder which
have become Defaulted Receivables after the Servicer shall have completed its
collection efforts in respect thereof.
XI.16 Confidentiality. The Purchaser agrees to keep confidential all
---------------
non-public information provided to it by the Company pursuant to this Agreement;
provided that nothing herein shall prevent the Purchaser from disclosing any
- --------
such information (i) to the Trustee, (ii) to any Person who acquires, or is
interested in acquiring, an interest in the Purchased Receivables from the
Purchaser, (iii) to its employees, directors, agents, attorneys, accountants and
other professional advisors, (iv) upon the request or demand of any Governmental
Authority having jurisdiction over the Purchaser (provided that notice of such
request or demand shall be furnished to the Company unless such notice is
legally prohibited or such Governmental Authority requests that such notice not
be furnished to the Company), (v) in response to any order of any court or other
Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law (provided that notice of such order or requirement shall be
furnished to the Company unless such notice is legally prohibited or such court
or Governmental Authority requests that such notice or requirement not be
furnished to the Company), (vi) which has been publicly disclosed other than in
breach of this Agreement or (vii) in connection with the collection of any
Purchased
-43-
<PAGE>
Receivable or the exercise of any remedy hereunder or under the Base Indenture
or any Supplement.
-44-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, all as of the
day and year first above written.
TRANS WORLD AIRLINES, INC.,
as Originator, Seller, and Servicer
By:/s/ Kathleen A. Soled
---------------------
Name: Kathleen A. Soled
Title: Vice President, Legal &
Corporate Secretary
CONSTELLATION FINANCE LLC,
as purchaser
By:/s/ C.R. Deister
----------------
Name: Christine Deister
Title: President
Accepted and Agreed to by
THE CHASE MANHATTAN BANK,
as Trustee
By:/s/ Jo Ann Manieri
------------------
Name: Jo Ann Manieri
Title: Trust Officer
-45-
<PAGE>
EXHIBIT A to the
Sale and Servicing Agreement
----------------------------
NOTE
December 30, 1997
CONSTELLATION FINANCE LLC, a Delaware limited liability company (the
"Purchaser"), hereby promises to pay to the order of TRANS WORLD AIRLINES, INC.,
- ----------
a Delaware corporation (the "Company"), the aggregate principal amount of this
-------
Note, determined as described below, together with interest thereon which shall
accrue at a per annum rate of 11% from and including the Effective Date, and
which shall be paid on each Payment Date with respect to amounts accrued and not
paid as of the last day of the preceding Interest Period and/or the Maturity
Date (or, in the case of the first Payment Date, as of the date on which this
Note is issued). Capitalized terms used herein but not defined herein shall
have the meanings assigned to such terms in the Sale and Servicing Agreement
dated as of December 30, 1997, between the Company and the Purchaser (such
agreement, as it may from time to time be amended, supplemented or otherwise
modified in accordance with its terms, the "Sale and Servicing Agreement").
----------------------------
This Note is the Note referred to in the Sale and Servicing Agreement.
The aggregate principal amount of this Note at any time shall be equal to
the difference between (a) the aggregate principal amount on the issuance hereof
and each addition to the principal amount of this Note pursuant to the terms of
Section 2.3 of the Sale and Servicing Agreement, including any amounts payable
- -----------
by the Purchaser pursuant to Section 2.5 of the Sale and Servicing Agreement, as
-----------
noted on the attached grid, minus (b) the aggregate amount of all payments made
-----
in respect of the principal of this Note pursuant to Section 10.2 of the Sale
------------
and Servicing Agreement or otherwise, in each case, as recorded on the grid
annexed to and constituting a part of this Note; provided, however, that the
-------- -------
failure to make any such recording shall not affect the obligations of the
Purchaser in respect of this Note. Principal not prepaid pursuant to the terms
of the Sale and Servicing Agreement shall be payable one year after the latest
Series Termination Date under any Supplement, or such later date as may be
agreed to by the Company and the Purchaser (the "Maturity Date"). Payments of
-------------
interest accrued on this Note at a per annum rate of 11% on the unpaid principal
balance of this Note shall be paid on each Payment Date and on the Maturity Date
by wire transfer of immediately available funds to such account of the Company
as it may designate in writing. Such payments shall be made no later than 5:30
p.m. (Eastern Standard) on the required payment date. Notwithstanding the
foregoing, no payments of interest or principal may be made under this Note at
any time except as permitted under the terms of the Sale and Servicing
Agreement.
EX-A-1
<PAGE>
The Company covenants and agrees, and the Purchaser, by its making of this
Note, likewise covenants and agrees on behalf of itself and the Series 1997-1
Noteholders, that the payment of the principal amount of and interest on this
Note is hereby expressly subordinated in right of payment to the payment and
performance of all of the Purchaser's obligations under the Indenture
("Indenture Obligations") to the extent and in the manner set forth in the
- -----------------------
following clauses (hereinafter, the "Subordination Provisions"):
------------------------
(i) In the event of any dissolution, winding up, liquidation,
readjustment, reorganization or other similar event relating to the Purchaser,
whether voluntary or involuntary, partial or complete, and whether in
bankruptcy, insolvency or receivership proceedings, or upon an assignment for
the benefit of creditors, or any other marshalling of the assets and liabilities
of the Purchaser or any sale of all or substantially all of the assets of the
Purchaser (such proceedings being herein collectively called "Bankruptcy
----------
Proceedings"), the Indenture Obligations shall first be paid and performed in
- -----------
full before the Company shall be entitled to receive and to retain any payment
or distribution in respect of this Note. In order to implement the foregoing:
(i) all payments and distributions of any kind or character in respect of this
Note to which the Company would be entitled except for this clause (i) shall be
----------
made directly to the Trustee (for the benefit of the Series 1997-1 Noteholders);
(ii) the Company shall promptly file a claim or claims, in the form required in
any Bankruptcy Proceedings, for the full outstanding amount of this Note, and
shall use commercially reasonable efforts to cause said claim or claims to be
approved and all payments and other distributions in respect thereof to be made
directly to the Trustee (for the benefit of the Series 1997-1 Noteholders) until
the Indenture Obligations shall have been paid and performed in full; and (iii)
the Company hereby irrevocably agrees that if the Company fails to comply with
the terms of clause (ii) above, the Trustee (for the benefit of the Series 1997-
-----------
1 Noteholders), in the name of the Company or otherwise, may demand, sue for,
collect, receive and receipt for any and all such payments or distributions, and
file, prove and vote or consent in any such Bankruptcy Proceedings with respect
to any and all claims of the Company relating to this Note, in each case until
the Indenture Obligations shall have been paid and performed in full;
(ii) In the event that the Company receives any payment or other
distribution of any kind or character from the Purchaser or from any other
source whatsoever, in respect of this Note, other than as expressly permitted by
the terms of this Note, such payment or other distribution shall be received for
the sole benefit of the Series 1997-1 Noteholders and shall be turned over by
the Company to the Trustee (for the benefit of the Series 1997-1 Noteholders)
forthwith. The Company will mark its books and records so as clearly to
indicate that this Note is subordinated in accordance with the terms hereof.
All payments and distributions received by the Trustee in respect of this Note,
to the extent received in or converted into cash, may be applied by the Trustee
(for the benefit of the Series 1997-1 Noteholders) first to the payment of any
and all expenses (including reasonable attorneys' fees and legal expenses) paid
or incurred by the Trustee or the Series 1997-1 Noteholders in enforcing these
Subordination Provisions, or in endeavoring to collect or realize upon this
Note, and any balance thereof shall, solely as between the Company and the
Series 1997-1 Noteholders, be applied by the Trustee toward the payment of the
Indenture Obligations; but as between the Purchaser and its creditors, no such
payments or distributions of any kind or character shall be deemed to be
payments or distributions in respect of the Indenture Obligations;
EX-A-2
<PAGE>
(iii) Notwithstanding any payments or distributions received by the Series
1997-1 Noteholders in respect of this Note, while any Bankruptcy Proceedings are
pending the Company shall not be subrogated to the then existing rights of the
Series 1997-1 Noteholders in respect of the Indenture Obligations until the
Indenture Obligations have been paid and performed in full;
(iv) These Subordination Provisions are intended solely for the purpose of
defining the relative rights of the Company, on the one hand, and the Series
1997-1 Noteholders on the other hand. Nothing contained in these Subordination
Provisions or elsewhere in this Note is intended to or shall impair, as between
the Purchaser, its creditors (other than the Series 1997-1 Noteholders) and the
Company, the Purchaser's obligation, which is unconditional and absolute, to pay
the Company the principal of and interest on this Note as and when the same
shall become due and payable in accordance with the terms hereof or to affect
the relative rights of the Company and creditors of the Purchaser (other than
the Series 1997-1 Noteholders);
(v) The Company shall not, until the Indenture Obligations have been paid
and performed in full, cancel, waive, forgive, transfer or assign, or commence
legal proceedings to enforce or collect, or subordinate to any obligation of the
Purchaser, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, or now or hereafter existing, or due or to become due,
other than the Indenture Obligations, this Note or any rights in respect hereof;
(vi) The Company shall not, without the advance written consent of the
Trustee and any Enhancement Provider commence, or join with any other Person in
commencing, any Bankruptcy Proceedings with respect to the Purchaser until at
least one year and one day shall have passed since the Indenture Obligations
shall have been paid and performed in full;
(vii) If, at any time, any payment (in whole or in part) of any Indenture
Obligations are rescinded or must be restored or returned by the Trustee or the
Series 1997-1 Noteholders (whether in connection with Bankruptcy Proceedings or
otherwise), these Subordination Provisions shall continue to be effective or
shall be reinstated, as the case may be, as though such payment had not been
made;
(viii) Without affecting the rights and restrictions set forth in the Sale
and Servicing Agreement and the Series 1997-1 Supplement, the Trustee (for the
benefit of the Series 1997-1 Noteholders) may, from time to time, at its sole
discretion, without notice to the Company, and without waiving any of its rights
under these Subordination Provisions, take any or all of the following actions:
(i) retain or obtain from any Person an interest in any property to secure any
of the Indenture Obligations; (ii) retain or obtain the primary or secondary
obligations of any other obligor or obligors with respect to any of the
Indenture Obligations; (iii) extend or renew for one or more periods (whether or
not longer than the original period), alter or exchange any of the Indenture
Obligations, or release or compromise any obligation of any nature with respect
to any of the Indenture Obligations; (iv) amend, supplement, amend and restate,
or otherwise modify the Base Indenture, the Series 1997-1 Supplement or any
other transaction document; and (v) release its security interest in, or
surrender, release or permit any substitution or exchange for
EX-A-3
<PAGE>
all or any part of any rights or property securing the Indenture Obligations, or
extend or renew for one or more periods (whether or not longer than the original
period), or release, compromise, alter or exchange any obligations of any nature
of any obligor with respect to any such rights or property;
(ix) The Company hereby waives: (i) notice of acceptance of these
Subordination Provisions by the Trustee or the Series 1997-1 Noteholders; (ii)
notice of the existence, creation, non-payment or non-performance of the
Indenture Obligations; and (iii) all diligence in enforcement, collection or
protection of, or realization upon, the Indenture Obligations, or any thereof,
or any security therefor;
(x) The Series 1997-1 Noteholders may, from time to time, on the terms and
subject to the conditions set forth in the Base Indenture and the Series 1997-1
Supplement, but without notice to the Company, assign or transfer any or all of
the Indenture Obligations, or any interest therein; and, notwithstanding any
such assignment or transfer or any subsequent assignment or transfer thereof,
such Indenture Obligations shall be and remain Indenture Obligations for the
purposes of these Subordination Provisions, and every immediate and successive
assignee or transferee of any of the Indenture Obligations or of any interest of
such assignee or transferee in the Indenture Obligations shall be entitled to
the benefits of these Subordination Provisions to the same extent as if such
assignee or transferee were the assignor or transferor; and
(xi) These Subordination Provisions constitute a continuing offer from the
holder of this Note to all Persons who become the holders of, or who continue to
hold, the Indenture Obligations; and these Subordination Provisions are made for
the benefit of the Series 1997-1 Noteholders, and the Trustee may proceed to
enforce such provisions on behalf of each of such Persons.
Neither this Note, nor any right of the Company to receive payments
hereunder, may be assigned, transferred, exchanged, pledged, hypothecated,
participated or otherwise conveyed, and any purported assignment, transfer,
exchange, pledge, hypothecation, participation or other conveyance of this Note
or any right of the Company to receive payments hereunder shall be void ab
initio and of no effect.
The Purchaser hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The failure of any holder to exercise any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
EX-A-4
<PAGE>
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW
OF THE STATE OF NEW YORK.
CONSTELLATION FINANCE LLC
By:
Name:
Title:
EX-A-5
<PAGE>
SCHEDULE OF PRINCIPAL BALANCES
This Schedule evidences additions to and payments made in respect of
the principal balance of the Note, on the dates, in the principal amounts,
bearing interest at the rates and having Interest Periods (if applicable) of the
durations set forth below:
<TABLE>
<CAPTION>
Date of Increase/Decrease Principal Unpaid Notation
in Principal Balance Amount Principal Made By
-------------------- Increase/Decrease Amount -------
----------------- ------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
EX-A-6
<PAGE>
EXHIBIT 5
[DAVIS POLK & WARDWELL LETTERHEAD]
January 22, 1998
Trans World Airlines, Inc.
One City Centre, 515 N. Sixth Street
St. Louis, Missouri 63101
Ladies and Gentlemen:
We have acted as special counsel to Trans World Airlines, Inc. (the
"Company") in connection with the Company's offer (the "Exchange Offer") to
exchange its 11 1/2% Senior Secured Notes due 2004 (the "Exchange Notes") for
any and all of its outstanding 11 1/2% Senior Secured Notes due 2004 (the "Old
Notes").
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments as we have deemed necessary or advisable for the
purpose of rendering this opinion.
Upon the basis of the foregoing and, assuming the due execution and
delivery of the Exchange Notes, we are of the opinion that the Exchange Notes,
when executed, authenticated and delivered in exchange for the Old Notes in
accordance with the Exchange Offer, will be valid and binding obligations of the
Company enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
similar laws affecting creditors' rights generally and equitable principles.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States of America and the General Corporation Law of the State of
Delaware.
<PAGE>
Trans World Airlines, Inc. 2 January 22, 1998
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Exchange Offer. We also consent to the
reference to us under the caption "Legal Matters" in the Prospectus contained in
such Registration Statement.
This opinion is rendered solely to you in connection with the above matter.
This opinion may not be relied upon by you for any other purpose or relied upon
by or furnished to any other person without our prior written consent.
Very truly yours,
DAVIS POLK & WARDWELL
<PAGE>
EXHIBIT 10.46.1
[CONFORMED COPY]
PLEDGE AND SECURITY AGREEMENT
FROM
TRANS WORLD AIRLINES, INC.
TO
FIRST SECURITY BANK,
NATIONAL ASSOCIATION
AS COLLATERAL AGENT
Dated as of December 9, 1997
11 1/2% Senior Secured Notes due 2004
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 - Definitions and Rules of Construction
Section 1.01 Definitions....................................................................................... 1
Section 1.02 Rules of Construction............................................................................. 1
ARTICLE 2 - Collateral
Section 2.01 Grant of Security Interest........................................................................ 1
Section 2.02 Substitution of Collateral........................................................................ 3
ARTICLE 3 - Representations and Warranties
Section 3.01 Representations and Warranties of the Company..................................................... 3
ARTICLE 4 - Covenants
Section 4.01 Further Assurances................................................................................ 5
Section 4.02 Taxes............................................................................................. 5
Section 4.03 Maintenance....................................................................................... 7
Section 4.04 Event of Loss; Use in the Ordinary Course of Business; Release; Thresholds; Effect of Release;
Substitution...................................................................................... 7
Section 4.05 Possession, Sublease and Assignment............................................................... 11
Section 4.06 Recording; Registration; Compliance with Laws and Rules........................................... 13
Section 4.07 Indemnities....................................................................................... 13
Section 4.08 FAA Records....................................................................................... 14
Section 4.09 Restrictions on Liens; Permitted Contests......................................................... 14
Section 4.10 Warranty of Title................................................................................. 15
Section 4.11 Inventory Control System.......................................................................... 16
Section 4.12 Actions Regarding the Beneficial Interest Certificates............................................ 16
Section 4.13 Reports Regarding Collateral...................................................................... 16
Section 4.14 Maintenance Ratio................................................................................. 17
Section 4.15 Change in Location of Principal Office, Records or Name........................................... 18
ARTICLE 5 - Insurance
Section 5.01 Insurance to Be Carried........................................................................... 18
Section 5.02 Alteration of Insurance........................................................................... 19
Section 5.03 Additional Insurance.............................................................................. 19
Section 5.04 Insurance Certificates............................................................................ 19
Section 5.05 Proceeds of Insurance............................................................................. 20
ARTICLE 6 - Remedies
Section 6.01 Remedies.......................................................................................... 20
Section 6.02 Application of Proceeds........................................................................... 22
Section 6.03 Obligations of Company Not Affected by Remedies................................................... 22
Section 6.04 Remedies Cumulative and Subject to Applicable Law................................................. 22
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 7 - Termination
Section 7.01 Termination....................................................................................... 23
ARTICLE 8 - Collateral Agent
Section 8.01 Collateral Agent.................................................................................. 23
ARTICLE 9 - Miscellaneous
Section 9.01 Benefits of Pledge Agreement Restricted........................................................... 24
Section 9.02 Funds May Be Held by the Collateral Agent; Investments in Investment Securities................... 24
Section 9.03 Certificates and Opinions of Counsel; Statements to Be Contained Therein; Basis Therefor.......... 26
Section 9.04 Appraiser's Certificate........................................................................... 26
Section 9.05 Notices; Waiver................................................................................... 26
Section 9.06 Amendments, Etc................................................................................... 27
Section 9.07 No Waiver; Remedies............................................................................... 28
Section 9.08 Conflict with Trust Indenture Act of 1939......................................................... 28
Section 9.09 Holidays.......................................................................................... 28
SECTION 9.10 Successors and Assigns............................................................................ 28
SECTION 9.11 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial; Waiver of Damages................ 29
Section 9.12 Indemnification................................................................................... 30
SECTION 9.13 Effect of Headings................................................................................ 30
SECTION 9.14 No Adverse Interpretation of Other Agreements..................................................... 30
Section 9.15 No Recourse Against Others........................................................................ 30
SECTION 9.16 Counterpart Originals............................................................................. 30
SECTION 9.17 Severability...................................................................................... 30
SECTION 9.18 Survival Provisions............................................................................... 31
SECTION 9.19 Waivers........................................................................................... 31
</TABLE>
EXHIBIT A FORM OF SUPPLEMENTAL PLEDGE AGREEMENT (To Add Collateral)
EXHIBIT B FORM OF SUPPLEMENTAL PLEDGE AGREEMENT (To Release Collateral
EXHIBIT C FORM OF MONTHLY INVENTORY REPORT
SCHEDULE 1 DESIGNATED LOCATIONS
SCHEDULE 2 COLLATERAL RELEASE SCHEDULE
SCHEDULE 3 UCC FILING JURISDICTIONS
(ii)
<PAGE>
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of December 9, 1997 by and
between TRANS WORLD AIRLINES, INC., a Delaware corporation (together with its
successors and assigns, the "Company"), and FIRST SECURITY BANK, NATIONAL
ASSOCIATION, a national banking association organized under the laws of the
United States of America, having an office at 79 South Main Street, Salt Lake
City, Utah 84111, as Collateral Agent appointed pursuant to the Indenture
referred to below (together with its successors in such capacity, the
"Collateral Agent").
RECITALS
WHEREAS, the Company and the Trustee have entered into an Indenture
dated as of the date hereof (as at any time amended or supplemented or otherwise
modified, the "Indenture"), providing for the issuance of its securities
consisting of $140,000,000 aggregate principal amount of 11 1/2% Senior Secured
Notes due 2004 (collectively, the "Securities"); and
WHEREAS, in order to secure the payment of the principal amount of and
interest and Special Interest, if any, on the Securities and all other
Obligations of the Company under the Indenture, the Securities and the Operative
Documents, the Company has agreed to pledge and grant a security interest in the
Collateral, as provided for herein; and
WHEREAS, the Company and the Collateral Agent wish to set forth herein
their respective rights, liabilities and obligations with respect to the
Collateral.
NOW, THEREFORE, in consideration of the premises and other benefits to
the Company, the receipt and sufficiency of which are hereby acknowledged, the
Company hereby makes the following representations and warranties and hereby
covenants and agrees as follows:
ARTICLE 1
Definitions and Rules of Construction
Section 1.01 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 part of
this Pledge Agreement as if fully set forth in this place.
Section 1.02 Rules of Construction. The rules of construction for
---------------------
this Pledge Agreement are set forth in Section 2 of the Definitions Appendix.
ARTICLE 2
Collateral
Section 2.01 Grant of Security Interest. To secure the prompt
--------------------------
payment, performance and observance in full of any and all of the Company's
indebtedness and obligations evidenced
<PAGE>
by or set forth in the Securities or the Indenture (including, without
limitation, the principal of, premium, if any, on and interest and Special
Interest, if any, with respect to, the Securities) and all of its obligations to
perform acts or refrain from taking any action under the Indenture, the
Securities, this Pledge Agreement and the other Operative Documents (all the
foregoing hereinafter called the "Obligations"), the Company hereby pledges and
assigns to the Collateral Agent, and grants to the Collateral Agent for the
benefit of the Holders a continuing general, valid, perfected security interest
(senior in right and priority to all Liens except Permitted Collateral Liens) in
all right, title and interest of the Company in, to and under the following
whether now owned or hereafter acquired (collectively, the "Collateral"):
(a) The Pledged Spare Parts.
(b) The Beneficial Interest and the Beneficial Interest Certificate.
(c) The Slot Trust Assets, but only to the extent, if any, of any
right, title or interest that the Company notwithstanding the agreements of the
Company set forth in Section 5.01 of the Declaration, may have in, to or under
the Slot Trust Assets (it being acknowledged and understood by the parties
hereto that pursuant to the Declaration and the Deed of Conveyance, the Company
has agreed that all right, title and interest in and to the Slots specified in
the Deed of Conveyance has been assigned, transferred and conveyed, and that all
right, title and interest in and to any Slots that hereafter are the subject of
any Subsequent Deed of Conveyance will be assigned, transferred and conveyed, to
the Slot Trustee, and it being further acknowledged and agreed that the pledge,
assignment and grant set forth in this Section 2.01(c) does not in any way limit
the Deed of Conveyance or any Subsequent Deed of Conveyance).
(d) All cash and/or Investment Securities deposited with the
Collateral Agent to be held by the Collateral Agent as security for the
Obligations as provided herein or in the Master Sub-License Agreement.
(e) All other Property which may be granted, bargained, sold,
conveyed, transferred, assigned or pledged pursuant to the terms of this Pledge
Agreement by the Company to the Collateral Agent at any time and all proceeds
(as such term is defined in Article 9 of the New York Uniform Commercial Code in
effect on the date hereof) of and to any of the Property in which a security
interest is granted under this Section 2.01.
(f) All repair, maintenance and inventory records, logs, manuals and
all other documents and materials similar thereto (including, without
limitation, any such records, logs, manuals, documents and materials that are
computer print-outs) at any time maintained, created or used by the Company, and
all records, logs, documents and other materials required at any time to be
maintained by the Company pursuant to the FAA or under the Federal Aviation Act,
in each case with respect to any of the Spare Parts included in any of the
foregoing.
(g) The tolls, rents, revenues, issues, income, distributions,
products and profits, and all the estate, right, title, interest and claim
whatsoever, at law, as well as in equity, which the Company has or possesses on
the date of delivery of this Pledge Agreement or to which the Company may
thereafter become legally or equitably entitled, from, in or to the Collateral
or the
2
<PAGE>
Slot Trust Assets (excluding any cash on hand or in banks, instruments and
accounts receivable arising from the conduct of the Company's business which do
not arise either from the use, operation, storage, control or management of the
Collateral or the Slot Trust Assets by the Collateral Agent pursuant to Article
6 hereof or through distributions, if any, made by the Slot Trust).
It is the true, clear, and express intention of the Company that the
continuing grant of the security interests provided for in this Pledge Agreement
remain as security for payment and performance of the Obligations until such
Obligations are satisfied and performed in full. The notice of the continuing
grant of this security interest therefor shall not be required to be stated on
the face of any Security, nor shall the Company otherwise be required to
identify such Security as being secured hereby.
Section 2.02 Substitution of Collateral. The Company may from time
--------------------------
to time substitute Permitted Substitutes for any Non-Slot Collateral then
subject to the Lien of this Pledge Agreement to the extent permitted by and in
accordance with Section 4.04 and the Substitution Requirements and, upon the
consummation of such substitution, the Collateral Agent, upon Request of the
Company, shall release its Lien on the Collateral for which Permitted
Substitutes are so substituted.
ARTICLE 3
Representations and Warranties
Section 3.01 Representations and Warranties of the Company. The
---------------------------------------------
Company represents and warrants to the Collateral Agent as follows:
(a) The Company is an air carrier certificated under Section 44705 of
the Federal Aviation Act.
(b) The Company owns, and has full right, title and interest in, the
Collateral, free and clear of all Liens, except Permitted Collateral Liens.
(c) The Company maintains public liability, property damage and
workers' compensation insurance and insurance on all its insurable property,
including the Collateral, against fire and other hazards with responsible
insurance carriers to the extent usually maintained by similarly situated
companies.
(d) This Pledge Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or general principles of equity and commercial
reasonableness.
(e) Upon the delivery to the Collateral Agent of Beneficial Interest
Certificate, the filing of this Pledge Agreement with the FAA and the filing of
financing statements under the
3
<PAGE>
Uniform Commercial Code (the "UCC") in the offices of the Secretaries of State
and (to the extent required by the UCC) the county clerks in each Designated
Location, in each case as set forth in Schedule 3 hereto, the pledge of the
Collateral, securing the payment of the Obligations for the benefit of the
Collateral Agent and the Holders, will constitute a first priority perfected
security interest in such Collateral, enforceable as such against all creditors
of the Company and any Persons purporting to purchase any of the Collateral from
the Company other than Permitted Collateral Liens, except as such enforceability
may be limited by the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally or general principles of equity and commercial reasonableness.
(f) No consent of any other Person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required either for (i) the pledge by the
Company of the Collateral pursuant to this Pledge Agreement or for the
execution, delivery or performance of this Pledge Agreement by the Company
(except, in the case of any Collateral a security interest in which can only be
perfected by filing of a financing statement under the UCC, for the filing of
the UCC financing statements in all Designated Locations as described in Section
3.01(e) and, with respect to Pledged Spare Parts, the filing of this Pledge
Agreement with the FAA or (ii) the exercise by the Collateral Agent of the
rights provided for in this Pledge Agreement or the remedies in respect of the
Collateral pursuant to this Pledge Agreement.
(g) No litigation investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the knowledge of the
Company, threatened by or against the Company with respect to this Pledge
Agreement, any of the Collateral or any of the transactions contemplated hereby.
(h) The pledge of the Collateral pursuant to this Pledge Agreement is
not prohibited by any applicable law or governmental regulation, release,
interpretation or opinion of the Board of Governors of the Federal Reserve
System or other regulatory agency (including, without limitation, Regulations G,
T, U and X of the Board of Governors of the Federal Reserve System).
(i) The execution, delivery and performance by the Company of the
Operative Documents to which it is a party do not and will not (i) violate any
provision of any law or any governmental rule or regulation applicable to the
Company, the Certificate of Incorporation or Bylaws of the Company or any order,
judgment or decree of any court or other agency of government binding on the
Company, (ii) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any material contractual
obligation of the Company, (iii) result in or require the creation or imposition
of any Lien upon any of the properties or assets of the Company (other than any
Liens contemplated hereunder and under the other Operative Documents in favor of
the Collateral Agent, the Slot Trustee or the Trustee, as the case may be, on
behalf of the Holders), or (iv) require any approval of stockholders, or any
approval or consent of any Person under any material contractual obligation, of
the Company.
(j) The Company's chief executive office and principal place of
business is at its address set forth for notices in Section 9.05(a), and the
originals of its records pertaining to the
4
<PAGE>
Collateral are kept at such address and the Designated Locations. The Company's
name as set forth in such Section is its correct legal name and the Company has
not within the past five years had any other legal name, nor has the Company
done within such five years nor is the Company now doing business under any
other name. The Company's correct U.S. tax identification number is 43-1145889.
ARTICLE 4
Covenants
Section 4.01 Further Assurances. From time to time, the Company
------------------
shall perform any and all acts and execute any and all additional instruments
and documents as may be reasonably requested by the Collateral Agent, the
Indenture Trustee or the Slot Trustee, to carry out the intention of or to
facilitate the performance of the terms of this Pledge Agreement or to secure
the rights and remedies hereunder or thereunder of the Holders including,
without limitation, the execution and delivery of instruments of title, any
supplemental agreements and any financing statement or continuation of any
financing statement or other appropriate instrument of recording under the
Uniform Commercial Code as in effect in the jurisdictions in which the
Collateral is located, under the Federal Aviation Act and the rules and
regulations promulgated thereunder or under any other appropriate law or
regulatory scheme applicable to the Collateral.
Section 4.02 Taxes. The Company will promptly pay and discharge all
-----
taxes, assessments, fees, charges, fines and penalties of any kind which may be
imposed (a) upon any of the Collateral, the Acquired Slots or upon the Slot
Trust and (b) for the use or operation thereof by the Company, and will at all
times keep the Collateral and the Acquired Slots free and clear of all taxes,
assessments, fees, charges, fines and penalties of any kind which might in any
way affect the title thereto or result in a Lien which is not a Permitted
Collateral Lien upon any part or the whole of the Collateral or the Acquired
Slots; provided, however, that the Company shall not be required to pay or
discharge any taxes, assessments, fees, charges, fines or penalties of any kind
(i) whose amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which adequate provision has been made if
required in accordance with GAAP, as in effect from time to time, or (ii) if the
Company delivers to the Collateral Agent an Officers' Certificate stating that
such non-payment and non-discharge is in the interest of the Company, presents
no material risk of sale, forfeiture or loss of any Collateral, and is not
prejudicial in any material respect to the Holders, except that the Company will
pay all such taxes, assessments, fees, charges, fines or penalties forthwith
upon the commencement of proceedings to foreclose any Lien on any Collateral or
Acquired Slot which may have attached as security therefor. If any expenses,
taxes, assessments, fees, charges, fines or penalties which are payable by the
Company hereunder shall have been charged or levied against the Collateral
Agent, the Indenture Trustee or the Slot Trustee directly and, after notice to
the Company and opportunity to contest as aforesaid, paid by the Collateral
Agent, the Indenture Trustee or the Slot Trustee, the Company shall reimburse
the Collateral Agent, the Indenture Trustee or the Slot Trustee on presentation
of an invoice therefor.
5
<PAGE>
For purposes of this Section 4.02 and notwithstanding any other
provision of this Pledge Agreement, the Collateral Agent, the Indenture Trustee
or the Slot Trustee are the sole parties to, from, or with whom the Company
shall be obligated to communicate or receive any communication or notice,
negotiate, settle, or enter into any stipulation, agree upon or make factual
determinations, elections, or payments regarding any matter arising under this
Section 4.02. Any and all notices received or served by the Company from or upon
the Collateral Agent, the Indenture Trustee or the Slot Trustee shall be deemed
notice duly served from or upon the Company. The Company shall have no
obligation to communicate or deal with any parties except the Collateral Agent,
the Indenture Trustee or the Slot Trustee regarding any matter arising under
this Section 4.02.
The Company will, except as otherwise permitted under the first
paragraph of this Section 4.02, pay, and will save the Collateral Agent, the
Indenture Trustee and the Slot Trustee and the Holders harmless from, any stamp
taxes which shall be payable in connection with this Pledge Agreement, any
supplement or amendment hereof or the original issuance of the Securities.
If a written claim is made against the Collateral Agent, the Indenture
Trustee or the Slot Trustee or the Holders of Securities for any taxes,
assessments, fees, charges, fines, or penalties which are subject to payment or
indemnification by the Company under this Section 4.02, the Collateral Agent,
the Indenture Trustee or the Slot Trustee shall promptly notify the Company
thereof in writing. If requested by the Company in writing within thirty (30)
days (but twenty (20) days if the Collateral Agent, the Indenture Trustee or the
Slot Trustee received a 30-day statutory notice) of the notice to the Company,
the Collateral Agent, the Indenture Trustee or the Slot Trustee shall, at the
Company's expense and direction, for so long as the Collateral Agent, the
Indenture Trustee or the Slot Trustee reasonably believes that the Company is
acting in good faith and the Collateral Agent, the Indenture Trustee or the Slot
Trustee have received adequate indemnification therefor, contest such taxes,
assessments, fees, charges, fines or penalties. The Company shall select the
forum for such contest and shall determine whether such contest shall be by:
(a) resisting or refusing payment of such taxes, assessments, fees,
charges, fines or penalties; or
(b) not paying such taxes, assessments, fees, charges, fines or
penalties except under protest; or
(c) paying such taxes, assessments, fees, charges, fines, or penalties
and seeking a refund thereof.
If permissible under applicable law, the Collateral Agent, the
Indenture Trustee or the Slot Trustee shall assign its right to contest the
imposition or levy of any such tax, assessment, fees, charges, fines or
penalties to the Company.
Section 4.03 Maintenance. The Company, at its own cost or expense:
-----------
6
<PAGE>
(a) shall maintain, or cause to be maintained, at all times all
Pledged Spare Parts in accordance with all applicable laws, rules, regulations,
orders, directives and instructions issued by the FAA or any other governmental
authority having jurisdiction over the Company or any such Collateral, including
making any modifications, alterations, replacements and additions necessary
therefor;
(b) shall maintain, or cause to be maintained, all records, logs and
other materials required by the FAA or under the Federal Aviation Act to be
maintained in respect of any Pledged Spare Parts and shall retain complete
copies thereof to the extent necessary to insure that the value of such Pledged
Spare Parts will not be materially diminished for lack of a full maintenance
history;
(c) shall maintain, or cause to be maintained, every Pledged Spare
Part in good order and condition, shall perform all maintenance thereon
necessary for that purpose and shall obtain all necessary recertification
thereof and shall maintain generally the quality and makeup (by type and class)
thereof in accordance with applicable laws.
Section 4.04 Event of Loss; Use in the Ordinary Course of Business;
------------------------------------------------------
Release; Thresholds; Effect of Release; Substitution.
- ----------------------------------------------------
(a) Event of Loss. Upon the occurrence of an Event of Loss with
respect to any Operative Collateral, the Company shall give the Collateral Agent
prompt notice thereof and shall satisfy the applicable Substitution
Requirements.
Upon compliance by the Company with its obligations above and upon
Request by the Company, payment by the Company of the Collateral Agent's and
Slot Trustee's costs (including reasonable legal fees and disbursements) in
connection therewith and satisfaction of any applicable requirements of the TIA,
the Collateral Agent shall execute and deliver the required documents releasing,
assigning and transferring all of the right, title and interest of the
Collateral Agent in and to the Collateral which is the subject of such Event of
Loss to the Company or its designee, whereupon such Collateral shall cease to be
Collateral for all purposes hereof.
(b) Use in the Ordinary Course of Business. So long as no Event of
Default shall exist, the Company shall have the right, at any time and from time
to time at its own cost and expense, without any release from or consent by the
Collateral Agent, to deal with (but not, except as expressly otherwise permitted
under this Pledge Agreement, to sell, lease, transfer or otherwise dispose of,
or relinquish possession of) the Operative Collateral in any manner consistent
with the Company's Ordinary Course Of Business, including without limitation any
of the following:
With respect to the Pledged Spare Parts:
(A) to dismantle any Pledged Spare Part that has become worn out
or obsolete or unfit for use, and either in the Ordinary Course or
pursuant to sales permitted under Section 4.04(c), to sell or dispose
of other parts thereof not reasonably
7
<PAGE>
repairable or usable or any salvage resulting from such dismantling,
free from the Lien of this Pledge Agreement;
(B) to apply and use in the Ordinary Course Of Business, free
from the Lien of this Pledge Agreement, any Pledged Spare Parts for
installation or use in or for use in connection with any aircraft,
aircraft engines, propellers or appliances or spare parts owned or
operated by the Company; and
(C) to transfer any or all of the Pledged Spare Parts located at
one or more Designated Locations to one or more other Designated
Locations or one or more additional locations that are to be
designated as Designated Locations or either in the Ordinary Course or
pursuant to sales permitted under Section 4.04(c), to one or more
locations which are not Designated Locations.
(c) Release of Non-Slot Collateral. (i) The Company shall comply with this
Section 4.04(c) and the Substitution Requirements in connection with and (except
as provided in Section 4.05(a)(iv)) at or prior to the completion of any sale
(other than sales permitted under paragraphs (ii) or (iii) of this Section
4.04(c)) or deemed sale of Operative Collateral under this Pledge Agreement.
Upon Request by the Company, payment by the Company of the Collateral Agent's
costs (including reasonable legal fees and disbursements) incurred in complying
with such Request and satisfaction of the applicable Substitution Requirements,
and so long as no Event of Default has occurred and is continuing or would
result therefrom, the Collateral Agent shall release from the Lien of this
Pledge Agreement, assign and transfer to the Company or its designee at any
time, all the right, title and interest of the Collateral Agent in and to any
Operative Collateral that is the subject of (A) a contract of sale pursuant to
which the Company in the Ordinary Course has agreed to sell such Operative
Collateral on an arm's-length basis to an unaffiliated third party within ninety
(90) days after the date of such release, which contract contains only closing
conditions that are customary to a sale of that kind at that time and which sale
is not a "sale/leaseback" or other similar transaction used by the Company as a
financing vehicle, or (B) a deemed sale under this Section or Section
4.05(a)(iv) or 4.05(c) hereof; provided, however, that, so long as no Event of
Default then exists, (1) the Company shall not be so required to satisfy the
Substitution Requirements with respect to Pledged Spare Parts disposed of in the
Ordinary Course or pursuant to sales permitted by paragraphs (ii) or (iii) of
this Section 4.04(c), (2) the lien hereof shall automatically be released
concurrently with such disposition described in clause (1) above and without any
further action, and (3) such disposition shall be free and clear of any lien or
security interest created hereby. If Pledged Spare Parts cannot conveniently be
disposed of in the Ordinary Course because the Company has not maintained the
Pledged Parts Threshold or if the Company otherwise elects to reduce the Pledged
Parts Threshold, the Company may reduce the Pledged Parts Threshold upon
satisfying the applicable Substitution Requirements.
(ii) The Company may sell for cash Pledged Spare Parts in the Ordinary
Course of Business (other than any sale, whether in a single transaction
8
<PAGE>
or a related group or series of transactions, of Pledged Spare Parts having
an aggregate value as reflected on the Inventory Control System in excess
of $10,000,000), so long as either (A) the net proceeds of any such sale
are deposited with the Collateral Agent to be held as additional Cash
Collateral hereunder or (B) the aggregate value as reflected on the
Inventory Control System of the Pledged Spare Parts remaining after giving
effect to such sale is equal to or greater than the Pledged Parts
Threshold.
(iii) The Company may sell for cash Pledged Spare Parts having an
aggregate value as reflected on the Inventory Control System in excess of
$10,000,000 (whether in a single transaction or a related group or series
of transactions), if the net proceeds in excess of $10,000,000 of such sale
or sales are deposited with the Collateral Agent to be held as additional
Cash Collateral hereunder.
(iv) The Collateral Agent shall return to the Company any net
proceeds deposited pursuant to paragraphs (ii) or (iii) above upon Request
therefor if at any time the Security Ratio requirements are met (which, for
this purpose shall be at least 1.93 over 1), and the Collateral Agent has
received a Company Appraiser's Certificate (which, for purposes of this
Section 4.04(c)(iv), need not be based on an actual physical inspection of
the Collateral so long as it is based on a full appraisal which included
such physical inspection performed by the same Independent Appraiser
furnishing such Company Appraiser's Certificate and such physical
inspection was conducted no earlier than 20 months prior to the date of
such Company Appraiser's Certificate) dated as of a date within thirty (30)
days of the date such net proceeds are to be returned, stating (A) the Fair
Market Values, by type and category and in reasonable detail, of all assets
or groups of assets required for the computation of the Security Ratio and
(B) the Security Ratio, in each case after giving effect to the return of
such proceeds.
(d) Effect of Release. No purchaser in good faith of property purporting to
be released, assigned and transferred pursuant hereto shall be bound to
ascertain the authority of the Collateral Agent to execute the release,
assignment and transfer or to inquire as to the existence of any conditions
herein prescribed for the exercise of such authority; nor shall any purchaser or
grantee of any property or rights permitted by this Article 4 to be sold,
granted or otherwise disposed of by the Company be under any obligation to
ascertain or inquire into the authority of the Company to make any such sale,
grant or other disposition. Any release, assignment and transfer executed by the
Collateral Agent under this Section 4.04 shall be sufficient for the purposes of
this Pledge Agreement and shall constitute a good and valid release, assignment
and transfer of the Property therein described from ownership of the Collateral
Agent and the Lien of this Pledge Agreement.
(e) Substitution. If and whenever the Company shall be required or
permitted to subject any additional Property to the Lien of this Pledge
Agreement that is not already so subject pursuant to any provision of this
Pledge Agreement or pursuant to the terms of the Master Sub-
9
<PAGE>
License Agreement or the Indenture, the Company will furnish to the Collateral
Agent the following:
(i) a Supplemental Pledge Agreement duly executed by the Company,
appropriately describing, identifying and locating such Property or the
location that is to become a Designated Location and specifically
subjecting the same to the Lien of this Pledge Agreement;
(ii) in the case of Spare Parts, cash, Investment Securities or
Property being subjected to the Lien of this Pledge Agreement, an Opinion
of Counsel, dated the date of execution of said Supplemental Pledge
Agreement, stating that:
(1) said Supplemental Pledge Agreement: (a) has been duly
authorized, executed and delivered by the Company, and (b) except
in the case of a Supplemental Pledge Agreement relating to
Pledged Spare Parts, validly subjects to the Lien of this Pledge
Agreement under applicable Federal and State laws all the right,
title and interest of the Company in and to the Property
specifically described in said Supplemental Pledge Agreement, or
in the case of a Supplemental Pledge Agreement relating to
Pledged Spare Parts, validly subjects to the Lien of this Pledge
Agreement under applicable Federal and State laws all the right,
title and interest of the Company in and to such of the Pledged
Spare Parts described in said Supplemental Pledge Agreement as
may from time to time be situated at the Designated Locations
within the United States, and only while so situated; and
(2) said Supplemental Pledge Agreement has been duly filed
for recording in accordance with the provisions of the Federal
Aviation Act, and either: (a) is not required to be filed or
recorded in any other place within the United States in order to
perfect and preserve the Lien of this Pledge Agreement under the
laws of the United States on (i) except in the case of a
Supplemental Pledge Agreement relating to Pledged Spare Parts,
the Property specifically described in said Supplemental Pledge
Agreement, or (ii) in the case of a Supplemental Pledge Agreement
relating to Pledged Spare Parts, Spare Parts described in said
Supplemental Pledge Agreement as may from time to time be
situated at the Designated Locations within the United States,
and only while so situated; or (b) if any such other filing or
recording shall be required that
10
<PAGE>
said filing or recording has been accomplished in such other
manner and places, which shall be specified in such Opinion of
Counsel, as are necessary to perfect and preserve the Lien of
this Pledge Agreement; and
(iii) An Officers' Certificate stating that (A) the Company is the
legal and beneficial owner of the Property specifically described in said
Supplemental Pledge Agreement, free and clear of all Liens, except
Permitted Collateral Liens; and (B) in the opinion of the Officers
executing the Officers' Certificate, all conditions precedent provided for
in this Pledge Agreement relating to the subjection of such property to the
Lien of this Pledge Agreement have been complied with.
(f) Release of Collateral Upon Partial Prepayment. Simultaneously with or
promptly following the cancellation of any Securities, whether pursuant to a
partial redemption of any Securities pursuant to Article 3 of the Indenture, a
partial repurchase of any Securities pursuant any Offer to Purchase under the
Indenture, following a tender of Securities in connection with a tender offer
therefor or otherwise and subject to compliance by the Company with the
Preconditions, and provided that after giving effect to the release of such
--------
Collateral the Company will be in compliance with the Security Ratio, the
Collateral Agent shall release from the Lien of this Pledge Agreement and assign
and transfer to the Company or its designee all of the right, title and interest
of the Collateral Agent in designated Collateral as set forth in Schedule 2
hereto (the "Released Collateral") based upon the reduction in the amount of
Securities Outstanding to an amount equal to or less than the level specified
for the release of particular Collateral as set forth in Schedule 2 (the
"Collateral Release Trigger"). The Collateral Agent shall execute and deliver to
the Company the proper instrument or instruments (including, without limitation,
a Supplemental Pledge Agreement in the form of Exhibit B and Uniform Commercial
Code statements on form UCC-3) to evidence the release of the Lien on the
Released Collateral and to assign, transfer and deliver to the Company against
receipt but without recourse, warranty or representation the Released Collateral
and any other Property or proceeds received in respect thereof and then in the
possession of the Collateral Agent.
Section 4.05 Possession, Sublease and Assignment. (a) The Company shall
-----------------------------------
have the right, in the Ordinary Course Of Business, to (i) sublease (which in
this Section includes lease) any Pledged Spare Part to any "air carrier" (as
defined in the Federal Aviation Act) or to any manufacturer of such Pledged
Spare Part, or any Affiliate of such manufacturer, provided that the term of
--------
such sublease does not exceed twelve (12) months; (ii) sublease any Pledged
Spare Part to any Person as permitted by Section 4.05(c) hereof; (iii) transfer
possession of any Pledged Spare Part to the manufacturer thereof or any other
organization for testing, overhaul, repairs, maintenance, alterations,
modifications or promotional purposes; or (iv) subject any Pledged Spare Part to
an interchange or pooling, exchange, borrowing or maintenance servicing
agreement arrangement customary in the airline industry and entered into in the
Ordinary Course Of Business which does not contemplate or require the transfer
of title to such Pledged Spare Part and that requires such Pledged Spare Part to
be returned to the Company upon termination or expiration of such agreement or
arrangement (provided, however, that if the Company's title
11
<PAGE>
to any such Pledged Spare Part shall be divested under any such agreement or
arrangement, such divestiture shall be deemed to be a sale with respect to such
Pledged Spare Part and the Company shall immediately comply with Section 4.04(c)
hereof in respect thereof); provided, however, that the Company shall not have
the right to enter into any sublease or other arrangement pursuant to this
Section 4.05(a) if an Event of Default shall have occurred and be continuing.
Without the prior written consent of the Collateral Agent, the Company will not
otherwise sell, sublease, transfer or relinquish possession of any Pledged Spare
Part to anyone other than the Collateral Agent and will not assign any of its
rights hereunder, except as permitted by the provisions of this Section 4.05 and
Sections 4.03 and 4.04 hereof.
(b) Any sublease of any Pledged Spare Part permitted under Section 4.05(a)
(a "Sublease") shall be fully subject to the following conditions:
(i) Each Sublease of any Pledged Spare Part shall contain an
express agreement by the sublessee to the effect that: (A) such Sublease is
fully subject and subordinate in all respects to this Pledge Agreement and
to the Collateral Agent's rights and remedies with respect to such Pledged
Spare Part, (B) upon notice of the occurrence of an Event of Default given
by the Collateral Agent to such sublessee, the Collateral Agent may avoid
such Sublease, and the sublessee shall forthwith deliver such Pledged Spare
Part to the Collateral Agent and (C) such Pledged Spare Part shall be
located in the United States.
(ii) All necessary action shall have been taken which is required to
continue the perfection of the Collateral Agent's security interest in such
Pledged Spare Part and the Collateral Agent's rights under this Pledge
Agreement and the Sublease and all other necessary documents shall have
been filed, registered or recorded in such public offices as may be
required to fully preserve the priority of the interest of the Collateral
Agent in such Pledged Spare Part under the laws of the United States and
any relevant state law; and the Company shall have furnished an Opinion of
Counsel with respect to such matters satisfactory to the Collateral Agent.
(iii) The Company shall deliver to the Collateral Agent, promptly
after execution thereof, a duly executed copy of such Sublease.
(iv) Each Sublease of Pledged Spare Parts pursuant to Section
4.05(a) hereof shall be assigned by the Company to the Collateral Agent as
security for the Company's obligations hereunder, and the sublessee shall
be required upon the occurrence and during the continuance of an Event of
Default to make all payments under such Sublease directly to the Collateral
Agent; provided that if such Event of Default shall cease or shall be
waived pursuant to the provisions of the Indenture, the Collateral Agent
shall immediately pay all funds so received and deliver all Investment
Securities acquired with such funds to the Company.
12
<PAGE>
(c) Notwithstanding the foregoing, the Company may at its option, with
respect to any Sublease, decline to comply with the requirements set forth in
this Section 4.05 in which case the Sublease shall be deemed a sale with respect
to the Pledged Spare Part covered thereunder and the Company shall first comply
with Section 4.04(c) hereof in respect thereof.
(d) No Sublease, interchange or pooling, exchange, borrowing or maintenance
servicing arrangement or other transfer or relinquishment of the possession of
any Pledged Spare Part or of any of the Company's rights hereunder shall in any
way discharge or diminish any of the Company's obligations to the Collateral
Agent hereunder, cause the sublessee, transferee, assignee or any other Person
(other than the Company) to be deemed to be the "Company" or an obligor on the
Securities for purposes of this Pledge Agreement, or constitute a waiver of any
of the Collateral Agent's rights or remedies hereunder, except to the extent
such obligations, rights or remedies may be inapplicable during the period of
any Sublease as elsewhere herein provided.
Section 4.06 Recording; Registration; Compliance with Laws and Rules. The
-------------------------------------------------------
Company will cause this Pledge Agreement and all agreements supplemental hereto
to be filed and recorded (and to the extent required by law, refiled and re-
recorded) under the Federal Aviation Act (with respect to supplements, only if
such supplement involves Pledged Spare Parts) and the Uniform Commercial Code as
in effect in the jurisdictions in which the Collateral is located; and the
Company will from time to time do and perform any other acts and execute,
acknowledge, deliver, file and record any and all further instruments required
under the laws of the United States or any other applicable jurisdiction for the
purpose of proper protection of the Collateral Agent's and the Holders of the
Securities rights under this Pledge Agreement or for the purpose of carrying out
the intention of this Pledge Agreement; and the Company will promptly furnish to
the Collateral Agent certificates or other evidences of such filing, recording,
refiling and re-recording satisfactory to the Collateral Agent.
Section 4.07 Indemnities. The Company agrees to indemnify, and hold
-----------
harmless the Collateral Agent to the same extent provided to the Indenture
Trustee under Section 7.7 of the Indenture, and the Collateral Agent shall have
those rights set forth in such Section 7.7 for the Indenture Trustee. This
covenant of indemnity shall continue in full force and effect notwithstanding
the full payment of principal of and interest on the Securities or the
termination of this Pledge Agreement in any manner whatsoever.
In addition, the Company shall indemnify, protect and hold harmless the
Collateral Agent from and against any and all liabilities, claims, demands,
costs, charges and expenses, including royalty payments and reasonable counsel
fees, in any manner imposed upon or accruing against the Collateral Agent
because of any design, article or material in respect of the Collateral which
infringes, or is claimed to infringe, any patent or other industrial property
right. The Collateral Agent will give notice to the Company of any such claim
known to the Collateral Agent in respect of which liability may be charged
against the Company.
Section 4.08 FAA Records. The Company will maintain or cause to be
-----------
maintained all records, logs and other materials required by the FAA to be
maintained in respect of the Collateral, the Acquired Slots and any other Slot
Trust Assets regardless of whether such
13
<PAGE>
requirements are, by their terms, imposed upon the Company, the Collateral
Agent, the Indenture Trustee or the Slot Trustee, and in the event that any
Collateral is repossessed by the Collateral Agent pursuant to Article 6 hereof,
will forthwith deliver to the Collateral Agent all such records, logs and other
materials relating thereto.
Section 4.09 Restrictions on Liens; Permitted Contests. (a) Restrictions
----------------------------------------- ------------
on Liens. The Company will not create, incur, assume or suffer to exist or
- --------
permit to be created or incurred or assumed or to exist any Lien upon or against
the Collateral, the Acquired Slots or other Slot Trust Assets except for the
following (collectively, the "Permitted Collateral Liens"): (i) this Pledge
Agreement and the other Operative Documents and the rights of the Collateral
Agent, the Indenture Trustee, the Slot Trustee, the Holders of Securities and
the Company hereunder and thereunder, (ii) in the case of Operative Collateral
or the Beneficial Interest (to the extent the Beneficial Interest constitutes a
general intangible under the New York Uniform Commercial Code as in effect from
time to time), Liens for taxes or other governmental charges or levies not yet
due, the payment of which shall not at the time be required to be made in
accordance with Section 4.02 hereof, (iii) in the case of Operative Collateral,
materialmen's, mechanics', workmen's, repairmen's, employees', other like Liens
and other Liens arising in the Ordinary Course Of Business and which are not
overdue for more than 45 days, except to the extent that any such Lien is being
contested in good faith and by appropriate legal proceedings which, in the
opinion of the Company, do not involve any material danger of the sale,
forfeiture or loss of any Collateral or any interest therein, (iv) in the case
of Operative Collateral or the Beneficial Interest (to the extent the Beneficial
Interest constitutes a general intangible under the New York Uniform Commercial
Code as in effect from time to time) any judgment Lien, unless the judgment it
secures shall not, within sixty (60) days after the entry thereof, have been
discharged, vacated or reversed or the execution thereof stayed pending appeal,
or shall not have been discharged, vacated or reversed within sixty (60) days
after the expiration of any such stay, (v) in the case of Operative Collateral,
Subleases and other transfers of possession permitted under Sections 4.03 and
4.05 hereof, (vi) in the case of Acquired Slots, the Prior Third Party Licenses,
Third-Party Licenses and Slot Trades, (vii) executory contracts for sale or
lease by the Company of any Operative Collateral or Acquired Slots under which
consummation of such sale or lease, or delivery of such Operative Collateral or
Acquired Slots is conditioned on release of such Operative Collateral or
Acquired Slots from this Pledge Agreement or the Slot Trust and (viii) in the
case of Pledged Spare Parts subject to arrangements or agreements referred to in
Section 4.05(a) (iv), the right of any Person other than the Company to claim a
portion of the insurance proceeds received or receivable by the Collateral Agent
as a result of an Event of Loss.
(b) Permitted Contests. If no Event of Default shall be continuing, the
------------------
Company shall not be required, nor shall the Collateral Agent have the right,
without prior agreement of the Company, to discharge or remove, as the case may
be, any Lien on or against the whole or any part of any Collateral or the
Acquired Slots, the discharge or removal of which would otherwise be required by
the terms of this Pledge Agreement, the Slot Trust or the Master Sub-License
Agreement, or to comply with any legal requirements, compliance with which would
otherwise be required by this Pledge Agreement, or to pay any charge or other
amount the Company may be obligated to pay to any Person pursuant to this Pledge
Agreement other than an indemnification payment to a Person entitled to such
indemnification pursuant to the terms of Section 4.07
14
<PAGE>
hereof, so long as the Company shall at its own expense contest the existence,
amount, applicability, extent or validity thereof in good faith by an
appropriate proceeding timely instituted, which, in the case of any Lien so
contested, shall operate to prevent the collection or satisfaction of such Lien,
and, in all cases in which the sale or forfeiture of the whole or any part of
such Collateral or the Acquired Slots shall be at issue, shall operate to
prevent such sale or forfeiture; provided, however, that such proceeding
presents no material danger of the sale, forfeiture or loss of any Collateral or
Acquired Slot which has not been provided for by the Company giving such
security as may be required in the proceeding; and, provided, further, that
nether the Collateral Agent, the Indenture Trustee nor the Slot Trustee (as
fiduciaries or in their individual capacities) nor any holder of Securities
would be in any danger of criminal liability, or any other liability or
obligation for which no indemnification is provided hereunder, by reason of such
nonpayment or noncompliance. The Collateral Agent hereby agrees to execute and
deliver at the Company's expense such documents, including powers of attorney,
as the Company may reasonably request in order that the Company shall be enabled
effectively to conduct any such proceeding.
Section 4.10 Warranty of Title. The Company warrants that (subject to the
-----------------
parenthetical phrase in Section 2.01(c)) as of the date of delivery of this
Pledge Agreement it is the legal and beneficial owner of the Collateral
(excluding any Property which may become Collateral hereafter) and has good
right to mortgage or transfer, as the case may be, the same. The Company will at
the time it subjects any Property to the Lien of this Pledge Agreement by
supplemental agreement be the legal and beneficial owner of such Property and
will have good right to mortgage the same, subject to Permitted Collateral
Liens. The Company warrants that all the Collateral (except Property which may
become Collateral hereafter) is, and at the time the Company subjects any
Property acquired hereafter to the Lien of this Pledge Agreement by supplemental
agreement, the Property so subjected will be, free and clear of all Liens,
except Permitted Collateral Liens.
The Company will, at or before the time it subjects any Property to the
Lien of this Pledge Agreement, cause evidence of its title to be duly recorded,
filed, or filed for recording, to the extent permitted under the Federal
Aviation Act or required under any other applicable law, by the Company as
owner. The Company will at all times defend and protect its title to the
Collateral, against the enforcement against such Collateral of all claims,
Liens, penalties and rights asserted by any and all parties whatsoever.
Section 4.11 Inventory Control System. The Company shall not change in
------------------------
any material respect the methods and practices (including, without limitation,
any change in the designation of any Spare Parts as "active" or "excess" which
change would be inconsistent with practices as in effect on the Issue Date)
relating to the valuation of Spare Parts as reflected in its Inventory Control
System as in effect on the Issue Date unless such change is consented to by the
Collateral Agent (such consent not to be unreasonably withheld or delayed).
Section 4.12 Actions Regarding the Beneficial Interest Certificates. (a)
------------------------------------------------------
The Collateral Agent shall be entitled to exercise any and all voting and
consensual rights and powers relating or
15
<PAGE>
pertaining to the Beneficial Interest Certificate or any part thereof, subject
to Section 9.01 of the Acquired Slot Trust Agreement.
(b) All distributions with respect to the Beneficial Interest Certificate
shall be paid directly to and shall be retained by the Collateral Agent subject
to the Lien of this Pledge Agreement.
(c) The Company will take all action necessary or appropriate to cause the
Collateral Agent to obtain the benefit of the provisions in clauses (a) and (b)
above and if any payments or distributions on the Beneficial Interest
Certificate are made to the Company, the Company will immediately deliver the
same to the Collateral Agent.
(d) The Beneficial Interest Certificate delivered to the Collateral Agent
on the date hereof shall be accompanied by an irrevocable stock power or powers
(or trust equivalent) executed by the Company and the Company further agrees to
execute any and all additional documents and instruments deemed necessary or
appropriate by the Collateral Agent to facilitate the Collateral Agent's
exercise of remedies pursuant to the terms of this Pledge Agreement; provided,
however, that unless and until there shall occur an acceleration of the
obligations of the Company under the Securities and the Indenture, the Company
shall continue to be the holder of record of the Beneficial Interest and the
Beneficial Interest Certificate on the books of the Slot Trust.
Section 4.13 Reports Regarding Collateral. (a) The Company shall deliver
----------------------------
to the Indenture Trustee and the Collateral Agent (i) on the Issue Date (as of
November 30, 1997) an inventory of the Pledged Spare Parts that will be subject
to the Lien of the Pledge Agreement at the Designated Locations describing the
values of such Pledged Spare Parts, as reflected on the Inventory Control System
and (ii) as of the last day of each month thereafter (within 20 days of the end
of each such month) an inventory of the Pledged Spare Parts at the Designated
Locations describing, among other things, the values of such Pledged Spare
Parts, as reflected on the Inventory Control System, in the form of the report
attached hereto as Exhibit C. The Company shall promptly respond to any request
of the Indenture Trustee or Collateral Agent for an explanation concerning any
discrepancies or changes in values reflected in such reports. The Collateral
Agent shall have the right to appoint and be reimbursed for expenses of a
technical adviser, and to have the Company deliver documentation to it and such
technical adviser as either of them may reasonably request.
(b) If (i) within fifteen (15) days after the delivery of a Company
Appraiser's Certificate for purposes of satisfying the Substitution
Requirements, the Indenture Trustee gives notice that it desires to have a
Trustee Appraiser redetermine the matters set forth in such Company Appraiser's
Certificate, and (ii) a Trustee Appraiser delivers to the Company, the Indenture
Trustee and the Collateral Agent an Independent Appraiser's Certificate as to
such matters signed by such Trustee Appraiser within fifteen (15) days after the
date of delivery of such Indenture Trustee's notice, the Appraised Values (or
Fair Market Values) of the Collateral subject to such Event of Loss or Request
for release and the Permitted Substitutes evidenced by such Independent
Appraiser's Certificates shall be determined as provided in the definition of
16
<PAGE>
Appraised Value (or Fair Market Value). If (i) within thirty (30) days after the
delivery of a Company Appraiser's Certificate for purposes of establishing the
Security Ratio in connection with an Event of Loss, the Indenture Trustee gives
notice that it desires to have a Trustee Appraiser redetermine the matters set
forth in such Company Appraiser's Certificate, and (ii) a Trustee Appraiser
delivers to the Company, the Indenture Trustee and the Collateral Agent an
Independent Appraiser's Certificate as to such matters signed by the Trustee
Appraiser within thirty (30) days after the delivery of such Indenture Trustee's
notice, the Security Ratio shall be established as provided in paragraph (a) of
the Substitution Requirements. The Company and the Indenture Trustee may but
shall be under no obligation to join in the appointment of a single Independent
Appraiser for purposes of making any determination of Liquidation Value,
Appraised Value or Fair Market Value or establishing the Security Ratio, and if
they do so, the resulting determination of the Independent Appraiser so selected
shall be delivered to the Company, the Indenture Trustee and the Collateral
Agent at such time as the Company and Indenture Trustee shall agree and shall be
final and binding upon all parties.
Section 4.14 Maintenance Ratio. (a) The Company shall, (i) within 60 days
-----------------
after delivery (or deemed delivery pursuant to Section 4.14 (b) below) of a
monthly inventory report pursuant to Section 4.13 which indicates that the
aggregate value of Pledged Spare Parts is less than 60% of the value of the
Pledged Spare Parts shown on the inventory report delivered on the Issue Date,
deliver to the Collateral Agent an Officers' Certificate showing a calculation
of the Maintenance Ratio as of the date of such Officers' Certificate (a
"Maintenance Ratio Officers' Certificate") which Maintenance Ratio Officers'
Certificate shall be based on, and have attached thereto, a Company Appraiser's
Certificate (which, for purposes of this Section 4.14, need not be based on an
actual physical inspection of the Collateral so long as it is based on a full
appraisal which included such physical inspection performed by the same
Independent Appraiser furnishing such Company Appraiser's Certificate and such
physical inspection was conducted no earlier than 20 months prior to the date of
such Company Appraiser's Certificate) stating (A) the Fair Market Value, by type
and category and in reasonable detail, of all assets or groups of assets
required for the computation of the Maintenance Ratio, and (B) the Maintenance
Ratio (a "Maintenance Appraisal Certificate"), in each case as of the last day
of the month to which such monthly inventory report relates and (ii) if the
Maintenance Ratio shown in such Maintenance Appraisal Certificate is less than
1.2 to 1, within 30 days after the date on which such Maintenance Ratio
Officers' Certificate is delivered, (A) commence an Offer to Purchase a
principal amount of the Notes and furnish to the Trustee the Acquired Securities
(for cancellation) immediately upon such purchase, (B) furnish additional
Operative Collateral, (C) furnish Additional Acquired Slots or (D) furnish Cash
Collateral (or any combination of the foregoing), that would (on the basis of
such certificate) be required to be delivered or pledged hereunder for the
Maintenance Ratio to be at or above 1.2 to 1.0. Any such Offer to Purchase
shall be made at a purchase price equal to 101% of the principal amount of
Securities subject thereto, plus accrued and unpaid interest and Special
Interest, if any, with respect thereto.
(b) If the Company fails to deliver a monthly inventory report within
twenty days after the end of a month as required by Section 4.13(a), then, until
such time as it actually delivers an inventory report for such month, the
Company shall be deemed to have delivered a monthly inventory report for such
month which indicates that the aggregate value of Pledged
17
<PAGE>
Spare Parts is less than 60% of the value of the Pledged Spare Parts shown on
the inventory report delivered on the Issue Date.
(c) If (i) pursuant to Section 4.14(a)(ii), the Company elects to increase
the amount of Cash Collateral so that the Maintenance Ratio is at or above 1.2
to 1 and (ii) at any time thereafter the Maintenance Ratio is at or above 1.5 to
1 then, so long as no Event of Default has occurred and is continuing or would
result therefrom, upon Request by the Company the liens and security interests
created hereby in such Cash Collateral held hereunder (in an aggregate amount
not to exceed the amount of such increase) shall be released and terminated, but
only to the extent that, after giving effect to any such release, the
Maintenance Ratio is at or above 1.5 to 1 as evidenced by a Maintenance Ratio
Officers' Certificate dated the date of the requested release, together with a
Maintenance Appraisal Certificate as of a date no earlier than 30 days prior to
the date of such requested release, delivered to the Collateral Agent. Upon any
release of Collateral or termination of a lien or security interest pursuant to
his subsection (c), the Collateral Agent shall, at the expense of the Company,
execute and deliver all such releases, termination statements and other
documents or instruments as the Company may reasonably request evidencing or
confirming such release or termination and shall return to the Company all such
cash and securities no longer required to be held as Cash Collateral.
Section 4.15 Change in Location of Principal Office, Records or Name. The
-------------------------------------------------------
Company will not change the location of its principal office or chief executive
office or the location of the offices where the records with respect to the
Collateral are kept from that set forth in Section 3.01(j) unless 20 days' prior
written notice of such change is given to the Collateral Agent. The Company
will not change its legal name, use any other name nor change the form of its
organization without giving the Collateral Agent 20 days' prior written notice
thereof.
ARTICLE 5
Insurance
Section 5.01 Insurance to Be Carried. (a) The Company will at all times
-----------------------
carry and maintain, at its own expense, with responsible insurers valid and
collectible insurance (subject to deductibles and self-insurance consistent with
the Company's current practices as of the Issue Date) on the Pledged Spare Parts
covering all-risk of physical loss or damage to such Pledged Spare Parts. The
Company will at all times carry and maintain on each aircraft or engine on which
a Spare Part that was a Pledged Spare Part is installed, at its own cost and
expense public liability and passenger liability and property damage liability
insurance.
All insurance required hereunder shall be of such type as is customarily
carried by corporations engaged in the same or a similar business, similarly
situated with the Company, and owning and operating similar Property and shall
be placed with responsible insurance companies, underwriters or funds.
All-risk of physical loss or damage insurance on Spare Parts required
hereunder shall provide for payment in the United States in U.S. Dollars.
18
<PAGE>
(b) Without limiting anything set forth in this Article 5:
(i) all liability policies shall: (A) be primary without right of
contribution from any other insurance carried by the Collateral Agent, and
(B) name the Collateral Agent as additional insured under a standard
mortgagee clause, provided that the inclusion of more than one insured
shall not operate to increase the insurer's limit of liability or to avoid
the coverage of an insured as respects claims against said insured by the
other insured or the employees of such other insured; and
(ii) all policies (other than liability policies) required hereunder
covering loss or damage to any Collateral shall name the Collateral Agent
as loss payee under a standard mortgagee clause and shall provide that
proceeds payable under such policies shall be paid exclusively to the
Collateral Agent as loss payee.
Section 5.02 Alteration of Insurance. All policies (other than war-risk
-----------------------
policies) required by Section 5.01 hereof shall provide for not less than thirty
(30) days' prior written notice to the Collateral Agent before any material
alteration which adversely affects the interests of the Collateral Agent, or
cancellation of the insurance evidenced thereby, shall be effective as to the
Collateral Agent, or if it is not commercially possible at the time to obtain
the notice specified above, shall provide for as long a period of prior notice
as shall then be commercially possible to obtain (it being understood that in
the case of cancellation for non-payment of premium, ten (10) days prior notice
is the longest notice commercially possible to obtain on the date hereof).
Section 5.03 Additional Insurance. Nothing contained herein shall prevent
--------------------
the Company from carrying additional insurance in excess of that required
hereunder in respect of any Collateral at its own expense.
Section 5.04 Insurance Certificates. On the Issue Date and annually on or
----------------------
before the anniversary date of each insurance policy required hereunder, the
Company will furnish to the Collateral Agent a report from the Company's
independent insurance broker describing in reasonable detail the insurance then
carried and maintained on the Collateral, certifying that such insurance
complies with the terms hereof and stating the opinion of such broker that such
insurance is adequate for the protection of the interests of the Company and the
Collateral Agent in accordance with the terms hereof.
Section 5.05 Proceeds of Insurance. (a) So long as no Event of Default
---------------------
has occurred and is continuing, all proceeds of insurance required hereby which
are received by the Collateral Agent or the Company as the result of the
occurrence of an Event of Loss with respect to any Collateral shall be
immediately paid over to or retained by the Company, provided that the Company
has fully complied with the terms of Section 4.04 and has made all payments then
due and required to be made by the Company under the Indenture, and otherwise
shall be paid over to or retained by the Collateral Agent to be held as
Temporary Cash Collateral or if the Company so notifies the Collateral Agent at
any time, Cash Collateral hereunder.
19
<PAGE>
(b) So long as no Event of Default has occurred and is continuing, all
proceeds of insurance required hereby which are received by the Collateral Agent
or the Company as the result of any property damage or loss to any Collateral
not constituting an Event of Loss will be immediately applied in payment for
repair (whether such payment be for repair or partial repair already made or for
advance payments or deposits requested by the person making such repair) or
replacement in accordance with the terms of Section 4.03, if not already paid
for by the Company, or, if already paid for by the Company, will be immediately
applied to reimburse the Company for such payment, and any balance remaining
after such application or payment shall be immediately paid over to or retained
by the Company.
(c) All proceeds of insurance required hereby which are received by the
Collateral Agent or the Company as a result of any property damage or loss to
Spare Parts or other Property not constituting Pledged Spare Parts or other
Collateral shall be immediately paid over to or retained by the Company.
(d) All proceeds of insurance received by the Collateral Agent hereunder
and not then required to be paid over to the Company shall be held by the
Collateral Agent as Temporary Cash Collateral or, if the Company so notifies the
Collateral Agent at any time, Cash Collateral hereunder.
ARTICLE 6
Remedies
Section 6.01 Remedies. In case of the happening and during the
--------
continuance of any Event of Default (as applied to the Non-Slot Collateral) and
upon the acceleration of the obligations of the Company under the Securities and
the Indenture (as applied to the Slot Collateral) and so long as such Event of
Default shall not have been cured or waived and/or such acceleration shall not
have been rescinded, as the case may be, the Collateral Agent shall have, in
addition to all other rights given by law or by the Pledge Agreement or the
other Operative Documents, all the rights and remedies with respect to the
Collateral of a secured party under the Uniform Commercial Code in effect in the
State of New York and any other applicable jurisdiction at that time. In
addition the Collateral Agent may transfer to or register in its name as
Collateral Agent the Beneficial Interest Certificate and may take possession of
the Collateral or any part or the whole of any type of the Collateral, and may
by its agents enter upon the premises of the Company or of any sublessee where
any part or the whole of such type of the Collateral may be and take possession
of any part or the whole of such type of the Collateral and withdraw the same
from said premises, retaining all payments which up to that time may have been
made on account of such type of the Collateral and otherwise, and shall be
entitled to collect, receive and retain all unpaid charges of any kind earned by
such type of the Collateral or any part thereof, and may lease such portion of
the Collateral or any part thereof, or with or without retaking possession
thereof sell the same or any part thereof, free from any and all claims of the
Company at law or in equity, in one lot and as an entirety or in separate lots,
insofar as may be necessary to perform and fulfill the Obligations, at public or
private sale with or without advertisement, for cash or upon credit, in its
discretion, and may proceed otherwise to enforce its
20
<PAGE>
rights and the rights of the Holders of Securities in the manner herein
provided. Upon any such sale, the Collateral Agent itself may bid for the
Property offered for sale or any part thereof. Any such sale may be held or
conducted at such place and at such time as the Collateral Agent may specify, or
as may be required by law, and without gathering at the place of sale the
Collateral to be sold, and in general in such manner as the Collateral Agent may
determine, but so that the Company may and shall have a reasonable opportunity
to bid at any such sale. Subject to the second paragraph of Section 6.02 hereof
and to Section 6.03 hereof, upon such taking possession or withdrawal or lease
or sale of part or the whole of such type of the Collateral, the Company shall
cease to have any rights or remedies in respect of such type of the Collateral
hereunder, but all such rights and remedies shall be deemed thenceforth to have
been waived and surrendered by the Company, and no payments theretofore made by
the Company for the rent or use of such type of the Collateral shall, in case of
the happening of any Event of Default and such taking possession, withdrawal,
lease or sale by the Collateral Agent, give to the Company any legal or
equitable interest or title in or to such type of the Collateral or any part of
it or any cause or right of action at law or in equity in respect of such type
of the Collateral against the Collateral Agent or the Holders of Securities. No
such taking possession, withdrawal, lease or sale of such type of the Collateral
by the Collateral Agent and no omission of or delay in taking any such action
shall be a bar to the recovery by the Collateral Agent from the Company of the
Obligations and the Collateral Agent may sue for and collect, and the Company
shall be and remain liable for, the Obligations until such sums shall have been
realized as, with the proceeds of the lease or sale of such portion of the
Collateral if any shall be sufficient for the discharge of all of the
Obligations whether or not they shall have then matured. The Company hereby
expressly waives any and all claims against the Collateral Agent and its agent
or agents for damages of whatever nature in connection with any retaking of
Collateral in any commercially reasonable manner.
Upon any sale of the Collateral pursuant to this Section 6.01, whether made
under the power of sale hereby given or pursuant to judicial proceedings, to the
extent permitted by law:
A. the Collateral Agent may make and deliver to the purchaser or
purchasers a good and sufficient deed, bill of sale and instrument of assignment
and transfer of the property sold; and
B. the Collateral Agent is hereby irrevocably appointed the true and
lawful attorney of the Company, in its name and stead, to make all necessary
deeds, bills of sale and instruments of assignment and transfer of the property
thus sold; and for that purpose it may execute all necessary deeds, bills of
sale and instruments of assignment and transfer, and may substitute one or more
persons, firms or corporations with like power, the Company hereby ratifying and
confirming all that its said attorney or such substitute or substitutes shall
lawfully do by virtue hereof; but if so requested by the Collateral Agent or by
any purchaser, the Company shall ratify and confirm any such sale or transfer by
executing and delivering to the Collateral Agent or to such purchaser or
purchasers all proper deeds, bills of sale, instruments of assignment and
transfer and releases as may be designated in any such request.
Section 6.02 Application of Proceeds. If, in the case of the happening of
-----------------------
any Event of Default or acceleration, the Collateral Agent shall exercise any of
the powers conferred upon it
21
<PAGE>
by Section 6.01 hereof, all payments made by the Company to the Collateral Agent
hereunder after such Event of Default, and the proceeds of any judgment
collected by the Collateral Agent hereunder, and the proceeds of every sale or
lease by the Collateral Agent hereunder of any part or the whole of the
Collateral, together with any other sums which may then be held by the
Collateral Agent under any of the provisions hereof, shall be applied by the
Collateral Agent in the manner set forth in Section 6.10 of the Indenture.
After all such payments shall have been made in full, the title to any part
or the whole of the Collateral remaining unsold and abandoned by the Collateral
Agent shall be conveyed by the Collateral Agent to the Company or its named
designee free from any further liabilities or obligations to the Collateral
Agent hereunder. If after applying all such sums of money realized by the
Collateral Agent as aforesaid there shall remain any amount due to the
Collateral Agent under the provisions hereof, the Company agrees to pay the
amount of such deficit to the Collateral Agent.
Section 6.03 Obligations of Company Not Affected by Remedies. No retaking
-----------------------------------------------
of possession of part or the whole of the Collateral by the Collateral Agent,
nor any withdrawal, lease or sale thereof, nor any action or failure or omission
to act against the Company or in respect of the Collateral, on the part of the
Collateral Agent or on the part of the Holder of any Securities, nor any delay
or indulgence granted to the Company by the Collateral Agent or by any such
Holder, shall affect the obligations of the Company hereunder. The Collateral
Agent may at any time upon notice in writing to the Company apply to any court
of competent jurisdiction for instructions as to the application and
distribution of the property held by it.
Section 6.04 Remedies Cumulative and Subject to Applicable Law. No right,
-------------------------------------------------
power or remedy herein conferred upon or reserved to the Collateral Agent, the
Indenture Trustee and the Slot Trustee and/or the Holders of the Securities is
intended to be exclusive of any other right, power or remedy conferred upon or
reserved to any one or more of them and every right, power and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right,
power and remedy given hereunder or under the Indenture or the other Operative
Documents or now or hereafter existing at law or in equity or otherwise
(including, without limitation, under the Uniform Commercial Code as in effect
in any applicable jurisdiction) and may be exercised from time to time and as
often and in such order as may be deemed expedient by the Collateral Agent, the
Indenture Trustee, the Slot Trustee and/or the Holders of the Securities. The
exercise by any of them of any right, power or remedy shall not be construed as
a waiver of the right of any of them to exercise at the same time or thereafter
any other right, power or remedy, nor as an election precluding exercise at the
same time or thereafter of any alternative right, power or remedy. The exercise
of any right, power or remedy shall be subject to applicable law.
22
<PAGE>
ARTICLE 7
Termination
Section 7.01 Termination. The Company agrees that this is a continuing
-----------
agreement and shall remain in full force and effect until the earlier of (i) the
date the Company pays in full and performs all of its Obligations hereunder and
under the Securities and (ii) (x) the occurrence of the Indenture Discharge Date
and (y) the payment of all Obligations then due and payable, at which time the
Collateral Agent shall have no further interest in and to the Collateral or the
Slot Trust Assets, and will at the Company's expense release all of the
Collateral Agent's interest in and to the Collateral and the Slot Trust Assets,
including any cash and/or Investment Securities held in accordance with the
terms of this Pledge Agreement and/or the Master Sub-License Agreement.
ARTICLE 8
Collateral Agent
Section 8.01 Collateral Agent. The Collateral Agent has been appointed as
----------------
Collateral Agent hereunder. The Collateral Agent shall be obligated, and shall
have the right, hereunder to make demands, to give notices, to exercise or
refrain from exercising any rights, and to take or refrain from taking action
(including, without limitation, the release of Collateral or the substitution of
Permitted Substitutes) solely in accordance with this Pledge Agreement and the
Indenture. The Collateral Agent may resign and a successor Collateral Agent may
be appointed in the manner provided for a successor Trustee in the Indenture.
Upon the acceptance of any appointment as a Collateral Agent by a successor
Collateral Agent, that successor Collateral Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Collateral Agent under this Pledge Agreement, and the retiring Collateral Agent
shall thereupon be discharged from its duties and obligations under this Pledge
Agreement. After any retiring Collateral Agent's resignation, the provisions of
this Pledge Agreement shall inure to its benefit as to any actions taken or
omitted to be taken by it under this Pledge Agreement while it was Collateral
Agent. The Collateral Agent agrees to and shall have the benefit of all
provisions of the Indenture and the other Operative Documents stated therein to
be applicable to the Collateral Agent.
ARTICLE 9
Miscellaneous
Section 9.01 Benefits of Pledge Agreement Restricted. Subject to the
---------------------------------------
provisions of Section 9.10 hereof, nothing in this Pledge Agreement or the
Securities, express or implied, shall give or be construed to give to any
Person, other than the parties hereto and the Holders of the Securities, any
legal or equitable right, remedy or claim under or in respect of this Pledge
Agreement or under any covenant, condition or provision herein contained, all
such covenants, conditions and provisions, subject to Section 9.10 hereof, being
for the sole benefit of the parties hereto and the Holders of the Securities.
23
<PAGE>
Section 9.02 Funds May Be Held by the Collateral Agent; Investments in
---------------------------------------------------------
Investment Securities. (a) (i) Subject to the provisions of Section 9.02(b),
- ---------------------
any money at any time paid to or held by the Collateral Agent hereunder until
paid out by the Collateral Agent as herein provided may be carried by the
Collateral Agent on deposit with itself, or on deposit or invested with one or
more banks or investment banking or brokerage institutions acting on its behalf,
and the Collateral Agent shall not have any liability for interest upon any such
money except as otherwise agreed with the Company.
(ii) At any time and from time to time, if no Event of
Default shall have occurred and be continuing and subject to Section
9.02(b), the Collateral Agent shall invest and reinvest any funds held by
it in Investment Securities to be held by the Collateral Agent in trust for
the benefit of the Holders of the Securities. Any such investments may be
made by the Collateral Agent through its own bond or investment department,
or through one or more banks or investment banking or brokerage
institutions acting on its behalf.
(iii) Funds held in trust for the benefit of the Holders of
the Securities by the Collateral Agent on deposit with itself or elsewhere,
Investment Securities held in trust for the benefit of the Holders of the
Securities, funds and/or Investment Securities held for the Company by the
Collateral Agent, and funds or Investment Securities held under Section
9.02(b) shall each be held in distinct, identifiable accounts, and no other
funds or investments of any nature or from any source whatsoever may be
held in such accounts.
(iv) The Collateral Agent may sell any Investment
Securities held by it and retain the proceeds of such a sale as Collateral
hereunder.
(v) The Collateral Agent shall retain, for the benefit of
the Holders of the Securities (a) any interest earned on deposits carried
pursuant to clause (i) of this Section 9.02(a), and (b) any interest (other
than accrued interest paid for at the time of purchase of an investment) or
other profit which may accrue upon, or be realized from any sale or
redemption of, Investment Securities.
(b) Notwithstanding the foregoing and so long as no Event of Default shall
have occurred and be continuing, any funds or Investment Securities held by the
Collateral Agent as Temporary Cash Collateral shall be held for the benefit of
the Holders of the Securities and shall be invested and reinvested by the
Collateral Agent in Investment Securities as specified in a Request. Any such
investments may be made by the Collateral Agent through its own bond or
investment department, or through one or more banks or investment banking or
brokerage institutions acting on its behalf if specified in such Request. No
later than six (6) months after the Event of Loss or proposed release
occasioning the deposit with the Collateral Agent of such Temporary Cash
Collateral, if no Event of Default shall have occurred and be continuing and
upon satisfaction by the Company of the applicable Substitution Requirements,
the Collateral Agent shall return to the Company Temporary Cash Collateral in an
amount equal to the entire amount of the related deposit, plus or minus any net
earnings or loss thereon during the time it
24
<PAGE>
was held as Temporary Cash Collateral, or, if the Appraised Value of the
Operative Collateral or Slots being substituted for such Temporary Cash
Collateral (determined under paragraph (f)(ii) of the Substitution Requirements)
is less than the Appraised Value of the Operative Collateral or Acquired Slots
on account of whose loss, sale or deemed sale such Temporary Cash Collateral was
furnished (determined under paragraph (a)(ii)(C), (b)(ii) or (f)(ii) of the
Substitution Requirements), in an amount equal to such portion of such deposit,
plus or minus such net earnings or loss, as is allocable to such lesser
Appraised Value. If an Event of Default shall have occurred and be continuing or
six (6) months shall have elapsed since the date of such Event of Loss or
release, such Temporary Cash Collateral shall cease to be such and shall be held
by the Collateral Agent for the benefit of the Holders of the Securities under
Section 9.02(a).
(c) All Investment Securities shall be issued in the name of the
Collateral Agent and held by it, or, if not so held, the Collateral Agent shall
be reflected as the owner of, or secured party in respect of, such Investment
Securities in the register of the issuer of such Investment Securities. In no
event shall the Collateral Agent invest in, or hold, Investment Securities in a
manner which would cause the Collateral Agent not to have a Lien on, and first
priority perfected security interest in, such Investment Securities under the
applicable provisions of the Uniform Commercial Code in effect where the
Collateral Agent holds such Investment Securities, or if not held by it, in
effect where the registrar is located, or other applicable law then in effect,
and in no event shall the Collateral Agent hold cash other than in a manner
which would cause the Collateral Agent to have a Lien on, and first priority
perfected security interest in, such cash.
(d) The Collateral Agent shall deliver to the Company within five (5)
Business Days after December 31 of each year (commencing December 31, 1998) a
statement which sets forth the amount of cash and/or Investment Securities held
by the Collateral Agent and, with respect to Investment Securities, a schedule
identifying each Investment Security and the face or principal amount thereof.
(e) If the Company elects to repurchase the Securities, the Collateral
Agent shall release the Temporary Cash Collateral and Cash Collateral and
cooperate with the Company and the Indenture Trustee in connection with
applications of Temporary Cash Collateral and Cash Collateral to the purchase or
redemption of Securities in accordance with, and to the extent permitted by, the
provisions of Section 3.9 of the Indenture.
Section 9.03 Certificates and Opinions of Counsel; Statements to Be
------------------------------------------------------
Contained Therein; Basis Therefor. Subject to the next sentence, upon any
- ---------------------------------
application or Request by the Company to the Collateral Agent to take any action
under any of the provisions of this Pledge Agreement, the Company shall furnish
to the Collateral Agent an Officers' Certificate and an Opinion of Counsel in
compliance with, but only if required by Sections 11.04 and/or 11.05 of the
Indenture. Subject to Section 4.04(c) hereof, as a condition to the proposed
release or exclusion of any Spare Parts from the Lien of this Pledge Agreement
in accordance with the terms hereof, which Spare Parts remain located at a
Designated Location, the Company shall furnish to the Collateral Agent an
Opinion of Counsel, in form and substance satisfactory to the Collateral Agent
to the effect that the Collateral Agent's security interest in the other Spare
Parts which are Pledged Spare Parts at such Designated Location remains
unaffected as to validity,
25
<PAGE>
perfection and priority under applicable federal and state law and that such
release (including, without limitation, all documents created and filings made
with respect thereto) will not have an adverse effect on the Collateral Agent's
security interest in and to the Pledged Spare Parts.
Section 9.04 Appraiser's Certificate. Unless otherwise specifically
-----------------------
provided, an Independent Appraiser's Certificate shall be sufficient evidence of
the Appraised Value and Fair Market Value to the Company of any Property under
this Pledge Agreement.
SECTION 9.05 Notices; Waiver. Any request, demand, authorization,
---------------
direction, notice, consent, waiver or other document provided or permitted by
this Pledge Agreement to be made upon, given or furnished to, or filed with
(a) the Company shall be sufficient for every purpose hereunder if in
writing (including telecopied communications) and made, given, furnished or
filed by personal delivery or mailed by first-class mail or by nationally
recognized overnight courier, postage or courier charges, as the case may be,
prepaid, to the Company at:
Trans World Airlines, Inc.
One City Centre
515 N. 6th Street
St. Louis, Missouri 63101
Attention: Senior Vice President & General Counsel
Telecopier No.: (314) 589-3267
(b) the Collateral Agent shall be sufficient for every purpose hereunder
if in writing (including telecopied communications) and made, given, furnished
or filed by personal delivery or mailed by registered or certified mail or by
nationally recognized overnight courier, postage or courier charges, as the case
may be, prepaid, to or with the Collateral Agent at:
First Security Bank, National Association
79 South Main Street
Salt Lake City, UT 84111
Attention: Corporate Trust Services
Telecopier No.: (801) 246-5053
or to any of the above parties at any other address or telecopier number
subsequently furnished in writing by it to each of the other parties listed
above. An affidavit by any person representing or acting on behalf of the
Company or the Collateral Agent as to such mailing, having any registry receipt
required by this Section attached, shall be conclusive evidence of the giving of
such demand, notice or communication.
Any notice or communication mailed to a Holder shall be mailed to such
Holder by first-class mail or by nationally recognized overnight courier,
postage or courier charges, as the case
26
<PAGE>
may be, prepaid, at such Holder's address as it appears on the Register and
shall be sufficiently given to such Holder if so mailed within the time
prescribed.
Failure to mail a notice or send a communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. Notices to
the Collateral Agent or to the Company are deemed given only when received.
Where this Pledge Agreement provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by the Holders shall be filed with the Collateral
Agent, but such filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.
Section 9.06 Amendments, Etc. (a) Except as provided in Section 9.06(b)
---------------
hereof and subject to Section 4.11 of the Indenture and Article 9 of the
Indenture, this Pledge Agreement may be amended by the Company and the
Collateral Agent only with the affirmative vote of the Required Holders;
provided, however, that the affirmative vote of each Holder shall be required to
- -------- -------
amend this Section 9.06 or the definition of Required Holders or Applicable
Percentage.
(b) The Company and the Collateral Agent may also amend this Pledge
Agreement without the vote of the Holders of the Securities if such parties each
deem it necessary to cure any ambiguity, defect or inconsistency or conform this
Pledge Agreement to the requirements of applicable Federal or State laws or
regulations; provided that such amendments or amendment do not have any adverse
effect on the interests of the Holders.
Section 9.07 No Waiver; Remedies. (a) No failure on the part of the
-------------------
Collateral Agent to exercise, and no delay in exercising any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative, may be
exercised singly or concurrently, and are not exclusive of any remedies provided
by law or the Indenture, the Securities or any of the other Operative Documents.
(b) Failure by the Collateral Agent at any time or times hereafter to
require strict performance by the Company or any other Person of any of the
provisions, warranties, terms or conditions contained herein or in any of the
Indenture, the Securities or any other Operative Documents now or at any time or
times hereafter executed by the Company or any such other Person and delivered
to the Collateral Agent shall not waive, affect or diminish any right of the
Collateral Agent at any time or times hereafter to demand strict performance
thereof, and such right shall not be deemed to have been modified or waived by
any course of conduct or knowledge of the Collateral Agent or any agent, officer
or employee of the Collateral Agent.
Section 9.08 Conflict with Trust Indenture Act of 1939. If and to the
-----------------------------------------
extent that any provision of this Pledge Agreement limits, qualifies or
conflicts with the duties imposed by Sections 310 to 317, inclusive, of the TIA,
such imposed duties shall control.
Section 9.09 Holidays. In the event that any date for the payment of any
--------
amount due hereunder shall not be a Business Day, then (notwithstanding any
other provision of this Pledge Agreement) such payment need not be made on such
date, but may be made on the next
27
<PAGE>
succeeding Business Day with the same force and effect as if made on the due
date, and no interest shall accrue for the period from such due date to and
including the next succeeding Business Day.
SECTION 9.10 Successors and Assigns. This Pledge Agreement and all
----------------------
obligations of the Company hereunder shall be binding upon the successors and
permitted assigns of the Company, and shall, together with the rights and
remedies of the Collateral Agent hereunder, inure to the benefit of the
Collateral Agent, the Indenture Trustee, the Holders, and their respective
successors and assigns. The Company and the Collateral Agent understand and
agree that the interest of the Company under this Pledge Agreement is not
assignable and that any attempt to assign all or any portion of this Pledge
Agreement by the Company shall be null and void except for an assignment in
connection with a merger, consolidation or sale of substantially all the
Company's assets permitted under the Indenture.
SECTION 9.11 Governing Law; Submission to Jurisdiction; Waiver of Jury
-------------------------------------------------
Trial; Waiver of Damages.
- ------------------------
(a) The laws of the State of New York shall govern this Pledge Agreement
without regard to principles of conflict of laws.
(b) The Company agrees that the Collateral Agent shall, in its capacity as
Collateral Agent or in the name and on behalf of any Holder, have the right, to
the extent permitted by applicable law, to proceed against the Company or its
property in a court in any location reasonably selected in good faith (and
having personal or in rem jurisdiction over the Company or its property, as the
case may be) to enable the Collateral Agent to realize on such property, or to
enforce a judgment or other court order entered in favor of the Collateral
Agent. The Company agrees that it will not assert any counterclaims, setoffs or
crossclaims in any proceeding brought by the Collateral Agent to realize on such
property or to enforce a judgment or other court order in favor of the
Collateral Agent, except for such counterclaims, setoffs or crossclaims which,
if not asserted in any such proceeding, could not otherwise be brought or
asserted. The Company waives any objection that it may have to the location of
the court in which the Collateral Agent has commenced a proceeding described in
this paragraph including, without limitation, any objection to the laying of
venue or based on the grounds of forum non conveniens.
(c) The Company and the Collateral Agent each waive any right to have a
jury participate in resolving any dispute, whether sounding in contract, tort,
or otherwise arising out of, connected with, related to or incidental to the
relationship established between them in connection with this Pledge Agreement.
Instead, any disputes resolved in court will be resolved in a bench trial
without a jury.
(d) The Company agrees that neither the Collateral Agent nor any Holder
shall have any liability to the Company (whether sounding in tort, contract or
otherwise) for losses suffered by the Company in connection with, arising out
of, or in any way related to, the transactions contemplated and the relationship
established by this Pledge Agreement, or any act, omission or event occurring in
connection therewith, unless it is determined by a final and nonappealable
28
<PAGE>
judgment of a court that is binding on the Collateral Agent or such Holder, as
the case may be, that such losses were the result of acts or omissions on the
part of the Collateral Agent or such Holder, as the case may be, constituting
bad faith, gross negligence or willful misconduct.
(e) To the extent permitted by applicable law, and except as otherwise
provided in this Pledge Agreement, the Company waives all rights of notice and
hearing of any kind prior to the exercise by the Collateral Agent or any Holder
of rights during the continuance of any Event of Default to repossess the
Collateral with judicial process or to replevy, attach or levy upon the
Collateral or other security for the Obligations. To the extent permitted by
applicable law, the Company waives the posting of any bond otherwise required of
the Collateral Agent or any Holder in connection with any judicial process or
proceeding to obtain possession of replevy, attach or levy upon the Collateral
or other security for the Obligations, to enforce any judgment or other court
order entered in favor of the Collateral Agent or any Holder, or to enforce by
specific performance, temporary restraining order or preliminary or permanent
injunction, this Pledge Agreement or any other agreement or document between the
Company on the one hand and the Collateral Agent and/or the Holders on the other
hand.
Section 9.12 Indemnification. The Company agrees to pay, and to save
---------------
the Indenture Trustee and the Collateral Agent harmless from, any and all
liabilities with respect to, or resulting from any delay in paying, any and all
excise, sales or other similar taxes which may be payable or determined to be
payable with respect to any of the Collateral or in connection with any of the
transactions contemplated by this Pledge Agreement.
SECTION 9.13 Effect of Headings. The Article and Section headings and
------------------
the Table of Contents contained in this Pledge Agreement have been inserted for
convenience of reference only, and are and shall be without substantive meaning
or content of any kind whatsoever and are not a part of this Pledge Agreement.
SECTION 9.14 No Adverse Interpretation of Other Agreements. This Pledge
---------------------------------------------
Agreement may not be used to interpret any agreement of the Company or any of
its Subsidiaries which is unrelated to the Indenture, the Securities or the
other Operative Documents. Any such agreement may not be used to interpret this
Pledge Agreement.
Section 9.15 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 this Pledge Agreement or for any claim
based on, in respect of or by reason of such obligations or their creation.
SECTION 9.16 Counterpart Originals. This Pledge Agreement may be signed
---------------------
in two or more counterparts, each of which shall be deemed an original, but all
of which shall together constitute one and the same agreement.
SECTION 9.17 Severability. The provisions of this Pledge Agreement are
------------
Agreement are severable, and if any clause or provision shall be held invalid,
illegal or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect in that jurisdiction only such
clause or provision, or part thereof, and shall not in any manner affect such
clause or provision in
29
<PAGE>
any other jurisdiction or any other clause or provision of this Pledge Agreement
in any jurisdiction, and a Holder shall have no claim therefor against any party
hereto.
SECTION 9.18 Survival Provisions. Notwithstanding any right of
-------------------
the Collateral Agent, the Initial Purchasers or any of the Holders to
investigate the affairs of the Company, and notwithstanding any knowledge of
facts determined or determinable by any of them pursuant to such investigation
or right of investigation, all representations, warranties and covenants of the
Company contained herein shall survive the execution and delivery of this Pledge
Agreement, and shall terminate only upon the termination of this Pledge
Agreement.
SECTION 9.19 Waivers. The Company waives presentment and
-------
demand for payment of any of the Obligations, protest and notice of dishonor or
default with respect to any of the Obligations, and all other notices which the
Company might otherwise be entitled, except as otherwise expressly provided for
herein or in the Indenture.
[SIGNATURE PAGE FOLLOWS]
30
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be
duly executed, all as of the date first above written.
TRANS WORLD AIRLINES, INC.
By: /s/ Michael J. Lichty
-----------------------------
Name: Michael J. Lichty
Title: Vice President Corporate Finance
Agreed and accepted as of the date first written above:
FIRST SECURITY BANK,
NATIONAL ASSOCIATION,
as Collateral Agent
By: /s/ Nancy M. Dahl
-----------------------------
Name: Nancy M. Dahl
Title: Vice President
31
<PAGE>
EXHIBIT A
FORM OF SUPPLEMENTAL PLEDGE AGREEMENT
(To Add Collateral)
SUPPLEMENTAL PLEDGE AGREEMENT No. _____
SUPPLEMENTAL PLEDGE AGREEMENT NO. _______ , dated as of __________between
TRANS WORLD AIRLINES, INC., a Delaware corporation (together with its successors
and assigns, the "Company"), having an office at One City Centre, 515 N. 6th
Street, St. Louis, Missouri 63101, and ______________________________________,
as Collateral Agent under the Pledge Agreement described below, having its
principal office at _____________________________, (together with its successors
in trust, the "Collateral Agent").
WHEREAS, the Company has heretofore executed and delivered to the
Collateral Agent a Pledge and Security Agreement, dated as of December 9, 1997
(the "Pledge Agreement"), covering the property of the Company therein
described, to secure (subject to the provisions of the Pledge Agreement and the
Indenture) the payment of the Securities (as defined in the Pledge Agreement)
outstanding from time to time;
WHEREAS, the Pledge Agreement (and any Supplemental Pledge Agreements) has
(have) been duly recorded with the Federal Aviation Administration at Oklahoma
City, Oklahoma, pursuant to the Federal Aviation Act of 1958, as amended, on the
following date as a document or conveyance bearing the following number:
DOCUMENT OR
DATE OF RECORDING CONVEYANCE NO.
Pledge Agreement......
WHEREAS, the Company, as provided in the Pledge Agreement, is hereby
executing and delivering or heretofore has executed and delivered, to the
Collateral Agent one or more Supplemental Pledge Agreements for the purposes of
specifically subjecting to the Lien of the Pledge Agreement certain property
herein described[, or subjecting to the Lien of the Pledge Agreement appliances
and spare parts maintained by the Company or on its behalf for installation or
use in or useable on any model of aircraft or engine, at designated locations
other than the locations designated in the Pledge Agreement and in Supplemental
Pledge Agreements thereto, previously delivered). (Recite any other filing or
recording data.)
WHEREAS, the Company is the legal and beneficial owner of the property
specifically described in Schedule I annexed hereto (and located at the
(Designated Location) (location) described in Schedule I annexed hereto), free
and clear of all mortgages, security interests, pledges, liens, claims, charges
and encumbrances of every kind whatsoever, except only
A-1
<PAGE>
Permitted Collateral Liens (as defined in the Definitions Appendix referred to
in the Pledge Agreement) and desires to execute and deliver this Supplemental
Pledge Agreement for the purpose of specifically subjecting said property to the
Lien of the Pledge Agreement;
WHEREAS, all things necessary to make this Supplemental Pledge Agreement
the valid, binding and legal obligation of the Company, including all proper
corporate action on the part of the Company, have been done and performed and
have happened;
NOW, THEREFORE, THIS SUPPLEMENTAL PLEDGE AGREEMENT WITNESSETH, that, to
secure (subject to the provisions of the Pledge Agreement) the payment of the
principal of, premium, if any, and interest and Special Interest (as defined in
such Definitions Appendix), if any, on the Securities at any time secured under
the Pledge Agreement and issued by the Company and outstanding, and the
performance of the covenants therein and herein, the Company does hereby
transfer, grant, bargain, sell, assign, convey, mortgage, hypothecate and pledge
to the Collateral Agent the property described in Schedule I annexed hereto.
TO HAVE AND TO HOLD all and singular the aforesaid property described in
Schedule I annexed hereto unto the Collateral Agent in trust and for the uses
and purposes and subject to the terms, provisions, agreements and covenants set
forth in the Pledge Agreement.
This Supplemental Pledge Agreement shall be construed as supplemental to
the Pledge Agreement and shall form a part thereof, and the Pledge Agreement is
hereby incorporated by reference herein and is hereby ratified, approved and
confirmed.
This Supplemental Pledge Agreement is intended to be delivered in the State
of New York and shall be governed by the laws of that State without regard to
principles of conflicts of laws.
This Supplemental Pledge Agreement may be signed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Supplemental Pledge Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Pledge
Agreement to be duly executed, all as of the date first above written.
TRANS WORLD AIRLINES, INC.
By:____________________________________
Name:
Title:
Agreed and accepted as of the date first written above:
[Name of Collateral Agent],
as Collateral Agent
By: ______________________________
Name:
Title:
A-3
<PAGE>
STATE OF MISSOURI )
) ss.:
COUNTY OF __________ )
On the ______ day of ___________, ______, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that he resides at ______________________; that he is a
___________ of TRANS WORLD AIRLINES, INC., the corporation described in and that
executed the above instrument; and that he signed his/her name thereto by order
of the Board of Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
Notary Public
STATE OF ____________ )
) ss.:
COUNTY OF __________ )
On the ____ day of ___________, ______, before me personally came
_____________________________, to me known, who, being by me duly sworn, did
depose and say that he/she resides at ________________________________; that
he/she is a ____________ of _________________, the ___________________________
described in and that executed the above instrument as Collateral Agent; and
that he/she signed his/her name thereto by order of the Board of Directors of
said __________________________.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
Notary Public
A-4
<PAGE>
SCHEDULE I to EXHIBIT A
A-5
<PAGE>
EXHIBIT B
FORM OF SUPPLEMENTAL PLEDGE AGREEMENT
(To Release Collateral)
SUPPLEMENTAL PLEDGE AGREEMENT NO. _____
SUPPLEMENTAL PLEDGE AGREEMENT NO. ___, dated as of ____________ between
TRANS WORLD AIRLINES, INC., a Delaware corporation (together with its successors
and assigns, the "Company"), having an office at One City Centre, 515 N. 6th
Street, St. Louis, Missouri 63101, and _____________________________, a
___________________________, as Collateral Agent under the Pledge Agreement
described below, having its principal office at
____________________________________________, (together with its successors in
trust, the "Collateral Agent").
WHEREAS, the Company has heretofore executed and delivered to the
Collateral Agent a Pledge and Security Agreement, dated as of December 9, 1997
(the "Pledge Agreement"), covering the property of the Company therein
described, to secure (subject to the provisions of the Pledge Agreement and the
Indenture) the payment of the Securities (as defined in the Pledge Agreement)
outstanding from time to time;
WHEREAS, the Pledge Agreement [and any Supplemental Pledge Agreements] has
[have] been duly recorded with the Federal Aviation Administration at Oklahoma
City, Oklahoma, pursuant to the Federal Aviation Act of 1958, as amended, on the
following date as a document or conveyance bearing the following number:
DOCUMENT OR
DATE OF RECORDING CONVEYANCE NO.
Pledge Agreement......
WHEREAS, the Company, as provided in the Pledge Agreement, is hereby
executing and delivering or heretofore has executed and delivered, to the
Collateral Agent one or more Supplemental Pledge Agreements for the purposes of
specifically releasing from the Lien of the Pledge Agreement certain property
herein described. [Recite any other filing or recording data.]
WHEREAS, the Company desires to execute and deliver this Supplemental
Pledge Agreement for the purpose of specifically releasing said property from
the Lien of the Pledge Agreement;
WHEREAS, all things necessary to make this Supplemental Pledge Agreement
the valid, binding and legal obligation of the Company, including all proper
corporate action on the part of the Company, have been done and performed and
have happened;
NOW, THEREFORE, THIS SUPPLEMENTAL PLEDGE AGREEMENT WITNESSETH, that, the
Collateral Agent releases from the Lien of the Pledge Agreement the
B-1
<PAGE>
property described in Schedule I annexed hereto. This Supplemental Pledge
Agreement shall be construed as supplemental to the Pledge Agreement and shall
form a part thereof, and the Pledge Agreement is hereby incorporated by
reference herein and is hereby ratified, approved and confirmed.
This Supplemental Pledge Agreement is intended to be delivered in the State
of New York and shall be governed by the laws of that State without regard to
principles of conflicts of laws.
This Supplemental Pledge Agreement may be signed in two or more
counterparts, each of which shall be deemed an original, but all shall together
constitute one and the same Supplemental Pledge Agreement.
This release is made without covenant or warranty, without recourse, and
without affecting the rights of the Collateral Agent to any and all Collateral
other than that specifically released hereby.
B-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Pledge
Agreement to be duly executed, as of the date and year first above written.
TRANS WORLD AIRLINES, INC.
By:___________________________________
Name:
Title:
Agreed and accepted as of the date first written above:
[Name of Collateral Agent],
as Collateral Agent
By:_______________________________
Name:
Title:
B-3
<PAGE>
4
STATE OF MISSOURI )
) ss.:
COUNTY OF ________ )
On the ____ day of ______________, ______ before me personally came
____________________to me known, who, being by me duly sworn, did depose and say
that he resides at __________; that he is a _____________________of TRANS WORLD
AIRLINES, INC., the corporation described in and that executed the above
instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
Notary Public
STATE OF __________ )
) ss.:
COUNTY OF _________ )
On the ___ day of _________________, __________ before me personally came
_________________________________ to me known, who, being by me duly sworn, did
depose and say that he/she resides at _______________________________________;
that he/she is _________________ of _____________________________; the
_________________ described in and that executed the above instrument as
Collateral Agent; and that he/she signed his/her name thereto by order of the
Board of Directors of said ___________________________.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
[NOTARIAL SEAL]
Notary Public
B-4
<PAGE>
SCHEDULE I to EXHIBIT B
B-5
<PAGE>
EXHIBIT C
FORM OF MONTHLY INVENTORY REPORT
TRANS WORLD AIRLINES, INC.
CERTIFICATE AS TO PLEDGED SPARE PARTS
[Date]
First Security Bank, National Association, as
Collateral Agent under Pledge
and Security Agreement
from Trans World Airlines, Inc.
dated as of December 9, 1997
Trans World Airlines, Inc. certifies that attached hereto is a summary of
certain transactions and the inventory of the Pledged Spare Parts at the
Designated Locations describing the values of such Pledged Spare Parts, as
reflected upon the Inventory Control System, as of the last day of the month
shown on the attachment. The full inventory as of the same date in the form
required by the Pledge and Security Agreement is being delivered concurrently to
the Collateral Agent or, if designated by the Collateral Agent, to the entity
selected by the Collateral Agent to assist in evaluating Pledged Spare Parts,
and the Pledged Spare Parts shown therein correspond to the Pledged Spare Parts
and values shown on the attached summary.
This Certificate, the summary attached hereto and the full inventory
delivered to the Collateral Agent or, if designated by the Collateral Agent, to
the entity selected by the Collateral Agent to assist in evaluating Pledged
Spare Parts, are provided under Section 4.13 of the Pledge Agreement referenced
above. The undersigned is familiar with the definitions of Pledged Spare Parts,
Designated Location, Inventory Control System and other terms contained in the
Definitions Appendix to the Indenture and Pledge Agreement and the Pledged Spare
Parts shown on the attached summary are limited to those included in and are
valued as required under those definitions.
TRANS WORLD AIRLINES, INC.
By: ______________________________________
[Name]
[Title]
C-1
<PAGE>
TRANS WORLD AIRLINES, INC.
SUMMARY OF CERTAIN TRANSACTIONS
AND OF PLEDGED SPARE PARTS
AT DESIGNATED LOCATIONS AS SHOWN ON
INVENTORY CONTROL SYSTEM
AS OF THE LAST DAY OF
[NAME OF MONTH IMMEDIATELY PRECEDING DATE OF REPORT]
DESIGNATED LOCATIONS INVENTORY CONTROL SYSTEM VALUE
- -------------------- ------------------------------
$
TOTAL $
The following (as checked below) has occurred since the date of the last Report:
1. Sales of Pledged Spare Parts pursuant to Section 4.04(c)(iii) of the Pledge
Agreement:
___ None.
___ Description:
Note: The Company will send the magnetic tape referenced in the letter to which
this Summary is attached to the Collateral Agent directly (and the Collateral
Agent will spot check same in their discretion with a firm of their choice).
Once the issue has been finally determined the letter to which this Summary is
attached will need to be revised accordingly.
C-2
<PAGE>
SCHEDULE 1
DESIGNATED LOCATIONS
CITY/AIRPORT AIRPORT STATE
- --------------------- ---------------------------------- -------------
1. New York Kennedy International New York
2. New York La Guardia New York
3. Boston Logan International Massachusetts
4. Philadelphia Philadelphia International Pennsylvania
5. Baltimore Baltimore-Washington International Maryland
6. Arlington Washington (National) Virginia
7. Herndon Dulles International Virginia
8. Pittsburgh Pittsburgh International Pennsylvania
9. Chicago O'Hare International Illinois
10. St. Louis Lambert International Missouri
11. Kansas City Kansas City International Missouri
12. Las Vegas McCarran International Nevada
13. San Diego San Diego California
14. Los Angeles Los Angeles International California
15. San Francisco San Francisco International California
S1-1
<PAGE>
SCHEDULE 2
COLLATERAL RELEASE SCHEDULE
<TABLE>
<CAPTION>
Released Collateral Collateral Release Trigger (Securities Outstanding)
- ------------------- -----------------------------------------------------
<S> <C>
All Acquired Slots and the related $100,000,000
Beneficial Interest, Beneficial Interest
Certificate and Slot Trust Assets
</TABLE>
Note: Collateral referred to is as of the date of the Pledge Agreement. If
additional Collateral is pledged to the Collateral Agent in satisfaction
of the Substitution Requirements, such additional Collateral shall be
subject to release at the same time and under the same circumstances (and
only at the same time and under the same circumstances) as the Collateral
for which it was substituted could have been released under this
Schedule.
S2-1
<PAGE>
EXHIBIT 10.46.2
[CONFORMED COPY]
================================================================================
ACQUIRED SLOT TRUST AGREEMENT
DECLARATION OF TRUST
DATED AS OF DECEMBER 9, 1997
BY AND BETWEEN
TRANS WORLD AIRLINES, INC.
AND
FIRST SECURITY BANK, NATIONAL ASSOCIATION
AS
SLOT TRUSTEE
11 1/2% SENIOR SECURED NOTES DUE 2004
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE....................... 2
Section 1.01. Definitions............................................. 2
Section 1.02. Rules of Construction................................... 2
ARTICLE 2 NAME............................................................... 2
Section 2.01. Name.................................................... 2
ARTICLE 3 PURPOSE OF SLOT TRUST............................................ 2
Section 3.01. Purpose................................................. 2
ARTICLE 4 CONVEYANCE OF SLOTS, ORIGINAL ISSUANCE OF CERTIFICATE............ 2
Section 4.01. Holding and Conveyance of Slots......................... 2
Section 4.02. Aby Slot Trustee........................................ 3
Section 4.03. Execution of Beneficial Interest Certificate............ 3
ARTICLE 5 OWNERSHIP AND TRANSFER OF SLOT TRUST ASSETS...................... 3
Section 5.01. Ownership of Slot Trust Assets.......................... 3
Section 5.02. Transfer of Slot Trust Assets........................... 4
ARTICLE 6 BENEFICIAL INTEREST IN THE SLOT TRUST............................ 4
Section 6.01. Ownership of Beneficial Interest........................ 4
Section 6.02. Transfer of Beneficial Interest......................... 4
ARTICLE 7 THE SLOT TRUSTEE................................................. 5
Section 7.01. Management of the Slot Trust............................ 5
Section 7.02. Powers.................................................. 5
Section 7.03. Principal Transactions.................................. 6
Section 7.04. Service in Other Capacities............................. 6
Section 7.05. Resignation and Removal of Slot Trustee................. 6
Section 7.06. Successor Slot Trustee.................................. 6
ARTICLE 8 LIMITATION OF LIABILITY AND INDEMNIFICATION....................... 6
Section 8.01. Limitation of Slot Trustee Liability.................... 6
Section 8.02. Indemnification of Slot Trustee......................... 7
Section 8.03. Duties of Slot Trustee.................................. 7
Section 8.04. Rights of Slot Trustee.................................. 8
ARTICLE 9 VOTING POWERS OF HOLDER OF RECORD OF BENEFICIAL INTEREST......... 9
Section 9.01. No Voting Power......................................... 9
ARTICLE 10 MISCELLANEOUS.................................................... 9
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
Section 10.01. Slot Trust Expenses, Etc................................ 9
Section 10.02. Term of Slot Trust; Filing of Copies.................... 9
Section 10.03. Discharge of Slot Trustee; Termination of
Slot Trust.............................................. 9
Section 10.04. Amendment Procedure..................................... 10
Section 10.05. References to Slot Trust and Slot Trustee............... 10
Section 10.06 Notices; Waivers........................................ 10
Section 10.07. Amendments, Etc......................................... 11
Section 10.08. No Waiver; Remedies..................................... 11
Section 10.09. Conflict with Trust Indenture Act of 1939............... 12
Section 10.10. Holidays................................................ 12
Section 10.11. Successors and Assigns.................................. 12
Section 10.12 Governing Law; Waiver of Jury Trial..................... 12
Section 10.13. Indemnification......................................... 12
Section 10.14. Effect of Headings...................................... 13
Section 10.15. No Adverse Interpretation of Other Agreement............ 13
Section 10.16. No Recourse Against Others.............................. 13
Section 10.17. Counterpart Originals................................... 13
Section 10.18. Severability............................................ 13
Section 10.19 Benefits of Agreement Restricted........................ 13
Section 10.20. Survival Provisions..................................... 13
SIGNATURE PAGE.......................................................... 14
Schedule I - Acquired Slots........................................... I-1
Schedule II - Prior Third Party Licenses.............................. II-1
Exhibit A - Form of Deed of Conveyance......................... A-1 to A3
Exhibit B - Form of Beneficial Interest Certificate and
Power.............................................. B-1 to B3
Exhibit C - Form of Master Sub-License Agreement............. C-1 to C-15
Exhibit 1 - Form of Monthly Report to Slot Trustee.................. C-16
Exhibit 2 - Instruction to Transfer Operator Status................. C-17
Schedule 1 - Slot Release Schedule................................... C-18
</TABLE>
(ii)
<PAGE>
ACQUIRED SLOT TRUST AGREEMENT
DECLARATION OF TRUST
DATED AS OF DECEMBER 9, 1997
DECLARATION OF TRUST (together with all amendments and supplements hereto,
this "Agreement"), made as of December 9, 1997, executed by TRANS WORLD
AIRLINES, INC., a Delaware corporation, having an office at 515 N. 6th Street,
St. Louis, Missouri 63101 (herein, together with its successors and assigns,
"TWA"), and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking
association organized under the laws of the United States, having an office at
79 South Main Street, Salt Lake City, Utah 84111, as trustee (or its successor
in interest or any successor trustee appointed as hereinafter provided and its
assigns, the "Slot Trustee");
R E C I T A L S:
WHEREAS, TWA has duly authorized the issuance of $140,000,000 aggregate
principal amount outstanding of its 11 1/2% Senior Secured Notes due 2004
pursuant to an Indenture (together with all amendments, modifications and
supplements thereto, the "Indenture") dated as of December 9, 1997 between TWA
and First Security Bank, National Association (the "Trustee"); and
WHEREAS, the Indenture requires TWA to establish the Slot Trust for the
purpose of holding the Acquired Slots described in Schedule I for the benefit of
the Holders of the Securities; and
WHEREAS, this Agreement establishes the Slot Trust for the purpose of
holding the Acquired Slots for the benefit of Holders of the Securities (as
defined in the Definitions Appendix described below); and
WHEREAS, as a result of the foregoing, pursuant to the terms of the
Indenture and in order to secure the due and punctual payment, performance and
observance in full of the Obligations (as defined in the Definitions Appendix),
the Beneficial Interest and the Beneficial Interest Certificate, among other
things, will be pledged to the Collateral Agent pursuant to the Pledge Agreement
for the equal and ratable benefit of the Holders of the Securities; and
WHEREAS, TWA has duly authorized the execution and delivery of this
Agreement.
NOW, THEREFORE, both parties agree as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Securities:
<PAGE>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. 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 to the Indenture as Appendix I, which shall be
a part of this Acquired Slot Trust Agreement as if fully set forth in this
place.
Section 1.02. Rules of Construction. The rules of construction for
---------------------
this Acquired Slot Trust Agreement are set forth in Section 2 of the Definitions
Appendix.
ARTICLE 2. NAME
Section 2.01. Name. The Slot Trust established by this Agreement shall
----
be known as the ACQUIRED SLOT TRUST NO. 2 (together with all amendments and
supplements hereto, the "Slot Trust").
ARTICLE 3. PURPOSE OF SLOT TRUST
Section 3.01. Purpose. The purpose for which the Slot Trust has been
-------
formed is (i) to acquire and hold, for the benefit of the holder of the
Beneficial Interest and the Beneficial Interest Certificate, the Acquired Slots
assigned, transferred and conveyed to the Slot Trust pursuant to the Deed of
Conveyance, dated as of December 9, 1997, delivered by TWA to the Slot Trustee
in substantially the form attached as Exhibit A hereto (the "Deed of
Conveyance"), and subsequent deeds of conveyance substantially similar in form
and substance to the Deed of Conveyance (each a "Subsequent Deed of Conveyance")
pursuant to which TWA has transferred and may transfer Slots to the Slot Trust,
the pledge of the Beneficial Interest therein to serve as security for the
payment and performance of the Obligations, and (ii) to transfer such Acquired
Slots, all in accordance with the terms and conditions set forth in this
Agreement, the Master Sub-License Agreement and the Indenture.
ARTICLE 4. CONVEYANCE OF SLOTS, ORIGINAL ISSUANCE OF
CERTIFICATE
Section 4.01. Holding and Conveyance of Slots. TWA by the execution and
-------------------------------
delivery hereof, confirms that pursuant to the Deed of Conveyance, it is
assigning, transferring and conveying to the Slot Trust the Acquired Slots
described in Schedule I, in each case free and clear of liens, encumbrances and
rights of others (except for (i) Acquired Slots which are subject to the Prior
Third Party Licenses listed in Schedule II hereto, and (ii) Acquired Slots
subject to Slot Trades) and without recourse (such Acquired Slots, together with
all other Slots which may, from time to time, be assigned, transferred and
conveyed to the Slot Trust from TWA pursuant to the Master Sub-License Agreement
or otherwise, but excluding any Acquired Slots which have been released and
assigned, transferred and reconveyed to TWA from the Slot Trust (unless later
reassigned, retransferred and reconveyed to the Slot Trust) pursuant to the
Master Sub-License
2
<PAGE>
Agreement, herein being collectively referred to as the "Acquired Slots" or the
"Slot Trust Assets"), subject to the terms hereof.
Section 4.02. Acceptance by Slot Trustee. The Slot Trustee acknowledges
--------------------------
the prior or concurrent assignment, transfer and conveyance to it of the
Acquired Slots referred to in Section 4.01 hereof and declares that it holds and
will hold all Slot Trust Assets received by it hereunder in trust, in accordance
with, and subject to, the terms herein set forth.
Section 4.03. Execution of Beneficial Interest Certificate. The Slot
--------------------------------------------
Trustee shall execute and record the ownership of the Beneficial Interest
Certificate in accordance with Section 6.01 and deliver it to the Collateral
Agent, whereafter the Beneficial Interest shall be represented by the Beneficial
Interest Certificate, subject to all the terms hereof.
ARTICLE 5. OWNERSHIP AND TRANSFER OF SLOT TRUST ASSETS
Section 5.01. Ownership of Slot Trust Assets. The Slot Trust Assets
------------------------------
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as trustee hereunder by the Slot Trustee. All the assets of
the Slot Trust shall at all times be considered as vested in the Slot Trustee.
For so long as the Slot Trust Assets are held by the Slot Trust, TWA shall not,
and shall not be deemed to, have ownership in, or any rights of the holder of
record at the FAA with respect to, any Slot Trust Asset or any right of
partition or possession thereof, but TWA or its permitted assignee shall have an
undivided beneficial ownership interest in the entire Slot Trust. It is the
intent hereof that by the Deed of Conveyance, any Subsequent Deed of Conveyance,
this Agreement and the Master Sub-License Agreement, TWA (for all purposes other
than tax purposes) has assigned, transferred and conveyed (or in the case of any
Subsequent Deed of Conveyance, will have assigned, transferred and conveyed) its
entire interest in the Acquired Slots to the Slot Trust subject to no Liens
except Permitted Collateral Liens, and that TWA can only acquire an interest
therein upon satisfaction of all the Obligations or under the limited
circumstances set forth in Article 6 of the Master Sub-License Agreement. If,
notwithstanding TWA's failure to satisfy all the Obligations or comply with said
Article 6, it is held or determined that any present or future right or interest
in any Acquired Slot does so exist in TWA by contingent right of reverter,
expectancy or otherwise, TWA agrees that such holding or determination is
contrary to the intent hereof and that it has no right to, and shall not,
transfer or otherwise place any Lien upon such interest or make any agreement or
understanding to do so unless and until all the Obligations have been satisfied
or such Acquired Slot shall have ceased to be an Acquired Slot for all purposes
hereof and of the Master Sub-License Agreement.
Section 5.02. Transfer of Slot Trust Assets. Except as provided in the
-----------------------------
Master Sub-License Agreement, including Section 6.02 thereof, until such time as
the Slot Trust receives notice from the Indenture Trustee that (i) TWA has
satisfied all of its Obligations or (ii) acceleration of TWA's obligations under
the Securities has occurred, the Slot Trust shall not transfer any of the Slot
Trust Assets. Upon receipt of notice from the Indenture Trustee that no Event of
Default exists and TWA has satisfied all of the Obligations, the Slot Trustee
shall, subject to the provisions of Section 9.02 of the Master Sub-License
Agreement, and except as otherwise provided in Section 9.02 thereof, reassign,
retransfer and reconvey to TWA or its
3
<PAGE>
designee by deed of conveyance, without recourse, representation or warranty,
all of the Acquired Slots then held as Slot Trust Assets. Upon receipt of notice
from the Indenture Trustee that acceleration of TWA's obligations under the
Securities has occurred, the Slot Trust, upon direction from the Indenture
Trustee, shall take all such actions as are appropriate and necessary, in the
exercise of its sole and exclusive discretion, to protect the interests of the
Holders of the Securities, including without limitation, to deny TWA use of the
Acquired Slots (the Master Sub-License Agreement having terminated), to cause or
allow the termination of, enforce attornment obligations under or otherwise deal
with Third-Party Licenses and to transfer by deed of conveyance without
recourse, representation or warranty any or all of the Acquired Slots.
Notwithstanding the foregoing, if the Slot Trust or the Slot Trustee (in
its capacity as Slot Trustee) receives any Property other than Slot Trust Assets
(including, without limitation, cash and/or Investment Securities) such Property
shall be immediately delivered to the Collateral Agent.
ARTICLE 6. BENEFICIAL INTEREST IN THE SLOT TRUST
Section 6.01. Ownership of Beneficial Interest. TWA shall be the holder
--------------------------------
of record of the Beneficial Interest Certificate; provided however that upon
acceleration of the Securities in accordance with the Indenture, the Collateral
Agent may at any time in its discretion and without notice to TWA request that
the Slot Trustee transfer to or register in its name the Beneficial Interest
Certificate, and thereupon shall become holder of record of such certificate.
The ownership of the Beneficial Interest and the Beneficial Interest Certificate
shall be recorded by the Slot Trustee on the books of the Slot Trust. The record
books of the Slot Trust shall be conclusive as to who is the holder of record of
the Beneficial Interest and the Beneficial Interest Certificate.
Section 6.02. Transfer of Beneficial Interest. So long as TWA is
-------------------------------
recorded on the books of the Slot Trust as the holder of record of the
Beneficial Interest and the Beneficial Interest Certificate, TWA shall not
transfer or assign the Beneficial Interest and/or the Beneficial Interest
Certificate to any Person, except that TWA may pledge, transfer or assign the
Beneficial Interest and the Beneficial Interest Certificate to the Collateral
Agent under the Pledge Agreement and to no other Person. At such time as the
Collateral Agent becomes the holder of record of the Beneficial Interest and the
Beneficial Interest Certificate, the Beneficial Interest and the Beneficial
Interest Certificate shall be fully transferable and assignable. Any assignment
of the Beneficial Interest or Beneficial Interest Certificate in violation of
this Agreement shall be null and void ab initio.
ARTICLE 7. THE SLOT TRUSTEE
Section 7.01. Management of the Slot Trust. The business and affairs of
----------------------------
the Slot Trust shall be managed by the Slot Trustee, and the Trustee shall have
all powers granted to it pursuant to applicable law and under this Agreement.
4
<PAGE>
Section 7.02. Powers. The Slot Trustee in all instances shall carry out
------
its duties under this Agreement without interference by TWA. The Slot Trustee
shall have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments necessary in connection with its
duties under this Agreement. In addition to the powers granted to the Slot
Trustee pursuant to applicable law and subject to any applicable limitation in
this Agreement, the Slot Trustee shall have power and authority:
(a) To enter into and perform on behalf of the Slot Trust the
Master Sub-License Agreement, under substantially the terms and
conditions set forth in the form of such agreement attached as Exhibit
C hereto;
(b) To hold on behalf of the Slot Trust the Acquired Slots
assigned, transferred and conveyed to the Slot Trust from TWA pursuant
to the Deed of Conveyance or any Subsequent Deed of Conveyance from
TWA;
(c) To cancel, terminate and declare null and void the Master
Sub- License Agreement pursuant to the terms of such agreement;
(d) After acceleration of TWA's obligations under the Securities
in accordance with the Indenture (i) to take such actions as are
appropriate and necessary in the exercise of its sole and exclusive
discretion, to enter into, cause or allow the termination of, enforce
attornment obligations under or otherwise deal with sublicenses and
Third-Party Licenses and (ii) to assign, transfer and convey by deed
of conveyance, without recourse, representation or warranty, any or
all of the Acquired Slots, upon direction of the Indenture Trustee;
(e) To transfer to the Collateral Agent any property other than
Slot Trust Assets (including, without limitation, cash and/or
Investment Securities) delivered to it; and
(f) To reassign, retransfer and reconvey by deed of conveyance
without recourse, representation or warranty (except as otherwise
provided in Section 9.02 of the Master Sub-License Agreement) to TWA
the Acquired Slots held as Slot Trust Assets, upon receipt of notice
from the Indenture Trustee of satisfaction by TWA of all its
Obligations or under certain circumstances with respect to certain
Acquired Slots as set forth in the Master Sub-License Agreement.
Section 7.03. Principal Transactions. The Slot Trustee shall not on
----------------------
behalf of the Slot Trust, or otherwise, transfer any Slot Trust Assets or any
other property delivered to the Slot Trustee or the Slot Trust from the Slot
Trust or sell or lend any Slot Trust Assets or any other property delivered to
the Slot Trustee or the Slot Trust to any person, except as set forth in
Sections 5.02 and 7.02 hereof.
Section 7.04. Service in Other Capacities. The Slot Trustee may serve in
---------------------------
any other capacity on its own behalf or on behalf of others (and must serve as
Indenture Trustee and as
5
<PAGE>
Collateral Agent), and may engage in such other business activities in addition
to its services on behalf of the Slot Trust as may be desirable and permissible
under any applicable law. The Slot Trustee agrees to, and shall have the
benefit of, all provisions of the Indenture and the Operative Documents stated
therein to be agreements of or applicable to the Slot Trustee.
Section 7.05. Resignation and Removal of Slot Trustee. The Slot Trustee
---------------------------------------
may resign or be removed and a successor Slot Trustee appointed in accordance
with the terms of Section 7.8 of the Indenture; provided, however, that upon the
occurrence of an Event of Default, the Slot Trustee shall, if required under
applicable law to preserve the existence of the Slot Trust, resign and/or
appoint a successor individual trustee who shall be an individual person and
shall for all purposes be the Slot Trustee hereunder.
Section 7.06. Successor Slot Trustee. Any successor Slot Trustee
----------------------
appointed as provided in Section 7.05 hereof or which became a successor Slot
Trustee in accordance with Section 7.8 of the Indenture shall execute,
acknowledge and deliver to TWA and to its predecessor Slot Trustee an instrument
accepting such appointment hereunder, and thereupon the resignation or removal
of the predecessor Slot Trustee shall become effective, and such successor Slot
Trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as Slot Trustee herein. The
predecessor Slot Trustee shall deliver to the successor Slot Trustee all
documents and statements held by it hereunder, and TWA and the predecessor Slot
Trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for more fully, and certainty in, vesting and
confirming in the successor Slot Trustee all such rights, powers, duties and
obligations.
ARTICLE 8. LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 8.01. Limitation of Slot Trustee Liability. Every act or thing
------------------------------------
done or omitted, and every power exercised or obligation incurred by the Slot
Trustee in the administration of the Slot Trust or in connection with any
business, property or concerns of the Slot Trust, whether ostensibly in its own
name or in its capacity as Slot Trustee, shall be done, omitted, exercised or
incurred by it as Slot Trustee; and every person contracting or dealing with the
Slot Trustee or having any debt, claim or judgment against it shall look only to
TWA for payment or satisfaction; and the Slot Trustee shall not be personally
liable for or on account of any contract, debt, tort, claim, damage, judgment or
decree arising out of or connected with the administration or preservation of
the Slot Trust Assets or the conduct of any business of the Slot Trust.
Except as provided in Section 9.01 of the Master Sub-License Agreement, the
Slot Trustee does not make and shall not be deemed to have made any
representation or warranty, expressed or implied, as to the title,
merchantability, compliance with specifications, condition, design, operation,
fitness for use or for a particular purpose, or any other representation or
warranty whatsoever, expressed or implied, with respect to the Slot Trust
Assets.
The Slot Trustee shall not be subject to any personal liability whatsoever
to any person for any action or failure to act (including, without limitation,
the failure to compel in any way any
6
<PAGE>
former or acting Slot Trustee to redress any breach of trust) and all Persons
shall look solely to TWA for satisfaction of claims of any nature arising in
connection with the affairs of the Slot Trust, except for the Slot Trustee's own
bad faith or negligence.
Section 8.02. Indemnification of Slot Trustee. TWA shall indemnify and
-------------------------------
hold harmless the Slot Trustee to the same extent provided for the Indenture
Trustee under Section 7.7 of the Indenture, and the Slot Trustee shall have
those rights set forth in such Section 7.7 for the Indenture Trustee.
Section 8.03. Duties of Slot Trustee. If an Event of Default has
----------------------
occurred and is continuing, the Slot Trustee shall exercise such of the rights
and powers vested in it by this Agreement and use the same degree of care and
skill in such exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
Except during the continuance of an Event of Default:
(a) The Slot Trustee need perform only those duties as specifically
set forth in this Agreement and no others.
(b) In the absence of bad faith on its part, the Slot 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 Slot Trustee and conforming to the requirements of this Agreement.
However, the Slot Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Agreement.
(c) The Slot 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 8.03 or of Section 8.04 hereof;
(ii) The Slot Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Slot Trustee was negligent in ascertaining the pertinent
facts;
(iii) The Slot 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 5.02 hereof; and
(iv) The Slot 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.
(d) Every provision of this Agreement that in any way relates to the
Slot Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section
8.03.
7
<PAGE>
(i) Except as specifically set forth herein, in the Master Sub-
License Agreement or in the Pledge Agreement, the Slot Trustee shall have
no duty (i) to perform any recording or filing in connection with the Slot
Trust Assets, (ii) to see to the payment or discharge of any tax,
assessment or other governmental charge or any lien owing with respect to,
or assessed or levied against, any part of the Slot Trust Assets, or (iii)
to take any other actions in connection with the use, operation, management
or maintenance of the Slot Trust Assets.
Section 8.04. Rights of Slot Trustee. (a) The Slot Trustee may rely on
----------------------
any document believed by it to be genuine and to have been signed or presented
by the proper person. The Slot Trustee need not investigate any fact or matter
stated in any such document.
(b) Before the Slot Trustee acts or refrains from acting, it may
require an Opinion of Counsel, satisfactory to the Slot Trustee in its
reasonable discretion, which shall conform to Section 11.5 of the
Indenture. The Slot 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 Slot Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Slot Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within
its rights or powers. The Slot Trustee shall have the right at any time to
seek instruction concerning the administration of this Agreement or the
trust created thereby from any court of competent jurisdiction.
(e) The Slot Trustee may consult with counsel and the advice or
opinion of such counsel as to matters of law shall be full and complete
authorization and protection in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
ARTICLE 9. VOTING POWERS OF HOLDER OF RECORD OF BENEFICIAL INTEREST
Section 9.01. No Voting Power. So long as TWA is the holder of record of
---------------
the Beneficial Interest and the Beneficial Interest Certificate, TWA shall have
no voting power with respect to any matter relating to the Slot Trust, unless,
and only to the extent, required by law, which vote shall be exercised by the
Collateral Agent. At such time as the Collateral Agent becomes the holder of
record of the Beneficial Interest and the Beneficial Interest Certificate, the
Collateral Agent shall have all voting power with respect to any and all matters
relating to the Slot Trust, including, without limitation, the dissolution of
the Slot Trust, any direction to the Slot Trustee to make distributions, in kind
or otherwise, or any direction to the Slot Trustee to sell, lease or otherwise
dispose of the Slot Trust Assets; provided these powers are not in derogation of
any powers or rights exercisable by the Slot Trustee under Section 7.02.
8
<PAGE>
ARTICLE 10. MISCELLANEOUS
Section 10.01. Slot Trust Expenses, Etc. TWA shall pay all reasonable
------------------------
expenses and disbursements of the Slot Trust and the Slot Trustee, including,
without limitation, taxes (to the extent provided in Section 4.02 of the Pledge
Agreement), fees and commissions of every kind incurred in connection with the
activities of the Slot Trust; expenses of registering and qualifying the Slot
Trust and the Beneficial Interest under Federal and State laws and regulations,
legal expenses, and such non-recurring items as may arise, including litigation
to which the Slot Trust or the Slot Trustee is a party, and for all losses and
liabilities incurred in administering the Slot Trust.
Section 10.02. Term of Slot Trust; Filing of Copies. The term of the
------------------------------------
Slot Trust shall be from the date of this Agreement to and including such time
as all of the Slot Trust Assets have been assigned, transferred and conveyed
pursuant to the terms set forth herein. The original or a copy of this
instrument and of each Declaration of Trust supplemental hereto shall be kept at
the office of the Slot Trustee.
Section 10.03. Discharge of Slot Trustee; Termination of Slot Trust.
----------------------------------------------------
Upon completion of the assignment, transfer and conveyance of the Slot Trust
Assets pursuant to the terms set forth herein, the Slot Trustee shall be
discharged of any and all further liabilities and duties hereunder and this Slot
Trust and the right, title and interest of all parties hereto shall be canceled
and discharged.
Section 10.04. Amendment Procedure. (a) Except as provided in Section
-------------------
10.04(b) hereof and subject to Section 4.11 of the Indenture and Article 9 of
the Indenture, this Agreement may be amended by TWA and the Slot Trustee only
with the affirmative vote of the Required Holders; provided, however, that the
--------
affirmative vote of each Holder shall be required to amend this Section 10.04.
(b) TWA and the Slot Trustee may also amend this Agreement without
the vote of the Holders of the Securities if such parties each deem it
necessary to cure any ambiguity, defect or inconsistency or conform the
Slot Trust and/or this Agreement to the requirements of applicable laws, so
long as such amendment or amendments do not have a material adverse effect
on the interests of the Holders, but the Slot Trustee shall not be liable
for failing so to do.
(c) Notwithstanding the foregoing, nothing contained in this
Agreement shall permit any amendment of this Agreement which would impair
the exemption from personal liability of the Slot Trustee.
Section 10.05. References to Slot Trust and Slot Trustee. All references
-----------------------------------------
in this Agreement and all other Operative Documents to the Slot Trust or the
Slot Trustee shall be to both the Slot Trust and the Slot Trustee unless such a
reference would render the provision in which it is contained meaningless or
ambiguous.
9
<PAGE>
Section 10.06. Notices; Waivers. Any request, demand, authorization,
----------------
direction, notice, consent, waiver or other document provided or permitted by
this Agreement to be made upon, given or furnished to, or filed with
(a) TWA shall be sufficient for every purpose hereunder if in writing
(including telecopied communications) and made, given, furnished or filed
by personal delivery or mailed by first-class mail, or by a nationally
recognized overnight courier, postage or courier charges, as the case may
be, prepaid, to TWA at:
Trans World Airlines, Inc.
One City Centre
515 N. 6th Street
St. Louis, Missouri 63101
Attention: Senior Vice President & General Counsel
Telecopier No.: (314) 589-3267
(b) the Slot Trustee shall be sufficient for every purpose hereunder
if in writing (including telecopied communications) and made, given,
furnished or filed by personal delivery or mailed by registered or
certified mail, or by a nationally recognized overnight courier, postage or
courier charges, as the case may be, prepaid, to or with the Slot Trustee
at:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Telecopier No.: (801) 246-5528
or to any of the above parties at any other address or telecopier number
subsequently furnished in writing by it to each of the other parties listed
above. An affidavit by any person representing or acting on behalf of TWA or
the Slot Trustee as to such mailing, having any registry receipt required by
this Section attached, shall be conclusive evidence of the giving of such
demand, notice or communication.
Any notice or communication mailed to a Holder shall be mailed to such
Holder by first-class mail or by nationally recognized overnight courier,
postage or courier charges, as the case may be, prepaid, at such Holder's
address as it appears on the Register and shall be sufficiently given to such
Holder if so mailed within the time prescribed.
Failure to mail a notice or send a communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. Notices
to the Slot Trustee or to TWA are deemed given only when received. Where this
Agreement provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by
10
<PAGE>
the Holders shall be filed with the Slot Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver.
Section 10.07. Amendments, Etc. No amendment or waiver of any provision
---------------
of this Agreement nor consent to any departure by TWA therefrom shall in any
event be effective unless the same shall be in writing, approved by the Required
Holders (to the extent required herein or by the Indenture) and signed by the
Slot Trustee, and then any such waiver or consent shall only be effective in the
specific instance and for the specific purpose for which given.
Section 10.08. No Waiver; Remedies. (a) No failure on the part of he
-------------------
Slot Trustee to exercise, and no delay in exercising any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right, or constitute an election precluding any other or further
exercise of any alternative right, of the Slot Trustee, the Collateral Agent or
the Indenture Trustee under the Indenture or any Operative Document. The
remedies herein provided are cumulative, may be exercised singly or
concurrently, and are not exclusive of any remedies provided by law or the
Indenture, the Securities or any of the other Operative Documents.
(b) Failure by the Slot Trustee at any time or times hereafter to
require strict performance by TWA or any other Person of any of the provisions,
warranties, terms or conditions contained herein or in any of the Indenture, the
Securities or any other Operative Documents now or at any time or times
hereafter executed by TWA or any such other Person and delivered to the Slot
Trustee shall not waive, affect or diminish any right the Slot Trustee at any
time or times hereafter to demand strict performance thereof, and such right
shall not be deemed to have been modified or waived by any course of conduct or
knowledge of the Slot Trustee or any agent, officer or employee of the Slot
Trustee.
Section 10.09. Conflict with Trust Indenture Act of 1939. If and to the
-----------------------------------------
extent any provision of this Agreement limits, qualifies or conflicts with the
duties imposed by Sections 310 to 317, inclusive, of the TIA, such imposed
duties shall control.
Section 10.10. Holidays. In the event that any date for the payment of
--------
any amount due hereunder shall not be a Business Day, such payments
(notwithstanding any other provision of this Agreement) need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the due date, and no interest shall accrue for the
period from such due date to and including the next succeeding Business Day.
Section 10.11. Successors and Assigns. This Agreement and all
----------------------
obligations of TWA hereunder shall be binding upon the successors and permitted
assigns of TWA and shall, together with the rights and remedies of the Slot
Trustee hereunder, inure to the benefit of the Slot Trustee, the Holders, and
their respective successors and assigns. TWA and the Slot Trustee understand
and agree that the interest of TWA under this Agreement is not assignable and
that any attempt to assign all or any portion of this Agreement by TWA shall be
null and void except for an assignment in connection with a merger,
consolidation or sale of substantially all TWA's assets permitted under the
Indenture.
11
<PAGE>
Section 10.12. Governing Law; Waiver of Jury Trial.
-----------------------------------
(a) The laws of the State of New York shall govern this Agreement
without regard to principles of conflict of laws.
(b) TWA and the Slot Trustee each waive any right to have a jury
participate in resolving any dispute, whether sounding in contract, tort, or
otherwise arising out of, connected with, related to or incidental to the
relationship established between them in connection with this Agreement.
Instead, any disputes resolved in court will be resolved in a bench trial
without a jury.
Section 10.13. Indemnification. TWA agrees to pay, and to save the Slot
---------------
Trustee harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all excise, sales or other similar taxes which
may be payable or determined to be payable in connection with any of the
transactions contemplated by this Agreement.
Section 10.14. Effect of Headings. The Article and Section headings and
------------------
the Table of Contents contained in this Agreement have been inserted for
convenience of reference only, and are and shall be without substantive meaning
or content of any kind whatsoever and are not a part of this Agreement.
Section 10.15. No Adverse Interpretation of Other Agreement. This
--------------------------------------------
Agreement may not be used to interpret any security agreement of TWA or any of
its Subsidiaries which is unrelated to the Indenture, the Securities or the
other Operative Documents. Any such security agreement may not be used to
interpret this Agreement.
Section 10.16. No Recourse Against Others. A director, officer, employee
--------------------------
or stockholder, as such, of TWA shall not have any liability for any obligations
of TWA under this Agreement or for any claim based on, in respect of or by
reason of such obligations or its creation.
Section 10.17. Counterpart Originals. This Agreement may be signed in
---------------------
two or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same agreement.
Section 10.18. Severability. The provisions of this Agreement are
------------
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction, and a Holder shall have no claim therefor against
any party hereto.
Section 10.19. Benefits of Agreement Restricted. Subject to the
--------------------------------
provisions of Section 10.11 hereof, nothing in this Agreement, express 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, any legal or
equitable right, remedy or claim under or in respect of this Agreement or
12
<PAGE>
under any covenant, condition, or provision herein contained, all such
covenants, conditions and provisions being for the sole benefit of the parties
hereto and their successors and of the Holders.
Section 10.20. Survival Provisions. Notwithstanding any right of the
-------------------
Collateral Agent, the Initial Purchasers or any of the Holders to investigate
the affairs of TWA, and notwithstanding any knowledge of facts determined or
determinable by any of them pursuant to such investigation or right of
investigation, all representations, warranties and covenants of TWA contained
herein shall survive the execution and delivery of this Agreement, and shall
terminate only upon the termination of this Agreement.
13
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Acquired Slot Trust
Agreement to be duly executed, all as of the date first above written.
TRANS WORLD AIRLINES, INC.
By: /s/ Michael J. Lichty
-----------------------------------
Name: Michael J. Lichty
Title: Vice President
Corporate Finance
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, as Slot Trustee
By: /s/ Nancy M. Dahl
-----------------------------------
Name: Nancy M. Dahl
Title: Vice President
14
<PAGE>
SCHEDULE I
TO ACQUIRED SLOT TRUST AGREEMENT
ACQUIRED SLOTS
--------------
The Acquired Slots consist of thirty (30) slots at Washington National
Airport more particularly identified by number, time and frequency as follows:
<TABLE>
<CAPTION>
Slot Number Slot Time A/D Frequency
<S> <C> <C> <C>
DCA A 1521 0700 N DLY
DCA A 1585 0700 N DLY
DCA A 1496 0800 N DLY
DCA A 1051 0900 N DLY
DCA A 1616 1000 N DLY
DCA A 1139 1100 N DLY
DCA A 1272 1200 N DLY
DCA A 1481 1200 N DLY
DCA A 1381 1300 N DLY
DCA A 1420 1300 N DLY
DCA A 1543 1400 N DLY
DCA A 1666 1400 N DLY
DCA A 1208 1500 N DLY
DCA A 1345 1500 N DLY
DCA A 1312 1600 N DLY
DCA A 1460 1600 N DLY
DCA A 1473 1600 N DLY
DCA A 1625 1600 N DLY
DCA A 1221 1700 N DLY
DCA A 1411 1700 N DLY
DCA A 1561 1700 N DLY
DCA A 1074 1800 N DLY
DCA A 1100 1800 N DLY
DCA A 1292 1900 N DLY
DCA A 1353 1900 N DLY
DCA A 1396 1900 N DLY
DCA A 1441 2000 N DLY
DCA A 1559 2000 N DLY
DCA A 1575 2200 N DLY
DCA A 1642 2200 N DLY
</TABLE>
I-1
<PAGE>
SCHEDULE II
TO ACQUIRED SLOT TRUST AGREEMENT
PRIOR THIRD PARTY LICENSES
--------------------------
<TABLE>
<CAPTION>
End of
Slot Remaining
Slot number time A/D Frequency Carrier Term
- ------------ -------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
DCA A 1208 1500 N DLY American 6/30/98
Airlines
DCA A 1345 1500 N DLY American 6/30/98
Airlines
</TABLE>
II-1
<PAGE>
EXHIBIT A
TO ACQUIRED SLOT TRUST AGREEMENT
_______________________________________________________________________________
FORM OF
DEED OF CONVEYANCE
AND
ASSIGNMENT OF SLOTS
FROM
TRANS WORLD AIRLINES, INC.
TO
FIRST SECURITY BANK, NATIONAL ASSOCIATION
AS SLOT TRUSTEE OF THE ACQUIRED SLOT TRUST NO. 2
11 1/2% SENIOR SECURED NOTES DUE 2004
_______________________________________________________________________________
<PAGE>
EXHIBIT A
FORM OF
DEED OF CONVEYANCE AND
ASSIGNMENT OF SLOTS
FOR VALUE RECEIVED the undersigned TRANS WORLD AIRLINES, INC. ("TWA") on
behalf of itself and for its successors and assigns does hereby assign, transfer
and convey to the ACQUIRED SLOT TRUST NO. 2 (together with all amendments and
supplements thereto, the "Slot Trust") created by that certain Acquired Slot
Trust Agreement Declaration of Trust dated as of December 9, 1997 (as the same
may be amended and supplemented from time to time, the "Acquired Slot Trust
Agreement"), with First Security Bank, National Association, a national banking
association, as trustee (together with its successors in trust and assigns the
"Slot Trustee") all of the rights, titles, interests and privileges of TWA in
and to the primary operating authority granted by the Federal Aviation
Administration (the "FAA") pursuant to Title 14 of the Code of Federal
Regulations, Part 93, Subparts K & S, as amended from time to time, or any
recodification thereof in any regulation ("Title 14"), to conduct certain
Instrument Flight Rule (as defined under the Federal Aviation Act of 1958, as
amended) take-offs or landings in specified one-hour or half-hour periods (the
"Slots," each of which is set forth on Schedule I.). Capitalized terms used
herein and not otherwise defined have the respective meanings ascribed to them
in the Acquired Slot Trust Agreement or incorporated therein by reference.
The reference to the Slot Trustee having "transferred" to TWA the Acquired
Slots in the parties' facsimile transmittal to the Office of Slot
Administration, Office of the Chief Counsel - Slot Transfers, Federal Aviation
Administration, dated December 8, 1997, refers to the transfer made by the
execution and delivery of this DEED OF CONVEYANCE.
This Conveyance is an absolute and complete conveyance of all of the Slots.
TWA shall have the exclusive temporary leasehold or sub-license for the use
of the Slots during the period set forth in that certain Master Sub-License
Agreement between the Slot Trustee and TWA, dated as of December 9, 1997 (as the
same may be amended and supplemented from time to time, the "Master Sub-License
Agreement"), subject to the terms thereof. The Slot Trustee, as trustee of the
Slot Trust, shall continue to be the holder of record at the FAA with respect to
the Slots, subject to the regulations adopted by the FAA pursuant to
authorization of the Secretary of Transportation of the United States.
TWA does hereby warrant and represent to the Slot Trust and the Slot
Trustee that it has been granted the Slots by the FAA pursuant to Title 14,
subject only to regulation by the FAA, that TWA holds the Slots free and clear
of any liens or other encumbrances or rights of others, subject only to (i) Slot
Trades in effect on the date hereof, and (ii) the Third Party Licenses in effect
on the date hereof and listed on Schedule II to the Acquired Slot Trust
Agreement.
TWA further warrants and represents that it has, at all times since
obtaining each Slot, complied in all material respects with all of the terms,
conditions and regulations set forth in
A-1
<PAGE>
Title 14. With specificity, TWA warrants and represents that there are existing
at this time no violations of the terms, conditions and regulations of the
aforesaid regulatory enactments adopted by the FAA, the result of which would
give the FAA in the exercise of its powers the right to terminate, cancel,
withdraw or revoke any of the Slots.
TWA further warrants and represents that it has used all of the Slots in
accordance with Section 93.227 of Title 14 since the date that it obtained each
of the Slots.
TWA further warrants and represents that the Slots are not Slots which have
been categorized as "essential air service Slots," "international Slots" or
"temporary Slots" by the FAA.
TWA further warrants and represents that the execution and delivery of this
DEED OF CONVEYANCE and the execution of the related documents shall not and does
not create a default or an event of default under any existing loan agreement,
mortgage, deed of trust, indenture, contract or other material agreement to
which TWA is a party, and does not violate any term, covenant and condition of
any other material agreement with any regulatory authority or any of the
provisions of the Certificate of Incorporation or By-Laws of TWA as in effect on
the date hereof.
IN WITNESS WHEREOF, the undersigned, TWA, by and through its duly
undersigned authorized officer does hereby execute this DEED OF CONVEYANCE as of
this 9th day of December, 1997.
TRANS WORLD AIRLINES, INC.
By: _______________________________
Name:
Title:
A-2
<PAGE>
Before me personally appeared this 9th
---
day of December, 1997,_________________
________, as _______________________ of
TRANS WORLD AIRLINES, INC., a Delaware
corporation, who in my presence did
execute this DEED OF CONVEYANCE and
acknowledged that he/she executed this
DEED OF CONVEYANCE for the purpose stated
herein as an act and deed of said
corporation.
__________________________________________
Name:
__________________________________________
Notarial Seal __________________________
Acknowledged and Agreed to as of this 9th
day of December, 1997.
ACQUIRED SLOT TRUST NO. 2
First Security Bank, National Association,
as Slot Trustee on behalf of the Acquired
Slot Trust No. 2
By: ____________________________________
Name:
Title:
After recording and confirmation please return to First Security Bank, National
Association, 79 South Main Street, Salt Lake City, Utah 84111, Attention:
Corporate Trust Department
A-3
<PAGE>
EXHIBIT B
TO ACQUIRED SLOT TRUST AGREEMENT
________________________________________________________________________________
BENEFICIAL INTEREST CERTIFICATE
UNDER
ACQUIRED SLOT TRUST AGREEMENT
BETWEEN
TRANS WORLD AIRLINES, INC.
AND
FIRST SECURITY BANK, NATIONAL ASSOCIATION
AS SLOT TRUSTEE
11 1/2% SENIOR SECURED NOTES DUE 2004
________________________________________________________________________________
<PAGE>
TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN
RESTRICTIONS AND LIMITATIONS SET FORTH IN SECTIONS 5.02 AND
6.02 OF THE ACQUIRED SLOT TRUST AGREEMENT REFERRED TO BELOW
FIRST SECURITY BANK, NATIONAL ASSOCIATION
AS
SLOT TRUSTEE UNDER THE ACQUIRED SLOT
TRUST AGREEMENT DATED DECEMBER 9, 1997
BENEFICIAL INTEREST CERTIFICATE No. 1
December 9, 1997
FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Slot Trustee (the "Slot
Trustee") under the Acquired Slot Trust Agreement Declaration of Trust, dated as
of December 9, 1997 (as the same may be amended and supplemented from time to
time, the "Acquired Slot Trust Agreement") between TRANS WORLD AIRLINES, INC.
("TWA") and the Slot Trustee (capitalized terms used herein and not otherwise
defined have the respective meanings ascribed to them in the Acquired Slot Trust
Agreement or incorporated therein by reference), hereby certifies as follows:
(i) this Beneficial Interest Certificate is the Beneficial Interest Certificate
referred to in the Acquired Slot Trust Agreement, which Beneficial Interest
Certificate has been executed by the Slot Trustee; and (ii) TWA, as the holder
of record of this Beneficial Interest Certificate (the "Holder"), has an
undivided beneficial ownership interest in the entire Slot Trust; however, all
the assets of the Slot Trust shall at all times be considered as vested in the
Slot Trustee.
The ownership of this Beneficial Interest Certificate shall be recorded by
the Slot Trustee on the books of the Slot Trust, at the corporate trust office
of the Slot Trustee at 79 South Main Street, Salt Lake City, Utah 84111,
Attention: Corporate Trust Department, or at the office of any successor Slot
Trustee, in accordance with Section 6.01 of the Acquired Slot Trust Agreement.
Reference is hereby made to the Acquired Slot Trust Agreement, the Pledge
and Security Agreement dated as of December 9, 1997 between TWA and the
Collateral Agent thereunder, the Indenture dated as of December 9, 1997 between
TWA and the Trustee (as defined therein) and the Master Sub-License Agreement
dated as of December 9, 1997 between TWA and the Slot Trustee for a statement of
the rights of the Holder of this Beneficial Interest Certificate, as well as for
a statement of the terms and conditions of the trust created by the Acquired
Slot Trust
B-1
<PAGE>
Agreement, to all of which terms and conditions the Holder hereof agrees by its
acceptance of this Beneficial Interest Certificate.
THIS BENEFICIAL INTEREST CERTIFICATE MAY BE TRANSFERRED, SOLD, ASSIGNED OR
OTHERWISE DISPOSED OF BY THE HOLDER HEREOF ONLY IN ACCORDANCE WITH THE
PROVISIONS OF SECTIONS 5.02 AND 6.02 OF THE ACQUIRED SLOT TRUST AGREEMENT. The
Holder hereof, by its acceptance of this Beneficial Interest Certificate, agrees
not to transfer, sell, assign or otherwise dispose of this Beneficial Interest
Certificate except in accordance with the terms of Sections 5.02 and 6.02 of the
Acquired Slot Trust Agreement. Upon surrender of this Beneficial Interest
Certificate for registration of transfer, duly endorsed, or accompanied by a
written instrument of transfer duly executed by the registered Holder hereof or
his attorney duly authorized in writing, and after compliance with the
provisions of Sections 5.02 and 6.02 of the Acquired Slot Trust Agreement, a new
Beneficial Interest Certificate representing the undivided beneficial interest
in the entire Slot Trust will be executed and delivered to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Slot Trustee may treat the Person in whose name this Beneficial
Interest Certificate is registered as the owner hereof for all purposes set
forth in the Acquired Slot Trust Agreement.
IN WITNESS WHEREOF, the Slot Trustee has caused this Beneficial Interest
Certificate to be duly executed by an authorized officer of the Slot Trustee as
of the date first above written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
as Slot Trustee
By: ______________________________
Name:
Title:
B-2
<PAGE>
BENEFICIAL INTEREST CERTIFICATE POWER
FOR VALUE RECEIVED, ____________________________________________________ hereby
sells, assigns and transfers unto _____________________________________________
(_________) percent of the ownership of the beneficial interest in the ACQUIRED
SLOT TRUST NO. 2 (the "Slot Trust") created pursuant to that certain Acquired
Slot Trust Agreement Declaration of Trust, dated as of December 9, 1997 (the
"Acquired Slot Trust Agreement"), made by Trans World Airlines, Inc., a Delaware
corporation (the "Company"), and First Security Bank, National Association, a
national bank, as slot trustee (the "Slot Trustee"), standing in the Company's
name on the books of the Slot Trustee represented by Beneficial Interest
Certificate No. 1, herewith, and do hereby irrevocably constitute and appoint
____________________________________ attorney to transfer said beneficial
interest certificate on the books of said Trust with full power of substitution
in the premises.
Dated:
TRANS WORLD AIRLINES INC.
By: ______________________________
Name:
Title:
B-3
<PAGE>
EXHIBIT C
TO ACQUIRED SLOT TRUST AGREEMENT
________________________________________________________________________________
MASTER SUB-LICENSE AGREEMENT
BETWEEN
TRANS WORLD AIRLINES, INC.
("TWA")
AND
FIRST SECURITY BANK, NATIONAL ASSOCIATION
PURSUANT TO THE ACQUIRED SLOT TRUST AGREEMENT
DATED AS OF DECEMBER 9, 1997
11 1/2% SENIOR SECURED NOTES DUE 2004
________________________________________________________________________________
<PAGE>
MASTER SUB-LICENSE AGREEMENT
THIS MASTER SUB-LICENSE AGREEMENT dated as of December 9, 1997 (herein,
together with all supplements and amendments hereto, this "Agreement"), made by
TRANS WORLD AIRLINES, INC., a Delaware corporation, having an office at 515 N.
6th Street, St. Louis, Missouri 63101 (herein, together with its successors and
assigns, "TWA") and the trust existing under the Acquired Slot Trust Agreement
Declaration of Trust, dated as of December 9, 1997 (the "Slot Trust"), with
FIRST SECURITY BANK, NATIONAL ASSOCIATION, a banking association organized under
the laws of the United States, having an office at 79 South Main Street, Salt
Lake City, Utah 84111 (herein, together with its successors in trust and
assigns, the "Slot Trustee").
R E C I T A L S:
WHEREAS, TWA and First Security Bank, National Association, as Trustee,
have contemporaneously herewith entered into that certain Indenture dated as of
December 9, 1997 (the "Indenture") providing for the issuance of $140,000,000
aggregate principal amount outstanding of 11 1/2% Senior Secured Notes due 2004;
and
WHEREAS, TWA granted, assigned, transferred and conveyed to the Slot Trust
by the Deed of Conveyance (as defined in the Definitions Appendix described
below) all of the Acquired Slots set forth in Schedule I to the Acquired Slot
Trust Agreement; and from time to time hereafter TWA may assign, transfer and
convey to the Slot Trust other Slots pursuant to any Subsequent Deed of
Conveyance. All Slots so conveyed to the Slot Trust by the Deed of Conveyance
and Subsequent Deeds of Conveyance (as defined in the Definitions Appendix)
together constitute the "Acquired Slots"; and
WHEREAS, the Slot Trustee has agreed to grant to TWA an exclusive sub-
license (the "Sub-License") to use the Acquired Slots in accordance with this
Agreement; and
WHEREAS, as security for the due and punctual payment, performance and
observance in full of the Obligations (as defined in the Definitions Appendix),
TWA pledged, among other things, the Beneficial Interest and the Beneficial
Interest Certificate, to the Collateral Agent on behalf of the holders of the
Securities; and
WHEREAS, TWA has duly authorized the execution and delivery of this
Agreement.
NOW, THEREFORE, both parties agree as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Securities
(the "Holders").
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. 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 to
C-1
<PAGE>
the Indenture as Appendix I, which shall be a part of this Master Sub-License
Agreement as if fully set forth in this place.
Section 1.02. Rules of Construction. The rules of construction for this
---------------------
Master Sub-License Agreement are set forth in Section 2 of the Definitions
Appendix.
ARTICLE 2. SUB-LICENSE
Section 2.01. Grant of Sub-License. The Slot Trust does hereby grant unto
--------------------
TWA an exclusive Sub-License to use the Acquired Slots, subject to the terms
hereof and, except as otherwise provided herein, TWA shall not be required to
pay any fee for such Sub-License. The reference to the Slot Trustee having
"licensed-back" to TWA the Acquired Slots in the parties' facsimile transmittal
to the Office of Slot Administration, Office of the Chief Counsel - Slot
Transfers, Federal Aviation Administration, dated December 8, 1997, refers to
the Sub-License granted unto TWA by this Section 2.01.
ARTICLE 3. NATURE OF SUB-LICENSE
Section 3.01. Non-Proprietary Nature. The Sub-License shall be deemed to
----------------------
be in the nature of a usufruct and not a proprietary right, and the interest of
TWA under this Agreement shall be terminable in accordance with the terms and
conditions hereof.
ARTICLE 4. REPRESENTATION AND WARRANTY
Section 4.01. Representation and Warranty. TWA represents and warrants
---------------------------
that it is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware with corporate power and authority under
such laws to own, lease and operate its properties and conduct its business as
conducted on the date hereof, and has all such power and authority as is
necessary to enter into this Agreement.
ARTICLE 5 COVENANTS
Section 5.01. Covenants. TWA covenants and agrees that:
---------
(a) It shall use the Acquired Slots, or cause the Acquired Slots to be
used, in a manner consistent with Title 14 (including the percentage use
requirement contained therein) or other regulations established by any
lawful authority (unless noncompliance with such provision or regulations
is otherwise waived or consented to by the FAA or such authority, as the
case may be). TWA shall not use the Acquired Slots for international or
essential air service operations as defined by the FAA. TWA shall file all
such reports as are required by the FAA or by any other lawful authority to
protect each Acquired Slot in form and content in compliance with the
provisions of Title 14 or other regulations established by any other lawful
authority, which reports shall be delivered to
C-2
<PAGE>
the FAA or such other lawful authority on a timely basis. On or before the
tenth Business Day of each month TWA shall furnish to the Slot Trustee a
certificate as to its compliance with this Agreement for the immediately
preceding three months in substantially the form of Exhibit 1 to this
Agreement.
(b) Except as expressly permitted in this Section 5.01(b), TWA shall
not transfer, sub-license or otherwise grant to others rights with respect
to the Acquired Slots, and any such non-permitted transfer, sub-license or
other grant by TWA shall be null and void. TWA may, in the Ordinary Course
Of Business, (i) enter into Slot Trades, and (ii) sub-license and agree to
sub-license, directly or indirectly, to air carriers the right to use
Acquired Slots (such licenses in this clause (ii) hereinafter referred to
as the "Third Party Licenses"), provided that, (A) TWA shall not have
outstanding at any one time Third Party Licenses with a Remaining Term of
longer than twenty-four (24) months with respect to more than forty percent
(40%) of the number of Acquired Slots; (B) in the case of an indirect Third
Party License with respect to an Acquired Slot, the direct third party
sublicensee shall contractually bind itself with TWA to promptly sub-
license the right to use any such Acquired Slot to an air carrier; (C) TWA
shall not enter into or agree to enter into any Third Party License with a
Remaining Term of longer than fifteen (15) months after its receipt of
notice of a Default under Section 6.01(f) of the Indenture or after the
occurrence of any other Default under the Indenture and so long as any such
Default shall continue and (D) TWA shall not accept prepayments of rentals
in connection with Third Party Licenses.
(c) The rights of all sub-licensees claiming from or under TWA under
any and all Third Party Licenses, except as otherwise provided with respect
to Prior Third-Party Licenses, are subject and subordinate in all respects
to the terms of this Master Sub-License Agreement and the Slot Trust. TWA
shall use commercially reasonable efforts to obtain, as promptly as
practicable, from each licensee under a Prior Third Party License an
agreement (for the express benefit of the Slot Trustee) that, and as a
condition to entering into any Third Party License, TWA will require each
prospective sub-licensee to agree (for the express benefit of the Slot
Trustee) that, upon receipt of notice from the Slot Trustee that this
Master Sub-License Agreement has been terminated, it will promptly either
(i) (A) attorn to the Slot Trustee for the then scheduled Remaining Term of
the Third-Party License and acknowledge that, thereafter, its rights with
respect to the relevant Acquired Slot have terminated, and (B) agree that
for the Remaining Term of such Third Party License it will make license
payments directly to the Slot Trustee in an amount equal to the higher of
(1) the payments that, from time to time, would have been due and payable
under the terms of the Third-Party License, or (2) monthly fair market
value license payments with respect to the relevant Acquired Slot, or (ii)
acknowledge that such Third Party License, and the Third-Party Licensee's
rights with respect to the relevant Acquired Slot, shall terminate sixty
(60) days after notice from the Slot Trustee to such licensee of the Slot
Trustee's election to terminate such license. TWA shall not extend and
shall not, in any material respect, amend the Prior Third Party Licenses
described in Schedule II to the Acquired Slot Trust Agreement, except on
terms complying with this paragraph and Section 5.01(b).
C-3
<PAGE>
(d) TWA shall pay any reasonable fees or expenses incurred by the Slot
Trust or Slot Trustee in connection with being the holder of record at the
FAA of any Acquired Slot or the right to use any Acquired Slot.
(e) TWA shall take any action necessary to maintain the Slot Trust as
the holder of record at the FAA of the Acquired Slots.
ARTICLE 6. EVENT OF LOSS; RELEASE OF ACQUIRED SLOTS
Section 6.01. Event of Loss. (a) On the occurrence of an Event of Loss
-------------
with respect to an Acquired Slot, TWA shall give the Slot Trustee prompt notice
thereof and shall satisfy the Substitution Requirements.
(b) Upon compliance by TWA with its obligations above, with Article 7
hereof and with any applicable requirements of the TIA, and upon Request
and payment by TWA of the Slot Trustee's costs (including reasonable legal
fees and disbursements) incurred in connection with the foregoing, and
provided that any Slot which may be assigned, transferred and conveyed to
the Slot Trust as provided above shall immediately upon such assignment,
transfer and conveyance for all purposes under the Indenture, the Pledge
Agreement, the Declaration, any Subsequent Deed of Conveyance and this
Agreement become and be an Acquired Slot, the Slot Trust shall execute and
deliver the required documents, assigning, transferring and conveying the
Acquired Slot which was the subject of the Event of Loss to TWA or its
designee, without recourse, whereupon such Acquired Slot shall cease to be
an Acquired Slot for all purposes of the Indenture and the Operative
Documents, including this Agreement.
Section 6.02. Release of Acquired Slots. Upon Request and payment by TWA
-------------------------
of the Slot Trustee's costs (including reasonable legal fees and disbursements)
incurred in complying with such Request:
(a) Sale to Third Parties. So long as no Event of Default has
occurred and is continuing or would result therefrom, the Slot Trust shall
assign, transfer and convey to TWA or its designee, without recourse, any
Acquired Slot that is the subject of a contract of sale pursuant to which
TWA has agreed to sell such Acquired Slot in the Ordinary Course, on an
arm's-length basis to an unaffiliated third party within ninety (90) days
after the date of such release, which contract contains only closing
conditions that are customary to a sale of that kind at that time and which
sale is not a "sale/leaseback" or other similar transaction used by TWA as
a financing vehicle, but only if TWA shall comply with the Substitution
Requirements.
(b) Release of Acquired Slots Upon Partial Prepayment. Simultaneously
with or promptly following the cancellation of any Securities, whether
pursuant to a partial repurchase of any Securities pursuant to any Offer
to Purchase under the Indenture, following a tender of Securities in
connection with a tender offer therefor or otherwise and subject to
compliance by the Company with the Preconditions, and provided that
C-4
<PAGE>
after giving effect to such release of Acquired Slots, the Company will be
in compliance with the Security Ratio requirements set forth in the
definition thereof, the Slot Trustee shall assign, transfer and convey to
TWA or its designee without recourse the Acquired Slots set forth in
Schedule 1 hereto (the "Released Slots") based upon the reduction in the
amount of Securities Outstanding to an amount equal to or less than the
level specified for the release of particular Acquired Slots as set forth
in said Schedule 1 (the "Release Trigger").
(c) Release of Acquired Slot. Subject to the conditions and upon
compliance with all of the requirements of this Section 6.02 and Article 7
hereof and any applicable requirements of the TIA, and provided that any
Slot which may be assigned, transferred and conveyed to the Slot Trust
shall immediately upon such assignment, transfer and conveyance, for all
purposes under the Indenture, the Pledge Agreement, the Declaration, any
Subsequent Deed of Conveyance and this Agreement become and be an Acquired
Slot, the Acquired Slot or Acquired Slots, as the case may be, released
pursuant to Section 6.02(a) or 6.02(b), as the case may be, shall cease to
be Acquired Slots for all purposes hereof and of the Indenture and the
Operative Documents (unless later reassigned, retransferred and reconveyed
to the Slot Trust).
ARTICLE 7. SUBSEQUENT DEEDS OF CONVEYANCE
Section 7.01. Subsequent Deeds of Conveyance. If and whenever TWA shall
------------------------------
be required to assign, transfer and convey Slots to the Slot Trust or if TWA
shall at any time desire to assign, transfer and convey Slots to the Slot Trust,
TWA will furnish to the Slot Trustee the following:
(a) a Subsequent Deed of Conveyance duly executed by TWA,
appropriately describing and identifying such Slots; and
(b) an Opinion of Counsel, dated the date of execution of said
Subsequent Deed of Conveyance, stating that:
(i) all necessary filings have been made with the FAA to effect the
transfer of such Slots from TWA to the Slot Trust pursuant to
Title 14, Code of Federal Regulations, Part 93.221 (the "FAA Slot
Regulations"), and TWA has received confirmation from the FAA of
the transfer of such Slots to the Slot Trust and of the license-
back to TWA pursuant to the Subsequent Deed of Conveyance and
this Agreement; the Slot Trust owns such Slots subject to the
transfers permitted under the Subsequent Deed of Conveyance and
this Agreement and owns such Slots free and clear of all liens
and interests of others except as may be provided herein and the
Slot Trust has been identified as the owner and holder of record
of each such Slot pursuant to the FAA Slot Regulations; TWA has
been identified as the operator of record of such Slots (subject
to transfers permitted under the Subsequent Deed of Conveyance
and this Agreement) and such right to
C-5
<PAGE>
use such Slots has been duly recorded in the name of TWA
pursuant and subject to the FAA Slot Regulations; and
(ii) except as described in subsection 7.01(b)(i) above, no
authorization, approval, consent or license of the FAA or the
Department of Transportation of the United States is required
for the execution, delivery, or performance of the Subsequent
Deed of Conveyance by TWA; and
(c) Such Officers' Certificates, Opinions of Counsel or other
documents, if any, as the TIA may require or the Slot Trustee may
reasonably require.
ARTICLE 8. REMEDIES UPON DEFAULT OR FAA ACTION
Section 8.01. Remedies upon Default or FAA Action. (a) The parties
-----------------------------------
acknowledge and agree that the primary operating authority represented by a Slot
exists at the discretion of the FAA, acting pursuant to Title 14 and statutory
authority, and that the FAA may terminate, cancel, withdraw or revoke a Slot or
amend or revoke the regulation which permits Slots to be bought and sold and
thereby gives them value (any of the foregoing, an "FAA Action"). The parties
further acknowledge and agree that any of these actions by the FAA would
substantially impair the rights of the Slot Trustee and the value of the
Collateral.
(b) It is understood and agreed between the parties that:
(I) UPON THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER THE INDENTURE
OR AN FAA ACTION AND DURING THE CONTINUANCE THEREOF, TWA SHALL DELIVER TO
THE COLLATERAL AGENT, ALL CONSIDERATION TO BE RECEIVED BY TWA AFTER SUCH
EVENT OF DEFAULT OR FAA ACTION (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 A THIRD PARTY LICENSE OR SLOT TRADE; PROVIDED THAT IF SUCH
CONSIDERATION IS A SLOT, AS TO WHICH TWA BECAME THE HOLDER OF RECORD AT THE
FAA, SUCH SLOT SHALL BE ASSIGNED, TRANSFERRED AND CONVEYED TO THE SLOT
TRUST AND SHALL BE HELD BY THE SLOT TRUST AS A SLOT TRUST ASSET;
(II) UPON THE ACCELERATION OF TWA'S OBLIGATIONS UNDER THE SECURITIES
IN ACCORDANCE WITH THE INDENTURE, THIS AGREEMENT WILL, WITHOUT ANY ACTION
BY ANY PARTY THERETO, TERMINATE AND TWA SHALL HAVE NO FURTHER RIGHT OR
INTEREST IN THE ACQUIRED SLOTS AND THE SLOT TRUSTEE MAY TAKE SUCH ACTIONS
AS NECESSARY TO CAUSE OR ALLOW THE TERMINATION OF OR ENFORCE ATTORNMENT
OBLIGATIONS UNDER OR OTHERWISE DEAL WITH THIRD PARTY LICENSES AND SLOT
TRADES, AND TO ASSIGN, TRANSFER AND CONVEY BY DEED OF CONVEYANCE, WITHOUT
RECOURSE, WARRANTY OR REPRESENTATION THE ACQUIRED SLOTS; PROVIDED, THAT, IF
SUCH
C-6
<PAGE>
ACCELERATION IS RESCINDED IN ACCORDANCE WITH SECTION 6.2 OF THE INDENTURE
PRIOR TO THE SLOT TRUSTEE'S HAVING DISPOSED OF ANY OF THE ACQUIRED SLOTS,
THIS AGREEMENT WILL, WITHOUT ANY ACTION BY ANY PARTY THERETO, BE REINSTATED
WITH RESPECT TO THOSE SLOTS STILL HELD BY THE SLOT TRUSTEE AFTER TAKING ANY
SUCH ACTION; AND
(III) IN FURTHERANCE OF THE FOREGOING, THE SLOT TRUSTEE IS HEREBY
IRREVOCABLY APPOINTED THE TRUE AND LAWFUL ATTORNEY OF TWA, IN ITS NAME AND
STEAD, TO THE EXTENT PERMITTED BY LAW, TO EXECUTE, FILE, REGISTER AND/OR
RECORD ALL DOCUMENTS AND INSTRUMENTS OF ASSIGNMENT, TRANSFER AND SURRENDER
OF THE ACQUIRED SLOTS (INCLUDING, WITHOUT LIMITATION, AN INSTRUCTION TO
TRANSFER OPERATOR STATUS IN THE FORM ATTACHED HERETO AS EXHIBIT 2, A COPY
OF WHICH HAS BEEN EXECUTED IN BLANK BY AN AUTHORIZED OFFICER OF TWA AND
DELIVERED TO THE SLOT TRUSTEE, BUT WHICH MAY ALSO BE EXECUTED ON BEHALF OF
TWA BY THE SLOT TRUSTEE PURSUANT TO THIS POWER OF ATTORNEY), AND ALL OTHER
DOCUMENTS AND INSTRUMENTS, NECESSARY, OR IN THE GOOD FAITH OPINION OF THE
SLOT TRUSTEE DESIRABLE, IN ORDER TO (X) RECORD OF RECORD WITH THE FAA ANY
TERMINATION OF TWA'S RIGHTS OR INTERESTS IN THE ACQUIRED SLOTS UPON THE
ACCELERATION OF TWA'S OBLIGATIONS UNDER THE SECURITIES IN ACCORDANCE WITH
THE INDENTURE, (Y) UPON OR AT ANY TIME AFTER SUCH ACCELERATION, EFFECT THE
TRANSFER OF TWA'S OPERATOR STATUS WITH RESPECT TO ANY OR ALL OF THE
ACQUIRED SLOTS TO THE SLOT TRUSTEE OR A THIRD PARTY DESIGNATED BY THE SLOT
TRUSTEE AND/OR (Z) OTHERWISE EFFECT THE ACTIONS THAT THE SLOT TRUSTEE IS
AUTHORIZED, OR INTENDED TO BE AUTHORIZED, TO TAKE PURSUANT TO THE FOREGOING
CLAUSES (I) AND (II) OF THIS SECTION 8.01(B), AND MAY SUBSTITUTE ONE OR
MORE PERSONS, FIRMS OR CORPORATIONS WITH LIKE POWER, TWA HEREBY RATIFYING
AND CONFIRMING ALL THAT ITS SAID ATTORNEY OR SUCH SUBSTITUTE OR SUBSTITUTES
SHALL LAWFULLY DO BY VIRTUE HEREOF; BUT IF SO REQUESTED BY THE SLOT
TRUSTEE, TWA SHALL RATIFY AND CONFIRM ANY SUCH ACTION TAKEN IN ACCORDANCE
WITH THIS POWER OF ATTORNEY AS MAY BE DESIGNATED IN ANY SUCH REQUEST. THE
FOREGOING POWER OF ATTORNEY IS COUPLED WITH AN INTEREST, IS IRREVOCABLE AND
SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT, PROVIDED ONLY THAT THE
FOREGOING POWER OF ATTORNEY WILL TERMINATE UPON RECONVEYANCE OF THE
ACQUIRED SLOTS TO TWA IN ACCORDANCE WITH SECTION 9.01 HEREOF.
(c) In view of the nature of a Slot and the discretion given to the
FAA with respect to Slots, the parties understand and agree that the
termination, cancellation, withdrawal or revocation of the Acquired Slots
or the amendment or revocation of the
C-7
<PAGE>
regulation which permits Slots to be bought and sold would cause a
immediate and permanent detrimental effect upon the Slot Trust and the
ability of the Holders to look to the pledge by TWA of the Beneficial
Interest and the Beneficial Interest Certificate to secure TWA's
obligations under the Securities and the Indenture. In accordance with the
foregoing, upon the acceleration of TWA's obligations under the Securities
in accordance with the Indenture, the Slot Trustee and TWA shall (unless
such action on the part of the Slot Trustee is not consistent with action a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs or is not required to authorize and permit the Slot Trustee
to take the actions described in this sentence) apply for and use their
best efforts to obtain a temporary restraining order and preliminary and
final injunctive or other equitable relief authorizing and permitting the
Slot Trustee to cancel, or confirming the cancellation of, this Agreement
in accordance with Section 8.01(b) hereof, and authorizing and permitting
the Slot Trustee to sell, assign, transfer and convey the Acquired Slots
for a price and under such terms and conditions as may be commercially
reasonable and/or to preserve, to the maximum extent possible, the value of
the Acquired Slots.
(d) In accordance with the foregoing, TWA further recognizes,
understands and agrees that in the event of either a filing by TWA or a
entry of an order or decree against TWA of a petition under the Bankruptcy
Law then, and in either such event, the Slot Trust will only be protected
adequately with respect to the Acquired Slots upon the immediate entry of
an order providing either (i) for immediate abandonment of the Acquired
Slots to the Slot Trust and a grant of authority to the Slot Trust to
assign, transfer and convey the Acquired Slots and have the Collateral
Agent hold any proceeds thereof for the benefit of the Holders or (ii)
permitting TWA, at the sole discretion of the Slot Trustee, which may be
revoked at any time as to any one or more or all of the Acquired Slots, to
continue to use all of the Acquired Slots on a daily basis so as to
prohibit the FAA from immediately terminating, canceling, withdrawing or
revoking the rights thereunder.
It is the position of the Slot Trust and TWA that under the terms of the
Deed of Conveyance, any Subsequent Deed of Conveyance and this Agreement, TWA
(for all purposes other than tax purposes) has assigned, transferred and
conveyed (or, in the case of any Subsequent Deed of Conveyance, will have
assigned, transferred and conveyed) its entire property interest, if any, in the
Acquired Slots and can only acquire an interest therein upon satisfaction of all
of the Obligations or under limited circumstances set forth in Article 6 hereof.
In the event, however, that it is determined by a court of competent
jurisdiction that a property interest in the Acquired Slots does so exist in TWA
notwithstanding the failure of TWA to satisfy all of the Obligations or the
existence of certain circumstances set forth in Article 6 hereof, then and in
that event, the Slot Trustee and TWA agree that an order for adequate protection
pertaining to the foregoing rights of the Slot Trust with respect to the
Acquired Slots shall be immediately entered and TWA does hereby for itself and
its successors and assigns, including without limitation a trustee in any
proceeding instituted by or against TWA under the Bankruptcy Law, consent to the
entry of a order providing for such adequate protection of the Slot Trust's
interest in the Acquired Slots.
C-8
<PAGE>
ARTICLE 9. TERMINATION AND RECONVEYANCE OF ALL ACQUIRED SLOTS
Section 9.01. Reconveyance of All Acquired Slots. In the event that no
----------------------------------
Default or Event of Default exists under the Indenture, and TWA satisfies all of
the Obligations, then, and in that event, upon receipt by the Indenture Trustee
of such satisfaction in immediately available funds, the Slot Trustee shall,
without cost or charge to TWA (except as otherwise provided herein), reassign,
retransfer and reconvey by deed of conveyance without recourse, representation
or warranty to TWA, all of the Acquired Slots, except that the Slot Trustee
shall represent and warrant that (except in accordance with Article 8 hereof),
it has made no transfers of, or knowingly permitted any liens to be imposed
upon, Acquired Slots other than the limited interest granted to TWA under this
Agreement, and thereupon this Agreement (other than Article 10 hereof) shall
terminate.
Section 9.02. Continued Effectiveness of Agreement. If the reassignment,
------------------------------------
retransfer or reconveyance referred to in Section 9.01 hereof is prohibited by
any then applicable law or regulation, this Agreement (including Section 5.01(e)
but otherwise excluding Articles 5, 6, 7, 11, 12, 13 and 14 hereof) will
continue in effect until such time as the reassignment, retransfer or
reconveyance of the primary operating authority with respect to the Acquired
Slots is permitted.
ARTICLE 10. INDEMNIFICATION
Section 10.01. Indemnification by TWA. TWA shall indemnify and hold
----------------------
harmless the Slot Trustee to the extent provided to the Indenture Trustee under
Section 7.7 of the Indenture, and the Slot Trustee shall have those rights set
forth in such Section 7.7 for the Indenture Trustee.
ARTICLE 11. AMENDMENTS
Section 11.01. Amendments. (a) Except as provided in Section 11.01(b)
----------
hereof, and subject to Section 4.11 of the Indenture and Article 9 of the
Indenture, this Agreement may be amended by TWA and the Slot Trustee only with
the affirmative vote of the Required Holders; provided, however, that the
-------- -------
affirmative vote of each Holder shall be required to amend this Section 11.01.
(b) TWA and the Slot Trustee may also amend this Agreement without the
vote of the Holders if such parties each deem it necessary to cure any
ambiguity, defect or inconsistency or conform this Agreement to the requirements
of applicable laws so long as such amendment does not have a material adverse
effect on the interests of the Holders.
ARTICLE 12. ASSIGNMENTS
Section 12.01. Rights of Assignment by TWA. TWA and the Slot Trustee
---------------------------
understand and agree that the interest of TWA under this Agreement is not
assignable and that any attempt to assign all or any portion of this Agreement
by TWA shall be null and void ab initio except for an
C-9
<PAGE>
assignment in connection with a merger, consolidation or sale of substantially
all TWA's assets permitted under the Indenture.
ARTICLE 13. INDEPENDENT APPRAISALS
Section 13.01. Independent Appraisal Required Under Certain Circumstances.
----------------------------------------------------------
Whenever a Permitted Substitute has been used or operated by a Person or Persons
other than TWA, in a business similar to that in which it has been or is to be
used or operated by TWA, within six (6) months prior to the date of its
acquisition by TWA, or the fair value of any Acquired Slots or Collateral to be
released, assigned or transferred by the Collateral Agent or the Slot Trust,
together with all other Property so released, assigned or transferred since the
commencement of the then-current calendar year or in any twelve (12) month
period, as set forth in the certificate or certificates required by this
Agreement, is ten percent (10%) or more of the aggregate principal amount of
Securities at the time Outstanding, TWA will provide to the Slot Trustee such
certificates and opinions, if any, as the TIA may require.
ARTICLE 14. RECEIPT OF CASH AND/OR INVESTMENT SECURITIES
BY THE SLOT TRUSTEE
Section 14.01. Receipt of Cash And/or Investment Securities. In the event
--------------------------------------------
the Slot Trust or the Slot Trustee (in its capacity as Slot Trustee) receives
any Property (including, without limitation, cash and/or Investment Securities)
other than Slots, such Property shall immediately be delivered to the Collateral
Agent (which shall be evidenced by a certificate of the Collateral Agent
delivered to the Slot Trustee, acknowledging receipt of such Property).
ARTICLE 15. SLOT TRUSTEE
Section 15.01. Rights and Duties of Slot Trustee. Except as specifically
---------------------------------
set forth herein, in the Pledge Agreement or in the Slot Trust Agreement, the
Slot Trustee shall have no duty (i) to perform any recording or filing in
connection with the Slot Trust Assets, (ii) to see to the payment or discharge
of any tax, assessment or other governmental charge or any lien owing with
respect to, or assessed or levied against, any part of the Slot Trust Assets, or
(iii) to take any other actions in connection with the use, operation,
management or maintenance of the Slot Trust Assets.
Except as provided in Section 9.01 hereof, the Slot Trustee does not make
and shall not be deemed to have made any representation or warranty, expressed
or implied, as to the title, merchantability, compliance with specifications,
condition, design, operation, fitness for use or for a particular purpose, or
any other representation or warranty whatsoever, expressed or implied, with
respect to the Slot Trust Assets.
Section 15.02. References to Slot Trust and Slot Trustee. All references
-----------------------------------------
in this Agreement and the other Operative Documents to the Slot Trust or the
Slot Trustee shall be to
C-10
<PAGE>
both the Slot Trust and the Slot Trustee unless such a reference would render
the provision in which it is contained meaningless or ambiguous.
ARTICLE 16. MISCELLANEOUS
Section 16.01 Notices; Waivers. Any request, demand, authorization,
----------------
direction, notice, consent, waiver or other document provided or permitted by
this Agreement to be made upon, given or furnished to, or filed with
(a) TWA shall be sufficient for every purpose hereunder if in writing
(including telecopied communications) and made, given, furnished or filed
by personal delivery or mailed by first-class mail, or by a nationally
recognized overnight courier, postage or courier charges, as the case may
be, prepaid, to TWA at:
Trans World Airlines, Inc.
One City Centre
515 N. 6th Street
St. Louis, Missouri 63101
Attention: Senior Vice President & General Counsel
Telecopier No.: (314) 589-3267
(b) the Slot Trustee shall be sufficient for every purpose hereunder
if in writing (including telecopied communications) and made, given,
furnished or filed by personal delivery or mailed by registered or
certified mail, or by a nationally recognized overnight courier, postage or
courier charges, as the case may be, prepaid, to or with the Slot Trustee
at:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Telecopier No.: (801) 246-5528
or to any of the above parties at any other address or telecopier number
subsequently furnished in writing by it to each of the other parties listed
above. An affidavit by any person representing or acting on behalf of TWA or
the Slot Trustee as to such mailing, having any registry receipt required by
this Section attached, shall be conclusive evidence of the giving of such
demand, notice or communication.
Any notice or communication mailed to a Holder shall be mailed to such
Holder by first-class mail or by nationally recognized overnight courier,
postage or courier charges, as the case may be, prepaid, at such Holder's
address as it appears on the Register and shall be sufficiently given to such
Holder if so mailed within the time prescribed.
C-11
<PAGE>
Failure to mail a notice or send a communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. Notices
to the Slot Trustee or to TWA are deemed given only when received. Where this
Agreement provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by the Holders shall be filed with the Slot Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
Section 16.02. Amendments, Etc. Subject to Section 11.01, no amendment or
---------------
waiver of any provision of this Agreement nor consent to any departure by TWA
therefrom shall in any event be effective unless the same shall be in writing,
and signed by the Slot Trustee and approved by the Required Holders if required
hereby or by the Indenture, and then any such waiver or consent shall only be
effective in the specific instance and for the specific purpose for which given.
Section 16.03. No Waiver; Remedies. (a) No failure on the part of the
-------------------
Slot Trustee to exercise, and no delay in exercising any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative, may be
exercised singly or concurrently, and are not exclusive of any remedies provided
by law or the Indenture, the Securities or any of the other Operative Documents.
(b) Failure by the Slot Trustee at any time or times hereafter to
require strict performance by TWA or any other Person of any of the provisions,
warranties, terms or conditions contained herein or in any of the Indenture, the
Securities or any other Operative Documents now or at any time or times
hereafter executed by TWA or any such other Person and delivered to the Slot
Trustee shall not waive, affect or diminish any right of the Slot Trustee at any
time or times hereafter to demand strict performance thereof, and such right
shall not be deemed to have been modified or waived by any course of conduct or
knowledge of the Slot Trustee or any agent, officer or employee of the Slot
Trustee.
Section 16.04. Conflict with Trust Indenture Act of 1939. If and to the
-----------------------------------------
extent any provision of this Agreement limits, qualifies or conflicts with the
duties imposed by Sections 310 to 317, inclusive of the TIA, such imposed duties
shall control.
Section 16.05. Holidays. In the event that any date for the payment of
--------
any amount due hereunder shall not be a Business Day, then (notwithstanding any
other provision of this Agreement) such payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the due date, and no interest shall accrue on such payment
for the period from such due date to and including the next succeeding Business
Day.
Section 16.06. Successors and Assigns. This Agreement and all obligations
----------------------
of TWA hereunder shall be binding upon the successors and if permitted assigns
of TWA, and shall, together with the rights and remedies of the Slot Trustee
hereunder, inure to the benefit of the
C-12
<PAGE>
Slot Trustee, the Holders, and their respective successors and assigns. Any
assignment of this Agreement in violation of Section 12.01 herein shall be null
and void ab initio.
Section 16.07. Governing Law; Waiver of Jury Trial. (a) The laws of the
-----------------------------------
State of New York shall govern this Agreement without regard to principles of
conflict of laws.
(b) TWA and the Slot Trustee each waive any right to have a jury
participate in resolving any dispute, whether sounding in contract, tort, or
otherwise arising out of, connected with, related to or incidental to the
relationship established between them in connection with this Agreement.
Instead, any disputes resolved in court will be resolved in a bench trial
without a jury.
Section 16.08. Indemnification. TWA agrees to pay, and to save the Slot
---------------
Trustee harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all excise, sales or other similar taxes which
may be payable or determined to be payable with respect to any of the Collateral
or Slot Trust Assets or in connection with any of the transactions contemplated
by this Agreement.
Section 16.09. Effect of Headings. The Article and Section headings and
------------------
the Table of Contents contained in this Agreement have been inserted for
convenience of reference only, and are and shall be without substantive meaning
or content of any kind whatsoever and are not a part of this Agreement.
Section 16.10. No Adverse Interpretation of Other Agreement. This
--------------------------------------------
Agreement may not be used to interpret any agreement of TWA or any of its
Subsidiaries which is unrelated to the Indenture, the Securities or the other
Operative Documents. Any such other agreement may not be used to interpret this
Agreement.
Section 16.11. No Recourse Against Others. A director, officer, employee
--------------------------
or stockholder, as such, of TWA shall not have any liability for any obligations
of TWA under the Agreement or for any claim based on, in respect of or by reason
of such obligations or its creation.
Section 16.12. Counterpart Originals. This Agreement may be signed in two
---------------------
or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same agreement.
Section 16.13. Severability. The provisions of this Agreement are
------------
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction, and a Holder shall have no claim therefor against
any party hereto.
Section 16.14. Benefits of Agreement Restricted. Subject to the
--------------------------------
provisions of Sections 12.01 and 16.06, nothing in this Agreement, express 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
C-13
<PAGE>
Holders, any legal or equitable right, remedy or claim under or in respect of
this Agreement or under any covenant, condition, or provision herein contained,
all such covenants, conditions and provisions being for the sole benefit of the
parties hereto and their successors and of the Holders.
Section 16.15. Survival Provisions. Notwithstanding any right of the
-------------------
Collateral Agent, the Initial Purchasers or any of the Holders to investigate
the affairs of TWA, and notwithstanding any knowledge of facts determined or
determinable by any of them pursuant to such investigation or right of
investigations all representations, warranties and covenants of TWA contained
herein shall survive the execution and delivery of this Agreement, and shall
terminate only upon the termination of this Agreement.
C-14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Master Sub-License
Agreement to be duly executed as of the date first written above.
TRANS WORLD AIRLINES, INC.
By: _______________________________
Name:
Title:
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
as Slot Trustee on behalf of the Slot Trust
By: _______________________________
Name:
Title:
C-15
<PAGE>
EXHIBIT 1 TO
EXHIBIT C
CERTIFICATE
-----------
The undersigned, [Manager of Current Schedules and Industry Affairs] of
Trans World Airlines, Inc. ("TWA"), DOES HEREBY CERTIFY THAT:
1. This Certificate is delivered to the Slot Trustee pursuant to Article
5, Section 5.01(a) of the Master Sub-License Agreement dated as of December
9, 1997 (the "Master Sub-License Agreement") between TWA and First Security
Bank, National Association, as Slot Trustee pursuant to the Acquired Slot
Trust Agreement, dated as of December 9, 1997. All capitalized terms used
herein and not otherwise defined have the respective meanings ascribed to
them in the Master Sub-License Agreement or incorporated therein by
reference.
2. I am responsible for maintaining and managing the operation of slots
(as such term is defined in 14 C.F.R. 93) for TWA.
3. Except as noted on Schedule A attached hereto, during each of the one-
month, two-month and three-month periods ending the last day of the month
preceding the date of this Certificate:
(a) all the Acquired Slots were operated by TWA or other carriers or
both; and
(b) (i) the Acquired Slots operated by TWA, and
(ii) to the best of my knowledge based upon due inquiry, the
Acquired Slots operated by all other carriers, and
(iii) accordingly, to the best of my knowledge, all the
Acquired Slots
were used in a manner consistent with the usage and other requirements
of 14 C.F.R. 93 and Section 5.01(a) of the Master Sub-License
Agreement; and
(c) no notice of non-compliance with FAA Slot Regulations has been
received from the FAA with respect to any Acquired Slot.
DATED:_____________________ BY:___________________________________
NAME:
Att: Schedule A (None - No Exceptions)
C-16
<PAGE>
EXHIBIT 2 TO
EXHIBIT C
INSTRUCTION TO TRANSFER OPERATOR STATUS
The undersigned TRANS WORLD AIRLINES, INC. ("TWA") hereby authorizes and
directs the Federal Aviation Administration, Office of Slot Administration (and
any successor federal agency or office thereof, the "FAA") to assign, transfer
and convey operator status of the right to conduct Instrument Flight Rule (as
defined under the Federal Aviation Act of 1958, as amended) take-offs or
landings in specified one-hour or half-hour periods set forth on Schedule A
hereto (the "Slots") to __________________________________, and to record such
assignment, transfer and conveyance of operator status on the records of the
FAA.
IN WITNESS WHEREOF, the undersigned, TWA, by and through its duly
authorized officer does hereby execute this instruction to transfer the Slots
("Instruction") as of this ___ day of ____________, ________.
TRANS WORLD AIRLINES, INC.
By: _______________________________
Name:
Title:
____________________________________
(Name of Transferee)
By: _______________________________
Name:
Title:
By execution below, the Federal Aviation Administration
Office of Slot Administration, acknowledges receipt of
this Instruction, this ___ day of __________, ________.
By: _______________________________
Name:
Title:
C-17
<PAGE>
SCHEDULE 1
TO EXHIBIT C
SLOT RELEASE SCHEDULE
<TABLE>
<CAPTION>
Released Slots Slot Release Trigger
-------------- --------------------
<S> <C>
All Slots listed on Schedule $ 100,000,000.00
I to the Acquired Slot Trust
Agreement
</TABLE>
Note: Slots referred to are as of the date of the Master Sub-License Agreement.
If additional or substitute Slots are conveyed to the Slot Trust in satisfaction
of the Substitution Requirements, such substitute Acquired Slots shall be
subject to release at the same time and under the same circumstances (and only
at the same time and under the same circumstances) as the Acquired Slots for
which they were substituted could have been released under the Master Sub-
License Agreement.
C-18
<PAGE>
EXHIBIT 10.46.3
[CONFORMED COPY]
================================================================================
MASTER SUB-LICENSE AGREEMENT
BETWEEN
TRANS WORLD AIRLINES, INC.
("TWA")
AND
FIRST SECURITY BANK, NATIONAL ASSOCIATION
PURSUANT TO THE ACQUIRED SLOT TRUST AGREEMENT
DATED AS OF DECEMBER 9, 1997
11 1/2% SENIOR SECURED NOTES DUE 2004
================================================================================
<PAGE>
MASTER SUB-LICENSE AGREEMENT
THIS MASTER SUB-LICENSE AGREEMENT dated as of December 9, 1997 (herein,
together with all supplements and amendments hereto, this "Agreement"), made by
TRANS WORLD AIRLINES, INC., a Delaware corporation, having an office at 515 N.
6th Street, St. Louis, Missouri 63101 (herein, together with its successors and
assigns, "TWA") and the trust existing under the Acquired Slot Trust Agreement
Declaration of Trust, dated as of December 9, 1997 (the "Slot Trust"), with
FIRST SECURITY BANK, NATIONAL ASSOCIATION, a banking association organized under
the laws of the United States, having an office at 79 South Main Street, Salt
Lake City, Utah 84111 (herein, together with its successors in trust and
assigns, the "Slot Trustee").
R E C I T A L S:
WHEREAS, TWA and First Security Bank, National Association, as Trustee,
have contemporaneously herewith entered into that certain Indenture dated as of
December 9, 1997 (the "Indenture") providing for the issuance of $140,000,000
aggregate principal amount outstanding of 11 1/2% Senior Secured Notes due 2004;
and
WHEREAS, TWA granted, assigned, transferred and conveyed to the Slot Trust
by the Deed of Conveyance (as defined in the Definitions Appendix described
below) all of the Acquired Slots set forth in Schedule I to the Acquired Slot
Trust Agreement; and from time to time hereafter TWA may assign, transfer and
convey to the Slot Trust other Slots pursuant to any Subsequent Deed of
Conveyance. All Slots so conveyed to the Slot Trust by the Deed of Conveyance
and Subsequent Deeds of Conveyance (as defined in the Definitions Appendix)
together constitute the "Acquired Slots"; and
WHEREAS, the Slot Trustee has agreed to grant to TWA an exclusive
sub-license (the "Sub-License") to use the Acquired Slots in accordance with
this Agreement; and
WHEREAS, as security for the due and punctual payment, performance and
observance in full of the Obligations (as defined in the Definitions Appendix),
TWA pledged, among other things, the Beneficial Interest and the Beneficial
Interest Certificate, to the Collateral Agent on behalf of the holders of the
Securities; and
WHEREAS, TWA has duly authorized the execution and delivery of this
Agreement.
NOW, THEREFORE, both parties agree as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Securities
(the "Holders").
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. 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 to
1
<PAGE>
the Indenture as Appendix I, which shall be a part of this Master Sub-License
Agreement as if fully set forth in this place.
Section 1.02. Rules of Construction. The rules of construction for this
---------------------
Master Sub-License Agreement are set forth in Section 2 of the Definitions
Appendix.
ARTICLE 2. SUB-LICENSE
Section 2.01. Grant of Sub-License. The Slot Trust does hereby grant unto
--------------------
TWA an exclusive Sub-License to use the Acquired Slots, subject to the terms
hereof and, except as otherwise provided herein, TWA shall not be required to
pay any fee for such Sub-License. The reference to the Slot Trustee having
"licensed-back" to TWA the Acquired Slots in the parties' facsimile transmittal
to the Office of Slot Administration, Office of the Chief Counsel - Slot
Transfers, Federal Aviation Administration, dated December 8, 1997, refers to
the Sub-License granted unto TWA by this Section 2.01.
ARTICLE 3. NATURE OF SUB-LICENSE
Section 3.01. Non-Proprietary Nature. The Sub-License shall be deemed to
----------------------
be in the nature of a usufruct and not a proprietary right, and the interest of
TWA under this Agreement shall be terminable in accordance with the terms and
conditions hereof.
ARTICLE 4. REPRESENTATION AND WARRANTY
Section 4.01. Representation and Warranty. TWA represents and warrants
---------------------------
that it is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware with corporate power and authority under
such laws to own, lease and operate its properties and conduct its business as
conducted on the date hereof, and has all such power and authority as is
necessary to enter into this Agreement.
ARTICLE 5 COVENANTS
Section 5.01. Covenants. TWA covenants and agrees that:
---------
(a) It shall use the Acquired Slots, or cause the Acquired Slots to
be used, in a manner consistent with Title 14 (including the percentage use
requirement contained therein) or other regulations established by any
lawful authority (unless noncompliance with such provision or regulations
is otherwise waived or consented to by the FAA or such authority, as the
case may be). TWA shall not use the Acquired Slots for international or
essential air service operations as defined by the FAA. TWA shall file all
such reports as are required by the FAA or by any other lawful authority to
protect each Acquired Slot in form and content in compliance with the
provisions of Title 14 or other regulations established by any other lawful
authority, which reports shall be delivered to
2
<PAGE>
the FAA or such other lawful authority on a timely basis. On or before the
tenth Business Day of each month TWA shall furnish to the Slot Trustee a
certificate as to its compliance with this Agreement for the immediately
preceding three months in substantially the form of Exhibit 1 to this
Agreement.
(b) Except as expressly permitted in this Section 5.01(b), TWA shall
not transfer, sub-license or otherwise grant to others rights with respect
to the Acquired Slots, and any such non-permitted transfer, sub-license or
other grant by TWA shall be null and void. TWA may, in the Ordinary Course
Of Business, (i) enter into Slot Trades, and (ii) sub-license and agree to
sub-license, directly or indirectly, to air carriers the right to use
Acquired Slots (such licenses in this clause (ii) hereinafter referred to
as the "Third Party Licenses"), provided that, (A) TWA shall not have
outstanding at any one time Third Party Licenses with a Remaining Term of
longer than twenty-four (24) months with respect to more than forty percent
(40%) of the number of Acquired Slots; (B) in the case of an indirect Third
Party License with respect to an Acquired Slot, the direct third party
sublicensee shall contractually bind itself with TWA to promptly
sub-license the right to use any such Acquired Slot to an air carrier; (C)
TWA shall not enter into or agree to enter into any Third Party License
with a Remaining Term of longer than fifteen (15) months after its receipt
of notice of a Default under Section 6.01(f) of the Indenture or after the
occurrence of any other Default under the Indenture and so long as any such
Default shall continue and (D) TWA shall not accept prepayments of rentals
in connection with Third Party Licenses.
(c) The rights of all sub-licensees claiming from or under TWA under
any and all Third Party Licenses, except as otherwise provided with respect
to Prior Third-Party Licenses, are subject and subordinate in all respects
to the terms of this Master Sub-License Agreement and the Slot Trust. TWA
shall use commercially reasonable efforts to obtain, as promptly as
practicable, from each licensee under a Prior Third Party License an
agreement (for the express benefit of the Slot Trustee) that, and as a
condition to entering into any Third Party License, TWA will require each
prospective sub-licensee to agree (for the express benefit of the Slot
Trustee) that, upon receipt of notice from the Slot Trustee that this
Master Sub-License Agreement has been terminated, it will promptly either
(i) (A) attorn to the Slot Trustee for the then scheduled Remaining Term of
the Third-Party License and acknowledge that, thereafter, its rights with
respect to the relevant Acquired Slot have terminated, and (B) agree that
for the Remaining Term of such Third Party License it will make license
payments directly to the Slot Trustee in an amount equal to the higher of
(1) the payments that, from time to time, would have been due and payable
under the terms of the Third-Party License, or (2) monthly fair market
value license payments with respect to the relevant Acquired Slot, or (ii)
acknowledge that such Third Party License, and the Third-Party Licensee's
rights with respect to the relevant Acquired Slot, shall terminate sixty
(60) days after notice from the Slot Trustee to such licensee of the Slot
Trustee's election to terminate such license. TWA shall not extend and
shall not, in any material respect, amend the Prior Third Party Licenses
described in Schedule II to the Acquired Slot Trust Agreement, except on
terms complying with this paragraph and Section 5.01(b).
3
<PAGE>
(d) TWA shall pay any reasonable fees or expenses incurred by the
Slot Trust or Slot Trustee in connection with being the holder of record at
the FAA of any Acquired Slot or the right to use any Acquired Slot.
(e) TWA shall take any action necessary to maintain the Slot Trust as
the holder of record at the FAA of the Acquired Slots.
ARTICLE 6. EVENT OF LOSS; RELEASE OF ACQUIRED SLOTS
Section 6.01. Event of Loss. (a) On the occurrence of an Event of Loss
-------------
with respect to an Acquired Slot, TWA shall give the Slot Trustee prompt notice
thereof and shall satisfy the Substitution Requirements.
(b) Upon compliance by TWA with its obligations above, with Article 7
hereof and with any applicable requirements of the TIA, and upon Request
and payment by TWA of the Slot Trustee's costs (including reasonable legal
fees and disbursements) incurred in connection with the foregoing, and
provided that any Slot which may be assigned, transferred and conveyed to
the Slot Trust as provided above shall immediately upon such assignment,
transfer and conveyance for all purposes under the Indenture, the Pledge
Agreement, the Declaration, any Subsequent Deed of Conveyance and this
Agreement become and be an Acquired Slot, the Slot Trust shall execute and
deliver the required documents, assigning, transferring and conveying the
Acquired Slot which was the subject of the Event of Loss to TWA or its
designee, without recourse, whereupon such Acquired Slot shall cease to be
an Acquired Slot for all purposes of the Indenture and the Operative
Documents, including this Agreement.
Section 6.02. Release of Acquired Slots. Upon Request and payment by TWA
-------------------------
of the Slot Trustee's costs (including reasonable legal fees and disbursements)
incurred in complying with such Request:
(a) Sale to Third Parties. So long as no Event of Default has
occurred and is continuing or would result therefrom, the Slot Trust shall
assign, transfer and convey to TWA or its designee, without recourse, any
Acquired Slot that is the subject of a contract of sale pursuant to which
TWA has agreed to sell such Acquired Slot in the Ordinary Course, on an
arm's-length basis to an unaffiliated third party within ninety (90) days
after the date of such release, which contract contains only closing
conditions that are customary to a sale of that kind at that time and which
sale is not a "sale/leaseback" or other similar transaction used by TWA as
a financing vehicle, but only if TWA shall comply with the Substitution
Requirements.
(b) Release of Acquired Slots Upon Partial Prepayment. Simultaneously
with or promptly following the cancellation of any Securities, whether
pursuant to a partial repurchase of any Securities pursuant to any Offer to
Purchase under the Indenture, following a tender of Securities in
connection with a tender offer therefor or otherwise and subject to
compliance by the Company with the Preconditions, and provided that
4
<PAGE>
after giving effect to such release of Acquired Slots, the Company will be
in compliance with the Security Ratio requirements set forth in the
definition thereof, the Slot Trustee shall assign, transfer and convey to
TWA or its designee without recourse the Acquired Slots set forth in
Schedule 1 hereto (the "Released Slots") based upon the reduction in the
amount of Securities Outstanding to an amount equal to or less than the
level specified for the release of particular Acquired Slots as set forth
in said Schedule 1 (the "Release Trigger").
(c) Release of Acquired Slot. Subject to the conditions and upon
compliance with all of the requirements of this Section 6.02 and Article 7
hereof and any applicable requirements of the TIA, and provided that any
Slot which may be assigned, transferred and conveyed to the Slot Trust
shall immediately upon such assignment, transfer and conveyance, for all
purposes under the Indenture, the Pledge Agreement, the Declaration, any
Subsequent Deed of Conveyance and this Agreement become and be an Acquired
Slot, the Acquired Slot or Acquired Slots, as the case may be, released
pursuant to Section 6.02(a) or 6.02(b), as the case may be, shall cease to
be Acquired Slots for all purposes hereof and of the Indenture and the
Operative Documents (unless later reassigned, retransferred and reconveyed
to the Slot Trust).
ARTICLE 7. SUBSEQUENT DEEDS OF CONVEYANCE
Section 7.01. Subsequent Deeds of Conveyance. If and whenever TWA shall
------------------------------
be required to assign, transfer and convey Slots to the Slot Trust or if TWA
shall at any time desire to assign, transfer and convey Slots to the Slot Trust,
TWA will furnish to the Slot Trustee the following:
(a) a Subsequent Deed of Conveyance duly executed by TWA,
appropriately describing and identifying such Slots; and
(b) an Opinion of Counsel, dated the date of execution of said
Subsequent Deed of Conveyance, stating that:
(i) all necessary filings have been made with the FAA to effect the
transfer of such Slots from TWA to the Slot Trust pursuant to
Title 14, Code of Federal Regulations, Part 93.221 (the "FAA Slot
Regulations"), and TWA has received confirmation from the FAA of
the transfer of such Slots to the Slot Trust and of the license-
back to TWA pursuant to the Subsequent Deed of Conveyance and
this Agreement; the Slot Trust owns such Slots subject to the
transfers permitted under the Subsequent Deed of Conveyance and
this Agreement and owns such Slots free and clear of all liens
and interests of others except as may be provided herein and the
Slot Trust has been identified as the owner and holder of record
of each such Slot pursuant to the FAA Slot Regulations; TWA has
been identified as the operator of record of such Slots (subject
to transfers permitted under the Subsequent Deed of Conveyance
and this Agreement) and such right to
5
<PAGE>
use such Slots has been duly recorded in the name of TWA pursuant
and subject to the FAA Slot Regulations; and
(ii) except as described in subsection 7.01(b)(i) above, no
authorization, approval, consent or license of the FAA or the
Department of Transportation of the United States is required for
the execution, delivery, or performance of the Subsequent Deed of
Conveyance by TWA; and
(c) Such Officers' Certificates, Opinions of Counsel or other
documents, if any, as the TIA may require or the Slot Trustee may
reasonably require.
ARTICLE 8. REMEDIES UPON DEFAULT OR FAA ACTION
Section 8.01. Remedies upon Default or FAA Action. (a) The parties
-----------------------------------
acknowledge and agree that the primary operating authority represented by a Slot
exists at the discretion of the FAA, acting pursuant to Title 14 and statutory
authority, and that the FAA may terminate, cancel, withdraw or revoke a Slot or
amend or revoke the regulation which permits Slots to be bought and sold and
thereby gives them value (any of the foregoing, an "FAA Action"). The parties
further acknowledge and agree that any of these actions by the FAA would
substantially impair the rights of the Slot Trustee and the value of the
Collateral.
(b) It is understood and agreed between the parties that:
(i) UPON THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER THE INDENTURE OR
AN FAA ACTION AND DURING THE CONTINUANCE THEREOF, TWA SHALL DELIVER TO THE
COLLATERAL AGENT, ALL CONSIDERATION TO BE RECEIVED BY TWA AFTER SUCH EVENT
OF DEFAULT OR FAA ACTION (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 A THIRD PARTY LICENSE OR SLOT TRADE; PROVIDED THAT IF SUCH
CONSIDERATION IS A SLOT, AS TO WHICH TWA BECAME THE HOLDER OF RECORD AT THE
FAA, SUCH SLOT SHALL BE ASSIGNED, TRANSFERRED AND CONVEYED TO THE SLOT
TRUST AND SHALL BE HELD BY THE SLOT TRUST AS A SLOT TRUST ASSET;
(ii) UPON THE ACCELERATION OF TWA'S OBLIGATIONS UNDER THE SECURITIES
IN ACCORDANCE WITH THE INDENTURE, THIS AGREEMENT WILL, WITHOUT ANY ACTION
BY ANY PARTY THERETO, TERMINATE AND TWA SHALL HAVE NO FURTHER RIGHT OR
INTEREST IN THE ACQUIRED SLOTS AND THE SLOT TRUSTEE MAY TAKE SUCH ACTIONS
AS NECESSARY TO CAUSE OR ALLOW THE TERMINATION OF OR ENFORCE ATTORNMENT
OBLIGATIONS UNDER OR OTHERWISE DEAL WITH THIRD PARTY LICENSES AND SLOT
TRADES, AND TO ASSIGN, TRANSFER AND CONVEY BY DEED OF CONVEYANCE, WITHOUT
RECOURSE, WARRANTY OR REPRESENTATION THE ACQUIRED SLOTS; PROVIDED, THAT, IF
SUCH
6
<PAGE>
ACCELERATION IS RESCINDED IN ACCORDANCE WITH SECTION 6.2 OF THE INDENTURE
PRIOR TO THE SLOT TRUSTEE'S HAVING DISPOSED OF ANY OF THE ACQUIRED SLOTS,
THIS AGREEMENT WILL, WITHOUT ANY ACTION BY ANY PARTY THERETO, BE REINSTATED
WITH RESPECT TO THOSE SLOTS STILL HELD BY THE SLOT TRUSTEE AFTER TAKING ANY
SUCH ACTION; AND
(iii) IN FURTHERANCE OF THE FOREGOING, THE SLOT TRUSTEE IS HEREBY
IRREVOCABLY APPOINTED THE TRUE AND LAWFUL ATTORNEY OF TWA, IN ITS NAME AND
STEAD, TO THE EXTENT PERMITTED BY LAW, TO EXECUTE, FILE, REGISTER AND/OR
RECORD ALL DOCUMENTS AND INSTRUMENTS OF ASSIGNMENT, TRANSFER AND SURRENDER
OF THE ACQUIRED SLOTS (INCLUDING, WITHOUT LIMITATION, AN INSTRUCTION TO
TRANSFER OPERATOR STATUS IN THE FORM ATTACHED HERETO AS EXHIBIT 2, A COPY
OF WHICH HAS BEEN EXECUTED IN BLANK BY AN AUTHORIZED OFFICER OF TWA AND
DELIVERED TO THE SLOT TRUSTEE, BUT WHICH MAY ALSO BE EXECUTED ON BEHALF OF
TWA BY THE SLOT TRUSTEE PURSUANT TO THIS POWER OF ATTORNEY), AND ALL OTHER
DOCUMENTS AND INSTRUMENTS, NECESSARY, OR IN THE GOOD FAITH OPINION OF THE
SLOT TRUSTEE DESIRABLE, IN ORDER TO (X) RECORD OF RECORD WITH THE FAA ANY
TERMINATION OF TWA'S RIGHTS OR INTERESTS IN THE ACQUIRED SLOTS UPON THE
ACCELERATION OF TWA'S OBLIGATIONS UNDER THE SECURITIES IN ACCORDANCE WITH
THE INDENTURE, (Y) UPON OR AT ANY TIME AFTER SUCH ACCELERATION, EFFECT THE
TRANSFER OF TWA'S OPERATOR STATUS WITH RESPECT TO ANY OR ALL OF THE
ACQUIRED SLOTS TO THE SLOT TRUSTEE OR A THIRD PARTY DESIGNATED BY THE SLOT
TRUSTEE AND/OR (Z) OTHERWISE EFFECT THE ACTIONS THAT THE SLOT TRUSTEE IS
AUTHORIZED, OR INTENDED TO BE AUTHORIZED, TO TAKE PURSUANT TO THE FOREGOING
CLAUSES (i) AND (ii) OF THIS SECTION 8.01(b), AND MAY SUBSTITUTE ONE OR
MORE PERSONS, FIRMS OR CORPORATIONS WITH LIKE POWER, TWA HEREBY RATIFYING
AND CONFIRMING ALL THAT ITS SAID ATTORNEY OR SUCH SUBSTITUTE OR SUBSTITUTES
SHALL LAWFULLY DO BY VIRTUE HEREOF; BUT IF SO REQUESTED BY THE SLOT
TRUSTEE, TWA SHALL RATIFY AND CONFIRM ANY SUCH ACTION TAKEN IN ACCORDANCE
WITH THIS POWER OF ATTORNEY AS MAY BE DESIGNATED IN ANY SUCH REQUEST. THE
FOREGOING POWER OF ATTORNEY IS COUPLED WITH AN INTEREST, IS IRREVOCABLE AND
SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT, PROVIDED ONLY THAT THE
FOREGOING POWER OF ATTORNEY WILL TERMINATE UPON RECONVEYANCE OF THE
ACQUIRED SLOTS TO TWA IN ACCORDANCE WITH SECTION 9.01 HEREOF.
(c) In view of the nature of a Slot and the discretion given to the
FAA with respect to Slots, the parties understand and agree that the
termination, cancellation, withdrawal or revocation of the Acquired Slots
or the amendment or revocation of the
7
<PAGE>
regulation which permits Slots to be bought and sold would cause a
immediate and permanent detrimental effect upon the Slot Trust and the
ability of the Holders to look to the pledge by TWA of the Beneficial
Interest and the Beneficial Interest Certificate to secure TWA's
obligations under the Securities and the Indenture. In accordance with the
foregoing, upon the acceleration of TWA's obligations under the Securities
in accordance with the Indenture, the Slot Trustee and TWA shall (unless
such action on the part of the Slot Trustee is not consistent with action a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs or is not required to authorize and permit the Slot Trustee
to take the actions described in this sentence) apply for and use their
best efforts to obtain a temporary restraining order and preliminary and
final injunctive or other equitable relief authorizing and permitting the
Slot Trustee to cancel, or confirming the cancellation of, this Agreement
in accordance with Section 8.01(b) hereof, and authorizing and permitting
the Slot Trustee to sell, assign, transfer and convey the Acquired Slots
for a price and under such terms and conditions as may be commercially
reasonable and/or to preserve, to the maximum extent possible, the value of
the Acquired Slots.
(d) In accordance with the foregoing, TWA further recognizes,
understands and agrees that in the event of either a filing by TWA or a
entry of an order or decree against TWA of a petition under the Bankruptcy
Law then, and in either such event, the Slot Trust will only be protected
adequately with respect to the Acquired Slots upon the immediate entry of
an order providing either (i) for immediate abandonment of the Acquired
Slots to the Slot Trust and a grant of authority to the Slot Trust to
assign, transfer and convey the Acquired Slots and have the Collateral
Agent hold any proceeds thereof for the benefit of the Holders or (ii)
permitting TWA, at the sole discretion of the Slot Trustee, which may be
revoked at any time as to any one or more or all of the Acquired Slots, to
continue to use all of the Acquired Slots on a daily basis so as to
prohibit the FAA from immediately terminating, canceling, withdrawing or
revoking the rights thereunder.
It is the position of the Slot Trust and TWA that under the terms of the
Deed of Conveyance, any Subsequent Deed of Conveyance and this Agreement, TWA
(for all purposes other than tax purposes) has assigned, transferred and
conveyed (or, in the case of any Subsequent Deed of Conveyance, will have
assigned, transferred and conveyed) its entire property interest, if any, in the
Acquired Slots and can only acquire an interest therein upon satisfaction of all
of the Obligations or under limited circumstances set forth in Article 6 hereof.
In the event, however, that it is determined by a court of competent
jurisdiction that a property interest in the Acquired Slots does so exist in TWA
notwithstanding the failure of TWA to satisfy all of the Obligations or the
existence of certain circumstances set forth in Article 6 hereof, then and in
that event, the Slot Trustee and TWA agree that an order for adequate protection
pertaining to the foregoing rights of the Slot Trust with respect to the
Acquired Slots shall be immediately entered and TWA does hereby for itself and
its successors and assigns, including without limitation a trustee in any
proceeding instituted by or against TWA under the Bankruptcy Law, consent to the
entry of a order providing for such adequate protection of the Slot Trust's
interest in the Acquired Slots.
8
<PAGE>
ARTICLE 9. TERMINATION AND RECONVEYANCE OF ALL ACQUIRED SLOTS
Section 9.01. Reconveyance of All Acquired Slots. In the event that no
----------------------------------
Default or Event of Default exists under the Indenture, and TWA satisfies all of
the Obligations, then, and in that event, upon receipt by the Indenture Trustee
of such satisfaction in immediately available funds, the Slot Trustee shall,
without cost or charge to TWA (except as otherwise provided herein), reassign,
retransfer and reconvey by deed of conveyance without recourse, representation
or warranty to TWA, all of the Acquired Slots, except that the Slot Trustee
shall represent and warrant that (except in accordance with Article 8 hereof),
it has made no transfers of, or knowingly permitted any liens to be imposed
upon, Acquired Slots other than the limited interest granted to TWA under this
Agreement, and thereupon this Agreement (other than Article 10 hereof) shall
terminate.
Section 9.02. Continued Effectiveness of Agreement. If the reassignment,
------------------------------------
retransfer or reconveyance referred to in Section 9.01 hereof is prohibited by
any then applicable law or regulation, this Agreement (including Section 5.01(e)
but otherwise excluding Articles 5, 6, 7, 11, 12, 13 and 14 hereof) will
continue in effect until such time as the reassignment, retransfer or
reconveyance of the primary operating authority with respect to the Acquired
Slots is permitted.
ARTICLE 10. INDEMNIFICATION
Section 10.01. Indemnification by TWA. TWA shall indemnify and hold
----------------------
harmless the Slot Trustee to the extent provided to the Indenture Trustee under
Section 7.7 of the Indenture, and the Slot Trustee shall have those rights set
forth in such Section 7.7 for the Indenture Trustee.
ARTICLE 11. AMENDMENTS
Section 11.01. Amendments. (a) Except as provided in Section 11.01(b)
----------
hereof, and subject to Section 4.11 of the Indenture and Article 9 of the
Indenture, this Agreement may be amended by TWA and the Slot Trustee only with
the affirmative vote of the Required Holders; provided, however, that the
-------- -------
affirmative vote of each Holder shall be required to amend this Section 11.01.
(b) TWA and the Slot Trustee may also amend this Agreement without
the vote of the Holders if such parties each deem it necessary to cure any
ambiguity, defect or inconsistency or conform this Agreement to the requirements
of applicable laws so long as such amendment does not have a material adverse
effect on the interests of the Holders.
ARTICLE 12. ASSIGNMENTS
Section 12.01. Rights of Assignment by TWA. TWA and the Slot Trustee
---------------------------
understand and agree that the interest of TWA under this Agreement is not
assignable and that any attempt to assign all or any portion of this Agreement
by TWA shall be null and void ab initio except for an
9
<PAGE>
assignment in connection with a merger, consolidation or sale of substantially
all TWA's assets permitted under the Indenture.
ARTICLE 13. INDEPENDENT APPRAISALS
Section 13.01. Independent Appraisal Required Under Certain Circumstances.
----------------------------------------------------------
Whenever a Permitted Substitute has been used or operated by a Person or Persons
other than TWA, in a business similar to that in which it has been or is to be
used or operated by TWA, within six (6) months prior to the date of its
acquisition by TWA, or the fair value of any Acquired Slots or Collateral to be
released, assigned or transferred by the Collateral Agent or the Slot Trust,
together with all other Property so released, assigned or transferred since the
commencement of the then-current calendar year or in any twelve (12) month
period, as set forth in the certificate or certificates required by this
Agreement, is ten percent (10%) or more of the aggregate principal amount of
Securities at the time Outstanding, TWA will provide to the Slot Trustee such
certificates and opinions, if any, as the TIA may require.
ARTICLE 14. RECEIPT OF CASH AND/OR INVESTMENT SECURITIES
BY THE SLOT TRUSTEE
Section 14.01. Receipt of Cash And/or Investment Securities. In the event
--------------------------------------------
the Slot Trust or the Slot Trustee (in its capacity as Slot Trustee) receives
any Property (including, without limitation, cash and/or Investment Securities)
other than Slots, such Property shall immediately be delivered to the Collateral
Agent (which shall be evidenced by a certificate of the Collateral Agent
delivered to the Slot Trustee, acknowledging receipt of such Property).
ARTICLE 15. SLOT TRUSTEE
Section 15.01. Rights and Duties of Slot Trustee. Except as specifically
---------------------------------
set forth herein, in the Pledge Agreement or in the Slot Trust Agreement, the
Slot Trustee shall have no duty (i) to perform any recording or filing in
connection with the Slot Trust Assets, (ii) to see to the payment or discharge
of any tax, assessment or other governmental charge or any lien owing with
respect to, or assessed or levied against, any part of the Slot Trust Assets, or
(iii) to take any other actions in connection with the use, operation,
management or maintenance of the Slot Trust Assets.
Except as provided in Section 9.01 hereof, the Slot Trustee does not make
and shall not be deemed to have made any representation or warranty, expressed
or implied, as to the title, merchantability, compliance with specifications,
condition, design, operation, fitness for use or for a particular purpose, or
any other representation or warranty whatsoever, expressed or implied, with
respect to the Slot Trust Assets.
Section 15.02. References to Slot Trust and Slot Trustee. All references
-----------------------------------------
in this Agreement and the other Operative Documents to the Slot Trust or the
Slot Trustee shall be to
10
<PAGE>
both the Slot Trust and the Slot Trustee unless such a reference would render
the provision in which it is contained meaningless or ambiguous.
ARTICLE 16. MISCELLANEOUS
Section 16.01 Notices; Waivers. Any request, demand, authorization,
----------------
direction, notice, consent, waiver or other document provided or permitted by
this Agreement to be made upon, given or furnished to, or filed with
(a) TWA shall be sufficient for every purpose hereunder if in writing
(including telecopied communications) and made, given, furnished or filed
by personal delivery or mailed by first-class mail, or by a nationally
recognized overnight courier, postage or courier charges, as the case may
be, prepaid, to TWA at:
Trans World Airlines, Inc.
One City Centre
515 N. 6th Street
St. Louis, Missouri 63101
Attention: Senior Vice President & General Counsel
Telecopier No.: (314) 589-3267
(b) the Slot Trustee shall be sufficient for every purpose hereunder
if in writing (including telecopied communications) and made, given,
furnished or filed by personal delivery or mailed by registered or
certified mail, or by a nationally recognized overnight courier, postage or
courier charges, as the case may be, prepaid, to or with the Slot Trustee
at:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
Telecopier No.: (801) 246-5528
or to any of the above parties at any other address or telecopier number
subsequently furnished in writing by it to each of the other parties listed
above. An affidavit by any person representing or acting on behalf of TWA or
the Slot Trustee as to such mailing, having any registry receipt required by
this Section attached, shall be conclusive evidence of the giving of such
demand, notice or communication.
Any notice or communication mailed to a Holder shall be mailed to such
Holder by first-class mail or by nationally recognized overnight courier,
postage or courier charges, as the case may be, prepaid, at such Holder's
address as it appears on the Register and shall be sufficiently given to such
Holder if so mailed within the time prescribed.
11
<PAGE>
Failure to mail a notice or send a communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. Notices
to the Slot Trustee or to TWA are deemed given only when received. Where this
Agreement provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by the Holders shall be filed with the Slot Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
Section 16.02. Amendments, Etc. Subject to Section 11.01, no amendment or
---------------
waiver of any provision of this Agreement nor consent to any departure by TWA
therefrom shall in any event be effective unless the same shall be in writing,
and signed by the Slot Trustee and approved by the Required Holders if required
hereby or by the Indenture, and then any such waiver or consent shall only be
effective in the specific instance and for the specific purpose for which given.
Section 16.03. No Waiver; Remedies. (a) No failure on the part of the Slot
-------------------
Trustee to exercise, and no delay in exercising any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative, may be
exercised singly or concurrently, and are not exclusive of any remedies provided
by law or the Indenture, the Securities or any of the other Operative Documents.
(b) Failure by the Slot Trustee at any time or times hereafter to
require strict performance by TWA or any other Person of any of the provisions,
warranties, terms or conditions contained herein or in any of the Indenture, the
Securities or any other Operative Documents now or at any time or times
hereafter executed by TWA or any such other Person and delivered to the Slot
Trustee shall not waive, affect or diminish any right of the Slot Trustee at any
time or times hereafter to demand strict performance thereof, and such right
shall not be deemed to have been modified or waived by any course of conduct or
knowledge of the Slot Trustee or any agent, officer or employee of the Slot
Trustee.
Section 16.04. Conflict with Trust Indenture Act of 1939. If and to the
-----------------------------------------
extent any provision of this Agreement limits, qualifies or conflicts with the
duties imposed by Sections 310 to 317, inclusive of the TIA, such imposed duties
shall control.
Section 16.05. Holidays. In the event that any date for the payment of any
--------
amount due hereunder shall not be a Business Day, then (notwithstanding any
other provision of this Agreement) such payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the due date, and no interest shall accrue on such payment
for the period from such due date to and including the next succeeding Business
Day.
Section 16.06. Successors and Assigns. This Agreement and all obligations
----------------------
of TWA hereunder shall be binding upon the successors and if permitted assigns
of TWA, and shall, together with the rights and remedies of the Slot Trustee
hereunder, inure to the benefit of the
12
<PAGE>
Slot Trustee, the Holders, and their respective successors and assigns. Any
assignment of this Agreement in violation of Section 12.01 herein shall be null
and void ab initio.
Section 16.07. Governing Law; Waiver of Jury Trial. (a) The laws of the
-----------------------------------
State of New York shall govern this Agreement without regard to principles of
conflict of laws.
(b) TWA and the Slot Trustee each waive any right to have a jury
participate in resolving any dispute, whether sounding in contract, tort, or
otherwise arising out of, connected with, related to or incidental to the
relationship established between them in connection with this Agreement.
Instead, any disputes resolved in court will be resolved in a bench trial
without a jury.
Section 16.08. Indemnification. TWA agrees to pay, and to save the Slot
---------------
Trustee harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all excise, sales or other similar taxes which
may be payable or determined to be payable with respect to any of the Collateral
or Slot Trust Assets or in connection with any of the transactions contemplated
by this Agreement.
Section 16.09. Effect of Headings. The Article and Section headings and
------------------
the Table of Contents contained in this Agreement have been inserted for
convenience of reference only, and are and shall be without substantive meaning
or content of any kind whatsoever and are not a part of this Agreement.
Section 16.10. No Adverse Interpretation of Other Agreement. This
--------------------------------------------
Agreement may not be used to interpret any agreement of TWA or any of its
Subsidiaries which is unrelated to the Indenture, the Securities or the other
Operative Documents. Any such other agreement may not be used to interpret this
Agreement.
Section 16.11. No Recourse Against Others. A director, officer, employee
--------------------------
or stockholder, as such, of TWA shall not have any liability for any obligations
of TWA under the Agreement or for any claim based on, in respect of or by reason
of such obligations or its creation.
Section 16.12. Counterpart Originals. This Agreement may be signed in two
---------------------
or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same agreement.
Section 16.13. Severability. The provisions of this Agreement are
------------
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction, and a Holder shall have no claim therefor against
any party hereto.
Section 16.14. Benefits of Agreement Restricted. Subject to the provisions
--------------------------------
of Sections 12.01 and 16.06, nothing in this Agreement, express 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
13
<PAGE>
Holders, any legal or equitable right, remedy or claim under or in respect of
this Agreement or under any covenant, condition, or provision herein contained,
all such covenants, conditions and provisions being for the sole benefit of the
parties hereto and their successors and of the Holders.
Section 16.15. Survival Provisions. Notwithstanding any right of the
-------------------
Collateral Agent, the Initial Purchasers or any of the Holders to investigate
the affairs of TWA, and notwithstanding any knowledge of facts determined or
determinable by any of them pursuant to such investigation or right of
investigations all representations, warranties and covenants of TWA contained
herein shall survive the execution and delivery of this Agreement, and shall
terminate only upon the termination of this Agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Master Sub-License
Agreement to be duly executed as of the date first written above.
TRANS WORLD AIRLINES, INC.
By: /s/ Michael J. Lichty
---------------------------------------
Name: Michael J. Lichty
Title: Vice President
Corpororate Finance
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
as Slot Trustee on behalf of the Slot Trust
By: /s/ Nancy M. Dahl
---------------------------------------
Name: Nancy M. Dahl
Title: Vice President
<PAGE>
EXHIBIT 1
CERTIFICATE
-----------
The undersigned, [Manager of Current Schedules and Industry Affairs] of
Trans World Airlines, Inc. ("TWA"), DOES HEREBY CERTIFY THAT:
1. This Certificate is delivered to the Slot Trustee pursuant to Article
5, Section 5.01(a) of the Master Sub-License Agreement dated as of December
9, 1997 (the "Master Sub-License Agreement") between TWA and First Security
Bank, National Association, as Slot Trustee pursuant to the Acquired Slot
Trust Agreement, dated as of December 9, 1997. All capitalized terms used
herein and not otherwise defined have the respective meanings ascribed to
them in the Master Sub-License Agreement or incorporated therein by
reference.
2. I am responsible for maintaining and managing the operation of slots
(as such term is defined in 14 C.F.R. 93) for TWA.
3. Except as noted on Schedule A attached hereto, during each of the
one-month, two-month and three-month periods ending the last day of the
month preceding the date of this Certificate:
(a) all the Acquired Slots were operated by TWA or other carriers or
both; and
(b) (i) the Acquired Slots operated by TWA, and
(ii) to the best of my knowledge based upon due inquiry, the
Acquired Slots operated by all other carriers, and
(iii) accordingly, to the best of my knowledge, all the Acquired
Slots
were used in a manner consistent with the usage and other requirements
of 14 C.F.R. 93 and Section 5.01(a) of the Master Sub-License
Agreement; and
(c) no notice of non-compliance with FAA Slot Regulations has been
received from the FAA with respect to any Acquired Slot.
DATED:_____________________ BY:_____________________
NAME:
Att: Schedule A (None - No Exceptions)
<PAGE>
EXHIBIT 2
INSTRUCTION TO TRANSFER OPERATOR STATUS
The undersigned TRANS WORLD AIRLINES, INC. ("TWA") hereby authorizes and
directs the Federal Aviation Administration, Office of Slot Administration (and
any successor federal agency or office thereof, the "FAA") to assign, transfer
and convey operator status of the right to conduct Instrument Flight Rule (as
defined under the Federal Aviation Act of 1958, as amended) take-offs or
landings in specified one-hour or half-hour periods set forth on Schedule A
hereto (the "Slots") to __________________________________, and to record such
assignment, transfer and conveyance of operator status on the records of the
FAA.
IN WITNESS WHEREOF, the undersigned, TWA, by and through its duly
authorized officer does hereby execute this instruction to transfer the Slots
("Instruction") as of this ___ day of ____________, ________.
TRANS WORLD AIRLINES, INC.
By: _______________________________
Name:
Title:
____________________________________
(Name of Transferee)
By: _______________________________
Name:
Title:
By execution below, the Federal Aviation Administration
Office of Slot Administration, acknowledges receipt of
this Instruction, this ___ day of __________, ________.
By: _______________________________
Name:
Title:
<PAGE>
EXHIBIT 3
SLOT RELEASE SCHEDULE
Released Slots Slot Release Trigger
-------------- --------------------
All Slots listed on Schedule I to the $100,000,000.00
Acquired Slot Trust Agreement
Note: Slots referred to are as of the date of the Master Sub-License Agreement.
If additional or substitute Slots are conveyed to the Slot Trust in satisfaction
of the Substitution Requirements, such substitute Acquired Slots shall be
subject to release at the same time and under the same circumstances (and only
at the same time and under the same circumstances) as the Acquired Slots for
which they were substituted could have been released under the Master Sub-
License Agreement.
<PAGE>
EXHIBIT 10.46.4
[CONFORMED COPY]
COLLATERAL PLEDGE AND SECURITY AGREEMENT
This Collateral Pledge and Security Agreement (the "Note Pledge Agreement")
is made and entered into as of December 9, 1997 by Trans World Airlines, Inc., a
Delaware corporation (the "Pledgor"), having its principal office at One City
Centre, 515 North Sixth Street, Saint Louis, Missouri 63101, in favor of First
Security Bank, National Association, a national banking association duly
organized and existing under the laws of the United States of America, having an
office at 79 South Main Street, Salt Lake City, Utah 84111, as Trustee (in such
capacity, together with its successors and assigns, the "Trustee") for the
holders (the "Holders") of the Notes (as defined herein) issued by the Pledgor
under the Indenture referred to below.
W I T N E S S E T H
WHEREAS, the Pledgor and First Security Bank, National Association, as
Trustee, have entered into that certain Indenture dated as of December 9, 1997
(as amended, restated, supplemented or otherwise modified from time to time, the
"Indenture"), pursuant to which the Pledgor issued on the date hereof
$140,000,000 in aggregate principal amount of 11 1/2% Senior Secured Notes due
2004 (the "Notes"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in the Definitions Appendix
to the Indenture, which shall be part of this Note Pledge Agreement as if fully
set forth in this place. The rules of construction for this Note Pledge
Agreement are set forth in Section 2 of such Definitions Appendix; and
WHEREAS, the Pledgor agreed, pursuant to the Indenture, to either (i)
deposit with the Trustee on the date hereof, for the benefit of the Holders of
the Notes, cash (the "Cash Collateral") in such amount as will be sufficient to
provide for payment in full of the first three scheduled interest payments due
on the Notes or (ii) purchase U.S. Government Obligations (together with any
replacement or substitute securities, the "Pledged Securities") in an amount
sufficient upon receipt of scheduled interest and principal payments in respect
of Pledged Securities, in the opinion (expressed in a written certification
thereof delivered to the Trustee) of a nationally recognized firm of independent
accountants selected by the Pledgor, to provide for payment of the first three
scheduled interest payments due on the Notes and to place such securities in an
account held by the Trustee for the benefit of Holders of the Notes; and
WHEREAS, the Pledgor has elected to deposit cash for the immediate
purchase of the Pledged Securities with the Trustee on the date hereof in
accordance with the Indenture; and
<PAGE>
2
WHEREAS, the Indenture permits the Pledgor at any time hereafter to
substitute Pledged Securities for Cash Collateral and/or Cash Collateral for
Pledged Securities, provided that the substituted Pledged Collateral, together
with the remaining Pledged Collateral are in such amount as will be sufficient,
upon receipt of scheduled interest and principal payments of any such Pledged
Securities, in the opinion (expressed in a written certification thereof
delivered to the Trustee) of a nationally recognized firm of independent public
accountants selected by the Company, to provide for payment in full of the first
three scheduled interest payments due on the Notes; and
WHEREAS, to secure the obligation of the Pledgor under the Indenture
and the Notes to pay in full the first three scheduled interest payments and to
secure repayment of the Notes in the event that the Notes should become due and
payable prior to such time as the first three scheduled interest payments on the
Notes shall have been paid in full (the "Obligations"), the Pledgor has agreed
to (i) pledge to the Trustee, for its benefit and the ratable benefit of the
Holders of Notes, a security interest in the Cash Collateral, the Pledged
Securities and the Interest Escrow Account (as defined below) and (ii) execute
and deliver this Note Pledge Agreement in order to secure the payment and
performance by the Pledgor of all such Obligations.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, and in order to
induce the Holders of Notes to purchase the Notes, the Pledgor hereby agrees
with the Trustee for its benefit and for the ratable benefit of the Holders of
Notes as follows:
SECTION 1. Pledge and Grant of Security Interest. The Pledgor
-------------------------------------
hereby pledges to the Trustee for its benefit and for the ratable benefit of the
Holders of Notes, and grants to the Trustee for its benefit and for the ratable
benefit of the Holders of Notes, a continuing first priority security interest
in and to all of Pledgor's right, title and interest in (whether now owned or
hereafter acquired) (i) the Cash Collateral, the Pledged Securities and the
Interest Escrow Account, and any security entitlements with respect to any
thereof, (ii) the certificates or other evidence of ownership representing the
Pledged Securities and the Interest Escrow Account, and (iii) except as
otherwise provided herein, all products and proceeds of any of the Cash
Collateral, the Pledged Securities and the Interest Escrow Account, including,
without limitation, all securities, investment property, securities
entitlements, financial assets, dividends, interest, principal payments, cash,
options, warrants, rights, instruments, subscriptions and other property or
proceeds from time to time received, receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of the Pledged
Securities (collectively, the "Pledged Collateral").
SECTION 2. Security for Obligations. This Note Pledge Agreement
------------------------
secures the prompt and complete payment and performance when due (whether at
stated maturity, by acceleration or otherwise) of all Obligations.
SECTION 3. Delivery of Collateral; Interest Escrow Account;
-----------------------------------------------
Interest; Substitution of Collateral.
- ------------------------------------
<PAGE>
3
(a) All Pledged Securities (other than book-entry securities) and all
certificates or instruments, if any, representing or evidencing any Pledged
Collateral shall be delivered to and held by or on behalf of the Trustee
pursuant hereto and shall be duly registered in the name of the Trustee, as
Trustee, all in form and substance satisfactory to the Trustee.
(b) Concurrently with the execution and delivery hereof, the Trustee
shall establish one or more accounts for the deposit of the Cash Collateral
and the Pledged Securities (the "Interest Escrow Account") at its office at
79 South Main Street, Salt Lake City, Utah 84111. Subject to the other
terms and conditions of this Note Pledge Agreement, all funds or other
property accepted by the Trustee pursuant to this Note Pledge Agreement
shall be held in the Interest Escrow Account for the benefit of the Trustee
and for the ratable benefit of the Holders of Notes.
(c) All interest earned on any Pledged Securities shall be retained
in the Interest Escrow Account, pending disbursement pursuant to the terms
hereof.
(d) At any time while this Note Pledge Agreement is in force but only
after the Initial Purchasers have ceased to be Holders the Pledgor may
substitute U.S. Government Obligations for Cash Collateral or cash for U.S.
Government Obligations; provided, however, that in either case the U.S.
Government Obligations and/or Cash Collateral, as the case may be,
remaining in the Interest Escrow Account must be in such amount as will,
together with the substituted Pledged Collateral, be sufficient (upon
receipt of scheduled interest and principal payments of such U.S.
Government Obligations, if any, in the opinion (expressed in a written
certification thereof delivered to the Trustee) of a nationally recognized
firm of independent public accountants selected by the Company), to provide
for payment in full of the first three scheduled interest payments due on
the Notes (or, in the event an interest payment or payments have been made,
an amount sufficient to provide for payment in full of any interest
payments then remaining up to and including the third scheduled interest
payment). Upon any such substitution, the Pledged Securities and/or cash
so substituted shall be held by the Trustee for the benefit of the Holders
of the Notes, and the Trustee shall release from the Interest Escrow
Account, to or upon the order of the Company, all or the appropriate
portion, as set forth in a Request, of the Cash Collateral or U.S.
Government Obligations, as the case may be, initially deposited by the
Company.
SECTION 4. Disbursements.
-------------
(a) Up to five (5) Business Days prior to the due date of any of the
first three scheduled interest payments on the Notes the Pledgor may,
pursuant to a Request, irrevocably direct the Trustee to release from the
Interest Escrow Account funds sufficient to provide for payment in full of
such interest payment then due. Upon receipt of such Request, the Trustee
will take any action necessary to provide for the payment of such interest
payment on the Notes in accordance with the payment provisions of the
Indenture to the Holders of Notes from (and to the extent of) the Cash
Collateral and/or proceeds of the Pledged Securities in the Interest Escrow
Account.
<PAGE>
4
(b) If the Pledgor makes any interest payment for which the Cash
Collateral or the Pledged Securities are collateral from a source of funds
other than the Interest Escrow Account ("Pledgor Funds"), the Pledgor may,
after payment in full of such interest payment, direct the Trustee to
release to the Pledgor or at the direction of the Pledgor an amount of
funds from the Interest Escrow Account less than or equal to the amount of
such interest payment. Upon receipt of a Request from the Pledgor and any
other documentation reasonably satisfactory to the Trustee to substantiate
such use of Pledgor Funds by the Pledgor (including the certificate
described in the following sentence), the Trustee will pay over to the
Pledgor the requested amount from (and to the extent of) the Cash
Collateral or proceeds of the Pledged Securities in the Interest Escrow
Account. Concurrently with any release of funds to the Pledgor pursuant to
this Section 4(b), the Pledgor will deliver to the Trustee an Officers'
Certificate stating that such release has been duly authorized by all
necessary corporate action, and does not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
certificate of incorporation of the Pledgor or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Pledgor or
result in the creation or imposition of any Lien on any assets of the
Pledgor.
(c) If at any time the amount of Cash Collateral and/or Pledged
Securities (as applicable) exceeds 100% of the amount sufficient (if
Pledged Securities have been pledged hereunder, in the opinion (expressed
in a written certification thereof delivered to the Trustee) of a
nationally recognized firm of independent public accountants selected by
the Pledgor), to (upon receipt of scheduled principal and interest payments
on such Pledged Securities, if any) provide for payment in full of the
first three scheduled interest payments due on the Notes (or, in the event
an interest payment or payments have been made, an amount sufficient to
provide for payment in full of any interest payments then remaining up to
and including the third scheduled interest payment) then, upon receipt of a
Request from the Pledgor and any other documentation reasonably
satisfactory to the Trustee to substantiate such excess (including without
limitation a written certification from such accountants), the Trustee will
pay over to the Pledgor the amount of such excess.
(d) Upon payment in full of the first three scheduled interest
payments due on the Notes, the security interest in the Pledged Collateral
evidenced by this Note Pledge Agreement will terminate and be of no further
force and effect. Furthermore, upon the release of any Pledged Collateral
from the Interest Escrow Account in accordance with the terms of this Note
Pledge Agreement, the security interest evidenced by this Note Pledge
Agreement will terminate and be of no further force and effect with respect
to such Pledged Collateral.
SECTION 5. Representations and Warranties. The Pledgor hereby
------------------------------
represents and warrants that:
(a) The execution, delivery and performance by the Pledgor of this
Note Pledge Agreement are within the Pledgor's corporate powers, have been
duly authorized by all necessary corporate action, and do not contravene,
or constitute a default under, any
<PAGE>
5
provision of applicable law or regulation or of the certificate of
incorporation or bylaws of the Pledgor or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Pledgor or
result in the creation or imposition of any Lien on any assets of the
Pledgor, except for the security interests granted under this Note Pledge
Agreement.
(b) The Pledgor is the sole record and beneficial owner of the
Pledged Collateral, free and clear of any Lien or claims of any person or
entity (except for the security interests granted under this Note Pledge
Agreement). No financing statement covering the Pledged Securities is on
file in any public office other than financing statements filed pursuant to
this Note Pledge Agreement.
(c) This Note Pledge Agreement has been duly executed and delivered
by the Pledgor and constitutes a valid and binding obligation of the
Pledgor, enforceable against the Pledgor in accordance with its terms,
except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally or general principles of
equity and commercial reasonableness.
(d) Upon the delivery to the Trustee of any certificates or
instruments representing the Pledged Securities, the registration of the
Pledged Securities and such certificates or instruments in the name of the
Trustee, as Trustee, and the filing of financing statements under the
Uniform Commercial Code (the "UCC") in the office of the Secretary of State
of Missouri, the pledge of the Pledged Collateral, securing the payment of
the Obligations for the benefit of the Trustee and the Holders of Notes,
will constitute a first priority perfected security interest in such
Pledged Collateral, enforceable as such against all creditors of the
Pledgor and any persons purporting to purchase any of the Pledged
Collateral from the Pledgor.
(e) No consent of any other person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required either for (i) the
pledge by the Pledgor of the Pledged Collateral pursuant to this Note
Pledge Agreement or for the execution, delivery or performance of this Note
Pledge Agreement by the Pledgor (except, in the case of any Pledged
Collateral a security interest in which can only be perfected by filing of
a financing statement under the UCC, for the filing of the UCC financing
statements referred to in Section 5(d) hereof) or (ii) the exercise by the
Trustee of the rights provided for in this Note Pledge Agreement or the
remedies in respect of the Pledged Collateral pursuant to this Note Pledge
Agreement.
(f) No litigation investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the knowledge of the
Pledgor, threatened by or against the Pledgor with respect to this Note
Pledge Agreement, any of the Pledged Collateral or any of the transactions
contemplated hereby.
(g) The pledge of the Pledged Collateral pursuant to this Note Pledge
Agreement is not prohibited by any applicable law or governmental
regulation, release,
<PAGE>
6
interpretation or opinion of the Board of Governors of the Federal Reserve
System or other regulatory agency (including, without limitation,
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System).
(h) No Event of Default or Default exists.
SECTION 6. Further Assurance. The Pledgor will, promptly upon
-----------------
request by the Trustee, execute and deliver or cause to be executed and
delivered, or use its best efforts to procure, all stock powers, proxies,
assignments, instruments and other documents, all in form and substance
satisfactory to the Trustee, deliver any instruments to the Trustee and take any
other actions that are necessary or, in the reasonable opinion of the Trustee,
desirable to perfect, continue the perfection of, or protect the first priority
of the Trustee's security interest in and to the Pledged Collateral, to protect
the Pledged Collateral against the rights, claims, or interests of third persons
or to effect the purposes of this Note Pledge Agreement. The Pledgor also hereby
authorizes the Trustee to file any financing or continuation statements with
respect to the Pledged Collateral without the signature of the Pledgor (to the
extent permitted by applicable law). The Pledgor will promptly pay all costs
incurred in connection with any of the foregoing.
SECTION 7. Covenants. The Pledgor covenants and agrees with the
---------
Trustee and the Holders of Notes from and after the date of this Note Pledge
Agreement until the earlier of payment in full in cash of (A) each of the first
three scheduled interest payments due on the Notes under the terms of the
Indenture or (B) all obligations due and owing under the Indenture and the Notes
in the event such obligations become due and payable prior to the payment of the
first three scheduled interest payments on the Notes:
(a) That it will not (i) sell or otherwise dispose of, or grant any
option or warrant with respect to, any of the Pledged Collateral or (ii)
create or permit to exist any Lien upon or with respect to any of the
Pledged Collateral (except for the lien created pursuant to this Note
Pledge Agreement) and at all times will be the sole beneficial owner of the
Pledged Collateral.
(b) That it will not (i) enter into any agreement or understanding
that purports to or may restrict or inhibit the Trustee's rights or
remedies hereunder, including, without limitation, the Trustee's right to
sell or otherwise dispose of the Pledged Collateral or (ii) fail to pay or
discharge any tax, assessment or levy of any nature with respect to the
Pledged Collateral not later than the earlier of (A) five days prior to the
due date thereof and (B) five days prior to any proposed sale under any
judgment, writ or warrant of attachment with respect thereto.
SECTION 8. Power of Attorney. In addition to all of the powers
-----------------
granted to the Trustee pursuant to the Indenture and the other Operative
Documents, the Pledgor hereby appoints and constitutes the Trustee as the
Pledgor's attorney-in-fact (with full power of substitution) to exercise to the
fullest extent permitted by law all of the following powers upon and at any time
after the occurrence and during the continuance of an Event of Default: (i)
collection of proceeds of any Pledged Collateral; (ii) conveyance of any item of
Pledged Collateral to any purchaser thereof; (iii) giving of any notices or
recording of any Liens under
<PAGE>
7
Section 6 hereof; (iv) making of any payments or taking any acts under Section 9
hereof and (v) paying or discharging taxes or Liens levied or placed upon the
Pledged Collateral, the legality or validity thereof and the amounts necessary
to discharge the same to be determined by the Trustee in its sole discretion,
and such payments made by the Trustee to become part of the Obligations of the
Pledgor to the Trustee, due and payable immediately upon demand. The Trustee's
authority hereunder shall include, without limitation, the authority to endorse
and negotiate any checks or instruments representing proceeds of Pledged
Collateral in the name of the Pledgor, execute and give receipt for any
certificate of ownership or any document constituting Pledged Collateral,
transfer title to any item of Pledged Collateral, sign the Pledgor's name on all
financing statements (to the extent permitted by applicable law) or any other
documents deemed necessary or appropriate by the Trustee to preserve, protect or
perfect the security interest in the Pledged Collateral and to file the same,
prepare, file and sign the Pledgor's name on any notice of Lien, to take any
other actions arising from or incident to the powers granted to the Trustee in
this Note Pledge Agreement. This power of attorney is coupled with an interest
and is irrevocable by the Pledgor.
SECTION 9. Trustee May Perform. If the Pledgor fails to perform
-------------------
any agreement contained herein, the Trustee may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Trustee
incurred in connection therewith shall be payable by the Pledgor under Section
13 hereof.
SECTION 10. No Assumption of Duties; Reasonable Care. The rights
----------------------------------------
and powers granted to the Trustee hereunder are being granted in order to
preserve and protect the Trustee's and the Holders' of Notes security interest
in and to the Pledged Collateral granted hereby and shall not be interpreted to,
and shall not, impose any duties on the Trustee in connection therewith other
than those imposed under applicable law. Except as provided by applicable law,
the Trustee shall be deemed to have exercised reasonable care in the custody and
preservation of the Pledged Collateral in its possession if the Pledged
Collateral is accorded treatment substantially equal to that which the Trustee
accords similar property in similar situations, it being understood that the
Trustee shall not have any responsibility for (i) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Pledged Collateral, whether or not the Trustee has or is
deemed to have knowledge of such matters, (ii) taking any necessary steps to
preserve rights against any parties with respect to any Pledged Collateral or
(iii) investing or reinvesting any of the Pledged Collateral. The Trustee shall
be authorized to invest any Cash Collateral, or any other cash that may be on
deposit in the Interest Escrow Account from time to time, on an overnight basis,
in Temporary Cash Investments selected by the Company.
SECTION 11. Indemnity. The Pledgor shall indemnify, hold harmless
---------
and defend the Trustee and its directors, officers, agents and employees, from
and against any and all claims, actions, obligations, liabilities and expenses,
including defense costs, investigative fees and costs, legal fees, and claims
for damages, arising from the Trustee's performance under this Note Pledge
Agreement, except to the extent that such liability, expense or claim is
directly attributable to the bad faith, gross negligence or willful misconduct
of such indemnified person.
<PAGE>
8
SECTION 12. Remedies Upon Event of Default. If any Event of Default
------------------------------
under the Indenture or default hereunder (any such Event of Default or default
being referred to in this Note Pledge Agreement as an "Event of Default") shall
have occurred and be continuing:
(a) The Trustee and the Holders of Notes shall have, in addition to
all other rights given by law or by this Note Pledge Agreement or the other
Operative Documents, all of the rights and remedies with respect to the
Collateral of a secured party under the UCC in effect in the State of New
York and any other applicable jurisdiction at that time. In addition, with
respect to any Pledged Collateral that shall then be in or shall thereafter
come into the possession or custody of the Trustee, the Trustee may sell or
cause the same to be sold at any broker's board or at public or private
sale, in one or more sales or lots, at such price or prices as the Trustee
may deem best, for cash or on credit or for future delivery, without
assumption of any credit risk. The purchaser of any or all Pledged
Collateral so sold shall thereafter hold the same absolutely, free from any
claim, encumbrance or right of any kind whatsoever created by or through
the Pledgor. Unless any of the Pledged Collateral threatens, in the
reasonable judgment of the Trustee, to decline speedily in value or is or
becomes of a type sold on a recognized market, the Trustee will give the
Pledgor reasonable notice of the time and place of any public sale thereof,
or of the time after which any private sale or other intended dispositions
is to be made. Any sale of the Pledged Collateral conducted in conformity
with reasonable commercial practices of banks, insurance companies,
commercial finance companies, or other financial institutions disposing of
property similar to the Pledged Collateral shall be deemed to be
commercially reasonable. Any requirements of reasonable notice shall be met
if such notice is mailed to the Pledgor as provided in Section 15.1 herein
at least ten (10) days before the time of the sale or disposition. The
Trustee or any Holder of Notes may, in its own name or in the name of a
designee or nominee, buy any of the Pledged Collateral at any public sale
and, if permitted by applicable law, at any private sale. All expenses
(including court costs and reasonable attorneys' fees, expenses and
disbursements) of, or incident to, the enforcement of any of the provisions
hereof shall be recoverable from the proceeds of the sale or other
disposition of the Pledged Collateral.
(b) The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or
sales of all or any portion of the Pledged Collateral pursuant to this
Section 12 valid and binding and in compliance with any and all other
applicable requirements of law. The Pledgor further agrees that a breach of
any of the covenants contained in this Section 12 will cause irreparable
injury to the Trustee and the Holders of Notes, that the Trustee and the
Holders of Notes have no adequate remedy at law in respect of such breach
and, as a consequence, that each and every covenant contained in this
Section 12 shall be specifically enforceable against the Pledgor, and the
Pledgor hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants except for a defense that
no Event of Default has occurred.
SECTION 13. Expenses. The Pledgor will upon demand pay to the
--------
Trustee the amount of any and all reasonable expenses, including without
limitation, the reasonable fees, expenses and disbursements of its counsel,
experts and agents retained by the Trustee that the
<PAGE>
9
Trustee may incur in connection with (i) the review, negotiation and
administration of this Note Pledge Agreement, (ii) the custody or preservation
of, or the sale of, collection from, or other realization upon, any of the
Pledged Collateral, (iii) the exercise or enforcement of any of the rights of
the Trustee and the Holders of Notes hereunder or (iv) the failure by the
Pledgor to perform or observe any of the provisions hereof.
SECTION 14. Security Interest Absolute. All rights of the Trustee
--------------------------
and the Holders of Notes and security interests hereunder, and all obligations
of the Pledgor hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Indenture or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Indenture;
(c) any exchange, surrender, release or non-perfection of any Liens
on any other collateral for all or any of the Obligations; or
(d) to the extent permitted by applicable law, any other circumstance
which might otherwise constitute a defense available to, or a discharge of,
the Pledgor in respect of the Obligations or of this Note Pledge Agreement
other than payment in full of the Obligations.
SECTION 15. Miscellaneous Provisions.
------------------------
Section 15.1 Notices; Waivers. Any request, demand, authorization,
----------------
direction, notice, consent, waiver or other document provided or permitted by
this Note Pledge Agreement to be made upon, given or furnished to, or filed with
(a) the Pledgor shall be sufficient for every purpose hereunder if in
writing (including telecopied communications) and made, given, furnished or
filed by personal delivery or mailed by first-class mail or by nationally
recognized overnight courier, postage or courier charges, as the case may
be, prepaid, to Pledgor at:
Trans World Airlines, Inc.
One City Centre
515 N. 6th Street
St. Louis, Missouri 63101
Attention: Senior Vice President & General Counsel
Telecopier No.: (314) 589-3267
(b) the Trustee shall be sufficient for every purpose hereunder if in
writing (including telecopied communications) and made, given, furnished or
filed by personal
<PAGE>
10
delivery or mailed by registered or certified mail or by nationally
recognized overnight courier, postage or courier charges, as the case may
be, prepaid, to or with the Trustee at:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Services
Telecopier No.: (801) 246-5053
or to any of the above parties at any other address or telecopier number
subsequently furnished in writing by it to each of the other parties listed
above. An affidavit by any person representing or acting on behalf of the
Pledgor or the Trustee as to such mailing, having any registry receipt required
by this Section attached, shall be conclusive evidence of the giving of such
demand, notice or communication.
Any notice or communication mailed to a Holder shall be mailed to such
Holder by first-class mail or by nationally recognized overnight courier,
postage or courier changes, as the case may be, prepaid, at such Holder's
address as it appears on the Register and shall be sufficiently given to such
Holder if so mailed within the time prescribed.
Failure to mail a notice or send a communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders.
Notices to the Trustee or to the Pledgor are deemed given only when received.
Where this Note Pledge Agreement provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by the Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
Section 15.2 No Adverse Interpretation of Other Agreements. This
---------------------------------------------
Note Pledge Agreement may not be used to interpret any agreement of Pledgor or
any of its Subsidiaries which is unrelated to the Indenture, the Securities or
the other Operative Documents. Any such agreement may not be used to interpret
this Note Pledge Agreement.
Section 15.3 Severability. The provisions of this Note Pledge
------------
Agreement are severable, and if any clause or provision shall be held invalid,
illegal or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect in that jurisdiction only such
clause or provision, or part thereof, and shall not in any manner affect such
clause or provision in any other jurisdiction or any other clause or provision
of this Note Pledge Agreement in any jurisdiction, and a Holder shall have no
claim therefor against any party hereto.
Section 15.4 Effect of Headings. The Section headings contained in
------------------
this Note Pledge Agreement have been inserted for convenience of reference only,
and are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of this Note Pledge Agreement.
<PAGE>
11
Section 15.5 Counterpart Originals. This Note Pledge Agreement may
---------------------
be signed in two or more counterparts, each of which shall be deemed an
original, but all of which shall together constitute one and the same agreement.
Section 15.6 Benefits of Note Pledge Agreement Restricted. Subject
--------------------------------------------
to the provisions of Section 15.17, nothing in this Note Pledge Agreement,
express or implied, shall give or be construed to give to any Person, firm or
corporation, other than the parties hereto and the Holders, acting through the
Trustee, any legal or equitable right, remedy or claim under or in respect of
this Note Pledge Agreement or under any covenant, condition, or provision herein
contained, all such covenants, conditions and provisions, subject to Section
15.17 hereof, being for the sole benefit of the parties hereto and the Holders.
Section 15.7 Amendments, Waivers and Consents. The Company and the
--------------------------------
Trustee may amend or agree to waive any of the provisions of this Note Pledge
Agreement; provided however, that without the consent of the Required Holders,
no such amendment or waiver shall be made which adversely affects the interests
of the Holders of the Notes in any material respect. Any amendment or waiver of
any provision of this Note Pledge Agreement and any consent to any departure by
the Pledgor from any provision of this Note Pledge Agreement shall be effective
only if made or duly given in compliance with all of the terms and provisions of
this Section 15.7 and neither the Trustee nor any Holder of Notes shall be
deemed, by any act, delay, indulgence, omission or otherwise, to have waived any
right or remedy hereunder or to have acquiesced in any Default or Event of
Default or in any breach of any of the terms and conditions hereof. Failure of
the Trustee or any Holder of Notes to exercise, or delay in exercising, any
right, power or privilege hereunder shall not preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Trustee or any Holder of Notes of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy that the
Trustee or such Holder of Notes would otherwise have on any future occasion. The
rights and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
Section 15.8 Interpretation of Agreement. All terms not defined
---------------------------
herein or in the Indenture shall have the meaning set forth in the applicable
UCC, except where the context otherwise requires. Acceptance of or acquiescence
in a course of performance rendered under this Note Pledge Agreement shall not
be relevant to determine the meaning of this Note Pledge Agreement even though
the accepting or acquiescing party had knowledge of the nature of the
performance and opportunity for objection.
Section 15.9 Continuing Security Interest: Termination.
-----------------------------------------
(a) This Note Pledge Agreement shall create a continuing security
interest in and to the Collateral and shall unless otherwise provided in
the Indenture or in this Note Pledge Agreement, remain in full force and
effect until the earlier of payment in full in cash of (A) each of the
first three scheduled interest payments due on the Notes under the terms of
the Indenture or (B) all obligations due and owing under the Indenture and
the Notes in the event such obligations become payable prior to the payment
of the first three scheduled interest payments on the Notes.
<PAGE>
12
(b) Subject to the provisions of Section 15.10 hereof, this Note
Pledge Agreement shall terminate upon the earlier of payment in full in
cash of (A) each of the first three scheduled interest payments due on the
Notes under the terms of the Indenture or (B) all obligations due and owing
under the Indenture and the Notes in the event such obligations become
payable prior to the payment of the first three scheduled interest payments
on the Notes. At such time, the Trustee shall upon receipt of a Request
from the Pledgor and evidence of such payment, reassign and redeliver to
the Pledgor all of the Collateral hereunder that has not been sold,
disposed of, retained or applied by the Trustee in accordance with the
terms of this Note Pledge Agreement and the Indenture. Such reassignment
and redelivery shall be without warranty by or recourse to the Trustee,
except as to the absence of any prior assignments by the Trustee of its
interest in the Collateral, and shall be at the expense of the Pledgor.
Section 15.10 Survival Provisions. Notwithstanding any right of the
-------------------
Trustee, the Initial Purchasers or any of the Holders to investigate the affairs
of the Company, and notwithstanding any knowledge of facts determined or
determinable by any of them pursuant to such investigation or right of
investigation, all representations, warranties and covenants of the Pledgor
contained herein shall survive the execution and delivery of this Note Pledge
Agreement, and shall terminate only upon the termination of this Note Pledge
Agreement in accordance herewith.
Section 15.11 Waivers. The Pledgor waives presentment and demand for
-------
payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
Section 15.12 Authority of the Trustee.
------------------------
(a) The Trustee shall have and be entitled to exercise all powers
hereunder that are specifically granted to the Trustee by the terms hereof,
together with such powers as are reasonably incident thereto. The Trustee
may perform any of its duties hereunder or in connection with the
Collateral by our through agents or employees and shall be entitled to
retain counsel and to act in reliance upon the advice of counsel concerning
all such matters. Neither the Trustee, any director, officer, employee,
attorney or agent of the Trustee nor the Holders of Notes shall be liable
to the Pledgor for any action taken or omitted to be taken by it or them
hereunder, except for its or their own bad faith, gross negligence or
willful misconduct, nor shall the Trustee be responsible for the validity,
effectiveness or sufficiency hereof or of any document or security
furnished pursuant hereto. The Trustee and its directors, officers,
employees, attorneys and agents shall be entitled to rely on any
communication, instrument or document believed by it or them to be genuine
and correct and to have been signed or sent by the proper person or
persons.
(b) The Pledgor acknowledges that the rights and responsibilities of
the Trustee under this Note Pledge Agreement with respect to any action
taken by the Trustee or the exercise or non-exercise by the Trustee of any
option, right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Note Pledge
<PAGE>
13
Agreement shall, as between the Trustee and the Holders of Notes, be
governed by the Indenture and by such other agreements with respect thereto
as may exist from time to time among them, but, as between the Trustee and
the Pledgor, the Trustee shall be conclusively presumed to be acting as
agent for the Holders of Notes with full and valid authority so to act or
refrain from acting, and the Pledgor shall not be obligated or entitled to
make any inquiry respecting such authority.
Section 15.13 Limitation by Law. All rights, remedies and powers
-----------------
provided herein shall be exercised so that they will not prohibit or prevent
this Note Pledge Agreement from being recorded, registered or filed under the
provisions of any applicable law.
Section 15.14 Final Expression. This Note Pledge Agreement, together
----------------
with the Indenture, the other Operative Documents and any other agreement
executed in connection herewith or therewith, is intended by the parties as a
final expression of this Note Pledge Agreement and is intended as a complete and
exclusive statement of the terms and conditions thereof.
Section 15.15 Rights of Holders of Notes. No Holder of Notes shall
--------------------------
have any independent rights hereunder other than those rights granted to
individual Holders of Notes pursuant to the Indenture; provided that nothing in
--------
this subsection shall limit any rights granted to the Trustee under the Notes or
the Indenture.
Section 15.16 Governing Law; Submission to Jurisdiction; Waiver of
----------------------------------------------------
Jury Trial; Waiver of Damages.
- -----------------------------
(a) The laws of the State of New York shall govern this Note Pledge
Agreement without regard to principles of conflicts of laws.
(b) The Pledgor agrees that the Trustee shall, in its capacity as
Trustee or in the name and on behalf of any Holder of Notes, have the right, to
the extent permitted by applicable law, to proceed against the Pledgor or its
property in a court in any location reasonably selected in good faith (and
having personal or in rem jurisdiction over the Pledgor or its property, as the
case may be) to enable the Trustee to realize on such property, or to enforce a
judgment or other court order entered in favor of the Trustee. The Pledgor
agrees that it will not assert any counterclaims, setoffs or crossclaims in any
proceeding brought by the Trustee to realize on such property or to enforce a
judgment or other court order in favor of the Trustee, except for such
counterclaims, setoffs or crossclaims which, if not asserted in any such
proceeding, could not otherwise be brought or asserted. The Pledgor waives any
objection that it may have to the location of the court in which the Trustee has
commenced a proceeding described in this paragraph including, without
limitation, any objection to the laying of venue or based on the grounds of
forum non conveniens.
(c) The Pledgor and the Trustee each waive any right to have a jury
participate in resolving any dispute, whether sounding in contract, tort, or
otherwise arising out of, connected with, related to or incidental to the
relationship established between them in
<PAGE>
14
connection with this Note Pledge Agreement. Instead, any disputes resolved in
court will be resolved in a bench trial without a jury.
(d) The Pledgor agrees that neither the Trustee nor any Holder of
Notes shall have any liability to the Pledgor (whether sounding in tort,
contract or otherwise) for losses suffered by the Pledgor in connection with,
arising out of, or in any way related to, the transactions contemplated and the
relationship established by this Note Pledge Agreement, or any act, omission or
event occurring in connection therewith, unless it is determined by a final and
nonappealable judgment of a court that is binding on the Trustee or such Holder
of Notes, as the case may be, that such losses were the result of acts or
omissions on the part of the Trustee or such Holder of Notes, as the case may
be, constituting bad faith, gross negligence or willful misconduct.
(e) To the extent permitted by applicable law, and except as
otherwise provided in this Note Pledge Agreement, the Pledgor waives all rights
of notice and hearing of any kind prior to the exercise by the Trustee or any
Holder of Notes of rights during the continuance of any Event of Default to
repossess the Collateral with judicial process or to replevy, attach or levy
upon the Collateral or other security for the Obligations. To the extent
permitted by applicable law, the Pledgor waives the posting of any bond
otherwise required of the Trustee or any Holder of Notes in connection with any
judicial process or proceeding to obtain possession of replevy, attach or levy
upon the Collateral or other security for the Obligations, to enforce any
judgment or other court order entered in favor of the Trustee or any Holder of
Notes, or to enforce by specific performance, temporary restraining order or
preliminary or permanent injunction, this Note Pledge Agreement or any other
agreement or document between the Pledgor on the one hand and the Trustee and/or
the Holders of Notes on the other hand.
Section 15.17 Successors and Assigns. This Note Pledge Agreement and
-----------------------
all obligations of the Pledgor hereunder shall be binding upon the successors
and permitted assigns of the Pledgor, and shall, together with the rights and
remedies of the Trustee hereunder, inure to the benefit of the Trustee and the
Holders, and their respective successors and assigns. The Pledgor agrees that
the interest of the Pledgor under this Note Pledge Agreement is not assignable
and that any attempt to assign all or any portion of this Note Pledge Agreement
by the Pledgor shall be null and void except for an assignment in connection
with a merger, consolidation or sale of substantially all the Pledgor's assets
permitted under the Indenture.
Section 15.18 Conflict with Trust Indenture Act of 1939. If and to
-----------------------------------------
the extent that any provision of this Note Pledge Agreement limits, qualifies or
conflicts with the duties imposed by Sections 310 to 317, inclusive, of the TIA,
such imposed duties shall control.
Section 15.19 Holidays. In the event that any date for the payment
--------
of any amount due hereunder shall not be a Business Day, then (notwithstanding
any other provision of this Note Pledge Agreement) such payment need not be made
on such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the due date, and no interest shall accrue from
such due date to and including the next succeeding Business Day.
<PAGE>
15
Section 15.20 No Recourse Against Others. A director, officer,
--------------------------
employee or stockholder, as such, of Pledgor shall not have any liability for
any obligations of Pledgor under this Note Pledge Agreement or for any claim
based on, in respect of or by reason of such obligations or their creation.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Trustee have each caused this
Note Pledge Agreement to be duly executed and delivered as of the date first
above written.
Pledgor:
Trans World Airlines, Inc.
By:/s/ Michael J. Lichty
------------------------------------
Name: Michael J. Lichty
Title: Vice President Corporate Finance
Trustee:
First Security Bank, National Association, as Trustee
By:/s/ Nancy M. Dahl
-------------------------------------
Name: Nancy M. Dahl
Title: Vice President
<PAGE>
EXHIBIT 12
TRANS WORLD AIRLINES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Reorganized
Prior Predecessor Company Predecessor Company Company
--------------------------------------- --------------------------------------------------------
Ten months Two months Eight months Four months Year
---------- ---------- ------------ ----------- ----
Year ended ended ended Year ended ended ended ended
---------- ----- ----- ---------- ----- ----- -----
December 31, October 31, December 31, December 31, August 31, December 31, December 31,
------------ ----------- ------------ ------------ ---------- ----------- ------------
1992 1993 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Amounts in Thousands, except for ratio)
--------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loss from operations
before income taxes ($314,292) ($362,620) ($88,140) ($432,869) ($338,309) ($32,268) ($274,577)
Add:
Interest on
indebtedness (1) 110,096 91,877 31,204 195,352 123,247 45,917 126,822
Portion of rents
representative of the
interest factor 67,700 57,821 12,198 87,122 60,849 32,131 100,997
-------- -------- ------- -------- -------- ------- --------
Income as adjusted ($136,496) ($212,922) ($44,738) ($150,395) ($154,213) $45,780 ($46,758)
-------- -------- ------- -------- -------- ------- --------
Fixed Charges:
Interest on
indebtedness $110,096 $91,877 $31,204 $195,352 $123,247 $45,917 $126,822
Capitalized interest 3,099 2,104 267 2,133 - - 5,463
Portion of rents
representative of the
interest factor 67,700 57,821 12,198 87,122 60,849 32,131 100,997
-------- -------- ------- -------- -------- ------- --------
Fixed Charges $180,895 $151,802 $43,669 $284,607 $184,096 $78,048 $233,282
-------- -------- ------- -------- -------- ------- --------
Ratio of earnings to
fixed charges (0.75) (1.40) (1.02) (0.53) (0.84) 0.59 (0.20)
-------- -------- ------- -------- -------- ------- --------
Deficiency (coverage) $317,391 $364,724 $88,407 $435,002 $338,309 $32,268 $280,040
-------- -------- ------- -------- -------- ------- --------
<CAPTION>
------------------------------------------------
9 months 9 months 3 months 3 months
-------- -------- -------- --------
ended ended ended ended
----- ----- ----- -----
Sept 30, Sept 30, Sept 30, Sept 30
-------- -------- -------- -------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loss from operations
before income taxes ($68,272) ($18,257) $13,276 ($6,905)
Add:
Interest on
indebtedness (1) 85,518 95,483 27,404 30,864
Portion of rents
representative of the
interest factor 89,616 74,028 31,480 25,757
-------- -------- -------- -------
Income as adjusted $106,862 $151,254 $72,160 $49,716
-------- -------- -------- -------
Fixed Charges:
Interest on
indebtedness $85,518 $95,483 $27,404 $30,864
Capitalized interest 4,204 3,563 899 1,619
Portion of rents
representative of the
interest factor 89,616 74,028 31,480 25,757
-------- -------- -------- -------
Fixed Charges $179,338 $173,074 $59,783 $58,240
-------- -------- -------- -------
Ratio of earnings to
fixed charges 0.60 0.87 1.21 0.85
-------- -------- -------- -------
Deficiency (coverage) $72,476 $21,820 ($12,377) $8,524
-------- -------- -------- -------
</TABLE>
(1) Includes amoritization of debt expense.
<PAGE>
Exhibit 23.1
AUDITORS' CONSENT
-----------------
The Board of Directors
Trans World Airlines, Inc.:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus. Our
report, dated March 24, 1997, contains 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. The consolidated financial statements do not
include any adjustments that might result from the outcome of that uncertainty.
In addition, our report refers to the application of fresh start reporting as of
September 1, 1995.
KPMG Peat Marwick LLP
Kansas City, Missouri
January 19, 1998
<PAGE>
EXIHIBIT 24
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 and resubstitution for me in my name, place and stead, 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 Exchange Notes
issuable in exchange for the Company's 11 1/2% Senior Secured Notes due 2004,
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 (including
post-effective 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 12th day of
January, 1998.
/s/ John W. Bachmann
--------------------------
John W. Bachman
<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 and resubstitution for me in my name, place and stead, 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 Exchange Notes
issuable in exchange for the Company's 11 1/2% Senior Secured Notes due 2004,
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 (including
post-effective 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 12th day of
January, 1998.
/s/ William F. Compton
------------------------------
William F. Compton
<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 and resubstitution for me in my name, place and stead, 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 Exchange Notes
issuable in exchange for the Company's 11 1/2% Senior Secured Notes due 2004,
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 (including
post-effective 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 12th day of
January, 1998.
/s/ Eugene P. Conese
------------------------------
Eugene P. Conese
<PAGE>
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 and resubstitution for me in my name, place and stead, 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 Exchange Notes
issuable in exchange for the Company's 11 1/2% Senior Secured Notes due 2004,
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 (including
post-effective 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 13th day of
January, 1998.
/s/ William M. Hoffman
------------------------------
William M. Hoffman
<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 and resubstitution for me in my name, place and stead, 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 Exchange Notes
issuable in exchange for the Company's 11 1/2% Senior Secured Notes due 2004,
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 (including
post-effective 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 15th day of
January, 1998.
/s/ Thomas H. Jacobsen
------------------------------
Thomas H. Jacobsen
<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 and resubstitution for me in my name, place and stead, 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 Exchange Notes issuable in
exchange for the Company's 11 1/2% Senior Secured Notes due 2004, 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 (including post-
effective 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 12th day of
January, 1998.
/s/ Myron Kaplan
------------------------------
Myron Kaplan
<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 and resubstitution for me in my name, place and stead, 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 Exchange Notes
issuable in exchange for the Company's 11 1/2% Senior Secured Notes due 2004,
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 (including
post-effective 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 12th day of
January , 1998.
/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 and resubstitution for me in my name, place and stead, 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 Exchange Notes
issuable in exchange for the Company's 11 1/2% Senior Secured Notes due 2004,
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 (including
post-effective 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 12th day of
January, 1998.
/s/ G. Joseph Reddington
------------------------------
G. Joseph Reddington
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Blanche M. Touhill, 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 and resubstitution for me in my name, place and stead, 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 Exchange Notes
issuable in exchange for the Company's 11 1/2% Senior Secured Notes due 2004,
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 (including
post-effective 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 12th day of
January, 1998.
/s/ Blanche M. Touhill
------------------------------
Blanche M. Touhill
<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 and resubstitution for me in my name, place and stead, 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 Exchange Notes
issuable in exchange for the Company's 11 1/2% Senior Secured Notes due 2004,
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 (including
post-effective 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 12th day of
January, 1998.
/s/ Stephen M. Tumblin
------------------------------
Stephen M. Tumblin
<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 and resubstitution for me in my name, place and stead, 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 Exchange Notes
issuable in exchange for the Company's 11 1/2% Senior Secured Notes due 2004,
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 (including
post-effective 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 19th day of
January, 1998.
/s/ William O'Driscoll
------------------------------
William O'Driscoll
<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 and resubstitution for me in my name, place and stead, 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 Exchange Notes
issuable in exchange for the Company's 11 1/2% Senior Secured Notes due 2004,
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 (including
post-effective 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 19th day of
January, 1998.
/s/ David M. Kennedy
---------------------------
David M. Kennedy
<PAGE>
EXHIBIT 25
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
-------------------------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
____________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2)
FIRST SECURITY BANK,
NATIONAL ASSOCIATION
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
NOT APPLICABLE 87-0131890
(JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.)
79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
NOT APPLICABLE
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
TRAN WORLD AIRLINES, INC.
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1145889
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE CITY CENTRE, 515 N. SIXTH STREET
ST. LOUIS, MISSOURI 63101
(ADDRESS OR PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
OFFER TO EXCHANGE
11 1/2% SENIOR SECURED NOTES DUE 2004,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND
ALL OUTSTANDING 11 1/2% SENIOR SECURED NOTES DUE 2004
(TITLE OF THE INDENTURE SECURITIES)
<PAGE>
Item 1. General Information. Furnish the following information as to the
--------------------
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C. 20230; Federal Reserve
Bank of San Francisco, San Francisco, CA 94120; Federal Deposit
Insurance Corporation, Washington, D.C. 20429.
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations With The Obligor. If the obligor is an affiliate of
------------------------------
the trustee, describe each such affiliation.
Neither the obligor nor any underwriter for the obligor is an
affiliate of the Trustee.
Item 16. List of Exhibits. List below all exhibits filed as part of this
-----------------
statement of eligibility and qualification.
Exhibit 1: copy of the articles of association as now in effect
Exhibit 2: certificate of authority to commence business
including a certificate of the Comptroller of the
Currency evidencing the change of the Trustee's name
Exhibit 3: copy of the authorization of the trustee to exercise
corporate trust powers
Exhibit 4: copy of the bylaws of the trustee
Exhibit 5: Not applicable
Exhibit 6: Not applicable
Exhibit 7: A copy of the latest report published pursuant to law
or its supervising or examining authority
Exhibit 8: Not applicable
Exhibit 9: Not applicable
<PAGE>
Signature
---------
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Security Bank, National Association, a national
banking association organized and existing under the laws of the United States,
has duly caused this statement of eligibility and qualification to be signed on
its behalf by the undersigned thereunder duly authorized, all in the City of
Salt Lake City, and State of Utah, on the 15th day of January, 1998.
FIRST SECURITY BANK,
NATIONAL ASSOCIATION, Trustee
By: /s/ Nancy M. Dahl
---------------------------
Nancy M. Dahl
Vice President
<PAGE>
EXHIBIT 1
ARTICLES OF ASSOCIATION
OF
FIRST SECURITY BANK
NATIONAL ASSOCIATION
(As Amended)
FIRST. The title of this Association, which shall carry on the
business of banking under the laws of the United States, shall be "First
Security Bank, National Association."
SECOND. The place where the main banking house or office of this
Association shall be located shall be Ogden, County of Weber, State of Utah. Its
general business and its operations of discount and deposit shall also be
carried on in said city, and the branch or branches established or maintained by
it in accordance with the provisions of Section 36 of Title 12, United States
Code. The Board of Directors shall the power to change the location of the main
office of this Association (i) to any other authorized branch location within
the limits of Ogden, Utah, without the approval of the shareholders of this
Association and upon notice to the Comptroller of the Currency or, (ii) to any
other place within Ogden, Utah, or within thirty (30) miles of Ogden, Utah, with
the approval of the shareholders and the Comptroller of the Currency. The Board
of Directors shall have the power to change the location of any branch or
branches of this Association to any other location, without the approval of the
shareholders of this Association but subject to the approval of the Comptroller
of the Currency.
THIRD. The Board of Directors of the consolidated association shall
consist of not less than five (5) nor more than twenty-five (25) of its
shareholders.
FOURTH. There shall be an annual meeting of the shareholders the
purpose of which shall be the election of Directors and the transaction of
whatever other business may be brought before said meeting. It shall be held at
the main office of the Bank or other convenient place as the Board of Directors
may designate, on the third Monday of March of each year, but if no election is
held on that day, it may be held on any subsequent day according to such lawful
rules as may be prescribed by the Board of Directors. Nominations for election
to the Board of Directors may be made by the Board of Directors or by any
stockholder of any outstanding class of capital stock of the Bank entitled to
vote for election of directors. Nominations, other than those made by or on
behalf of the existing management of the Bank, shall be made in writing and
shall be delivered or mailed to the President of the Bank and to the Comptroller
of the Currency, Washington, D.C., not less than 14 days nor more than 50 days
prior to any meeting of stockholders called for the election of directors,
provided, however, that if less than 21 days notice of the meeting is given to
- -------- -------
shareholders, such nomination shall be mailed or delivered to the President of
the Bank and to the Comptroller of the Currency not later than the close of
business on the seventh day following the day on which the notice of meeting was
mailed. Such notification shall contain the following information to the extent
known to the notifying shareholder: (a) the name and address of each proposed
nominee; (b) the principal occupation of each proposed nominee; (c) the total
number of shares of capital stock of the Bank that will be voted for each
proposed nominee; (d) the name and residence address of the notifying
shareholder; and (e) the number of shares of capital stock of the Bank owned by
the notifying shareholder. Nominations not made in accordance herewith may, in
his discretion, be disregarded by the Chairman of the meeting, and upon his
instructions, the voting inspectors may disregard all votes cast for each such
nominee.
<PAGE>
FIFTH. The authorized amount of capital stock of this Association
shall be One Hundred Million Dollars ($100,000,000.00), divided into 4,000,000
shares of common stock of the par value of Twenty-five Dollars ($25.00) each;
provided, however, that said capital stock may be increased or decreased from
time to time, in accordance with the provision of the laws of the United States.
The shareholders of this Association shall not have any pre-emptive rights to
acquire unissued shares of this Association.
SIXTH. (1) The Board of Directors shall appoint one of its members
President of this Association. It may also appoint a Chairman of the Board, and
one or more Vice Chairman. The Board of Directors shall have the power to
appoint one or more Vice Presidents, at least one of whom shall also be a member
of the Board of Directors, and who shall be authorized, in the absence of the
President, to perform all acts and duties pertaining to the office of the
President; to appoint a Cashier and such other officers and employees as may be
required to transact the business of this Association; to fix the salaries to be
paid to such officers or employees and appoint others to take their place.
(2) The Board of Directors shall have the power to define
the duties of officers and employees of this Association and to require adequate
bonds from them for the faithful performance of their duties; to make all By-
Laws that may be lawful for the general regulation of the business of this
Association and the management of its affairs, and generally to do and perform
all acts that may be lawful for a Board of Directors to do and perform.
(3) Each person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, administrative or investigative (other than an action
by or in the right of the Association) by reason of the fact that he is or was a
director, officer, employee or agent of the Association or is or was serving at
the request of the Association as a director, officer, employee, fiduciary or
agent of another corporation, partnership, joint venture, trust, estate or other
enterprise or was acting in furtherance of the Association's business shall be
indemnified against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Association; provided, however, no indemnification shall be given to a person
adjudged guilty of, or liable for, willful misconduct, gross neglect of duty, or
criminal acts or where there is a final order assessing civil money penalties or
requiring affirmative action by such person in the form of payments to the
Association. The termination of any action, suit or proceeding by judgment,
order, settlement, or its equivalent, shall not of itself, create a presumption
that the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Association.
(4) Each person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Association (such action or suit being known as a "derivative
proceeding") to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Association or is or was
serving at the request of the Association as a director, officer, employee,
fiduciary or agent of another corporation, partnership, joint venture, trust,
estate or other enterprise shall be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Association; provided, however, that no indemnification shall be given where
there is a final order assessing civil money penalties or requiring affirmative
action by such person in the form of payments to the Association; and
<PAGE>
provided further that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Association,
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
(5) To the extent that a director, officer, employee or
agent of a corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in (3) or (4) of this Article or
in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorney's fees) actually and reasonably incurred by
him in connection therewith.
(6) Any indemnification under (3) or (4) of this Article
(unless ordered by a court) shall be made by the Association only as authorized
in the specific case upon a reasonable determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in (3) or (4) of this
Article. Such determination shall be made (a) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in written opinion, or (c) by the stockholders.
(7) Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Association in advance of the
final disposition of such action, suit or proceeding as authorized in the manner
provided in (6) of this Article (i) if the Board of Directors determines, in
writing, that (1) the director, officer, employee or agent has a substantial
likelihood or prevailing on the merits; (2) in the event the director, officer,
employee or agent does not prevail, he or she will have the financial capability
or reimburse the Association; and (3) payment of expenses by the Association
will not adversely affect its safety and soundness; and (ii) upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the Association as authorized in this Article.
(8) The indemnification provided by this Article shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any By-Law, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such 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, successors in interest, and
administrators of such a person.
SEVENTH. This Association shall have succession from the date of its
organization certificate until such time as it be dissolved by the act of its
shareholders in accordance with the provisions of the banking laws of the United
States, or until its franchise becomes forfeited by reason of violation of law,
or until terminated by either a general or a special act of Congress, or until
its affairs be placed in the hands of a receiver and finally wound up by him.
<PAGE>
EIGHTH. The Board of Directors of this Association, or any three or
more shareholders owning, in the aggregate, not less than ten per centum of the
stock of this Association, may call a special meeting of shareholders at any
time: Provided, however, that unless otherwise provided by law, not less than
ten days prior to the date fixed for any such meeting, a notice of the time,
place and purpose of the meeting shall be given by first-class mail, postage
prepaid, to all shareholders of record of this Association. These Articles of
Association may be amended at any regular or special meeting of the Shareholders
by the affirmative vote of the shareholders owning at least a majority of the
stock of this Association, subject to the provisions of the banking laws of the
United States. The notice of any shareholders' meeting, at which an amendment to
the Articles of Association of this Association is to be considered shall be
given as hereinabove set forth.
<PAGE>
EXHIBIT 2
CERTIFICATE
TREASURY DEPARTMENT )
Office of ) ss:
Comptroller of the Currency )
I, Thomas G. DeShazo, Deputy Comptroller of the Currency, do hereby certify
that:
Pursuant to Revised Statutes 324, et seq., as amended, 12 U.S.C. 1, et seq., the
Comptroller of the Currency charters and exercises regulatory and supervisory
authority over all national banking associations;
On December 9, 1881, The First National Bank of Ogden, Ogden, Utah was chartered
as a National Banking Association under the laws of the United States and under
Charter No. 2597;
The document hereto attached is a true and complete copy of the Comptroller
Certificate issued to The First National Bank of Ogden, Ogden, Utah, the
original of which certificate was issued by this Office on December 9, 1881;
On October 2, 1922, in connection with a consolidation of The First Bank of
Ogden, Ogden, Utah, and The Utah National Bank of Ogden, Ogden, Utah, the title
was charged to "The First & Utah National Bank of Ogden"; on January 18, 1923,
The First & Utah National Bank of Ogden changed its title to "First Utah
National Bank of Ogden"; on January 19, 1926, the title was changed to "First
National Bank of Ogden"; and on February 24, 1934, the title was changed to
"First Security Bank of Utah, National Association"; and
First Security Bank of Utah, National Association, Ogden, Utah, continues to
hold a valid certificate to do business as a National Banking Association.
IN TESTIMONY WHEREOF, I have hereunto subscribed my
name and caused the seal of Office of the Comptroller
of the Currency to be affixed to these presents at the
Treasury Department, in the City of Washington and
District of Columbia, this fourth day of April, A.D.
1972.
Thomas G. DeShazo
---------------------------------------------
Deputy Comptroller of the Currency
<PAGE>
TREASURY DEPARTMENT
Comptroller of the Currency,
Washington, December 9th, 1881
WHEREAS, by satisfactory evidence presented to the undersigned it has
been made to appear that "The First National Bank of Ogden" in Ogden
City in the County of Weber, and Territory of Utah has complied with
all the provisions of the Revised Statutes of the United States,
required to be complied with before an association shall be authorized
to commence the business of Banking.
Now, therefore, I, John Jay Knox, Comptroller of the Currency, do
hereby certify that "The First National Bank of Ogden" in Ogden City
in the County of Weber, and Territory of Utah is authorized to
commence the business of Banking, as provided in Section Fifty-one
hundred and sixty-nine of the Revised Statutes of the United States.
In testimony whereof, witness my hand and seal of
office this 9th day of December, 1881.
John Jay Knox
--------------------------------------
Comptroller of the Currency
<PAGE>
EXHIBIT 3
FEDERAL RESERVE BOARD
WASHINGTON, D.C.
I, S.R. Carpenter, Assistant Secretary of the Federal Reserve Board, do
hereby certify that it appears from the records of the Federal Reserve
Board that:
(1) Pursuant to authority vested in the Federal Reserve Board by an
Act of Congress approved December 23, 1913, known as the Federal Reserve
Act, as amended, the Federal Reserve Board has heretofore granted to the
First National Bank of Ogden, Ogden, Utah, the right to act when not in
contravention of State or local law, as trustee, executor, administrator,
registrar of stocks and bonds, guardian of estates, assignee, receiver,
committee of estates of lunatics, or in any other fiduciary capacity in
which State banks, trust companies or other corporations which come into
competition with national banks are permitted to act under the laws of the
State of Utah;
(2) On February 24, 1934, the First National Bank of Ogden, Ogden,
Utah, changed its title to First Security Bank of Utah, National
Association, under the provisions of an Act of Congress approved May 1,
1886, whereby all of the rights, liabilities and powers of such national
bank under its old name devolved upon and inured to the bank under its new
name; and
(3) Pursuant to the permission heretofore granted by the Federal
Reserve Board to the First National Bank of Ogden, Ogden, Utah, as
aforesaid, and by virtue of the change in the title of such bank, the First
<PAGE>
Security Bank of Utah, National Association has authority to act, when not
in contravention of State or local law, as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates of
lunatics, or in any other fiduciary capacity in which State banks, trust
companies or other corporations which come into competition with national
banks are permitted to act under the laws of the State of Utah, subject to
regulations prescribed by the Federal Reserve Board.
IN WITNESS WHEREOF, I have hereunto subscribed my name and caused
the seal of the Federal Reserve Board to be affixed at the City of
Washington, in the District of Columbia, on the 1st day of March, 1934.
S.R. Carpenter
----------------------------------------------------
Assistant Secretary, Federal Reserve Board.
<PAGE>
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
March 1, 1934.
First Security Bank of Utah, National Association,
Ogden, Utah.
Dear Sirs:
Reference is made to the change in the name of the First National Bank of
Ogden, Ogden, Utah, pursuant to the provisions of the Act of May 1, 1886, to
First Security Bank of Utah, National Association, and there is enclosed a
certificate issued by the Federal Reserve Board showing the trust powers
heretofore granted to the bank under its former name and that it is authorized
to exercise such powers under its new name.
Very truly yours,
S.R. Carpenter
S.R. Carpenter,
Assistant Secretary.
Enclosure
<PAGE>
[LOGO APPEARS HERE]
- --------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
- --------------------------------------------------------------------------------
LICENSING UNIT (APPLICATIONS)
50 Fremont Street, Suite 3900
San Francisco, CA 94105
(415) 545-5900, FAX (415) 545-5925
June 20, 1996
Board of Directors
FIRST SECURITY BANK OF UTAH, N.A.
c/o First Security Corporation
Attn: Brad D. Hardy, EVP
Post Office Box 30006
Salt Lake City, Utah 84130
RE: MERGER - FIRST SECURITY BANK OF IDAHO, N.A., BOISE, IDAHO INTO FIRST
SECURITY BANK OF UTAH, N.A., OGDEN, UTAH, UNDER THE TITLE OF FIRST SECURITY
BANK, N.A., ODGEN, UTAH. CONTROL NO: 96-WE-02-010
Dear Members of the Board:
This letter is the OFFICIAL CERTIFICATION of the Comptroller of the Currency to
merge First Security Bank of Idaho, National Association, Boise, Idaho into
First Security Bank of Utah, National Association, Ogden, Utah, EFFECTIVE AS OF
JUNE 21, 1996. THE RESULTING BANK TITLE IS FIRST SECURITY BANK, NATIONAL
ASSOCIATION AND CHARTER NUMBER IS 2597.
This is also the official authorization given to First Security Bank, National
Association to operate the branches of the target institution and to operate the
main office of the target institution as a branch. Branches of a national bank
target are not listed since they are automatically carried over to the resulting
bank and retain their current OCC branch numbers.
Please be advised that the Charter Certificate for the merged bank, First
Security Bank of Idaho, National Association, MUST BE RETURNED TO THE WESTERN
DISTRICT OFFICE for cancellation.
Very truly yours,
Robert G. Tornborg
Robert G. Tornborg
Acting Director of Bank Supervision - Compliance and Analysis
<PAGE>
EXHIBIT 4
BY-LAWS OF THE
FIRST SECURITY BANK,
NATIONAL ASSOCIATION
Organized under the National Banking laws of the United States.
MEETINGS
--------
SECTION 1. Unless otherwise provided by the articles of association a notice
of each shareholder's meeting, setting forth clearly the time, place and purpose
of the meeting, shall be given, by mail, to each shareholder of record of this
bank at lease 10 days prior to the date of such meeting. Any failure to mail
such notice or any irregularity therein, shall not affect the validity of such
meeting or of any of the proceedings thereat.
SECTION 2. A record shall be made of the shareholders represented in person
and by proxy, after which the shareholders shall proceed to the transaction of
any business that may properly come before the meeting. A record of the
shareholder's meeting, giving the names of the shareholders present and the
number of shares of stock held by each, the names of the shareholders
represented by proxy and the number of shares held by each, and the names of the
proxies, shall be entered in the records of the meeting in the minute book of
the bank. This record shall show the names of the shareholders and the number
of shares voted for each resolution or voted for each candidate for director.
Proxies shall be secured for the annual meeting alone, shall be dated, and shall
be filed with the records of the meeting. No officer, director, employee, or
attorney for the bank may act as proxy.
The chairman or Secretary of the meeting shall notify the directors-elect of
their election and of the time at which they are required to meet at the banking
house for the purpose of organizing the new board. At the appointed time, which
as closely as possible shall follow their election, the directors-elect shall
convene and organize.
The president or cashier shall then forward to the office of the Comptroller of
the Currency a letter stating that a meeting of the shareholders was held in
accordance with these by-laws, stating the number of shares represented in
person and the number of shares represented by proxy, together with a list of
the directors elected and the report of the appointment and signatures of
officers.
OFFICERS
--------
SECTION 3. Each officer and employee of this bank shall be responsible for all
such moneys, funds, valuables, and property of every kind as may be entrusted to
his care or otherwise come into his possession, and shall faithfully and
honestly discharge his duties and apply and account for all such moneys, funds,
valuables and other property that may come into his hands as such officer or
employee and pay over and deliver the same to the order of the Board of
Directors or to such person or persons as may be authorized to demand and
receive same.
<PAGE>
SECTION 4. If the Board of Directors shall not require separate bonds, it
shall require a blanket bond in an amount deemed by it to be sufficient.
SECTION 5. The following is an impression of the seal adopted by the Board of
Directors of this bank: (Here in the original resolution was imprinted the
Association's seal).
SECTION 6. The various branches of this bank shall be open for business
during such hours as shall be customary in the vicinity, or as shall be fixed,
as to any branch, by the clearing house association of which such branch shall
be a member.
SECTION 7. The regular meeting of the board of directors shall be held on the
first Wednesday after the first Tuesday of each month. When any regular meeting
of the board of directors falls upon a holiday, the meeting shall be held on
such other day as the board may previously designate. Special meetings may be
called by the president, any vice-president, the secretary or the cashier, or at
the request of three or more directors.
MINUTE BOOK
-----------
SECTION 8. The organization papers of this bank, the returns of the
elections, the proceedings of all regular and special meetings of the directors
and of the shareholders, the by-laws and any amendments thereto, and reports of
the committees of directors shall be recorded in the minute book; and the
minutes of each meeting shall be signed by the chairman and attest by the
secretary of the meeting.
TRANSFERS OF STOCK
------------------
SECTION 9. The stock of this bank shall be assignable and transferable only
on the books of this bank, subject to the restrictions and provisions of the
national banking laws; and a transfer book shall be provided in which all
assignments and transfers of stock shall be made.
SECTION 10. Certificates of stock, signed by the president or vice-president,
and the secretary or the cashier or any assistant cashier, may be issued to
shareholders, and when stock is transferred the certificates thereof shall be
returned to the association, cancelled, preserved, and new certificates issued.
Certificates of stock shall state upon the face thereof that the stock is
transferable only upon the books of the association, and shall meet the
requirements of section 5139, United States Revised Statutes, as amended.
EXPENSES
--------
SECTION 11. All the current expenses of the bank shall be paid by the
cashier, except that the current expenses of each branch shall be paid by the
manager thereof; and such officer shall, every six months, or more often if
required, make to the board a report thereof.
<PAGE>
EXAMINATIONS
------------
SECTION 12. There shall be appointed by the board of directors a committee of
three members, exclusive of the active officers of the bank, whose duty it shall
be to examine, at least once in each period of eighteen months, the affairs of
each branch as well as the head office of the association, count its cash, and
compare its assets and liabilities with the accounts of the general ledgers,
ascertain whether the accounts are correctly kept and that the condition of the
bank corresponds therewith, and whether the bank is in a sound and solvent
condition, and to recommend to the board such changes in the manner of doing
business, etc., as shall seem to be desirable, the result of which examination
shall be reported in writing to the board at the next regular meeting
thereafter, provided that the appointment of such committee and the examinations
by it may be dispensed with if the board shall cause such examination to be made
and reported to the board by accountants approved by it.
CHANGES IN BY-LAWS
------------------
SECTION 13. These by-laws may be changed or amended by the vote of a majority
of the directors at any regular or special meeting of the board, provided,
however, that the directors shall have been given 10 days notice of the
intention to change or offer an amended thereto.
REPEAL
------
SECTION 14. All by-laws heretofore adopted are repealed.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
First Security Bank, N.A. EXHIBIT 7 Call Date: 03/31/97 ST-Bk: 49-0290 FFIEC 031
P.O. Box 30011 Page RT-10
Salt Lake City, UT 84130 Vendor ID: D CERT: 13718 11
Transit Number: 12400001 Transmitted to EDS as 0042861 on 04/30/97 at 19:02:11 CST
</TABLE>
Consolidated Report of Condition for Insured Commercial and
State-Chartered Savings Banks for March 31, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC - Balance Sheet
<TABLE>
<CAPTION>
C400 --
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
1. Cash and balances due from depository institutions (from Schedule RC-A): RCFD
----
a. Noninterest-bearing balances and currency and coin (1)................................ 0081. . 655,052 1.a
b. Interest-bearing balances (2)......................................................... 0071. . 67 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)............................ 1754. . 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D).......................... 1773. . 2,180,112 2.b
3. Federal funds sold and securities purchased under agreements to resell................... 1350. . 66,178 3
4. Loans and Lease financing receivables:
a. Loan and Leases, net of unearned income RCFD
----
(from Schedule RC-C).................................... 2122 7,516,685 . . . . . . 4.a
b. LESS: Allowance for loan and lease losses............... 3123 99,148 . . . . . . 4.b
c. LESS: Allocated transfer risk reserve................... 3128 0 . . . . . . 4.c
d. Loans and Leases, net of unearned income,
allowance, and reserve (items 4.a minus 4.b and 4.c)................................. 2125. . 7,417,537 4.d
5. Trading assets (from Schedule RC-D)..................................................... 3545. . 388,486 5.
6. Premises and fixed assets (including capitalized leases)................................ 2145. . 174,816 6.
7. Other real estate owned (free Schedule RC-M)............................................ 2150. . 825 7.
8. Investments in unconsolidated subsidiaries and associated companies (from
Schedule RC-M).......................................................................... 2130. . 0 8.
9. Customers (liability to this bank on acceptances outstanding............................ 2155. . 803 9.
10. Intangible assets (from Schedule RC-M).................................................. 2143. . 157,257 10.
11. Other assets (from Schedule RC-F)....................................................... 2160. . 332,647 11.
12. Total assets (sum or items 1 through 11)................................................ 2170. . 11,373,780 12.
</TABLE>
_________
(1) Includes cash items in process at collection and unposted debts.
(2) Includes the certificates of deposit not held for trading.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
First Security Bank, N.A. EXHIBIT 7 Call Date: 03/31/97 ST-BK: 49-0290 FFIEC 031
P.O. Box 30011 Page RT-10
Salt Lake City, UT 84130 Vendor ID: D CERT: 13718 12
Transit Number: 12400001 Transmitted to EDS as 0042861 on 04/30/97 at 19:02:11 CST
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE RC - CONTINUED
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES
<S> <C> <C> <C>
13. Deposits:
a. In domestic offices (sum of totals of RCON
----
columns A and C from Schedule RC-E, part 1).......................................... 2200 . . 7,079,084 13.a
RCON
----
(1) Noninterest-bearing (1)................. 6631 . . 1,582,595 . . . . . . 13.a.1
(2) Interest-bearing........................ 6636 . . 5,496,489 . . . . . . 13.a.2
RCFN
----
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from
schedule RC-E, part ii) ............................................................. 2200 51,656 13.b
RCFN
----
(1) Noninterest-bearing ..................... 6631 . . 0 . . . . . . 13.b.1
(2) Interest-bearing ........................ 6636 . . 51,656 . . . . . . 13.b.2
RCFO
----
14. Federal Funds purchased and securities sold under agreements to repurchase 2400 . . 1,987,674 14.
RCON
----
15. a. Demand notes issued to the U.S. Treasury............................................. 2840 . . 20,244 15.a
RCON
----
b. Trading Liabilities (from schedule RC-D)............................................. 3548 . . 130 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less........................................ 2332 . . 552,757 16.a
b. With a remaining maturity of more than one year...................................... 2333 . . 353,202 16.b
17. Not applicable.
18. Bank's Liability on acceptances executed and outstanding................................. 2920 . . 803 18.
19. Subordinated notes and debentures (2).................................................... 3200 . . 45,000 19.
20. Other Liabilities (from Schedule RC-G)................................................... 2930 . . 362,343 20.
21. Total Liabilities (sum of items 13 through 20)........................................... 2948 . . 10,452,893 21.
22. Not applicable.
EQUITY CAPITAL
RCFD
----
23. Perpetual preferred stock and related surplus............................................ 3838 . . 0 23.
24. Common stock............................................................................. 3230 . . 59,270 24.
25. Surplus (exclude all surplus related to preferred stock)................................. 3339 . . 285,944 25.
26. a. Undivided profits and capital reserves................................................ 3632 . . 590,530 26.a
b. Net unrealized holding gains (losses) on available-for-sale-securities................ 3434 . . ( 14,857) 26.b
27. Cumulative foreign currency translation adjustments...................................... 3284 . . 0 27.
28. Total equity capital (sum of items 23 through 27)........................................ 3210 . . 920,887 28.
29. Total Liabilities, limited-life preferred stock, and equity capital (sum of items 21 and
28)..................................................................................... 3300 . . 11,373,780 29.
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best describes
the most comprehensive level of auditing work performed for the bank by independent RCFD Number
---- ------
external auditors as of any date during 1996.............................................. 6724 . . 2 M.1
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated holding
company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors (may
be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
_______________
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
11 1/2% SENIOR SECURED NOTES DUE 2004,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
11 1/2% SENIOR SECURED NOTES DUE 2004
OF
TRANS WORLD AIRLINES, INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
______________, 1998 (THE "EXPIRATION DATE")
UNLESS EXTENDED BY TRANS WORLD AIRLINES, INC.
EXCHANGE AGENT:
FIRST SECURITY BANK, NATIONAL ASSOCIATION
<TABLE>
<S> <C> <C>
By Hand or Overnight Delivery: Facsimile Transmissions: By Registered or Certified Mail :
(Eligible Institutions Only)
First Security Bank, (801) 246-5053
National Association First Security Bank,
Corporate Trust Services To Confirm by Telephone National Association
79 South Main Street or for Information Call: Corporate Trust Services
Salt Lake City, Utah 84111 (801) 246-5630 79 South Main Street
Salt Lake City, Utah 84111
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA A FACSIMILE
TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated __________,
1998 (the "PROSPECTUS") of Trans World Airlines, Inc. (the "COMPANY") which,
together with this Letter of Transmittal (the "LETTER OF TRANSMITTAL"),
describes the Company's offer (the "EXCHANGE OFFER") to
<PAGE>
exchange $1,000 in principal amount of 11 1/2% Senior Secured Notes due 2004
(the "EXCHANGE NOTES") for each $1,000 in principal amount of outstanding 11
1/2% Senior Secured Notes due 2004 (the "OLD NOTES"). The terms of the Exchange
Notes are identical in all material respects (including principal amount,
interests rate and maturity) to the terms of the Old Notes for which they may be
exchanged pursuant to the Exchange Offer, except that the offering of the
Exchange Notes will have been registered under the Securities Act of 1933, as
amended and, therefore, the Exchange Notes will not bear legends restricting the
transfer thereof and certain provisions relating to an increase in the stated
rate of interest shall be eliminated.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the Certificate Numbers and Principal
Amounts should be listed on a separate signed schedule affixed hereto.
2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
NAME(S) AND ADDRESS(ES) CERTIFICATE AGGREGATE PRINCIPAL
OF REGISTERED HOLDER(S) NUMBERS(S)* PRINCIPAL AMOUNT
(PLEASE FILL IN) AMOUNT TENDERED**
REPRESENTED
BY OLD NOTES*
------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
**Unless otherwise indicated, the holder will be deemed to have tendered the
full aggregate principal amount represented by Old Notes. See Instruction 2.
- -------------------------------------------------------------------------------
3
<PAGE>
This Letter of Transmittal is to be used either if certificates for Old
Notes are to be forwarded herewith or if delivery of Old Notes is to be made by
book-entry transfer to an account maintained by the Exchange Agent at The
Depository Trust Company ("DTC"), pursuant to the procedures set forth in "The
Exchange Offer--Book-Entry Transfer" in the Prospectus. Delivery of documents to
a book-entry transfer facility does not constitute delivery to the Exchange
Agent.
Unless the context requires otherwise, the term "Holder" for purposes of
this Letter of Transmittal means any person 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 any person whose Old
Notes are held of record by DTC or its nominee who desire to deliver such Old
Notes by book-entry transfer at DTC.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other documents required hereby to the Exchange Agent on
or prior to the Expiration Date may tender their Old Notes according to the
guaranteed delivery procedure set forth in the Prospectus under the caption "The
Exchange Offer--Guaranteed Delivery Procedures".
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE
EXCHANGE AGENT WITH THE DEPOSITORY TRUST COMPANY AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution_________________________________
______________________________________________________________
The Depository Trust Company
Account Number________________________________________________
Transaction Code Number_______________________________________
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)__________________________________
______________________________________________________________
4
<PAGE>
Name of Eligible Institution that Guaranteed Delivery
____________________________________________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER:
Account 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:____________________________________________________
____________________________________________________________
5
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above-described principal amount
of Old Notes. Subject to, and effective upon, the acceptance for exchange of the
Old Notes tendered herewith, the undersigned hereby exchanges, assigns and
transfers to, or upon the order of, the Company all right, title and interest in
and to such Old Notes. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent as the true and lawful agent and attorney-in-fact of
the undersigned (with full knowledge that said Exchange Agent acts as the agent
of the undersigned in connection with the Exchange Offer) to cause the Old Notes
to be assigned, transferred and exchanged. The undersigned represents and
warrants that it has full power and authority to tender, exchange, assign and
transfer the Old Notes and to acquire Exchange Notes issuable upon the exchange
of such tendered Old Notes, and that, when the same are accepted for exchange,
the Company will acquire good and unencumbered title to the tendered Old Notes,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim. The undersigned also warrants that it will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or the Company to be necessary or desirable to complete the exchange,
assignment and transfer of tendered Old Notes or transfer ownership of such Old
Notes on the account books maintained by The Depository Trust Company.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer". The undersigned recognizes as
a result of these conditions (which may be waived, in whole or in part, by the
Company), as more particularly set forth in the Prospectus, the Company may not
be required to exchange any of the Old Notes tendered hereby and, in such event,
the Old Notes not exchanged will be returned to the undersigned at the address
shown below the signature of the undersigned.
By tendering, each holder of Old Notes represents to the Company that (i)
the Notes acquired pursuant to the Exchange Offer are being obtained in the
course of business of the person receiving such Exchange Notes, whether or not
such person is such holder, (ii) neither the holder of Old Notes nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such Exchange Notes, (iii) if the holder is not a
broker-dealer or is a broker-dealer but will not receive Exchange Notes for its
own account in exchange for Old Notes, neither the holder nor any such other
person is engaged in or intends to participate in a distribution of the Exchange
Notes and (iv) neither the holder nor any such other person is an "affiliate" of
the Company
6
<PAGE>
within the meaning of Rule 405 under the Securities Act of 1933, as
amended (the "Act") or if such holder is an "affiliate", that such holder will
comply with the registration and prospectus delivery requirements of the Act to
the extent applicable. If the tendering holder is a broker-dealer (whether or
not it is also an "affiliate") that will receive Exchange Notes for its own
account in exchange for Old Notes, it represents that the Old Notes to be
exchanged for the Exchange Notes were acquired by it as a result of market-
making activities or other trading activities, and acknowledges that it will
deliver a prospectus meeting the requirements of the Act in connection with any
resale of such Exchange Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Act in connection with
any resale of such Exchange Notes, the undersigned is not deemed to admit that
it is an "underwriter" within the meaning of the Act.
All authority herein conferred or agreed to be conferred shall survive the
death, bankruptcy or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Tendered Old Notes may be withdrawn
at any time prior to the Expiration Date.
Certificates for all Exchange Notes delivered in exchange for tendered Old
Notes any Old Notes delivered herewith but not exchanged, in each case
registered in the name of the undersigned, shall be delivered to the undersigned
at the address shown below the signature of the undersigned.
7
<PAGE>
TENDERING HOLDER(S) SIGN HERE
_______________________________________________________________________
_______________________________________________________________________
Signature(s) of Holder(s)
Dated: ______________, 1998
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) for Old Notes or by any person(s) authorized to become registered
holder(s) by endorsements and documents transmitted herewith or, if the Old
Notes are held of record by DTC or its nominee, the person in whose name such
Old Notes are registered on the books of DTC. If signature by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, please set forth
the full title of such person.) See Instruction 3.
Name(s):_______________________________________________________________
_______________________________________________________________________
(Please print)
Capacity (full title):_________________________________________________
Address:_______________________________________________________________
(Including Zip Code)
Area Code and Telephone No.____________________________________________
_______________________________________________________________________
Tax Identification No.
8
<PAGE>
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTION 3)
Authorized Signature:__________________________________________________
Name:__________________________________________________________________
Title:_________________________________________________________________
Address:_______________________________________________________________
Name of Firm:__________________________________________________________
Area Code and Telephone No.____________________________________________
9
<PAGE>
Dated: ____________, 1998
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1 DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES. Certificates
for physically delivered Old Notes or confirmation of any book-entry transfer to
the Exchange Agent's account at The Depository Trust Company of Old Notes
tendered by book-entry transfer, as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile thereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at any of its addresses set forth herein on or prior to the
Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD NOTES AND ANY
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER AND, EXCEPT
AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS SUGGESTED
THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, BE USED.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other required documents to the Exchange Agent on or
prior to the Expiration Date or comply with book-entry transfer procedures on a
timely basis may tender their Old Notes pursuant to the guaranteed delivery
procedure set forth in the Prospectus under "The Exchange Offer--Guaranteed
Delivery Procedures". Pursuant to such procedure: (i) such tender must be made
by or through an Eligible Institution (as defined therein); (ii) on or prior to
the Expiration Date the Exchange Agent must have received from such Eligible
Institution, a letter, telegram or facsimile transmission setting forth the name
and address of the tendering holder, the names in which such Old Notes are
registered, and, if possible, the certificate numbers of the Old Notes to be
tendered; and (iii) all tendered Old Notes (or a confirmation of any book-entry
transfer of such Old Notes into the Exchange Agent's account at The Depository
Trust Company) as well as this Letter of Transmittal and all other documents
required by this Letter of Transmittal must be received by the Exchange Agent
within five American Stock Exchange trading days after the date of execution of
such letter, telegram or facsimile transmission, all as provided in the
Prospectus under the caption "The Exchange Offer--Guaranteed Delivery
Procedures".
10
<PAGE>
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Old Notes for exchange.
2 PARTIAL TENDERS; WITHDRAWALS. Tenders of Old Notes will be accepted
in all denominations of $1,000 and integral multiples in excess thereof. If less
than the entire principal amount of Old Notes evidenced by a submitted
certificate is tendered, the tendering holder must fill in the principal amount
tendered in the box entitled "Principal Amount Tendered". A newly issued
certificate for the principal amount of Old Notes submitted but not tendered
will be sent to such holder as soon as practicable after the Expiration Date.
All Old Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable, except
that Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date. To be effective, a written, telegraphic or
facsimile transmission notice of withdrawal must be timely received by the
Exchange Agent. Any such notice of withdrawal must specify the person named in
the Letter of Transmittal as having tendered Old Notes to be withdrawn, the
principal amount of Old Notes delivered for exchange, a statement that such
holder is withdrawing its election to have such Old Notes exchanged, and the
name of the registered holder of such Old Notes, and must be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the beneficial ownership of the Old Notes being withdrawn. The Exchange Agent
will return the properly withdrawn Old Notes promptly following receipt of
notice of withdrawal. 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 The Depository Trust Company to be credited with the
withdrawn Old Notes or otherwise comply with The Depository Trust Company's
procedures.
3 SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered holder(s) of the Old Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of certificates without
alteration, enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
11
<PAGE>
If a number of Old Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the registered holder or
holders of Old Notes listed and tendered hereby, no endorsements of certificates
or separate written instruments of transfer or exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Old Notes listed, such Notes must be
endorsed or accompanied by separate written instruments of transfer or exchange
in form satisfactory to the Company and duly executed by the registered holder,
in either case signed exactly as the name or names of the registered holder or
holders appear(s) on the Old Notes.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange 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, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written instruments
of transfer or exchange required by this Instruction 3 must be guaranteed by an
Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Old Notes are tendered: (i) by a registered
holder of such Old Notes and the certificates for Exchange Notes to be issued in
exchange therefor are to be issued (or any untendered amount of Old Notes are to
be reissued) to the registered holder; or (ii) for the account of any Eligible
Institution.
4 TRANSFER TAXES. The Company shall pay all transfer taxes, if any,
applicable to the transfer and exchange of Old Notes to it or its order pursuant
to the Exchange Offer. If, however, Exchange Notes 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 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, the amount of any such transfer taxes
(whether imposed on the registered holder or any other person) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exception therefrom is not
12
<PAGE>
submitted herewith the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
5 WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive, in whole or in part, any of the conditions to the Exchange Offer set
forth in the Prospectus.
6 MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any holder whose Old Notes
have been mutilated, lost, stolen or destroyed should contact the Exchange Agent
at the address indicated below for further instructions.
7 REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent
at the address and telephone number set forth below. In addition, all questions
relating to the Exchange Offer, as well as requests for assistance or additional
copies of the Prospectus and this Letter of Transmittal, may be directed to the
Company at One City Centre, 515 N. Sixth Street, St. Louis, Missouri 63101,
Attention: [Paul Rutterer].
8 IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of Letters of Transmittal or Old
Notes will be resolved by the Company, whose determination will be final and
binding. The Company reserves the absolute right to reject any or all Letters of
Transmittal or tenders that are not in proper form or the acceptance of which
would, in the opinion of the Company's counsel, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to the
particular Old Notes covered by any Letter of Transmittal or tendered pursuant
to such letter. None of the Company, the Exchange Agent or any other person will
be under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification. The
Company's interpretation of the terms and conditions of the Exchange Offer shall
be final and binding.
9 DEFINITIONS. Capitalized terms used in this Letter of Transmittal and
not otherwise defined have the meanings given in the Prospectus.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER WITH
CERTIFICATES FOR OLD NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER
REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
13
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
OFFER TO EXCHANGE
11 1/2% SENIOR SECURED NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
11 1/2% SENIOR NOTES DUE 2004
OF
TRANS WORLD AIRLINES, INC.
Registered holders of outstanding 11 1/2% Senior Secured Notes due 2004
(the "OLD NOTES") who wish to tender their Old Notes in exchange for a like
principal amount of 11 1/2% Senior Secured Notes due 2004 (the "EXCHANGE
NOTES"), which have been registered under the Securities Act of 1933, as
amended, and, in each case, whose Old Notes are not immediately available or who
cannot deliver their Old Notes and Letter of Transmittal (and any other
documents required by the Letter of Transmittal) to First Security Bank,
National Association (the "EXCHANGE AGENT") prior to the Expiration Date, may
use this Notice of Guaranteed Delivery or one substantially equivalent hereto.
This Notice of Guaranteed Delivery may be delivered by hand, sent by facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight delivery) or mailed to the Exchange Agent. See "Exchange
Offer--Guaranteed Delivery Procedures" in the Prospectus.
The Exchange Agent for the Exchange Offer is:
FIRST SECURITY BANK, NATIONAL ASSOCIATION
<TABLE>
<S> <C> <C>
By Hand or Overnight Facsimile Transmissions: By Registered or Certified Mail:
Delivery: (Eligible Institutions Only)
(801) 246-5053
First Security Bank, First Security Bank,
National Association To Confirm by Telephone National Association
Corporate Trust Services or for Information Call: Corporate Trust Services
79 South Main Street 79 South Main Street
Salt Lake City, Utah 84111 (801) 246-5630 Salt Lake City, Utah 84111
</TABLE>
<PAGE>
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via a facsimile transmission to
a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on the Letter of Transmittal is required to be
guaranteed by an Eligible Institution, such signature guarantee must appear in
the applicable space provided on the Letter of Transmittal for Guarantee of
Signatures.
2
<PAGE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOTE TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, hereby guarantees to deliver to
the Exchange Agent at one of its addresses set forth above, the certificates
representing the Old Notes, together with a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, and any other documents required by the Letter of Transmittal within
five American Stock Exchange trading days after the date of execution of this
Notice of Guaranteed Delivery.
Name of Firm:__________________ _______________________________________
Authorized Signature
Address:_______________________ Title:_________________________________
_______________________________ Name:__________________________________
(Zip Code) (Please type or print)
Area Code and Telephone Number: Date:___________________________________
_______________________________
NOTE: DO NOT SEND NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. NOTES SHOULD
BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
<PAGE>
EXHIBIT 99.3
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM OWNER
OF
TRANS WORLD AIRLINES, INC.
11 1/2% SENIOR SECURED NOTES DUE 2004
TO REGISTERED HOLDER AND/OR PARTICIPANT OF THE BOOK-ENTRY TRANSFER FACILITY:
The undersigned hereby acknowledges receipt of the Prospectus dated
____________, 1998 (the "PROSPECTUS") of Trans World Airlines, Inc., a Delaware
corporation (the "COMPANY"), and the accompanying Letter of Transmittal (the
"LETTER OF TRANSMITTAL"), together constitute the Company's offer (the "EXCHANGE
OFFER"). Capitalized terms used but not defined herein have the meaning
ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate face amount in the Old Notes held by you for the account of
the undersigned is (fill in amount):
$___________ of the 11 1/2% Senior Secured Notes due 2004
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_] To TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered, if any):
$___________ of the 11 1/2% Senior Secured Notes due 2004
[_] NOT to TENDER any Old Notes held by you for the account of the
undersigned.
<PAGE>
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) the
Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the undersigned, (ii) neither the undersigned nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, (iii) if the undersigned
is not a broker-dealer, or is a broker-dealer but will not receive Exchange
Notes for its own account in exchange for Old Notes, neither the undersigned nor
any such other person is engaged in or intends to participate in the
distribution of such Exchange Notes and (iv) neither the undersigned nor any
such person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act of 1933, as amended (the "SECURITIES ACT") or if the
undersigned is an "affiliate", that the undersigned will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. If the undersigned is a broker-dealer (whether or not it is
also an "affiliate") that will receive Exchange Notes for its own account in
exchange for Old Notes, it represents that such Old Notes were acquired as a
result of market-making activities or other trading activities, and it
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes, the undersigned is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
2
<PAGE>
SIGN HERE
Name of beneficial owner(s):____________________________________________________
Signature(s):___________________________________________________________________
Name(s) (please print):_________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Telephone Number:_______________________________________________________________
Taxpayer Identification or Social Security Number:______________________________
________________________________________________________________________________
Date:___________________________________________________________________________
3
<PAGE>
EXHIBIT 99.4
OFFER TO EXCHANGE
11 1/2% SENIOR SECURED NOTES DUE 2004,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1993, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
11 1/2% SENIOR SECURED NOTES DUE 2004
OF
TRANS WORLD AIRLINES, INC.
To Our Clients:
We are enclosing herewith a Prospectus, dated ____________, 1998, of Trans
World Airlines, Inc. (the "COMPANY"), a Delaware corporation, and a related
Letter of Transmittal (which together constitute the "EXCHANGE OFFER") relating
to the offer by the Company to exchange its 11 1/2% Senior Secured Notes
due 2004 (the "EXCHANGE NOTES"), pursuant to an offering registered under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), for a like principal
amount of its issued and outstanding 11 1/2% Senior Secured Notes due 2004
(the "OLD NOTES") upon the terms and subject to the conditions set forth in the
Exchange Offer.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON _________, 1998, UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
We are the holder of record and/or participant in the book-entry transfer
facility of Old Notes held by us for your account. A tender of such Old Notes
can be made only by us as the record holder and/or participant in the book-entry
transfer facility and pursuant to your instructions. The Letter of Transmittal
is furnished to you for your information only and cannot be used by you to
tender Old Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of the
Old Notes held by us for your account pursuant to the terms and conditions of
the
<PAGE>
Exchange Offer. We also request that you confirm that we may on your behalf make
the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the Exchange Notes acquired in the Exchange
Offer are being obtained in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is such holder, (ii)
neither the holder of the Old Notes nor any such other person has an arrangement
or understanding with any person to participate in the distribution of such
Exchange Notes, (iii) if the holder is not a broker-dealer or is a broker-dealer
but will not receive Exchange Notes for its own account in exchange for Old
Notes, neither the holder nor any such other person is engaged in or intends to
participate in a distribution of the Exchange Notes and (iv) neither the holder
nor any such other person is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act or if such holder is an "affiliate", that such
holder will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable. If the tendering holder is a
broker-dealer (whether or not it is also an "affiliate") that will receive
Exchange Notes for its own account in exchange for Old Notes, we will represent
on behalf of such broker-dealer that the Old Notes to be exchanged for the
Exchange Notes were acquired by it as a result of market-making activities or
other trading activities, and acknowledged on behalf of such broker-dealer that
it will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. By acknowledging that it
will deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes, the
undersigned is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Very truly yours,
2
<PAGE>
EXHIBIT 99.5
OFFER TO EXCHANGE
11 1/2% SENIOR SECURED NOTES DUE 2004,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
11 1/2% SENIOR SECURED NOTES DUE 2004
OF
TRANS WORLD AIRLINES, INC.
To Registered Holders and The Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer
by Trans World Airlines, Inc., a Delaware corporation (the "COMPANY"), to
exchange its 11 1/2% Senior Secured Notes due 2004 (the "EXCHANGE NOTES"),
pursuant to an offering registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), for a like principal amount of its issued and
outstanding 11 1/2% Senior Secured Notes due 2004 (the "OLD NOTES") upon the
terms and subject to the conditions set forth in the Company's Prospectus, dated
_________, 1998, and the related Letter of Transmittal (which together
constitute the "EXCHANGE OFFER").
Enclosed herewith are copies of the following documents:
1. Prospectus dated ____________, 1998;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder and/or Book-Entry Transfer
Participant from Owner; and
<PAGE>
5. Letter which may be sent to your clients for whose account you hold
Old Notes in your name or in the name of your nominee, to accompany
the instruction form referred to above, for obtaining such client's
instruction with regard to the Exchange Offer.
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE
EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ____________,
UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the Exchange Notes acquired in the Exchange
Offer are being obtained in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is such holder, (ii)
neither the holder of the Old Notes nor any such other person has an arrangement
or understanding with any person to participate in the distribution of such
Exchange Notes, (iii) if the holder is not a broker-dealer or is a broker-dealer
but will not receive Exchange Notes for its own account in exchange for Old
Notes, neither the holder nor any such other person is engaged in or intends to
participate in a distribution of the Exchange Notes and (iv) neither the holder
nor any such other person is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act or if such holder is an "affiliate", that such
holder will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable. If the tendering holder is a
broker-dealer (whether or not it is also an "affiliate") that will receive
Exchange Notes for its own account in exchange for Old Notes, you will represent
on behalf of such broker-dealer that the Old Notes to be exchanged for the
Exchange Notes were acquired by it as a result of market-making activities or
other trading activities, and acknowledge on behalf of such broker-dealer that
it will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. By acknowledging that it
will deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes, the
undersigned is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The enclosed Instruction to Registered Holder and/or Book-Entry Transfer
Participant from Owner contains an authorization by the beneficial owners of the
Old Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
2
<PAGE>
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Company
will pay or cause to be paid any transfer taxes payable on the transfer of Old
Notes to it, except as otherwise provided in Instruction 4 of the enclosed
Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
FIRST SECURITY BANK, NATIONAL ASSOCIATION
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF TRANS WORLD AIRLINES, INC. OR FIRST SECURITY BANK, NATIONAL ASSOCIATION
OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN
CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH
AND THE STATEMENTS CONTAINED THEREIN.
3
