PROSPECTUS Registration Statement No. 333-56991
Dated July 6, 1998 Dated July 6, 1998
Rule 424(b)(3)
TRANS WORLD AIRLINES, INC.
3,350,000 SHARES OF COMMON STOCK
-----------------------
This Prospectus relates to 3,350,000 shares of common stock, $0.01 par
value per share (the "Common Stock") of Trans World Airlines, Inc., a Delaware
corporation ("TWA" or the "Company") which are issuable upon conversion of $31.8
million principal amount of the Company's Mandatory Conversion Equity Notes due
1999 (the "Equity Notes"). The Equity Notes were initially issued and delivered
by TWA to First Security Bank, National Association, as owner trustee (the
"Owner Trustee") under the trust agreement (the "Trust") dated as of January 24,
1995 between Seven Sixty Seven Leasing, Inc., the beneficiary named therein (the
"Beneficiary") and the Owner Trustee, in partial payment of the aggregate
purchase price of $75.0 million ($25.0 million per Aircraft) for three Boeing
767-231 ETOPS airframes and six associated engines (collectively, the
"Aircraft"). See "Description of Equity Notes".
The Common Stock issuable upon conversion of the Equity Notes may be
offered and sold from time to time by the holders named herein or by their
transferees, pledgees, donees, or their successors (the "Selling Holders")
pursuant to this Prospectus. The Registration Statement of which this Prospectus
is a part (the "Registration Statement") has been filed with the Securities and
Exchange Commission (the "SEC" or the "Commission") pursuant to the Company's
obligations under a registration rights agreement dated as of April 21, 1998
(the "Registration Rights Agreement") among the Company, the Owner Trustee and
Lazard Freres & Co. LLC.
The Common Stock issuable upon conversion of the Equity Notes may be sold
by the Selling Holders from time to time directly to purchasers or through
agents, underwriters or dealers. See "Plan of Distribution." If required, the
names of any agents or underwriters involved in the sale of the Common Stock in
respect of which this Prospectus is being delivered, along with any applicable
agent's commission, dealer's purchase price or underwriter's discount, will be
set forth in an accompanying supplement to this Prospectus (the "Prospectus
Supplement"). Furthermore, information concerning Selling Holders set forth
herein may change from time to time, and the changes will be set forth in such a
Prospectus Supplement.
The Selling Holders will receive all of the net proceeds from the sale of
the shares of the Common Stock issuable upon conversion of the Equity Notes and
will pay any and all underwriting discounts and selling commissions applicable
to the sale of such Common Stock. The Company is responsible for payment of all
other expenses incident to the registration of such Common Stock. continued on
next page
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER MATTERS DISCUSSED UNDER
THE CAPTION "RISK FACTORS" ON PAGE 6.
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.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
-----------------------
THE DATE OF THIS PROSPECTUS IS JULY 6, 1998.
Continued from cover page
The Selling Holders and any broker-dealers, agents or underwriters that
participate in the distribution of the securities offered hereby may be deemed
to be "underwriters" within the meaning of the Securities Act, and any
commission received by them or purchases by them of such securities at a price
less than the initial price to the public may be deemed to be underwriting
commissions for discounts under the Securities Act.
Pursuant to the Registration Rights Agreement, the Company has also agreed
to pay certain fees and expenses incident to the registration of the Common
Stock issuable upon conversion of the Equity Notes. It is estimated that the
aggregate amount of fees and expenses payable by the Company in connection with
the registration of the securities offered hereby will be approximately
$123,526. The Company intends to keep the Registration Statement effective until
the earlier of (i) the sale of all Common Stock covered by the Registration
Statement and (ii) the expiration of two years after the date of the initial
issuance of the Equity Notes on April 21, 1998, or, if the period applicable
under Rule 144(k) under the Securities Act, or any successor provision, is
shortened, such shorter period.
The Company has listed the Common Stock issuable upon conversion of the
Equity Notes on the ASE under the symbol "TWA." On July 1, 1998, the closing
sale price on the American Stock Exchange ("ASE") for one share of the Common
Stock was $10.44 per share.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offer of
securities made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by any underwriter, dealer or agent. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
those to which it relates. Neither the delivery of this Prospectus nor any sale
of, or offer to sell, the securities offered hereby shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to its date.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company with the Commission pursuant to the informational requirements of the
Exchange Act can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, NW, Washington,
D.C. 20549, and at the Commission's regional offices located at Room 1400, 75
Park Place, New York, New York 10007 and Suite 1400, Northwestern Atrium, 500
West Madison Street, Chicago, Illinois 60661-2511. Copies of such material can
also be obtained upon written request addressed to the Securities and Exchange
Commission, Public Reference Section, Room 1024, 450 Fifth Street, NW,
Washington, D.C. 20549 at prescribed rates. Such reports, proxy statements and
other information can also be inspected at the offices of the American Stock
Exchange, 86 Trinity Place, New York, New York 10006-1881, on which the Common
Stock of the Company is listed. The Commission maintains a Web Site that
contains reports, proxy 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. In addition, the Company has
agreed, for so long as any of the securities offered hereby remain outstanding,
to make available to any prospective purchaser or beneficial holder of such
securities in connection with any sale thereof, the information required by
subsection (d) of Rule 144A under the Securities Act ("Rule 144A"), until such
time as the holders thereof have disposed of such securities pursuant to an
effective registration statement filed by the Company.
This Prospectus contains summaries believed to be accurate and complete in
all material respects of material terms of certain agreements; however, in each
such case, reference is made to the actual agreements (copies of which will be
made available upon request to the Company) for complete information with
respect thereto, and all such summaries are qualified in their entirety by this
reference.
This Prospectus forms a part of the Registration Statement, including all
amendments (including post-effective amendments) and exhibits thereto, which the
Company has filed under the Securities Act with respect to the securities
offered hereby. This Prospectus does not contain all the information otherwise
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement and the exhibits
filed as part thereof. The Registration Statement may be inspected at the public
reference facilities maintained by the Commission at the addresses set forth in
the preceding paragraph. Statements contained herein concerning any document
filed as an exhibit are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus 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 (the "1997-10K") for the fiscal year ended December 31, 1997; (ii) the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1998; (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 related to the Annual Meeting of
Stockholders held on May 19, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the securities offered hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to furnish without charge to each person to
whom a copy of this Prospectus has been delivered, upon written or oral request
of such person, a copy of any and all documents incorporated herein by reference
(not including exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed to
the Corporate Secretary of Trans World Airlines, Inc., One City Centre, 515 N.
Sixth Street, St. Louis, Missouri 63101, telephone (314) 589-3285.
THE COMPANY
TWA is the eighth largest U.S. air carrier (based on revenue passenger
miles ("RPMs") for the full year 1997), whose primary business is transporting
passengers, cargo and mail. During 1997, the Company carried approximately 23.4
million passengers and flew approximately 25.1 billion RPMs. As of March 31,
1998, TWA provided regularly scheduled jet service to 89 cities in the United
States, Mexico, Europe, the Middle East, Canada and the Caribbean. As of March
31, 1998, the Company operated a fleet of 181 jet aircraft.
TWA's North American operations have a primarily domestic hub in St. Louis
at Lambert International Airport ("St. Louis") and a domestic-international hub
at New York's John F. Kennedy International Airport ("JFK"). TWA is the
predominant carrier at St. Louis, with approximately 360 scheduled daily
departures as of March 31, 1998 and approximately a 74.5% share of airline
passenger enplanements in St. Louis for the full year 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 26 domestic and international cities with approximately 40
daily departures. JFK is both the Company's and the industry's largest
international gateway from North America. As of March 31, 1998, the Company
offered 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 implemented certain steps to refocus and improve the
operating and financial performance of its JFK operations.
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.
THE OFFERING
The Prospectus relates to 3,350,000 shares of Common Stock issuable upon
conversion of the Equity Notes issued in connection with the purchase of the
Aircraft. The Company will not receive any proceeds from this Offering.
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 purchasing the securities offered hereby.
Risk Factors Related to the Company
Substantial Indebtedness
The Company is highly leveraged and has and will continue to have
significant debt service obligations. As of March 31, 1998, the Company's ratio
of long-term debt and capital leases (including current maturities, but net of
unamortized discounts) to shareholders' equity was 5.39 to 1. As of March 31,
1998, after giving effect to the issuance of the Company's 113/8% Senior Secured
Notes due 2003 and the Equity Notes, the issuance on June 16, 1998 of the
Company's 10 1/4% Senior Secured Notes due 2003 (the "June Secured Notes") and
the 10 1/4% Mandatory Conversion Equity Notes due 1999 (the "June Equity Notes")
and the conversion into Common Stock of the Equity Notes and the June Equity
Notes on the date hereof, the aggregate principal amount of the Company's total
outstanding indebtedness would be $1,204.9 million ($1,173.8 million net of
unamortized discounts), and the ratio of such long-term debt and capital leases
(including current maturities, but net of unamortized discounts) to
stockholders' equity would have been 4.68 to 1. TWA's estimated minimum payment
obligations under noncancellable operating leases in effect at March 31, 1998
were approximately $284.1 million for 1998 and approximately $3,346.0 million
for periods thereafter. These amounts exclude payment obligations of the Company
that will arise from financing arrangements relating to the 24 MD-83 aircraft.
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 $80.6 million and $105.7 million for the three months ended March 31,
1998 and 1997, respectively, $94.1 million for the year ended December 31, 1997,
$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 and $364.7 million for the ten months
ended October 31, 1993. See "Selected Consolidated Financial Data."
The degree to which the Company is leveraged could have important
consequences to holders of the Common Stock, 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).
Capital Expenditure Requirements
The Company's capital expenditures for 1998 are currently anticipated to
total approximately $90.4 million compared to capital expenditures totaling
approximately $100.1 million for 1997. The Company's capital expenditures budget
for 1998 includes $60.0 million for flight equipment related expenditures
(including pre-delivery deposits for aircraft and the purchase of aircraft
engines and spare parts). While the Company is seeking financing for certain of
its planned capital expenditures, a substantial portion of such expenditures are
expected to utilize internally generated funds. The inability to finance or
otherwise fund such expenditures could have a material adverse effect on the
ability of the Company to continue to implement its strategic plan.
Liquidity
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. On December 31,
1997, the Company's total cash and cash equivalents balance was approximately
$237.8 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 an
increase of approximately $56.2 million from the Company's corresponding cash
balance at December 31, 1996. This increase in the Company's cash balance
resulted primarily from the proceeds from various capital markets offerings
during 1997 and asset dispositions offset by capital expenditures and debt
repayments. Due to improvements in operating results experienced by the Company,
cash used by operations in 1997 was reduced from the prior year. On March 31,
1998, the Company had total cash and cash equivalents of $346.1 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 capital sources or from the sale of assets. As a result of the
financings consummated in the fourth quarter of 1997 and the repayment of
certain debt in connection therewith, assets with an approximate appraised value
of $165.0 million were released from collateral liens. Since that time, the
Company has sold and subsequently leased back 15 B-727 aircraft and sold two
L-1011 aircraft leaving assets with an approximate appraised value of $100.0
million free and clear of liens and encumbrances. Further pledging of these
unencumbered assets, however, may be limited by negative pledge restrictions in
outstanding indebtedness. Substantially all of TWA's other strategic assets,
have been pledged to secure various issues of outstanding indebtedness of the
Company. 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.
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. 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. Therefore, there can be no assurance that the Company's operating
results and financing activities will be sufficient in the foreseeable future to
meet its debt and other obligations and future capital commitments.
Prior Operating Losses and Future Uncertainties Relating to Results of
Operations; Results for First Quarter 1998
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), 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. The
Company's 1997 financial results reflected a net loss of $110.8 million, which
represented an improvement of $174.0 million over the $284.8 million net loss
for the full year 1996, and a $29.3 million operating loss, which represented a
$169.2 million improvement over the $198.5 million operating loss reported for
the full year 1996. 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.
On April 22, 1998, the Company reported financial results for the first
quarter 1998 reflecting an operating loss of $68.7 million and a net loss before
extraordinary items of $54.1 million for the three months ended March 31, 1998,
including a non-cash operating expense of $26.5 million relating to the
distribution in July 1998 of Common Stock to employee stock plans. These results
compare with an operating loss of $99.5 million and a net loss before
extraordinary items of $70.0 million in the first quarter 1997. Excluding the
effect of non-cash expense associated with earned stock compensation, the first
quarter 1998 operating loss was $42.2 million compared to the first quarter 1997
operating loss of $98.2 million. Similarly calculated, the net loss before
extraordinary items for the first quarter 1998 and 1997 were $38.0 million and
$69.3 million, respectively. Operating revenue for the first quarter 1998 was
$765.4 million versus $762.3 million in the first quarter 1997 despite a slight
reduction in capacity from the first quarter 1997 to 1998 resulting from the
replacement of B747 and L-1011 aircraft with smaller B767, B757 and MD-80
aircraft.
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 by the Company with
Karabu Corporation ("Karabu"), a Delaware corporation controlled by Carl Icahn,
in connection with the '95 Reorganization on the terms currently applied by
Karabu (which terms are, in the opinion of the Company, inconsistent with, and
in violation of, the agreement governing such program). The Company is unable to
predict the potential impact of any such uncertainties upon its future results
of operations.
On March 20, 1996, the Company filed a Petition (the "TWA Petition") in the
Circuit Court for St. Louis County, Missouri, commencing a lawsuit against Carl
Icahn, Karabu and certain other entities affiliated with Icahn (collectively,
the "Icahn Defendants"). The TWA Petition alleged that the Icahn Defendants are
violating the Ticket Program Agreement between the Company and Karabu (the
"Ticket Agreement") relating to the discount ticket program and otherwise
tortuously interfering with the Company's business expectancy and contractual
relationships by, among other things, marketing and selling tickets purchased
under the Ticket Agreement to the general public. The TWA Petition sought a
declaratory judgment finding that the Icahn Defendants have violated the Ticket
Agreement, and also sought liquidated, compensatory and punitive damages, in
addition to the Company's costs and attorney's fees. On May 7, 1998 the court
denied the TWA Petition and dismissed the Icahn Defendants' counterclaims. The
court concluded that the Icahn Defendants could sell discount tickets under the
Ticket Agreement to any person who actually uses the ticket, including
non-business travelers, and that the Icahn Defendants had not breached the
Ticket Agreement. No damages were assessed in respect to either plaintiff's or
defendants' petitions.
The court's ruling could have an adverse effect on TWA's revenue, which
could be significant but the impact of which will depend on a number of factors,
including yield, load factors and whether any resulting incremental sales by the
Icahn Defendants will be to passengers that would not otherwise have flown on
TWA. The Icahn Defendants moved to amend or modify the court's ruling to include
a declaratory judgment that the Icahn Defendants are permitted to sell tickets
to any person for any purpose which could include use by the purchaser's family
members or friends. TWA opposed this motion and requested that the court clarify
the ruling to limit its scope consistent with the reasoning set forth in the
decision, specifically that the person purchasing the ticket must use the ticket
(with certain enumerated exceptions) and may not purchase a ticket for any other
person. The court denied both motions on June 29, 1998. TWA intends to appeal
the denial of its motion for clarification and the court's original ruling.
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.
Changes to Management Team
Commencing in June 1996, the Company experienced a substantial number of
changes in its executive management team. Although the Company believes that a
stable executive management team has now been put in place, there can be no
assurance that future changes will not occur or, that if such changes do occur,
that they will not adversely affect future operations.
<TABLE>
<CAPTION>
Current Executives of the Company
---------------------------------
DATE OF
ELECTION OR
APPOINTMENT
NAME CURRENT TITLE AS EXECUTIVE
---- ------------- ------------
<S> <C> <C>
Gerald L. Gitner(1) Chairman & CEO December 1996
William F. Compton(2) President & COO December 1996
Michael J. Palumbo Senior Vice President & CFO December 1996
Donald M. Casey Executive Vice President, Marketing May 1997
James F. Martin Senior Vice President, Human Resources November 1997
Kathleen A. Soled Senior Vice President & General Counsel January 1998
</TABLE>
- ----------
(1) Mr. Gitner, a director since November 1993, was Vice Chairman and Acting
CEO from December 1996 until February 1997.
(2) Mr. Compton, a director since November 1993, was Acting Executive Vice
President, Operations from December 1996 until March 1997 and Executive Vice
President, Operations from March 1997 until December 1997.
In addition, David M. Kennedy, a director, served as Acting Executive Vice
President and Chief Operating Officer from December 1996 until June 1997.
'94 Labor Agreements
As of March 31, 1998, the Company had approximately 22,203 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. On
March 27, 1998, at the request of the IAM, a mediator was appointed with respect
to the flight attendants represented by the IAM.
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.
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, 1997
such additional compensation that would be payable pursuant to the arbitration
ruling would be approximately $12.0 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.
Age of Fleet; Noise
At March 31, 1998, the average age of TWA's operating aircraft fleet was
16.5 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 1997, TWA acquired 27 new or later-model used aircraft. The Company
expects to continue the process of acquiring a number of new and later-model
used aircraft. As of March 31, 1998, TWA's fleet included 55 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
1996 and 1997, TWA spent approximately $3.4 million and $4.2 million,
respectively, to comply with aging aircraft maintenance requirements. Based on
information currently available to TWA and its current fleet plan, TWA estimates
that costs associated with complying with these aging aircraft maintenance
requirements will aggregate 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" and "--Aging Aircraft Maintenance."
Potential Dilution
The Company underwent two financial restructurings during the period
between 1992 and 1995, with the first of such restructurings effected in 1993
(the "'93 Reorganization") and the second of such restructurings effected in
1995 (the "'95 Reorganization" and, together with the '93 Reorganization, the
"Reorganizations"). Pursuant to the '95 Reorganization, the Company canceled its
then outstanding equity securities in exchange for new securities and other
consideration and issued a special class of voting preferred stock in three
series (the "Employee Preferred Stock") to its union employees and shares of
Common Stock to its non-union employees. Also 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. In exchange for the concessions
received in the '94 Labor Agreements, the Company, among other things, adopted
an employee stock incentive program (the "ESIP") to permit TWA's employees to
increase their level of ownership through grants by the Company to its employees
of additional shares of Employee Preferred Stock and Common Stock.
The first stock grant under the ESIP was to be made on July 15, 1997 in an
amount sufficient to increase employee ownership of the combined total number of
then outstanding shares of Common Stock and Employee Preferred Stock by 2.0% if
the average Closing Price of the Common Stock for 30 consecutive trading days
(the "Average Closing Price") exceeded a target price of $11.00 per share during
the period from January 1, 1997 to July 14, 1997. Because such target price was
not reached, the grant would instead be made on July 15 of the next year (up to
and including July 15, 2002) in which the Average Closing Price of the Common
Stock exceeded such target price prior to July 15 of that year. In each of 1998
through 2002, additional shares of Employee Preferred Stock and Common Stock
will become subject to grant under this program in an amount sufficient to
increase the employee ownership by 1.5% in 1998, 1.5% in 1999, 1.0% in 2000,
1.0% in 2001 and 1.0% in 2002 (subject to adjustment as described below) based
on 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 price
applicable to the additional shares made available for grant in such year equal
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. To protect against the dilutive effect of certain stock
issuances, the ESIP provides for an adjustment (the "Adjustment") to the grants
described above 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 due 1998 (the "12% Reset Notes") or the Company's
Mandatorily Redeemable 12% Preferred Stock (both the 12% Reset Notes and the
Mandatorily Redeemable 12% Preferred Stock have been retired). To the extent
that a sale of additional capital stock for cash results in a decline in the
percentage of employee ownership of the combined total number of shares of
Common Stock and Employee Preferred Stock below a level equal to the Adjusted
Base Ownership Percentage (as defined in the ESIP), one-quarter of the
difference between the new percentage of employee ownership and the Adjusted
Base Ownership Percentage (but in no event greater than 1.0% in each year) would
be added to the percentage of Employee Preferred Stock and Common Stock to be
granted to union employees and non-union employees, respectively, under the ESIP
in each of the years 1999 through 2002, assuming the target prices are met.
Furthermore, 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 "Equity Issuance
Acceleration Trigger"), 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 July 15, 1997 through July 15, 2002, to purchase additional shares of
Employee Preferred Stock in amounts up to an aggregate of 2.0% of the combined
total number of outstanding shares of Common Stock and Employee Preferred Stock
at a discount of 20.0% from the then current market price. 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 10.0% (as adjusted as described below) of
the Company's outstanding Common Stock, with the exact amount issued dependent
upon the number of shares outstanding as of the date of each grant and option
exercise.
The ESIP separately provides that if additional shares of Employee
Preferred Stock and Common Stock 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 Employee Preferred Stock and Common Stock such
that the employees will retain the same level of ownership. Union
representatives and the Company agreed to a one-time distribution pursuant to
this provision of the ESIP in an aggregate amount of 525,856 shares of Employee
Preferred Stock and Common Stock. As part of that agreement, 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 employee
trusts and, to the extent that additional shares are granted under the ESIP, the
Company will receive a credit towards the new grant for these previously issued
shares, in that amount.
While the $11.00 target price was not exceeded as of July 15, 1997 and no
grant was made on that date, on February 17, 1998, the Average Closing Price for
the Company's Common Stock did exceed the $11.00 target price with respect to
the first scheduled grant. As a result, the initial grant in an amount
sufficient to increase the employee ownership by 2.0% based on the then
outstanding Common Stock and Employee Preferred Stock will be made on July 15,
1998. Based on the current outstanding Voting Equity (as defined in the ESIP) of
57,890,907, the number of shares of Employee Preferred Stock and Common Stock to
be issued to the employees under the ESIP on that date is 1,515,472. TWA is
entitled to a credit against this number in the amount of 405,750 shares due to
the prior grant to employees as described above. In addition, on March 4, 1998,
the Average Closing Price for the Company's Common Stock exceeded the $12.10
target price with respect to the 1998 grant of 1.5%. As a result, the 1998 grant
in an amount sufficient to increase the employee ownership by 1.5% based on the
then outstanding Common Stock and Employee Preferred Stock will also be made on
July 15, 1998. Based on the current outstanding Voting Equity, the number of
additional shares of Employee Preferred Stock and Common Stock to be issued
under the ESIP on that date for the 1998 grant is 1,172,354 shares, which
together with the shares to be issued in connection with the 1997 grant equals a
total of 2,282,076 shares. The number of shares to be granted could be increased
if the last two grants are accelerated pursuant to the Equity Issuance
Acceleration Trigger. Furthermore, based on issuances of Common Stock to date,
the Adjustment has resulted in a revised grant schedule of 1.5% in 1998, 1.84%
in 1999, 1.34% in 2000, 1.34% in 2001 and 1.34% in 2002. Assuming the
Transaction is consummated and taking into account the Common Stock issued upon
conversion of the Equity Notes, the grants for the years 1999 through 2002 would
further increase pursuant to the Adjustment to: 2.13% in 1999, 1.63% in 2000,
1.63% in 2001 and 1.63% in 2002. Finally, in the event that the Transaction is
consummated and the final conversion price of the Equity Notes to be issued in
connection with the Transaction is in excess of $11.00 per share, the Equity
Issuance Acceleration Trigger will be met and the final two scheduled
installments will be aggregated and these shares will be allocated equally to
the remaining installments in the program. As a result, the remaining grants
would be as follows: 2.81% in 1997 (already vested and payable on July 15,
1998); 2.31% in 1998 (already vested and payable on July 15, 1998); 2.94% in
1999 if the Average Closing Price exceeds $13.31 and 2.44% in 2000 if the
Average Closing Price exceeds $14.64.
In 1994, the Board adopted the Company's 1994 Key Employee Stock Incentive
Plan (the "KESIP") to motivate, attract and retain the services of certain key
employees of the Company. As amended, the KESIP provides for the award of
incentive and nonqualified stock options for a cumulative total of up to 14% of
the aggregate number of shares of Common Stock and Employee Preferred Stock
outstanding as of January 1, of each year, subject to certain restrictions. As
of June 1, 1998, 88 employees had been granted options to purchase shares of
Common Stock or Employee Preferred Stock at prices ranging from $4.64 to $18.37
per share. All options granted under the KESIP have a five-year life and unless
otherwise approved by the Compensation Committee vest at a rate of 34%, 33% and
33% on the first three anniversaries of the award date of such options. See
"Business--Employees."
In March 1996, the Company issued 3,869,000 shares of the Company's 8%
Cumulative Convertible Exchangeable Preferred Stock (the "8% Preferred Stock"),
which are convertible 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 under certain
circumstances. Based on the current conversion price, upon conversion of all
shares of 8% Preferred Stock into shares of Common Stock, an aggregate of
9,544,823 additional shares of Common Stock would be issued.
In March 1997, the Company issued 50,000 Units (the "Units") each
consisting of (i) one 12% Senior Secured Note due April 1, 2002 (a "12% Note"),
in the principal amount of $1,000 of the Company 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 Warrants are exercisable commencing March 31,
1998 through their expiration on April 1, 2002, unless previously redeemed by
the Company. If all of the Warrants were exercised an aggregate of 6,313,000
additional shares of Common Stock would be issued.
In December 1997, the Company issued 1,725,000 shares of the Company's
91/4% Cumulative Convertible Exchangeable Preferred Stock, which are convertible
at the option of the holder, unless previously redeemed or exchanged, into
shares of Common Stock at a conversion price of $7.90 per share (equivalent to a
conversion rate of approximately 6.329 shares of Common Stock for each share of
1997 Preferred Stock), subject to adjustment under certain circumstances. Based
on the current conversion price, upon conversion of all shares of 1997 Preferred
Stock into shares of Common Stock, an aggregate of 10,917,525 additional shares
of Common Stock would be issued.
In June 1998, the Company negotiated the acquisition of an additional
Boeing 767-231 ETOPS airframe and accompanying engines previously leased by the
Company in exchange for the issuance of $14.5 million of June Secured Notes and
$13.0 million of June Equity Notes. The June Equity Notes are convertible into
shares of Common Stock at a conversion price equal to 100% of the closing price
of the Common Stock on the last trading day prior to the Conversion Date (as
defined in the indenture for the June Equity Notes). Based on the closing price
of the Common Stock on July 1, 1998, upon conversion of all of the June Equity
Notes into shares of Common Stock, an aggregate of 1,245,508 additional shares
of Common Stock would be issued.
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.
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 "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 (the 1997 and 1998 target prices having been
met) would be approximately $108.8 million based upon such target prices and the
number of shares of Common Stock and Employee Preferred Stock outstanding at
January 30, 1998. The charge for any year, however, could be substantially
higher if the then market price of the Common Stock exceeds certain target
prices. On February 17, 1998, the first target price of $11.00 was realized and
a grant of 2.0% of the outstanding Common Stock and Employee Preferred Stock
will be made on July 15, 1998. Based on the current number of outstanding shares
of Common Stock and Employee Preferred Stock and taking into account a credit
with respect to the Company's required contribution, the net contribution will
be 1,109,722 shares. In addition, on March 4, 1998 the market price of the
Company's Common Stock exceeded the $12.10 target price for the 30-day period
necessary to earn the 1998 grant. As a result, on July 15, 1998 the Company will
be required to make an additional contribution to the relevant employee trusts
of 1.5% of its Common Stock and Employee Preferred Stock. Based on the current
number of outstanding shares of Common Stock and Employee Preferred Stock, that
contribution would be 1,172,354 shares. As a result of the grants earned in
1998, an aggregate non-cash charge in connection with such issuance was recorded
in the first quarter of 1998 in the amount of $26.5 million. However, the actual
number of shares and the actual charge will not be known until the shares are
issued on July 15, 1998.
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 accounting.
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 as a result of mergers and
liquidations and more recently through alliances, 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, many of the major U.S.
carriers have announced plans for alliances with other major U.S. carriers. Such
alliances could further intensify the competitive environment. 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.
Aircraft Fuel
Since fuel costs constitute a significant portion of the Company's
operating costs (approximately 15.6% in 1996 and approximately 14.3% in 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 57.0Cents per gallon to approximately
69.8Cents per gallon. During 1997, the Company's average per gallon cost of fuel
decreased approximately 5.6%, from approximately 69.8Cents per gallon to
approximately 65.9Cents per gallon. During the first quarter of 1998, the
Company's average per gallon cost of fuel decreased approximately 25.0%, from
approximately 74.1Cents per gallon to approximately 55.6Cents per gallon, over
the same period in 1997. 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 1997) impacts operating expense by
approximately $609,000 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.
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.
Management believes that the Company benefitted from the expiration on
December 31, 1995 of the aviation trust fund tax (the "Ticket Tax"), which
imposed certain taxes including a 10% air passenger tax on tickets for domestic
flights, a 6.25% air cargo tax and a $6 per person international departure tax.
The Ticket Tax was reinstated on August 27, 1996 and expired again on December
31, 1996. At the end of February 1997, the Ticket Tax was reinstated effective
March 7, 1997 through September 30, 1997. Congress has passed tax legislation
reimposing and significantly modifying the Ticket Tax, effective October 1,
1997. 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.
USE OF PROCEEDS
The Selling Holders (as defined herein) will receive all of the net
proceeds from any sale of the Common Stock, and, accordingly, the Company will
receive none of the proceeds from the sales thereof.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below relate to periods
in the three months ended March 31, 1998 and 1997, years ended December 31, 1997
and 1996, the four months ended December 31, 1995, the eight months ended August
31, 1995, the year ended December 31, 1994, the two months ended December 31,
1993 and the ten months ended October 31, 1993. The consolidated financial data
for the above periods were derived from the audited consolidated financial
statements of the Company. Certain amounts have been reclassified to conform
with presentations adopted in 1997.
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 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"), 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 the financial statements arising from the
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. 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 these amounts are not meaningful
<TABLE>
<CAPTION>
Reorganized Company
-----------------------------------------------------------------------
Three Months Ended Four Months
March 31, Year Ended December 31, Ended
----------------------- --------------------------- December 31,
1998 1997 1997 1996 1995
----------- --------- ------------- ----------- --------------
(Dollars in thousands, except per share amounts)
Statement of Operations
Data:
<S> <C> <C> <C> <C> <C>
Operating revenues..... $765,389 $762,306 $3,327,952 $3,554,407 $1,098,474
Operating income
(loss)(1)............ (68,707) (99,486) (29,260) (198,527) 10,446
Loss before income
taxes and
extraordinary
items(2)............. (79,558) (105,193) (89,335) (274,577) (32,268)
Provision (credit) for
income taxes......... (25,418) (35,161) 527 450 1,370
Loss before
extraordinary items.. (54,140) (70,032) (89,862) (275,027) (33,638)
Extraordinary items,
net of income
taxes(3)............. (1,380) (1,532) (20,973) (9,788) 3,500
Net income (loss)...... (55,520) (71,564) (110,835) (284,815) (30,138)
Preferred Stock
dividend
requirements........... 5,863 3,869 16,119 36,649 4,751
Income (loss)
applicable to common
shares................. (61,383) (75,433) (126,954) (321,464) (34,889)
Weighted average
shares outstanding..... 57,889 49,036 53,477 44,189 33,330
Ratio of earnings to
fixed charges (4).... -- -- -- -- --
Per share amounts(5):
Loss before
extraordinary
items.............. $(1.04) $(1.51) $(1.98) $(6.60) $(1.15)
Net loss............. (1.06) (1.54) (2.37) (7.27) (1.05)
Prior
<CAPTION> Predecessor
Predecessor Company Company
----------------------------------------------- -------------
Eight Months Two Months Ten Months
Ended Year Ended Ended Ended
August 31, December 31, December 31, October 31,
1995 1994 1993 1993
------------- -------------- -------------- -------------
(Dollars in thousands, except per share amounts)
Statement of Operations
Data:
<S> <C> <C> <C> <C>
Operating revenues..... $2,218,355 $3,407,702 $520,821 $2,633,937
Operating income
(loss)(1)............ 14,642 (279,494) (58,251) (225,729)
Loss before income
taxes and
extraordinary
items(2)............. (338,309) (432,869) (88,140) (362,620)
Provision (credit) for
income taxes......... (96) 960 (248) 1,312
Loss before
extraordinary items.. (338,213) (433,829) (87,892) (363,932)
Extraordinary items,
net of income
taxes(3)............. 140,898 (2,005) -- 1,075,581
Net income (loss)...... (197,315) (435,834) (87,892) 711,649
Preferred Stock
dividend
requirements........... 11,554 15,000 2,425
Income (loss)
applicable to common
shares................. (208,869) (450,834) (90,317)
Weighted average
shares outstanding.....
Ratio of earnings to
fixed charges (4).... -- -- -- --
Per share amounts(5):
Loss before
extraordinary
items..............
Net loss.............
</TABLE>
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------------------------ ------------------------
December 31,
March 31, ------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Cash and cash equivalents(6)...... $346,134 $237,765 $181,586 $304,340 $138,531 $187,717
Current assets.................... 860,591 632,957 625,745 737,301 603,806 728,303
Net working capital (deficiency).. (211,471) (303,988) (336,416) (81,913) (1,238,216) (106,703)
Flight equipment, net............. 594,399 626,382 472,495 455,434 508,625 660,797
Total property and equipment, net. 706,718 741,765 614,207 600,066 693,045 886,116
Intangible assets, net............ 1,103,034 1,118,864 1,184,786 1,275,995 921,659 1,024,846
Total assets...................... 2,974,701 2,773,848 2,681,939 2,868,211 2,512,435 2,958,862
Current maturities of long-term
debt and capital leases(7)...... 85,779 88,460 134,948 110,401 1,149,739 108,345
Long-term debt, less current
maturities(7)................... 855,771 736,540 608,485 764,031 -- 1,053,644
Long-term obligations under
capital leases, less current
maturities...................... 174,520 182,922 220,790 259,630 339,895 376,646
Shareholders' equity
(deficiency)(8)................. 207,151 268,284 238,105 302,855 (417,476) 18,358
</TABLE>
- -------------------
(1) Includes special charges of $85.9 million in 1996, $1.7 million in the
eight months ended August 31, 1995 and $138.8 million in 1994. For a
discussion of these and other non-recurring items, see Note 16 to the
Consolidated Financial Statements.
(2) The eight months ended August 31, 1995 includes charges of $242.2 million
related to reorganization items. 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.
(3) The extraordinary items in 1997 and 1996 are the result of the early
extinguishment of certain debt. The extraordinary item in the four months
ended December 31, 1995 was the result of the settlement of a debt of a
subsidiary, while 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. The extraordinary item in 1994
represents the charge for a prepayment premium related to the sale and
lease back of four McDonnell Douglas MD-80 aircraft. The extraordinary item
in 1993 represents the gain on discharge of indebtedness pursuant to the
consummation of the '93 Reorganization.
(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 three months ended March 31, 1998 and 1997, $80.6
and $105.7, respectively; for the years ended December 31, 1997 and 1996,
$94.1 and $280.0, respectively; for the four months ended December 31,
1995, $32.3; for the eight months ended August 31, 1995, $338.3; for the
year ended December 31, 1994, $435.0; for the two months ended December 31,
1993, $88.4; and for the ten months ended October 31, 1993, $364.7.
(5) No effect has been given to stock options, warrants, convertible preferred
stock or potential issuances of additional Employee Preferred Stock as the
impact would have been anti-dilutive.
(6) Includes cash and cash equivalents held in international operations and by
subsidiaries which, based upon foreign monetary regulations and other
factors, might not be immediately available to the Company.
(7) Long-term debt in 1994 was reclassified to current maturities as a result
of certain alleged defaults and payment defaults.
(8) No dividends were paid on the Company's outstanding common stock during the
periods presented above.
SELLING HOLDERS
The Registration Statement has been filed pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act") to afford the holders
of the securities offered hereby the opportunity to sell such securities in a
public transaction rather than pursuant to an exemption from the registration
and prospectus delivery requirements of the Securities Act. In order for a
Selling Holder to avail himself of that opportunity, such holder must notify the
Company in writing of his intention to sell securities and request the Company
to file a supplement to this Prospectus or an amendment to the Registration
Statement, if required, identifying such holder as a Selling Holder and
disclosing such other information concerning the Selling Holder and the
securities to be sold as may then be required by the Securities Act and the
rules of the Commission. No offer or sale pursuant to this Prospectus may be
made by any holder until such a request has been made and until any such
supplement has been filed or any such amendment has become effective. The
holders of securities who have made such a request and as to which any such
required supplement or amendment has been filed or become effective are referred
to herein as "Selling Holders."
As of the date of this Prospectus, no Selling Holders are named herein. The
Company will from time to time supplement or amend this Prospectus to reflect
the required information concerning any Selling Holder.
DESCRIPTION OF EQUITY NOTES
The Equity Notes were initially issued and delivered by TWA to First
Security Bank, National Association, as owner trustee (the "Owner Trustee")
under the trust agreement (the "Trust") dated as of January 24, 1995 between
Seven Sixty Seven Leasing, Inc., the beneficiary named therein (the
"Beneficiary") and the Owner Trustee, in partial payment of the aggregate
purchase price of $75.0 million ($25.0 million per Aircraft) for three Boeing
767-231 ETOPS airframes and six associated engines (collectively, the
"Aircraft").
Mandatory Conversion
Immediately following the occurrence of both (i) the effectiveness of the
Registration Statement and (ii) the approval for listing of the Common Stock on
the ASE, or such other stock exchange or market on which the Common Stock is
then principally traded, each Equity Note will be automatically converted into
fully paid and non-assessable shares of Common Stock in accordance with the
provisions of the Indenture dated as of April 21, 1998 by and between the
Company and First Security Bank, National Association, as Trustee.
Registration Rights
Pursuant to the Registration Rights Agreement, the Company was required to
file and did file with the Commission, on or prior to the 60th day after the
date of original issuance of the Equity Notes, the Registration Statement to
register resales of the shares of Common Stock into which the Equity Notes are
convertible (the "Restricted Common Stock"). The Company will use its reasonable
best efforts to cause the Registration Statement to become effective within 150
days after the date of original issuance of the Equity Notes and to keep such
Registration Statement effective until the earlier of (i) the sale of all
securities covered by the Registration Statement and (ii) the expiration of two
years after the date of original issuance of the Equity Notes 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.
The Company has listed the shares of Restricted Common Stock on the ASE and
has agreed that it will use its reasonable efforts to maintain such listing
until the earlier of (i) the sale of all securities covered by the Shelf
Registration Statement and (ii) the expiration of two years after the date of
original issuance of the Equity Notes 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.
Prior to the termination of the Company's obligations under the
Registration Rights Agreement, if after the date of original issuance of the
Equity Notes either the Registration Statement shall cease to be effective
(without being succeeded immediately by an additional shelf registration
statement registering resales of the Company's Common Stock filed and declared
effective for any reason) or the Company shall fail to maintain the listing of
the Common Stock on the ASE, or such other stock exchange or market on which the
Common Stock is then principally traded, for a period of time which shall in the
aggregate exceed 60 days during any 365-day period (each such event, an
"Effectiveness Default"), the Company will pay liquidated damages ("Liquidated
Damages") to each holder of Restricted Common Stock issued upon conversion of
the Equity Notes, during the first 90-day period immediately following the
occurrence of such Effectiveness Default in an amount equal to $0.01 per week
per share (subject to adjustment in the event of stock splits, stock
recombinations, stock dividends and the like) of such Restricted Common Stock.
The amount of the Liquidated Damages will increase by an additional $0.01 per
week per share (subject to adjustment as set forth above) of Restricted Common
Stock for each subsequent 90-day period until the Registration Statement again
becomes effective or the shares of Common Stock have again been approved for
listing on the ASE, or such other stock exchange or market on which the Common
Stock is then principally traded, up to a maximum amount of Liquidated Damages
with respect to any Effectiveness Default of $0.05 per week per share (subject
to adjustment as set forth above) of Restricted Common Stock. All accrued
Liquidated Damages shall be paid to holders of the Restricted Common Stock by
wire transfer of immediately available funds or by federal funds check by the
Company on the last business day in each month. Following the cure of an
Effectiveness Default, Liquidated Damages will cease to accrue with respect to
such Effectiveness Default.
Holders of Restricted Common Stock will be required to make certain
representations to the Company (as described in the Registration Rights
Agreement) in order to benefit from the provisions regarding Liquidated Damages
set forth in the preceding paragraph. The Company has agreed to use its
reasonable best efforts to file on a timely basis all such reports required to
be filed under the Exchange Act as, and endeavor in good faith to take such
other actions as, are reasonably necessary to enable any beneficial owner of
Restricted Common Stock to sell such or Restricted Common Stock without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144, as such rule may be amended from time to time, or any
similar rules or regulations hereafter adopted by the Commission.
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 Prospectus, 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 91/4% 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 May 29, 1998, 52,242,014 shares of Common Stock were issued
and outstanding and were held by approximately 21,581 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.
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.
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.
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
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.
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 91/4% 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 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.
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.
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, subject to any
rights of holders of the Company's preferred stock to elect additional directors
under certain circumstances, that the number of directors constituting the
entire Board of Directors will be fifteen. The Certificate of Incorporation also
provides that, as of the 1999 annual meeting of stockholders, the term of
service for each director will be one 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 "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
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 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 $50.0 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.
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 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
662/3% 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 662/3% 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.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
PROSPECTIVE PURCHASERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF ACQUIRING, HOLDING OR DISPOSING OF THE COMMON
STOCK IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AND THE CONSEQUENCES UNDER
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from the sale of the
Common Stock pursuant to this Prospectus, all of which will be sold by Selling
Holders. Such securities as are offered hereby may be sold from time to time to
purchasers directly by the Selling Holders; alternatively, the Selling Holders
may from time to time offer such securities to and through underwriters,
broker/dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Holders or
the purchasers of such securities for whom they may act as agents. The Selling
Holders and any underwriters, broker/dealers and agents that participate in the
distribution of such securities may be deemed to be "underwriters" within the
meaning of the Securities Act and any profit on the sale of such securities by
them and any discount commissions or other compensation received by any such
underwriter, broker/dealer or agent may be deemed to be underwriting discounts
and commissions under the Securities Act.
The Common Stock offered hereby may be sold from time to time in one or
more transactions at fixed prices, at prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
The sale of such securities may be effected in transactions (which may involve
crosses or block transactions) (i) on any national securities exchange or
quotation service on which such securities may be listed or quoted at the time
of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise
than on such exchanges or in the over-the-counter market, or (iv) through the
writing of options. At the time a particular offering of such securities is
made, a Prospectus Supplement, if required, will be distributed which will set
forth the aggregate amount of Common Stock being offered and the terms of the
offering, including the name or names of any underwriters, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the Selling Holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Common Stock will be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain
jurisdictions, such securities may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or any exemption from
registration or qualification is available and is complied with.
Pursuant to the Registration Rights Agreement, all expenses of the
registration of the Common Stock will be paid by the Company, including, without
limitation, SEC filing fees and expenses of compliance with state securities or
"blue sky" laws; provided, however, that the Selling Holders will pay all
underwriting discounts and selling commissions, if any. The Company will
indemnify the Selling Holders against certain civil liabilities, including
certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
LEGAL MATTERS
The validity of the Common Stock offered hereby was 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,
1996 and 1997 and for each of the periods in the three year periods ended
December 31, 1997 included or incorporated by reference 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 refers to the application of fresh start
reporting in connection with the '95 Reorganization.
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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, and if given or made, such information or representations must not
be relied upon. This Prospectus does not constitute an offer to sell or a
solicitation 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 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 affairs of the Company since the
date hereof.
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Page
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Available Information..........................................4
Incorporation of Certain Documents by
Reference................................................5
Prospectus Summary.............................................6
Risk Factors..................................................11
Use of Proceeds...............................................19
Selected Consolidated Financial Data..........................20
Selling Holders...............................................22
Description of Equity Notes...................................22
Description of Capital Stock..................................24
Certain Provisions of the Certificate of
Incorporation, the By-laws and Delaware
Law.....................................................31
Certain Federal Income Tax Considerations.....................34
Plan of Distribution..........................................35
Legal Matters.................................................35
Experts.......................................................35
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TRANS WORLD
AIRLINES, INC.
3,350,000 Shares (par value $0.01
per share) of Common Stock
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PROSPECTUS
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July 6, 1998
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