Filed pursuant to Rule 424(b)(3)
Regis. No. 333-59405
PROSPECTUS
$14,500,000
OFFER TO EXCHANGE
10 1/4% SENIOR SECURED NOTES DUE 2003
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, FOR ANY AND ALL OUTSTANDING
10 1/4% SENIOR SECURED NOTES DUE 2003
OF
TRANS WORLD AIRLINES, INC.
------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON MONDAY, AUGUST 31, 1998, UNLESS EXTENDED.
Trans World Airlines, Inc., a Delaware corporation ("TWA"
or the "Company"), hereby offers, upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying
letter of transmittal (the "Letter of Transmittal" and, together
with this Prospectus, the "Exchange Offer") to exchange its $14.5
million principal amount of 10 1/4% Senior Secured Notes due 2003
(the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which this Prospectus is
a part (including all amendments, including post-effective
amendments, and exhibits thereto, the "Registration Statement"),
for an equal principal amount at maturity of its outstanding
10 1/4% Senior Secured Notes due 2003 (the "Old Notes," and
together with the Exchange Notes, the "Notes"), of which $14.5
million aggregate principal amount at maturity is outstanding as
of the date hereof. The Notes were issued in partial payment of
the aggregate purchase price of $27.5 million for one Boeing
767-231 ETOPS airframe and two associated engines (collectively,
the "Aircraft"). Concurrently with the issuance of the Notes, the
Company issued $13.0 million principal amount of 10 1/4%
Mandatory Conversion Equity Notes due 1999 (the "Equity Notes")
to or as directed by the Owner Trustee (as defined) in payment of
the balance of the purchase price for the Aircraft.
The Company will accept for exchange any and all Old Notes
that are validly tendered and not withdrawn on or prior to 5:00
P.M., New York City time, on the date the Exchange Offer expires
(the "Expiration Date"), which will be August 31, 1998 (31 days
following the commencement of the Exchange Offer), unless the
Exchange Offer is extended. Tenders of Old Notes may be withdrawn
at any time prior to 5:00 P.M., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered for
exchange. Old Notes may be tendered only in integral multiples of
maturity of $1,000. See "The Exchange Offer."
The Notes will bear interest from the date of issuance at a
rate of 10 1/4% per annum (subject to possible increases as
described herein) payable semi-annually in arrears on June 15 and
December 15 of each year, commencing on December 15, 1998. The
Notes will be subject to mandatory redemption by way of sinking
fund payments made in cash sufficient to redeem an aggregate
principal amount of Notes equal to $920,000 on each of June 15,
2001 and June 15, 2002 (subject to possible reductions or
elimination as described herein) (or, if the aggregate principal
amount of Notes outstanding on any such redemption date is less
than the principal amount required to be redeemed on such date,
then the aggregate principal amount of Notes outstanding shall be
redeemed), at a redemption price equal to 100% plus accrued and
unpaid interest and Special Interest (as defined), if any, to the
redemption date. The obligation of the Company to make such
mandatory redemptions may be satisfied in whole or in part by
delivering to the Trustee (as defined) Notes acquired by the
Company through open market purchases. Upon a Change in Control
(as defined), each holder of Notes shall have the right to
require the Company to purchase all, or any part of, such
holder's Notes at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest and Special
Interest, if any, to the purchase date. There can be no assurance
that the Company will have sufficient funds available at the time
of any Change in Control to make any debt payment (including
repurchases of Notes) required by the foregoing. Upon a sale of
the Aircraft, the Company will be required to make an Offer to
Purchase (as defined) all the Notes then outstanding, at a
purchase price of 102% of the principal amount thereof, if the
sale occurs before the first anniversary of the date of original
issuance of the Notes, or at a purchase price equal to 101% of
the principal amount thereof, if the sale occurs following such
date, in either case, together with accrued and unpaid interest
and Special Interest, if any, to and including the purchase date.
Following a sale by the Company of the Aircraft, the interest
rate borne by any unpurchased Notes would increase by 1.50% per
annum, and the lien on the Collateral (as defined) would be
released. In the event that there shall occur a Total Loss (as
defined) with respect to the Aircraft, the Company will be
required to make an Offer to Purchase all the Notes then
outstanding. The obligation of the Company to make such Offer to
Purchase upon a sale of or Total Loss with respect to the
Aircraft may be satisfied in whole or in part by delivering to
the Trustee Notes acquired by the Company through open market
purchases. See "Description of Exchange Notes."
The Notes will represent senior secured obligations of the
Company and will rank pari passu in right of payment with all
other senior obligations of the Company. The Notes will be
secured by a lien on the Aircraft.
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST
BEING MAILED TO HOLDERS OF OLD NOTES ON OR ABOUT JULY 31, 1998.
(Continued on page 2)
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The securities offered hereby involve a high degree of risk.
See "Risk Factors" beginning on page 14.
-------------------
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.
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The date of this Prospectus is July 31, 1998.
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The Exchange Notes will be obligations of the Company
evidencing the same indebtedness as the Old Notes. The Exchange
Notes will be issued under and entitled to the benefits of the
same Indenture (as defined) pursuant to which the Old Notes were
issued such that the Exchange Notes and Old Notes will be treated
as a single class of debt securities under the Indenture. The
form and terms of the Exchange Notes are generally the same as
the form and terms of the Old Notes, except that (i) the exchange
has been registered under the Securities Act and, therefore, the
Exchange Notes will not bear legends restricting the transfer
thereof, and (ii) holders of the Exchange Notes will not be
entitled to any of the registration rights of holders of Old
Notes under the Registration Rights Agreement (as defined), which
rights will terminate upon the consummation of the Exchange
Offer. See "Description of the Exchange Notes."
Based on interpretations by the staff of the Securities and
Exchange Commission ("SEC" or the "Commission"), as set forth in
no-action letters issued to Exxon Capital Holdings Corporation
(available May 13, 1988) (the "Exxon Capital Letter"), Morgan
Stanley & Co. Incorporated (available June 5, 1991) (the "Morgan
Stanley Letter"), Mary Kay Cosmetics, Inc. (available June 5,
1991) and Warnaco, Inc. (available October 11, 1991), the Company
believes that a holder who exchanges Old Notes for Exchange Notes
pursuant to the Exchange Offer may offer for resale, resell and
otherwise transfer such Exchange Notes without compliance with
the registration and prospectus delivery requirements of the
Securities Act, provided, that (i) such Exchange Notes are
acquired in the ordinary course of such holder's business, (ii)
such holder is not engaged in, and does not intend to engage in,
a distribution of such Exchange Notes and has no arrangement or
understanding with any person to participate in the distribution
of such Exchange Notes, and (iii) such holder is not an affiliate
of the Company (as defined under Rule 405 of the Securities Act)
or a broker-dealer tendering Old Notes acquired directly from the
Company for its own account. However, the staff of the Commission
has not considered the Exchange Offer in the context of a
no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to
the Exchange Offer as in such other circumstances. A holder who
exchanges Old Notes for Exchange Notes pursuant to the Exchange
Offer with the intention to participate in a distribution of the
Exchange Notes may not rely on the staff's position enunciated in
the Exxon Capital Letter, the Morgan Stanley Letter or similar
letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with
any resale transaction.
Each broker-dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such
Exchange Notes. See "Plan of Distribution." The Letter of
Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with
resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See
"Plan of Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH,
THIS PROSPECTUS MAY NOT BE USED FOR ANY OFFER, SALE OR OTHER
TRANSFER OF EXCHANGE NOTES.
Prior to this Exchange Offer, there has been no public
market for the Old Notes or Exchange Notes. The Old Notes have
traded in the National Association of Securities Dealers, Inc.
Private Offerings, Resales and Trading through Automated Linkages
("PORTAL") market. If a public market were to develop, the
Exchange Notes could trade at prices that may be higher or lower
than their principal amount at maturity. The Company intends to
apply for listing of the Exchange Notes on the American Stock
Exchange. However, there can be no assurance that an active
public market for the Exchange Notes will develop. See "Risk
Factors--Risk Factors Relating to the Notes and the Exchange
Offer--Absence of Public Trading Market."
THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THIS
EXCHANGE OFFER. THE COMPANY HAS AGREED TO PAY THE EXPENSES OF THE
EXCHANGE OFFER. NO UNDERWRITER IS BEING USED IN CONNECTION WITH
THIS EXCHANGE OFFER.
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No person has been authorized to give any information
or to make any representations not contained in this Prospectus
in connection with the offer of securities made by this
Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized
by the Company or by any underwriter, dealer or agent. This
Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to
buy any securities other than those to which it relates. Neither
the delivery of this Prospectus nor any sale of, or offer to
sell, the securities offered hereby shall, under any
circumstances, create an implication that there has been no
change in the affairs of the Company since the date hereof or
that the information herein is correct as of any time subsequent
to its date.
3
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AVAILABLE INFORMATION
TWA is currently subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy
statements and other information with the Commission. Reports,
proxy statements and other information filed by the Company with
the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at Room 1400, 75 Park
Place, New York, New York 10007 and Suite 1400, Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511. Copies of such materials may be obtained from the
Public Reference Section of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates,
and such reports, proxy statements and other information
regarding the Company can also be inspected at the offices of the
American Stock Exchange, 86 Trinity Place, New York, New York
10006-1881, on which the Company's Common Stock, $.01 par value
per share (the "Common Stock") is listed. The Commission
maintains a Worldwide Web site that contains reports, proxy and
information statements and other materials that are filed through
the Commission's Electronic Data Gathering, Analysis and
Retrieval System. This web site can be accessed at
http://www.sec.gov. None of the information contained in such web
site shall be deemed to constitute a part of this Prospectus or
be incorporated herein for any purpose.
This Prospectus contains summaries, believed to be accurate
in all material respects, of certain terms of certain agreements;
however, in each such case, reference is made to the actual
agreements (copies of which will be made available upon request
to the Company) for complete information with respect thereto,
and all such summaries are qualified in their entirety by this
reference.
This Prospectus forms a part of the Registration Statement,
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 above. 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):
1. The Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, as amended on June 30, 1998 (the
"1997 10-K");
2. The Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 (the "10-Q");
3. The Company's Current Report on Form 8-K filed January
28, 1998; and
4. The Company's Proxy Statement and Notice of Meeting
relating to the Annual Meeting of Stockholders held on May 19,
1998.
In addition, all subsequent documents filed by the Company
with the Commission pursuant to Sections 13(a), 13(c), 14 or
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 herein by
reference and to be a part hereof from the date of filing such
documents. Any statement contained herein or 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 subsequently filed document which also is or is
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<PAGE>
deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. These documents
are available without charge upon the written or oral request of
each person, including any beneficial owner, to whom this
Prospectus is delivered. Requests should be made to the Corporate
Secretary of Trans World Airlines, Inc., One City Centre, 515 N.
Sixth Street, St. Louis, Missouri 63101, telephone (314)
589-3285. In order to ensure timely delivery of the documents,
any request should be made at least five business days before the
Expiration Date of the Exchange Offer.
FORWARD-LOOKING STATEMENTS
This Prospectus (including information included or
incorporated by reference herein) includes "Forward-looking
Statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. All statements regarding
the Company's expected financial position, business and financing
plans, including the Company's plans and strategy for improving
its operational and financial performance, are forward-looking
statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results
to differ materially from such expectations ("cautionary
statements") are disclosed in or incorporated by reference into
this Prospectus, including, without limitation, in conjunction
with the forward-looking statements included in or incorporated
by reference into this Prospectus and under "Risk Factors." All
subsequent written and oral forward-looking statements
attributable to the Company, its subsidiaries or persons acting
on the Company's or its subsidiaries' behalf are expressly
qualified in their entirety by the cautionary statements.
5
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PROSPECTUS SUMMARY
This summary does not purport to be complete and is
qualified by reference to the detailed information and financial
statements appearing elsewhere in or incorporated by reference
into this Prospectus. Terms not defined in this summary are
defined elsewhere herein.
The Company
TWA is the eighth largest U.S. air carrier (based on
revenue passenger miles ("RPMs") for the 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, the Company 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,
excluding all commuter flights. 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 United States and the Caribbean.
As described in the 1997 10-K, 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.
Recent Financial and Operating Results
On July 22, 1998, the Company reported financial results
for the second quarter of 1998, reflecting operating income of
$45.5 million, pre-tax income of $50.0 million, income before
extraordinary items of $24.7 million and net income of $19.5
million for the three months ended June 30, 1998. These results
compared with operating income of $5.9 million, a pre-tax loss of
$10.3 million, a loss before extraordinary items of $12.0 million
and a net loss of $14.4 million in the second quarter of 1997.
Operating revenue for the second quarter of 1998 was $883.5
million, versus $844.4 million in the second quarter of 1997,
despite a planned decrease in scheduled available seat miles from
the second quarter of 1997 resulting from the replacement of B747
and L-1011 aircraft with smaller and more efficient B767 and B757
aircraft.
System-wide scheduled traffic for the quarter increased
5.0% from 6.383 billion revenue passenger miles in 1997 to 6.703
billion revenue passenger miles in 1998. System-wide passenger
load factor increased 6.5 percentage points from 69.8% in the
second quarter of 1997 to 76.3% in the second quarter of 1998.
The Company's operating statistics, for scheduled
passengers only, for the three month periods ended June 30, 1998
and 1997 and for the six month periods ended June 30, 1998 and
1997 were as follows:
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Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenue passenger miles
(millions) 6,703 6,383 12,468 12,057
Available seat miles
(millions) 8,788 9,143 17,256 17,682
Passenger load factor 76.3% 69.8% 72.3% 68.2%
Passenger yield 11.78(cent) 11.60(cent) 11.76(cent) 11.71(cent)
Passenger revenue
per available seat mile 8.98(cent) 8.10(cent) 8.49(cent) 7.99(cent)
Operating cost per
available seat mile 9.30(cent) 8.92(cent) 9.33(cent) 9.39(cent)
For definitions of the above items, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" in the 1997 10-K.
The Private Placement
Old Notes.............. On June 16, 1998 (the "Issue Date"), the
Company issued and delivered the Old
Notes to or as directed by First
Security Bank, National Association, as
owner trustee (the "Owner Trustee")
under the trust agreement N607TW dated
as of March 28, 1995 between 767 Leasing
HY, LLC, as successor beneficiary (the
"Beneficiary") to Internationale
Nederlanden Aviation Lease Delaware,
Inc. (currently known as ING Lease
Delaware, Inc.), the beneficiary named
therein, and the Owner Trustee. The Old
Notes were subsequently reoffered and
resold to Qualified Institutional Buyers
(as defined in Rule 144A under the
Securities Act) pursuant to Rule 144A
under the Securities Act, to
institutional investors that are
Accredited Investors (as defined in Rule
501(a)(1), (2), (3) or (7) under the
Securities Act) and in offshore
transactions complying with Rule 903 or
Rule 904 of Regulation S under the
Securities Act.
Exchange Offer
Exchange Notes......... Up to $14,500,000 aggregate
principal amount of 10 1/4% Senior
Secured Notes due 2003
of the Company. The terms of the
Exchange Notes and the Old Notes are
identical in all respects, except that
the offer of the Exchange Notes will
have been registered under the
Securities Act and therefore, the
Exchange Notes will not be subject to
certain transfer restrictions and
registration rights and related
provisions for an increase in the
interest rate payable on the Old Notes
under certain circumstances if the
Company defaults with respect to its
registration requirements under the
Registration Rights Agreement (as
defined below) applicable to the Old
Notes.
Exchange Offer......... The Company is offering, upon the terms
and subject to the conditions of the
Exchange Offer, to exchange $1,000
principal amount of Exchange Notes for
each $1,000 principal amount of Old
Notes. See "The Exchange Offer"
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for a description of the procedures for
tendering Old Notes. In connection with
the private placement of Old Notes (the
"Private Placement"), the Company
entered into the Registration Rights
Agreement (the "Registration Rights
Agreement") dated as of June 16, 1998
among the Company, Lazard Freres & Co.
LLC ("Lazard") and the Owner Trustee,
which grants holders of the Old Notes
certain exchange and registration
rights. The Exchange Offer is intended
to satisfy obligations of the Company
under the Registration Rights Agreement.
The date of acceptance for exchange of
the Exchange Notes will be the first
business day following the Expiration
Date.
Tenders, Expiration
Date; Withdrawal....... The Exchange Offer will expire
at 5:00 p.m., New York City time, on
August 31, 1998, or such later date and
time to which it is extended. The tender
of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior
to the Expiration Date. Any Old Notes
not accepted for exchange for any
reason will be returned without expense
to the tendering holder of Notes (a
"Holder") thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer.
Accounting Treatment... No gain or loss for accounting purposes
will be recognized by the Company upon
the consummation of the Exchange Offer.
See "The Exchange Offer--Accounting
Treatment."
Federal Income Tax
Consequences........... The exchange pursuant to the Exchange
Offer will not result in any income,
gain or loss to the Holders of the Notes
or the Company for federal income tax
purposes. See "Certain Federal Income
Tax Considerations--Tax Consequences to
United States Holders."
Use of Proceeds........ The Company will not receive any
proceeds from the issuance of the
Exchange Notes pursuant to the Exchange
Offer.
Exchange Agent......... First Security Bank, National
Association is serving as exchange
agent (the "Exchange Agent") in
connection with the Exchange Offer.
Consequences of Exchanging Old Notes Pursuant to the
Exchange Offer
The Company has not requested, and does not intend to
request, an interpretation by the staff of the Commission with
respect to whether the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for
sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery
provisions of the Securities Act. Based on interpretations by the
staff of the Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any
holder of such Exchange Notes, other than broker-dealers which
must sell in accordance with the provisions set forth below and
other than any holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act, without
compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange
Notes are acquired in the ordinary course of such holder's
business and such holder is not engaged in and does not intend to
engage in, a distribution of such Exchange Notes
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<PAGE>
and has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. Any
holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes or who is
an affiliate of the Company may not rely on such interpretations
by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale
transaction. Each broker-dealer (whether or not it is also an
"affiliate" of the Company) that receives Exchange Notes for its
own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such
Exchange Notes. See "Plan of Distribution."
By executing the Letter of Transmittal, each holder of Old
Notes will represent to the Company that, among other things, (i)
the Exchange Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is such
holder, (ii) neither the holder of Old Notes, nor any such other
person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, (iii) if
the holder is not a broker-dealer, or is a broker-dealer but will
not receive Exchange Notes for its own account in exchange for
Old Notes, neither the holder nor any such other person is
engaged in or intends to participate in the distribution of such
Exchange Notes and (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act or, if such Holder is an
"affiliate," that such Holder will comply with the registration
and prospectus delivery requirements of the Securities Act to the
extent applicable. If the tendering Holder is a broker-dealer
(whether or not it is also an "affiliate") that will receive
Exchange Notes for its own account in exchange for Old Notes that
were acquired as a result of market-making activities or other
trading activities, it will be required to acknowledge that it
will deliver a prospectus in connection with any resale of such
Exchange Notes. See "Plan of Distribution." To comply with the
securities laws of certain jurisdictions, it may be necessary to
qualify for sale or register the Exchange Notes prior to offering
or selling such Exchange Notes. The Company does not currently
intend to take any action to register or qualify the Exchange
Notes for resale in any such jurisdictions.
Following the consummation of the Exchange Offer, holders
of Old Notes not tendered will not have any further registration
rights and the Old Notes will continue to be subject to certain
restrictions on transfer. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities
laws. Failure to comply with such requirements in such instance
may result in such Holder incurring liability under the
Securities Act for which such Holder is not indemnified by the
Company. See "The Exchange Offer--Consequences of Failure to
Exchange."
Summary Description of the Exchange Notes
The terms of the Exchange Notes and the Old Notes are
identical in all respects, except that the offer of the Exchange
Notes has been registered under the Securities Act and,
therefore, the Exchange Notes will not be subject to certain
transfer restrictions, registration rights and related provisions
requiring an increase in the interest rate on the Old Notes under
certain circumstances if the Company defaults with respect to its
registration requirements under the Registration Rights Agreement
applicable to the Old Notes.
Exchange Notes
Offered................ Up to $14,500,000 aggregate principal
amount of Exchange Notes of the Company.
Maturity Date.......... June 15, 2003.
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Interest............... 10 1/4% per annum (subject to possible
increases as described herein), payable
semi-annually in arrears on June 15 and
December 15 of each year, commencing
December 15, 1998. The Exchange Notes
will bear interest from June 16, 1998.
Holders of Old Notes whose Old Notes are
accepted for exchange will be deemed to
have waived the right to receive any
payment in respect of interest on such
Old Notes accrued from June 16, 1998 to
the date of the issuance of the Exchange
Notes. Consequently, holders who
exchange their Old Notes for Exchange
Notes will receive the same interest
payment on December 15, 1998 (the first
interest payment date with respect to
the Old Notes and the Exchange Notes)
that they would have received had they
not accepted the Exchange Offer.
Sale of Collateral..... In connection with and prior to the
sale of the Aircraft, the Company
will be required to commence an Offer
to Purchase Notes in an aggregate
principal amount equal to the
aggregate principal amount of
Notes outstanding on the date of
commencement of such Offer to Purchase,
at a purchase price equal to 102% of the
principal amount thereof, if such Offer
to Purchase is commenced prior to the
first anniversary of the Issue Date, or
101% of the principal amount thereof, if
such Offer to Purchase is commenced on
or after the first anniversary of the
Issue Date, plus, in each case, accrued
and unpaid interest and Special
Interest, if any, on such Notes to and
including the Payment Date (as defined).
The Company will deposit an amount in
cash equal to the purchase price with
respect to the Offer to Purchase with
the Trustee on or prior to the date of
sale of the Aircraft. Such cash amount
shall remain on deposit with the Trustee
until the payment of such purchase price
on the applicable Payment Date with
respect to such Offer to Purchase. As of
the day immediately following the
Payment Date with respect to any such
Offer to Purchase, the interest rate
borne by any Notes then outstanding will
automatically increase by 1.50% per
annum, and the lien on the Collateral
will be released. The Company may
satisfy in whole or in part its
obligation to make an Offer to Purchase
in connection with a sale of the
Aircraft by delivering to the Trustee
Notes acquired by the Company
through open market purchases. Such
Notes shall be credited by the Trustee
against the principal amount of Notes
required to be purchased at 100% of
their principal amount. See "Description
of Exchange Notes-- Collateral--Use of
Collateral; Total Loss; Release and
Termination of Lien."
Total Loss............. In the event that there shall occur a
Total Loss with respect to the Aircraft,
the Company will be required to make an
Offer to Purchase Notes in an aggregate
principal amount equal to the aggregate
principal amount of Notes outstanding on
the date such Offer to Purchase is
required to be commenced hereunder, at a
purchase price equal to
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<PAGE>
100% of such aggregate principal amount,
plus accrued and unpaid interest and
Special Interest, if any, on such Notes,
to and including the date of purchase.
The Company shall commence the Offer to
Purchase within 30 days after the date
of such Total Loss. The Company may
satisfy in whole or in part its
obligation to make an Offer to Purchase
in connection with a Total Loss of the
Aircraft by delivering to the Trustee
Notes acquired by the Company through
open market purchases. Such obligation
shall be credited at 100% of the
principal amount of Notes delivered to
the Trustee. See "Description of
Exchange Notes--Collateral--Use of
Collateral; Total Loss; Release and
Termination of Lien."
Sinking Fund........... The Notes will be subject to mandatory
redemption by way of sinking fund
payments made in cash sufficient to
redeem an aggregate principal amount of
Notes equal to $920,000 on each of June
15, 2001 and June 15, 2002 (subject to
possible reductions or elimination as
described herein) (or, if the aggregate
principal amount of Notes outstanding on
any such redemption date is less than
the principal amount required to be
redeemed on such date, then the
aggregate principal amount of Notes
outstanding shall be redeemed), at a
redemption price equal to 100% of the
principal amount thereof, plus accrued
and unpaid interest and Special
Interest, if any, to the Mandatory
Redemption Date (as defined). The
Company may satisfy in whole or in part
its obligation to make such sinking fund
payments by delivering to the Trustee
Notes acquired by the Company through
open market purchases. The obligation of
the Company to make any sinking fund
payment will be automatically terminated
if the Aircraft is sold or is the
subject of a Total Loss. See
"Description of Exchange Notes--Sinking
Fund."
Change in Control....... Upon a Change in Control,
each holder of Notes shall have
the right for a limited period to
require the Company to repurchase all or
any part of such holder's Notes at a
price, in cash, equal to 101% of the
principal amount thereof, plus accrued
and unpaid interest and Special
Interest, if any, to the date fixed for
repurchase. There can be no assurance
that the Company will have sufficient
funds available at the time of any
Change in Control to make any debt
payment (including repurchases of Notes)
required by the foregoing. In the event
the Company fails to repurchase the
Notes upon a Change in Control, it would
be in default under the Indenture and
the maturity of substantially all of its
long-term debt could be accelerated. See
"Description of Exchange Notes--
Repurchase of Notes Upon a Change in
Control."
Ranking................ The Notes will represent senior secured
obligations of the Company and will rank
pari passu in right of payment with
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<PAGE>
all other senior obligations of the
Company.
Collateral............. The Notes will be secured by a lien on
one Boeing 767-231 ETOPS airframe and
two associated Pratt & Whitney JT9D-
7R4D engines. See "Description of
Exchange Notes--Collateral."
Section 1110
Protection............. The Trustee has received an opinion
of Company Counsel (as defined)
that the Trustee, on behalf of the
holders of the Notes, will be
entitled, subject to certain conditions,
to the benefits of Section 1110 of the
U.S. Bankruptcy Code, as amended (the
"Bankruptcy Code"), with respect to the
Aircraft in the event of a case under
Chapter 11 of the Bankruptcy Code in
which the Company is a debtor. See
"Description of Exchange Notes--Certain
Bankruptcy Issues."
Certain Covenants...... The indenture governing the Notes
(the "Indenture") and certain related
security documents will contain
provisions relating to the
preservation of and release of
Collateral, including a prohibition
against the Company allowing certain
additional liens against such
Collateral. The Indenture will not
contain any financial covenants and will
not limit the Company's ability to incur
additional indebtedness.
Exchange Offer;
Registration Rights.... Pursuant to the Registration Rights
Agreement, in the event that applicable
law or interpretations of the staff of
the Commission do not permit the Company
to effect this Exchange Offer or if
certain holders of the Old Notes notify
the Company that they are not permitted
to participate in, or would not receive
freely transferable Exchange Notes
pursuant to, the Exchange Offer, the
Company has agreed to use its reasonable
best efforts to cause to become
effective a registration statement (the
"Shelf Registration Statement") with
respect to the resale of the Old Notes
and to keep the Shelf Registration
Statement effective for a period of two
years from the date of original issuance
of the Old Notes or such shorter period
that will terminate when Old Notes
covered by the Shelf Registration
Statement have been sold pursuant
thereto or can be sold pursuant to Rule
144(k). Should the Company fail for any
reason to comply with certain of its
registration obligations under the
Registration Rights Agreement, Special
Interest will be payable with respect to
the Notes and the Exchange Notes that
are, at the time of the Company's
failure to comply with such obligations,
subject to certain transfer restrictions
under the Securities Act. See "The
Exchange Offer."
12
<PAGE>
Lack of Prior
Market for the
Exchange Notes......... The Exchange Notes are being offered
to holders of the Old Notes.
The Exchange Notes will be new
securities for which there is currently
no established trading market, and none
may develop. The Company intends to
apply for listing of the Exchange Notes
on the American Stock Exchange. If the
Exchange Notes are traded after their
initial issuance, they may trade at a
discount from their initial offering
price, depending upon prevailing
interest rates, the market for similar
securities, the performance of the
Company and certain other factors.
Risk Factors
The Notes offered hereby involve a high degree of
risk. See "Risk Factors."
13
<PAGE>
RISK FACTORS
In addition to the other information appearing in this
Prospectus, the following risk factors should be considered
carefully in evaluating the Company and its business before
participating in the Exchange Offer or investing in the Exchange
Notes.
Risk Factors Related to the Company
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 on April 21, 1998 of the
Company's 11 3/8% Senior Secured Notes due 2003 (the "April
Secured Notes") and the Company's Mandatory Conversion Equity
Notes due 1999 (the "April Equity Notes" and, together with the
April Secured Notes, the "April Notes"), the issuance on June 16,
1998 of the Notes and the Equity Notes and the conversion into
Common Stock of the April Equity Notes on July 7, 1998 and the
Equity Notes on July 13, 1998, the aggregate principal amount of
the Company's total outstanding indebtedness would have been
approximately $1,204.9 million ($1,173.8 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. The
Company's estimated minimum payment obligations under
noncancelable 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 that are more
fully described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and
Capital Resources--Commitments" in the 10-Q. 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 March 31, 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 "Capitalization" included
herein and "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General" and the Consolidated Financial Statements in
the 1997 10-K and the 10-Q.
The degree to which the Company is leveraged could have
important consequences to holders of the Notes offered hereby,
including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; (ii) a substantial portion of the
Company's cash flow from operations must be dedicated to the
payment of principal and interest on the Company's existing
indebtedness; (iii) the Company is placed at a relative
competitive disadvantage to its less highly leveraged competitors
and is more vulnerable to economic downturns; and (iv) such
indebtedness contains restrictive and other covenants, that, if
not complied with, may result in an event of default that, 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). See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Certain Other
Capital Requirements" in the 1997 10-K for a discussion of the
potential additional expenditures that may be required by the
Company in order to address the year 2000-related technology
issues. 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.
14
<PAGE>
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 the Company's international operations
and by subsidiaries that, 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital
Resources--Liquidity" in the 1997 10-K and the 10-Q.
The Company has no unused credit lines and must satisfy all
of its working capital and capital expenditure requirements from
cash provided by operating activities, from external capital
sources or from the sale of assets. See "The Company--Business
Strategy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital
Resources--Liquidity" in the 1997 10-K for a description of the
actions taken by the Company to improve its liquidity during
1997. 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 the Company'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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital
Resources--Availability of NOLs" in the 1997 10-K and the 10- Q
for a discussion of the status of the Company's net operating
loss carryforwards.
The Company's long-term viability as well as its ability to
meet its existing debt and other obligations and future capital
commitments depends upon the Company's financial and operating
performance, which in turn is subject to, among other things,
prevailing economic conditions and certain other financial,
business and other factors beyond the Company's control. As
discussed in the 1997 10-K and the 10-Q, in late 1996 and early
1997, the Company began implementing certain operational changes
that are intended to improve the Company's financial results
through, among other things, improved operational reliability;
higher yields and load factors; increased fuel, pilot and other
aircraft operating efficiencies; and a decrease in
maintenance-related expenditures, employee headcount and
JFK-related operating costs. Although management believes that
such operational changes will be successful and that the
Company's cash flow from its operations and financing activities
should therefore be sufficient in the foreseeable future to meet
the Company's debt and other obligations and future capital
commitments, the airline industry in general and the Company in
particular are subject to significant risks and uncertainties
referred to in this Prospectus including under these Risk Factors
and in the 1997 10-K and the 10-Q under "Management's Discussion
and Analysis of Financial Condition and Results of
Operations--General" and "--Liquidity and Capital Resources."
Therefore, there can be no assurance that the Company's operating
results and financing activities will be sufficient in the
foreseeable future to meet its debt and other obligations and
future capital commitments.
Prior Operating Losses and Future Uncertainties
Relating to Results of Operations; Results for the First Quarter
of 1998
The Company'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
15
<PAGE>
airlines reported record profits, the Company has reported
significant net losses. For example, the Company reported a net
loss of $227.5 million for the combined 12-month period ended
December 31, 1995 (including extraordinary gains related to the
'95 Reorganization (as defined below)), 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 restructurings effected in 1995 (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. For a discussion
of such operating results and the substantial net losses incurred
during such periods, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "The
Company--Business Strategy" in the 1997 10-K. Although the
Company has taken a number of actions that management believes
will improve future results, the Company will incur additional
expenses relating to these actions, including pilot training and
aircraft leases, and there can be no assurance that such actions
will make the Company's future operations profitable. See
"--Liquidity; Substantial Indebtedness; Capital Expenditure
Requirements" and "The Company--Business Strategy" in the 1997
10-K.
The Company's financial results for the first quarter 1998
reflect 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.
The Company 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, the
Company'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 the Company'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 the
Company 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 (the "Ticket Agreement") governing such program) (see
below and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General" and "Legal
Proceedings--Icahn Litigation" in the 10-Q). 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 Agreement between
16
<PAGE>
the Company and Karabu relating to the discount ticket program
and otherwise tortiously interfering with the Company's business
expectancy and contractual relationships by, among other things,
marketing and selling tickets purchased under the Ticket
Agreement to the general public. 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 25, 1998. TWA has appealed 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 the Company is currently a defendant in
a number of lawsuits relating to the crash, it is unable to
predict the amount of claims that may ultimately be made against
the Company or how those claims might be resolved. The Company
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, the Company 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 that has resulted
or may result from the public perception of the crash or from any
future findings by the National Transportation Safety Board. See
"Business--Legal Proceedings" in the 1997 10-K.
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, if such changes do occur, that
they will not adversely affect future operations.
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<PAGE>
Current Executives of the Company
DATE OF ELECTION OR
APPOINTMENT AS
NAME CURRENT TITLE EXECUTIVE
- ------------------- ------------------- -------------------
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
- -----------------
(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 that
include part-time employees). Of these, approximately 84.6% were
represented by the Air Line Pilots Association ("ALPA") and the
International Association of Machinists and Aerospace Workers
(the "IAM"). On March 6, 1997, the IAM was certified to replace
the Independent Federation of Flight Attendants (the "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 that the Company believes to be below many other U.S.
airlines. The '94 Labor Agreements are three-year agreements that
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 currently ongoing. Negotiations on a new collective
bargaining agreement with ALPA commenced in June 1997, and a
tentative agreement was reached on July 11, 1998, subject to
ratification. 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. See
"Business--Employees" in the 1997 10-K.
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,
18
<PAGE>
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 the Company's
operating aircraft fleet was 16.5 years, making the Company's
fleet one of the oldest of U.S. air carriers. As a result, the
Company has incurred increased overall operating costs due to the
higher maintenance, fuel and other operating costs associated
with older aircraft. During 1997, the Company 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, the Company's fleet included 55
aircraft that did not meet the noise reduction requirements under
the Airport Noise and Capacity Act of 1990 (the "Noise Act") and
must therefore be retired or substantially modified by the end of
1999. Although the Company has plans to meet the Noise Act's
noise reduction requirement, there can be no assurance that such
plans will be achieved. In addition, in 1990 the Federal Aviation
Association (the "FAA") issued several Airworthiness Directives
("ADs") mandating changes to maintenance programs for older
aircraft to ensure 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, the
Company spent approximately $3.4 million and $4.2 million,
respectively, to comply with aging aircraft maintenance
requirements. Based on information currently available to the
Company and its current fleet plan, the Company 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 the Company's existing aircraft and that, as a
result, certain aircraft will be retired by the Company before
the Company would be required to make certain aging aircraft
maintenance expenditures. There can be no assurance that the
Company 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" above and "Business--Regulatory Matters--Noise
Abatement" and "--Aging Aircraft Maintenance" in the 1997 10-K.
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") that 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, who 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 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 the By-laws contain
provisions that 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 the By-laws and the Blocking
Coalition Provisions, as well as federal laws limiting foreign
ownership of U.S. flag carriers and the
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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 (a "Right") for each
outstanding share of Common Stock and employee preferred stock
issued to its union employees in three series (the "Employee
Preferred Stock") and made such Right payable to holders of
record as of the close of business on January 12, 1996, and
thereafter each share of Common Stock or Employee Preferred Stock
issued by the Company has had one Right attendant to it. The
Rights are intended to protect the Company's stockholders from
certain non-negotiated takeover attempts that present the risk of
a change of control on terms that may be less favorable to the
Company's stockholders than would be available in a transaction
negotiated with and approved by the Board of Directors of the
Company. See "Description of Capital Stock--Rights Plan" and
"Certain Provisions of the Certificate of Incorporation, the
By-laws and Delaware Law" below, and "Business--Regulatory
Matters-- Foreign Ownership of Shares" in the 1997 10-K.
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 the Company's future
operating results. Shares granted or purchased at a discount
under the Employee Stock Incentive Program (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. On February 17, 1998, the first
target price of $11.00 was realized and therefore a grant will be
made on July 15, 1998 in an amount sufficient to increase the
employee ownership by 2.0% based on the then outstanding amount
of Common Stock and Employee Preferred Stock. In addition, on
March 4, 1998, the average market price of the Company's Common
Stock over a 30-day period exceeded the $12.10 target price
necessary to earn the 1998 grant. As a result, on July 15, 1998,
the Company made an additional contribution to the relevant
employee trusts based on the then outstanding amount of its
Common Stock and Employee Preferred Stock in an amount sufficient
to increase the employee ownership by 1.5%. Based on the number
of outstanding shares of Common Stock and Employee Preferred
Stock at July 15, 1998, the aggregate contribution pursuant to
the 1997 and 1998 grants was 2,377,084. As a result of the grants
earned in 1998, an aggregate non-cash charge was recorded in the
first quarter of 1998 in the amount of $26.5 million in
connection with such issuance. In addition, an aggregate non-cash
charge of $1.0 million will be recorded in the third quarter of
1998 to reflect the actual number of shares issued on July 15,
1998. If the remaining ESIP's target prices for the Common Stock
are realized, the minimum aggregate charge for the years 1999 to
2002 (the 1997 and 1998 target prices having been met) would be
approximately $102.6 million based upon such target prices and
the number of shares of Common Stock and Employee Preferred Stock
outstanding at July 15, 1998. The charge for any year, however,
could be substantially higher if the then market price of the
Common Stock exceeds certain target prices. See
"Business--Employees" in the 1997 10-K.
Fresh Start Reporting
In connection with the '95 Reorganization, the Company
adopted fresh start reporting in accordance with the American
Institute of Certified Public Accountants' Statement of Position
90-7 "--Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code" ("SOP 90-7"). The fresh start reporting
common equity value of the Company was determined by the Company,
with the assistance of its financial advisors, to be
approximately $270.0 million based, in part, on assumptions as to
future results of operations. The carrying value of the Company's
assets does not reflect historical cost but rather reflects
current values determined by the Company as of the August 23,
1995 effective date of the '95 Reorganization (the "'95 Effective
Date") (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 in
the 1997 10-K to separate the Company's post-reorganization
Consolidated Financial Statements from its pre-'95 Reorganization
consolidated financial statements since they have not been
prepared on a consistent basis of accounting. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and Note 19 to the Consolidated Financial Statements
in the 1997 10-K.
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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 the Company'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. The Company 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 passenger
revenue per available seat mile ("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 the Company 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. The Company 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. Additionally, 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 Department of Transportation (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 represent 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
the Company 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 which have
available lines of credit, significant unencumbered assets and/or
greater access to capital markets. Accordingly, the Company 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.
The Company 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
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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
57.0(cent) per gallon to approximately 69.8(cent) per gallon.
During 1997, the Company's average per gallon cost of fuel
decreased approximately 5.6%, from approximately 69.8(cent) per
gallon to approximately 65.9(cent) per gallon. During the first
quarter of 1998, the Company's average per gallon cost of fuel
decreased approximately 25.0%, from approximately 74.1(cent) per
gallon to approximately 55.6(cent) per gallon, over the same
period in 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the 1997 10-K
and the 10-Q. 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 the
Company than many of its competitors because of the composition
of its fleet and because the Company does not currently maintain
substantial reserves of fuel required for its operations or
otherwise hedge the cost of anticipated purchases of fuel. See
"Business--Aircraft Fuel" in the 1997 10-K.
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 the Company,
thereby adversely affecting the Company'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. The Company 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 the Company'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" above.
Additional laws and regulations have been proposed from
time to time that 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 the
Company. See "Business--Regulatory Matters" in the 1997 10-K.
Management believes that the Company benefited 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
22
<PAGE>
over a multiple year period, an increase in the international
departure tax, the imposition of a new arrivals tax, and the
extension of the Ticket Tax to cover items such as the sale of
frequent flier miles. Management believes that the reimposition
and modification of the Ticket Tax will have a negative impact on
the Company, although neither the amount of such negative impact
nor the benefit previously realized by its expiration can be
precisely determined. However, management believes that the
recent tax legislation and any other increases of the Ticket Tax
will result in higher costs to the Company and/or, if passed on
to consumers in the form of increased ticket prices, might have
an adverse effect on passenger traffic, revenue and/or margins.
See "Business--Regulatory Matters" in the 1997 10-K.
Risk Factors Relating to the Notes and the Exchange Offer
Certain Bankruptcy Considerations
If the Company were to become a debtor in a proceeding
under Title 11 of the Bankruptcy Code, it is likely that there
would be delays in payment with respect to the Notes and delays
in or prevention from enforcing remedies and other rights that
may otherwise be available to holders of the Notes, including
rights with respect to the Collateral. It is also possible that
holders of Notes would not ultimately receive repayment, in whole
or in part, of the Notes.
The Trustee has received an opinion of Company Counsel that
the Trustee, on behalf of the holders of the Notes, will be
entitled, subject to certain conditions, to the benefits of
Section 1110 of the Bankruptcy Code with respect to the Aircraft
in the event of a case under Chapter 11 of the Bankruptcy Code in
which the Company is a debtor. See "Description of Exchange
Notes--Certain Bankruptcy Issues."
Ranking of the Notes
The Notes will represent senior secured obligations of the
Company and will rank pari passu in right of payment with other
senior obligations of the Company. None of the Company's
outstanding indebtedness is senior to the Notes. As of March 31,
1998, after giving effect to the issuance of the April Notes, the
Notes and the Equity Notes and the conversion of the April Equity
Notes on July 7, 1998 and the Equity Notes on July 13, 1998, the
aggregate principal amount of the Company's total outstanding
indebtedness, including accrued interest, would have been
approximately $1,235.6 million. While unsecured indebtedness
ranks pari passu with the Notes in right of payment, the holders
of the Notes may, to the exclusion of unsecured creditors, seek
recourse against the Collateral as security for the Notes unless
and until the Notes are satisfied in full. See "Description of
Exchange Notes--Collateral" and "--Certain Bankruptcy Issues."
The Notes are not guaranteed by any subsidiary of the Company and
as a result will effectively rank junior to all creditors
(including trade creditors) of, and holders of preferred stock
issued by, subsidiaries of the Company. As of March 31, 1998,
except for the wholly-owned, bankruptcy remote subsidiary of the
Company that issued $100.0 million aggregate principal amount of
receivables securitization notes, the subsidiaries of the Company
did not have any outstanding indebtedness or preferred stock. The
Notes will contain no limitations on the Company's ability to
incur additional indebtedness. See "Description of Exchange
Notes."
Sufficiency of Collateral
There can be no assurances that the proceeds of any sale of
Collateral pursuant to the Indenture and Collateral Documents (as
defined) following a default would be sufficient to satisfy all
payments due on the Notes. No appraisal has been or will be
obtained with respect to the Collateral. If such proceeds were
not sufficient to repay all such amounts due on the Notes, then
holders (to the extent not repaid from the proceeds of the sale
of Collateral) would have only an unsecured claim against the
Company's remaining assets. In addition, the ability of holders
to realize upon the Collateral may be subject to certain federal
bankruptcy law limitations and, due to the nature of the
Collateral, significant restrictions imposed by governmental
authorities including the DOT and FAA. U.S. citizenship is a
condition of registering aircraft with the FAA. Restrictions on
the ability of non-U.S. citizens to register the Aircraft in the
United States could impact the marketability of the Collateral.
Change in Control; Cross Default Provisions
Upon a Change in Control, each holder of Notes will have
the right, for a limited period of time, to require the Company
to repurchase all or any part of such holder's Notes at a price
in cash equal to 101% of the principal amount
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<PAGE>
thereof, plus accrued and unpaid interest and Special Interest,
if any, to the date fixed for repurchase. However, there can be
no assurance that upon the occurrence of such a Change in
Control, the Company will have sufficient funds available at the
time to be able to repurchase the Notes. In the event the Company
fails to repurchase the Notes upon a Change in Control, it would
be in default under the Indenture and the maturity of
substantially all of its long-term debt could be accelerated. See
"Description of Exchange Notes--Repurchase of Notes Upon a Change
in Control."
Lack of Prior Market for the Exchange Notes
The Exchange Notes are being offered to the holders of
the Old Notes. The Old Notes were offered and sold in June 1998
to Qualified Institutional Buyers and to instutional Accredited
Investor and in offshore transactions complying with Rule 903 or
Rule 904 of Regulation S under the Securities Act and are
eligible for trading in the PORTAL market.
The Exchange Notes will constitute a new issue of
securities for which there is currently no established trading
market, and the Exchange Notes may not be widely distributed.
Accordingly, no assurance can be given that an active trading
market for the Exchange Notes will develop. If a market for any
of the Exchange Notes does develop, the price of such Exchange
Notes may fluctuate and liquidity may be limited. If a market for
any of the Exchange Notes does not develop, purchasers may be
unable to resell such Exchange Notes for an extended period of
time, if at all. The Company has agreed to list the Exchange
Notes on the American Stock Exchange or on such other stock
exchange or market as the Common Stock is then principally traded
no later than the earliest to occur of (i) the effectiveness of
the Registration Statement and (ii) the effectiveness of the
Shelf Registration Statement, provided that such Exchange Notes
meet the minimum requirements for listing on any such exchange or
market, and, if applicable, to maintain such listing for so long
as any of the Exchange Notes is outstanding.
Historically, the market for non-investment grade debt has
been subject to disruptions that have caused substantial
volatility in the prices of such securities. There can be no
assurance that the market for the Old Notes or the Exchange Notes
will not be subject to similar disruptions. Any such disruptions
may have an adverse effect on holders of the Old Notes or the
Exchange Notes.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes
for Exchange Notes pursuant to the Exchange Offer will continue
to be subject to the restrictions on transfer of such Old Notes
as set forth in the legend thereon. In general, the Old Notes may
not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction
not subject to the Securities Act and applicable state securities
laws. The Company does not intend to register the Old Notes under
the Securities Act. The Company believes that, based upon
interpretations contained in letters issued to third parties by
the staff of the SEC, Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by each Holder thereof
(other than a broker-dealer, as set forth below, and any such
Holder which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities
Act provided that such Exchange Notes are acquired in the
ordinary course of such Holder's business and such Holder is not
engaged in, and does not intend to engage in, a distribution of
such Exchange Notes and has no arrangement or understanding with
any person to participate in the distribution of such Exchange
Notes. Eligible Holders wishing to accept the Exchange Offer must
represent to the Company in the Letter of Transmittal that (i)
the Exchange Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is such
holder, (ii) neither the holder of Old Notes nor any such other
person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, (iii) if
the holder is not a broker-dealer or is a broker-dealer but will
not receive Exchange Notes for its own account in exchange for
Old Notes, neither the holder nor any such other person is
engaged in or intends to participate in a distribution of the
Exchange Notes and (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of
Rule 405 or a broker-dealer tendering Old Notes acquired directly
from the Company for its own account or if such holder is an
"affiliate," that such holder will comply with the registration
and prospectus delivery requirements of the Securities Act to the
extent applicable. Each broker-dealer (whether or not it is also
an "affiliate") that receives Exchange Notes for its own account
pursuant to the Exchange Offer must represent that the Old Notes
tendered in exchange therefor were acquired as a result of
market-making activities or other trading activities and must
acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a
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<PAGE>
prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with the
resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See
"Plan of Distribution." However, to comply with the securities
laws of certain jurisdictions, if applicable, the Exchange Notes
may not be offered or sold unless they have been registered or
qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with.
The Company does not currently intend to take any action to
register or qualify the Exchange Notes for resale in any such
jurisdictions.
In the event the Exchange Offer is consummated, the Company
will not be required to register the transfer of the Old Notes
under the Securities Act or any applicable securities laws. In
such event, holders of Old Notes seeking liquidity in their
investment would have to rely on exemptions to the registration
requirements under such laws. The Old Notes currently may be sold
to Qualified Institutional Buyers and to institutional Accredited
Investors and in offshore transactions complying with Rule 903 or
Rule 904 of Regulation S under the Securities Act or pursuant to
another available exemption under the Securities Act without
registration under the Securities Act. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the
reduction in the principal amount of Old Notes outstanding could
have an adverse effect upon, and increase the volatility of the
market price for, the untendered and tendered but unaccepted Old
Notes.
Exchange Offer Procedures
To participate in the Exchange Offer, and avoid the
restrictions on Old Notes, each holder of Old Notes must transmit
a properly completed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to the First
Security Bank, National Association (the "Exchange Agent") at the
address set forth below under "The Exchange Offer--Procedures for
Tendering--Exchange Agent" on or prior to the Expiration Date. In
addition, (i) certificates for such Old Notes must be received by
the Exchange Agent along with the Letter of Transmittal, (ii) a
timely confirmation of a book-entry transfer of such Old Notes,
if such procedure is available, into the Exchange Agent's account
at The Depository Trust Company ("DTC") pursuant to the procedure
for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the Holder
must comply with the guaranteed delivery procedures. See "The
Exchange Offer."
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THE COMPANY
General
TWA is the eighth largest U.S. air carrier (based on
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, the
Company 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 at St. Louis and a domestic-international hub at 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, excluding all commuter flights. 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 United States and the Caribbean.
As described in the 1997 10-K, 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.
Recent Financial and Operating Results
On July 22, 1998, the Company reported financial results
for the second quarter of 1998, reflecting operating income of
$45.5 million, pre-tax income of $50.0 million, income before
extraordinary items of $24.7 million and net income of $19.5
million for the three months ended June 30, 1998. These results
compared with operating income of $5.9 million, a pre-tax loss of
$10.3 million, a loss before extraordinary items of $12.0 million
and a net loss of $14.4 million in the second quarter of 1997.
Operating revenue for the second quarter of 1998 was $883.5
million, versus $844.4 million in the second quarter of 1997,
despite a planned decrease in scheduled available seat miles from
the second quarter of 1997 resulting from the replacement of B747
and L-1011 aircraft with smaller and more efficient B767 and B757
aircraft.
System-wide scheduled traffic for the quarter increased
5.0% from 6.383 billion revenue passenger miles in 1997 to 6.703
billion revenue passenger miles in 1998. System-wide passenger
load factor increased 6.5 percentage points from 69.8% in the
second quarter of 1997 to 76.3% in the second quarter of 1998.
The Company's operating statistics, for scheduled
passengers only, for the three month periods ended June 30, 1998
and 1997 and for the six month periods ended June 30, 1998 and
1997 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenue passenger miles
(millions) 6,703 6,383 12,468 12,057
Available seat miles
(millions) 8,788 9,143 17,256 17,682
Passenger load factor 76.3% 69.8% 72.3% 68.2%
Passenger yield 11.78(cent) 11.60(cent) 11.76(cent) 11.71(cent)
Passenger revenue
per available seat mile 8.98(cent) 8.10(cent) 8.49(cent) 7.99(cent)
Operating cost per
available seat mile 9.30(cent) 8.92(cent) 9.33(cent) 9.39(cent)
For definitions of the above items, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" in the 1997 10-K.
26
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange
Offer. The Company has agreed to pay the expenses of the Exchange
Offer. No underwriter is being used in connection with the
Exchange Offer.
27
<PAGE>
THE EXCHANGE OFFER
Purpose of the Exchange Offer
On June 16, 1998, the Company issued and delivered one
security evidencing the Notes in definitive fully registered form
in the principal amount of $14.5 million to or as directed by the
Owner Trustee. The Old Notes were subsequently reoffered and
resold to Qualified Institutional Buyers pursuant Rule 144A under
the Securities Act and in offshore transactions complying with
Rule 903 or Rule 904 of Regulation S under the Securities Act. In
connection with the issuance and sale of the Old Notes, the
Company entered into the Registration Rights Agreement with
Lazard and the Owner Trustee, which obligated the Company to (i)
file the Registration Statement of which this Prospectus is a
part for the Exchange Offer within 60 days after the Issue Date,
(ii) use its reasonable best efforts to cause the Registration
Statement to become effective within 150 days after the Issue
Date and (iii) consummate the Exchange Offer within 180 days of
the Issue Date. A copy of the Registration Rights Agreement has
been filed as an exhibit to the Registration Statement. The
Exchange Offer is being made pursuant to the Registration Rights
Agreement to satisfy the Company's obligations thereunder.
Based on interpretations by the staff of the Commission, as
set forth in no-action letters issued to Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley & Co.
Incorporated (available June 5, 1991), Mary Kay Cosmetics, Inc.
(available June 5, 1991) and Warnaco, Inc. (available October 11,
1991), the Company believes that a holder who exchanges Old Notes
for Exchange Notes pursuant to the Exchange Offer may offer for
resale, resell and otherwise transfer such Exchange Notes without
compliance with the registration and prospectus delivery
requirements of the Securities Act; provided, that (i) such
Exchange Notes are acquired in the ordinary course of such
holder's business, (ii) such holder is not engaged in, and does
not intend to engage in, a distribution of such Exchange Notes
and has no arrangement with any person to participate in the
distribution of such Exchange Notes, and (iii) such holder is not
an affiliate of the Company (as defined under Rule 405 of the
Securities Act). However, the staff of the Commission has not
considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances. A holder who
exchanges Old Notes for Exchange Notes pursuant to the Exchange
Offer with the intention to participate in a distribution of the
Exchange Notes may not rely on the staff's position enunciated in
the Exxon Capital Letter, the Morgan Stanley Letter or similar
letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with
any resale transaction. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Old Notes, where such
Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes. See "Plan of Distribution."
The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes (other than a resale of
an unsold allotment from the original sale of the Notes) received
in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in
this Prospectus and in the accompanying Letter of Transmittal
(which together constitute the Exchange Offer), the Company will
accept any and all Old Notes validly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on the Expiration Date.
The Company will issue a principal amount at maturity of Exchange
Notes in exchange for an equal principal amount at maturity of
outstanding Old Notes validly tendered pursuant to the Exchange
Offer and not withdrawn prior to the Expiration Date. Old Notes
may only be tendered in integral multiples at maturity of $1,000.
Holders may tender some or all of their Old Notes pursuant to the
Exchange Offer.
The terms of the Exchange Notes and the Old Notes are
substantially identical in all material respects, except that (i)
the exchange will be registered under the Securities Act and,
therefore, the Exchange Notes will not bear legends restricting
the transfer of such Exchange Notes, and (ii) holders of the
Exchange Notes will not be entitled to any of the registration
rights of holders of Old Notes under the Registration Rights
Agreement, which rights will terminate upon the
28
<PAGE>
consummation of the Exchange Offer. See "Description of Exchange
Notes." The Exchange Notes will evidence the same indebtedness as
the Old Notes. The Exchange Notes will be issued under and
entitled to the benefits of the Indenture pursuant to which the
Old Notes were issued such that the Exchange Notes and Old Notes
will be treated as a single class of debt securities under the
Indenture.
As of the date of this Prospectus, $14.5 million aggregate
principal amount at maturity of the Old Notes are outstanding.
This Prospectus, together with the Letter of Transmittal, is
being sent to all registered holders of the Old Notes.
Holders of Old Notes do not have any appraisal or
dissenters' rights under the DGCL or the Indenture in connection
with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of
the Exchange Act, and the rules and regulations of the Commission
thereunder. Old Notes which are not tendered and were not
prohibited from being tendered for exchange in the Exchange Offer
will remain outstanding and continue to accrue interest and to be
subject to transfer restrictions, but will not be entitled to any
rights or benefits under the Registration Rights Agreement.
Upon satisfaction or waiver of all the conditions to the
Exchange Offer, the Company will accept, promptly after the
Expiration Date, all Old Notes properly tendered and not
withdrawn and will issue Exchange Notes in exchange therefor
promptly after acceptance of the Old Notes. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if, the
Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering
holders for the purposes of receiving the Exchange Notes from the
Company.
In all cases, issuance of Exchange Notes for Old Notes that
are accepted for exchange pursuant to the Exchange Offer will be
made only after timely receipt by the Exchange Agent of such Old
Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents; provided, however,
that the Company reserves the absolute right to waive any defects
or irregularities in the tender or conditions of the Exchange
Offer. If any tendered Old Notes are not accepted for any reason
set forth in the terms and conditions of the Exchange Offer or if
Old Notes are submitted for a greater principal amount at
maturity than the holder desires to exchange, such unaccepted or
nonexchanged Old Notes or substitute Old Notes evidencing the
unaccepted portion, as appropriate, will be returned without
expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the Exchange
Offer.
Holders who tender Old Notes in the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes
with respect to the exchange of Old Notes pursuant to the
Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in
connection with the Exchange Offer. See "--Fees and Expenses."
Expiration Date; Extension; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York
City time, on August 31, 1998 (31 days following the
commencement of the Exchange Offer), unless the Company, in its
sole discretion, extends the Exchange Offer, in which case the
term "Expiration Date" will mean the latest date and time to
which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will
notify the Exchange Agent of any extension by oral or written
notice and will mail to the registered holders an announcement
thereof, prior to 9:00 a.m., New York City time, on the next
business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to
delay accepting any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer if any of the conditions set forth
below under "--Conditions" shall not have been satisfied, by
giving oral or written notice of such delay, extension or
termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered
holders. If the Exchange Offer is amended in a manner determined
by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably
calculated to inform the holders of Old Notes of such amendment.
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<PAGE>
Without limiting the manner in which the Company may choose
to make a public announcement of any delay, extension, amendment
or termination of the Exchange Offer, the Company shall have no
obligation to publish, advertise, or otherwise communicate any
such public announcement, other than by making a timely release
to an appropriate news agency.
Interest on the Exchange Notes
The Exchange Notes will bear interest from June 16, 1998 at
the rate of 10 1/4% per annum, payable semi-annually in arrears,
in cash, on June 15 and December 15 of each year, commencing
December 15, 1998. Holders of Old Notes whose Old Notes are
accepted for exchange will be deemed to have waived the right to
receive any payment in respect of interest on the Old Notes
accrued from June 16, 1998 until the date of the issuance of the
Exchange Notes. Consequently, holders who exchange their Old
Notes for Exchange Notes will receive the same interest payment
on December 15, 1998 (the first interest payment date with
respect to the Old Notes and the Exchange Notes) that they would
have received had they not accepted the Exchange Offer.
Conditions
Notwithstanding any other term of the Exchange Offer, the
Company will not be required to exchange any Exchange Notes for
any Old Notes, and may terminate or amend the Exchange Offer
before the acceptance of any Old Notes for exchange, if: (a) any
action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange
Offer which seeks to restrain or prohibit the Exchange Offer or,
in the Company's judgment, would materially impair the ability of
the Company to proceed with the Exchange Offer, (b) any law,
statute, rule or regulation is proposed, adopted or enacted, or
any existing law, statute, rule, order or regulation is
interpreted, by any government or governmental authority which,
in the Company's judgment, would materially impair the ability of
the Company to proceed with the Exchange Offer, or (c) the
Exchange Offer or the consummation thereof would otherwise
violate or be prohibited by applicable law.
If the Company determines in its sole discretion that any
of these conditions are not satisfied, the Company may (i) refuse
to accept any Old Notes and return all tendered Old Notes to the
tendering holders, (ii) extend the Exchange Offer and retain all
Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders who tendered such Old
Notes to withdraw their tendered Old Notes, or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and
accept all properly tendered Old Notes which have not been
withdrawn. If the Company's waiver constitutes a material change
to the Exchange Offer, the Company will promptly disclose such
waiver by means of a prospectus supplement that will be
distributed to the registered holders, and the Company will
extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the waiver and the
manner of disclosure to the registered holders, if the Exchange
Offer would otherwise expire during such five to ten business day
period.
The foregoing conditions are for the sole benefit of the
Company and may be asserted by the Company regardless of the
circumstances giving rise to any such condition or may be waived
by the Company in whole or in part at any time and from time to
time in its sole discretion. The Company's failure at any time to
exercise any of the foregoing rights will not be deemed a waiver
of any such right, and each such right will be deemed an ongoing
right which may be asserted at any time and from time to time.
Any determination by the Company concerning the events described
above will be final and binding on all parties. NO VOTE OF THE
COMPANY'S SECURITYHOLDERS IS REQUIRED TO EFFECT THE EXCHANGE
OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING SOUGHT
HEREBY.
Procedures for Tendering
Only a holder of Old Notes may tender such Old Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must
(i) complete, sign and date the Letter of Transmittal, or a
facsimile thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together
with the Old Notes (unless such tender is being effected pursuant
to the procedure for book-entry transfer described below) and any
other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date, or (ii) comply
with the guaranteed delivery procedures described below. Delivery
of all documents must be made to the Exchange Agent at its
address set forth herein. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes,
where such Notes were acquired by such broker-dealer as a result
of market-making
30
<PAGE>
activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with the resale of such
Exchange Notes. See "Plan of Distribution."
The tender of Old Notes by a holder as set forth below will
constitute an agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth
in this Prospectus and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE
AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF
DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT
OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES
TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner(s) whose Old Notes are registered in
the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the
registered holder promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such beneficial
owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter of Transmittal
and delivering such owner's Old Notes, either make appropriate
arrangement to register ownership of the Old Notes in such
owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of
withdrawal (described below), as the case may be, must be
guaranteed by an "eligible guarantor institution" (banks,
stockbrokers, savings and loan associations and credit unions
with membership in an approved signature guarantee medallion
program), pursuant to Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution") unless the Old Notes tendered pursuant
thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution.
If a person other than the registered holder of any Old
Notes listed therein signs the Letter of Transmittal, such Old
Notes must be endorsed or accompanied by a properly completed
bond power, signed by such registered holder as such registered
holder's name appears on such Old Notes, with the signature
thereon guaranteed by an Eligible Institution. If the Letter of
Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when
signing, and unless waived by the Company, evidence satisfactory
to the Company of their authority to so act must be submitted
with the Letter of Transmittal.
The Company will determine, in its sole discretion, all
questions as to the validity, form, eligibility (including time
of receipt), acceptance of tendered Old Notes and withdrawal of
tendered Old Notes, and the Company's determination will be final
and binding. The Company reserves the absolute right to reject
any and all Old Notes not properly tendered or any Old Notes the
Company's acceptance of which would, in the opinion of counsel
for the Company, be unlawful. The Company also reserves the right
to waive any defects, irregularities or conditions of tender as
to particular Old Notes. The Company's interpretation of the
terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although
the Company intends to notify holders of defects or
irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any
liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived
will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon
as practicable following the Expiration Date.
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<PAGE>
In addition, the Company reserves the right in its sole
discretion to purchase or make offers for any Old Notes that
remain outstanding subsequent to the Expiration Date or, as set
forth above under "Conditions," to terminate the Exchange
Offer and, to the extent permitted by applicable law, to purchase
Old Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or
offers could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company
that, among other things, (i) the Notes to be acquired pursuant
to the Exchange Offer are being obtained in the ordinary course
of business of such holder, (ii) such holder has no arrangement
or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the
Exchange Notes and (iii) such holder is not an "affiliate," as
defined in Rule 405 under the Securities Act, of the Company, or
that if it is an "affiliate," it will comply with applicable
registration and prospectus delivery requirements of the
Securities Act.
Book-Entry Transfer
Within two business days after the date of this Prospectus,
the Exchange Agent will make a request to establish an account
with respect to the Old Notes at the book-entry transfer facility
for the Old Notes, DTC, for purposes of the Exchange Offer. Any
financial institution that is a participant in DTC's systems may
make book-entry delivery of Old Notes by causing DTC to transfer
such Old Notes into the Exchange Agent's account with respect to
the Old Notes in accordance with DTC's procedures for such
transfer. Although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, an
appropriate Letter of Transmittal with any required signature
guarantee and all other required documents must in each case be
transmitted to and received and confirmed by the Exchange Agent
at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such
procedures.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose
Old Notes are not immediately available, (ii) who cannot deliver
their Old Notes, the Letter of Transmittal or any other required
documents to the Exchange Agent prior to the Expiration Date or
(iii) who cannot complete the procedures for book-entry transfer
of Old Notes to the Exchange Agent's account with DTC prior to
the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) On or prior to the Expiration Date, the Exchange Agent
receives from such Eligible Institution (by facsimile
transmission, mail or hand delivery) a properly completed and
duly executed notice of guaranteed delivery substantially in the
form provided by the Company (the "Notice of Guaranteed
Delivery"), setting forth the name and address of the holder, the
certificate number(s) of such Old Notes (if possible) and the
principal amount at maturity of Old Notes tendered, stating that
the tender is being made thereby and guaranteeing that, within
five business trading days after the Expiration Date, (i) the
Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Old Notes and any other documents
required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, or (ii) that
book-entry transfer of such Old Notes into the Exchange Agent's
account at DTC will be effected and confirmation of such
book-entry transfer will be delivered to the Exchange Agent; and
(c) Such properly completed and executed Letter of
Transmittal (or facsimile thereof), as well as the certificate(s)
representing all tendered Old Notes in proper form for transfer
and all other documents required by the Letter of Transmittal, or
confirmation of book-entry transfer of the Old Notes into the
Exchange Agent's account at DTC, are received by the Exchange
Agent within three American Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed
Delivery will be sent to holders who wish to tender their Old
Notes according to the guaranteed delivery procedures set forth
above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes
may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date.
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<PAGE>
To withdraw a tender of Old Notes in the Exchange
Offer, the Exchange Agent must receive at its address set forth
herein a telegram, telex, facsimile transmission or letter
indicating notice of withdrawal prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must
(i) specify the name of the person having tendered the Old Notes
to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the certificate number or numbers and
principal amount at maturity of such Old Notes), (iii) include a
statement that such holder is withdrawing its election to have
such Old Notes exchanged, (iv) be signed by the holder in the
same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accomplished by documents of
transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of
the person withdrawing the tender and (v) specify the name in
which any such Old Notes are to be registered, if different from
that of the Depositor. If Old Notes have been tendered pursuant
to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at DTC
to be credited with the withdrawn Old Notes or otherwise comply
with DTC's procedures. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be
determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange
Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old
Notes which have been tendered but which are not accepted for
payment will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn
Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time
prior to the Expiration Date.
Untendered Old Notes
Holders of Old Notes whose Old Notes are not tendered or
are tendered but not accepted in the Exchange Offer will continue
to hold such Old Notes and will be entitled to all the rights and
preferences and subject to the limitations applicable thereto
under the Indenture. Following consummation of the Exchange
Offer, the holders of Old Notes will continue to be subject to
the existing restrictions upon transfer contained in the legend
thereon. In general, the Old Notes may not be offered for resale
or resold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject
to, the Securities Act and applicable state securities laws. The
Company will have no further obligations to such holders, other
than Lazard insofar as it holds Old Notes it obtained from the
Company in the initial issuance or any holder that is not
eligible to participate in the Exchange Offer or does not receive
freely tradable Exchange Notes in the Exchange Offer, to provide
for the registration under the Securities Act of the Old Notes
held by them after the Expiration Date. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old
Notes could be adversely affected.
Exchange Agent
First Security Bank, National Association has been
appointed as Exchange Agent of the Exchange Offer. Questions and
requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By mail, overnight courier or hand:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
(registered or certified mail recommended)
Telephone: 801/246-5630
Facsimile: 801/246-5053
Delivery to an address other than as set forth above or
transmission of instructions via facsimile to a number other than
as set forth above will not constitute a valid delivery.
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<PAGE>
Fees and Expenses
The Company will bear the expenses of soliciting tenders.
The principal solicitation is being made by mail; however,
officers and regular employees of the Company and its affiliates
may make additional solicitation by telegraph, facsimile
transmission, telephone or in person.
The Company has not retained any dealer-manager in
connection with the Exchange Offer and will not make any payments
to brokers, dealers or others soliciting acceptances of the
Exchange Offer. The Company, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection
therewith.
The Company will pay the cash expenses to be incurred in
connection with the Exchange Offer. Such expenses include
registration fees and expenses of the Exchange Agent and Trustee,
accounting and legal fees and printing costs, among others.
The Company will pay any and all transfer taxes applicable
to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Old Notes
for principal amounts not tendered or accepted for exchange are
to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of
any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of Old Notes pursuant to the Exchange Offer,
satisfactory evidence of the payment of the amount of any such
transfer taxes must be submitted with the Letter of Transmittal
(whether imposed on the registered holder or any other person).
Certificates representing Exchange Notes will not be issued to
such persons until satisfactory evidence of the payment of such
taxes, or an exemption therefrom, is submitted.
Consequences of Failure to Exchange
Upon consummation of the Exchange Offer, holders that were
not prohibited from participating in the Exchange Offer and did
not tender their Old Notes will not have any registration rights
under the Registration Rights Agreement with respect to such
nontendered Old Notes and, accordingly, such Old Notes will
continue to be subject to the restrictions on transfer contained
in the legend thereon as a consequence of the issuance of the Old
Notes pursuant to exemptions from or in transactions not subject
to, the registration requirements of the Securities Act and
applicable state securities laws. In general, the Old Notes may
not be offered for resale or resold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not intend to register
the Old Notes under the Securities Act. The Exchange Notes may
not be offered or sold unless they have been registered or
qualified for sale under applicable state securities laws or an
exemption from registration or qualification is available and is
complied with. The Registration Rights Agreement requires the
Company to register the Exchange Notes in any jurisdiction
requested by the holders, subject to certain limitations. To the
extent the Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but
unaccepted Old Notes could be adversely affected.
Resale of the Exchange Notes
Under existing interpretations of the staff of the
Commission contained in several no-action letters to third
parties, the Exchange Notes would in general be freely
transferable after the Exchange Offer without further
registration under the Securities Act. However, any purchaser of
Old Notes who intends to participate in the Exchange Offer for
the purpose of distributing the Exchange Notes (i) would not be
able to rely on the interpretations of the staff of the
Commission, (ii) will not be able to tender its Old Notes in the
Exchange Offer and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Notes unless such
sale or transfer is made pursuant to an exemption from such
requirements. By executing the Letter of Transmittal, each holder
of the Old Notes will represent that (i) it is not an affiliate
of the Company or if such Holder is an "affiliate," that such
Holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable, (ii)
any Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) at the time of
commencement of the Exchange Offer, it had no arrangement with
any person to participate in the distribution (within the meaning
of the Securities Act) of the Exchange Notes. In addition, in
connection with any resales of Exchange Notes, any broker-dealer
(a
34
<PAGE>
"Participating Broker-Dealer") who acquired the Notes for its own
account as a result of market-making or other trading activities
must deliver a prospectus meeting the requirements of the
Securities Act. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to the Exchange Notes (other
than a resale of an unsold allotment from the original sale of
the Old Notes) with this Prospectus. Under the Registration
Rights Agreement, the Company is required to allow Participating
Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use this Prospectus as it may
be amended or supplemented from time to time, in connection with
the resale of such Exchange Notes.
Other
Participation in the Exchange Offer is voluntary and
holders should carefully consider whether to accept. Holders of
the Old Notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take.
Upon consummation of the Exchange Offer, holders who were
not prohibited from participating in the Exchange Offer and who
did not tender their Old Notes will not have any registration
rights under the Registration Rights Agreement with respect to
such nontendered Old Notes and such Old Notes will continue to be
subject to the restrictions on transfer contained in the legend
thereon. Accordingly, such Old Notes may not be offered, sold,
pledged or otherwise transferred except (i) to a person whom the
seller reasonably believes is a "Qualified Institutional Buyer"
within the meaning of Rule 144A under the Securities Act
purchasing for its own account or for the account of a Qualified
Institutional Buyer in a transaction meeting the requirements of
Rule 144A, (ii) in an offshore transaction complying with Rule
904 of Regulation S under the Securities Act, (ii) pursuant to an
exemption from registration under the Securities Act provided by
Rule 144 thereunder (if available), (iv) pursuant to an effective
registration statement under the Securities Act or (v) to the
Company and, in each case, in accordance with all other
applicable securities laws.
Accounting Treatment
The Exchange Notes will be recorded in the Company's
accounting records at the same carrying value as the Old Notes as
reflected in the Company's accounting records on the date of the
exchange. Accordingly, the Company will recognize no gain or loss
for accounting purposes upon the consummation of the Exchange
Offer. The expenses of the Exchange Offer will be amortized over
the remaining term of the Exchange Notes.
RATIO OF EARNINGS TO FIXED CHARGES
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.
35
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated cash
and the capitalization of the Company as of March 31, 1998 and as
adjusted to give effect to the issuance on April 21, 1998 of the
April Notes, the issuance on June 16, 1998 of the Notes and the
Equity Notes and the conversion into Common Stock of the April
Equity Notes on July 7, 1998 and the Equity Notes on July 13,
1998. This information should be read in conjunction with the
Consolidated Financial Statements incorporated by reference in
this Prospectus.
March 31, 1998
-------------------
As
Actual Adjusted
------ --------
(in millions)
Cash and cash equivalents(1) ................... $346.1 $346.1
====== ======
Long-term debt and capital
lease obligations (net of unamortized
discounts and including current maturities,
as applicable):(2)
10 1/4% Senior Secured Notes due 2003 ......... -- 14.5
11 3/8% Senior Secured Notes due 2003 ......... -- 43.2
11 3/8% Senior Notes due 2006 ................. 150.0 150.0
9.80% Airline Receivable Asset
Backed Notes, Series 1997 ................... 100.0 100.0
11 1/2% Senior Secured Notes due 2004 ......... 138.4 138.4
12% Senior Secured Notes due 2002 ............. 43.5 43.5
8% IAM Backpay Notes. ......................... 13.7 13.7
PBGC Notes. ................................... 117.1 117.1
Various secured notes, 4.0% to 12.4%,
due 1997-2001 ............................... 36.7 36.7
Installment Purchase Agreements,
10.00% to 10.53%, due 2002-2003 ............. 115.3 115.3
Boeing Co. 757 Purchase Agreements,
11.85% to 12.38%, due 2015 .................. 147.9 147.9
IRS Deferral Note ............................. 4.8 4.8
Predelivery Financing Agreement ............... 6.4 6.4
Worldspan Note 31.2 31.2
Capital lease obligations ..................... 211.1 211.1
------ -----
Total long-term debt and
and capital lease obligations ............. 1,116.1 1,173.8
------ -----
Stockholders' equity:
Preferred Stock, $0.01 par value;
137,500,000 shares authorized:
8% Preferred Stock, 4,025,000 shares
authorized; 3,869,000 shares issued
and outstanding and as adjusted ........... -- --
9 1/4% Preferred Stock, 1,725,000
shares authorized;
1,725,000 shares issued and
outstanding and as adjusted ................ -- --
Employee Preferred Stock, $0.01 par value;
6,959,860 shares authorized;
6,020,145 shares issued and
outstanding and as adjusted (3) ............. 0.1 0.1
Common Stock, $0.01 par value;
150,000,000 shares authorized; 51,946,129
shares issued and outstanding; 56,462,755
shares issued and outstanding, as
adjusted(4) ................................ 0.5 0.5
Additional paid-in capital .................. 687.8 731.2
Accumulated deficit ......................... (481.3) (481.3)
--------- --------
Total stockholders' equity ............... 207.1 250.6
--------- --------
Total capitalization ..................... $1,323.2 $1,424.4
======== ========
36
<PAGE>
-----------------------
(1) Includes cash and cash equivalents held in the Company's
international operations and by its subsidiaries that, based
upon foreign monetary regulations and other factors, might
not be immediately available to the Company.
(2) Current maturities of long-term debt and capital lease
obligations at March 31, 1998 were $49.2 million and $36.6
million, respectively.
(3) Composed of 3,191,759 shares of the Company's IAM
Preferred Stock, 962,892 shares of the Company's IFFA
Preferred Stock, and 1,865,494 shares of the Company's
ALPA Preferred Stock distributed and allocated to
employees through employee stock ownership plans for
the benefit of employees represented by IAM and ALPA
(collectively, the "Employee Preferred Stock").
(4) As adjusted column includes 3,290,901 shares of Common
Stock issued upon conversion of the April Equity Notes and
1,225,719 shares of Common Stock issued upon conversion of
the Equity Notes. Actual and as adjusted columns do not
include approximately (i) approximately 10.9 million shares
of Common Stock initially reserved for issuance upon
conversion of the 9 1/4% Cumulative Convertible Exchangeable
Preferred Stock, (ii) approximately 6.3 million shares of
Common Stock reserved for issuance upon exercise of warrants
issued in connection with the March 1997 offering of the
Company's 50,000 Units, each consisting of (x) one 12%
Senior Secured Note due 2002, in the principal amount of
$1,000, and (y) one Redeemable Warrant to purchase 126.26
shares of Common Stock at an exercise price of approximately
$7.92 per share, (iii) approximately 9.5 million shares of
Common Stock reserved for issuance upon conversion of the 8%
Cumulative Convertible Exchangeable Preferred Stock, (iv)
approximately 3.7 million shares of Common Stock that may be
issued upon exercise of outstanding stock options granted to
officers and employees of the Company under the Key Employee
Stock Incentive Plan at prices ranging from $4.64 to $18.37
per share and Common Stock issuable upon the exercise of
warrants, and (v) shares of Common Stock that may be granted
or sold at a discount to employees under the ESIP. See "Risk
Factors--Risk Factors Related to the Company--Corporate
Governance Provisions; Special Voting Arrangements" above
and "Business--Employees" in the 1997 10-K and the 10-Q.
37
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial and operating data
presented below relates to periods in the three months ended
March 31, 1998 and 1997, the 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. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements
in the 1997 10-K and the 10-Q. The consolidated financial data
for the above periods other than the three months ended March 31,
1998 and 1997 was 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 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 in the 1997 10-K. 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>
<S> <C> <C> <C> <C> <C> <C>
Reorganized Company
-------------------------------------------------------------------
Four Months
Three Months Ended Year Ended Ended
March 31, December 31, December 31,
-------------------- -------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Statement of Operations
Data:
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)
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
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:
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
Ratio of earnings to fixed
charges(4) .............. -- -- -- --
Per share amounts(5):
Loss before
extraordinary
items ...................
Net loss ..................
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Reorganized Company Predecessor Company
----------------------------------------------------- -------------------------
March 31, December 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
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 in the 1997 10-K.
(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.
39
<PAGE>
DESCRIPTION OF NOTES
The Company issued the Old Notes and will issue the
Exchange Notes under the Indenture dated as of the Issue Date by
and between the Company and First Security Bank, National
Association, as trustee (the "Trustee"), a copy of which has been
filed as an exhibit to the Registration Statement. The Notes are
entitled to the benefits of and are subject to those terms set
forth in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the
"TIA"), as in effect on the date of the Indenture. Copies of the
Indenture can be obtained from the Company upon request. The
following description of material provisions of the Notes, the
Indenture, the Registration Rights Agreement and the Collateral
Documents is intended as a summary only and is qualified by
reference to those documents, including the definitions in those
documents of certain terms. Whenever particular articles,
sections or defined terms of the Notes, the Indenture, the
Registration Rights Agreement or the Collateral Documents are
referred to, it is intended that those articles, sections or
defined terms are to be incorporated herein by reference. See
"--Certain Definitions" for definitions of certain capitalized
terms used herein.
General
The Notes will represent senior secured obligations of the
Company and will rank pari passu in right of payment with other
senior obligations of the Company. None of the Company's
outstanding indebtedness is senior to the Notes. As of March 31,
1998, after giving effect to the issuance of the Notes, the
Equity Notes and the April Notes and the conversion of the April
Equity Notes and the Equity Notes, the aggregate principal amount
of the Company's total outstanding indebtedness, including
accrued interest, would have been approximately $1,235.6 million.
While unsecured indebtedness ranks pari passu with the Notes in
right of payment, the holders of the Notes may, to the exclusion
of unsecured creditors, seek recourse against the Collateral as
security for the Notes unless and until the Notes are satisfied
in full. See "--Collateral" and "--Certain Bankruptcy Issues."
The Notes are issued only in fully registered form, without
coupons, in minimum denominations of $1,000 and integral
multiples of $1,000. Holders will not be charged for any
registration of transfer or exchange of the Notes, but the
Company may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection with any such
transaction.
Principal, Maturity and Interest
The Notes will be limited to $14.5 million of principal in
the aggregate and will mature on June 15, 2003. The Notes will
bear interest at the annual rate of 10 1/4% (subject to possible
increases as described herein) from the date of original
issuance, or from the most recent interest payment date to which
interest has been paid or provided for, payable semiannually in
arrears on June 15 and December 15 of each year, commencing on
December 15, 1998, to the person in whose name the Note is
registered at the close of business on the preceding June 1 and
December 1, as the case may be. Interest and Special Interest, if
any, will be payable to the holders of record as they appear on
the register of the Company kept by the registrar on such record
dates. Interest and Special Interest, if any, will be computed on
the basis of a 360-day year of twelve 30-day months. The Notes
will be subject to a sinking fund as set forth under
"--Redemptions--Sinking Fund." Principal of, interest on, and
Special Interest, if any, with respect to the Notes will be
payable, and the transfer of the Notes will be registrable, at
the office or agency of the Company maintained for such purposes.
In addition, payment of interest and Special Interest, if any,
may, at the option of the Company, be made by check mailed to the
address of the person entitled thereto as it appears in the
register of the holders of Notes; provided, however, that
payments on a certificated Note will be made by wire transfer to
a U.S. dollar account maintained by the payee with a bank in New
York City if such payee owns at least $250,000 in aggregate
principal amount of certificated Notes and elects payment by wire
transfer by giving written notice to the Company and the Trustee
to such effect designating such account no later than ten days
immediately preceding the relevant due date for payment (or such
other date as the Company and the Trustee may accept in their
discretion). The Trustee will initially act as paying agent and
registrar for the Notes. The Company may change the paying agent
and registrar in accordance with the Indenture.
40
<PAGE>
Redemptions
Redemption. Except as set forth under "--Sinking Fund,"
"--Repurchase of Notes Upon a Change in Control" and
"--Collateral--Use of Collateral; Total Loss; Release and
Termination of Lien," the Company will not be required to
repurchase or make mandatory redemption payments with respect to
the Notes, and the Notes will not at any time be redeemable at
the option of the Company.
Sinking Fund. The Company shall, until all the Notes are
paid or payment thereof has been provided for, deposit, at least
one Business Day (as defined herein) prior to each of June 15,
2001 and June 15, 2002 (each such date being hereinafter referred
to as a "Mandatory Redemption Date") an amount in cash sufficient
to redeem an aggregate principal amount of Notes (the "Mandatory
Redemption Amount") equal to $920,000 (or, if the aggregate
principal amount of Notes outstanding on any such redemption date
is less than the principal amount required to be redeemed on such
date, then the aggregate principal amount of Notes outstanding
shall be redeemed), at a redemption price equal to 100% plus
accrued and unpaid interest and Special Interest, if any, to the
Mandatory Redemption Date.
At its option the Company may reduce or eliminate its
obligation to pay any Mandatory Redemption Amount in cash by
delivering to the Trustee at least 45 days before the Mandatory
Redemption Date (i) Notes that have been acquired by the Company
in open market purchases (and, for avoidance of doubt, not
acquired by way of any redemption or Offer to Purchase under the
Indenture) and have not been called for redemption pursuant to
the Indenture, together with (ii) an Officers' Certificate (as
defined in the Indenture) directing the Trustee to cancel the
Notes and stating the election of the Company to have credited
against such Mandatory Redemption Amount a specified principal
amount of Notes so delivered. All Notes made the basis of a
credit against a Mandatory Redemption Amount shall be credited at
100% of their principal amount. Although the Company may obtain
credit against any Mandatory Redemption Amount in advance of the
related Mandatory Redemption Date, any such credit will be
applied against Mandatory Redemption Amounts in the order in
which they become due.
The obligation of the Company to make mandatory redemption
payments with respect to the Notes shall be automatically
terminated in the event that the Aircraft is sold in accordance
with the applicable provisions under "-- Collateral--Use of
Collateral; Total Loss; Release and Termination of Lien" below,
or is the subject of a Total Loss; provided, that the Company has
complied in full with the applicable provisions under
"--Collateral--Use of Collateral; Total Loss; Release and
Termination of Lien" below, with respect to such sale or Total
Loss, as the case may be. The effective date of any such
termination shall be the Payment Date with respect to the related
Offer to Purchase (so long as the Company does not default in the
payment of the purchase price with respect to such Offer to
Purchase); provided, however, that such termination shall not
apply to any Mandatory Redemption Amount for which a notice of
redemption has been given on or prior to such effective date.
Repurchase of Notes Upon a Change in Control
The Company must commence, within 30 days of the occurrence
of a Change in Control, and consummate an Offer to Purchase all
Notes then outstanding, at a purchase price equal to 101% of the
principal amount thereof on the relevant Payment Date, plus
accrued and unpaid interest and Special Interest, if any, to the
Payment Date.
There can be no assurance that the Company will have
sufficient funds available at the time of any Change in Control
to make any debt payment (including repurchases of Notes)
required by the foregoing covenant (as well as may be contained
in other securities or agreements of the Company which might be
outstanding at the time).
Future indebtedness of the Company may contain prohibitions
on the occurrence of certain events that would constitute a
Change in Control or require such indebtedness to be purchased
upon a Change in Control. Moreover, the exercise by the holders
of their right to require the Company to repurchase the Notes
could cause a default under such indebtedness, even if the Change
in Control itself does not, due to the financial effect of such
purchase on the Company. Finally, the Company's ability to pay
cash to the holders of Notes following the
41
<PAGE>
occurrence of a Change in Control may be limited by the Company's
then existing financial resources. The provisions under the
Indenture relative to the Company's obligation to make an offer
to repurchase the Notes as a result of a Change in Control may be
waived or modified with the written consent of the holders of a
majority in principal amount of the Notes.
One of the events that constitutes a Change in Control
under the Indenture is the disposition of "all or substantially
all" of the Company's assets. This term has not been interpreted
under New York law (the law governing the Indenture) to represent
a specific quantitative test. As a consequence, in the event the
holders of the Notes elect to require the Company to repurchase
the Notes and the Company elects to contest such election, there
can be no assurance as to how a court interpreting New York law
would interpret the phrase.
The Company could, in the future, enter into certain
significant transactions that would not constitute a Change in
Control with respect to the Change in Control purchase feature of
the Notes. The Change in Control purchase feature of the Notes
may in certain circumstances make more difficult or discourage a
takeover of the Company and, thus, the removal of incumbent
management. The Change in Control purchase feature, however, is
not the result of, to management's knowledge, any specific effort
to obtain control of the Company by means of a merger, tender
offer, solicitation or otherwise, nor is it part of a plan by
management to adopt a series of anti-takeover provisions.
The right to require the repurchase of Notes shall
terminate after a discharge of the Company from its obligations
under the Notes and the Indenture in accordance therewith.
Repurchase of the Notes may, under certain circumstances,
constitute a default or event of default under senior
indebtedness then outstanding and, in such instances, repurchase
of the Notes would be prohibited unless and until such default
has been cured or waived. The failure to repurchase the Notes in
such instance would constitute an Event of Default (as defined in
the Indenture). See "--Events of Default."
Merger, Sale or Consolidation
Without limitation of the provisions of the Indenture
described above regarding a Change in Control, the Company may
merge, consolidate or transfer all or substantially all of its
properties and assets and the Company may permit any person to
consolidate with or merge into the Company, or transfer or lease
all or substantially all of its properties and assets to the
Company; provided that, among other things, (a) the successor
person is the Company or another corporation organized and
existing under the laws of the United States, any state thereof
or the District of Columbia that expressly assumes the Company's
obligations on the Notes and under the Indenture and the other
Operative Documents (as defined herein) and (b) immediately
before and immediately after giving effect to such transaction,
no Default (as defined in the Indenture) or Event of Default
shall have occurred and be continuing.
Upon any permitted consolidation, merger or conveyance or
transfer of the properties and assets of all or substantially all
of the assets of the Company, the surviving or acquiring entity,
as the case may be (if other than the Company), shall succeed to,
and be substituted for, the Company under the Indenture, the
Notes and the other Operative Documents, but the predecessor
Company in the case of a conveyance or transfer shall not be
released from the obligation to pay the principal of, interest
on, and Special Interest, if any, with respect to, the Notes.
Exchange Offer; Registration Rights
Pursuant to the Registration Rights Agreement made and
entered into as of the Issue Date (the "Registration Rights
Agreement") by and among the Company, the Owner Trustee and
Lazard, upon the effectiveness of the Registration Statement, the
Company will offer the Exchange Notes in exchange for surrender
of the Notes. The Company will keep the Exchange Offer open for
not less than 20 business days (or longer if required by
applicable law) after the date notice of the Exchange Offer is
first mailed to the holders of the Notes. For each Note
surrendered to the Company pursuant to the Exchange Offer, the
holder of such Note will receive an Exchange Note having a
principal amount equal to that of the surrendered Note. Under
existing Commission interpretations, the Exchange Notes would be
freely transferable by holders other than affiliates of the
Company
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after the Exchange Offer without further registration
under the Securities Act if the holder of the Exchange Notes
represents that it is acquiring the Exchange Notes in the
ordinary course of its business, that it has no arrangement or
understanding with any person to participate in the distribution
of the Exchange Notes and that it is not an affiliate of the
Company, as such terms are interpreted by the Commission;
provided, however, that Participating Broker-Dealers receiving
Exchange Notes in the Exchange Offer will have a prospectus
delivery requirement with respect to resales of such Exchange
Notes. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements
with respect to Exchange Notes (other than a resale of an unsold
allotment from the original sale of the Notes) with this
Prospectus. Under the Registration Rights Agreement, the Company
is required to allow Participating Broker-Dealers and other
persons, if any, with similar prospectus delivery requirements to
use this Prospectus in connection with the resale of such
Exchange Notes.
A Holder of Old Notes (other than certain specified
holders) who wishes to exchange such Old Notes for Exchange Notes
in the Exchange Offer will be required to represent that any
Exchange Notes to be received by it will be acquired in the
ordinary course of its business and that at the time of the
commencement of the Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes
and that it is not an "affiliate" of the Company, as defined in
Rule 405 of the Securities Act, or if it is an affiliate, that it
will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
In the event that applicable interpretations of the staff
of the Commission do not permit the Company to effect the
Exchange Offer, or if for any other reason the Exchange Offer is
not consummated within 180 days of the date of the Registration
Rights Agreement, or if the Owner Trustee or Lazard so requests
with respect to Notes not eligible to be exchanged for Exchange
Notes in the Exchange Offer, or if any holder of Notes is not
eligible to participate in the Exchange Offer or does not receive
freely tradable Exchange Notes in the Exchange Offer, the Company
will, at its cost, (a) as promptly as practicable, file the Shelf
Registration Statement covering resales of the Notes or the
Exchange Notes, as the case may be, (b) use its reasonable best
efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) use its reasonable
best efforts to keep the Shelf Registration Statement effective
for a period of two years from the date of original issuance of
the Notes or such shorter period that will terminate when Notes
covered by the Shelf Registration Statement have been sold
pursuant thereto or can be sold pursuant to Rule 144(k) under the
Securities Act, or any successor provision thereof. The Company
will, in the event a Shelf Registration Statement is filed, among
other things, provide to each holder for whom such Shelf
Registration Statement was filed copies of the prospectus which
is a part of the Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement has become effective
and take certain other actions as are required to permit
unrestricted resales of the Notes or the Exchange Notes, as the
case may be. A holder selling such Notes or Exchange Notes
pursuant to the Shelf Registration Statement generally would be
required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the
Securities Act in connection with such sales and will be bound by
the provisions of the Registration Rights Agreement which are
applicable to such holder (including certain indemnification
obligations).
If (i) on or prior to 180 days after the original issuance
of the Old Notes, neither the Exchange Offer is consummated nor
the Shelf Registration Statement is declared effective; (ii)
notwithstanding the filing of the Registration Statement or the
effectiveness thereof or the consummation of the Exchange Offer,
by the later of (x) 60 days after the date of original issuance
of the Old Notes and (y) 30 days after a request made by Lazard
or certain other holders of Old Notes pursuant to the
Registration Rights Agreement that the Company file a Shelf
Registration Statement, a Shelf Registration Statement has not
been filed with the Commission or such Shelf Registration
Statement has not been declared effective by the Commission
within 150 days after any such request; or (iii) after either the
Registration Statement or the Shelf Registration Statement is
declared effective, such registration statement thereafter ceases
to be effective or usable (subject to certain exceptions) in
connection with resales of Old Notes or Exchange Notes in
accordance with and during the periods specified in the
Registration Rights Agreement (each such event referred to in
clauses (i) through (iii), a "Registration Default," and each
period during which a Registration Default has occurred and is
continuing, a "Registration Default Period"), then special
interest ("Special Interest") on the Old Notes and the Exchange
Notes will accrue at a per annum rate of 0.50% for the first 90
days of the Registration Default Period, at a per annum rate of
1.0% for the second 90 days
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of the Registration Default Period, at a per annum rate of 1.50%
thereafter for the remaining portion of the Registration Default
Period. From and including the date on which all Registration
Defaults have been cured, the accrual of Special Interest will
cease. Special Interest is payable in addition to any other
interest payable from time to time pursuant to the terms of the
Old Notes and the Exchange Notes.
A Registration Default shall be deemed not to have occurred
and be continuing in relation to a Shelf Registration Statement
or the related prospectus if (i) such Registration Default has
occurred solely as a result of (x) the filing of a post-effective
amendment to such Shelf Registration Statement to incorporate
annual audited or, if required by the rules and regulations under
the Securities Act, quarterly unaudited financial information
with respect to the Company where such post-effective amendment
is not yet effective and needs to be declared effective to permit
holders of the Notes to use the related prospectus or (y) other
material events or developments with respect to the Company that
would need to be described in such Shelf Registration Statement
or the related prospectus and (ii) in the case of clause (y), the
Company is proceeding promptly and in good faith to amend or
supplement such Shelf Registration Statement and related
prospectus to describe such events; provided, however, that in no
event shall the Company be required to disclose the business
purpose for such suspension if the Company determines in good
faith that such business purpose must remain confidential;
provided further, however, that in any case if such Registration
Default occurs for a continuous period in excess of 45 days,
Special Interest shall be payable in accordance with the above
paragraph from the day following such 45-day period until the
date on which such Registration Default is cured.
If the Company effects the Exchange Offer contemplated
hereby, it will be entitled (subject to applicable law) to
consummate the Exchange Offer 20 business days after the
commencement thereof provided that it has accepted all Notes
theretofore validly tendered in accordance with the terms of the
Exchange Offer.
Listing of Notes on the American Stock Exchange
The Company has agreed to use its reasonable best efforts
to list the Notes on the American Stock Exchange or on such other
stock exchange or market as the Common Stock is then principally
traded no later than the earliest to occur of (i) the
effectiveness of the Registration Statement and (ii) the
effectiveness of the initial Shelf Registration Statement;
provided that such Notes meet the minimum requirements for
listing on any such exchange or market, and, if applicable, to
use its reasonable best efforts to maintain such listing for so
long as any of the Notes are outstanding.
Events of Default
The following shall constitute "Events of Default" with
respect to the Notes: (i) failure to pay the principal of or
Offer to Purchase repurchase amount, if any, with respect to, any
Note when such amounts become due and payable at maturity, upon
acceleration, redemption or otherwise; (ii) failure to pay
interest or Special Interest on the Notes when due, where such
failure continues for a 30-day period; (iii) the failure by the
Company to comply with its obligations under
"--Redemptions--Sinking Fund" or "--Merger, Sale or
Consolidation" above or to observe or perform certain other
covenants or agreements in the Indenture or the Collateral
Documents or the discontinuance or agreement to discontinue
substantially all of the Company's commercial airline operations;
(iv) any of the Operative Documents cease, without the consent of
the Trustee, to be in full force and effect; (v) any
representation or warranty of the Company in the Indenture or any
of the Collateral Documents shall prove to have been untrue in
any material respect when made and such default continues for the
period and after the notice specified below, or a default in any
material respect in the observance or performance of any other
covenant or agreement of the Company in the Notes, the Indenture
or any of the Collateral Documents, in each case that continues
for the period and after the notice specified below; (vi) a
default or event of default shall have occurred and be continuing
under any other evidence of indebtedness of the Company or any
Significant Subsidiary (as defined in Commission Regulation S-X)
of the Company in excess of $10.0 million in principal amount,
whether such indebtedness now exists or is created hereafter,
which default or event of default results in the acceleration of
such indebtedness or the failure to pay such indebtedness at
maturity; (vii) any final judgment or judgments for payment of
money in excess of $10.0 million in the aggregate shall be
rendered against the Company or any of its Significant
Subsidiaries and shall remain unstayed, unsatisfied and
undischarged for the period and after the notice
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specified below; and (viii) certain events of bankruptcy,
insolvency or reorganization involving the Company or any of its
Significant Subsidiaries. The Company is required to deliver to
the Trustee within 120 days after the end of each fiscal year of
the Company an officer's certificate stating whether or not the
signatories know of any default by the Company under the
Indenture and the Notes and, if any default exists, describing
such default.
A default under clause (v), (vi) or (vii) above is not an
Event of Default until the Trustee notifies the Company or the
holders of at least 25% in principal amount of the then
outstanding Notes notify the Company and the Trustee of the
default and the Company does not cure the default within 60 days
with respect to clauses (v) or (vii), or within 30 days with
respect to clause (vi) after receipt of the notice. The notice
must specify the default, demand that it be remedied and state
that the notice is a "Notice of Default."
In case an Event of Default (other than an Event of Default
resulting from bankruptcy, insolvency or reorganization of the
Company or any of its Significant Subsidiaries) shall have
occurred and be continuing, the Trustee, by notice to the
Company, or the holders of 25% or more of the principal amount of
the Notes then outstanding, by notice to the Company and the
Trustee, may declare the principal amount of the Notes, plus
accrued and unpaid interest and Special Interest, if any, to be
immediately due and payable. In case an Event of Default
resulting from certain events of bankruptcy, insolvency or
reorganization of the Company or any of its Significant
Subsidiaries shall occur, such amounts shall be due and payable
without any declaration or other act on the part of the Trustee
or the holders of the Notes. Such declaration of acceleration may
be rescinded and past defaults may be waived by the holders of a
majority of the principal amount of the Notes then outstanding
upon conditions provided in the Indenture, except a default in
the payment of principal, or interest on, or Special Interest, if
any, with respect to any Note cannot be waived or amended without
payment of the amount then due otherwise than for the
acceleration. Except to enforce the right to receive payment when
due of principal, interest, and Special Interest, if any, no
holder of a Note may institute any proceeding with respect to the
Indenture or the Notes or for any remedy thereunder unless such
holder has previously given to the Trustee written notice of a
continuing Event of Default and unless the holders of 25% or more
of the principal amount of the Notes then outstanding have
requested the Trustee to institute proceedings in respect of such
Event of Default and have offered the Trustee reasonable
indemnity against loss, liability and expense to be thereby
incurred, the Trustee has failed so to act for 60 days after
receipt of the same and during such 60-day period the holders of
a majority of the principal amount of the Notes then outstanding
have not given the Trustee a direction inconsistent with the
request. Subject to certain restrictions, the holders of a
majority in principal amount of the Notes then outstanding will
have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee with
respect to the Collateral or otherwise or exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse
to follow any direction that conflicts with law or the Indenture,
that is unduly prejudicial to the rights of any holder of a Note
or that would involve the Trustee in personal liability, and the
Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
Modifications and Waivers of the Indenture
Supplemental indentures modifying or amending the Indenture
may be made by the Company and the Trustee with the consent of
the holders of not less than a majority in aggregate principal
amount of the then outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of the
holders of each Note affected thereby, (a) change the fixed
maturity of any Note, reduce the rate or extend the time of
payment of interest on, or Special Interest, if any, with respect
to, any Note, reduce the principal amount or Special Interest, if
any, with respect to (in each case, whether on redemption,
repurchase or otherwise), any Note, change the time at which any
Note may or must be redeemed as described under "--Redemptions"
above, impair the right of a holder to institute suit for payment
thereof, or change the place of payment of the Notes, or the
currency in which the Notes are payable or (b) reduce the
percentage of Notes, the consent of the holders of which is
required for any modification or waiver. Without the consent of
any holders of the Notes, the Company and the Trustee may amend
or supplement the Notes, the Indenture or any Collateral Document
to (i) provide for uncertificated Notes in addition to or in
place of certificated Notes, (ii) provide for the assumption of
the Company's obligations to holders of the Notes in the case of
a merger or consolidation or transfer of all or substantially all
of the Company's assets, (iii) comply with the TIA or (iv) cure
any ambiguity, defect or
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inconsistency, or make any other change, in each case provided
that such action does not materially adversely affect the
interests of the holders of the Notes.
The holders of a majority in aggregate principal amount of
outstanding Notes may waive any past default under the Indenture,
except a default in the payment of principal, interest or Special
Interest, if any, or default with respect to certain covenants
under the Indenture.
The consent of the holders of the Notes is not necessary
under the Indenture to approve the particular form of any
proposed amendment. It is sufficient if such consent approves the
substance of the proposed amendment. After the amendment under
the Indenture becomes effective, the Company is required to mail
to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all
holders of the Notes, or any defect therein, will not impair or
affect the validity of the amendment.
No Personal Liability of Directors, Officers, Employees and
Stockholders
No past, present or future director, officer, employee or
stockholder, as such, of the Company shall have any liability for
any obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of the Notes by
accepting a Note waives and releases all such liability.
Satisfaction and Discharge of the Indenture
The Indenture provides that the Company may terminate its
obligations under the Indenture and obtain the release of the
Collateral at any time by delivering all outstanding Notes to the
Trustee for cancellation and paying all sums required to be paid
pursuant to the terms of the Indenture. In addition, the Company
will be permitted to terminate all of its obligations under the
Indenture and obtain the release of the Collateral by irrevocably
depositing with the Trustee money or U.S. government obligations
sufficient to pay principal of, interest and Special Interest, if
any, with respect to the Notes to maturity or redemption and all
other sums payable pursuant to the terms of the Indenture, after
complying with certain other procedures set forth in the
Indenture.
Transfer and Exchange
A holder may transfer or exchange the Notes in accordance
with the Indenture. The Company may require a holder to, among
other things, furnish appropriate endorsements and transfer
documents and pay any taxes and fees required by law or permitted
by the Indenture.
The registered holder of a Note may be treated as the owner
of it for all purposes.
Delivery and Form
The Notes are issued in registered form.
Reports
As soon as practicable after it files with the Commission,
the Company shall deliver to the Trustee and to each holder of a
Note, at the address as set forth in the register of the Company
with respect thereto, copies of the annual reports, quarterly
reports and the information, documents and other reports with the
Company furnished by it to its stockholders generally.
Concurrently with the reports delivered pursuant to the
preceding paragraph, the Company is required to furnish the
Trustee an officer's certificate to the effect that such officer
has conducted or supervised a review of the activities of the
Company and of performance under the Indenture and that, to the
knowledge of such officer, based on such review, the Company has
fulfilled all of its obligations under the Indenture or, if there
has been a default, specifying each default known to him, its
nature and status.
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Concerning the Trustee
The Indenture contains certain limitations on the rights of
the Trustee, should it become a creditor of the Company, to
obtain payment of claims in certain cases or to realize on
certain property received in respect of any such claim as
security or otherwise. Subject to the TIA, the Trustee will be
permitted to engage in other transactions; however, if it
acquires any conflicting interest, as described in the TIA, it
must eliminate such conflict or resign. The Trustee shall have a
lien prior to the Notes on all money or property held or
collected by the Trustee or otherwise distributable to holders of
Notes (except money, securities or property held in trust to pay
principal and/or interest and Special Interest, if any, on
particular Notes) to secure the Company's payment and indemnity
obligations to the Trustee (as trustee under the Indenture and
under the Security Agreement (defined below)).
Governing Law
The Indenture provides that it and the Notes will be
governed by the laws of the State of New York without regard to
principles of conflict of laws.
Collateral
Pursuant to an Aircraft Mortgage and Security Agreement
between the Company and the Trustee (the "Security Agreement")
and the Mortgage Supplement referred to therein (the "Mortgage
Supplement"; the Security Agreement and the Mortgage Supplement
being referred to herein collectively as the "Collateral
Documents"), the indebtedness evidenced by the Notes will be
secured by a lien on (among other related collateral) (i) the
Pledged Airframe (as defined below) and (ii) the Pledged Engines
(as defined below). The Pledged Airframe and the Pledged Engines
are currently leased to the Company, which lease will be
terminated on the Issue Date. The Pledged Airframe, the Pledged
Engines and the other collateral under the Collateral Documents
are sometimes referred to herein collectively as the
"Collateral."
Airframe
The term "Pledged Airframe" refers to the Boeing 767-231
ETOPS airframe, together with any part, spare part, appliance,
accessory, appurtenance, instrument, furnishing, seat or other
item of equipment (other than complete engines) installed in or
attached to this airframe or removed therefrom but remaining
subject to the liens created by the Collateral Documents. The
Pledged Airframe was manufactured in 1983.
Engines
The term "Pledged Engines" refers to the two Pratt &
Whitney JT9D-7R4D engines associated with the Pledged Airframe or
any other engines that the Trustee and the Company agree will be
substituted therefor pursuant to the Security Agreement, together
with any part, spare part, appliance, accessory, appurtenance,
instrument, furnishing, seat or other item of equipment installed
in or attached to the engines or removed therefrom but remaining
subject to the liens created by the Collateral Documents.
Use of Collateral; Total Loss; Release and Termination of Lien
The Indenture and the Collateral Documents provide, among
other things, that the Company may (i) use and deal with the
Collateral in any manner consistent with the Company's ordinary
course of business and (ii) unless an Event of Default has
occurred and is continuing, cause certain Collateral to be leased
or subleased in accordance with the applicable Collateral
Documents.
Upon the payment in full of all amounts outstanding under
the Notes and the Indenture, the liens created by the Collateral
Documents will terminate.
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In addition, such Indenture and Collateral Documents permit
the sale of the Aircraft for cash or any other consideration
acceptable to the Company at any time; provided that upon such a
sale, the Company will be required to commence an Offer to
Purchase Notes in an amount (the "Sale OTP Amount") equal to the
aggregate principal amount of Notes outstanding on the date of
commencement of such Offer to Purchase, at a purchase price
(expressed as a percentage of principal amount of the Notes)
equal to (a) 102%, if such Offer to Purchase is commenced prior
to the first anniversary of the Issue Date, or (b) 101%, if such
Offer to Purchase is commenced on or after the first anniversary
of the Issue Date, plus, in either case, accrued and unpaid
interest and Special Interest, if any, on such Notes to and
including the Payment Date. At least 15 days prior to the date of
the commencement of the Offer to Purchase, the Company shall give
the Trustee notice of such pending sale and, on or prior to the
date of such sale, shall have deposited with the Trustee the
purchase price with respect to the Offer to Purchase. Such
purchase price shall remain on deposit with the Trustee until the
payment of such purchase price on the applicable Payment Date
with respect to the Offer to Purchase. As of the day immediately
following the Payment Date with respect to the Offer to Purchase,
the interest rate borne by any then outstanding Notes will
automatically increase by 1.50% per annum, and the Trustee shall
release from the liens created by the Collateral Documents all
right, title and interest of the Trustee in and to the
Collateral. Such increase shall be in addition to Special
Interest, if any, then accruing with respect to the Notes, which
Special Interest shall continue to accrue in accordance with the
provisions of the Notes.
In the event that there shall occur a Total Loss with
respect to the Aircraft, the Company will be required to make an
Offer to Purchase Notes in an aggregate principal amount (the
"Total Loss OTP Amount") equal to the aggregate principal amount
of Notes outstanding on the date such Offer to Purchase is
required to be commenced hereunder, at a purchase price equal to
100% of the aggregate principal amount of Notes to be purchased,
plus accrued and unpaid interest and Special Interest, if any, on
such Notes, to and including the date of purchase. The Company
shall commence the Offer to Purchase within 30 days after the
date of any such Total Loss.
At its option the Company may reduce or eliminate its
obligation to pay any Sale OTP Amount or Total Loss OTP Amount in
cash by delivering to the Trustee at least 15 days before the
date of commencement of the related Offer to Purchase (i) Notes
that have been acquired by the Company in open market purchases
(and, for avoidance of doubt, not acquired by way of any
redemption or Offer to Purchase under the Indenture) and have not
been called for redemption pursuant to the Indenture, together
with (ii) an Officers' Certificate directing the Trustee to
cancel the Notes and stating the election of the Company to have
credited against such Sale OTP Amount or Total Loss OTP Amount,
as the case may be, a specified principal amount of Notes so
delivered. All Notes made the basis of a credit against a Sale
OTP Amount or Total Loss OTP Amount shall be credited at 100% of
their principal amount. In case of the failure of the Company to
deliver such Officers' Certificate, the Sale OTP Amount or Total
Loss OTP Amount, as the case may be, due on the payment date
therefor shall be paid entirely in cash without the option to
reduce the Company's obligation to make such payment as described
above.
Under the terms of the Indenture and the Collateral
Documents, the Trustee, acting upon instructions from holders of
at least 66 2/3% in aggregate principal amount of Notes then
outstanding, will determine the circumstances under and the
manner in which the Collateral may be disposed of, including, but
not limited to, the determination of whether to release all or
any portion of the Collateral from the liens created by the
Collateral Documents other than in accordance with the terms
thereof and of the Indenture. The holders of at least a majority
in aggregate principal amount of the Notes then outstanding may
determine whether and under what circumstances to foreclose on
the Collateral. Upon any foreclosure, cash or other property
realized by the Trustee will be applied first to pay the expenses
of such foreclosure and fees and other amounts then payable to
the Trustee under the Collateral Documents and the Indenture, and
thereafter for the equal and ratable benefit of the holders pro
rata to the aggregate principal amounts of Notes held by such
holders. In connection with any release of Collateral, the
Trustee shall determine whether the Trustee has received all
documentation required by Section 314 of the TIA (to the extent
applicable) to permit such release.
Filing and Perfection Requirements for Collateral
The security interest in the Collateral was required to
be, and was duly perfected generally in accordance with applicable
federal, state and local laws.
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Restriction on Liens
The Indenture and the Security Agreement require that the
Collateral be maintained free of any liens, other than the liens
created by the Security Agreement, any second priority lien
created to secure the Equity Notes pursuant to the Equity Notes
Documents (as defined), liens for taxes either not yet due and
payable, liens for taxes due but whose validity is being
contested in good faith by the Company, materialmen's, mechanics'
or other similar liens that are not overdue (except to the extent
being contested in good faith by appropriate proceedings),
judgment liens in existence less than 60 days that are being
appealed in good faith and with respect to which a stay of
execution pending appeal has been secured or the payment of which
is covered in full by insurance (as long as the related judgments
do not constitute an Event of Default) and certain other liens
permitted under the Security Agreement.
Certain Bankruptcy Issues
Subject to the provisions of Section 1110 of the Bankruptcy
Code described below, the right of the Trustee to repossess and
dispose of the Collateral, or otherwise to exercise rights or
remedies with respect to the Collateral, upon the occurrence of
an Event of Default is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be
commenced by or against the Company prior to the date when, or
possibly even after, the Trustee has effected any such action.
Under bankruptcy law, secured creditors such as the holders of
the Notes are prohibited from repossessing their security from a
debtor in a bankruptcy case, or from disposing of security
repossessed from such debtor, without bankruptcy court approval.
Moreover, bankruptcy law permits the debtor to continue to retain
and to use collateral even though the debtor is in default under
the applicable debt instruments, provided generally that the
secured creditor is given "adequate protection." The meaning of
the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value
(as determined by the Bankruptcy Court) of the secured creditor's
interest in the collateral and may include cash payments or the
granting of additional security, if and at such times as the
court in its discretion determines, for any diminution in the
value of the collateral as a result of the stay of repossession
or disposition or any use of the collateral by the debtor during
the pendency of the bankruptcy case. In view of the lack of a
precise definition of the term "adequate protection" and the
broad discretionary powers of a bankruptcy court, it is
impossible to predict how long payments under the Notes could be
delayed following commencement of a bankruptcy case, whether or
when the Trustee could repossess or dispose of the Collateral or
whether or to what extent holders would be compensated for any
delay in payment or loss of value of the Collateral through the
requirement of "adequate protection." Furthermore, in the event
that the Bankruptcy Court determines the value of the Collateral
is not greater than or equal to all amounts due on the Notes, the
holders would, in part, hold "unsecured deficiency" claims.
Applicable federal bankruptcy laws do not permit the payment
and/or accrual of interest, costs and attorney's fees for
"unsecured deficiency" claims or for the related "undersecured"
claim during the pendency of a debtor's bankruptcy case.
Section 1110 of the Bankruptcy Code provides in relevant
part that the right of lessors, conditional vendors and -- with
respect to the Collateral -- holders of purchase money equipment
security interests, in each case, with respect to covered
"equipment" (as defined in Section 1110 of the Bankruptcy Code)
to take possession of such equipment in compliance with the
provisions of a lease, conditional sale contract or purchase
money equipment security agreement, as the case may be, is not
affected by (a) the automatic stay provision of the Bankruptcy
Code, which provision enjoins, among other things, repossessions
by creditors for the duration of the reorganization period, (b)
the provision of the Bankruptcy Code allowing the trustee in
reorganization to use, sell or lease property of the debtor
during the reorganization period, (c) Section 1129 of the
Bankruptcy Code (which governs the confirmation of plans of
reorganization in Chapter 11 cases) and (d) any power of the
bankruptcy court to enjoin a repossession, in each case, unless
the debtor in possession or bankruptcy trustee meets certain
conditions. Section 1110 provides in relevant part that the right
of a lessor, conditional vendor or -- with respect to the
Collateral -- holder of a purchase money equipment security
interest to take possession of such "equipment" upon the
occurrence of an event of default may not be exercised for 60
days from the date of commencement of the reorganization
proceedings (unless specifically permitted by the bankruptcy
court) and may not be exercised thereafter if, within such 60-day
period (or such longer period consented to by the lessor,
conditional vendor or holder of a Section 1110-covered security
interest), the trustee in reorganization or the debtor in
possession, subject
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to bankruptcy court approval, agrees to perform the debtor's
obligations that become due on or after the date of commencement
of reorganization proceedings and cures all existing defaults
(other than defaults resulting solely from the financial
condition, bankruptcy, insolvency or reorganization of the
debtor) within certain prescribed time periods. "Equipment" is
defined in Section 1110 of the Bankruptcy Code, in part, as an
aircraft, aircraft engine, propeller, appliance, or spare part
(as defined in Section 40102 of Title 49 of the U.S. Code) that
is subject to a security interest granted by, leased to, or
conditionally sold to a debtor that is a citizen of the United
States (as defined in Section 40102 of Title 49 of the U.S. Code)
holding an air carrier operating certificate issued by the
Secretary of Transportation pursuant to chapter 447 of title 49
of the U.S. Code for aircraft capable of carrying ten or more
individuals or 6,000 pounds or more of cargo.
The Trustee has received an opinion of Cleary,
Gottlieb, Steen & Hamilton, counsel to the Company ("Company
Counsel"), that the Trustee, on behalf of the holders of the
Notes, will be entitled, subject to certain conditions, to the
benefits of Section 1110 of the Bankruptcy Code with respect to
the Aircraft in the event of a case under Chapter 11 of the
Bankruptcy Code in which the Company is a debtor.
The opinion of Company Counsel does not address the
availability of Section 1110 to any possible lease or sublease of
the Aircraft, nor does it address any part of the Aircraft that
does not fall within the definition of "equipment" under Section
1110. The opinion of Company Counsel also does not address the
period of time during which the benefits of Section 1110 will
remain available because of the Western Pacific Airlines decision
described immediately below.
On March 10, 1998, the U.S. District Court for the District
of Colorado issued an opinion arising from the bankruptcy
proceedings of Western Pacific Airlines, Inc. (Civil Action No.
98-K-358). The decision, reversing an order of the bankruptcy
court, held that, once an airline debtor reaffirms its
obligations and cures its defaults under an aircraft lease within
the prescribed period in accordance with Section 1110 of the
Bankruptcy Code, the lessor under such lease is not entitled to
repossess the aircraft under Section 1110 if the airline
subsequently defaults under such lease. On May 1, 1998, the U.S.
District Court reaffirmed its prior decision in response to a
motion for rehearing and reconsideration by certain parties in
the case. Certain parties in the case have been granted their
motion for immediate certification of the decision to the Tenth
Circuit Court of Appeals. This decision, therefore, casts doubt
on the continuing applicability of Section 1110's protections
after an airline debtor reaffirms its obligations and cures any
defaults with respect to an aircraft lease or mortgage within the
original period provided by Section 1110.
Settlement
Initial settlement in the Notes will be in same-day funds.
Investors holding their Notes through DTC will follow settlement
practices applicable to United States corporate debt obligations.
The Indenture will require that payments in respect of Notes
(including principal, interest and Special Interest) meeting
certain conditions set forth in the Indenture be made by wire
transfer of same-day funds to the accounts specified by the
holders thereof or, under certain circumstances, by mailing a
check to each such holder's registered address.
Certain Definitions
"Business Day" means each day that is not a Legal Holiday.
"Change in Control" means the occurrence of any of the
following events: (i) any person (including any entity or group
deemed to be a "person" under Section 13(d)(3) or Section
14(d)(2) of the Exchange Act) is or becomes the direct or
indirect beneficial owner (as determined in accordance with Rule
13d-3 under the Exchange Act) of shares of the Company's capital
stock representing greater than 50% of the total voting power of
all shares of capital stock of the Company entitled to vote in
the election of directors under ordinary circumstances or to
elect a majority of the Board of Directors, (ii) the Company
sells, transfers or otherwise disposes of all or substantially
all of its assets, (iii) when, during any period of 12
consecutive months after the Issue Date, individuals who at the
beginning of any such 12-month period constituted the Board of
Directors (together with any new directors whose election by such
Board or whose nomination for election by the stockholders of the
Company was approved by a
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vote of a majority of the directors still in office entitled to
vote with respect to such nomination who were either directors at
the beginning of such period or whose election or nomination for
election was previously so approved, but excluding any of the
individuals who at the beginning of such 12-month period
constituted such Board but who ceased to be a member of the Board
pursuant to the Company's mandatory retirement policy as in
effect as of the Issue Date), cease for any reason to constitute
a majority of the Board of Directors then in office or (iv) the
date of the consummation of the merger or consolidation of the
Company with another corporation where the stockholders of the
Company, immediately prior to the merger or consolidation, would
not beneficially own, immediately after the merger or
consolidation, shares entitling such stockholders to 50% or more
of all votes (without consideration of the rights of any class of
stock to elect directors by a separate class vote) to which all
stockholders of the corporation issuing cash or securities in the
merger or consolidation would be entitled in the election of
directors or where members of the Board of Directors, immediately
prior to the merger or consolidation, would not, immediately
after the merger or consolidation, constitute a majority of the
board of directors of the corporation issuing cash or securities
in the merger or consolidation.
"Equity Notes Documents" means the Indenture pursuant to
which the Equity Notes are issued and the other Operative
Documents (as defined in such Indenture).
"Legal Holiday" means a Saturday, Sunday or any other day
on which banks located in New York City or the city and state of
the Trustee's Corporate Trust Office as of the date of original
issuance are authorized or obligated by law to remain closed.
"Offer to Purchase" means an offer to purchase all or a
portion, as the case may be, of the Notes by the Company from the
holders of the Notes commenced by the mailing (by first-class
mail, postage prepaid) by the Company (or, if requested by the
Company on at least five Business Days' prior notice to the
Trustee and at the Company's expense, by the Trustee) of a notice
to each holder (and, if mailed by the Company, to the Trustee) at
such holder's address appearing in the register, stating: (i) the
covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment; (ii) the
purchase price and the date of purchase (which shall be a
business day no earlier than 30 days nor later than 60 days from
the date such notice is mailed) (the "Payment Date"); (iii) that
any Note not tendered will continue to accrue interest and
Special Interest, if, any, pursuant to its terms; (iv) that,
unless the Company defaults in the payment of the purchase price
on the Payment Date, any Note accepted for payment pursuant to
the Offer to Purchase shall cease to accrue interest and Special
Interest, if, any, on and after the Payment Date; (v) that
holders electing to have a Note purchased pursuant to the Offer
to Purchase will be required to surrender the Note, together with
the form entitled "Option of the Holder to Elect Purchase" on the
reverse side of the Note completed, to the paying agent at the
address specified in the notice at any time beginning with the
date of such notice but prior to the close of business on the
Business Day immediately preceding the Payment Date, and such
holder shall be entitled to receive from the paying agent a
non-transferable receipt of deposit evidencing such deposit; (vi)
that, unless the Company defaults in making the payment of the
purchase price or shall otherwise, in its sole discretion,
consent thereto, holders will be entitled to withdraw their
election only if the Trustee receives, not later than the close
of business on the fifth business day immediately preceding the
Payment Date, a telegram, facsimile transmission or letter
setting forth the name of such holder, the principal amount of
Notes delivered for purchase and a statement that such holder is
withdrawing his election to have such Notes purchased; and (vii)
that holders whose Notes are being purchased only in part will be
promptly issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered; provided that each
Note purchased and each new Note issued shall be in a principal
amount of $1,000 or integral multiples thereof. The Company shall
place such notice in the national edition of The New York Times
or The Wall Street Journal or, if such newspapers are not then in
circulation, in a financial newspaper of general circulation in
New York City. No failure of the Company to give the foregoing
notice shall limit any holder's right to exercise a repurchase
right. On the Payment Date, the Company shall (i) accept for
payment Notes or portions thereof tendered pursuant to an Offer
to Purchase; (ii) deposit with the Trustee money sufficient to
pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the
Trustee all Notes or portions thereof so accepted together with
an officers' certificate specifying the Notes or portions thereof
accepted for payment by the Company. The Trustee shall promptly
mail to the holders of Notes so accepted payment in an amount
equal to the purchase price, and the Trustee shall promptly
authenticate, and the Company shall promptly execute and mail (or
cause to be mailed) to such holders a new Note equal in principal
amount to any unpurchased
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portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof; provided, further, that
if the payment date is between a regular record date and the next
succeeding interest payment date, Notes to be repurchased must be
accompanied by payment of an amount equal to the interest and
Special Interest, if any, on the principal amount of the Note
being repurchased, and the interest and the Special Interest, if
any, on the principal amount of the Note being repurchased will
be paid on such next succeeding interest payment date to the
registered holder of such Note on the immediately preceding
record date. A Note repurchased on an interest payment date need
not be accompanied by any such payment, and the interest and
Special Interest, if any, on the principal amount of the Note
being repurchased, if any, will be paid on such interest payment
date to the registered holder of such Note on the corresponding
record date. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date.
The Trustee shall act as the paying agent for an Offer to
Purchase. The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are
applicable, in the event that the Company is required to
repurchase Notes pursuant to an Offer to Purchase. Both the
notice of the Company and the notice of the holder having been
given as specified above, the Notes so to be repurchased shall,
on the Payment Date become due and payable at the purchase price
applicable thereto and from and after such date (unless the
Company shall default in the payment of such purchase price) such
Notes shall cease to bear interest or Special Interest, if any.
If any Note shall not be paid upon surrender thereof for
repurchase, the principal shall, until paid, bear interest and
Special Interest, if any, from the Payment Date at the rate and
in accordance with the provisions set forth in such Note and the
Indenture. Any Note that is to be submitted for repurchase only
in part shall be delivered pursuant to the above provisions with
(if the Company or Trustee so requires) due endorsement by, or a
written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the holder thereof or
such holder's attorney duly authorized in writing.
"Operative Documents" means the Indenture and the Collateral
Documents.
"Payment Date" with respect to any Offer to Purchase has
the meaning specified in the definition herein of Offer to
Purchase.
"Total Loss" means any of the following in relation to the
Aircraft, the Pledged Airframe or any Pledged Engine, and "Total
Loss Date" means the date set forth in parentheses after each
Total Loss:
(i) Destruction, damage beyond repair or being
rendered permanently unfit for normal use for any reason
whatsoever (the date such event occurs or, if not known,
the date on which the Aircraft, the Pledged Airframe or
Pledged Engine was last heard of).
(ii) Actual, constructive, compromised, arranged or
agreed total loss (the earlier of the date on which the
loss is agreed or compromised by the insurers or 30 days
after the date of notice to the Company's brokers or
insurers claiming such total loss).
(iii) Requisition of title, confiscation, forfeiture
or any compulsory acquisition whatsoever, except for any
acquisition of the Aircraft, Pledged Airframe or Pledged
Engines by the Air Mobility Command pursuant to the Civil
Reserve Air Fleet Program (the date on which the same takes
effect).
(iv) Sequestration, detention or seizure for more than
30 consecutive days (the earlier of the date on which
insurers make payment on the basis of a total loss or the
date of expiration of such period).
(v) Requisition for use for more than 180 consecutive
days (the earlier of the date on which the insurers make
payment on the basis of a total loss or the date of
expiration of such period).
(vi) Loss or loss of use due to theft or disappearance
for a period greater than 60 consecutive days (the date of
expiration of such period).
(vii) Any other occurrence that deprives the Company
of use or possession for a period of 180 consecutive days
or longer (the 180th day of such period).
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BOOK-ENTRY, DELIVERY AND FORM
General
Old Notes resold after the Issue Date within the United
States to Qualified Institutional Buyers ("QIBs") in compliance
with Rule 144A under the Securities Act or outside the United
States to non-U.S. persons in reliance on Regulation S under the
Securities Act were delivered and available only in global form
("Old Global Notes"). Old Notes resold after the Issue Date to
any Accredited Investors were delivered and available only in
definitive, fully registered form bearing a legend containing
restrictions on transfers ("Old Definitive Notes"). All Exchange
Notes issued in the Exchange Offer for Old Notes represented by
Old Global Notes or Old Definitive Notes will be represented by
one or more Exchange Notes in global form (the "Global Exchange
Notes," and together with the Old Global Notes, the "Global
Notes"), which will be deposited with, or on behalf of, the DTC
and registered in the name of the DTC or its nominee, unless the
holder of such Old Notes elects to take physical delivery of its
certificates instead of holding its interest through the Global
Exchange Notes (collectively referred to herein as the
"Non-Global Holders"). Non-Global Holders will be issued in
registered form a certificated Exchange Note ("Certificated
Exchange Note"). Upon the transfer of any Certificated Exchange
Note initially issued to a Non-Global Holder, such Certificated
Exchange Note will, unless the transferee requests otherwise or
the Global Exchange Note has previously been exchanged in whole
for Certificated Exchange Notes, be exchanged for an interest in
the Global Exchange Note.
Global Notes
Upon deposit of the Global Exchange Notes, DTC will credit,
on its book-entry registration and transfer system interests in
the Global Exchange Notes to the accounts of institutions that
have accounts with DTC (including Euroclear and Cedel)
("participants"). Ownership of beneficial interests in the Global
Exchange Notes will be limited to participants or persons that
may hold interests through participants. Ownership of beneficial
interests in the Global Exchange Notes will be shown on, and the
transfer of that ownership will be effected only through, records
maintained by DTC (with respect to participants' interests) for
the Global Exchange Notes, or by participants or persons that
hold interests through participants (with respect to beneficial
interests of persons other than participants). The laws of some
jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form.
Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Exchange Notes.
So long as DTC, or its nominee, is the registered holder of
any Global Notes, DTC or such nominee, as the case may be, will
be considered the sole legal owner and holder of such Notes
represented by the Global Notes for all purposes under the
Indenture and the Notes. Except as set forth below, owners of
beneficial interests in Global Notes will not be entitled to have
such Global Notes represented thereby registered in their names,
will not receive or be entitled to receive physical delivery of
certificates representing Notes in definitive, fully registered
form bearing a legend containing the applicable restrictions on
transfers ("Definitive Notes") in exchange therefor and will not
be considered to be the owners or holders of such Global Notes
represented thereby for any purpose under the Notes or the
Indenture. The Company understands that under existing industry
practice, in the event an owner of a beneficial interest in a
Global Note desires to take any action that DTC, as the holder of
such Global Note, is entitled to take, DTC would authorize the
participants to take such action, and that the participants would
authorize beneficial owners owning through such participants to
take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
Any payment of principal, interest or Special Interest due
on the Notes on any interest payment date or at maturity will be
made available by the Company to the Trustee by such date. As
soon as possible thereafter, the Trustee will make such payments
to DTC or its nominee, as the case may be, as the registered
owner of the Global Notes representing such Notes in accordance
with existing arrangements between the Trustee and DTC.
The Company expects that DTC or its nominee, upon receipt
of any payment of principal, interest or Special Interest in
respect of the Global Notes, will credit immediately the accounts
of the related participants with payments in amounts
proportionate to their respective beneficial interests in the
principal amount of such Global
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Note as shown on the records of DTC. The Company also expects
that payments by participants to owners of beneficial interests
in the Global Notes held through such participants will be
governed by standing instructions and customary practices, as is
now the case with securities held for the accounts of customers
in bearer form or registered in "street name," and will be the
responsibility of such participants.
None of the Company, the Trustee, or any payment agent for
the Global Notes will have any responsibility or liability for
any aspect of the records relating to or payments made on account
of beneficial ownership interests in any of the Global Notes or
for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests or for other aspects of the
relationship between DTC and its participants or the relationship
between such participants and the owners of beneficial interests
in the Global Notes owning through such participants.
As long as the Notes are represented by a Global Note,
DTC's nominee will be the holder of the Notes and therefore will
be the only entity that can exercise a right to repayment or
repurchase of the Notes. See "Description of Exchange Notes--
Repurchase of Notes Upon a Change in Control." Notice by
participants, or by owners of beneficial interests in a Global
Note held through such participants, of the exercise of the
option to elect repayment of beneficial interests in Notes
represented by a Global Note must be transmitted to DTC in
accordance with its procedures on a form required by DTC and
provided to participants. In order to ensure that DTC's nominee
will timely exercise a right to repayment with respect to a
particular Note, the beneficial owner of such Note must instruct
the broker or other participant to exercise a right to repayment.
Different firms have cut-off times for accepting instructions
from their customers and, accordingly, each beneficial owner
should consult the broker or other participant through which it
holds an interest in a Note in order to ascertain the cut-off
time by which such an instruction must be given in order for
timely notice to be delivered to DTC. The Company will not be
liable for any delay in delivery of notices of the exercise of
the option to elect repayment.
Unless and until exchanged in whole or in part for Notes in
definitive form in accordance with the terms of the Notes, the
Global Notes may not be transferred except as a whole by DTC to a
nominee of DTC, or by a nominee of DTC to DTC or another nominee
of DTC, or by DTC or any such nominee to a successor of DTC or a
nominee of each successor.
Although DTC has agreed to the foregoing procedures in
order to facilitate transfers of interests in the Global Notes
among its participants, it is under no obligation to perform or
continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Trustee nor the Company
will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective
obligations under the rules and procedures governing their
operations. The Company and the Trustee may conclusively rely on,
and shall be protected in relying on, instructions from DTC for
all purposes.
Definitive Notes
Upon consummation of the Exchange Offer, Old Global Notes
and the Global Exchange Notes shall be exchangeable for
corresponding Old Definitive Notes registered in the name of
persons other than DTC or its nominee at the option of the holder
thereof or if (A) DTC (i) notifies the Company that it is
unwilling or unable to continue as depositary for any of the
Global Notes or (ii) at any time ceases to be a clearing agency
registered under the Exchange Act, (B) there shall have occurred
and be continuing an Event of Default (as defined in the
Indenture) with respect to the Notes or (C) the Company executes
and delivers to the Trustee an order that the Global Notes shall
be so exchangeable. Any Definitive Notes or Certificated Exchange
Notes will be issued only in fully registered form and shall be
issued without coupons in denominations of $1,000 and integral
multiples thereof. Any Old Definitive Notes or Certificated
Exchange Notes issued in exchange for a Global Note will be
registered in such names and in such denominations as DTC shall
request.
The Clearing System
DTC has advised the Company as follows: DTC is a
limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the
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meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of
the Exchange Act. DTC was created to hold securities of
participants and to facilitate the clearance and settlement of
securities transactions among its participants in such securities
through electronic book-entry changes in accounts of
participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities
brokers and dealers (which may include Lazard), banks, trust
companies, clearing corporations and certain other organizations.
Access to DTC's book-entry system is also available to others
such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant,
whether directly or indirectly.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United
States federal income tax considerations applicable to the
initial holders of the Old Notes who purchased the Old Notes at
their "issue price," that is, the first price at which a
substantial amount of the Old Notes is sold for money to the
public (not including bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement
agents or wholesalers). This discussion does not address special
tax considerations relevant to any person that acquired the Old
Notes in exchange for a direct or indirect interest in the
Aircraft. This summary is based upon provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), regulations,
rulings and decisions currently in effect, all of which are
subject to change (possibly with retroactive effect). The
discussion does not purport to deal with all aspects of the
United States federal income taxation that may be relevant to
particular investors in light of their particular circumstances
(for example, to persons holding Notes as part of a conversion
transaction or as part of a hedge or hedging transaction, or as a
position in a straddle for tax purposes), nor does it discuss the
United States federal income tax considerations applicable to
certain types of investors subject to special treatment under the
federal income tax laws (for example, dealers in securities or
currencies, traders in securities electing to mark to market
their securities positions, insurance companies, tax-exempt
organizations or financial institutions). In addition, the
discussion does not consider the effect of any foreign, state,
local or other tax laws that may be applicable to a particular
investor. The discussion assumes that investors hold the Notes as
"capital assets" within the meaning of Section 1221 of the Code.
Prospective investors considering the Exchange Offer should
consult their tax advisors with regard to the application of the
United States federal income tax laws to their particular
situations as well as any tax consequences arising under the laws
of any state, local or foreign taxing jurisdiction.
As used herein, a "United States Holder" is an individual
who is a citizen or resident of the United States, a U.S.
domestic corporation or any other person that is subject to U.S.
federal income tax on a net income basis in respect of its
investment in the Notes.
Tax Consequences to United States Holders
The exchange of the Old Notes for Exchange Notes pursuant
to the Exchange Offer will not result in any United States
federal income tax consequences to the United States Holders.
When a United States Holder exchanges an Old Note for an Exchange
Note pursuant to the Exchange Offer, the Holder will have the
same adjusted tax basis and holding period in the Exchange Note
as in the Old Note immediately before the exchange.
Interest and Special Interest, if any, on a Note will
generally be taxable to a United States Holder as ordinary
interest income at the time it accrues or is received in
accordance with the United States Holder's method of accounting
for United States federal income tax purposes.
Upon the sale or retirement of a Note, a United States
Holder will recognize taxable gain or loss equal to the
difference between the amount realized on the sale or retirement
and such Holder's adjusted tax basis in the Note.
Tax Consequences to Non-United States Holders
Any payment of interest on a Note by the Company or any
paying agent to a holder that is a Non-United States Holder would
not be subject to withholding of U.S. federal income tax,
provided that (i) the holder does not actually or constructively
own 10 percent or more of the combined voting power of all
classes of stock of the Company and is not a controlled foreign
corporation related to the Company through stock ownership and
(ii) the beneficial owner provides a statement signed under
penalties of perjury that includes its name and address and
certifies that it is a Non-United States Holder in compliance
with applicable requirements.
Any gain realized on any sale or exchange of Notes by a
Non-United States Holder will not be subject to U.S. federal
income tax, including withholding tax, unless (i) such gain is
effectively connected with the conduct
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by the holder of a trade or business in the United States or (ii)
in the case of gain realized by an individual holder, the holder
is present in the United States for 183 days or more in the
taxable year of the sale and either (A) such gain or income is
attributable to an office or other fixed place of business
maintained in the United States by such holder or (B) such holder
has a tax home in the United States.
A Note held by an individual who is not a citizen or
resident of the United States at the time of his death will not
be subject to United States federal estate tax as a result of
such individual's death, provided that the individual does not
own, actually or constructively, 10 percent or more of the total
combined voting power of all classes of stock of the Company
entitled to vote and, at the time of such individual's death,
payments with respect to such Note would not have been
effectively connected to the conduct by such individual of a
trade or business in the United States.
As used herein, a "Non-United States Holder" is a holder of
a Note that is not a United States person. A "United States
person" is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in
or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to
U.S. federal income taxation regardless of its source or a trust
if (i) a U.S. court is able to exercise primary supervision over
the trust's administration and (ii) one or more United States
persons have the authority to control all of the trust's
substantial decisions.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply
to payments of interest on a Note and to the proceeds of the sale
of a Note made to a United States person other than certain
exempt recipients (such as corporations). Backup withholding at a
31 percent rate will apply to such payments if the United States
person fails to provide its taxpayer identification number or, in
the case of interest payments, fails either to report in full
interest income or to make certain certifications. Persons
holding Notes who are not United States persons may be required
to comply with applicable certification procedures to establish
that they are not United States persons to avoid the application
of such reporting requirements and backup withholding tax.
Any amounts withheld under the backup withholding rules
will be allowed as a refund or a credit against the person's U.S.
federal income tax liability provided the required information is
furnished to the Internal Revenue Service.
57
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own
account (a Participating Broker-Dealer) pursuant to the Exchange
Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection
with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to
any Participating Broker-Dealer for use in connection with any
such resale. In addition, until October 29, 1998 (90 days
after the date of this Prospectus), all dealers effecting
transactions in the Exchange Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of
Exchange Notes by Participating Broker-Dealers. Exchange Notes
received by Participating Broker-Dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the
Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating
Broker-Dealer or the purchasers of any such Exchange Notes. Any
Participating Broker-Dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer
and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such
resale of Exchange Notes and any commission or concessions
received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by
delivering a prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter" within the meaning
of the Securities Act.
For a period of 180 days after the Expiration Date the
Company will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any
Participating Broker-Dealer that requests such documents in the
Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the reasonable expenses
of one counsel for the holders of the Notes) other than
commissions or concessions of any brokers or dealers and will
indemnify the holders of the Notes (including any broker-dealers)
against certain liabilities, including liabilities under the
Securities Act.
58
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be
passed upon for the Company by Cleary, Gottlieb, Steen &
Hamilton, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of
December 31, 1997 and 1996 and for each of the periods in the
three-year period ended December 31, 1997 incorporated by
reference into this Prospectus, have been audited by KPMG Peat
Marwick LLP, independent auditors, as set forth in their report
incorporated by reference herein and are incorporated by
reference herein in reliance upon the report of such firm given
and upon their authority as experts in accounting and auditing.
Their report refers to the application of fresh start reporting
in connection with the '95 Reorganization.
59
<PAGE>
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No dealer, salesperson or other OFFER TO EXCHANGE
person has authorized to give any
information or to make any 10 1/4% SENIOR SECURED
representations other than those NOTES DUE 2003
contained or incorporated by WHICH HAVE BEEN
reference in this Prospectus, and, REGISTERED UNDER THE
if given or made, such information SECURITIES ACT
or representations must not be OF 1933, AS AMENDED,
relied upon. This Prospectus does FOR ANY AND ALL OUTSTANDING
not constitute an offer to sell or 10 1/4% SENIOR SECURED
a solicitation by anyone in any NOTES DUE 2003
jurisdiction in which such offer
or solicitation is not authorized, OF
or in which the person making such
offer or solicitation is not TRANS WORLD
qualfied to do so, or to any AIRLINES, INC
person to whom it is unlawful to
make such offer or solicitation.
Neither the delivery of this
Prospectus nor the sale made
hereunder shall, under any
circumstances, create an
implication that the informtion ----------
contained herein is correct as of PROSPECTUS
any time subsequent to the date ----------
hereof or that there has been no
change in the affairs of the
Company since the date hereof.
TABLE OF CONTENTS
Page
Available Information.........4
Incorporation of Certain
Documents by Reference......4
Forward-Looking Statements....5
Prospectus Summary............6
Risk Factors.................14
The Company..................26
Use of Proceeds..............27
The Exchange Offer...........28
Ratio of Earnings to
Fixed Charges..............35
Capitalization...............36
Selected Consolidated
Financial Data.............38
Description of Exchange
Notes......................40
Book-Entry, Delivery
and Form...................53
Certain Federal Income
Tax Considerations ........56
Plan of Distribution.........58
Legal Matters................59 July 31, 1998
Experts......................59
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